bubbleinfo.com

On the other end of the spectrum from Carmel Valley is the lower-end market west of I-5, which has been red-hot. Check out this tear-down on a 25,000sf lot on Eolus that listed for $599,000:

There are 221 detached homes for sale in 92130, and 18 closed last month, down from 24 last February. This street in Carmel Valley is pretty typical – lots of sellers holding out, or holding on?

Here’s more mis-direction on behalf of NAR and mainstream media:

March 23 (Bloomberg) — Sales of previously owned homes in the U.S. unexpectedly increased in February as record foreclosures pushed down prices and lured first-time buyers into the market.

Purchases rose 5.1 percent to an annual rate of 4.72 million from 4.49 million in January, the National Association of Realtors said today in Washington. The median price slumped 15.5 percent from a year ago, the second-biggest drop on record, and distressed properties accounted for 45 percent of all sales.

This is going to add more false hope for sellers of higher end homes – they’ll be prone to think that it’s their turn now, once the jumbo loans are funding again and the ObamaPlan has a chance to work.

Maybe the lower end is hot, for the time being, but each market segment is different.  The odds of selling the higher-end homes are going to greatly increase each month from now on. 

Look at this chart below – if it weren’t for the blip last July, the $600,000+ sales in North County Coastal have peaked in May or June in recent years.  Those are sales that opened escrow in April and May (click on it for clarity):

For the 1,525 active listings in SD North County Coastal (La Jolla to Carlsbad) above $600,000, you need to lower your price now, and keep lowering it so you get into escrow by the end of May. 

The March 2009 number on the chart is projected at 80 – there are only 50 closed so far this month, and 206 pending.

If 150 of those pendings close over the next two months, we’re still going to have only 100 or fewer closed sales in any month this year – and there are 1,525 PROPERTIES FOR SALE!

By the end of May, the higher-end buyers are going to be licking their chops.

To commemorate having 100 youtubes ‘in the can’, and to have the entire collection of lowlights in one place, here are the first two previously shared:

http://www.youtube.com/watch?v=vIpRuAC8KE8

http://www.youtube.com/watch?v=WG9k8D3n6u0

and here is the third installment:

Lenders are getting back into the jumbo-loan market.  From the U-T:

http://www3.signonsandiego.com/stories/2009/mar/22/lz1h22harn184154-bank-america-start-financing-jumb/?uniontrib

An excerpt:

Major banks are heading into the jumbo segment, originating big loans at affordable rates – not for Wall Street bond traders but for their own investment portfolios. Bank of America, the country’s largest mortgage lender, is rolling out a large program to finance jumbo loans between roughly $730,000 and $1.5 million, with fixed 30-year rates starting in the upper 5 percent range. The loans will be available through the bank’s retail network and also through its Countrywide Home Loans subsidiary. After April 27, Countrywide will be rebranded – shedding the name it’s had since 1969 – and morph into Bank of America Home Loans. Bank of America acquired Countrywide in 2008.

Though it will almost immediately become the biggest player in the jumbo loan segment, Bank of America will not be alone. With little fanfare, other financial institutions have become more active.

For example, ING Group, an Amsterdam-based banking and insurance conglomerate, offers jumbos as large as $2 million through its online ING Direct unit. The minimum down payment for an ING Direct jumbo is 25 percent; Bank of America quotes a minimum 20 percent.

ING’s jumbos typically are “5/1” and “7/1” hybrids with a fixed interest rate for the first five or seven years, followed by an adjustable rate tied to the LIBOR interbank index for the balance of the 30-year term. Current rates start around 5 percent.

Bank of America’s new program requires hefty liquid resources – six months of principal, interest, property tax and insurance payments in reserve – plus fully documented income, solid credit scores, and a full appraisal.

From the WS Journal:

http://online.wsj.com/article/SB123725421857750565.html

An excerpt:

A better idea is to offer permanent residence status to the many foreigners who are clamoring to get into the U.S. — if they buy houses of minimal values (not shacks). They wouldn’t need to live in those houses, but in order to remove the unit from the total housing market, they couldn’t rent them. Their temporary resident status granted upon purchase would become permanent after, perhaps, five years, if they still owned the houses and maintained clean records. The mere announcement of this program might well stop the ongoing collapse in house prices, especially in cities such as Las Vegas, Miami, Phoenix and San Francisco, where prices are down 40% — but where many foreigners like to live.

Each year, 85,000 H-1B visas are granted for foreigners with advanced skills and education, and last year, 163,000 petitions were filed in the first five days after applications were accepted. The Ewing Marion Kauffman Foundation estimates that as of Sept. 30, 2006, 500,040 residents of the U.S. and 59,915 individuals living abroad were waiting for employment-based visas. Many would buy homes if their immigration conditions were settled.

