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Robert asked about houses selling without being on the MLS.

Last month there were 79 sales of SFRs in Carlsbad:

New tract houses: 11

MLS resales: 63    (some SFR sales are in the attached category in MLS)

Non-MLS sales: 5

Total: 79

All of the new-home tracts were advertised in the MLS. 

What about the five sales off the MLS grid? 

• One house that sold had a realtor sign out front, so it must have been an exclusive,
• One was a short sale that was about $100,000 under a model-match November sale nearby,
• One was a recently expired listing that closed just under the former LP, and
• Two closed at big discounts, so they were either intra-family or somebody got a great deal. 

I checked out both; the first was 3995 Syme Drive, a 3 br/2.5 ba, 2,246sf remodeled house built in 1984 with nice ocean view that closed for $477,000:

The other was 4734 Gateshead, a 5 br/3.5 ba, 2,953sf house that sold for $300,000.  The buyer told me that it had extensive water/mold damage, and he planned to spend $250,000 on repairs and improvements:

What about financing on the 70 that had data?

VA = 3%,  (2, both over $900,000!)

FHA = 16%,  with 9 of 11 funding sales over $600,000 (not possible today)

At least 20% down payment = 57%   (40)

Less than 20% down payment = 11%   (8)

Cash = 13%   (9)

Interesting to note that that 70% of the buyers have a substantial cash investment!

How much discount, based on original list price?

Sold over list price = 11%

Sold at list price = 3%

Sold 1-5% under list = 24%

Sold 6-10% under list = 15%

Sold 11-15% under list = 27%

Sold 16-20% under list = 10%

Sold 21-25% under list = 5%

Sold 26-30% under list = 3%

Sold 31% + under list = 1%

You could say that all the sales were purchased at market value – all this shows is that nearly half (46%) of the sellers had to reduce their price by more than 10% before they found a buyer.   Later I’ll do a chart that matches the amount of discount to days on market.

Reader Turnack suggested that we further investigate the street in La Costa Oaks.  It would give a good sampling of what buyers can expect when considering the prospects of buying in newer tract development.

While some may equate such analysis to ‘seeing the underwear’ of the current homeowners, the buyers considering a purchase nearby deserve to know the facts.

We’ve suggested that the builder’s lender has a lot to do with any future turbulence.  Did they carefully qualify their buyers to ensure they received loans they could afford? Or did they get jammed into the highest-profit mortgages?

In this case, the builder’s lender was a smaller mortgage banking outfit, and because every house on the street was sold in 2006, we can guess that there were a fair amount of ARMs that might be resetting.

Of the twenty houses, five have been in trouble – three have been foreclosed, one has it’s trustee sale later this month, and a fifth has been sold on a short sale basis. 

The house with Santa’s note on the door had its trustee sale last week and no biders were interested in the $625,000 opening bid – and the property is vacant.  The last sale was the $695,000 REO sale next door, so we can probably guess that at least one of the other two sales will be in the $600,000s as well.

What will the others on the street do?  We’ve seen that homeowners who are underwater have given up even when they can afford the payments – will it happen here? 

How many are struggling with the choices of staying, despite no equity - or bailing?

A review of the tax rolls showed that 14 of the 20 homeowners have a loan amounts over $600,000, and half of those are over $700,000.  Can they endure?  Will they?

When they purchased in 2006 all but three paid over $900,000, and three paid $1,000,000 or more.  Now that their equity is being whittled away, there will be temptation to walk away.  At least one homeowner will attempt to break the trend and try to sell in the next six months for $800,000.  They’ll justify it by saying that they “are further down the street where the RSF Rd. noise isn’t as bad, and besides, those were foreclosures/distressed sales, and don’t count.”

But they count to the buyers.

Today’s potential homebuyers should look carefully for over-encumbered neighbors that could lead to additional foreclosures.

Will they just keep coming up with ideas until one works?

From cnbc.com:

http://www.cnbc.com/id/28638551

An excerpt:

“Taylor and the NCRC are proposing a new government program, using TARP money, whereby the government would “use its power of eminent domain to take troubled properties/loans from mortgage servicers and lenders, so large numbers of loans could be modified, writing down principal and interest rates. The loans would then be re-sold to the private market.”

