March report from DQ

The report looks decent. Prices are up slightly in the IE (normal spring bounce). Sales are slightly down from last year. Don't know why, with the low rates sales should be up. The only factor holding them back might be the lack of inventory. Especially inventory that can be sold quickly. Most of it still seems to be short sale inventory which just clogs up the pipline.

Dqnews

Southern California home sales shot up last month from February amid the usual surge in late-winter shopping, but the gain over a year earlier was modest. Sales of $500,000-plus homes, though a bit lower than last year, jumped 36 percent from February, helping to lift the region’s overall median sale price to a six-month high – and to about where it was in March 2011, a real estate information service reported.

A total of 19,953 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 28.1 percent from 15,573 in February, and up 2.8 percent from 19,412 in March 2011, according to San Diego-based DataQuick.

It’s normal for sales to jump between February and March. On average, they've risen 37.0 percent between those two months since 1988, when DataQuick’s statistics begin. On a year-over-year basis, Southland sales have increased for three consecutive months, and for seven out of the last eight months. However, last month’s Southland sales total was still 18.6 percent below the average for all the months of March since 1988.

As in recent months, March’s year-over-year gain in sales wasn't seen across the price spectrum. Last month the number of transactions below $300,000 rose 2.3 percent from a year earlier, while the number sold between $200,000 and $400,000 rose 4.2 percent. Sales between $300,000 and $800,000 fell 0.6 percent year-over-year, and sales above $800,000 dipped 5.6 percent.

March sales of newly built homes rose almost 9 percent from a year earlier, marking the second consecutive month with a year-over-year gain. But March’s new-home tally was still the second-lowest for that month in DataQuick’s records back to 1988. Last month’s sales of existing (not new) single-family detached houses were the highest for a March since 2010, while resale condo sales were the lowest for that month since 2009.

“The year is young and lots could still change, but the results from the first big sales month of 2012 suggest the market is stuck in low gear. This remains a very gradual – not to mention fragile – recovery. Last month's big gain in sales from February was seasonal. A lot more people get out and shop after the holidays and as spring approaches. More telling was the relatively small gain in sales activity compared with a year ago. It's a reminder that, for many potential buyers, lower prices and amazingly low mortgage rates still aren’t enough to get them over their hurdles: tight credit, home values below what they owe on their mortgages, and uncertainties over the economy and home prices,” said John Walsh, DataQuick president.

The median price paid for a Southland home last month was $280,000, up 5.8 percent from $264,750 in February but down 0.2 percent from $280,500 in March 2011. The March median was the highest since the median was also $280,000 last September. The year-over-year decline in the March median was the smallest since February 2011, when the $275,000 median was unchanged compared with a year earlier.

Last month’s median was 13.4 percent above the low point for the current real estate cycle – $247,000 in April 2009 – and 44.6 percent below the $505,000 peak in mid 2007. The peak-to-trough drop was due to a decline in home values as well as a shift in sales toward lower-cost homes, especially inland foreclosures.

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,063 last month, compared with $998 in February. Last month’s figure was down from $1,185 for the same month last year. Adjusted for inflation, current payments were 54.8 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They were 63.0 percent below the current cycle’s peak in July 2007.

	Sales Volume			Median Price
All homes	11-Mar	12-Mar	%Chng	11-Mar	12-Mar	%Chng
Los Angeles	6,590	6,772	2.80%	$320,000	$306,000	-4.40%
Orange	2,615	2,856	9.20%	$430,000	$400,000	-7.00%
Riverside	3,843	3,756	-2.30%	$198,000	$200,000	1.00%
San Bernardino	2,544	2,512	-1.30%	$150,000	$150,000	0.00%
San Diego	3,063	3,237	5.70%	$325,000	$320,500	-1.40%
Ventura	757	820	8.30%	$349,000	$350,000	0.30%
SoCal	19,412	19,953	2.80%	$280,500	$280,000	-0.20%

Another bank gets screwed?

Without knowing the details this transaction looks suspiciously like a case of an inside deal. The bank gets screwed and the investor makes $100k (maybe).

