‘Hotness’ Factor

The market has been hot lately because the inventory is low.  There are only 5,880 detached, and 3,043 attached active listings in the MLS – about 38% of what it was in September 2007.

Waiting buyers are frustrated and should be jumping at new product – how are the June listings faring?

This is the chart of all the detached listings that came on the MLS in June, and the number that have gone pending.  If the market is hot, and realtors price them within 5-10% of being right, we should see a third or half of new listings selling:

Town or Area Zip Code June Listings # Found Buyers Ratio
Vista all
San Marcos both
Oceanside all

Those towns are hot – there are plenty of buyers waiting, and close to half of every house listed sells right away. What about the ‘tonier’ parts of town?

Town or Area Zip Code June Listings # Found Buyers Ratio
Encinitas 92024
Carlsbad all
Carmel Vly 92130
Solana Bch 92075
La Jolla 92037
Del Mar 92014
RSF both

Houses stand the best chance of selling when new on the market, yet SIXTY new listings have come on the MLS in Del Mar and Rancho Santa Fe, and NOT ONE of them have found a buyer?

Another Reason for Delay

The foreclosure process for many houses is dragging down to a slow crawl.  Lenders are buried, short sales could be in the works, and the free-loading homeowners have no incentive to cooperate. 

But once the lenders finally complete the trustee sale, they’re not done.  

They have to get the occupants to leave.

Tenants now get 90 days to vacate – from B of A’s Tenant Assistance Flyer:

The “Protecting Tenants at Foreclosure Act of 2009” took effect May 19, 2009 and applies to properties with a foreclosure date of May 20, 2009 or after. This new bill requires 90 days notice to vacate or notice to quit, depending on the state guideline requirements for tenant occupied properties. Should the tenants produce a bona fide lease, then the terms of the lease will be honored. A bona fide lease must be at arms length, the tenant cannot be the prior mortgagor, spouse or child of the mortgagor, the lease must have been executed before the notice of foreclosure, and the lease must be fair market rent for the area.

Doesn’t that sound like they just got into the landlord/property management business?  Not only will tenants get an automatic 90 days to vacate, if they have a lease that goes longer, it sounds like they can stay, as agreed.

Affordability + Rate Graph

This plots the same SD affordability ratio (in red) and the Freddie Mac average 30-year mortgage rate for June (in blue) on the same graph. 

I don’t know if it means anything, other than to recognize that this is the first time since 1980 that BOTH factors are near their lows at the same time.  Sellers, in particular, should take heed.

Not In Our Lifetime?

The Milken Institute has been parading around their idea of debt relief for over-encumbered homeowners, in an attempt to keep them from walking away.

From the L.A. Times:


Say an owner’s mortgage is worth $400,000 but his house is valued at $300,000. The government would refinance the $400,000 loan with two new loans. Fannie Mae, the mortgage financier now under government control, would provide a first loan for the market value of the house, in this case $300,000. The Treasury would issue the second loan, in this case for $100,000.

The Treasury loan would be interest-only and would provide the vesting part of the program. For each year that the homeowner keeps up payments on both loans, one-fifth of the Treasury loan would be forgiven.

“This gives homeowners the incentive of returning to a positive net-equity position before their hair turns grey — maybe even in time to pay for their children’s college education,” Klowden and DeVol wrote in a summary.

They estimate that the cost to Treasury (and thus to taxpayers) of saving 1.5 million homes from foreclosure or abandonment with this plan would be between $75 billion and $100 billion. That assumes the government wouldn’t jeopardize the original lenders’ balance sheets by forcing them to share in the cost via haircuts on their loans.

DeVol concedes that the Milken proposal would be a handout to the usual suspects in the housing crash — mainly, California, Florida, Nevada and Arizona — because those are the places where the negative-equity problem is dire.

So Nebraska doesn’t need the program, but would have to help foot the bill.