The government would buy these loans at a “steep discount.” Eminent domain allows the government to take an asset where a public purpose is served, and it requires that they pay the investor the “fair market value” for it. NCRC claims the fair market value would be about 30-50 percent of the current loan value.

NCRC argues, “Discounting the purchase of these loans would strike a balance between assisting homeowners and ensuring that lenders, servicers and securitizers are not rewarded for financing and servicing predatory and price-inflated loans.” That discounted price would then “be sufficient to write down the loan balance of millions of loans such that they can be permanently refinanced or modified to ensure long-term sustainability.”

It’s not too crazy, no? I mean, if you’re of the opinion that these borrowers should in fact be saved and given back home equity that perhaps they gambled on in the first place. The cost, NCRC estimates, $50-$100 billion.”

Is the market in a flat spin, or improving?

Attached and Detached Closed Sales, Jan 1-8

We have fewer new listings coming on than last year, more overall closings than last year in the county, and attractive interest rates. The elephant in the room is the third category, the higher-end sales – which are struggling. There are currently 2,358 active listings over $900,000, and we’re closing 51 per week!

Though that’s not bad, compared to North County Coastal (NCC) – where there are 928 active listings over $900,000 – and only FIVE closed last week (the same as 1997)

Comparing the number of active and pending listings gives a good read on the relative health of the market. When the ratio is around 2:1, the market is relatively good.

Here’s how things have changed since January, 2008:

Actives/Pendings Ratio of Detached Homes

The higher-end areas sure are sticky on price – how much longer can they hold out?

Some folks from Seal Beach just paid $1.3 million cash for these five units on Acacia, a half-block to the beach.  The last listing showed the annual gross scheduled income to be $90,000/year:

Hi Jim,

I thought it would be interesting to plot up the Dec sales/price data you put up this morning.

Graph is attached.  The X axis is the % change in sales, the Y axis is the % change in price. The size of dots indicates the number of sales (more sales are bigger dots), and the color indicates the price (blue is cheap, red is expensive).

I thought it was interesting that the data falls into two distinct groups.  One group lies along what I call the “REO-Reality” axis, which is where the neighborhoods are acting in a equilibrated fashion.  You can see that these are the places where the price per square foot is less, and have been experiencing active sales (i.e., big blue dots).

The other group falls along what I call the “I’m not giving it away” axis, and is expensive places that have had very small sales (small red dots).   These are mostly the high end coastal communities, although La Jolla does not fall on this line.

Love the blog,

Regards,

Dwip

Reader LGS sent this in:

Remember that odd transaction with the Lennar-affiliated LLC that you noticed over at the Santee property?  I’m now beginning to wonder if my theory about it was indeed correct:  that by “selling” the homes at asking prices to affiliated LLCs, with less stringent reporting requirements, they are moving things off their balance sheet.  In any event, someone doesn’t like what they’re doing somewhere—116 off-balance sheet joint ventures?  One has to at least ask what the legitimate business purpose for the arrangements are, if any.

LGS and I had picked up on Lennar’s transferring of properties to LLCs, and apparently we’re not the only ones.  The Wall Street Journal checks in today with a story about it:

http://online.wsj.com/article/SB123155084225070187.html

An excerpt:

In a written report and Web video, Mr. Minkow criticized Lennar’s practice of putting large amounts of debt in off-balance-sheet joint ventures, saying there is insufficient disclosure about them to investors. Lennar has about $4 billion in off-balance-sheet debt through 116 joint ventures and has typically given very few details about these arrangements.

The builder’s chief financial officer, Bruce Gross, said in an interview, “we have full disclosure on our joint-venture debt. There is nothing concealed.”

Mr. Minkow is a convicted stock-fraud felon who was imprisoned for his role in masterminding the ZZZZ Best stock swindle in the 1980s. Since his release, Mr. Minkow has won kudos from the Federal Bureau of Investigation for uncovering frauds on the Internet, in the real-estate field and elsewhere. His recent effort to expose executives and directors who embellish their academic credentials has led to several resignations of high-level officials. Other campaigns against public companies have had mixed impact.

