Price gridlock

Why do so called real estate "professionals" have such a hard time pricing a home. 98% of the homes on the market are overpriced. How do I know, because they are not selling. If they were priced correctly they would sell!

The market is declining. Only an idiot would dispute that fact today. Nearly every economist worth a damn is predicting California prices to continue falling into 2009. The IE is in especially bad shape as is the central valley. We are likely to see prices decline 50% to 65% from peak according to some of the more bearish economists. So far prices in the IE are down nearly 30% from peak prices.

So, once again I ask "why do real estate professionals not price homes correctly?"

We are in a declining market. The riverside median price is dropping at roughly 4% per MONTH. If a comp that is 3 months old is used to set a price, that price is already 12% too high when it hits the market. What should be done is to take a recent comp and price the home 10% to 20% below that. If the house is "below market" it will get multiple offers. If it does not get any offers then it is still too high. Drop the price 5% per month until you get an offer. DO NOT CHASE THE MARKET DOWN. It's a race, get ahead of the declining market and it will sell.

I have seen a few (very few) homes that came onto the market well below the other homes in their area. Guess what? THEY SOLD! All of them sold for above asking.

Here's a tip for any realtors that might read this. PRICE THE HOME WELL BELOW THE COMPS! It's not like the home is going to sell for 50% below market. If it is indeed priced below current market it will get offers above asking. It's like every realtor in SoCal has forgotten how to SELL a house. It's the price stupid!

This applies to delusional sellers too. Pull your heads out of your butts long enough to get a whiff of reality. Price your home below recent comps!

Wall Street Journal "California prices still Wildy Overvalued

From the Wall Street Journal

"If you own a home in a former bubble region like California or southern Florida, there's bad news… and really bad news. But the really bad news is that, even after a year of misery and falling prices, homes in many of these regions still aren't cheap. They remain wildly overvalued compared to average personal incomes.

How far?

Try around a third in Florida and Arizona -- and closer to 40% in California.

Median prices in California peaked in 2006 at 13.3 times per capita incomes. Hard to believe, but true. They may be down now to about 11.1 times.

But that's still way above the ground. Throughout most of the 80s and 90s they ranged between six and seven times incomes.

Just to get down to seven times incomes, prices would have to fall 37% tomorrow."

Here's a nice video of treasury secretary Paulson saying the worst is not over, it's just beggining. As Robin would say "Zoinkers".

Lyon takes a big bite out of prices in Bridle Creek

Me and the wife took a drive over to Bridle Creek today to see a REO property. It was a bust, the house was in bad shape and they wanted way too much for it. On the way out I stopped in at the sales office and picked up the latest sales sheet. Everyone in that tract that is trying to sell a home is now hosed. Lyon has dropped the prices $230k+ for the new phase. Homes that were starting at $725k now start at $499k. That's gotta sting for those desperate sellers and it even undercuts all of the bank owned homes. The REO property we looked at was priced at $700k and now they are $648k new from the builder. Hmmm let's see, $648k for a new one where I pick my own options or $700k for a half thrashed one painted green in most of the rooms and pale pink in one of the small bedrooms. The 2 year old's artwork on the walls is no additional charge!

I have two price sheets from Bridle Creek. The old one is from July of 2007 and I picked up the current one today. So these prices are 7 months apart.

Plan 1 Appaloosa, 2899 sq/ft.... was $744k.... Now $499k

Plan 2 Chestnut, 3266 sq/ft.... was (none avail) Now $525K

Plan 3 Lippizan, 3512 sq/ft,...was (none avail) Now $547k

Plan 4 Palomiono 3385 sq/ft, was $863k....Now $585k

Plan 5 Pinto, 3701 sq/ft, was $891k....Now (none avail)

Plan 6 Shetland, 4023 sq/ft, was $899k, Now $579k

Plan 7 Dapple, 3512 sq/ft, was $783, Now (none avail)

Plan 8 Andalusian 4364 sq/ft, was $952k, Now $648k

Plan 9 Breton 4830 sq/ft, was $950k, Now $599k

As you can see some of these homes are down over $300k from last July. It looks like they dropped the price by approx 30% from July. I don't have any price sheets from later in the year to compare. I did pick one up in Nov and the prices were still quite high but I think they were lower than the July price sheet I have. I guess it does not matter though. What matters is the huge price drop. This will put pressure on the other builders in the area to compete. It will make the agents and banks cringe when they see it. Every resale home in the tract is now overpriced by a bunch.

