Are there a bulk of bank-owneds that are being held off the market?
A review of the tax rolls looking for detached homes owned by Countrywide, Cwabs, Bank of America, Bank of New York, US Bank, Deutsche Bank, Wells Fargo, Downey, and First Franklin found that there were only a few (less than ten) that were foreclosed prior to April and weren’t on the open market in Del Mar, Solana Beach, Rancho Santa Fe, Carmel Valley and Encinitas:
Those same lenders own 1,474 properties in the county, so they have inventory – just not many detached homes in the prime North County Coastal region.
At least, not yet.
Hang onto your hats. According to ForeclosureRadar, these are the overall counts of foreclosure notices (NOD, NOTS, & REO):
It was mentioned that bubbleinfo never makes it to Escondido – why? It’s the wild, wild west! But if it’s good enough for the Governator (who was there Friday) then let’s give Esco a moment.
We can call Escondido’s real estate market…um….”diverse”.
In 2009 there have been four houses sell under $100,000, and three at $1,200,000 or higher – and the ocean is 15 miles away!
Here’s an example of Escondido’s market today:
1008 Montview
3 br/2 ba, 1,680sf
YB: 1975, no monthly fees
.50-acre
SP: $585,000 11/05
LP: $285,000 6/09 short sale
Even though this looks close to the I-15 freeway on the map, it’s actually a quiet and peaceful rural location. Nice enough that my buyer offered $325,000 with a hefty down payment, figuring that there could be competition.
Interest was high alright – 18 offers, with one in the $390,000s!
A $100 million new-home state tax credit is likely to be exhausted within days, prompting builders to press legislators to add $200 million to the kitty.
Valued at up to $10,000 per buyer, the credit was passed in March as a way to clear out unsold inventory at California housing tracts and to jump-start new construction. The state Franchise Tax Board said yesterday that 9,145 buyers had claimed $88.3 million in credits, leaving less than $12 million available. The California Building Industry Association said that means the funds could all be spoken for within about 10 days.
“We knew the tax credit would be successful, but we had no idea it would be this successful or that funding would run out in just four months,” said Tim Coyle, the association’s senior vice president. He said three bills are making their way through the Legislature to add $200 million to the tax credit fund. One already has been passed by the Assembly, he said.
“We’re pushing very hard to get this done in the next two weeks,” Coyle said.
The tax board estimates that the credit might actually cost the state only $59 million rather than $100 million because so many buyers will not qualify for the $10,000 maximum.
With building permits up from year-ago levels, the builder group says every new home built generates about $16,000 in state and local taxes, thereby offsetting whatever the credit costs. Coyle said these calculations are causing many lawmakers to look favorably on an expansion of the credit, which is due to expire in March. It comes on top of an $8,000 federal tax credit available to first-time home buyers, who can apply that credit to new or existing homes.
“I’ve never seen such strong bipartisan support for a housing bill,” Coyle said.
He acknowledged that legislators are simultaneously wrestling with a potential $24 billion state budget deficit.
“The big question is, can the tax credit be extended within the budget constraints the state is under? That’s what we’re working on,” Coyle said.
You could make a case on both sides of the rental market.
On one hand: you could say that buying a home is still an expensive proposition, and the uncertainty ahead would keep the tenant pool brimming.
On the other hand: current tenants may be buying homes to live in, plus the return of investors buying homes to rent have increased the supply of available rentals.
The U-T’s article today says that vacancy is up, and the average rents were slightly lower Y-O-Y:
The ongoing recession is placing a strain on the region’s landlords, as tenants double up to save money or abandon the rental market to take advantage of bargains on foreclosed homes.
The latest half-yearly survey from the San Diego County Apartment Association shows a 5.4 percent vacancy rate for the region, a rise of 1.8 percentage points from its fall 2008 survey and 0.6 points from a year earlier.
As tenants seek out rentals with lower rates, properties less than six years old reported the highest number of vacancies in the recent survey. Complexes more than 25 years old had the highest occupancies.