17789 Scottsdale rd in Riverside was a foreclosure. It went back to the bank in August 2011 when they found no takers at the asking price of $391k. It does not seem to list until Dec 28th and then there is a record of the sale posted on Dec 30th? Even all cash deals don't happen in 2 days. So this property may have never been listed, listed out of area or who knows. But regardless it sells for $326k, which is well below comps for this area. Now looking at the pics I don't see any indication the property was thrashed. It's obviously the original kitchen because no flipper would put in that kitchen. The floor tile is horrific too. The only thing that might have been done is new carpet and paint. It's now listed for $420k after a couple of price reductions. That's a tidy profit of $95K if they can find a buyer. It's probably still $30k too high given the lack of landscaping and the low quality finished inside. I've seen much nicer homes nearby sell for $400k so he may still need to come down a bit. The only thing that might help him is the lack of inventory.

Flat line

I thought I would throw up a few charts to show the price trends in the IE. Basically the prices have been flat since late 08. There are of course minor fluctuations due to the season. Sale prices fall in the winter and rise in the summer. There was a small bump in mid 2010 when the homebuyer tax credit caused the prices (and sales numbers) climb a bit. But overall the prices seem to be bouncing along "the bottom". Price to income ratios are back in line where they should be. Price to rental ratios are far, far in favor of buying. It's WAY cheaper to buy versus renting similar properties. The only "gotcha" is that you need to be sure you are going to stay put. You cannot rely on appreciation to cover selling costs if there is a need to sell. So if you need to sell within say 5 years of buying you may not come out ahead versus renting.

Looking at inflation adjusted prices, the IE is about the same level it was in the late 80's. However, the crazy low interest rates make payments actually less, even when not adjusted for inflation. For example I own a rental that sold new in 1988 for $110k. Payments on that home back in 1988 were $1200/mo (PITI). Today that home is worth approx $150k. Buying that home today would result in a payment (PITI) of approx $900/mo. Adjusted for inflation today's payment is MUCH lower than the 1988 payment for the same home.

Obviously there are still loads of distressed properties. This will hold prices low for until those are worked through the system. But can prices go lower? It's hard to imagine that will happen. With the rental values and the home prices at these levels, investors can make more money buying and renting properties than they can in the markets or the banks. This alone should keep the prices from falling. I now have two rentals and would pick up a few more if I had the cash. I'm under no illusion of making money on appreciation of these properties but the rental income is a welcome addition to the monthly bottom line.

Here's a few of those charts


This one is the median sales price for Riverside. As you can see it's been relatively flat for a few years now.

The price per square ft char is also pretty flat since late 08



And finally the long term chart with the inflation adjusted prices.

Mortage mod madness

Mortgage mods are touted by both the government and the so called "help" organizations. But are these mods really helping anyone. I think if you've read this blog for any length of time you know how I feel about this mod business. Mods are helping banks and that's it! All mods do is keep people paying for a an asset that is worth less than they owe on it. They become trapped by this debt.

Here is a perfect example of why loan mods suck for most people. I have one friend that did a short sale in 2008 to get out from under his upside down house. He is now free, happy and his credit score has fully recovered. He could easily buy any house he wanted (and could afford). I have another one that did a mod in 2009. He did the loan mod for a couple of reasons. He liked his house and had spend a fair amount of money upgrading (although he did use a heloc to do these upgrades). He also foolishly believed that prices would rebound enough to where he could sell if he needed to. Over 2 years later he still owes way more than his house is worth. Although he can afford the payments he now needs to sell and move due to an impending divorce. Unfortunately for him this means either a short sale or just letting the house go. The loan mod probably added a year or two to his marriage but it also trapped him in that house. So who is better off? Had he let the house go two years ago he would probably be single and free of debt, possibly able to buy another home already.

To anyone considering a loan mod I would encourage them to consider the possibility that they may want or need to move in a few years. If there is even a remote chance of that then don't do a loan mod. No matter how much you love the house, get the hell out of it. You can rent for a couple of years and then if you desire you can purchase another home that you will not be a thousand feet under water on.

The whole mortgage mod thing is absurd when you stand back and look objectively at it. Someone has sold you something at an inflated price, but because they are willing to change the loan terms slightly you agree to keep paying on that inflated price. That might be reasonable if you bought a TV (although even on TVs most retailers will give you a refund if you find that TV cheaper) but I digress we are talking houses here. We are talking about tens or hundreds of thousands of dollars depending on how long you pay the note for. It's not an insignificant amount of money, yet most people only look at that monthly payment and that's about as far ahead as they look too. No thought is given to next year or 5 years from now.

