With the strategy of not-foreclosing working so well for the banks, you can probably say that REO and short-sale listings are winding down. How did we do?
While it is likely that REO and short-sale listings will continue for years, the media keeps touting how the distressed-property numbers are in decline. Lenders should be pursuing defaulters and liquidating their portfolios while the market is hot, but don’t be surprised if you see them do what most regular sellers are doing – waiting for prices go higher.
Here are the grand totals of NSDCC detached-home sales since 2008, when the MLS first started marking the REO and short sales separately:
Town or Area
REOs#
$/sf
Shorts#
$/sf
Non-REOSS#
$/sf
Non % of Total
Carlsbad
349
$242/sf
483
$243/sf
3,986
$283/sf
83%
Encinitas/Cdf
147
$295/sf
166
$306/sf
1,859
$401/sf
86%
RSF
65
$332/sf
54
$356/sf
771
$482/sf
87%
La Jolla
63
$484/sf
71
$487/sf
1,117
$675/sf
90%
Carmel Vly
75
$302/sf
130
$301/sf
1,851
$342/sf
90%
Del Mar/SB
43
$411/sf
40
$458/sf
943
$653/sf
92%
Totals
742
$296/sf
944
$296/sf
10,587
$405/sf
86%
We really didn’t get hit like the subprime-loan areas did, and NSDCC could withstand further foreclosure activity – in fact, homebuyers would welcome it!
Comparing the average $/sf of REO vs. short-sales helps to debunk the myth that short sales are better for the lenders than foreclosures.
Here is an indicator to measure how the market gets started in 2013 – count the new listings.
We have seen how the inventory impacts the buyer mentality. When homes-for-sale are plentiful, buyers are more relaxed and deliberate. When there is a shortage of inventory, the anxiety heightens, and bidding wars ensue.
The first quarter of 2012 looked like the previous two years. But you can see below how the new listings dropped starting in April, and probably contributed to sales jumping in August as nervous buyers scrambled.
Fewer new listings in April-to-July = stronger sales in August-to-October:
NSDCC Detached-Home Monthly Sales Counts:
The shortage of new listings look like they could have been a temporary event – because since August the number of new listings have been fairly similar to previous years. It should be irresistible for potential sellers to flood the market with OPTs in 1Q13. If they do, buyers will grow cautious, and sales could hit the skids.
We’ll know what to expect just by counting the new listings. The January & February 2012 two-month total was 794 houses listed, when in the previous two years it was around 900, only a 12% dip approximately. But the 2012 April-to-July new listings were about 18% lower than the previous year – that’s when we’ll see how 2013 will turn out!
La Costa Town Square is a mixed-use development that is starting construction in SE Carlsbad. There will be 253,000 sf of retail, 50,000 sf of office space, a gas station, and 98 homes built by Davidson Communities and Taylor Morrison.
It also happens to be adjacent to La Costa Oaks, where this home is located.
This REO was foreclosed in October, 2012, so they got it to market fairly quickly following the trustee sale. The first NOD was filed in 2009, prior to this tragic event that occurred at the property:
It sure seems like a frenzy when you hear about the lowest rates ever and Southern California median prices going up 17% year-over-year. But there isn’t a rising tide that’s floating all the boats higher – lots of homes aren’t selling. It would be simple to say that their price is wrong – but that’s obvious.
But why is it wrong?
It’s because homebuyers today are demanding quality. Unlike during the rah-rah years when buyers only cared about staying short-term and moving up again, today’s buyers are looking long-term. They are investing larger down payments and locking in an ultra-low rate on a 30-year fixed loan – and planning to stay forever.
This quality-based mindset brings a complication to the home-buying experience. How do you know if you are buying a quality product? How do you pinpoint the value/worth of the many variables – and pay the right price?
You need to have an experienced eye to gauge correctly. This is a sticking point when tinkering with ideas to change the realtor experience.
Redfin has pioneered the salaried-agent idea, and wants to grow.
Glenn Kelman, chief executive of Redfin, says he is looking to increase the company’s workforce of 400 agents nationally by 50% by the end of January. “I’m going across the country meeting with managers, and the only topic we’re talking about is hiring,” he said.
Earlier this year, the company ended up sending about half of its referrals to other companies because “demand outstripped the supply of agents,” he said.
Redfin is unusual among real-estate companies because it pays a salary and benefits to its agents instead of commissions. “Our model means we have to go long on real estate, and we did not go long enough,” said Mr. Kelman.
