The Xmas gift from the banks

It seems more and more banks are jumping on the "no foreclosures for the holiday" bandwagon. While I agree with the sentiment it just makes for a big spike in the numbers come January and February. All these programs are not helping the prices anyway, because fundamentally prices need to return to sane levels. But they sure are putting the brakes on the correction. In my search's I am getting about 1/4 as many new listings per day than I did a few months ago. The prices are still coming down although probably more slowly now, but man the pickings are getting slim.


It seems like every day I read about another bank freezing foreclosures or hyping some workout program. Every bleeding heart liberal congressman/woman is putting forth some bill or another to thwart foreclosures. But foreclosures make up 70% of the sales in the IE. What is going to happen to the sales numbers if the inventory of foreclosures starts to dwindle? Do they really think people will start buying overprices resales again? Not a chance, even if they wanted to buy AND could qualify for the amount the appraisals will probably not support the price.

And what will happen to the market if all these foreclosure freezes drag on? It doesn't take a quantum physicist to see that if you remove the foreclosures you remove the market (at least in California anyway). The California Association of Realtors must be caught between and rock and the unemployment line. They want to do everything they can to prop up the prices yet the only things selling are foreclosures. When most of your members are making a living off these properties is it really in the organizations best interest to try and stop foreclosures? Do you want high prices and no sales? Maybe they should think back to when that was the situation. They don't have very far back to look, it was only last year. Remember 2007, high prices = no sales!

Re-Default rate running around 50%

Yes, you read that right. Indications are that 50% of those that get a loan modification are STILL defaulting. Check out the report from Diane Olick. The reasons are many. The booming unemployment rate is surely catching a few people. But more probably realized that they are signing up to be renters for 30 years with many of these new deals. And they are paying high rents as compared to actually renting a comparable home. I'm sure a few people were just using the rework process to buy more time in the home. Think about it, if you haven't been paying a mortgage for 9 months and then get a work out, you can then default again and get another 9 to 12 months of free rent. Sucha deal!

Also in the report, distressed sales (foreclosures and shorts) are now running 45% nationwide (although in the IE they are 70%).

Dos Lagos center can't make it's payments

More trouble for the Dos Lagos Shopping Center

If the Promenade Shops at Dos Lagos mall falls into foreclosure, a change of ownership is likely. But that won't be as important to the future of the south Corona shopping center as the ability of the upscale stores to withstand the battering of a weak economy and growing competition, retail experts said Friday.

Landlords for the two-year-old, 351,000-square-foot retail center beside Interstate 15 have missed two months of interest payments on a $125 million mortgage. The mortgage is in "imminent default" and being handled by the lender's special servicing department, a Credit Suisse analyst report said this week.

Poag said in the event of foreclosure, it would be up to CW Capital to decide what to do with the center. CW Capital representatives could not be reached to comment.

Stoffel said the Corona center is too geographically isolated and suffers from a shortage of upper-income customers as well as competition from more successful centers with similar "lifestyle" tenants, including Victoria Gardens in Rancho Cucamonga, the new Shoppes at Chino Hills and an expansion planned at The Promenade mall in Temecula. "Even if the economy were still going well, that center would have some issues getting higher sales volumes," he said.

Kaplan said the poor economy accelerated the failure of the center that he had predicted. Not only were the demographics subpar when the center opened, he said, but it had a visibility problem because it is below eye level from the freeway.

So what happens to the home values when this center becomes the "Rio Dos Lagos Swap Meet and Discount Mall"

IE unemployment hits 9.5%

Unemployment increased to 9.5 percent in Inland Southern California in October from 9.1 percent the previous month and 6.3 percent a year ago, the state Employment Development Department reported today.

One in 10 workers in Riverside County are now unemployed, and there are 22,000 fewer payroll jobs (1.7 percent) in the two counties than there were a year ago. Unemployment in San Bernardino County is estimated at 9 percent.

Yes, that is sure to help the housing market.....not.

From the LA Times

Surge in unemployment puts California's Inland Empire in tailspin.

If the Inland Empire is one of the birthplaces of the current recession, it is also at the forefront of the nation's growing pain over joblessness -- with the highest unemployment rate of any large metropolitan area in the country.