Mortage mods will only serve to extend this fiasco of a market!

Will 2012 be the "real" year of the short sale?

If you have an underwater house you are thinking about dumping you might want to get off your duff and list the thing. You see normally when you sell a house for less than you owe on it you get a nasty little surprise from Uncle Sam, a tax bill for the difference. During the bust legislation was passed to put this tax on hold to make it easier for people to short sell. However that legislation expires at the end of 2012. Both the Federal government and the California State gov passed these acts so currently there are no tax consequences from a short sale.

Of course the debt forgivness act could be extended. But what if it isn't? This would probably mean fewer short sales and a lot more foreclosures. There are no tax consequences from foreclosure because in Cali most of those loans are non-recourse (but I'm no tax expert so don't listen to me).

The unfortunate thing is that most people have no idea about this tax thing and may not feel the need to hurry up and get out while the gettin's good.

Oz is in denial

Just got back from my vacation to NZ and OZ, and of course I couldn't help but check out the prices of real estate over there. In fact during many of the tours the guides would continually point out how "well" there market was doing. It was incredible, it was like being here in 2006. Nearly all the people I spoke with, if the topic of home prices came up just seemed to say all the stuff we heard 5 years ago. "it's different here", "price might level off, but I doubt they will fall" etc. NZ was by far the worst. The prices of everything over there is unbelievable. I dunno how they live. But the prices of housing was off the charts as compared to incomes.
Median incomes are comparable to the US, yet the cost of nearly everything was higher. Australia was not nearly as bad as NZ in that respect but in the two cities we visited things were quite a bit higher than here. Of course the cost of living in most large cities is higher than living in the burbs but I was not able to really check the costs out in the burbs. We did manage to get out into the burbs in Melbourne and the tour guide would point out housing tracts give us approximate costs. If those were correct they their prices are comparable to ours at the peak of our bubble. We saw shacks in the city that he indicated were well north of a million (and I do mean shacks!), in the burbs we saw small average looking tract homes that were $500k to $800k.

NZ and OZ are beautiful places and well worth a visit. But save your pennies cuz int aint a cheap vacation. Oh, and driving on the opposite side of the road is interesting too!

Happy Holidays

Happy Holiday's ya'll

I'm taking the rest of the year off and heading to New Zealand and Australia.

Ah the good old days

While looking at Zillow I ran across this. I found it rather humorous and reminder of the heady days of bubble mania. This guys puts a "make me move" price into Zillow in 2007 of $1.4M for a house that now has a zestimate of $505k. And lemme tell ya, there's no way this place would sell for $505k, that's probably at least $50k too high considering there is not a lick of landscaping. I was actually looking at 18825 Ravenhurst which is listed at $1.2M and has a zestimate of nearly $900k. Which I thought was WAY high. It's a spectacular place on 2 acres but there's no way it will get 1.2M and I seriously doubt it would even get Zillows $900k estimate. Based on comps this place is worth closer to $750k.

Ah, the good-ole days. I bet this guy is wishing someone had taken him up on his "make me move" price.

Scam Alert!

Check out this BS

16475 Lake Knoll Pkwy lists as a short sale, it says poor condition but in the pic it looks ok. It lists cheap and goes pending pretty much immediately. It sells pretty cheap and the listing agent and buyers agent and the same guy (who'da thunk it). Now this is where it gets shady. 30 days later, it lists again for $160k more than it sold for, and the agent........ You guessed it, the same guy. But it gets better, the listing states the owner/seller is a realtard! Anyone wanna bet the owner is the listing agent? This looks like a perfect example of short sale fraud. He lists the property indicating it's a dog, gets it cheap and then turns if for a quick profit. And of course the lender takes a bigger loss than they otherwise would have. His asking price is pretty darn high and I doubt that it will sell for anything near that but even if it sells for $350k that's still a very healthy profit assuming he didn't actually need to do a major rehab.

