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Home Prices – How High?

Our reader Stormin sent in this link to a guy who he has followed for years and says he is solid:

http://dailytradealert.com/2013/04/24/you-still-havent-missed-out-on-this-incredible-opportunity/

Here is an excerpt:

“I believe house prices in America will soar beyond what anyone can imagine.”

He’s not putting a price or percentage on it, so take it with a grain of salt.

But when we are already seeing local prices getting back to – or above – the peak levels, it does make you scratch your head.

How high could our local real estate prices go?

Here is my wild guess.

In boom years, home appreciation averages around 1% per month – and in the craziest year of all, 2003, prices went up 2% per month (I’m using round numbers).

This year will be our 2003, and NSDCC detached homes will see rampant appreciation at our current pace – let’s call it 2% per month.

Amazingly, today’s cash buyers don’t seem to care about recent sales, and don’t mind paying wildly above comps – and I see it everywhere.  This will contribute greatly to the 2% per month appreciation this year.

We need to satisfy the demand of all the rich people first – they are at the front of the line, and until they get all the real estate they can handle, the financed buyers will have to wait around.

But we should hit a point in June/July where it becomes obvious that the market is totally out of control.  The evidence will be the glut forming of over-priced turkeys whose owners still think we’re in the selling season and their lucky sale is right around the corner so they refuse to lower their price.

The ego of cash buyers will start demanding better deals, and when spoiled sellers don’t comply, it will open the door for financed buyers who will jump at the chance to get in the game.  Hence, the 2% per month lasts all year as more financed deals filter in.

Once we get into 2014, the Fed starts backing off the QE-Forever, and banks will start rasiing mortgage rates whether the market demands it or not.

Financed buyers go crazy at the thought of losing their bragging rights around the barbeque about getting the lowest rate, and the frenzy stays hot for another year – but at the 1% per month rate because it is already built on top of the previous year’s 2% per month.

By the time we get to 2015, exhaustion is setting in – both physically and financially – and more sellers are rushing to market.  Let’s cut it back to 0.5% per month.

2013 = 24%

2014 = 12%

2015 = 6%

Total = 42% above 2012 pricing.

That’s the maximum – is that beyond what anyone could imagine?

Carmel Valley Pricing Upsurge

It seems that everyone is looking for $400/sf around Carmel Valley now.  At this pace, it may only take a few more months!

graph (22)

Carmel Valley Annual Stats

Year Median SP Avg $/sf Avg DOM
2010
$890,000
$340
53
2011
$892,500
$324
69
2012
$875,500
$327
58
2013
$975,000
$346
42

The Carmel Valley YTD sales are 32% higher than last year at this time, and the pendings look strong too. There are 89 detached homes in escrow, with list prices averaging $381/sf and a median list price of $1,025,000. They average only 20 days on market.

Redefaults Rising At Alarming Rate

An excerpt from an article in the MND:

While great efforts must be taken to avoid a future crisis and bailout the SIGTARP says, we cannot lose sight of the current TARP bailout.  Wall Street may have recovered but Main Street has not.  TARP was always intended as a bailout of the financial system to protect American families.  Business and homeowners are still feeling the effect of the crisis and still need help from TARP.

“In its March 2013 TARP report, Treasury writes, ‘Thanks to TARP…struggling homeowners have seen relief, and credit is more available to consumers and small businesses. ‘”  SIGTARP says of this, “Lost in this statement is the unfortunate reality that this improvement is only a fraction of what TARP could and should have done, and in many ways still can do.”

As of March 31, Treasury had spent less than 2 percent ($7.3 billion) of TARP funds on homeowner relief programs including HAMP and the Hardest Hit Funds while spending 75 percent to rescue financial institutions.  “Treasury pulled out all the stops for the largest financial institutions, and it must do the same for homeowners.”

Treasury also has a responsibility to insure the help it does provide is sustainable.

In order to avoid foreclosure through HAMP a homeowner must remain active in a permanent mortgage modification and only 862,279 homeowners are in one, about half of which were funded with TARP money. 