State numbers released Friday show the Riverside, San Bernardino and Ontario area is now suffering from its highest unemployment rate in 13 years at 9.5% in October -- 3 percentage points higher than the national rate and 1.3 points higher than the state's rate of 8.2%.

Ignited by the collapse of the local housing market, which decimated the construction and lending industries, the wave of unemployment has trickled into almost every area, including retail, manufacturing and local government.

Meanwhile, the percentage of people unemployed in the Inland Empire has more than doubled from a year ago, and some experts predict the situation will worsen before it improves.

"It's a perfect storm," said Brad Kemp, director of regional research for Beacon Economics, which recently conducted the second annual Inland Empire Economic Forecast Conference.

"It was one of the fastest-growing places in America," he said. "And when you have that kind of growth, you have the potential for loss."

The downturn has all but erased the glow of optimism the Inland Empire enjoyed only two years ago, when newly minted mansions and an array of upscale retailers fashioned parts of the region into a more affordable Orange County in the making.

In many cases, those developments are now symbols of the decline, from the sparsely populated outdoor malls to the rows of repossessed homes -- victims of housing price plunges of 35% in Riverside and 37% in San Bernardino in the last year.

All over, there are signs of reversed prosperity.

Ontario International Airport went from setting growth records to losing about a third of its airline traffic in the last year. To curtail costs, buildings and a parking lot were closed. And at night, one of its unused runways shuts off its lights.

Riverside County animal control officers are reporting an alarming surge in abandoned horses, a consequence of home foreclosures and the rising cost of feeding the animals, they suspect.

And San Bernardino-based Stater Bros., the chief grocer in the Inland Empire with 91 supermarkets, opened only half the number of stores it planned to unveil this year because of the slowing economy.

"We were selling a lot more Haagen-Dazs" during the boom, Chief Executive Jack Brown said. "Frankly, people are now buying more [no-frills] private label."

John Husing, who heads Economics & Politics Inc., an economic research firm specializing in the Inland Empire, says 2008 will be the first year the region has failed to increase its job base in the 44 years he's studied the area.

Even during the mass aerospace industry layoffs in the early 1990s, the Inland Empire was able to grow, mainly because the coastal counties lacked available land, he said.

Despite gains in international trade, warehousing and office space in recent years, the Inland Empire will not bounce back until its primary asset -- housing -- returns in value, Husing said.

The question, of course, is when that will happen. But Husing said the one positive of the epic and swift devaluation of residential property is that it will reach the bottom quicker.

"This is an interruption in the economy caused by a housing market detached from reality," said Husing, who traced 95% of the Inland Empire's lost jobs to the residential construction industry, from building material manufacturers to escrow agents to furniture sellers.

Kemp of Beacon Economics expects the unemployment rate in the Inland Empire to grow as high as 12.4% before coming down in the later part of 2010, largely because he believes consumer confidence could improve, leading to an increase in demand for the region's available space.

"If you look beyond the short-term losses, the Inland Empire is poised to see not only normal growth but accelerated growth," Kemp said. "It's the path for expansion in California."

But with the immediate outlook crumbling, the whiplash of change has jarred residents and officials who worry their communities are teetering on despair.

"You see less people at the restaurants and carwashes," said Riverside Mayor Ronald Loveridge. "There is real pain almost everywhere you turn. My daughter is a counselor at Riverside Community College and she told me she met a [student] whose house was up for foreclosure. Her last resort would have been to move in with her parents, but their home is up for foreclosure. All over there are statements of personal tragedy."

Two local banks go tits up today

In case you haven't heard Downey Savings and PFF Bank (Pomona First Federal) were taken over by the FDIC today (and sold). Downey has been on the verge for quite a while. They were big into the exotic loans and sold gazillions of them. Concequently they lost gazillions. PFF is a much smaller local bank with offices throughout the IE. These guys were hurt more by loans to builders which went bad. This one was a bit of a surprise because I remember reading that the bank had been sold to National Bank a few months ago. It looks like that deal might have been held off until now. US Bank, National Association will be taking both of these local operations over. This will save the FDIC some cash.



From the FDIC

U.S. Bank, National Association, Minneapolis, MN, acquired the banking operations, including all the deposits, of Downey Savings and Loan Association, F.A., Newport Beach, CA, and PFF Bank & Trust, Pomona, CA, in a transaction facilitated by the Federal Deposit Insurance Corporation.

The combined 213 branches of the two organizations will reopen as branches of U.S. Bank under their normal business hours, including those with Saturday hours. Depositors will automatically become depositors of U.S. Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.

Customers of both banks should continue to use their existing branches until U.S. Bank can fully integrate the deposit records of the organizations. Over the weekend, depositors can access their money by writing checks or using ATM or debit cards.

As of September 30, 2008, Downey Savings had total assets of $12.8 billion and total deposits of $9.7 billion. PFF Bank had total assets of $3.7 billion and total deposits of $2.4 billion. Besides assuming all the deposits from the two California banks, U.S. Bank will purchase virtually all their assets. The FDIC will retain any remaining assets for later disposition.

The FDIC and U.S. Bank entered into a loss share transaction. U.S. Bank will assume the first $1.6 billion of losses on the asset pools covered under the loss share agreement, equal to the net asset position at close. The FDIC will then share in any further losses. Under the agreement, U.S. Bank will implement a loan modification program similar to the one the FDIC announced in August stemming from the failure of IndyMac Bank, F.S.B., Pasadena, CA.

The loss-sharing arrangement is expected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers as they will maintain a banking relationship.

U.S. Bank currently has 353 offices in California. Downey Savings and PFF Bank are not affiliated with each other. Downey Savings has 170 branches in California and five in Arizona, and PFF Bank has 38 branches in California.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for Downey Savings will be $1.4 billion and $700 million for PFF Bank. U.S. Bank's acquisition of all the deposits of the two institutions was the "least costly" option for the FDIC's DIF compared to alternatives.

These were the twenty first and twenty second banks to fail in the nation this year, and the fourth and fifth banks to close in California. The last bank to be closed in the state was Security Pacific Bank, Los Angeles, on November 7, 2008.

October sales by city

Here's October sales by city report from DataQuick.

Riverside County	4,446	$230,000		$351,500	-34.57%
AGUANGA	3	$304,500		$222,500	36.85%
BANNING	56	$142,000		$264,500	-46.31%
BEAUMONT	146	$252,500		$322,500	-21.71%
BLYTHE	9	$280,000		$222,000	26.13%
CABAZON	3	$75,500		n/a	n/a
CALIMESA	2	$181,000		$265,000	-31.70%
CATHEDRAL CITY	84	$195,000		$330,000	-40.91%
COACHELLA	68	$196,000		$235,750	-16.86%
CORONA	508	$350,000		$470,000	-25.53%
DESERT HOT SPRINGS	107	$119,500		$234,500	-49.04%
HEMET	208	$154,000		$266,000	-42.11%
HOMELAND	5	$199,000		n/a	n/a
IDYLLWILD	9	$180,000		$320,000	-43.75%
INDIAN WELLS	14	$750,000		$1,217,500	-38.40%
INDIO	190	$230,000		$329,750	-30.25%
LA QUINTA	101	$305,000		$511,500	-40.37%
LAKE ELSINORE	170	$210,000		$320,500	-34.48%
MECCA	2	$110,750		$59,000	87.71%
MENIFEE	118	$242,000		$355,750	-31.97%
MIRA LOMA	48	$302,818		$475,000	-36.25%
MORENO VALLEY	529	$171,000		$341,500	-49.93%
MOUNTAIN CENTER	5	$235,000		$427,500	-45.03%
MURRIETA	326	$266,000		$395,000	-32.66%
NORCO	39	$390,000		$635,000	-38.58%
NORTH PALM SPRINGS	2	$41,500		$170,200	-75.62%
NUEVO	6	$187,000		$529,000	-64.65%
PALM DESERT	90	$350,000		$386,500	-9.44%
PALM SPRINGS	113	$267,500		$330,000	-18.94%
PERRIS	231	$168,500		$325,750	-48.27%
RANCHO MIRAGE	51	$435,500		$558,500	-22.02%
RIVERSIDE	512	$225,000		$395,000	-43.04%
SAN JACINTO	111	$170,000		$280,500	-39.39%
SUN CITY	146	$210,500		$314,500	-33.07%
TEMECULA	268	$309,500		$418,000	-25.96%
THERMAL	5	$180,000		$95,500	88.48%
THOUSAND PALMS	8	$130,000		n/a	n/a
WILDOMAR	81	$280,000		$379,500	-26.22%
WINCHESTER	69	$265,450		$391,500	-32.20%