These people tend to be highly productive. In 2006, foreign nationals residing in the U.S. were listed as inventors on 25.6% of the patent applications filed in the U.S., up from 7.6% in 1998. A Council of Graduate Schools survey found that in the fall of 2007, 241,095 non-U.S. citizens were enrolled in graduate programs. Some 55% were in engineering and the biological and physical sciences, compared with only 16% of U.S. citizens. In 2007, more people on temporary visas received doctorates in physical sciences and engineering than U.S. citizens.

There is a high correlation between education and incomes, and in today’s uncertain economic climate, many wealthy foreigners desire U.S. resident status just as a number in Hong Kong secured residences in Singapore and Canada before the British handover to China in 1997. They rapidly became over a quarter of Vancouver’s population, and brought in billions of dollars to buy houses and make other investments.

We could benefit from such an influx. Merrill Lynch estimates that in 2007 there were 10.1 million individuals in the world, 7.1 million outside the U.S., with at least $1 million in financial assets that totaled $29 trillion. If new immigrants bought the 2.4 million excess houses at today’s $184,000 median price with funds from abroad, they would bring untold billions. The immigrants would also buy consumer goods, pay taxes, and start many new businesses.

We’ve been wondering what it would take to get this REO listed. The locks were changed, appraisal and BPO were in, and it’s been ready to list for three weeks.

Every few days I would send a reminder to the asset manager to authorize the listing, to no avail.

Yesterday afternoon I told my wife that all we needed was a more powerful message, so in my reminder was this addition – “I love working with you!”.

Boom, a couple of hours later, the listing came over – at my recommended $599,900!

Here is an updated video:

Here are your guesses (from Feb. 5th) as to what the final sales price will be, the winner receives 4 tickets to a Padres game.  Good luck!

The median guess was $529,694. Either the video was lousy (it was, I’ve since got a new camera), my readers have a dry sense of humor, or Padres management should be really worried!

Here’s the original video:

Today’s article on cnbc.com has some decent quotes mixed in with some psycho-babble:

http://www.cnbc.com/id/29779920

While great for potential buyers, the added glut of housing could push prices even lower, further depressing the market. At the same time, it could actually jump-start housing by bringing more home-buyers into the market.

With stimulating the real estate market a principal goal of Washington policymakers, the temptation for buyers and sellers to jump into the market could be irresistible, especially if interest rates stay low.

“The first signs of life you see in home sales you’re going to see met with a lot more inventory,” says Michael Pento, chief economist with Delta Global Advisors. “The last thing you want to do as to add more inventory to an already-oversaturated market.“

 Agreed, if we see a flood of new listings, it’ll probably stymie any momentum that might be building.  How are we doing so far? 

Here are the new detached listings coming on the market, and number of detached closings, between March 1-15:

No big explosion of new listings in San Diego County, at least not yet. More evidence of what we’ve been seeing of closings; the lower-end is hot, higher-end is not.

Off-topic, but just heard from somebody who is at the gun show – they’re in a three-hour-wait line to buy ammunition!

Pichon remarked,

“Jim, What will this mean for the higher end properties in the next 2-3mo.?  Will the declines now stall again?   We were finally seeing some movements down, but at best we are at 2004 vs. 2001 pricing at the lower end.”

Others commented on it too, so let’s review what the Fed’s action is likely to cause.

When mortgage rates are at all-time lows, people are going to be enthusiastic about homebuying.  But those rates are only available on mortgages up to $697,500. 

Conversely, the jumbo rates look extremely high in comparison, and the lower rates will dis-incentivize (is that a word?) buyers who need jumbo financing.  They’ll just pack it in, rather than take a 7-8% rate when others are getting a government-subsidized 4-something rate.

So two things will be happening at the same time:

1.  The market up to $800,000 should benefit greatly, and be near frenzy until May.

2.  The higher-end should languish.

The areas that are hot, like Oceanside, are moving because they have plenty of sellers (banks) that have to sell for what the market will bear - and properties are selling for half of what they sold for just 3-4 years ago.  No surprise that buyers like it when mortgage payments are the same as rents.

But just because some lower-end areas are hot, does that mean the overall market can sustain itself?

No, the HIGHER-END MARKET SHOULD GET MORE STAGNANT, if that is possible.  Sellers will hold out as showings may increase slightly, and they think they are close.  But those lookers coming by are just confirming that this is another over-priced listing.

Plus, because of the ‘Anti-Buy-and-Bail’ rule, there is no trickle up. 