This is another crazy proposal in a series of nutty ideas to prop up the housing market, and will probably fall by the wayside, like the rest. 

But here’s the best quote in the article:

Richard Green, director of the USC Lusk Center for Real Estate, also favors the debt-for-equity swap concept to permanently reduce mortgage balances for struggling homeowners. The need is chronic, he says, in places like Riverside County, “where prices aren’t coming back to where they were, maybe in our lifetimes.”

Yesterday chart showed that in 2005 the SD median-priced home was 9.7x the median income!

It’s not just Riverside County.  Let’s get used to the idea that we won’t be seeing the bubble-era prices for a very, very long time.

SD Price/Income

There has been discussion about San Diego home prices reverting back to their ‘normal’ trend, but what is normal?  3x income?  4x income?  5x income?

The few times I’ve spoken up about the income question, I’ve said “Who cares about the median income for the county, what counts is the income of the potential buyers”.  Not everyone who lives in the county is looking to buy a home, and at this point they are most certainly a minority.

But comparing the trend is noteworthy, because over time there should be a statistical ‘norm’.

Harvard has charted the affordability index for each metro area, the comparison of median household income to median home price through 2006.  I used the city-data report of median household income ($61,793) to their median home price ($556,500) for 2007.

For 2008 and 2009 the income used was $60,000, and the Dataquick median home price for May ($380,000 and $295,000).  This is the chart of median price/median household income:

Since 1980 the number has never been under 4.0. 

Yes, today’s median sales price is skewed artificially low due to the hot lower-end markets, but overall it looks like the relationship has gotten somewhat back in line.

Yes, the higher-end is screwed up, and has a long ways to go.  The median sales price so far this month for the 126 detached sales from Carmel Valley to Carlsbad is $800,000.  But as more higher-end sellers sell for less (instead of not selling), this number should trend higher if the median sales price rises, and incomes stay the same.

What if the median income goes down at the same time?

Example: Median sales price trends up to $350,000 due to additional higher-end sales, and the median income drops to $55,000.  New ratio is MSP = 6.36 x income.

I’m not sure we’ll depend on this relationship to tell us much in the future.

The Harvard Excel spreadsheet for metro USA areas: metro_affordability_index_20071

Ice Cream Truck Magic

You keep hearing about the fury of activity in lower-end areas like Oceanside, here’s a video of the REO that hit the MLS a week ago at 4773 Sequoia.

It had been assigned to me in September, but it took six months to get the tenant out. He was an active-duty Marine who said he’d take the cash-for-keys, then changed his mind and chose the full eviction instead. The appraisal got kicked around for a couple of months, and well, here we are.

This will be a case where the delay probably helped the cause, because currently there is such a shortage of decent homes under $200,000 that buyers are swarming.

This is a video compilation of four clips, the first two are intros to tie together what you’ve seen in the past to this property, and the last clip is another new listing in the same neighborhood:

The new Webbie videocam doesn’t do that well in these smaller houses, but now I know.

More Builder Belly-Ups

From the sddt.com:

The June Chapter 7 liquidation of what had been a billion-dollar Southern California homebuilder has reached into San Diego County and hundreds of residential parcels from Black Mountain Ranch to Oceanside have been affected.

In its Chapter 11 reorganization bankruptcy filing in February, WL Homes LLC of Newport Beach said its sales volume in 2008 was cut by more than half from 2007’s $948 million.

The company listed $1.3 billion in assets and $977 million in debt as of Nov. 30, 2008.

WL Homes, with roots dating back 161 years, was formed in April 1998 when John Laing Homes, a British homebuilder, merged with Watt Homes — an entity founded by Los Angeles developer Ray Watt.

Watt was instrumental in building much of the housing in Fairbanks Ranch, and constructed such projects as San Diego Country Estates in Ramona and The Landing condominium complex in Coronado. Laing entered San Diego County in 2002, with projects such as the 219-home Tides at Water’s End in Carlsbad and the 86-home Woodley Hills in the San Elijo Hills master plan in San Marcos.

WL, which continued to market homes under the Laing banner after the merger, had explored the possibility of going public, but opted instead to remain private. It was then acquired in 2006 by Dubai-based Emaar Properties, one of the world’s largest global real estate development companies, for a reported $1.05 billion in cash.  While Emaar has reportedly invested more than $600 million in the U.S. builder since the acquisition, it informed WL at the end of last year that unsecured financing Laing would no longer continue.

At the time of the February Chapter 11 filing, the homebuilder still held out hope the company might be saved, but defaults mounted and by early June the homebuilder filed a Chapter 7 liquidation request earlier this month. 

While WL prepared itself for liquidation, Bank of America (NYSE: BAC) filed motions in Superior Court to foreclose on the planned 76-home Sentinels @ Del Sur development within the Black Mountain Ranch master plan.  Black Mountain Ranch LLC, the master developer of Del Sur, was also named in the foreclosure.   BofA is being represented by the Costa Mesa law firm of Snell and Wilmer LLP of Costa Mesa, which referred calls to BofA.

Fred Maas, Black Mountain Ranch president, said he believe his firm was named because BofA wants to be able to sell the remaining lots without the covenants, conditions and restrictions (CC&Rs) that run with the Sentinels property. He plans to fight the lender’s move.

“The CC&Rs are there for a reason. We want to keep a tight reign on Black Mountain,” Maas said, adding that Bof A has kept him in the dark as to what is happening with the property.

What hasn’t happened with the Sentinels are sales. Opened in August 2007, WL was only able to sell four homes through the first quarter of this year and, according to MarketPointe Realty Advisors, none of those sales came in 2009. The two- and three-bedroom homes were priced from $875,000 to $921,000.

According to Superior Court documents, WL, as of about three weeks ago, owed $9.33 million on what had been a $23.39 million construction loan from BofA that was secured by the Sentinels property.  BofA officials would only say the Sentinels was working its way through the court process, but that the court had yet to appoint receiver.

The Sentinels was not the only project where WL was having trouble.

BofA revealed that a court appointed receiver is already in place for the Breakaway at Arrowood development, which had 130 homes planned in Oceanside. In that case, only 34 closings were recorded from September 2006 through the first quarter of this year, according to MarketPointe. Those four-bedroom homes were priced from $454,990 to $489,900.

Sometimes, as in the case of Silhouette, a 96-home development in 4S Ranch that got underway in March 2006, the sales got off to a strong start, only to fizzle later.   While Silhouette managed to close 65, it still had the remainder to sell when WL filed Chapter 11.

Three other WL projects under the John Laing banner in San Diego County also had similar problems.

These include a planned 100-unit townhome property known as Palomar at St. Cloud that posted just 10 closed escrows since it started in September 2007.  Two other projects were substantially reduced from their original sizes.  The San Luis at St. Cloud development in Oceanside had 14 of 16 units sold through the first quarter of this year.   The problem, according to MarketPointe, was the developer originally planned a 138-unit project.

The case was a similar one at Laing Luxury Village in the Crosby Estates master plan above Rancho Santa Fe that posted 32 closings out of 35 offered through the first quarter of the year. MarketPointe said that project at some point was cut in half from its original 70 units.  WL’s developments also include two major projects in Orange County.  One is a 575-home project built on the former Marine Corps Air Station in Tustin and the other is a 1,000-lot development in San Clemente.

With Bloomberg News

REO Before and After

There were two REOs that we put on the market last week – this is the bigger one, a 2,031sf one-story house on Pismo Bay in North Oceanside. The lender has been more willing to spend up to $10,000 for improvements lately, so we’ve been taking them up on it:

If this house would have hit the market with the old carpet and paint, we would have been lucky to sell it, because $359,800 is a truckload of money near the back gate.

Pin It on Pinterest