Now many homeowners are defaulting on these modifications, more than 312,000 to date.  SIGTARP is concerned that these defaults are increasing at an alarming rate.  As of March 31 the oldest modifications, done in Q3 and 4 of 2009, are defaulting at respective rates of 46.1 and 39.1 percent.

The report says Treasury should work to curb redefaults, which often inflict great harm on already struggling homeowners when any amounts previously modified suddenly come due.  SIGTARP recommended this month that Treasury conduct research to better understand the causes of redefaults and work with servicers to develop an early warning system so they can intervene before problems occur.

As regards Wall Street, the report says too big to fail is not just about size, it is about the interconnections the largest financial firms have to each other and to American households. 

Regulators were shocked, in 2008, to find how these large institutions were tied to each other and to counterparties so that if one went down it pulled other down with it.  Even the institutions themselves did not realize the extent to which they were linked.  Nor did they realize their exposures to short-term funding counterparties which, as Treasury Secretary Geithner said, “can flee in a heartbeat”, bringing the system down.  While the financial system is more stable now, ending too big to fail is critical to its safety. 

http://www.mortgagenewsdaily.com/04242013_tarp_hamp.asp

Just Beginning To Show

The average pricing is climbing steadily now. If it weren’t for the dip in January, the NSDCC monthly average would have been over $400/sf for six months in a row. This month is already at $426/sf!

graph (21)

With most of the recent higher-priced sales just starting to close, we can probably expect the NSDCC average cost-per-sf to be in the mid-$400/sf range by summer.

Archer Closed

archer

The house featured in the Businessweek article closed escrow today for $610,000.

It’s my duty to properly expose the property to the entire marketplace – and conducting open house during the listing’s first weekend provides maximum convenience for all.

There were two offers, both from people who attended the open house.

The first couple who attended expressed moderate interest to me, and then contacted their agent to handle the rest – which is the way it should be.

I’m not looking to steal buyers away from their agent, and I encourage their loyalty.  I tell buyers who ask that there is no extra benefit by going direct through me, instead of sticking with their agent.

The second couple was actively looking to buy a home, and had their pre-qual letter and proof of funds with them.  They didn’t have an agent, so I told them that I’d be happy to help them.  Because I know the underwriting guidelines, I was able to determine their qualifications by asking the right questions.

What is the bidding-war strategy with this combo?

The first couple had sent in a full-price offer before I had a chance to meet my buyers later.  I told their agent that I was going to write an offer too, and let’s just go to highest-and-best immediately.

I told me buyers to make the best offer they could, and told them about the comps and my opinion of value.  They signed the $610,000 offer, with 20% down payment and conventional financing.

Later the other agent sent by text his buyers’ best offer; $615,000, financed FHA with 3.5% down.

The sellers had tried to sell last year with a different agent, and had three offers then.  The set of buyers they selected did a home inspection that resulted in a 99-page report, full of assumptions and possibilities, most with no factual basis. It blew out the first buyers.

Their listing agent sent the report along to the other two sets of buyers, and both of them promptly lost interest.

An example of an item in the report.  The previous owners had installed a doggie door in the back wall of the house. When they left, the stucco patch wasn’t that great, but it sure looked like a former doggie door to me.

The inspector said that the imperfection was probably due to a water leak, and there was likely to be mold inside the wall.  Nice.

What do you do with a bad report?

You can’t assume that the buyer’s agent is going to take the time to read it, and then explain in carefully to their buyer.  Because the report rides with the property, I told the sellers on my initial visit that I would ensure that the buyers got my thorough explanation of the report.

The sellers had already done their part – they opened the wall and proved that there was no water leak or mold, so that helped.

But they still had concerns, and I didn’t blame them – they didn’t have any positive experiences up to that point.

When we discussed the two offers, I am the listing agent whose job is to neutrally explain the good and bad points of each offer.  I told them that it didn’t matter to me which offer they took, because if they wanted to take the higher offer, I would sell my buyers another house.