This little afternoon trip made my weekend!

A couple of signs of things to come

Here's a small taste of what is we are likely to see a lot of in the future. Up until very recently the banks have been slow to price their properties aggressively. Here's a couple that buck that trend and hopefully we will see many more of these soon.

14317 Ashton Lane in Riverside. This 3090 sq/ft 4 bedroom home is in one of Riversides best areas. This is snob hill, this is where you want to live if you have to live in Riverside. These homes were built in 1999 and this one sold new for $410k in 99. As you can see, this was a pricey home, $410k was a lot on money in 99. It sold last in 2005 for $775k (there is a $400 sale listed too, I dunno what that is though). They lost it to the bank a few days ago for $677k. Even though the bank was owed $677k they have listed the home for $450K making the loss $325k from the 2005 selling price. That is only slightly more than this home sold for new in 1999! At $450k this home should sell. would not at all be surprised to see it go for above asking. This listing is going to make the next door neighbor faint. He has had his home listed for 215 days. He started off asking $899k and is down to $639k. Both houses are identical although the more expensive one is landscaped better. The REO is listed for exactly 1/2 of the original asking price of the neighbor. I have been watching the neighbors house, I actually like that house. Hopefully I will get over to look at the repo this weekend. At that price I might be tempted if this house is decent inside.



18828 Malkoha St is in the development called "The Boulders". It's near Woodcrest, but it's actually in the city of Perris. These are big homes on big lots that at one time had big price tags. I've posted about this development before since some of the price declines are epic. This one is no different. Well it is actually a little different, it's MORE epic. The home is 3725 sq/ft home and it sits on a one acre lot. The home sold new in early 2006 for $787k. It just posted as a bank owned property for $371k! That is a loss of $416K or 53% in 2 years.

The preserves are starting to rot

The preserve in Chino is an attempt to turn former dairy farms into a master planned community.

The Preserve at Chino will become a master planned community encompassing over 1,000 acres as the plan unfolds throughout the next decade. Guided by thoughtful design ideas and proven planning strategies, the community will mature graciously, with tree-lined streets and parks close to home, walkable neighborhoods, and outstanding public and private amenities.

So far only a few tracts have been built. Most of the roads into the area are small or under construction. There are only a couple of main streets out of the area, and when built out the traffic could very well become a nightmare. On the few occasions I've been over there it's already bad. Most of that though is due to the road construction.

The few tracts that have been built were on the spendy side, $700k and up when I last checked. That was probably almost a year ago. The REO's and shorts are already hitting the market and they should begin to drag those prices down.
.
The current leader per sq/ft (that I could find) is this property at 7906 Garden Park St.
This home is a monster, 4146 sq/ft with 5 bedrooms and 4.5 baths. The lot is a little small at just under 7000 sq/ft. It was purchased in Feb 06 for $741k. It's currently listed for $525k or $127 sq/ft. That's a loss of $216k, plus fees, plus 2 years of holding costs. OUCH!



Just down the block is 8093 Garden Park. This is a smaller home "only" 2569 sq/ft with 3 bedrooms and 2.5 baths (what did they do with the rest of the space?). You sure as heck don't need 2600 sq/ft for 3 beds and 2 baths. This home was purchased new in June 05 for $530k, now it's listed for $449k. The loss is not that impressive but at the peak (late 06) this home would have gone for nearly $700k. The actual loss is only $80k plus fees and 2.5 years of holding costs



7922 Spring Hill St is another big home. 3790 sq/ft with 6 bedrooms and 4 baths. From the pics this house looks like it's 12 feet wide. The lot is TINY at just 5000 sq/ft. Your neighbor can wipe your butt after you take a dump they are so close. This sardine can was purchased in Jan 06 for $769k. Think about that, over 3/4 of a million for a tract home on a postage stamp built on a former dairy farm in a hot, smoggy, hard to get to valley. WTF?? Now this thing has gone back to the bank and they have it listed for $543.5k. That is a loss of $225.5k in 2 years (plus fees and holding costs).

But it's a dry heat

Here's a tale I'm sure many will be familiar with. Back in 2005 an acquaintance of mine from the golf course started to talk about the home he was buying in La Quinta. He figured that this would be his big score and finance his early retirement. Of course I mentioned that I thought it was a bad time to be investing in real estate. His reply was laugh it off while insisting that I would be sorry.

