Case-Shiller

The Case-Shiller index for March is out today, and San Diego came in ninth out of the top 20 cities for year-over-year decline:

Town or Area Y-O-Y
Phoenix -36.0%
Las Vegas -31.2%
San Fran -30.1%
Miami -28.7%
Detroit -25.7%
Minneapolis -23.3%
Tampa -22/4%
Los Angeles -22.3%
San Diego -22.0%

But those numbers are for March, and are based on a three-month moving average – is there any break in the trend? Here is the chart of number of detached sales, and average $/sf for Carlsbad-to-Carmel Valley for the period April 15th to May 15th:

Year # of Sales $/sf
2002
330
$264
2003
313
$299
2004
315
$381
2005
249
$406
2006
218
$416
2007
249
$396
2008
177
$399
2009
172
$351

The 12% decline in average PPSF since last year was the biggest Y-O-Y negative change on the chart, so it doesn’t look like the Case-Shiller numbers will be letting up anytime soon.

Hotel California?

This is located just north of the 395 exit from the I-15 freeway, between Gopher Canyon and Mission off-ramps.

The owners had paid $170,000 for the lot in 1999.  Countrywide gave them a $1,140,000 mortgage in February, 2006, but that wasn’t enough, apparently, because they got a new loan for $1,499,000 on 12/29/06 to build 7 bedrooms, 5 bathrooms and 6,237sf on 15.82 acres.

Now it’s listed for just $466,900!

Here’s a youtube video tour:

Here are shots of the exterior stucco, where leaks are happening:

Lack of Inventory

You’ll hear people say that there’s a lack of good inventory for sale.

The total number of attached and detached homes for sale was 23,649 in September, 2007.

Today it’s down to 10,123, counting those pending short sales that are still marked ‘active’ – it’s probably more likely to be in the 8,000 to 9,000 range.  SB mentioned that Sandicor has a new status called ‘CONT’ for sales that have offers in contingent on lender approvals, but it’ll take time before agents incorporate it – there was no mandatory requirement to go back through your listings and re-mark them.

Yet there are virtually no good buys lying around – they get snapped up immediately upon listing.

WHAT CAN BUYERS DO?     WAIT – FOR THE FOLLOWING:

A. WAIT FOR LISTING AGENTS TO WAKE UP

There are still thousands of homes for sale, but their listing agents are drinking the kool-aid.  They read headines that say sales are up, and hear stories around the water cooler about hot deals and multiple offers.  They want to believe that it’s just a matter of time before a buyer comes along.

Excuses heard recently from agents trying to justify their list price, and, as a result, not selling:

  1. “It has six figures in upgrades”  (no offers in almost 3 months of trying)
  2. Just have to find the right buyer” (1950s home in original condition)”
  3. “For that money you should be looking at condos” (same agent trying to sell since 9/07)
  4. “You’re going to have to do better than that, kiddo.”

If a house is on the open market, the only question that matters is, “Have you had offers?” 

If the answer is no, then the price is TOO HIGH!  Yet even the experienced veteran agents think that their job is to protect their sellers from selling too low, and to wait instead for that magical ‘LUCKY SALE’.  “Waiting” works when prices are increasing – but in this market, agents have a fiduciary duty to tell their sellers to lower their price.  But they don’t do it.

B. WAIT FOR MORE REOs

Everyone is talking about it, from Bruce Norris to Dan McAllister, from the blogging community to the local grocery bagger.

More REOs coming to market will provide inventory that is hard to find today – properties with the right price, and that you can buy today.  In the better areas that have had fewer bank-owneds, a frenzy will break out at the sight of a well-priced REO.

The coming REO listings could get absorbed, with the lack of other realistically-priced listings – everything else on the market is picked over, and buyers want new meat! The recent REOs haven’t been selling cheap either.

You can see them coming too – here are the SFRs on the foreclosure lists: 30 in Rancho Santa Fe, 50 in Del Mar/Solana Beach, 70 in Carmel Valley (29), 130 in Encinitas (25), and 300 in Carlsbad (26). In parenthesis are those valued over $1 million.

If the aren’t enough buyers, the motivated bank-sellers will lower their prices until sold. But they haven’t had to discount many REOs, at least so far. They’ve been very successful listing at 2%-5% under comps – with more REOs in the higher price ranges, that formula may get tested.

C. TRY SHORT SALES

There will probably be more short sales coming to market, than foreclosures – only because it’s still early.  If you have time (3-6 months) to wait and see if the bank will approve your terms, then there could be some opportunity.  But patience is required.

