Wednesday, April 13, 2011

March numbers from DataQuick

The March report is out and the IE is holding steady median price wise. Sales numbers are down quite a bit from last year though. In addition to the low sales numbers over a quarter of all sales are to investors (and that number is probably much higher in the IE). So the "normal" market is really very bad!

Southern California home sales turned in another lackluster month in March, the result of a fussy mortgage market, slow job growth and a continued wait-and-see attitude among potential buyers and sellers. There were signs, however, that the market was a little less dysfunctional than in recent months, a real estate information service reported.

A total of 19,412 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in March. That was up 35.1 percent from 14,369 in February, and down 5.2 percent from 20,476 in March 2010, according to DataQuick of San Diego.

Sales always increase from February to March. Last month’s sales count was 21.4 percent below the 24,706 average for all the months of March since 1988. Sales so far this year are 20 percent below the norm. During the last half of 2010 sales were 25-30 percent below average.

Sales of newly built Southland homes totaled 1,144, the lowest March in DataQuick’s statistics, which go back to 1988. The peak March was in 2006 with 7,205 sales. The March new-home average is 3,661.

The median price paid for a Southland home last month was $280,500, up 2.0 percent from $275,000 in February, and down 1.6 percent from $285,000 for March a year ago.

“As an indicator of upcoming trends, the month of March is actually pretty reliable. We got off to a slow start with sales this year and it doesn’t look like that will change anytime soon. Two of the likely game changers in the short run would be a surge in job creation or another round of price corrections,” said John Walsh, DataQuick president.

“The foreclosure issue is going to be with us for a good while. But mortgage availability, or rather the lack thereof, is key. If a well-crafted home loan program comes down the pike, it’s going to make some lending institution the dominant player, at least for a while,” he said.

Absentee buyers – mostly investors and some second-home purchasers – bought 26.0 percent of the Southland homes sold in March, paying a median $205,000. The absentee share of the market reached a peak in February at 26.4 percent. Over the last decade, absentee buyers purchased a monthly average of 16.3 percent of homes.

Cash purchases accounted for 30.5 percent of March home sales, paying a median $205,250. The cash purchase share was down from 32.3 percent in February, the all-time high, but up from 27.9 percent a year earlier. The 10-year monthly average for Southland homes purchased with cash is 13.3 percent. Cash purchases are where there was no indication in the public record that a corresponding purchase loan was recorded.....

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,185 last month, up from $1,174 in February and down from $1,220 in March 2010. Adjusted for inflation, current payments are 48.0 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 57.4 percent below the current cycle’s peak in July 2007.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years. Financing with multiple mortgages is very low, and down payment sizes are stable, DataQuick reported.

Sales Volume Median Price
All homes Mar-10 Mar-11 %Chng Mar-10 Mar-11 %Chng
Los Angeles 6,747 6,590 -2.3% $329,000 $320,000 -2.7%
Orange 2,652 2,615 -1.4% $432,000 $430,000 -0.5%
Riverside 4,156 3,843 -7.5% $198,000 $198,000 -0.0%
San Bernardino 2,955 2,544 -13.9% $152,000 $150,000 -1.3%
San Diego 3,227 3,063 -5.1% $330,000 $325,000 -1.5%
Ventura 739 757 2.4% $375,000 $349,000 -6.9%
SoCal 20,476 19,412 -5.2% $285,000 $280,500 -1.6%

Monday, April 11, 2011

Got gas?

Many see the cost of petroleum as the biggest hurdle to our so called economic recovery. I certainly agree that it's a serious problem and one that will certainly hurt any recovery. The high cost of gasoline will benefit a few oil companies and their shareholders. But the rest of us are getting squeezed and any extra disposable income is going into the gas tank rather than the economy. Eating out will certainly take a hit. Restaurants will probably be one of the first to see the effect of less disposable income. We have already cut back from going out two or three times a week to just Friday nights. Both my wife and myself drive huge gas guzzling, ozone destroying SUV's and spending $90 per fill up hurts a little. Our fuel bill is now well north of $500/mo (our cars are paid off so buying a new car is not an option right now).

Anyone that does any grocery shopping knows how much food has gone up, regardless of the phony inflation numbers Washington puts out. As fuel prices go up the cost of everything we buy will continue to go up. Of course our wages will not keep up. I was fortunate this year and got a whopping 2.8% raise which after taxes increased my check about $40. Unfortunately my medical went up, my life insurance went up, the cost of fuel, food and everything else went up. I figured it all out and even with a $80/month raise it hardly offsets the fact that my fixed monthly expenses increased nearly $470. So even with a raise I am $390/mo poorer than I was last year. That's $400 a month less I have to spend on fun stuff. What's the world coming to? Am I gonna have to drink cheaper scotch, smoke cheaper cigars, play crappier golf courses.

What will the high cost of Gas do to the real estate market out here. Most of the people in the IE work a long way from home. So is buying a home in the far flung areas like Hemet or San Jacinto a feasible option with gas at $4 or $5 a gallon. It might force people to carpool but that's not an option for a lot of people. I think it will take high gas prices for a year or more before it starts to affect the prices. Most people expect the price of gas to come back down and it will take a while to change that mindset. But once it changes will there be any buyers for those distant suburbs?

Sunday, April 10, 2011

Research show's we've over-corrected!

An interesting article in the Press about a new investment group buying up homes in the IE. They feel prices have over-corrected and they plan to buy, rent for a few years and sell. Of course they are picking up stuff for cash at the trustee sale. I would agree if you have cash and can purchase at the trustee sale then yes, you are paying less than the actual market value. But has the market value over-corrected? I don't think so. All the numbers I look at are saying the fundamental ratios are very close to long term trend values when looking at income or rental ratios.

TwinRock Partners is headed by two managing partners: Mike Meyer, an Orange County real estate accountant who has advised the likes of Irvine Co. owner Donald Bren, and Alex Philips, a seasoned real estate acquisition and investment analyst.

Meyer and Philips said their research shows that the Inland Empire's home prices have "overcorrected," making this a smart time for investors to buy foreclosed houses and hold them as rentals in anticipation that values will rebound substantially in the next five to seven years.

So far TwinRock has purchased 22 homes in Moreno Valley, Riverside, Corona, Rialto, San Bernardino, Highland, Murrieta, Wildomar and Temecula, and the company has plans to buy several hundred more, said Meyer.

Earlier this year, TwinRock put together a $6 million fund to enable the company to buy about 40 Inland homes and it is getting ready to raise another $15 million, Philips said. The firm's investment model primarily calls for buying houses with cash at trustee auctions conducted each weekday at Inland courthouses, he said.

Money to buy the houses is coming from sophisticated investors with knowledge of real estate including homebuilders, land developers, bankers, lawyers, accountants and wealth managers, he said.

Bruce Norris, who heads The Norris Group, a Riverside-based real estate investment company, said most houses sold at trustee auctions are purchased by investors who intend to quickly sell them at a profit that is greater than the return they could expect from buying houses and holding them as rentals before reselling them.

Still, Norris agreed that currently "it makes sense to buy because the houses are priced below their replacement cost." He said TwinRock "will make money, I'm sure."

Monday, April 4, 2011

how to lose 65% in 4 years

The most obvious sign of bubble mania for me was stopping in at a new tract in Moreno Valley in Early 2007 and seeing prices of $700k. These were nice big homes on 1/2 acre lots but they were still in MORENO VALLEY. And get this, $700k got you VINYL flooring in the kitchen and bathrooms. You needed to drop another $50k to $100k to make these houses nice. So here we are 4 years later and they are selling for 65% off.

28615 Dracaea This was the smallest home in the tract at 3500 s/f. Some poor schmuck paid $717K for this house. He must have put a few upgrades in because the small model was "only" selling for around $670K when I looked. Well HAMP and HARP and HOPE and whatever else failed to keep this one from going "back to bene". Even at $253,800 they could not find a taker on the courthouse steps. Now it's listed for $249k. That's 65% off of the ridiculously overpriced original sale. Now at $249k this is probably a pretty decent deal if you don't mind living in MoVal.

By the way, they stopped building these for about 2 years and then threw up the final few homes last year. They still managed to find buyers willing to pay over $400k for that new house smell. They were easily upside down $100k the minute they signed the papers...... A sucker born every minute......