I hate these general nationwide articles, but the graph was pretty – plus I figure that Ronald McMansion was biting his tongue on this one, from WSJ.com:
Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.
The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren’t able to refinance out of these products because the drop in home values has left them with little equity in their homes.
Default rates are particularly high and expected to rise on option adjustable-rate mortgages, which allow borrowers to make minimum payments that may not cover the interest due. Monthly payments can increase to sharply higher levels after five years or when the outstanding balance reaches a certain level. A study by Fitch Ratings found that 46% of option ARMs were 30 days past due last month, even though just 12% of such loans have reset to higher monthly payments.
Zillow estimated that nearly one in four homes with mortgages was worth less than the value of the property at the end of June. Mr. Humphries said he didn’t expect to see foreclosure volumes level off until later in 2010.
The single largest impediment to a recovery in the housing market is the large number of loans that are either in delinquent status or in foreclosure that are destined to liquidate.
This creates a huge shadow inventory. We estimate this housing overhang at 7 million units, or 135% of a full year of existing home sales.
We look at the impact on a number of local markets, then look to the causes of the overhang:
1. Transition rates are high,
2. Cure rates are low, and
3. Loans (foreclosures) are taking longer to liquidate.
We are concerned that, in light of this housing overhang, the stabilization we have seen in home prices the last few months is temporary.
They’ve identified the big picture, and used Riverside as a test case. Let’s take our own look at Carmel Valley, 92130, which is a pertinent test for a couple of reasons; 1) it’s housing stock is mostly newer tract houses, and a more-homogenous sample should run truer, and 2) it has been one of the best performers so far. You can probably guess that your favorite surrounding areas may be faring somewhat worse.
Current MLS detached and attached active listings: 242
ForeclosureRadar.com’s NODs, NOTs, and REOs list: 192
Duplicates: 58
Total Inventory 242 + 192 – 58 = 376
Month’s Worth of Inventory: 376/77 = 4.88 months – if we can assume low or no seasonality into September’s 77 closings. This report makes a big deal about seasonality, but I think in Carmel Valley there will be less seasonal effect this year due to lower pricing. Last year in 92130 the number of monthly sales for September through January were 46, 50, 31, 32, 32.
Of the 134 defaulted properties that aren’t on the MLS:
There are 10 bank-owned properties and 55 others on the auction list that aren’t on the MLS. Let’s assume that ALL 65 of those will make it to market at some point over the next six months. (65)
Many of the unlisted 69 NODs are homeowners who have applied for a loan modification. How do I know this? I’ve knocked on their door, and close to 100% of the owners say it. But let’s assume that half will either get an acceptable loan modification, or go back to their original payments, rather than get foreclosed. Let’s be conservative and add 40 more of the NODs to the ‘future foreclosure’ roll. (40)
But let’s also include about 30 of the 58 that are trying to sell who will fail, and get foreclosed anyway. (30)
60 + 40 + 30 = 135 more houses and condos are ‘shadow inventory’, properties that aren’t on the open market currently, but should be in the next six months.
You can decide for yourself what the impact will be on 92130 with an extra 10-20 homes per month coming on the market. I think there are enough buyers waiting that they will all sell, it’s just a matter for how much. There are only 20 of the 198 detached active MLS listings that are under the magical $300/sf number on their list prices – you can bet the REOs will be right around there.
True, those who are delinquent but haven’t received an NOD yet are not in the count, but did they just got a later start than these folks? Most importantly, are the defaulters growing faster today than earlier in the year? If so, tack on more pain to your own opinion.
Here is the list – if you see one you’d like to pursue, contact me:
When the big bombers start falling from above, it can’t help but squish everything below. This Pulte tract house in La Costa Greens sold for around $1.3 million in 2005:
Let’s rely on the numbers to tell us more about the current market activity, and use the comparison of actives-to-pendings help guide us to see what buyers think of current list prices.
Let’s break SD North County Coastal into two groups:
NW GROUP = Oceanside, Vista, and San Marcos
SW GROUP = Carlsbad, Encinitas, Cardiff, Solana Beach, Rancho Santa Fe, Del Mar, Carmel Valley, and La Jolla
Thge chart below includes contingents with pendings, like June’s does, because they’re off-market – you can’t go out and buy one today.