San Bernardino County	2,872	$200,000	$330,000	-39.39%
ADELANTO	90	$122,250	$260,000	-52.98%
APPLE VALLEY	125	$150,000	$260,000	-42.31%
BARSTOW	29	$95,000	$129,000	-26.36%
BIG BEAR CITY	36	$210,000	$259,000	-18.92%
BIG BEAR LAKE	43	$335,000	$365,000	-8.22%
BLOOMINGTON	35	$150,000	$490,000	-69.39%
CEDAR GLEN	5	$153,000	n/a	n/a
CHINO	91	$320,500	$464,000	-30.93%
CHINO HILLS	80	$462,500	$595,000	-22.27%
COLTON	68	$159,000	$303,000	-47.52%
CRESTLINE	24	$122,500	$250,000	-51.00%
FAWNSKIN	3	$390,000	n/a	n/a
FONTANA	402	$248,750	$415,000	-40.06%
FOREST FALLS	3	$235,000	$167,500	40.30%
GRAND TERRACE	12	$241,250	$322,000	-25.08%
GREEN VALLEY LAKE	2	$157,500	$222,500	-29.21%
HELENDALE	14	$158,000	$305,000	-48.20%
HESPERIA	190	$165,000	$275,000	-40.00%
HIGHLAND	74	$222,000	$370,000	-40.00%
HINKLEY	2	$71,250	$152,500	-53.28%
JOSHUA TREE	16	$139,500	$181,250	-23.03%
LAKE ARROWHEAD	34	$310,000	$395,000	-21.52%
LOMA LINDA	23	$335,500	$425,000	-21.06%
LUCERNE VALLEY	9	$150,000	$170,000	-11.76%
LYTLE CREEK	2	$172,500	$175,000	-1.43%
MENTONE	17	$315,000	$370,000	-14.86%
MONTCLAIR	49	$241,000	$355,000	-32.11%
MORONGO VALLEY	5	$124,500	$130,000	-4.23%
NEWBERRY SPRINGS	2	$95,000	$135,000	-29.63%
ONTARIO	165	$233,000	$367,500	-36.60%
PHELAN	21	$200,000	$370,000	-45.95%
PINON HILLS	5	$272,000	$242,500	12.16%
RANCHO CUCAMONGA	190	$350,000	$450,000	-22.22%
REDLANDS	59	$253,500	$402,500	-37.02%
RIALTO	135	$190,000	$319,500	-40.53%
RUNNING SPRINGS	8	$171,000	$349,000	-51.00%
SAN BERNARDINO	285	$120,000	$260,000	-53.85%
SUGARLOAF	14	$139,000	$215,500	-35.50%
TWENTYNINE PALMS	25	$115,000	$140,000	-17.86%
TWIN PEAKS	3	$180,000	$242,500	-25.77%
UPLAND	55	$393,000	$504,500	-22.10%
VICTORVILLE	305	$158,000	$275,000	-42.55%
WRIGHTWOOD	7	$200,000	$276,500	-27.67%
YUCAIPA	61	$260,000	$364,500	-28.67%
YUCCA VALLEY	39	$122,000	$210,000	-41.90%

Oh so close

Here's the latest numbers from Dataquick. Last month San Berdu's median price was $205K and Riverside was $237,500. That puts the monthly decline at 2.5% for San Berdu and just over 3% for Riverside. Foreclosures made up 68% of the Riverside sales and over 65% or the SB sales. That kinda makes you wonder whats going to happen to the sales numbers if the number of availible foreclosed properties continues to diminish due to AB1137. I doubt that will be an issue. Once banks get caught up I expect the foreclosure numbers will climb right back up again.

