As the housing crisis unrolled the Department of Housing and Urban Development (HUD) and the two government sponsored enterprises (GSEs) Freddie Mae and Fannie Mae came into possession of more and more properties thorugh foreclosure. As of September 30, 2012, HUD held 37,445 foreclosed properties (REO) while the GSEs held 158,138.
In addition, the “shadow inventory” (residential loans at least 90 days delinquent) totaled1,708,033 properties, roughly 8.7 times the size of the HUD and GSE REO inventories combined. Even a fraction of the shadow inventory falling into foreclosure could considerably swell HUD and GSE inventories of REO properties.
Because of the volume of this current and potential REO the Offices of Inspector General (OIG) for both HUD and the Federal Housing Finance Agency (FHFA) (conservator of the GSEs) recently produced a report on how HUD and the GSEs are managing and disposing of it.
Hat tip to SD Squatter for sending inthis articlefrom the wsj.com:
LADERA RANCH, Calif.—Rising home prices have fueled the return of a practice that some blamed for inflating the bubble: house flipping.
In California, the number of homes sold in recent months that had been flipped—or bought and resold within six months—has reached the highest levels since late 2005, according to PropertyRadar, a real-estate data firm. About 6,000 homes have been flipped in the state this year through April, or more than 5% of all homes sold statewide.
While flipping is re-emerging nationwide, brokers say it is happening most in California, where home prices have risen sharply over the past year. Six of the 10 largest price gains in major U.S. cities over the past year have been in California, according to Zillow. In April, home values rose by 25% from a year earlier in San Jose, San Francisco and Sacramento, and by 18% in Los Angeles.
“When prices rise, this trade works. It’s not anything more sophisticated than that,” said Christopher Thornberg, an economist with Beacon Economics in Los Angeles.
The industry is split over whether the current flipping activity could lead to potential problems. Jed Kolko, chief economist and a vice president at Trulia Inc., an online real-estate site, says the current activity isn’t indicative of a bubble. “A bubble is when prices are rising fast from high levels,” he said. “We’re not there now.”
Competition for homes “is reaching bubble proportions, and I’m very wary of it,” said Rich Worcester, a real-estate agent in San Diego who flipped about 25 homes last year for himself and clients. Mr. Worcester is representing a colleague who paid $675,000 last month for a foreclosed three-bedroom home in San Gabriel, a Los Angeles suburb. After installing new appliances, relandscaping and staging the empty house with furnishings, it hit the market for $867,000 earlier this month. Mr. Worcester said it hasn’t yet received any offers, and he conceded he may cut the price.
Investors generally make all-cash payments, which gives them an extra advantage over buyers who must complete a lengthy mortgage-approval and home-appraisal process.
Robert Ganem beat out four other offers this year when he paid $600,000 for a short sale—in which a home is sold for less than the amount owed on its mortgage—in Ladera Ranch, in southern Orange County. He made cosmetic renovations—fresh paint, new hardwood floors and kitchen tiles—before selling it a few weeks later for $755,000.
“A year ago, I couldn’t give them away. I was definitely swimming against the current,” said Mr. Ganem, who said he flipped 20 houses last year, double the previous year. Before he became a full-time real-estate investor, Mr. Ganem worked as a mortgage broker in Los Angeles. Flippers get a “bad rap” in the public eye, he said. “Most buyers want a home that’s move-in ready. We come in and make repairs that a bank or an underwater owner is not going to do.”
Meanwhile, the growing competition from investors is unwelcome news for ordinary buyers. After waiting years for prices to hit bottom, “buyers are jumping in before prices bounce so high they can’t afford it,” said Christine Donovan, a real-estate agent in Costa Mesa, Calif.
Parviz Goshtasby, who moved to Southern California three years ago, is finding few homes available to entry-level buyers in Newport Beach, where starter homes can begin at $800,000. “I slowly realized that I can’t compete with these investors,” said Dr. Goshtasby, a plastic surgeon.
After three unsuccessful offers, he agreed to pay $1.6 million for a home in January after the seller agreed to finance a 10% second-lien mortgage, but the deal fell through when the seller later got cold feet. Two weeks ago, he offered to pay the $1.2 million asking price on another home that ended up selling to a cash buyer.
In a dramatic about-face for the housing market, sellers are now calling the shots.
A survey of more than 2,000 Americans found that 33% of the 365 who were searching for a home have been on the hunt for more than a year and many were willing to make compromises on where they live or the type of home they would buy in order to close the deal, Century 21 Real Estate reported Wednesday.
“The recovery has transformed the mindset of many buyers and sellers who grew accustomed to the buyers’ market we saw for years,” said Rick Davidson, CEO of Century 21. “Buyer confidence is building back up and demand is strong… sellers are now in a more favorable position.”
Currently, there are 2.16 million existing homes for sale, down 13.6% from 12 months earlier.
With fewer homes for sale and more buyers coming onto the market, sellers are less willing to negotiate on price like they were during the housing bust.
According to the survey, 42% of the people shopping for homes have placed offers in the past six months, yet only 11% of the bids were accepted.
That has caused buyers to rethink their positions: 85% said they’re willing to compromise to get deals done. Just over half said they would be flexible on the closing date; 31% said they would purchase a home “as-is;” and 29% would pony up more cash than they originally planned.
The home shoppers said they are also willing to let go of some of the items on their “wish lists.” More than half would give up on an in-ground pool; 49% would sacrifice a finished basement; 37% would compromise on either an updated kitchen or walk-in closets.
A majority of buyers are also more willing to look beyond their preferred locations, willing to live farther away from work, from family or from restaurants and shopping.
1. Can you please cover one more buyer anxiety – this one’s personal for me? I think that, after the artificial supply suppression and/or institutional investors are gone, the prices will drop. However, I’m not sure how far. So, my fear is that the prices may drop too far, which will make my purchase decision a very bad one. This is especially valid for some investment properties I’m thinking to buy.
2. JTR, I was also thinking about the “illusion of demand”. As both an investor and a house hunter, I see things from different points of view. The conclusion I have come to of late is that in many of the recent bidding war or multiple offer stuations, lets say 10 offers, most likely 7 or 8 of them are from speculators/investors/flippers, with only 2 or 3 from end users, and the end users more often than not get out bid. When this round of properties get shined up with marginal upgrades and are relisted to make a profit, will the end users still be there and will they be willing to (or more to the point, able to) pay the x+ the investor/speculator/flipper needs to make their profit?
My thoughts on each:
#1 – Traditional investment properties are valued on their income, so you would have to believe that rents would drop for the corresponding property values to decline. With the high difficulty of purchasing a home today, the rents should stay strong for the foreseeable future. I don’t see any artificial supply suppression or holdbacks of normal investment properties, none getting foreclosed really.
#2 Flippers have been very successful around NSDCC, even when paying retail – but they have caught the market in the perfect upswing. I think we will stop seeing short-sales, REO, and flippers within a year, and just see the occasional default. It’s doubtful that the debt-tax exemption will be extended again after it expires this year, and any homeowner who has hung on this long will want to reap some equity return, or go back to making payments.
An employee of Bank of America told me last week that they are finding a way to keep everyone in their house who wants to stay. Only those borrowers who completely give up are getting foreclosed, and I’m sure every bank is taking their sweet time with the process:
The demand is still fairly deep, and with virtually no bargains coming to market, those who are selling are reaping a nice windfall. We got caught up in a ferocious bidding war yesterday on this property:
It was listed for $895,000, though the last three model-match sales were $670,000, $765,000, and $800,000 (the $670,000 was the most recent, in January).
There were eight offers at, or above list price, and all had at least 20% down. The seller took a full-price cash offer that will close in 15 days – and left at least $50,000 on the table for that convenience.
The worst part is that there are six other losers out there for us to compete with on the next one!
Little Hurricane began in early 2010 when front man Tone, and drummer CC met via Craigslist and have been creating dirty blues together since. By coincidence, both members lived on 30th Street in North Park, San Diego.
They found a common interest in unique and vintage equipment and a love of grimy, down and dirty blues. Little Hurricane released their debut album Homewrecker, in April of 2011.
The cliff behind a house on Pacific Avenue in Solana Beach collapsed several years ago, dropping the patio and backyard to the beach 40 feet below. (photo taken by Don Bartletti on May 10, 2013)
SOLANA BEACH — Atop the ocean bluff are the homes of those fortunate to own a piece of land overlooking the dramatic California coastline.
Down on the beach are the surfers, swimmers and beachcombers lucky for a sliver of sand that skirts caves and coves in this paradise north of San Diego.
Dividing the two is a crumbling 80-foot cliff that forms a battle line between homeowners who built concrete walls to prevent their houses from sliding into the sea and those who want to put limits on how long they can fend off the waters.
The powerful California Coastal Commission is imposing 20-year caps on permits to build sea walls, setting up a classic debate over public beach access and property rights as sea levels continue to rise and relentless surf threatens to erode a way of life along 1,100 miles of shore.
Since 2010, the agency has set 20-year expiration dates on a private tennis club in Pebble Beach, a 13-unit apartment building in San Diego, two houses in Santa Cruz, a 19-unit apartment building in nearby Capitola, a 260-unit apartment complex in the San Francisco-area town of Pacifica and several homes in Solana Beach and neighboring Encinitas.
While the limits aren’t edicts to tear down walls in two decades and wouldn’t necessarily prevent shoring up fortifications later, they have alarmed homeowners who see a threat to their property.
“There’s going to be a huge dark cloud whether the home can still exist when the period is over,” said Jon Corn, an attorney for homeowners who sued Solana Beach after the city adopted a similar 20-year limit for all new walls on its 1.7 miles of coast.
Three lawsuits are pending in state court to overturn the city’s policy.
Solana Beach could become a model for 75 other cities or counties required to run plans by the Coastal Commission.
When homebuying, the usual recommendations are to get pre-approved for financing, receive auto-notifications of new listings, see a lot of homes in person, and work with a good agent.
