Will there be a bigger exodus from the more-affluent neighborhoods now that the real estate market has tanked? Will the heirs of the estates be liquidating, instead of moving in like they planned, in order to fund health care – or their old lifestyle left over from the peak era??
From the insider:
The housing market will experience a tepid recovery in 2010 but continue to ail for the next couple of years, according to Zelman & Associates.
“Most economists are more optimistic than I am,” noted Ivy Zelman, CEO, of the research analytics firm. Zelman spoke Wednesday about the future of housing at a Dallas loss mitigation conference sponsored by SourceMedia.
While affordability is at record levels, consumers’ balance sheets are hurting, she noted. Before the housing crash, from 2002-2006, home prices rose 28 percent while income grew only 13%, she said.
The good news, Zelman noted, is that affordability (deflation) has brought investors back into the market.
“I call it ‘Investors Gone Wild Part Two.’ For homes under $100,000, about 50% are cash purchases.” As a result, there is less risk around these investment purchases than previous ones that included exotic securities. Nonowners represented about 11-12% of purchase mortgages in Q110, she said.
Once the home becomes more expensive, investors with cash become scarcer. For homes priced from $150,000-$249,000, only 21% are cash sales, she said.
“I say, thank God for the investor.” If we didn’t have the investor, we wouldn’t have the absorption of the housing stock.
Problems compounding the housing market include the continued tight lending market as banks hoard their capital due to large numbers of nonperforming loans and problem balance sheets. They’ve tightened underwriting standards even for those with good credit who wouldn’t have had any problem getting a home loan before the housing crisis hit, she said.
Lending won’t pick up again until bank failures have peaked, Zelman predicted, but didn’t say when she thought that would be.
To illustrate the magnitude of the problem, Zelman noted several times during her talk the 4.45m homeowners who are 90-plus days delinquent on their mortgages. While Zelman doesn’t expect all of those homeowners to lose their homes, estimates from servicers are that as many of 80% of those eventually could lose their homes.
“There will be a continuous flow of foreclosures for several years,” she said.
JtR note: I disagree with her comment in bold. During the heyday of the subprime-REO liquidation of 12-24 months ago, there were plenty of owner-occupier buyers who got beat out by cash investors. Today on the lower-end, the investors are drying up because the list-prices are higher, yet owner-occupiers are still buying.
When the public sees a story like this, they think that all is good, and getting better, from the U-T:
San Diego County had fewer mortgage defaults and foreclosures in the second quarter than it has had in the past three years, according to a report released today by MDA DataQuick, a real-estate research firm based in La Jolla.
Countywide, 5,458 homes went into default during the second quarter, a 45 percent drop from the total of 9,866 during the same period of last year. That’s the lowest number since the second quarter of 2007, just as the county was slipping into recession.
Foreclosures dropped 6 percent from 3,518 in the second quarter of 2009 to 3,315.
The same trend is showing up throughout California, with the number of defaults dropping for five consecutive months, resulting in a 44 percent year-to-year drop. Foreclosures, however, rose by 4 percent, driven partly by jumps in relatively pricy neighborhoods in Orange County, San Mateo, Marin, Los Angeles, Santa Barbara and San Francisco counties.
John Walsh, DataQuick’s president, said there were several reasons for the decline in defaults, including “motivated sellers and accommodating lenders” who have been doing more short sales; public policy, including tax incentives for homebuyers; and a rise in prices over the past year.
Walsh said that if prices continue to rise, “fewer homeowners will find themselves under water, which is a significant factor in letting a home go.”
Out of the 85 ZIP codes in the county, only two had a rise in defaults: Coronado and Del Mar. Two others had the same number this year as last year: Borrego Springs and the area around Rancho Santa Fe’s post office. Except for Borrego Springs, those neighborhoods are among the priciest in the county, with median home prices above $1 million.
DataQuick noted that statewide, mortgage defaults spread from lower-cost markets into more expensive neighborhoods, although that trend appears to be leveling off.
The foreclosure tours are winding down – I’m glad I didn’t get a bus!
Hat tip to shadash for sending this along, a story about the Mark condo overlooking Petco Park:
Developer Norman Radow expected some thanks in April when he offered to repay a $35 million defaulted loan on a 32-story San Diego condominium project he had taken over, originally financed by failed Corus Bank.
Instead, his new lender urged him to keep the money.
Even more striking to Radow was that the lender was a company majority-owned by the Federal Deposit Insurance Corp., an arm of the government swamped with bad debts, whose partners were private investors led by Starwood Capital Group LLC.
“They said they wanted to keep the principal outstanding longer because they had a zero-percent loan from the government, and it was worth more for them to keep our loan out,” said Radow, 52, chief executive officer of Radco Companies, an Atlanta-based distressed-property firm that has sold 85 percent of the 244 units in the Mark, overlooking San Diego’s Petco Park stadium. “The sooner you repay us, the worse it is for us.”
While Radow repaid the loan anyway, his experience shows how a new FDIC strategy for managing assets seized from failed banks has turned the agency into a long-term investor, making a multibillion-dollar bet on the recovery of some of the most distressed condominium markets in the country, from Miami to Las Vegas. Instead of selling the assets to maximize cash in hand, the agency is offering its private-sector partners zero-percent financing, management fees and new loans to complete construction of projects it can hold until markets recover.
While the strategy entails greater risk if real estate prices fall or don’t rise as much as hoped, agency officials say it offers a better chance to replenish their deposit insurance fund — which was overdrawn by almost $21 billion as of the end of the first quarter — than sales for cash. More than 260 banks have failed since 2007.
“While using LLCs to sell loans is not risk-free by any means, it is a calculated risk well worth taking,” said David Barr, a spokesman for the FDIC. “Alternatives would be either to hold the loans and work them out ourselves or sell them outright for cash, both of which have their own risks associated with them, as well.”
An LLC is a limited liability company. In the case of the Corus loans — $4.5 billion in financing for 102 real estate developments across the U.S., including 79 condominium buildings — the FDIC transferred the assets to an LLC in which it retained a 60 percent stake. It sold the remaining 40 percent to the Starwood-led group of private investors, offering it an interest-free loan for half of the purchase price.
The whole story here, with video interview.
Nick at the Wall Street Journal has captured the current market conditions, and adds some anecdotal evidence to the The Big Cancellation coming later when sellers give up, rather than lower their price – here’s an excerpt:
Reports should show that completed transactions of home sales held up through June. But newly signed contracts in May and June have plunged.
To be sure, some housing markets show signs of healing. Home-sales activity in New York, Washington, D.C., and parts of California continue to improve. But other markets, including Tampa, Fla., and Chicago, face rising foreclosures and weak job growth.
Low mortgage rates and falling prices have made homes more affordable in many markets than at any time in the past decade. But those affordability gains have been offset for many buyers by tighter lending standards, particularly for “jumbo” loans that are too large for government backing. Banks are requiring down payments of 20% and more and strong credit scores because they must hold jumbo loans in their portfolios.
More broadly, the housing market faces two big problems: too many homes and falling demand. More than seven million borrowers are 30 days or more past due on their mortgage payments or in some stage of foreclosure. Rising foreclosures will keep pressure on prices as banks put more homes on the market.
Last month, nearly 39,000 borrowers received government-backed loan modifications, but more than 90,000 borrowers fell out of the program, the Obama administration said on Tuesday.
Moreover, the pool of potential buyers remains constrained by the unprecedented number of homeowners who are underwater, or who owe more than their homes are worth.
That’s making it particularly hard for traditional “trade up” homeowners like Maria Billis to pull the trigger on a home purchase. Ms. Billis can’t sell her townhouse in Boynton Beach, Fla., because its value has fallen by a quarter. That puts it below the $160,000 that she owes the bank.
The 31-year-old human resources consultant, who married last month and wants to start a family, found a half-dozen homes in her price range but doesn’t want to sell her current home for less than the amount owed. She has considered buying the new home and renting the townhouse, but concedes, “It’s a big risk.”
Mortgage-finance giants Fannie Mae and Freddie Mac also are starting to push more repossessed homes onto the market. The companies owned 164,000 homes at the end of March, up 80% from a year ago.
Another reason inventory is rising: “Unrealistic sellers have flooded the market” after reports of bidding wars and home-price increases earlier in the year, says Steven Thomas, president of Altera Real Estate, a brokerage in Orange County. The amount of time that homes there have sat on the market there has swelled to 3.78 months, up from 2.35 months in April.
“The sellers think the market’s coming back. They’ve tacked on an extra 5 to 10 to 15%. The buyers aren’t going for it,” says Jim Klinge, a real-estate agent in Carlsbad, Calif. Over the next six months, “it’s going to feel like a double-dip because sellers are going to have to lower their prices.”
Not all sellers will take that step. Jerry Anderson has listed his four-bedroom home in Dana Point, Calif., on and off the market for the last two years. He’s cut the price to $1.25 million, down from $1.75 million, but hasn’t had any offers on the home, which has four bedrooms, three fireplaces and ocean views.
Mr. Anderson, who bought the home in 1987, says he’ll take it off the market in December if it doesn’t sell rather than cut the price.
Matt Carney listed his Moreno Valley, Calif., home for $337,000 in February, and lowered the price on Tuesday for the third time, to $297,000. He says he can’t go any lower because he owes $274,000 on the home and doesn’t want to dip into savings to pay for transaction costs.
The detached sales in North SD County Coastal has been slowing down the last couple of weeks.
The recent solds had looked promising, with 251 detached homes closed last month, which was a 24% increase over the 202 that closed in June, 2009.
But the new pendings are sluggish. Here are the number of detached listings marked pending only – contingents not included – during each 7-day period (2009 have all closed):
| 7-day period | 2009 | 2010 |
| 6/14-20 | 48 | 40 |
| 6/21-27 | 52 | 71 |
| 6/28-7/4 | 51 | 52 |
| 7/5-11 | 41 | 37 |
| 7/12-18 | 56 | 48 |
The last two weeks’ worth of new pendings haven’t hit their 17-day contingency deadline, there will be even fewer that actually close. In July, 2009 there were 237 detached sales, and so far this month there have been 98 closings – we might not get up to last year’s count. If we’re only having 30-40 real pendings per week, the drastically-lower YOY sales in the coming months will look like a missed opportunity to sellers, but will they lower their price, or cancel?
There are buyers. Over the weekend I wrote offers with two different buyers that both got caught in multiple-offer situations, both on one-story homes. One is still in competition with two others at what appears to be a little under list price (I think), but we lost on the other, even though we wrote a full-price, 30% down-payment offer with pre-approval and proof of funds submitted.
It reminds me of the old saying: “Look to buy when everyone else isn’t”.This is the second part of the examination of low comps that go under-reported, leaving future buyers and agents to wonder what happened. Tread very carefully, with little or no information about the details of lower sales, the future buyers are likely to want further discounts, or bow out altogether – they aren’t going to ignore them, are they?
The astute observers can pick out the suspicious deals from a mile away. But how do they play into the decision-making on the street? How can you capitalize on the extra knowledge?
If there was an area that had a bad comp but had more good comps and was generally free of foreclosure activity (i.e. older areas), you might want to try to leverage the shady comp to justify your lowball offer. But beware in areas that are ripe for future foreclosures (i.e. tracts built at peak), because those short-sale and REO listings are likely to be listed at a price that considers all sales as normal:
Are you looking for an experienced agent to help you buy or sell a home?
Contact Jim the Realtor!
CA DRE #01527365, CA DRE #00873197