FHA requires the appraisers to scrutinize the condition of the house, make comments, and potentially require that repairs be made to complete the sale.  Conventional financing does not have the same requirement.

The sellers decided that a conventionally-financed offer was their preference, even if they had to take an offer that was $5,000 less.

Game Agent, I owe you two t-shirts!

JtR qualifying the buyers on the spot:

businessweekbuyers

Foreclosure-Relief Funds Mostly Unspent

Thanks to daytrip for sending this in from the latimes.com:

An excerpt:

foreclosure reliefBorrowers have faced major hurdles in trying to access the aid. Joshua and Catherine Brewster sought help after Josh lost his job as a legal assistant at Hilton Hotels when a reorganization moved his division out of state.

They battled for a year for a modification from their servicer, Bank of America, to help with their $2,300-a-month mortgage payment. Then they got transferred to the state Housing Finance Agency.

Many additional battles over the loan terms followed, they said, before the Keep Your Home California program approved $47,000 in principal reduction. Their interest rate also was cut to 3.75%, and in January payments fell to $1,676 a month, which they say they can handle.

“We had to fight,” Josh said. “People are not conditioned to challenge the banks. It was brutal.”

State officials said they hope to hear fewer such stories as the pipeline of loan modifications swells, mainly because Bank of America, Wells Fargo Bank and Chase Bank — the biggest providers of mortgage customer service — all have now agreed to use the funds for principal reduction.

Bank of America began doing Keep Your Home California principal reductions in March 2011. But many banks, including Wells and Chase, were slow to sign on, in large part because Fannie Mae and Freddie Mac were opposed to lowering the balance owed on mortgages. Wells and Chase began writing down loan balances this year.

“We have the funding to help many, many more homeowners with our free assistance,” Claudia Cappio, head of the California Housing Finance Agency, said in a statement Monday. She encouraged anyone having difficulty with their mortgage to call the program at (888) 954-5337.

Borrowers seeking principal reductions must show that they owe more than their homes are worth and also must show that they are financially troubled — a requirement that has proved problematic, Richardson said.

“I still think [the money] should be flying out the door, and it’s not,” she said. “People have a hard time documenting hardship.”

http://www.latimes.com/business/la-fi-hardest-hit-20130423,0,6552345.story

Inventory Watch – Velocity Is Slowing

Casual observers won’t notice the subtle change, but the active inventory of detached homes around NSDCC is creeping up.

It’s because there aren’t as many properties opening escrow. With it being the prime spring selling season, the sellers (and their agents) will want to wait another month or two, rather than lower the price.

The last time we checked, the new-listings-to-new-pendings count was 89:74 – this period was slightly slower at 76:57.

Date NSDCC Active Listings Avg. LP $$/sf
Jan 14
649
$722/sf
Feb 4
667
$716/sf
Feb 10
679
$713/sf
Feb 25
678
$719/sf
March 6
727
$703/sf
March 11
744
$698/sf
March 16
746
$703/sf
March 23
755
$712/sf
March 31
752
$717/sf
April 5
780
$704/sf
April 11
780
$710/sf
April 17
792
$699/sf
April 22
802
$698/sf

The market shift won’t be that noticeable is because there are still plenty of hot sales. Of the 57 pendings this period, 23 of them sold in 10 days or less.

But today’s list prices are being determined by adding a little extra to the 10% already gained this year – and buyers are already wondering how long this can continue.

“Smoking Hot” Market

Rich is the king of graphs, and here are two from his latest at Piggington:

The median-price-per-square-foot since the 2009 trough:

Piggington march_2013_housing_data

OK, you can probably ignore the huge spike in the condo psf, as the condo series tends to be all over the map.  But how about that (much more reliable) detached home psf — up 4% for the month, and 18% year-over-year.

JtR: Here is the big change – how quickly good listings are getting snapped up, which is keeping the county’s active inventory down to about 4,000 OPTs:

Piggington march_2013_housing_data-10

See his TEN other graphs, including the Case-Shiller predictions, here:

http://piggington.com/march_data_rodeo_housing_market_smoking_hot

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