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How are short sales affecting the market?

This chart divides Actives by Pendings (A/P, our gauge of the relative ‘health’ of each market). We’ve seen in the past that a 2.00 reading seemed healthy, and 3.00 was tolerable. I included contingents in the Pending counts because now they are much more likely to stick, and if a buyer does cancel, it’ll be because they found a better one and replaced it.

The two columns on the right side of the chart show the number of short sales in each Pending count, and the total number of short sales closed last year in each town:

Oceanside and Vista are smoking red hot with 1.05 reading – they literally have almost as many pendings as actives. Why? Because sellers AND buyers AND agents have embraced short sales. Comparing the pending short-sale counts of current vs. last year, it looks like Oceanside and Vista will probably set new records this year – and received a lot of experience in 2011.

But in NSDCC (the last six categories), it appears that short sales are a relatively new concept – but coming on strong. The difference is capitulation – Oceanside and Vista sellers have conceded on price, and buyers are responding. As a result, the market is working.

We need some old fashioned market clearing in NSDCC, where it is stale and stagnant.

In the last six towns on the list, there are 1,086 detached homes for sale. Even with the dozens of “refreshed” re-lists in the new year, the average market time is 121 days – with 21% of them having been on the market for more than six months!

How many sellers are in the ‘pre-distressed’ stage, and are just testing the market today at higher pricing to see if they can get out with at least enough for a steak dinner?

There must be quite a few – what will be the effect when they finally cave?

Specifically, would it hurt the market if they lowered their price and entered short-sale status?

Based on areas that have already seen capitulation, it doesn’t look like it (capitulation = lenders and listing agents getting sellers off the fence, price-wise).

Oh but wait JtR, Oceanside and Vista is a whole different socioeconomic class; there aren’t that many rich people. OK, we’ll see, but when there are 18 offers submitted on a funky older house on a busy street in La Jolla, I’ll stick to my guns that there are plenty of buyers….waiting.

Short sales are the device being used to ensure a softer landing, and the lenders/servicers will control the pace as needed. But they would be smart to recognize that market clearing is working great where implemented!

In the not-so-distant past, both buyers and agents avoided short sales. They took too long, and the outcome was very uncertain.

But closings of detached-home short sales are increasing around the county:

We saw that the banks’ approval rate of recently closed NSDCC short sales was less than 60 days – helping to keep buyers interested in sticking around. With banks typically pricing REOs at retail, short sales might be the only place where you can find a deal.

We have wondered if 2012 will be the Year of the Short Sale.

Reader TH asked, “What is the problem with short sales?”

The gripe about short sales is that they take so long to complete.  Over the last few years, it would be 6-12 months before you’d hear anything, let alone close – and buyers wouldn’t wait. 

But now with HAFA throwing a little money at the sellers ($3,000), and relaxing the qualifying guidelines, the process has been streamlined.

A review of 23 short sales closed since November 1, 2011 around NSDCC revealed the following:

1. The average time to approve these short sales was 66 days.

2. Removing three that took 100+ days, and the average was 55 days for short-sale approval.

At first we thought that HAFA’s rule requiring that the lenders waive their right to collect any deficiency, combined with California’s SB 458, could cause the lenders to slow down or stop short sales altogether. But instead, it appears that the system has improved greatly. 

There were 59 sales marked as short sales, but due to the lousy reporting by listing agents, I only considered the 23 that marked their listing from ACT to CONT, and then from CONT to PEND and measured the difference in time. 

The MLS remarks allow for the listing agent to report any concessions.  Only two of the 59 mentioned any money brought in to make the deal, another sticking point from past short sales.

If the lenders are willing to process these promptly (less than two months), and not demand money be brought in, we should see smoother sailing with short-sale approvals this year. 

It looks like 2012 could be the Year of the Short Sale!

This fell out of escrow for the second time today:

The agent states in the listing that the short-sale approval letter will not be furnished to the buyer, which is a first.  How will the buyer know they have a deal?  Might the hold-back have something to do with the agent only offering a 2% commission?

There will be realtors who see this video and think, “Jim, you have it all wrong.”

“The listing agent’s duty is to the seller only, not the bank.”

But that is the short-sighted, greedy viewpoint.  For agents to hide behind that simple thought, and ignore the big picture so they can pad their wallets is how we got here in the first place.

The big-picture viewpoint:

1. It’s wrong because it’s wrong.

2. To purposely cause banks to accept less than full value increases the eventual taxpayer bailout, which our children and grandchildren will inherit.  If you are OK with that, you are a dirtbag.

3.  To perpetuate the fraudulent activity increases the chances that banks will shut down the realtor program, and find a way to liquidate these properties without us.

4.  I encourage you to sell my listings, you should allow me to sell yours.  It is how the co-op realtor business was designed in the early 1960s, and should be respected – or disbanded once and for all for the kill-or-be-killed program.

