Selling Off Buzz

When Grant Fry spotted a listing one night for a four-bedroom house in Orange that seemed to be exactly what he was seeking, he knew he had to move fast.  He showed up at the home the next day: “We were here. Bam.” He submitted an offer five hours later, at the full asking price of $479,000.

The seller’s photos weren’t even up on the MLS yet.

“I kept hearing about bidding wars,” said Fry, 51. “I did not want to get into that.”  He said he was successful “by staying on top of the listings. They change every day.”  In addition to online searches, he drove as much as 45 miles a day looking at houses.

With an extreme shortage of homes on the market in Orange County and many places around the nation, homebuyers have been swarming homes for sale and open houses, driving up prices and pretty much leaving any dream of scoring a “deal” in the dust, real estate agents say.

In Huntington Beach, Realtor Bill Smith describes an open house that “looked like a carnival. There was almost no parking on the entire block.”

In Rancho Santa Margarita, Realtor Cindi Powalski saw more than 50 people attend her open house. A loan officer worked on site. The four-bedroom house, which got several offers, found a buyer that day.

In Ladera Ranch, real estate broker Brian Doubleday sold a five-bedroom home listed for $888,000 in less than a week, at full price.  “The demand was outrageous,” says Doubleday, co-owner of IML Real Estate. “All the properties right now, you get a tremendous amount of response right away.”

The same scenario is playing out around the country, with inventory shrinking by 19 percent over the past year, according to a report last week by Zillow.com. In California, it was down 38 percent, the Zillow analysis shows.

“First-time homebuyers are being squeezed out of the market by falling inventory and the rapid influx of investors looking to buy basic homes to rent out to the growing population of people who have recently been foreclosed upon,” said Stan Humphries, Zillow chief economist.

Nashville real estate broker Brian Copeland told Inman.com that his agents are being “brutally honest” with buyers, advising them not to even bother to look at houses unless they’re ready to make an offer that day. “We sold two (homes) off of buzz ,” he said.


Another Index Rising

Home sellers like reading the happier news these days, and buyers don’t mind thinking that it’s safer to jump in.  The lower volume could make for more volatile swings though – in either direction!  From dsnews.com:

The picture gets rosier for housing as home prices continue their climb back to the top.

One recent price index puts the July increase for prices at 0.9 percent, with prices achieving their first sustained recovery on a year-over-year basis since the market went bust in 2007.

According to FNC, which recently released the Residential Price Index, property values also went up in July, securing gains for the fifth straight month.

More notably, the index shows that for the first time since the housing market collapsed in 2007, home prices are beginning to recover on a year-over-year basis, highlighting a major turning point in market trends.

Home prices also ticked up more than 4.6 percent since January this year, the firm said.

Figures for indices covering prices across the country and 40 metro areas revealed a sustained pickup, with home prices gaining cumulatively by 3 percent over the last three months.

The firm found two much larger indices reporting 12-month highs, with positive growth marking a first in five years. Prices rose in several cities, including San Francisco (4.4 percent), Detroit (3.6 percent), Boston (3.4 percent), San Diego (2.2 percent), and Riverside (2 percent).

Chicago showed signs that it may be suffering from a seasonal setback, according to FNC, with prices down 0.9 percent in the Windy City.

Roughly half of the markets showed signs of growth, helped along by Phoenix (10.1 percent), Detroit (7.2 percent), Houston (5.8 percent), Miami (4.3 percent), and Dallas (4 percent).

Some of the same cities also saw prices appreciate. Those included Detroit (10.1 percent), San Francisco (9.1 percent), Dallas (8.7 percent), Boston (8.1 percent), and Washington, D.C. (7.7 percent), FNC said.

Shiller Needs One Year of Increases


Interviewer: You don’t think housing is on the road to recovery?

Shiller: I think it might be. There are a lot of positive indicators. People tend to overreact to these, and if you look at the trend down since 2006, it’s a pretty strong trend that we have to see reversed.  You know maybe, you know, I might call it later this year that we’ve reached the bottom, but I’m not ready yet.

Interviewer: So this is an important note here. You’re considered one of the foremost experts on housing. Robert Shiller, as you sit here right now, you’re not willing to say that housing is back?

Shiller:  Well, we’ve seen four attempts at recovery ever since the subprime crisis. But it’s seasonal. The seasonal has gotten stronger, it’s been growing, so nobody knows why and during the summer season, the question is, will this continue through the fall and winter? We’ll wait and see. If that happens, then, you know, I believe in momentum in the housing market. and we are starting — it looks like upward momentum, but I think it’s too soon to call.

Interviewer: What’s the tell then? what do you need to see before you’re willing to say that we’ve turned the corner for real?

Shiller:  It least a solid year of price increases. and maybe other indicators, as well. but the other — it’s starting to look better. I have to admit. so, you know, for someone who is thinking of buying a home now, you also have to factor in that mortgage rates are at record lows. so, you know, I’m not telling people not to buy a house.

The video:


The End of the Bubble?

These guys were using this Case-Shiller graph to say the housing bubble has ended.

The line on a graph may look like it has normalized, but lately we have had a severely-restricted supply.  The old bubble may have fully popped, but we’re not out of the woods just yet.

Camping Out for New Homes

Hat tip to Another Investor for sending this in, from CBS San Francisco:

SAN RAMON (CBS 5) – Would-be homeowners have been camping outside a new subdivision in San Ramon, some of them for weeks, in hopes of buying a home this weekend.