Active/Pending Listings + Ratios of Detached Homes
NW GROUP
Town or Area
Zip Code
A/P 9/08
A/P 6/4/09
A/P 10/8/09
9/08
6/09
10/09
O-side W
92054
166/58
63/67
67/66
2.86
0.94
1.02
O-side SE
92056
226/115
67/155
57/86
1.97
0.43
0.66
O-side NE
92057
319/143
85/277
68/217
2.23
0.31
0.31
San Mrcs N
92069
151/79
56/136
38/126
1.91
0.41
0.30
San Mrcs S
92078
196/56
78/124
64/127
3.50
0.63
0.50
Vista S
92081
125/34
42/84
43/83
3.68
0.50
0.52
Vista Mid
92083
168/54
45/110
28/115
3.11
0.41
0.24
Vista N
92084
232/60
88/105
73/92
3.87
0.84
0.79
Total
NW Grp
1,583/599
524/1,058
438/912
2.65
0.50
0.48
We’ve seen the ratio of actives to pendings be around 2:1 in a ‘normal’ market, so to see every area under 1.00 for the last few months is incredible. But the velocity has slowed down a little, and whether it’s seasonal or not probably doesn’t matter – the future hinges on the flow of new REO listings coming to market, and any adverse reaction to the fate of the $8,000 tax credit.
There hasn’t been much drop off since June, and these numbers look hot. But getting them to the finish line is tougher than ever. The escrow fall-out ratio is probably running around 50% these days, adding to the frustrations.
How are those short sales closing? It was about 3-4 months ago that short-sale listings had to be marked accordingly on the MLS, so their closings should be starting to show. Currently there are 2,116 detached short sale listings that are contingent/pending, and only 216 closed last month.
The tonier areas have fairly normal-looking numbers, but are weaker compared to the overall county ratios – the lower-end is what’s hot, the higher-end is not so much. Expect that the Y-O-Y number of sales will be reported lower in coming months – here’s the summary of the SW Group:
SW GROUP
Town or Area
Zip Code
A/P 9/08
A/P 6/4/09
A/P 10/8/09
9/08
6/09
10/09
Bonsall
92003
46/6
46/18
33/13
7.67
2.56
2.54
Cardiff
92007
48/7
41/10
38/10
6.86
4.10
3.80
C-bad NW
92008
84/32
78/26
70/33
2.63
3.00
2.12
C-bad SE
92009
219/54
128/114
114/111
4.06
1.12
1.03
C-bad NE
92010
55/14
42/29
18/25
3.93
1.45
0.92
C-bad SW
92011
113/32
111/39
58/55
3.53
2.85
1.05
Del Mar
92014
135/14
147/30
135/26
9.64
4.90
5.19
Encinitas
92024
198/51
199/77
152/52
3.88
2.58
2.92
La Jolla
92037
245/26
273/53
269/61
9.42
5.15
4.41
Poway
92064
175/48
138/105
114/90
3.65
1.31
1.27
RSF
67&91
263/18
374/17
322/31
14.60
22.00
10.39
Solana Bch
92075
66/11
82/12
64/13
6.00
6.83
4.92
4S/S-luz
92127
214/62
173/107
145/98
3.87
1.62
1.48
RB
92128
151/68
96/93
103/88
2.22
1.03
1.17
RP
92129
87/42
38/81
42/70
2.07
0.47
0.69
Carmel Vly
92130
193/49
214/65
202/61
3.94
3.29
3.31
Scripps Rch
92131
96/36
67/83
63/65
2.67
0.81
0.97
Dtwncondo
92101
472/169
517/256
440/306
2.79
2.02
1.44
Total
SW Group
2,860/739
2,764/1,215
2,382/1,208
3.87
2.27
1.97
SD County
All
11,741/4,082
6,096/6,609
6,630/6,482
2.88
0.92
1.02
If the lower-end is so hot, could it trickle up?
Only for those who sell and then buy, which would still take some decent equity appreciation to enable that to happen en masse. Not many possible move-uppers will be able to keep their previous home as a rental – the ‘anti-buy-and-bail’ guideline is still in effect, where you have to qualify for payments on both houses without rental income. Could there be enough renters to create sufficient demand? Looks like it so far, let’s check back in December!
WASHINGTON (Reuters) – Government programs to fight the U.S. home foreclosure crisis look increasingly inadequate and should be reworked, expanded and supplemented with new ideas, a congressional watchdog said in a report on Friday.
With a foreclosure filing occurring every 13 seconds, the United States is mired in a housing slump that is destroying billions of dollars in property values and threatening to choke off the economy’s recovery from a stubborn recession.
The foreclosure crisis has moved beyond subprime mortgages into the prime mortgage market, said the Congressional Oversight Panel for the Troubled Asset Relief Program, the $700 billion bailout launched under the Bush administration.
“Rising unemployment, generally flat or even falling home prices, and impending mortgage rate resets threaten to cast millions more out of their homes,” according to the report, which focused on the Treasury Department’s efforts to curb foreclosures.
“The panel urges Treasury to reconsider the scope, scalability and permanence of the programs designed to minimize the economic impact of foreclosures, and consider whether new programs or program enhancements could be adopted,” it said.
The government’s other effort to stem foreclosures, the Home Affordable Refinance Program, or HARP, helps homeowners who are current on their mortgages but owe more than their homes are worth, get more affordable loans.
As of September 1, the watchdog report said, HAMP had helped arrange 1,711 permanent mortgage modifications, with an additional 362,348 borrowers in a three-month trial stage. HARP has closed 95,729 mortgage refinancings, it said.
Carlsbad Renter was the one who said this blog was turning into an informercial, and expanded on that thought earlier today (under ‘Hot All Over’):
Please don’t take my post above (or this one) personally, like I said I am not the most eloquent blog poster. I’m just trying to tell you what I see, and how that conflicts with what once attracted me to your site.
To me, your early description in the next days video are a perfect example of how the focus around here has shifted from home buying to short term finance finance. What you described is the very essence of a bubble. No rationale for pricing, buyer frenzy, and the unspoken urgency for people to get in now. I’m sure at one point the tulip brokers were having a hard time finding merchandise for their buyers, too.
In my opinion, in the past you offered more commentary on the intangibles, on neighborhoods, peculiarities of a particular house, and longer time horizon factors that as a newcomer to SD, I found refreshing and useful. The Oceanside condo auction/head shop tour is a perfect example.
What seemed to me to distinguish you from other realtors was that you kept the excitatory rhetoric relatively low, you didn’t openly fan the flames and play on emotions like the realtors who took me around NoCo in late 2007. They were crassly after a commission, and didn’t seem to care a whit how that affected my family or future prospects. [You may be too, but at least you try to hide it :-)]
How about some information for “the rest of us,” the ones who still don’t have 20% down and are unwilling to rush into this crazy market? What SHOULD we be looking for? I’m not talking about buying price alone, but also the more intangible and durable components of home buying. Neighborhood, noise, future development, commute times, boring details like that that make a place a dream or a nightmare.
You’ve been through a SD RE bubble before. Where did people get burned, what mistakes were made, what things have proven over time to have been good moves?
Thanks.
Happy to oblige. I’d like it to be said that you could learn a little something here about buying and selling real estate. Let’s start at the beginning. When I first became a realtor in 1984, I learned two things in my first month in the business:
The comment section is on fire with discussion about buying real estate – thanks for participating!
Those of us who are reaching old age are feeling it – how much time is left?
How much does your AGE play into your decision?
Are those who are 50+ years old (like me) thinking that now is the time tosettle down, give up their younger pursuits and plant some roots!
It would make sense that the older set would be the buyers with the big down payments, are they hitting the wall, deciding “Screw it, I’m not getting any younger” and buying now?
I think age could be a big factor in why people are saying that prices are low enough, rates are really low, and the game is rigged – I might as well buy!
Then you could have a week like I’ve had, where two people I know who are my age have passed away, including my dear friend and fellow realtor Jill Kammerude, the person I mentioned a while back who was diagnosed with Stage 4 cancer – God rest her soul.
Unlike pure investment vehicles like stocks and bonds, buying a house has an emotional component that is wildly unpredictable, and a simple thing like age could be a factor – is it for you? Do you think it’s helping fuel the latest run?
San Diego’s office market reached the 20 percent vacancy rate for the first time in 16 years, CB Richard Ellis said yesterday in its third-quarter report on the commercial real estate market.
The rate was even worse when factoring in the sublease space available, which raised the vacancy level to 25.6 percent.
To put the statistics in brick-and-mortar terms, 14.5 million square feet out of a 56.6-million-square-foot base equates to nearly all the office space in downtown and Mission Valley, the region’s two biggest office markets.
Mark Reid, the brokerage’s regional managing director, said that while the vacancy rate may have been higher in past recessions, the quantity of vacant space has never been so large. However, the empty offices offer opportunity for bargain-seeking tenants, he said.
“It’s a great time to be a tenant if you’re a steady, proven business with a good, solid financial statement,” Reid said. “There are some terrific deals to buy buildings and lease space.”
The prospects for improvement in the vacancy rate look bleak, the brokerage report said:
“The recovery period will likely begin at either the end of 2011 or early 2012 with office employment and net absorption levels returning to a positive trend.”
It is very frustrating these days for buyers trying to make a sensible decision – the lower-end of every market has been hot, and multiple offers are the norm. Just because the market is hot now doesn’t mean it will last, so let’s keep a close eye on it to see where it goes!
I’ll keep bringing the stories that I see, and if you think there are some worth noting, send them my way – I’m happy to take requests.
Here’s a look at a couple of standard lower-to-mid range homes:
