Data quick June sales report

DataQuick has released the June report. The only bright spot is that sales are up in the IE over last year. That wouldn't be hard since last year was the worst on record. Take note that the median price has fallen $15K (5%) in one month in Riverside and over $10k (4%) in San Berdu. That's pretty darn large drop in one month. If that rate of decline keeps up the median in Dec will be $202k for Riverside! Some people will see the sales increase and get all worried but it's a small increase, only 400 more homes than last year and many of those are new homes. Last year NOTHING new was selling because the prices were still sky high. There's a lot more new stuff selling this year due to the builders whacking the prices. Also note that 62% of the sales in the IE are foreclosures.

Now here's the report.

La Jolla, CA---Home sales in Southern California continued at their slowest pace in more than two decades last month as many potential buyers and sellers held off if they could, or struggled with mortgage financing if they couldn't, a real estate information service reported.

A total of 17,424 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 3.0 percent from 16,917 the previous month and down 13.6 percent from 20,166 for June a year ago, according to DataQuick Information Systems.

While last month's sales were the highest in ten months, it was still the slowest June in DataQuick's statistics, which go back to 1988. The June average is 28,488 sales, the peak was reached in 2005 when 40,156 homes sold.

"The mortgage market turbulence is putting quite a bit of activity on hold. Policy decisions about underwriting don't really mean much if there's little or no money to lend. Even some very well-qualified households aren't getting mortgages these days, although this could all change fast if liquidity comes back," said John Walsh, DataQuick president.

The median price paid for a Southland home was $355,000 last month, down 4.1 percent from $370,000 in May and down 29.3 percent from $502,000 for June 2007. The peak of $505,000 was reached in March, April, May and July of last year.

The median has fallen because of depreciation, especially in inland markets, and because of the steep dropoff in home financing in the so-called jumbo category, which until recently was defined as loans above $417,000.

Foreclosure resales continue to be a dominant factor in today's Southern California market accounting for 41.1 percent of all resales. That was up from 39.2 percent in May, and up from 7.3 percent in June a year ago. Foreclosure resales ranged from 18.9 percent in Orange County last month to 62.3 percent in Riverside County.

	Sales Volume			Median Price
All homes	Jun-07	Jun-08	%Chng	Jun-07	Jun-08	%Chng
Los Angeles	7,580	5,678	-25.1%	$545,000	$415,000	-23.90%
Orange	2,641	1,930	-26.9%	$645,000	$495,000	-23.30%
Riverside	3,359	3,757	11.8%	$400,000	$275,000	-31.30%
San Berdu	2,190	2,215	1.1%	$365,000	$240,000	-34.20%
San Diego	3,510	3,077	-12.3%	$495,500	$370,000	-25.30%
Ventura	886	767	-13.4%	$582,000	$420,000	-27.80%
SoCal	20,166	17,424	-13.6%	$502,000	$355,000	-29.30%

Getting closer but more declines needed

This was the 3rd post I wrote on this blog nearly a year ago. Back then the median price was still in the stratosphere. A lot has changed since then but these charts and graphs still show there is a way to go if we are to return to traditional values.


(Post from Sept 2007)
Just for kicks I took a chart from a NAR report for Riverside. Using their chart and drawing a line from the start (1980) through the top of the last peak and out to today we come up with a median price of approx $225k. Since this line is through the top of the last peak it's probably on the optimistic side. If you took that line and went through 1995 the median drops to about $150k. I personally think that the $225k number is closer to where is should be (because most newer homes are larger now and interest rates are much lower). However looking at another NAR chart on Price to Income ratio's we can see that this ratio stays between 2 and 3 from 1980 all the way through late 2002. After 2003 the ratio goes parabolic, jumping to nearly 6x by late 2005. I believe it's closer to 7 or 8 now! If we go back and use this traditional measure of what a home should cost we once again come up with a number close to $150k. Riverside currently has a median price of about $420k putting it about 170% above the $150k number I keep coming up with. Even if I use the higher $225k number, prices are still 85% overpriced. In other words, to fall back to traditional values homes would need to decline 65% to hit the $150k number or 45% to get to the higher $225k number

And if it's not clear enough yet that home prices are WAY out of whack, take a look at the last graph.

