Sunday, June 27, 2010

Saturday, June 26, 2010

The biggest loser.....

It's been a while since we saw a house here so lets take a look at a home that has fallen in value a whopping 63%. 16622 Catalonia Dr is a 5400 s/f Mcmansion up in Woodcrest. This behemoth sold new in Dec. 2006 for $1.381 million. Today it is listed at $512k. It's an REO now so no short sale BS to deal with. The price is solid based on comps so I don't think it will get bid way up. I'd say this area has "corrected" back to about where it would have been had there been no bubble.

I've looked at quite a lot of this model in this tract. I'd never buy one of them though. They are just way too big. If you have a family of 20 or yearn for the MTV "Cribs" lifestyle then these might be for you. I'd prefer something I can afford to maintain, heat, cool, etc.

Friday, June 25, 2010

Wednesday, June 23, 2010

New home sales down 33%

A day after that shocking 25% drop the news that new home sales were even worse hit the airwaves today. New home sales dropped by 1/3rd. The end of the tax credit seems to have absolutely killed the market in most of the country. Good thing Arnie and the Sacromentacrats think throwing another 200 million at the housing market is a good idea. I think it's fairly obvious that all the credits do is pull future sales back. Then when the tax credits end the crap really hits the fan.

In other news Fannie gets tough....... Ok, so not really. They are coming out with new rules making any strategic walkaways ineligible for a Fannie loan for 7 years. Oh stop it, I can't stand the pain....
They also say they will financially pursue people if they have the option. In Cali they really don't so it doesn't matter here.

And Obama is throwing another 1.5 Billion at the housing market (700 million in Cali). This is more money down the drain to try and get more mortgage mods done. After all the 75 Billion mortgage assistance program has been so successful why not expand it. I mean the redefault rate is only running about 52% after a year. That's good right?

Tuesday, June 22, 2010


News headlines can leave you scratching your head. Like this one from the Press Enterprise.

"It was yet a different story in Riverside and San Bernardino counties, Kleinhenz noted, where last month sales dropped 25 percent from a year earlier despite the eagerness of buyers to take advantage of dual tax credits."

"Inland area sales down 25% from a year ago". Say what, Dataquick's May report has IE sales down roughly 7%, so how can another report have the sales down 25%. Reading the article it's hard to tell but this is actually just existing homes (no new homes). Still that's a pretty shocking number if it's true. Of course the Tax credit expired so that will have something to do with the drop in sales. But a drop of 25% is a scary number, it means the market is pretty damn BAD. With only a week left to close and still get the tax credit you have to wonder what the sales will be like next month.

Even with sales tapering off (when they should be climbing due to the summer buying season) I don't see the inventory climbing much. There's still a shortage of decent properties at decent prices. There's lots of mediocre or trashy homes priced way too high but few nice homes. REO's are still few and far between. The forecast "flood" of REOs so far has not materialized. Short sales are still the majority of the listings. Even with the Obamanomics plan to speed short sales they are still a royal pain in the butt to deal with.

So far this year nothing has gone as anyone expected. No flood of foreclosures when the moratoriums and workout plans ended. Rates didn't shoot up when the MBS program ended, in fact they've actually gone down (sure much of that was due to the stock market crashing again). And the expected flood of sales from the end of the tax credit also isn't materializing. It seems like we are experiencing "opposite day" (sorry for the sponge bob reference) but our opposite day is lasting a year........

Tuesday, June 15, 2010

May numbers

The May numbers from DQ are out ans they show quite a comeback. But even DQ admits this is primarily due to the higher end homes starting to move along with fewer low end homes selling. The numbers for the IE are a mixed bag. The sales numbers (which are a better gauge of market health) don't look good. Normal increase from April to March is about 6%. This we we barely cracked 1% increase. Prices increase quite a bit, but again this is probably due to the drop out of the low end of the market when the tax credit expired.

Southern California home sales rose last month in all but the lowest price categories as buyers took advantage of tax credits and low mortgage rates. The median price paid topped $300,000 for the first time in 20 months, largely because the ultra bargains have been drying up in the low-cost inland areas while sales have increased in the pricier coastal neighborhoods, a real estate information service reported.