The banks aren’t rolling over on lowball short sales. 

The agent in La Costa Oaks who tried to dump and run at $920,000 had to put the listing back on the market yesterday – for $1,065,000, the bank’s appraised value.

D. EXPAND YOUR TARGET ZONE

If schools are a primary motivator, investigate them carefully.  The high schools especially have seen movement – did you know that La Jolla, Torrey Pines, CCA, La Costa Canyon, Carlsbad, and San Marcos High Schools are all rated an “8” at the website www.greatschools.net?  I don’t know much about the website’s accuracy, but it wasn’t that long ago that they rated Torrey Pines a “10”. 

There are reports of rampant drug use at all SD high schools (my oldest is graduating next week!).

E. PAY MORE

I don’t condone over-paying – most listings I see are 10% to 20% too high, and you have to let them go.  But if you are within 1-2% of making a deal, consider the benefit of ending the frustration.  It will get more frustrating, not less, should more foreclosures hit your market.  The additional competition between buyers will likely push prices beyond the ‘nice buy’ range, and into the ‘retail-ish’ range.

In summary, the longer you wait, the better your chances of seeing more product, but finding the right house at the right price is very difficult.  I think that there are many homeowners who are just now defaulting, and will hit the market as short sales or REOs over the next 1-2 years.  They should help fuel the supply, but if you can’t find the right house at the right price, it won’t matter much. 

 

Investor Report – $130,000s

Back in January we noticed this house on Parker that was a Downey REO – back in the day when they had their own brokerage.

This was the one photo in the listing:

It was listed for $169,000, and the day after this video ran about it (link to previous youtube video):

http://www.youtube.com/watch?v=HoAU74O1Ut0

Downey cancelled their own listing and gave it to a local agent, who closed it for $134,000 all-cash in March, 2009.

For those of you who’d appreciate the before-and-after look on these cheapies, here is a new video of the house next door that just listed for $139,000, and has multiple offers on it:

 

At the end of this video the camera peeks over the fence to look at the backyard of the house at the top – and you’ll see quite a difference. It looks like they may have rented it out, and probably got $1,300 to $1,500/month without too much trouble. In April, almost two months after paying $134,000 cash, they refinanced with a loan for $131,000.

HoHoHo 2.0

Hat tip to Stephen for passing this along, from propublica:

The Hope for Homeowners program was created by Congress last summer to help an estimated 400,000 homeowners avoid foreclosure. But it could more aptly be called the Hope for A Homeowner program, given that just ONE has used it successfully since its October launch.

But silver linings are hard to come by these days, so we might as well point out that she is one satisfied customer.

“What a relief!” the lucky homeowner from Litchfield Park, Ariz., wrote to her mortgage bank, NationsChoice, in February. “An extra $542 in monthly savings and a $100,000+ principal reduction sure is a relief. Thank you!”

Hope for Homeowners was designed to give people who couldn’t afford their mortgage payments a chance to refinance into a 30-year, fixed-rate loan insured by the Federal Housing Administration, even if they owed more than their home was worth. But the lender would need to reduce the amount the borrower owed before the FHA, a division of the Department of Housing and Urban Development, would insure the loan.

The program has been a flop. But Congress and the administration are trying to rescue it, envisioning it as a key component of the government’s campaign to curb foreclosures. On Wednesday, President Obama signed a bill that includes improvements to the program.

Some think this is a mistake.

see the rest of the article here:

http://www.propublica.org/ion/bailout/item/analysts-tweaks-may-not-save-congress-failed-foreclosure-fix-522/#10778

Deadbeats

Here’s a sample of the frenzy-like activity spotted all around the county.  The zip code for this street is Kensington’s 92116, but one block away is Talmadge, 92115, and City Heights, 92105, and although it may be north of El Cajon Blvd. (by just 1.5 blocks), the negatives here weigh heavily – condition of property, proximity to busy street, tougher neighborhood nearby, plus the house is dark inside.

And there are 5-6 offers in on it!

Here’s the youtube video tour:

Tax Collections

from sddt.com

Dan McAllister, county treasurer-tax collector isn’t sure if it’s a record, but with some $249 million in delinquent property taxes, he has more than a little work cut out for him. 

The nearly quarter of a billion figure is out of $4.55 billion the county set out to collect last September. McAllister noted that while there has been about a 1 percent decline in the number of delinquencies from last year, the dollar amount climbed by about $12 million to the current $249 million.