The weekely tumble

Here's this weeks median listing data from housingtracker.net. The core areas took another beating this week falling about $6000 across the board. That's a healthy drop for a single week. The inventory crept up but is still within a few hundred of where it was at the start of the year. I've heard from a few agents that the traffic is starting to slow. Maybe the summer rush it petering out or all the knife catchers have already bought. I haven't seen any data to back up there observations. It also might have something to do with the news in the last few weeks. Lets face it, when the stock market is tanking, banks are failing and the government backed lenders are on the verge of total meltdown it doesn't give one a warm fuzzy feeling. So here's the data!

Riverside, California

Including Arlington, Bloomington, Box Springs, Canyon Crest, Casa Blanca, Colton, Corona, Crestmore, Fontana, Grand Terrace, Jurupa, La Sierra, Mira Loma, Moreno Valley, Norco, Perris, Rubidoux, Woodcrest

Trend	07/14/2008	1 month	3 month	6 month	12 month
Median Price	$260,000	-5.5%	-16.1%	-27.8%	-40.2%
Inventory	14,390	-2.9%	+3.8%	+5.6%	-0.8%

Data

Date	Inventory	25th Percentile	50th Percentile (Median)	75th Percentile
07/14/2008	14,390	$195,000	$260,000	$359,900
07/07/2008	13,511	$199,000	$266,000	$365,000
07/01/2008	13,897	$199,900	$269,900	$369,900
06/28/2008	13,666	$199,900	$270,000	$370,000
06/21/2008	14,533	$199,900	$274,900	$375,000
06/14/2008	14,827	$200,000	$275,000	$375,900

How much house can you afford

In the last half dozen years all of the tradition methods and ratios that were commonly used by lenders (and buyers) to calculate affordability were thrown out the window. A few years of this has everyone thinking a $500k house is a cheap house. It's NOT!

Lets take a look using traditional ratios how much home you can afford. The old quick and dirty method was 2.5 times your yearly income. If you make $100k per year, you can afford a $250k home. Easy, peasy. Now this does not take into consideration interest rates, other debts you might have etc. So the lenders used the 28/36 ratio. Basically 28% of your income for payment, taxes, PMI and insurance. The 36% adds in your other debts like credit cards, student loans and car payments. In the good ole days if you could not make those ratios you rented or found a cheaper house.

Using the quick and easy method of 2.5 times your income you need to make the following to afford the median priced home.

In Corona last month the median priced home was $385k. You need to make $154k per year

In Riverside the median priced home was $284k. You need to make $113k per year.

In Moreno Valley the median priced home was $218k. You need to make $87K per year.

Now taking that Corona home and figuring a 10% down payment and using the 28% ratio lets see what your monthly and yearly needs to be.

Corona at $385k. 10% down ($38.5K plus your closing costs) leaves you $346k to finance. Assuming perfect credit you can get a loan at 6.5% giving a payment of about $2187/mo add in $200 PMI (you put down less than 20%), add in taxes of $450/mo (most newer homes are 1.6% to 1.8%) and another $100/mo for insurance gets you to a grand total of $2937/mo. Using the 28% ratio that means you need to be making $10,489 per month (or $125,871 per year).

Now you can clearly see that using traditional ratios home prices are still FAR too high in most areas for the average or even above average family. Maybe I'm out of touch with how much people make these days. I just don't think there are that many families out there making $125k per year. And who are they planning on selling all those $700k homes to? How many families are making $250k per year. Not many I think.

That's the beauty of numbers. Maybe it's the engineer in me but laying out the numbers sure makes it crystal clear. The prices still have some distance to fall.

For sale by delusional owner

I don't usually look at the "for sale by owner" listing because most of them are upside down sellers listing at ridiculous peak prices. In the past you could often get a better deal on a FSBO property because you could eliminate the realtor commission and split that savings with the seller. Today however all the FSBO properties seem to be offered by sellers wishing upon a star, hoping to somehow find a buyer that will swoop down and save them from the foreclosure monster. It's not likely to happen because most of those homes are worth about 1/2 what the people are trying to get.

Like I said, I don't usually look at them, but today I was bored and looked at some. Most were just your average Joe trying to unload his overpriced home. But then I ran across this one.



312o Curly Horse Way in Norco, Ca. This home is in the Norco Ridge estates development. Another one I feature here quite a bit. According to the listing this home is owned by a BROKER! A broker apparently too embarrassed to list this thing on the MLS. This one caught my eye not because of the ridiculous price. It's priced similar to most of the other FSBOs, at about peak pricing. It caught my eye because of the description in the listing. I highlighted the comedic portions of the listing.