A total of 22,270 new and resale houses and condos closed escrow in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 9.7 percent from 20,299 in April, and up 7.2 percent from 20,775 in May 2009, according to MDA DataQuick of San Diego.

May sales were the highest for that month since May 2006, but they still fell 15.0 percent short of the average number sold in May since 1988, when DataQuick’s statistics begin. The 9.7 percent increase in sales between April and May compares with an average change of 6 percent since 1988.

The combination of tax incentives and low mortgage rates helped stoke sales in mid- to high-end areas, where distress has increased over the last year and sellers have become more motivated and realistic.

Meantime, sales have fallen in many affordable inland communities. In May, zip codes in the bottom one-third of the market, based on their historical prices, saw resales of single-family houses drop 3.9 percent from April and drop 16.2 percent from a year earlier. Part of the decline reflects the dwindling foreclosure inventory, which had been the major draw for first-time buyers and investors. In the upper one-third of the market by price, May resales climbed 10.8 percent from April and rose 21.7 percent from last year.

This shift toward more high-end sales helped the Southland median jump $20,000 between April and May and $56,000 between this May and May 2009.

“The important thing to remember, though, is that what we saw in May was partly driven by government stimulus,” he continued. “In the second half of the year the market will have to stand on its own again, barring new forms of government involvement. Prices will be tested if there’s any sudden move by lenders to release a flood of distressed properties.”

Foreclosure resales accounted for 33.9 percent of the resale market last month, down from 36.4 percent in April and 49.8 percent a year earlier. The all-time high for foreclosure resales – homes that had been foreclosed on in the prior 12 months – was 56.7 percent in February 2009. Foreclosure resales have waned over the last year as lenders have channeled more distress into loan modifications and short sales.

Sales Volume Median Price
All homes May-09 May-10 %Chng May-09 May-10 %Chng
Los Angeles 6,521 7,320 12.3% $300,000 $345,000 15.0%
Orange 2,667 3,257 22.1% $410,000 $450,000 9.8%
Riverside 4,414 4,164 -5.7% $180,000 $210,000 16.7%
San Bernardino 3,134 2,835 -9.5% $137,000 $160,000 16.8%
San Diego 3,242 3,879 19.6% $295,000 $340,000 15.3%
Ventura 797 815 2.3% $355,000 $380,000 7.0%
SoCal 20,775 22,270 7.2% $249,000 $305,000 22.5%

Monday, June 14, 2010

The ups and downs in the IE

I noticed was running again after being offline for a while. Looking at the median listing price data it looks to be pretty stable over the last year or so at $240k. It's kinda fun looking at the numbers and seeing the peak in 2006 at over $460k. Then the crash to the low in early 2009 of $217k. It's crept up to the current $240k in the summer and fall of 2009. In the areas I watch the prices seem to have leveled out. There have been a few great deals closed compared to the comps but these all look like inside deals. Most (if not all) of them never hit the open market. Fraud? I'm sure quite a few of them were technically fraudulent. But other than those the sales prices are about the same today as in late 2008.

The inventory numbers are another fun set to look at. We hit a high of nearly 60,000 in late 2007 when the market seized up as prices fell, buyers vanished and lending dried up. The inventory started to fall once the government started all the bailout/workout BS. The low water mark for inventory was around the holidays last year. We have been creeping up ever since. Banks are starting to ramp up the foreclosures (more slowly than anticipated though). Short sales are now being encouraged by banks and that's also helping pump up the numbers. We are getting close to 32,000 but there is still a serious shortage of good properties. I'm seeing lots of overpriced listings and lots of trash. The pearls are few and far between.

For you history buffs, here's the data for the last few years.