Octobers numbers

Here's the October report from DataQuick. Not a lot of movement in the IE. San Berdu is stuck at $150k median and Riverside fell a little. Sale numbers were down slightly from last year which is a little surprising considering how low interest rates have been. I suppose some of that slowdown could be the lack of inventory at the low end. If you've been looking you know there aint' much decent in the starter home/rental end of the market. From what I am seeing the more expensive stuff is just sitting unless the house is spectacular.

Here's the meat of the report.

Southland home sales rose slightly in October compared with a year earlier but were still nearly 30 percent below the long-term average. The region’s median sale price dipped to its lowest level since January as activity above $500,000 fell sharply, distressed property sales rose slightly and mortgage availability worsened, a real estate information service reported.

A total of 16,829 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in October. That was down 7.3 percent from 18,149 in September and up 0.5 percent from 16,744 in October 2010, according to San Diego-based DataQuick.

A drop in sales between September and October is not unusual, but last month’s decline was larger than the average change – a decline of 0.7 percent – between those months since 1988, when DataQuick's statistics begin.

October sales have varied from a low of 12,913 in 2007 to a high of 37,642 in 2003. Last month’s sales were 29.3 percent below the October average of 23,819 transactions since 1988

“For a few months now, lower prices and amazingly low mortgage rates have kept resale activity slightly ahead of last year. Of course, that’s not saying a lot when you consider sales were 25 to 30 percent below average. The market continues to struggle with a difficult lending environment, uncertainty among potential buyers, underwater homeowners who can’t move up, and a weak job market. The lower conforming loan limits implemented last month help explain the relatively sharp drop in mid- to high-end sales during October. Now we’ll have to see if the private loan market can fill the void,” said John Walsh, DataQuick president.

The conforming loan limits, which were reduced Oct. 1, vary by county. In Los Angeles and Orange counties, for example, the limit for FHA loans and mortgages guaranteed by Fannie Mae and Freddie Mac was lowered from $729,750 to $625,500. Home sales in those two counties that had purchase loans between $625,501 and $729,750 – the band eliminated by the lower limit – dropped to 102, down 71 percent from 350 sales in September and down 71.5 percent from 358 sales a year earlier.

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,040 last month, down from $1,084 in September and $1,111 in October 2010. Adjusted for inflation, current payments are 55.4 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 63.4 percent below the current cycle’s peak in July 2007.

	Sales Volume			Median Price
All homes	Oct-10	Oct-11	%Chng	Oct-10	Oct-11	%Chng
Los Angeles	5,470	5,830	6.60%	$325,000	$300,000	-7.70%
Orange	2,298	2,241	-2.50%	$438,000	$405,000	-7.50%
Riverside	3,264	3,026	-7.30%	$198,000	$187,000	-5.60%
San Bernardino	2,343	2,300	-1.80%	$150,000	$150,000	0.00%
San Diego	2,750	2,759	0.30%	$334,500	$315,000	-5.80%
Ventura	619	673	8.70%	$355,000	$335,000	-5.60%
SoCal	16,744	16,829	0.50%	$283,000	$270,000	-4.60%

Nandina back on the market

A couple of years back I wrote about a small development that went belly up after building most of the homes. They came on the market in Late 2007 right when it was coming apart at the seams. They were trying to get right around a million for these homes back then. I laughed out loud at the sales lady when I saw the price sheet. They stuck it out for about a year after finding only one sucker to buy a house. The whole tract went into foreclosure and sat empty for a few years. Well recently they have started selling again. The prices now are about 1/2 the original price. Not a bargain but these are pretty nice homes with high end kitchens and lots of nice built-ins. I really liked the floor plan on a couple of the models. The good thing about this little tract is there is no Mello Roos nor any HOA to deal with. On the bad side you are paying top dollar since it's a new home and you still have to spend a healthy chunk of cash putting in some landscaping and fencing.

Here is one of the homes they have listed.
http://www.redfin.com/CA/Riverside/17624-Fairbreeze-Ct-92504/home/17330776

Geez, where have I been?

With the market basically flat for the last two years there's just not that much to write about. Sure there are a few stupid listings out there and there is still a fair share of fraud and funny biz going on (inside deals selling for way less than they should etc) but it's a lot harder to find and I just don't have the energy to search through every listing to find that stuff. And as you may have guessed I did finally buy a place early last year. I didn't get a "smokin" deal in fact I probably overpaid slightly based on comps but we wanted the house and were willing to pay a little more than we wanted to get it.