Come see this gorgeous home in the elite community of Norco Ridge Estates built by Standard Pacific Homes. It is surrounded by upgraded homes valued at $1,200,000 and up! All of the interior upgrades available were done including but not limited to Maple Mantle and cabinets with upgraded hardware, full security with cameras, Platinum Theater Sound System in Family Room, intercoms/radios throughout house and garage, internet and cable tv wired to every room, spa-jet tub and separate shower in huge master with 2 walk-in closets. Zoned for 6 horses. Landscape is planted with bareroots, bulbs and seed sprouts of drought resistant, beautiful flowering trees and plants. New patio and gorgeous 12'W X 14'L X 10'H custom wood arbor. Small dog/pet black vinyl mesh fence enclosure creates yard area about 40' X 30' behind home. Wrought Iron fence and gates around entire property. Custom wooden latching 48"H gates built to enclose huge front porch. Corner lot on hill with a bird's eye view from master balcony of entire neighborhood and city lights below. Unobstructed view of undeveloped mountain directly in back of property makes it look like back yard goes on and on and up the mountain. Sprinklers and timers on all slopes around property and unique non-wasteful spot irrigation system in use for plantings. Purified drinking water, all upgraded stainless kitchen and laundry with sink. Granite counters and back splashes, glass doors in cabinets, butlers pantry, big kitchen pantry w/ glass door, Kitchen Aid appliances, formal dining and living rooms. Full insulation in floors and walls throughout. Upgraded staircase with wrought iron spindles and Maple railings. Curtains throughout custom made. Split slate in autumn colors on all bathroom, family room and high traffic floor areas with upgraded carpet everywhere else. French-style elevation with concrete tile roof and rock accent in front. Windowed garage door w/ keyless entry. Gardener and pest control in place. Horse trails everywhere and equestrian center down the road. Owner is a broker but not listing on MLS and would prefer direct buyers only, no agents or other brokers. Let's keep the costs down! All offers considered, willing to be creative.

Surrounded by homes valued at 1.2 million and up?? Where pray tell are those? Surrounded by homes $400k and up would be more accurate this month. The highest price sale up there lately is around $600k. He goes into great detail about all the upgrades yet there is not a single picture of the inside of the house. 4 pictures of the front of the house is all you get. This guy is a broker, he has a big house that his is trying to get $987k for and the best he can do is post 4 pictures of the outside. Now lets talk about the beautiful landscaping. From the 4 piss poor pictures all I see is splotchy grass and a few plants. Like every other FSBO listing this one has no hope of selling. And as a broker this guy knows that.

Another 20% according to Bank of America

Another 20% according to Bank of America!

Bank of America Chief Executive Ken “ As for the housing market, Lewis said Bank of America's latest forecast called for a further 15% decline in home prices nationwide, with the decline going into at least the first quarter of next year.

In the case of California, Florida and other markets that had the biggest booms, a further 20% decline is more realistic”.

Personally, I think we will see more than another 20%, especially in the areas that have only fallen 20% to 25%. But assuming he is correct that will bring the median in Riverside down to $230k and in San Bernardino the median would fall to $200k.

There you have it Ladies and Gents, The chief exectutive of Bank of America thinks the median in Riveside will be $230k next winter! Yup, there's never been a better time to buy....... (sarcasm off)

Fraud and its effect on prices

Today I read another article about mortgage fraud in the SD Union Tribune. Last week there were loads of articles floating around because of the big FBI "crackdown". Many of these cases involve groups buying homes at inflated prices, pocketing the excess and letting the homes go to foreclosure. This scheme, it seems was quite common and very profitable. The thing that really pisses me off about all these articles is they fail to make the connection between the high prices and this fraud. Not one article has asked the question "would prices have shot up that high without these fraudulent sales?"

The answer is obvious, NO! It only took one of these inflated fraudulent sales in an area and "poof" every home was now worth what that one sold for. Do that 2 or 3 times and prices double in a year or two for no apparent reason. You can clearly see the pattern when looking at many of the new tracts build in 2005 and 2006. The homes would sell new for $600k then a few months later sell for a million. After that everyone in the tract is asking 1.2 million. 9 months later that initial million home is in foreclosure but everyone still thinks their home is worth bazillions.

The reporters seem unable or unwilling to make this connection, the banks have their fingers in their ears humming lalalalalalala and the government is trying to pass legislation to keep these artificially high, fraud driven prices in the stratosphere.