Once again the report makes headlines about how much better than last year sales were. Well yes they were, but last year was the worst year since the great flood in 2000 BC (They did mention is was the second worst october since 96 though).

San Berdu's median is oh so close to breaking $200k! Riverside's median peaked at around $420K in late 2006 so we are close to 46% off peak. I think we have another30K to 50K still to go before we level off in Riverside, maybe slightly less in San Berdoo.

Sales Volume			Median Price
All homes				Oct-07	Oct-08	%Chng
Los Angeles				$500,000	$355,000	-29.00%
Orange				$573,750	$420,000	-26.80%
Riverside				$356,300	$230,000	-35.40%
San Bernardino				$330,000	$200,000	-39.40%
San Diego				$460,000	$323,500	-29.70%
Ventura				$535,000	$375,000	-29.90%
SoCal				$445,000	$300,000	-32.60%

The WTF award of the week

Most agents have long ago come to the realization that Perris has tanked. It's pretty rare these days to come across a listing in Perris over $300K, hell most should be under $200k. I'm fairly sure the median of Perris is now under $200k. So it was a surprise to run across this listing today.

922 Hereford Way, Perris. This home is over in/near the Villages of Avalon, below the dam at Lake Perris. This is a large ranch style home that's just over 3000 sq/ft on a 1/2 acre lot. It has 3 bedrooms and 2.5 baths. This home sold in Oct 2006 for $635K!! Yes, you read that right $635K in freakin Perris. It looks like the bank too it back in July for $345k. It's now listed for $399K or $133 a sq/ft. That is an insane price for the area. The average listing in that area is about $80 s/f with many down in the $60s. It might be worth a little more because of the large lot but WTF is the listing agent thinking pricing this turd at $400k.

Now check out the picture. You'd think the agent could have cropped the picture in order to not show the Graffitti on the garage door. Is the other door missing? Probably the listing does say it's a fixer. A $400k fixer in Perris..........

Hope for Homeowners....not so much

Remember the October bailout "Hope for Homeowners". This is the one the offered FHA backed loans to struggling homeowners. The banks were to write down the principal balance to 90% of current value and the FHA would then insure the loan. When the borrowers sold the FHA was to get 50% of the profit. It was hyped that this would help 400,000 people stay in their homes.

Now for the reality part
by Diana Olick

I’ve just seen the latest numbers on the recently launched government Hope for Homeowners program, and I’d call them laughable if the whole thing weren’t so blatantly sad.

Hope for Homeowners was launched Oct. 1 as part of the Housing and Economic Recovery Act signed into law on July 30,2008. Proponents used a Congressional Budget Office estimate of 400,000 homeowners that could be helped over three years. The latest projection was that 19,000 applications would be received in the first year.

The program works like this. A borrower in trouble contacts the lender, and the lender agrees to write down the principal to 90 percent of the current value of the property. They then get a new FHA insured loan. In return, when the borrower eventually sells the house, the government gets half the equity that is created after the new loan begins: in other words any appreciation. FHA will insure up to $300 billion in new loans.

Well I doubt we’re all going to have to worry about that $300 billion. Here’s the reality: In the last two weeks, FHA received exactly 69 applications to the H4H program. Since the start of the program, a little over a month ago, it has received 111. Now I’m no mathematician, but that doesn’t exactly extrapolate out to 400,000 over three years or even 19,000 over one year or even over a few months. In fact, HUD took the projections out of the release.

How far out of whack did prices get?

How far out of whack did prices get? And how far do they still need to fall?

I've posted many charts and graphs in the last year showing how far out of whack prices got. Those charts all show the median priced home was between 2.3 and 3.2 times the median income over the last 40 year. Today I did a little number crunching using the NAR's median price numbers and the California franchise tax boards numbers.

In 2001 the median family income in the IE was $51,036 according to the tax man. The NAR data shows the median priced home in the IE was $135,940 in 2001. That gives a ratio of 2.66x the median income. That's right in the middle of the average long term range. If only it had stayed there!.