When he closed the sale (July) of his financial future he was as excited as a kid on xmas morning. He had his home and it had already gone up $40k since he put his deposit down in April. He paid $450k for a 6 bedroom, 2600 sq/ft home in La Quinta (so he said). Of course he financed nearly 100% (he said he put down $2500) and his payments were only $1800/mo. (His plan was to rent this to snowbird in the winter to pay for it).

I spoke with him again late last summer. Of course I had to ask "how is the house in La Quinta going?" He looked at me like a little kid that just pee'd his pants. Not so well, he admits. The rental thing did not work out (duh). He admits his house is not in La Quinta but in a development close to there in Coac-hell-a called La Colonia. He is tired of making the payments and the value has fallen. He figured he could sell it for $400k and only lose $50k. I said, "wow, bummer dude". I was thinking, man you are a complete tool. Haven't spoken to him but his name came up today and I thought I would check in on La Colonia.

I will assume this is a model match to his (hell it might be his, but the dates don't match).

83386 San Asis DR Coachella, CA 92236,

This is a 6 bedroom home in La Colonia. It's 2653 sq/ft. It was built in 2004, the last sale is listed as June 2005 for $450k. It went back to the bank in Nov 07 for $361k. The bank is currently asking $269k. A loss of $180k in 2 years



Here's another one in the same tract, 50161 San Solano,

This is the same plan as above and sold last in April 06 for $465k. This home went on the market only a few months after it was purchased for $499k. A year later the price is down to $279k. Roughly the same loss as the home above.

So, how did that "investment" work out? Eh not so well as we have seen. One word of advice. If you ever do "invest" in a tourist area. Try to keep your property IN the tourist area. Coachella is NOT La Quinta. That was his second mistake. The first being buying in 05.

The IE is rated Category-5

There’s a hurricane heading for the IE and Countrywide Financial has rated it a Cat-5! Countrywide has rated it’s market areas from Cat-1 to Cat-5 and the full report is posted here. Of course, Riverside/San Berdu is rated a Category 5. What does this mean? It means they expect the market in this area to be the most “challenging” as far as housing goes. Their lending standards ( I know, what standards…) are different for each area. The worse the rating the more difficult financing will be to acquire. Being a Cat-5 area they are requiring a lower loan to value percentage. 90% is the max they will go, so you either need 10% down or a high appraisal. I’ve also read in some realtor blogs that they also bumping up the paperwork, income and FICO requirements on these Cat-5 loans. Bottom line, it just got even harder to get a loan.


http://blownmortgage.com/wp-content/uploads/2008/02/softmarkets.pdf

Soft Market Category 4-5 loans

Maximum financing will be reduced by 5%Example: Maximum financing per Countrywide's Loan Program Guide allows for 95% LTV. Loans in Category 4-5 will be limited to a new max LTV of 90%.

Soft Market Category 1-3 loans
Maximum financing will be reduced by 5%, only if the appraisal or appraisal review indicates any of the following:
* Declining Market
* Oversupply
* Marketing time over 6 months

Median continues to plummet

Riverside median price continues it's uncontrolled plummet. In the last 12 months the median price has fallen 19.1%, from $419k in 02/07 to $339k today. Inventory is up 24% to nearly 50,000 homes (keep in mind this does not include most new homes). Most of the price declines have been in the last 6 months. The speed of the decline seems to be accelerating hitting 3% in the last month alone.

To illustrate the increase in speed of the price declines look at the last year.
12 month 19.1%
6 month 14.2%
3 month 8.4%
1 month 2.9%

If the declines continued to accelerate at the current pace or even just leveled off at the current pace we would be looking at a 35% drop in the median and that would take it down to $220k. With all the data out there pointing to increased foreclosures, increased inventory and tighter lending standards does anyone think this year will not be worse than last year. Last year the drop was 20% which makes the projected 35% well within the realm of possibility.

listing hanky panky

here's two listings for the same house,

17651 Timberview DR Riverside, CA 92504

MLS#p594460. On the market for 157 days. The price history goes like this

Aug 15, 2007	$749,900
Sep 05, 2007	$699,000
Dec 19, 2007	$625,000

Now a new listing shows up, for the same house. Days on market reset to zero and the price goes back up. This is a new agent too, the old one was with TNG and the new one is Exit Realty West (what kind of name is Exit Realty?). A new listing and the price goes up to $670k. What, she thinks if the old guy had no luck at $625 she can do better at $45k more? The house is still priced nearly $200k more than a couple near by REO's, and those are not flying off the shelf.