I wish just one investigative reporter had the ballz to make the connection and put it in print. Of course no one would believe it. It's easier and more palatable to believe the equity fairy dumped a gallon of pixy dust on their stucco Mcmansion and it's value doubled in 12 months.

Pending sales drop 4.9%

Drop in Pending Home Sales Dashes Hopes of Near-Term Housing Recovery

The number of contracts entered into for existing U.S. homes fell 4.7 percent in May, dashing any hopes of a short-term housing recovery that had been created by a jump in pending home sales during April. On Tuesday, the National Association of Realtors said its pending home sales index, a forward-looking indicator based on contracts signed in May, fell 4.7 percent to 84.7 from an upwardly revised reading of 88.9 in April, and remains 14.0 percent below the level recorded one year earlier.

The drop in May’s contract totals outpaced economists’ expectations, which had pegged the index to fall 3 percent; the large drop — even after a strong upward revision to April’s contract totals — clearly added to Wall Street’s already-dour mood in the financial sector.

One month after touting that “bargain hunters have entered the market en masse,” NAR economist Lawrence Yun was forced to reverse course Tuesday morning.

“The overall decline in contract signings suggests we are not out of the woods by any means,” he said in a press statement.

Revised assumptions, new housing in a freefall
Most noteworthy in the NAR report, however, was a wholesale change in expectations for new housing sales transactions going forward. The realtor-led group now expects new housing sales to decline both this year and the next; just one month ago, the NAR had predicted a 12.5 percent rebound in new housing during 2009.

On Tuesday, the NAR revised that projection and said that new home sales are likely to fall 32.3 percent to 525,000 in 2008, and decline another 3.4 percent next year to 507,000. The group had earlier predicted new homes sales of 595,000 for 2009 in June’s forecast.

Poor Lawrence Yun, it must be hard to be an optimist when you ship is going down like the Titanic.

The weekely Tumble

The median listing prices are showing no signs of slowing. I know it seems like prices are not falling if you are chomping at the bit to buy. But they are still falling. The inventory is continuing to bounce around within about 1000. Ever since Feb it has fluctuated between 13,500 and 14,500. So although we keep hearing about lots of sales they are not making a dent in the inventory levels. I suppose it's not much of a stretch to imagine the inventory really starting to climb as the selling season is starting to wind down.

Another data point that shows the increasing speed of the crash is the one month change numbers. If you look you will see the decline in the last 30 days is 5% and for the last month it's been between 5% and 6.5%. The one month change had been running about 3.5% for most of the year.

As I posted earlier this month the foreclosure rate is still climbing and most of those May and June foreclosures are not on the market yet. So the amount of REO properties hitting the market will increase as the sales rate decreases. That should make for an interesting winter!

Here's the data for the core areas of the IE from housingtracker.net

Riverside, California

Including Arlington, Bloomington, Box Springs, Canyon Crest, Casa Blanca, Colton, Corona, Crestmore, Fontana, Grand Terrace, Jurupa, La Sierra, Mira Loma, Moreno Valley, Norco, Perris, Rubidoux, Woodcrest

Trend	07/07/2008	1 month	3 month	6 month	12 month
Median Price	$266,000	-5.0%	-15.6%	-28.1%	-39.3%
Inventory	13,511	-1.1%	-3.5%	-6.8%	-7.1%

Historical Data

Date	Inventory	25th Percentile	50th Percentile (Median)	75th Percentile
07/07/2008	13,511	$199,000	$266,000	$365,000
07/01/2008	13,897	$199,900	$269,900	$369,900
06/28/2008	13,666	$199,900	$270,000	$370,000
06/21/2008	14,533	$199,900	$274,900	$375,000
06/14/2008	14,827	$200,000	$275,000	$375,900
06/07/2008	13,660	$205,000	$279,900	$379,900
06/01/2008	13,907	$209,900	$285,000	$389,000
05/28/2008	14,053	$210,000	$287,900	$389,000

And here's the county wide numbers,
As you can see the county numbers are dropping a little faster now than the core areas, especially at the high end. The inventory is also holding much more than the core areas.