“It is a small amount relative to the overall number, ($4.55 billion) but it is still a lot of money,” McAllister said.  The treasurer-tax collector will now be sending 71,478 delinquent notices to San Diego County taxpayers who failed to pay either biannual installment of their property taxes.

When asked what he will do to collect, McAllister said late notices and calls will be made.  “And we visit people,” McAllister said.

McAllister said delinquent payers are already subject to a 10 percent penalty. Taxpayers then have until Tuesday, June 30, 2009 to pay their property taxes or an additional penalty of 1.5 percent per month, or 18 percent per year, will be added to their tax bill. Active duty military must still pay their taxes, but are not subject to the late fees.

Property owners requesting a reassessment of their property are still required to pay the amount that was printed on their tax bill statement. If they are granted a lower assessment, a refund will be issued. 

If the property owners continue to fail to pay their taxes, assessments and penalties continue to accrue for the next five years, after which time the property may be sold at a tax sale.

The types of property included range widely from land and homes to boats and aircraft, but McAllister said that more than 90 percent of the assets assessed are real property.

McAllister’s office boasts about a 96 percent successful collection rate, but he concedes this figure may well decline when an expected wave of foreclosures hits San Diego County around mid-summer. McAllister expects the market to improve after that, however.

“I remain optimistic. San Diego’s housing market has proven itself to be very resilient,” he said.

The realization that nearly a quarter of a billion dollars in property taxes are delinquent comes when San Diego County is in one of the rare times when there is a projected reduction in the total assessed valuation. It appears the projected assessed valuation for the fiscal year ended June 30 will be roughly $399 billion, off about $10 billion from $409.3 billion last year.

Some municipalities are faring worse than others.  Chula Vista, which got hammered by foreclosures in places such as Otay Ranch and EastLake, is projected to post about a 7.34 percent decline in its assessed valuation. This will mark the second year in a row that Chula Vista experienced a downturn.  Lemon Grove is projected to post an 8.97 percent decline and the city of San Diego is projected to see a 1.35 percent drop in its assessed valuation.

Some cities are bucking the devaluation trend, but these are in the expensive coastal areas of the county. Del Mar for example, is expected to have improved its overall assessed value by 4.55 percent by the end of the fiscal year in June. Coronado is expected to have climbed by 3.41 percent and Solana Beach’s assessed valuation is projected to go up by about 1.88 percent.

This year’s totals will continue to be tallied until the end of next month. Last year’s tally assessed 975,679 parcels, 159,183 businesses, 75,305 boats, 22,923 manufactured homes and 5,189 aircraft.

Real Estate/Bank Terrorist

Bruce Marks doesn’t bother being diplomatic. A campaigner on behalf of homeowners facing foreclosure, he was on the phone one day in March to a loan executive at Bank of America Corp.

“I’m tired of borrowers being screwed!” Mr. Marks yelled into the phone. “You’re incompetent!” Before hanging up, he threatened to call bank CEO Kenneth Lewis at home to complain about the loan executive.

Mr. Marks’s nonprofit organization, Neighborhood Assistance Corp. of America, has emerged as one of the loudest scourges of the banking industry in the post-bubble economy. It salts its Web site with photos of executives it accuses of standing in the way of helping homeowners — emblazoning “Predator” across their photos, picturing their homes and sometimes including home phone numbers. In February, NACA, as it’s called, protested at the home of a mortgage investor by scattering furniture on his lawn, to give him a taste of what it feels like to be evicted.

In the 1990s, Mr. Marks leaked details of a banker’s divorce to the press and organized a protest at the school of another banker’s child. He says he would use such tactics again. “We have to terrorize these bankers,” Mr. Marks says.

Though some bankers privately deplore his tactics, Mr. Marks is a growing influence in the lending industry and the effort to curb foreclosures. NACA has signed agreements with the four largest U.S. mortgage lenders — Bank of America, Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc. — in which they agree to work with his counselors on a regular basis to try to arrange lower payments for struggling borrowers. NACA has made powerful political friends, such as House majority whip James Clyburn of South Carolina, and it receives federal money to counsel homeowners.

Some 1.7 million U.S. households will lose their homes in foreclosure this year, according to a forecast by Moody’s Economy.com, versus under 500,000 a year early in the housing boom. Banks want to show they’re making every effort to keep people in their homes. That can mean working with housing-advocacy groups that routinely bash the industry, increasing the clout of such nonprofits. Less certain is whether these groups can translate their new leverage into long-term influence over how mortgage lenders treat customers.