Jun 2010 31,100 $150,750 $242,450 $422,500
May 2010 30,478 $150,600 $240,960 $420,180
Apr 2010 29,844 $149,950 $237,975 $412,450
Mar 2010 27,466 $149,910 $235,000 $399,978
Feb 2010 25,888 $147,675 $230,975 $398,225
Jan 2010 25,155 $147,450 $229,225 $397,500
Dec 2009 25,435 $149,225 $232,125 $403,737
Nov 2009 26,575 $149,920 $238,400 $420,010
Oct 2009 27,569 $149,175 $236,250 $423,450
Sep 2009 27,493 $149,925 $239,500 $435,988
Aug 2009 28,410 $148,882 $237,880 $431,400
Jul 2009 29,257 $147,313 $235,225 $429,250
Jun 2009 30,584 $144,980 $229,760 $414,790
May 2009 32,614 $143,725 $225,000 $401,973
Apr 2009 35,365 $140,000 $219,850 $387,500
Mar 2009 38,625 $139,960 $217,080 $369,580
Feb 2009 40,003 $143,125 $219,148 $364,750
Jan 2009 41,594 $148,976 $222,615 $364,140
Dec 2008 43,995 $155,997 $228,843 $371,270
Nov 2008 45,466 $162,791 $234,869 $378,171
Oct 2008 47,030 $169,812 $241,097 $385,301
Sep 2008 48,794 $179,945 $253,064 $396,132
Aug 2008 48,928 $189,183 $264,707 $410,471
Jul 2008 50,281 $198,565 $274,909 $423,742
Jun 2008 50,874 $209,673 $291,266 $445,107
May 2008 51,306 $220,983 $308,857 $455,220
Apr 2008 52,578 $237,943 $319,005 $475,726
Mar 2008 53,200 $252,057 $336,952 $493,538
Feb 2008 53,347 $265,768 $352,536 $507,636
Jan 2008 53,971 $277,607 $366,177 $518,359
Dec 2007 55,808 $289,994 $374,137 $534,693
Nov 2007 58,257 $301,146 $387,907 $546,581
Oct 2007 57,873 $312,784 $398,326 $561,045
Sep 2007 59,183 $317,841 $407,566 $564,659
Aug 2007 56,879 $328,547 $415,993 $578,136
Jul 2007 56,592 $337,269 $423,300 $592,323
Jun 2007 55,370 $341,823 $426,332 $601,018
May 2007 53,371 $347,533 $434,838 $609,832
Apr 2007 51,233 $350,796 $440,705 $615,759
Mar 2007 46,932 $354,807 $444,272 $620,370
Feb 2007 44,865 $355,285 $444,140 $620,370
Jan 2007 41,962 $355,100 $444,712 $620,370
Dec 2006 44,794 $358,810 $445,173 $620,370
Nov 2006 47,124 $359,605 $445,463 $621,387
Oct 2006 48,067 $360,038 $449,609 $621,387
Sep 2006 47,561 $363,553 $450,500 $621,457
Aug 2006 46,408 $365,700 $453,627 $625,172
Jul 2006 44,460 $369,940 $456,393 $636,981
Jun 2006 41,618 $370,894 $460,939 $643,759
May 2006 38,227 $370,894 $461,100 $649,048
Apr 2006 35,332 $370,576 $461,100 $652,575

Now do you think prices have bottomed? The inflation adjusted price chart from Schiller still puts prices the highest they've been in the last 130 years. Of course that chart does not factor in the size of the homes or any other changes to the home. It just takes the median price (adjusted for inflation). Since homes are probably at least twice the size and have many more features, you could certainly make the argument that they could be less expensive. I'd say the chart is useful for entertainment purposes only or possibly useful if used on a cross section of older homes. But using it across the board when in the last 10 to 20 years the size and extravagance of homes has gone way up isn't practical.

Wednesday, June 9, 2010

Delusional builders

With the shortage of homes and the competition to buy the good ones a few builders are throwing up sticks again. The prices they are asking leave me scratching my head wondering how they will sell any. But remarkably enough people seem to be buying them. How they are getting loans is beyond me.

Pacific Homes has started building again in Moreno Valley. They had folded this tract up for a couple of years but I noticed they were building again when I was over playing golf at The Ranch GC. They were asking nearly $700k for these at the peak. Now they are asking just over $400k. But that is still nearly $100 s/f (in MoVal?). The average price in this area is closer to $80 s/f. So purchasing one of these new homes puts you about 20% underwater the minute you take the keys. It's like buying a new car.

26891 Cimarron Canyon is a new home and it's mini McMansion in this tract. Not done just yet but the builder has it listed for $409k or $97 s/f

Or you can buy 26991 Cimarron Canyon. This home was built in 2007 and sold for $571k, which was a good deal at the time because they were asking a lot more for these just a few months prior to that. But this one has already gone back to the bank and is offered as an REO for $312k or $75 s/f. The house looks nice, it's not thrashed it's just priced in line with most of the other stuff in MoVal.