The average rental rate countywide was up slightly to $1,192 from $1,188 in the fall 2008 survey, but down 0.7 percent from a year ago, when the average was $1,201. The average was mathematically weighted to take into account the dominance of one-and two-bedroom units in the marketplace.
The survey, which was mailed to nearly 6,000 rental property owners and managers throughout the county, received responses representing more than 33,000 units. Michelle Slingerland, spokeswoman for the association, blamed higher vacancies on high unemployment.
“Historically, the job market affects vacancy rates,” Slingerland said. “People are having to take on roommates or they are moving in with family. If supply increases, rental rates will go down accordingly.”
There were a couple of panel discussion this week, one at USD, and the other sponsored by USC.
USD’s Mid-Year Economic Update provided some rather revealing scientific quotes:
“When the history is written, historians and economists will decide Wiley Coyote was really the mascot of the last eight years or so,” he said. “Both in terms of strapping ourselves to the housing rocket to get out of the last recession and unfortunately, Wiley Coyote always ends up in the same place: able to sustain hanging over the cliff as long as he doesn’t look down.”
“I think, out of 10,000 economists, maybe a dozen foresaw this,” he said. “On behalf of all of us, sorry, we were wrong.”
The USC Marshall School of Business sponsored their Southern California Real Estate Mid-Year Report on Wednesday night. There were several speakers, including J. Bradley Forrester of The ConAm Group, Gregory R. Hillgren, President, CALVEST Realty Advisors, Inc., Gary H. London, President, The London Group Realty Advisors, and John P. Wickenhiser, Senior VP, Wells Fargo Real Estate Group.
Hat tip to T who was in attendance, and filed this report:
1. San Diego has the 2nd lowest vacancy rate in the nation, behind Washington DC. In addition, San Diego was the first to crash and seems to be the first to correct. Keep an eye on San Diego to find out how the rest of the coastal communities (SoCal?) will follow.
2. The 3 panelists who are/were investors, liquidated 75%-80% of their real estate holdings from 2005-2007. They are hesitant to buy, but are definitely looking.
3. The investors are primarily looking at multifamily complexes (apartments). The reason being is that in the 1994 crash, there was a lot of extra space built out and it took a long time to fix the cycle. In preparation for this real estate boom, many builder relied heavily on options that gave them the ability to quickly halt construction. In 2006, that’s exactly what happened and construction has not picked up. In 12 month, construction is expected to pick up slowly with new home/apt phases slowly being introduced in 2011. They all expect the new 18-34 yr olds to have a shortage of rentals and expecting a “landlords” market from 2010-2013 (one guy said it could be 2010-2015 or even 2020 depending on how agressively construction happens).
4. When builders start building residences again (12 months), then lenders will start lending again. Finance should be more available by 2013.
5. One dude (Hillgren) was pretty nervous about how Sacramento is going to take the recession. He is generally worried about what taxation laws will go into effect on real estate investments and would like to figure out Sacramento’s direction before investing again.
Demand for housing has been strong all year, and especially since the beginning of March when interest rates dropped under 5%. Mortgage money is readily available to those who qualify under the traditional underwriting guidelines, and prices of homes that are selling are lower than they used to be.
There are major concerns:
1. Buyers are somewhat paralyzed by the anticipation of new bank-owned inventory coming to market in the near future. Yet banks have been very tight, dribbling out new listings little by little. The standoff has kept sales activity lower than it could be, and once listed, any quality REOs should sell just because their price is likely to be attractive.
2. Sellers (and listing agents) who list high and wait for the lucky sale, are faced with diminishing returns. Not only are there very few lucky sales, the longer a house loiters on the market, the chance of it selling plummets. Yet sellers (and their agents) are slow to read the market signals, and many end up not selling, or renting it instead. The likelihood of them being undermined in the near future by more-motivated sellers nearby is extremely high. The seller’s ego wants to chalk it up to, “it wasn’t meant to be”, and most agents do nothing to dissuade them. There will be tough lessons ahead for both. Have the ability to hold out long-term? Great, plan on it.