The folks selling lower-end homes don’t have a big chunk of equity to buy higher, heck they are just happy to get out, after enduring a punishing 30% to 60% beatdown.  They aren’t going to fuel the million-dollar-plus market.

The Big Squishdown should pick up steam, with occasional CV-type tract homes selling for 10% to 30% less this year.  You won’t see the active listings go down 10% to 30%, because many sellers (and their agents) DON’T GET IT, and will be basking in ’false sunshine’ (thanks Dawg). 

Pricing of the active inventory won’t budge, until May or June as the motivated sellers start inching towards the exits.  But it’ll be too late, unless they drop substantially – and those will be the only ones selling.

I represented the buyers of a house that closed last week in La Costa Valley that had sold for $929,500 in 2005.  We watch the loan amounts closely, mostly because we want to stay away from short sales, and in this case, when the sellers had purchased, they had a big down payment – the loan was only $659,000.

The sellers had been relocated, and listed for $799,900.  We were able to talk them out of another $54,000 during the first week of being on the market, and closed at $745,000.

Here are the reasons I thought it was a good buy:

La Costa Valley is older, built between 1998 and 2002, which hopefully means fewer over-encumbered homeowners.  The recent supply of homes for sale has been fairly low too.

This 2,797sf house has superior granite and travertine upgrades, and a due-west orientation, backing to the creek.

This location is right next to superior Davidson homes – a smaller Davidson listed at $875,000 on same street while we were in escrow, and went pending after ten days.

The government’s support of Fannie/Freddie should mean some firming of prices around the $700,000 to $800,000 range.  I think you’re still going to see the Big Squishdown cause bigger homes fall into this price range though.

Will it hold up? I don’t know, but I think we did as good as you can do today.  We had seen virtually every home for sale over the last 6-7 months, looking specifically for houses that used to be $900,000+ that we could buy in the $700,000s, and not compromise on the condition.

Will the government keep taking corrective action?  They’ll keep spending money, but their purchasing of mortgages and treasuries is the only thing they’ve done so far that could work.  At least if they can lower rates, it’s fair to all taxpayers, giving those who find the right house, at the right price, some benefit too, and not just bailing out defaulters and banks.

From George C:

The announcement from the Federal Reserve yesterday that it will buy $1.2 trillion in U.S. Treasury and mortgage securities sent interest rates plunging. This morning Freddie Mac announced that the average rate in the past week on a 30-year fixed rate mortgage loan dropped to 4.98 percent, just slightly above the all-time low of 4.96 percent set in early January. A year ago the rate was 5.87 percent. The anticipation is that by this time next week the rate could be at or below 4.50 percent.

More from cnbc:

The Fed, seeking to push rates down further, is effectively planning to buy at least half of the home loans made in the U.S. this year based on last year’s total of about $1.4 trillion in mortgages. Around 70 percent of new loans in recent months have been backed by Fannie and Freddie, the mortgage finance companies seized by government regulators in September.

Fannie and Freddie own or guarantee almost 31 million mortgages worth about $5.5 trillion, more than half of all U.S home mortgages.

The mortgage industry, armed with $75 billion in federal bailout money that President Barack Obama wants to use to prevent foreclosures, is receiving record-high levels of requests for help from troubled homeowners.

More than 13,500 homeowners a day have called the Homeownership Preservation Foundation’s 1-888-995-HOPE hot line since the Obama administration’s program launched earlier this month, about triple the daily level of calls received before the plan was announced.

Mortgage applications jumped 21 percent last week from a week earlier, as low interest rates fueled refinancing activity, according to the Mortgage Bankers Association. About 73 percent of applications came from borrowers seeking to refinance home loans at lower rates. Also Wednesday, Fannie Mae said the volume of mortgage loans it refinanced in February totaled $41 billion, nearly triple January’s volume.

The government being willing to purchase this much paper should get mortgage rates into the 4-5% range, and keep it there for a few months, but will it be short-lived?  The banks need to flood the market with the stealth REO inventory while they can.  It’ll lighten the load for them, and give the market more evidence/comps to use to help determine current values.  The results of 13,500 people calling the hope hotline will be interesting too – wonder how many can get real help?

What does it mean for buyers?

Principal and Interest Payments:

$417,000 at 4.50% = $2,112.88

$550,000 at 4.75% = $2,869.06

$697,500 at 5.00% = $3,744.33

There will be fence-sitters that find these payments very attractive, especially those looking for previously-jumbo loans up to the $697,500.  Even though they have the $8,000 tax credit coming too, I think they’ll still insist on finding the right house, at the right price.