If you are a realtor and still have a problem with this, then submit your name and license number with your comment so I can turn you in too:

Hat tip to Kwaping for sending this along from Lily at the U-T:

The new owner of the recently sold “Razor” house in La Jolla is a 47-year-old real estate investor from Palm Beach, Fla., with ties to the telecommunications industry, based on information from the listing agent, public documents and other sources.

Donald A. Burns bought the property for $14.1 million in a short sale that was finalized on Tuesday, said agent Bob Hurwitz of the Hurwitz James Co. in Beverly Hills. A spokeswoman for the buyer said Burns was traveling Thursday, and she declined to comment on the transaction.

“The guy is a sophisticated real estate investor,” said Hurwitz, adding that the sale was the most “complex and convoluted” one he’s ever completed in his 31-year real estate career, given all the players involved.

The first asking price for the designer home, the main asset in a bankruptcy case, was $45 million. But that figure plummeted in recent years along with the market and after two failed attempts to auction the oceanfront home.

The original owner, Jimmy Donald Cooksey Jr., filed for bankruptcy in February 2009. Records say Cooksey was discharged from the case in September.

Public documents show what the new owner paid is lower than liens on the home, which totaled about $22.7 million. Burns, who expressed interest in the home about seven months ago, initially offered more than $16 million but in October dropped it to $13.9 million. He won out with his new bid after negotiations that resulted in concessions from some of the lienholders.

Here’s a sample of Burns’ negotiating skills in an Oct. 20 letter addressing Leslie Gladstone, the trustee in the Cooksey bankruptcy case:

“This new offer is lower than my first offer because the lack of other qualified buyer offers over the last months of heavy advertising proved that my past offer was above the Fair Market Value of the property,” he said.

Burns continued to say: “The First Mortgage Holder (Bank of America) will need to ultimately decide if it wishes to own this property, or if they would like to achieve their maximum recovery now and be free of the expense and liability of owning a property that has been the white elephant for four years.”

A court record dated Dec. 7 shows Gladstone agreed with Burns’ argument on the distressed home.

“This immediate relief is appropriate because Bank of America will foreclose on the Property if the sale does not close prior to December 31, 2011,” said Jeffry A. Davis, attorney for Gladstone.

The property, the work of renowned San Diego architectural designer Wallace E. Cunningham, is unfinished and has never been occupied. The new owner plans to work with Cunningham to complete the design.

Recent news coverage reveals that Burns is not new to high-profile real estate deals.

Earlier this year, a penthouse in a SoHo building where actor Heath Ledger died was sold for almost $18 million, based on a story by Real Estate Weekly. That report and a separate article in The New York Times say Burns bought the building seven years ago before turning it to a condo project. (Burns actually attached the Real Estate Weekly article with his second offer letter to prove he was a qualified buyer.)

Aside from real estate, Burns is involved in the telecom industry. Public financial records show he is a board of director of magicJack VocalTec Ltd., maker of a device that plugs into landlines and lets people make domestic and Canadian calls for free, the company promises.

Ron Artest short-sold his house in Sacramento too:

From HW:

Freddie Mac will force parties involved in a short sale to sign affidavits making them liable for their negligent or intentional misrepresentations in the deal, an effort to be sure it’s an arms-length transaction, according to guidance released Friday.

The new affidavit will go into effect Jan. 1, but Freddie is asking servicers to implement the change immediately to fight fraud. However this, and other changes, are meant to expedite the process of getting borrowers in default relocated.

In August, the government-sponsored enterprise alerted real estate agents to the rise in shady short sale deals. The main concern is flopping. There is a growing trend of real estate agents on the buy-side of the deal failing to disclose other bids on the property, rigging the sale at a lower price.

The fraudsters can then flip it, sometimes the same day, and pocket the difference.

In the third quarter, Freddie completed 11,744 short sales and deeds-in-lieu of foreclosure, according to its financial statement. It completed nearly 33,500 of these two foreclosure alternatives in all of 2011.

CoreLogic noted an increase in property fraud in 2011 tied specifically to flopping.

“With this change, you will have more information to identify potential mortgage fraud and a clearer understanding of the intent of all parties involved in the real estate transaction,” Freddie said in the guidance to mortgage servicers.

The guidance put out Friday also trimmed other rules to help servicers speed up the loss-mitigation process.

The GSE also required all amounts paid in the transaction, including anything going to the borrower, be documented fully in the HUD-1 Settlement Statement.

Freddie eliminated the requirement that borrowers more than 120 days delinquent have to list their home for sale before becoming eligible for a deed-in-lieu.

From sddt.com:

Add another data point to housing’s ongoing bounce along the market bottom.