So how do builders figure they can get 20% more for the same house? How to people get loans on these things? There's no way a legitimate appraisal will come in at those new home prices. And what the hell are they doing building more 4000 s/f homes?

Sunday, June 6, 2010

Tax credits be gone.....

What happened in the rest of the country when the tax credits went away? A big drop in sales is what happened. California managed to buck the trend because of the new $10k state tax credit. But this too will expire and then what. It help keep the market moving for another few months and then what. It's already been proven that all these credits do is bring sales forward. People that might rather buy next year will buy this year to get that free money (I would too).

From the WSJ

How will housing sales fare without the benefit of big tax breaks for home buyers? The early indications are that sales are down very sharply in recent weeks, worse than most brokers and analysts expected.

Of course, economists and real estate analysts expected home sales to slow after the tax credit, of as much as $8,000, expired at the end of April. But early data from real estate brokers indicate that the sales declined as much as 25% to 30 from the year-earlier levels in some markets.

Without the tax bait, “consumers just don’t have that same sense they have to move quickly,” said Patrick Lashinsky, CEO of ZipRealty Inc., a big brokerage firm.

The May slump is ominous, but it’s too early to tell whether it portends another serious downward lurch in a market that has generally been leveling off over the past year.

Despite the recent drop in mortgage rates to less than 5%, applications for home-purchase mortgages have fallen in each of the last four weeks. In late May they were down nearly 40% from a month before, reaching their lowest level in 13 years, according to the Mortgage Bankers Association.

Even the Realtors are acknowledging that things look dicey. Lawrence Yun, chief economist for the National Association of Realtors, estimated that contracts signed for home resales in May were down 20% to 30% from a year earlier. He expects June and July to remain fairly weak and will be watching nervously for signs of a rebound in August or September. “Housing cannot just depend on [government] stimulus forever,” Mr. Yun said.

Home-purchase contracts signed in New Jersey last month were down 25% from a year earlier, estimates Otteau Valuation Group, an appraisal firm in East Brunswick, N.J. New Jersey’s state legislature is considering its own tax credit for home buyers.

In the Minneapolis area, the number of newly signed home-purchase contracts in the week ended May 22 was down 30% from a year earlier, according to the Minneapolis Area Association of Realtors. “Our buyers, if they haven’t purchased, have just decided to wait,” said Brad Fisher, president of the local Realtor group.

In the Phoenix area, contracts signed in May plunged 26% from a year earlier, local Realtor data show. In Denver, the drop was 27%. Northwest Multiple Listing Service, which covers 21 counties in Washington state, including the Seattle area, reported Friday that contracts signed in May also were down 27% in its region.

In another sign of weak sales, the number of homes on the market is growing again. ZipRealty said the number of homes listed for sale in 26 major metro areas across the U.S. in May was up 1.7% from April. In a typical May, the inventory doesn’t increase from April, according to Ivy Zelman, chief executive of Zelman & Associates, a research firm.

California’s state tax credit of as much as $10,000, which ends Dec. 31, has helped sustain sales there. Contracts signed in May in the Los Angeles region were up 16% from a year earlier (but down 9% from April), while San Diego was down 3% from year-ago levels. San Francisco’s East Bay was up 2%, while the Napa Valley region posted a 15% gain from one year ago (but a 14% month-over-month decline).

Wednesday, June 2, 2010

Huge incentive to walk away

Even the guys at BofA know it......

In the conference call this morning, BofA's credit loss mitigation executive, Jack Schakett, said the amount of strategic defaulters (those who can pay their loans but opt not to) are "more than we have ever experienced before." He went on to say, "there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers."

Schakett says the foreclosure process is still taking 13 to 14 months (and by my estimates that's an optimistic assessment), and so there's over a year of free rent. While the banks are trying to improve the time, they're just not there yet.

31 percent of foreclosures in March were deemed to be "strategic default" by researchers at University of Chicago and Northwestern University. That's up from 22 percent in March of 2009. We already know that mortgage walkaways are more prevalent among borrowers whose neighbors or friends have done the same thing. We also learn from those same researchers that the likelihood of walking away increases by 23 percent when homeowners learn that a neighbor got some principal forgiveness.