“We have the opportunity to change how lending gets done in this country,” says Mr. Marks, whose group is itself a mortgage broker and has 40 offices staffed with housing counselors. He favors a return to more traditional standards, with full documentation of income and the same fixed interest rate for everyone.

Instead of relying on credit scores, he thinks lenders should look into the reasons for any late payments in prospective borrowers’ past and prepare renters for the responsibilities of home ownership. Then, if people are given a loan they can afford, they shouldn’t be required to make a down payment, he argues.

Critics doubt some of these changes would be helpful. Having to use a single interest rate for all would make banks less likely to lend to people with blemished credit records, says Richard Riese, an executive at the American Bankers Association.

A single rate also could lead to higher rates for everyone, adds John Courson, chief executive of another trade group, the Mortgage Bankers Association.

Mr. Courson declined to comment on Mr. Marks. “You’re not going to drag me in there,” he said.

NACA seeks to limit mortgage payments to whatever a borrower can afford, and doesn’t favor stretching out payment periods. That contrasts with a loan-modification plan pushed by the Obama administration, which aims to limit payments to 31% of income.

NACA says it arranged $367 million of mortgages last year. Those borrowers must become members of NACA, agreeing to participate in its protests or help out at its offices, and for several years must contribute to a fund for homeowners who fall behind because of sickness or job loss. All NACA members pay the same interest rate, currently 4.375%.

Mr. Marks says 3.67% of loans NACA originated were 90 days or more overdue as of March 31. The industry average was 3.49%, according to LPS Applied Analytics, a data firm. According to Mr. Marks, 0.68% of the NACA loans were in foreclosure. The industry average was 2.45%, says LPS.

Some lenders have refused to sign contracts to work with NACA, among them HSBC Holdings, Barclays and Credit Suisse Group. All declined to comment. Mr. Marks says some banks that won’t sign agreements do negotiate individual cases with NACA. Even so, NACA sometimes pictures their executives and the executives’ homes on its Web site.

It recently added a photo of William Gross of Pacific Investment Management Co., the big bond house known as Pimco, along with pictures of his home and other information. Mr. Marks says his contacts in banking and government tell him Pimco doesn’t support the administration’s push to modify mortgages. “We’re exposing them,” Mr. Marks says. A spokesman for Pimco said neither it nor Mr. Gross would comment.

Mr. Marks says financial executives should be held personally responsible for actions that affect people’s lives, and “if they interpret that as intimidation, so be it.” He says that “we’re not talking about violence. We don’t do violence.”

“I have a difference with Bank of America. I have a substantial amount of assets with them,” Mr. Frey says. “We take them to court. This is how we do it in this country….It’s a civilized society.” The response from NACA, he adds, “is a mob showing up at someone’s house to intimidate them to drop this suit. At what point do people say, ‘This is starting to be uncomfortable’?”

“It should be uncomfortable,” says Mr. Marks. “You win a campaign by being relentless. Everybody has a breaking point….At some point they say, ‘How do I get these crazies off my back?’ “

Bank of America says home loans originated by NACA “are equal to and in some cases are performing better than our prime book of business.” A bank spokesman added, “There are few organizations that can bring a buyer to the table who has been through such extensive pre-buying counseling.”

Despite receiving taxpayer money, NACA doesn’t provide public reports on either its loan-brokerage business or its campaign to modify mortgages. Jim Campen, an economics professor emeritus at the University of Massachusetts, Boston, says he tried in the 1990s to analyze the performance of loans arranged by NACA, but Mr. Marks refused to provide data.

Mr. Marks says he feared the data would be used by another nonprofit to discredit his group. NACA does provide information to lenders that work with it, he says, but sees no duty to disclose it to the public.

“He’s been very effective in shaking money out of the banks,” says Mr. Campen, but “he’s not one to open up his records to public scrutiny.”

 

Investors Pounce on REOs

from WSJ, hat tip to Mr. T:

The pace of housing sales has been rising in many markets this year, but it is only partly because families seeking affordable housing are returning to the market.

It also is because of investors like former Deutsche Bank managing director Matthew Cooleen, whose firm has spent $30 million buying pools of foreclosed houses from banks.

His newly formed Greenwich, Conn.-based firm, HudsonCross Financial, is betting it can make a profit reselling in beaten-down markets in states like Nevada, Arizona and Florida and in Southern California because it is paying so little for the homes.

Outside San Francisco, a former Morgan Stanley executive director’s new firm is buying four houses for 75% less than they cost four years ago, and is raising $6 million to purchase others.

In Phoenix, Mark Allen, a former division president at D.R. Horton, the nation’s largest home builder, is reselling homes he is buying at courthouse auctions with funding from Gorilla Capital, an Oregon-based firm that targets foreclosures. “It’s the only way to make money in Phoenix residential real estate right now,” Mr. Allen says.

Below: Gorilla Capital’s Mark Allen, center left, attends auction for foreclosed homes in Phoenix on Monday.

After mostly retreating from the housing market after the bubble burst, investors are returning in droves, hoping to take advantage of the distress. In many cases, Realtors say, investors also are outbidding first-time home buyers and other would-be occupants because they often come to the table with all-cash offerings.

Some of the new investors profited while home prices boomed and are now trying to cash in on their decline. Far from their trading rooms and executive suites, some are spending their days looking for deals in far-flung suburbs and staking out courthouse auctions.

While many real-estate trade groups don’t track investor purchasing on a monthly basis, real-estate agents in many markets say investor buying is high. One telltale sign is how many home buyers are paying all cash.

Though not every cash sale involves an investor, the investors often use cash because they can close quicker and get a better return. In the Phoenix area, for example, about 38% of April sales of single-family homes were all-cash deals. In Punta Gorda, Fla., the figure was 67%, and in the Las Vegas area, total cash sales were 39%.

It isn’t the easiest way to earn money. Managing a far-flung collection of houses can be time-intensive and fraught with hidden costs.

Buying houses, rather than apartment buildings or other commercial property, tends to favor small investors who are agile and understand local submarkets. The work often involves replacing carpets, repainting and kicking out squatters. Much of today’s buying is being done by mom-and-pop investors, who are acquiring a few houses to rent out.

But in some markets, where prices have fallen the most, the bargains are difficult to pass up for larger investors.

“Foreclosures are low-hanging fruit at the moment,” says Laurence Pelosi, who helped close big land and housing-development deals for Morgan Stanley before he left the bank earlier this year and joined McKinley Partners, a small investment firm that is buying foreclosures in California.

McKinley and a partner are in contract to buy four homes in Pittsburg, a small city east of Oakland. The firm is buying one house, which was valued at $412,000 near the peak in 2005, for $84,000. McKinley plans to rent out the homes for as much as $1,200 a month. After paying to manage the property and other expenses, it expects 5% to 7% returns on its investment from the rental income and, hopefully, a big payoff from a resale when the market improves.

The firm is paying cash up front, but has a commitment from One California Bank, an Oakland-based community bank, to finance 50% of the purchases after they close. They hope that will free up cash to buy more homes.

The firm believes homeowners losing their houses in foreclosure actions need places to rent.

“It’s tough times in the Bay area, but this isn’t Detroit,” says Paul Staley, who acquired distressed homes earlier in the decade with Fortress Investment Group and recently teamed up with McKinley. “Everyone is going to need a place to live.”

McKinley plans to resell the houses in about five years for double what it paid and is targeting 20% annualized returns for its investors, which include wealthy individuals.

HudsonCross Financial is buying pools of 10 to 200 homes. “It only makes sense if we buy in bulk,” says Mr. Cooleen, who worked in the structured credit trading group at Deutsche Bank that dealt in credit derivatives and mortgage-backed securities.

About 40% of the banks and lenders Mr. Cooleen deals with are agreeing to sell homes in bulk, but the others are reticent, he says, because they believe they can get better prices if they wait to sell them individually.

“It’s a shame. The sooner we clear the inventory of foreclosure the sooner the housing market can recover,” says Mr. Cooleen.

The competition for the houses is intensifying as the supply of foreclosed homes in some places has fallen in recent months.

But the inventory is likely to rise later this year as banks end their moratoriums on new foreclosures and begin dumping additional houses on the markets.

Barclays Capital estimates that banks and loan investors owned 765,500 foreclosed homes as of April 1, up from 629,100 a year earlier. The inventory is expected peak at about 1.3 million homes in mid- to late 2010, according to Barclays.

The investors are no panacea to the nation’s housing woes. When the market improves, many of them could put their houses up for sale, reinflating supply.

“All this investor buying isn’t depleting supply, it’s only shifting it around,” says Mr. Allen of Gorilla Capital.

Pin It on Pinterest