More join the sub 80 club

poking around this afternoon I noticed a few more homes had joined the sub-80 club. I found a few last month but those were a short sale and a total wreck. Today I found a couple of bank owned under $80 sq/ft.

It was not all that long ago that the $100 sq/ft barrier fell. I did a post on October 10th 2007 where I listed a few homes that had finally gone under $100 sq/ft. Most of those were in San Jacinto, Murrietta, Lake Elsinore etc.

Here we are, less than 4 months later and there are homes selling for under $80 sq/ft. That's a 20% drop in only 4 months for the price leaders.

On to our price leader.

615 Drake DR San Jacinto, CA 92582, This is a 4 bed/4bath house. It's 2850 sq/ft and sits on an average lot of 7400 sq/ft. This home was built in 2005 and sold new for $425k. It has been listed as a bank sale for 155 days now. they started out looking to get thier money back but that did not work out so well for them. 4 price reductions later they are now asking $215k. That's $75 sq/ft and make this house 50% down from it's original selling price.

4440 THORNBUSH Hemet, CA 92545, This is a 5 bed/3 bath home. It's 3127 sq/ft and sits on a 6097 sq/ft lot. This one was built in 2002 and sold new for $212k. It sold last in Sept 06 for $420k. Before going back to the bank in Oct 07. Again they originally listed this a little too high and after 2 reductions they are currently asking $248k, that works out to $79 sq/ft

I have no idea what homes rent for in SJ/Hemet but these tow have got to be close to penciling-out as rentals.

I did find several others but they looked like short sales so I'm going to leave those out for now. There are now a multitude of homes under $100 sq/ft and many of those are under $90 sq/ft. Still, most of these are in the out lying areas but like ripples in a pond they will work there way towards the more central areas. I'm still shocked by the speed of the price declines. I was sure the prices would come down but I was expecting it to happen over several years. Personally I think a quick deep correction is going to be far better for the economy that a long slow one. So, I'm happy to see the speed that this is moving at. Even though my house is probably worth 1/2 what it was last year.....

52% off last sale in Corona

3255 Huntfield ST Corona, CA 92882,

This home is a large one, McMansion-ish if you will. The house is a 5 bed, 4 bath that is 4249 sq/ft in size. Before being lost to the bank this home sold in July 2006 for 1.25 million dollars. The bank got the house back only 14 months later for $720k. It's currently listed for $599k. They have been dropping the price $50k per month since listing in Oct. The loss if it sells at this price will be $651K or just over 52%

How realistic was the $1.25 million selling price in mid 2006? Well, this one is very obviously a huge steaming pile of mortgage fraud. There are at least two model match properties in the same tract that also sold in 2006. One in early 06 sold for $830k and one a couple of months after our fraudster sold for $800K. All 3 of these homes are currently for sale for the same price. All three of them are beautiful homes inside. I can't see anything that sets any one of them apart. Possibly the $830k home stands out just a little bit as it has a nice back yard and a landscaped courtyard. Our fraudsters yard is au-naturale. Yes, for 1.25 million he got a dirt back yard! Judging by the other two this home sold for roughly 50% more than it should have in 2006. Of course after this sale posted I'm sure everyone in the area thought there home was worth a million plus.

3226 STONEBERRY LN ,

This one sold for $800k in 8/2006

3262 Elysia ST

This one sold for $832K oin 1/2006. This home looks to have more upgrades than the other two and probably should have sold for more back then.

Prices back to 2000 levels?

When the main stream media starts reporting that prices will fall 25% on average, back to 2000 levels, you know we are in for a seriously big ding here in bubble central, the IE.


This is good article in Newsweek

Here's a snippet

Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30

While a 25% decline is unprecedented in modern times, some economists are beginning to talk about it. "We now see potential for another 25% to 30% downside over the next two years," says David A. Rosenberg, North American economist for Merrill Lynch (MER), who until recently had expected a much smaller slide.

Shocking though it might seem, a decline of 25% from here would merely reverse the market's spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation. There's a recent model for this kind of return to normalcy after the bursting of a financial bubble. The stock market decline that began in 2000 erased most of the gains of the boom of the second half of the 1990s, leaving investors with ordinary-sized returns.