In some cases, Mr. Minkow has sought to profit from his investigations by betting on a decline in the target company’s stock, through buying put options. In the case of Lennar, Mr. Minkow says he has no such option position, but instead is being paid a fee by an unnamed client.

In his report, Mr. Minkow takes aim at a $5 million loan taken out by Lennar’s chief operating officer, Jon Jaffe, in 2007. He claims that Mr. Jaffe obtained the loan from a California real-estate broker who has done business with a Lennar business partner and that the broker also has made a big profit on property adjacent to a Lennar development.

Mr. Jaffe denied that Lennar had business dealings with the broker who extended the loan. Mr. Jaffe said he took out the loan to pay for renovations on his six-bedroom, ocean-front home in Laguna Beach, Calif., recently appraised for $18 million. “My loans on my home had nothing to do with Lennar,” Mr. Jaffe said.

Mr. Minkow also accuses Lennar of perpetrating a “giant Ponzi scheme” in its land deal with the California Public Employees Retirement System that landed in bankruptcy court. He said Lennar moved other joint-venture assets into the venture, known as LandSource and depleted the venture of cash before it imploded amid the housing downturn.

Mr. Gross denied that Lennar controlled other assets that were rolled into the LandSource venture. He said they were contributed by Lennar’s partner in the deal, MW Housing Partners, a Calpers investment vehicle, as part of its overall $970 million investment.

(Disclosure: Lennar was my pick in Robert’s contest of guessing the first builder to go bankrupt)

Oceanside sales have been red hot lately. Of the 12 REO sales we’ve closed since September 1st, EIGHT of them have sold above list price. As you’ll see below in the Oceanside stats comparing December 2008 to December 2006, their sales increased 52%, while pricing dropped 33%.

Oceanside is finding some equilibrium, because their pricing has gone down enough that sales have increased substantially. Other areas that have been stickier on price continue to see their number of sales drop.

To try to gauge the differences, I came up with the Jim Formula.

I doubled the difference in sales, and added it to the difference in pricing. For example, there were 51 more sales in Oceanside, so I doubled it to 102, and then subtracted the difference in pricing, 97, to get +5.

It probably doesn’t mean anything, it’s early this morning and the coffee is running hot. But follow how the other areas measure up, using the same formula:

December Sales of Detached Homes

Obviously those with smaller samples are skewed, but you get the idea. If your area of interest is in the top half of this list, you’ve seen prices come down enough that 2008 sales are closer to 2006 sales, when the funny money was readily available (Carmel Valley being the exception, as usual).

When you see a ‘superior’ home list and sell, it is somewhat understandable. Buyers are holding out for the best available choice, and in many cases paying more to get it.

What about those with bumps and bruises, or other slight defects? When we see those list and sell quickly, it’s a sign of some buyer anxiety – they’re not holding out for the very best, instead, making due with a close-enough fit (as long as the price is right).

This house was the other example, along with the Leucadia house, that went pending the week before Christmas – this fell out, but was marked pending again on January 6th. The list price is $745,000 for 3,476sf.

I think this house was ideally suited for those needing a guest suite. The downstairs bedroom was extra-large, and if granny was going to live with you, or visit a lot, you’d like this one – and the price was good; at list price it’s $214/sf:

This one house doesn’t indicate any ‘bottom’ – it would take 50-100 of these to sell, before you could call it a trend and say buyer psychology might be changing. But if you see more sales of the less-than-superior homes, it’ll mean that the frustrations that buyers are enduring are causing them to overlook a couple of imperfections in order to finally buy something.

Here’s a contest update!

We were guessing the number of closed sales of attached and detached SD homes between November 1st and December 31st. Today’s count is 4,956 – here are the guessers:

4,949 Erica Douglass
5,000 CVman
5,021 Rob Dawg
5,150 Angela
5,259 Turnack

We’ll take the final tally on January 20th, but it looks like Erica, CVman or Rob Dawg!