Trend	07/07/2008	1 month	3 month	6 month	12 month
Median Price	$264,900	-5.1%	-13.1%	-24.1%	-33.8%
Inventory	46,531	-1.6%	-5.5%	-6.0%	-12.6%

Date	Inventory (SFH + Condo)	25th Percentile	50th Percentile (Median)	75th Percentile
07/07/2008	46,531	$189,905	$264,900	$379,900
06/30/2008	45,947	$194,900	$269,900	$387,500
06/23/2008	47,519	$195,225	$270,000	$389,000
06/16/2008	46,962	$199,000	$275,000	$395,000
06/09/2008	47,297	$199,900	$279,000	$399,000
06/02/2008	46,949	$200,000	$280,000	$399,000
05/26/2008	47,187	$200,000	$285,000	$399,000

The Mac attack

Pasadena lender IndyMac bank imploded today. You may have already read about it but this was one of the largest lenders specializing in Alt-A loans, those were they type that were very popular in California. Something like 70% of the loans from 2005 to 2007 were of the Alt-A variety. Indymac was apparently visited by "the suits" from the FED this weekend and it looks like they didn't like what they found. Indymac announced they have stopped all retail and wholesale lending and will lay off more than 50% of their employees. I wonder how many of the 4000 work here in Southern Ca? I hope you didn't have any stock in this train wreck. It has lost over 98% of it's value over the last year and a half.

And if that were not enough Lehman Bros, small business finance unit also imploded today. Two lenders in one day!

And if you missed it Fannie Mae and Freddie Mac got pummeled today. They lost 18% and 16% of their value IN ONE DAY! Too bad the housing market cannot move that fast....

The worst time to buy a house EVER

If you ask people when was the worst time in history to buy a house most would probably say 2006 or 2007. Those were terrible years to buy a house but I think today might actually be worse. In 2006 you still had prices going up in some areas and even if prices were not going up they were not cratering like today. In 2007 sales were at a standstill but prices were not falling much at least until late in the year (mostly because of the lack of sales). Today however you can buy a house one month and next month it can be worth 20% less. Today is the worst time in history to buy a house looking at month to month values. Sure prices have dropped on average 30% since last year but the rate that the prices are falling is increasing. It has slowed slightly for the "spring bounce" but come fall they will probably take off like jet.

Here's an example of what I'm talking about.
In May of 2008 a bargain shopper "snapped up" 4467 Cabot Drive in South Corona (Dos Lagos), the home is a 3 bed, 3 bath and it is 3413 s/f. He was probably all giddy at his apparent steal. You see this house was previously purchased in Dec 2005 for $1.045 million. He stole it for $560k after the bank took it back in Dec 07 for $753k. Sounds like a great deal, right? He bought it for 47% less than the previous owner. How can you go wrong?

Here's how. Fast forward 6 weeks since he closed and his neighbor (a bank) with the same floor plan has listed for $499k. 4455 Cabot Dr was last purchased in Sept 2006 for $975k, lost to the bank in early June for $621k and has just hit the market for 11% less than 4467 Cabot only 6 weeks after he closed. Sure I suppose it could go for more than asking but that is highly unlikey



Anyone thinking that this is just one case cherry picked might also take note that just up the street at 4365 Cabot Drive there is a 350 s/f larger home (REO) with 2 more bedrooms listed for $519k. All three of these homes back to the golf course so there is little difference in regards to lot premiums. The best lot is actually this last home. It sits near the tee box so getting peppered with golf balls is not the issue it is likely to be with the first two homes. (There is another one of these 3800 s/f 5 bedroom homes for sale for $529k just around the corner from the first 3 homes)



Knife catchers beware, currently the knives are razor sharp! With rising foreclosure numbers and home values still higher than traditional ratios the pressure is going to keep dragging the prices down. You can lose a lot of money in a very short time these days.

$280k inEastvale

In one of the early posts on the blog I stated the I thought thought the smaller homes in Eastvale would end up selling around $250k. Of course there were some doubters. I was confident in my prediction at the time and I'm still confident, although I'm begining to think I should have been less generous with my numbers. The speed of the price drops are taking me a little by surprise (still too slow for some folks though). I've seen a few listings in Eastvale under $300k but most were auctions, homes that were stripped or short sales.

This week there are a couple more. 7547 Walnut Grove is one of them. It does not indicate that this is a short sale or a REO. It looks like this is the original owner from 2001 that is selling. So there is actually a chance this guy will still make money on this house (or at least not lose his ass). It's a 3 bedroom, 3 bath home, 2462 sq/ft on a quaint 6000 s/f lot. The home is listed for $280K or $114 s/f. Currently this is the best priced home in the area so it should fetch a few offers and it will be interesting to see what it sells for. Let's hope this one sets a new trend and we see lot's more listed under $300k.