Sales activity of existing homes in San Diego County slipped on a monthly basis in October, falling roughly in line with its year-ago level, according to recent data.

The San Diego Association of Realtors (SDAR) reported that buyers purchased 2,292 total homes last month, virtually unchanged from the 2,297 sold last October but down 9 percent from a month earlier.

Of the homes sold in October, 1,546 were single-family homes. The single-family total is 10 percent fewer on a monthly basis but 3 percent above October 2010.

The 746 condos sold last month represented declines of 6 percent from both the previous and year-ago months.

Among single-family homes, the median sales price — measuring only the cost of the median home of all properties sold during the defined period, rather than a broad change in housing values –fell 1.3 percent from September and 7.6 percent from last October, to $355,000.

The median condo sold for $207,500, down 1.1 percent from September and 2.8 percent from last October.

The most pronounced change in the SDAR numbers, on an annual basis, is the average time properties spent on the market last month.  Single-family homes sold in an average of 91 days, 18 percent more than the 77 average days spent on market last year, and 12 percent more than a month earlier.

The for-sale inventory, especially on the low end of the market, has grown picked over as the distressed properties in the best condition are quickly snatched up after going on the market. Making matters worse, sellers who would typically be looking to enter the move-up market have abstained due to low prices and an unstable labor market.

“People go out and they get very discouraged looking at what’s on the market,” said Alan Nevin, principal of The London Group Realty Advisors last week, reached last week to discuss housing affordability in San Diego. “The number of listings of homes under 500 in acceptable areas is negligible.” (I think he means under $500,000)

Russ Valone, president and CEO of MarketPointe Realty Advisors, said the increasing prevalence of short sales might also account for the rising days spent on market average.

The average is calculated from the time a property is listed to the time it closes, not when it enters escrow. The notoriously lengthy transaction timeline of short sales could push up the average, even if other properties aren’t necessarily spending additional time on the market.

(JtR: The paragraph above is inaccurate, the DOM is calculated from listing date to pending date)

Short sales account for roughly 8 percent of all home sales this year, up from 7 percent in 2010, 5.5 percent in 2009 and 3 percent in 2008, according to CoreLogic.

Valone said the increasing share of short sales is also in part responsible for the softness in prices.  “We’ve been bumping along the bottom for a good year,” he said. “Look at housing market, and softness, has little to do with housing, has to do with larger macroeconomics.”

The market needs echo boomers — children of baby boomers — to leave the rental market and become home buyers, according to Valone.

As long as the labor market remains weak, though, they’ve opted for flexibility over building equity.

“People who don’t own now should be coming into the market with zeal, with good interest rates and prices, and instead they’re saying ‘I don’t know if I’ll be full-time employed in San Diego,’ so they want the flexibility that staying in the rental market affords them,” he said.

While some analysts’ predictions have surpassed the general forecast that prices won’t fall more than another few percentage points, and have suggested they could come down as much as another 7 percent, those losses still don’t represent a great deal of money in the long run, according to Valone. More than a fear that values are still on the way down, it’s a fear of the current labor market that’s keeping young would-be buyers on the wrong side of the fence, he said.

“Housing won’t lead us out,” he said. “Instead of it being the lead engine pulling the train, it’ll be in the back pushing the train.”

Through ten months, total home sales have slipped 3 percent from last year, when the homebuyer’s tax credit propped up sales early in the year, led primarily by a decline in condo sales.

County buyers have purchased 8,902 condos this year, down 8.3 percent from the year-ago period’s 9,709.

Meanwhile, 17,565 single-family homes have been sold this year, down less than a percent from last year’s 17,603.

The average days on the market for the entire year among single-family homes has increased 13 percent, from 74 to 84, while condos are now spending an average of 96 days on the market, up 14 percent from 84 during the first 10 months of 2010.

The median sales price of a single-family home sold this year, $368,000, is 4 percent less than the median home’s price last year. In the condo market, the median price has fallen 5 percent to $207,500.

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JtR’s research:

Now that there are so many companies reporting sales and pricing, the numbers tend to vary. 

I don’t know where CoreLogic gets their “8% of sales this year were short sales”.  Of the detached and attached home sales in San Diego County this year, the MLS shows that 21% have been short sales, and 23% have been REO sales.  

San Diego County sales counts for first ten months (1/1 – 10/31)

Hat tip to daytrip for sending this along:

The stench is only the beginning of the damage someone did to the Bay Shore house. Everywhere you turn, something is ruined and Richard and Scott have no idea who did this.

“I hear from my brother, there was a squatter living in the house. (How did he know?) He passed by and saw the lights on the AC going!” Scott said.

The Scotts haven’t lived in the home for two years. Back in 2009 the house slipped into foreclosure so they put it up for sale and moved down south. In the meantime, the home was torn apart. After police scared off the squatters, in came the scammers.

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