But once you get in the game, the frustration mounts. You’ve been looking at houses for months…or years…and don’t feel any closer to buying today than when you started.
What can you do?
Ways to Relieve Homebuyer Anxiety
Evaluate Your Willingness – You should consider all the facts, and decide if buying a home is for you. It is time-consuming, unpredictable, and sometimes sleazy. Because of the competition, buying a quality home today means you will most likely pay more than you are comfortable with – you will have to want it real bad.
Expand the Target Zone – Not only will you instantly have more homes to consider, but it also helps you evaluate how committed you are about staying in the old area.
Raise Your Price Target – Nobody wants you to drown in debt. But if you borrowed another $100,000 at 4% interest, your P&I payment would be $477/mo. higher. For those who are already at their max, dis-regard. But for those who can push higher, it is an option.
Buy a Fixer – The best way to better your chances. The ulgy old dogs may bark at traffic, but they are also chasing off most of the competition too. Don’t expect that the purchase price will reflect an adequate discount for the work though, just hope that it is close.
Don’t Expect Much From the Sellers – Expect to spend $25,000 to $50,000 on any house you buy. Most houses have defects, and you are going to have to live with a punch list of repair items with any house you buy. Their agent is telling them that the market is hot, and they don’t have to cater to your demands.
Influences – Gain the support of family and friends – if you have ‘experts’ around you who are constantly telling you that you are paying too much, or that prices will come down, it will undermine your confidence in crunch time.
Door-to-Door – The old needle-in-a-haystack search method, with a very low rate of success – but great exercise! One of the bidding-war losers at Manzanita canvassed the whole neighborhood with color flyers of them and their dog. Since then, two other sellers have listed in their price range.
Change Agents – This applies if you keep losing bidding wars – your agent doesn’t have the market awareness or strategies to win.
Add Mustard – If you want to get this over with, then go to the craziest-high price that you would ever pay for that house, and add $10,000.
Be patient – you are making a decision that might last you a lifetime.
Two posts ago it was suggested that buyers are feeling anxious due to increasing prices, and it is definitely a real concern.
But the buyer anxiety is being fed by a number of other reasons too – things that are just as annoying!
Other Causes of Buyer Anxiety
Few Listings to Consider – The inventory is thin because homeowners are keeping their highest-quality properties. For buyers, that means a thin inventory in general, and virtually none of better-quality properties available at decent prices. When a hot new listing does hit the market, buyers come rushing because they know it could be months before they see another one
Hard to “Keep Your Chops Up” – With so few to consider, how do you know if the list price is right? How do you know if you should go up or down on price? How do you keep paying such close attention to every detail, every pending, every closed sales price, etc.??
Losing a Few Bidding Wars – There are other buyers more frustrated than you, and those with more horsepower will bury you with higher/better offers. You are going to lose a few bidding wars before you get to the same position, and offer high enough to win.
Lack of Rules/Regs on Bidding Wars – Not only are there no guidelines on how to handle multiple offers, but listing agents have no qualms about telling you that they are going to do one thing, and then do the opposite. Example: It happens regularly that a buyer will make an offer, and be told that there will be a chance to improve it at the highest-and-best round. But then the H&B round doesn’t happen, instead it’s the Dear John email, with the obligatory “sorry” from the listing agent at the end.
Sellers Don’t Have to Sell – Have you offered at, or over list price, and been countered? Yep, it happens all the time, or how about when you offer at, or over list and get no response?
Realtor Shenanigans – No showings for days or weeks (or none at all), not presenting offers for days or weeks, and the general arrogance and lack of respect by listing agents is very annoying. My job is to shield my buyers from it as much as possible, but they want an answer – but most listing agents would rather play around.
We submitted an offer over the weekend, and are one of 8-9 offers on the table – but the sellers aren’t responding until the end of the week. I told my buyers it is a good thing, because some of the other buyers will quit, or find another property in the meantime!
School District – If one of the main reasons for moving is to get into a better school district, you don’t even want to look at a calendar (BTW, June starts this Saturday!). If you really want and need to be settled by the end of August, you are looking for the panic button right about now.
Too Difficult – If one of the reasons you are moving is so you and/or the kids/pets can have a new place, how long, and how hard do you try? This is where buyer exhaustion comes in – for many people, it’s not worth the difficulty.
Bottom Line – Buyers need to be VERY committed to buying a home today. Having a good agent to assist you with the anxiety is highly recommended!
The Case-Shiller Index is 2-5 months old by the time it comes out – do we even need to cover it? These are the seasonally-adjusted numbers, the NSA had the same +12.1% increase too:
March 2012: 151.77
Feb. 2013: 166.85
March 2013: 170.19
M-O-M = +2.0%
Y-O-Y = +12.1%
These aren’t eye-popping any more, and the 1-2%-per-month increase is fairly normal in a market coming off a big downturn.
We will probably keep getting double-digit increases in the SD Case-Shiller through September. It was last October that the index started its ascent, and as a result, the Y-O-Y changes should be lower starting later this year: