A couple of comments were left yesterday regarding the financial stress among Carmel Valley homeowners – people who are under-employed and burning through 401k accounts to survive.

How many homeowners are stressing in 92130?

The data isn’t readily available, so you have to use your imagination.

Doom, Level One:

This article states that about twice as many people are delinquent as those who are in foreclosure (defined as more than 30 days late but haven’t received a foreclosure notice):


Let’s extrapolate – there are 68 SFRs in 92130 that are currently on the NOD or NOT lists.  Doubling that makes another 136 who are delinquent, and 68 + 136 = 204 houses in trouble today.

If there are a rolling 200 houses or so on the distressed list, we should be fine.  There were 58 detached short-sale or REO listings that sold in 2010, and 61 have already closed this year.  So if we’re ramping up to 70-90 distressed sales per year, and we keep selling 300+ total houses each year, the blend should be tolerable.  The servicers will dole out the free rent as needed, push for short sales, and regulate the flow to keep the balance.  Hopefully.  If a renegade servicer floods the market, then we’ll get to test my theory that prices could go up.

According to the tax rolls, there are 9,647 SFRs in 92130, so the 204 makes for roughly 2.1% of Carmel Valley homeowners that are now at risk of losing their house.

Doom, Level Two:

What about the under-employed that are still making their payments, but whose time/money is running out?  Plug in your own guess as to how many people are in that category, but first let’s note that probably 10% of the houses don’t have a mortgage – so let’s use 8,682 for those SFRs with mortgages.

Unemployment in San Diego County is roughly 10%, but counting the under-employed, let’s use an arbitrary factor of 20% who will have to sell (assuming none of them can find enough work in the coming years).

8,682 x 20% = 1,736 houses with mortgages that could be distressed.

To predict how long it could take to clear 1,736 distressed sales, let’s examine how many of the recent sales have been distressed, or somewhat-distressed.

A review of the 72 detached MLS sales closed over the last 60 days:

Brand new: 2

REO: 8

SS: 8

Less than 10% equity: 9

More than 10% equity: 45

There were 35% of the total sales that we can call distressed, but just because you had equity doesn’t mean you weren’t feeling it.  There were 32 of the 72, or 44% who sold for a loss, so even if they had plenty of equity they must have had some duress to sell for less than they paid. 

I think we can say that at least a third, and probably half of the current sellers are under some pressure to sell.

There have been an average of 35 houses sell per month this year, so let’s call 17 of those at least somewhat-distressed.  If there are 1,736 to work through, then 1,736/17 = 102-month supply – or 8.5 years to clear the market. 

Homeowners in CV tend to hang on as long as possible, and with the generous free-rent programs being employed by the can-kicking lenders, will the next 5-10 years be an orderly marketplace?  I think so – I think half of the recent sellers probably needed to sell, and not only have sales been orderly, the pricing has held up too.

Once the stronger hands have replaced those forced to move, it will leave a solid marketplace full of long-term residents who probably won’t be thinking much about selling.

Doom, Level Three:

An interesting note while counting the number of houses – 64% of the carmel Valley SFRs were built prior to 2001.  Generally there is no correlation between age of home and distress, but CV is known for it’s long-time owners.  How many of those with plenty of equity will be leaving town in the coming years, and add to the supply?

Doom, Level Four:

Are there enough buyers who are willing and able to keep paying this year’s average $329/sf?

Of the 72 buyers, there were 17% who paid all-cash, which is about the same as it’s been lately.  Financing terms today are extremely attractive, and the relative shortage of quality inventory could be masking actual demand.  Will the troubles around the world permeate into the better markets and undermine sales and pricing, or drive a flight to quality?

Doom, Level Five:

Natural disasters, civil unrest, political ineptitude, etc. could all cause a meltdown, but just a slow, but steady descent in pricing could cause more defaults by those who are comfortable now.  If you are the type who worries a lot, you can let your imagination go crazy in Level Five.


As long as there are buyers willing to maintain the current levels of sales and pricing, we should be able to work through the distressed sales as they are dripped out to us – keeping us at Level Two. 

Should the servicers cut loose and increase the foreclosure activity by 25% or more, and flood the market with additional short-sale and REO listings at very attractive pricing (under today’s), we could see a surge in sales – if there is pent-up demand.  But who knows how crazy it could get with today’s political climate – did you see the opinion piece in the WSJ suggesting that Obama should decline a second term, and let Hillary Clinton be the candidate?

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