I love Redfin’s website and renegade spirit, but do they deliver on this critical component of being able to summarize a home’s variables, and put a proper value on them? At a recent hot open house, the local Redfin field agent stopped by, and we had a nice chat.
She said that she was a stay-at-home mom, and just worked weekends opening doors for buyers. Indeed, she had two sets of buyers visit back-to-back, and she stood by idly by while the people looked around. She didn’t offer any advice or instruction, and in both cases the buyers left with a cursory good-bye exchange.
This agent commented further that she doesn’t write the offers. If the buyers want to pursue it, they would contact the main agent, who writes all the offers. The end result? The buyers are faced with composing their offer with an agent who hasn’t seen the property, and who may write other competing offers too.
On their website they say that their associate agents “point out things you might miss”, but in this case there was nothing offered. And if both sets of buyers wanted to write an offer?
If prices keep rising, buyers will want and expect even better quality – both in the properties they are considering, and in the advice they get from their agent.
I take great pride in identifying the good and bad components of each property, and being able to put a value on their worth. People will say, “well can’t I just get a home inspection?”, but my analysis includes more than just the physical elements of the building. I evaluate the worth of the location, view, lot size, house size, neighbors, etc. and their impact on resale – and how to factor them in to pay the right price today.
With the housing market showing signs of stabilizing, investors are turning back to real estate. And an increasing number of affluent savers have been using their retirement accounts to purchase homes, rental apartments, and other properties. Done properly, such a strategy can generate good income with modest volatility.
But before you dive in, take heed: It’s a time-consuming proposition, and you’ll need to proceed carefully not just to avoid investment losses but also to stay clear of some nasty tax pitfalls.
To buy real estate within a retirement account, you first need to set up a “self-directed” IRA with a custodian. Once you’ve established the IRA, you can then use it to purchase practically any type of real estate, including vacant land, single- and multi-family homes, commercial properties, co-ops, and condos. But you’ll also have to adhere to a slew of IRS regulations.
For starters, “you can’t use real estate in a self-directed IRA for your personal benefit,” says Richard Price, a CPA with Houston-based Cornelius Stegent & Price. If you do, the IRS could disqualify the IRA, in which case you’d owe ordinary income taxes on the entire value of the property, plus a 10% penalty.
For instance, you could buy a Miami condo and rent it to third parties, but you couldn’t stay even one night there yourself. Nor could you rent it out or grant free use of it to most close relatives. You couldn’t renovate or actively manage the property yourself. You’re also prohibited from buying real estate for the IRA that you or selected family members already own.
To prevent the IRA from being disqualified, all income generated by the real estate must be paid directly into the IRA and remain there until you retire. If you sell the property, all proceeds must likewise stay in the IRA. Expenses, such as property taxes, insurance, and improvements, must come straight from the IRA; you can’t use personal funds to pay for them, and you can’t deduct them for tax purposes. You’ll therefore need to leave enough cash inside the IRA to keep the property running (for 2013, you can contribute up to $5,500 to your self-directed IRA, or $6,500 if you’re age 50 or older).
If you sell real estate within a regular self-directed IRA, any appreciation on the property will ultimately get taxed as ordinary income when you take withdrawals, at rates currently up to 35%.
But if you set up a self-directed Roth IRA (in which your contributions are made with after-tax dollars), all your property gains and withdrawals will be tax-free. That’s assuming, of course, that you have gains. There’s no guarantee that the real estate market won’t tank again. And rising property taxes, unplanned maintenance costs, and deadbeat tenants could also ding your returns.
The upside of real estate is big — but so are the headaches.
We saw economist Dean Baker comment about the California real estate market from his perch in Washington: “The speculators likely have pushed prices above where the market would put them in some markets,” he said.
Have prices risen too much already? It doesn’t look like it. On average this year, NSDCC detached-homes are selling for less, and payments are historically a lot lower than in recent history.
Below are the annual stats, with the mortgage payment based on $1,000,000 sales price with 20% down at 1/2% higher than the Freddie Mac 30Y fixed-rate for the first week of December:
While it is likely that REO and short-sale listings will continue for years, the media keeps touting how the distressed-property numbers are in decline. Lenders should be pursuing defaulters and liquidating their portfolios while the market is hot, but don’t be surprised if you see them do what most regular sellers are doing – waiting for prices go higher.
With the housing market showing signs of stabilizing, investors are turning back to real estate. And an increasing number of affluent savers have been using their retirement accounts to purchase homes, rental apartments, and other properties. Done properly, such a strategy can generate good income with modest volatility.