3. Rising interest rates have the ability to squash any momentum. They have the same effect as rising prices, because buyers will have to pay more to buy the same thing. In this environment, buyers will be reluctant to endure that, and will instead have one more reason to not buy.
4. Divorce is rampant – it is everywhere, creating more supply.
5. The number of long-time owners who are selling is surprising too, far higher than I would have anticipated. it was mentioned here last year that I thought by now that REOs and short sales would be the only homes offered for sale. But there are many long-term equity sellers trying to sell.
6. Will there be enough buyers to soak up the supply? Nobody knows, but I’m looking forward to the second half of the year. If the banks would smarten up and unleash some, or most, of their inventory during the peak selling seasons, I think they be surprised at how many buyers are waiting.
Though the second half of the year should enjoy more sales, the 4Q08 inventory was lacking in quality homes. If all that comes on the market is more junk, the standoff will extend – buyers are focused on both price and quality, and are resistant to compromise on either.
The second quarter is wrapping up quick, so a great chance to win!
Guess the number of detached sales in San Diego for 2Q09.
For the tie-breaker, take a stab at the average $$-per-sf too.
Here are the stats from the last few years:
Year
# of Sales
$$/sf
2000
6,620
$174.86
2001
6,358
$196.19
2002
7,358
$221.47
2003
7,371
$254.73
2004
7,960
$377.54
2005
7,724
$361.65
2006
5,767
$368.96
2007
4,899
$357.88
2008
5,020
$278.15
So far there have been 4,240 detached closings in 2Q09, at an average of $219.02/sf. There are also 3,405 detached listings that were marked pending between March 1st and May 31st.
We’ll take the final tally on July 23rd, to allow for the late-reporters. Because the Padres will likely be buried in the division by then, we’ll have a different prize for the closest guess.
One of horse-racing’s professional handicappers is a friend of the blog, and has generously donated a set of SIX tickets for his prime box seats overlooking the finish line at the DMTC.
The contest winner gets a day at the track at Del Mar!
(Date to be arranged, but we can probably accomodate your schedule)
Business Week had this article in April entitled “Good News: Option ARMs Resets Delayed”, which included the latest Credit Suisse chart on recasting neg-ams:
Dr. Housing Bubble added the extra text and graphics to help explain the chart (above), and included it on his post today. His point is that not only are there many homeowners sitting on neg-ams about to recast, but many specuvestors used them to purchase flips that are now unable to sell:
Let examine what happens when an option-arm recasts – DO TODAY’S LOWER RATES HELP?
Here’s an example using the terms that CHL used for non-owner occupied option-arm loans:
$500,000 loan
1.375% start rate (teaser rate)
9.95% life cap
115% of original loan = maximum limit of loan balance
3.025% margin over MTA (which in July, 2005 was 2.737 + 3.025 = 5.762%)
Recast every five years, or at 115%
An option-arm/neg-am borrower has the choice of paying the minimum payment, based on the teaser rate, or the “fully-indexed” rate, which is the index + margin:
1.375% payment = $1,689.84
5.762% payment = $2,921.68
Difference = $1,231.84
If the borrower only makes the minimum payment, the $1,231.84 is added to the loan balance.
I plotted the monthly payments in our example using the actual monthly MTA rates, and added the index to compute where the loan balance would be today. Coincidentially, the rising loan balance would be hitting the 115% mark, or $575,000, right about now – if the borrower only made the minimum payment.
What would today’s new payment be after recast?$2,823.61
May’s minimum payment?$2,106.65
The increase in monthly payment after recasting would be $716.96 per month.
Even with lower rates, that’s a hefty increase for a rental property, especially one with a long-term lease, – the difference will be coming out of the borrower’s pocket.
Owner-occupants might cough up the difference, in order to save the home they live in, but will tenants ante up more rent when their lease expires? Not likely, and the landlords aren’t going to enjoy the pain long-term, unless they are really committed to saving their credit score.
The $716.96 is the difference at recast on a beginning loan balance of $500,000, you can extrapolate to determine what this means for those at higher price points.
If lenders would waive the recasts, this problem could be averted. But I haven’t heard of any.