2002 was when things became unhinged and 2003/2004 was when it really went off the charts. By 2006 the median priced home in the IE was $415k but the median income had only risen to $53,508. Bringing the ratio to 7.75x the median income. Riverside was actually higher than that. Our median peaked at about $465k putting Riverside closer to 9x the median income.

Currently the median priced home is around $225k for the IE. The median income is probably less now than it was in 2007 due to all the job losses. But using the 2007 number we still get a ratio of 4.20x the median income. That's still about 36% higher than in 2001.

You can see why I believe homes will come down to 2001 prices. That's where we fall back into the traditional ratios. Prices are very likely to overshoot on the way down. They may fall back to 1999 prices. Who knows for sure. When it comes to the future we are all just guessing.

1/2 off in Elsinore

Like most of Southern Riverside, Lake Elsinore is racing back to pre-bubble pricing levels. If you don't mind driving a few miles down the 15 fwy there are some very nice homes at reasonable prices in this area. Elsinore is not the very best of cities but it's better than some of the other areas where prices have fallen a similar amount (like Perris or Hemet).

Here's a few that hit the market today that seem to be reasonably well priced.

First up is 51 Plaza Avila in Tuscany Hills. This home was built in late 2004 and sold new for $566k. That's at least a year and a half before the peak. So Peak value of this home was probably nearer to $650k. It's a 4 bedroom, 2.5 bath home, 3235 sq/ft. It's listed as an REO for $265K. That's $82 sq/ft. that is a 53% drop from the original purchase price and closer to 60% from peak value.



In the same area is 46 Via De La Valle. This home is a 4 bedroom, 4.5 bath home, 3404 sq/ft. It sold new in late 2004 for $535k and it sold again in late 2006 for $670k. This one is also hitting the market as an REO. Priced at 55% off the last sales price its listed for $299,900.



47 Plaza Avila is in the same tract just down the road from home #1. It's a 5 bedroom, 4 bath, 3493 sq/ft. It was purchased new in late 2004 for $572k. That guy was lucky enough to unload this to some poor schmuck in early 2007 for $587k (the buyer obviously didn't do his research).Of course, it's owned by the bank now and listed for $285k, also $82 sq/ft. That is a loss of 51% from the last sale. This is a nice looking house from the pics!



This tract is getting pummeled. Plaza Avila at one end has 5 of the first 6 homes on the street for sale. The mid $80 sq/ft range seems to be where most are priced.

Wow, finally someone gets it!

From Businessweek

Modifying mortgages is just a band-aid

The flurry of announcements by the government and major banks that they are engaging in a massive campaign to modify mortgages that are in or are hurtling toward default and foreclosure will certainly give rise to predictions that the housing market has been stabilized and disaster averted. If only it were so.

But anyone hoping that this synchronized effort to modify millions mortgages that are in trouble is likely to be disappointed. Because behind the splashy headlines, there are limits to what the government and banks can hope to achieve. And trying to slow the free-fall in housing markets is akin to the government trying to put its finger in the dike.

The fact is that despite the double-digit declines in housing values in most cities, housing remains significantly overvalued in many markets by all of the traditional benchmarks: One key ratio – the median cost of a new home vs. median income – suggests that home prices nationwide still need to drop another 15% to 20% on average, as you can see in this chart compiled by money manager Barry Ritholtz. And the equilibrium price is far more than that in bubble markets like southern California and Florida. According to this “fair value” calculator, one suburban neighborhood outside Washington, D.C. that I checked (Alexandria, Va., where I lived in the mid-1990s) is now 47% overvalued. Ditto for a few communities in Los Angeles that I surveyed.

A second measure – home prices to average rent –also remains out of whack, and would require another 20% to 25% plunge in home prices to make it more advantageous for the average apartment dweller to buy a home instead, particularly now that few homeowners have any illusion that their house is an “investment” that’s going to soar in value in coming years.

Providing relief to current homeowners who are in trouble is a politically expedient move, but at the end of the day, prices are still far too high for the next generation of buyers – particularly now that lenders have reverted back to demanding hefty down payments and using more conservative underwriting standards. Which means that the current imbalance in supply and demand will remain a problem and help push prices down for years to come.