Since I did actually purchase a house in this market I will offer my insights into the buying process. First off the market it TOTALLY rigged right now. Good deals are all inside deals where the realtor already has a buyer, a friend or investor they are working with. You and me have no chance of getting one of those. Trust me I tried! If you are thinking you are gonna lowball, forget it.

You need to do your research and offer a fair price based on current comps. It's not hard to find comps and if you have been looking you can check and see what the homes you have looked at are closing for. This will give you a good feel for the actual market value of properties.

If you are using a buyers agent you are at a disadvantage in this market. For total noobies it might make you feel better to use your own buyers agent but the reality is you have a MUCH better chance of getting your offer accepted if you go it on your own and just go directly through the selling agent. The prospect of collecting both ends of the commission seems to really "help" out your offer! (surprise, surprise).

I submitted approximately a dozen offers. 5 of those were submitted by a realtor for me and NONE were accepted even though they were fair offers. That's when I decided to go right to the selling agent myself. My first offer was $70k under list price (which was way high based on comps). I really though we had that one but the seller took another offer and we were the first back up. The home was a short sale and took 9 months to close. It closed for exactly what we offered. I spoke with the listing agent and the reason they went with the other offer was that they thought we did not have enough cash reserves. Offers 2 and 3 were accepted but we backed out after inspection problems. We then offered on a new home in the Stellan ridge developement. The home was listed at nearly $600k, we offered $550k but the builder would not go lower than $570k. Than home sat for another 4 or 5 months before finally selling for ..... $550k! I'm SO glad I did not buy that property. Our next offer on a short sale was accepted and we went under contract to purchase. The bank screwed this one up and ended up foreclosing on the home. We could have bought it at the trustee sale for $50k less than our short sale offer. When it hit the market as an REO 6 months later we put in another offer with the listing agent and moved in 30 days later. And yes, we still paid $50k more than we could have got it at the trustee sale.

So as you can see nearly every offer we made going through the selling agent was accepted. All the offers we made with a buyers agent were ignored or rejected. You do need to be comfortable enough to do this but you can always pay someone to look over your documents.

Our deal was pretty smooth but the appraisal was still a joke. The comps the guy used were ridiculous and the appraisal came in probably $30k higher than it should have in my opinion. I was hoping for a lower appraisal so I could negotiate the price down a little but that didn't happen. The appraisal came in $1k over our offer price (hmm quite the coincidence eh?) So did I over pay? Maybe a little but after we purchased 2 more identical model homes sold for prices very close to ours so it seems our number was actually pretty good.

What's our place like? We got nearly everything we wanted in our home. It's just under 4000 s/f and it's a single story home in Woodcrest, (like we wanted). It sits on just over an acre of land. It does have the dual 2-car garages that I wanted so bad. The wife and kids got the pool they wanted and it has a gorgeous view overlooking Riverside. It did not have everything we wanted. It has carpet and tile, we really wanted hardwood flooring. The kitchen cabinets are lighter than we really wanted and the appliances were not the high end stuff we were after. But those things can be changed. The location and the view cannot. Being an REO it did need painted and a few minor repairs but overall the home was in great shape (probably a cash for keys deal).

Overall for us the buying experience was not too bad. Of course we did have to wait a few years for the market to correct. And to be honest we could have probably bought at least a year or more earlier than we did. We started making offers in late 09 but could have started in late 08 and probably got about the same price (better selection back then too). We also lost a few months using an agent. Once I realized that going through the selling agent was the way to go our offers seemed to get "top billing". Agents are scrambling to make a buck and the easiest way to pad that pay check is to work both ends of the deal. Which is why offers submitted directly to the selling agent look so much better to them. We had a few hiccups but once we were in escrow everything went fairly well.

Unlike many areas I really do feel the IE is at the bottom or so close to it that it's a good time to buy. Especially with the interest rates right now. You actually can buy a home for less than the cost of renting a similar place. BUT, you better be ready to stay because I think that prices are gonna be flat for quite a few years. So if you need to sell after only a few years, the selling costs make it likely that you will lose money. So buy, but buy for the long term.