A new phase of homes in the Gale Ranch community will go on sale Saturday morning, with asking prices starting around $700,000.

“We’ve been here for more than two weeks. We have camped here day and night so that we are number one on the list,” said Komal Dutta.

“For new homes, lines, lotteries, luck of the draw, very competitive, very stressful,” said Bill Clarkson of Golden Hills Brokers.  Clarkson, who is also Mayor of San Ramon, has worked in the area for 34 years. He said the market hasn’t been this competitive since before the housing bubble burst.

“Inventory has been shrinking since February. We’ve seen San Ramon have up to 250 homes on the market. It’s dropped to around 70 or 80,” Clarkson said.


Ivy Says Don’t Fear the Shadow

Excerpted from Nick at the wsj.com:

Listings of foreclosed properties have fallen in 17 of the last 19 months through July, according to research firm Zelman & Associates. Listings are down 47% from their October 2009 peak and by 23% from one year ago. Banks are selling more homes to investors at courthouse trustee sales, rather than taking them back themselves. They’re also approving more short sales, where the property is sold for less than the amount owed.

“If you don’t understand the shadow inventory, it’s very ominous and concerning,” says Ivy Zelman, chief executive of Zelman & Associates. “But if you understand the flows and how it is brought to market” it looks less intimidating, she says.

Nationally, Barclays estimates that the number of bank-owned properties will decline a bit more this year, before accelerating next year to a peak of around 575,000 in early 2014.

Meanwhile, as the shadow inventory has dropped over the past year and as banks and states have slowed down the process, demand has picked up. That’s especially the case for foreclosed properties at low price points that can be held as rental properties by investors, or rehabbed and flipped for a profit. Investors are raising billions of dollars to buy homes in hard-hit markets such as Phoenix, Atlanta, Las Vegas, and across Florida and California.

“What most of the bears aren’t focused on is understanding demand,” says Ms. Zelman. This is one reason she’s turned bullish. Her most recent forecast calls for a 5% increase in home prices this year, a change from her initial forecast of a 1% decline when the year began. Getting a handle on demand “allows us to have a complete picture of the housing market.”

Finally, shadow inventory isn’t a national phenomenon. Instead, it is heavily concentrated in particular markets—and within those, in particular submarkets. To the extent banks to ramp up the foreclosure process, the shadow is more likely to resemble a “tornado” than a “flood,” as it will strike particular communities while bypassing others, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm.

So when people use the “shadow inventory” trump card to argue that housing is poised for another decline, it’s important to be precise about which market they’re talking about. “It’s not like you have all these properties distributed all across the country,” says Michael Sklarz, president of Collateral Analytics, a Honolulu-based research firm.

Buyers in Santa Monica, Calif., shouldn’t “expect a flood of foreclosures to come onto the market,” says Mr. Sklarz, even if neighborhoods just a few miles away in South Los Angeles do face a larger backlog of foreclosures. “You really have to look at it market by market,” he says.

This excerpt is from part 2 of Nick’s three-part series:



Livinincali said:

It’s definitely going to be a long drawn out process. The biggest group of new defaulters are FHA loans and since the government gets to decide foreclosure on those I expect to see many more years of free rent. FHA Foreclosures would come through HUD if there were any and as far as I know there’s virtually nothing coming out of HUD in San Diego.

It reminded me to include the changes in private mortgage insurance.

FHA now collects 1.75% up front (can be financed) and charges 1.25% of the loan amount for annual premiums (divided by 12 and added to monthly payment).

This has allowed the private mortgage insurance companies to modify their fee structure too.  They have eliminated the monthly premium, and are collecting their entire fee upfront.

97% LTV = 3% premium up front.

95% LTV = 2.18% premium up front.

The buyers hope that they can find a seller who will pay the fee, and that way they dodge PMI altogether, unless they have to raise the purchase price to compensate.

The debt-to-income ratios are fairly strict, around 41%, and FICO scores need to be around 720-740.  There are some cases where buyers with lower FICO scores can qualify too.

It makes the higher FHA loan amounts very unattractive, which could save taxpayers some money down the road.  On a $500,000 FHA loan, the MI is $520/month, and with PMI it’s zero monthly.

The private mortgage insurance is for loans up to $546,250, the Fannie/Freddie high-balance limit here.  The FHA loan limit is still $697,500 in San Diego.

An executive at one of the big PMI companies told me that they are looking favorably at the California market too, so hopefully these programs will stick around – and maybe get better?

How Much Longer?

Excerpted from this AP article:

LOS ANGELES — U.S. homeowners are getting better about keeping up with their mortgage payments, driving the percentage of borrowers who have fallen behind to a three-year low, according to a new report.

Some 5.49 percent of the nation’s mortgage holders were behind on their payments by 60 days or more in the April-to-June period, the agency said. That’s the lowest level since the first quarter of 2009.

Home prices need to recover further for the delinquency rate to decline.

Foreclosure hotbeds Arizona and California each saw marked improvement during the second quarter.  California’s mortgage delinquency rate fell nearly 22 percent to 6.13 percent from a year earlier, while Arizona’s declined 21 percent to 6.14.

TransUnion’s research is culled from its database of 27 million anonymous consumer records.



Let’s do the math to examine the gap between 60-day-or-more delinquencies and defaulters in SD, and try to estimate how much longer this environment will last.

According to city-data.com, there are 362,087 homes with mortgages in San Diego County.  Using the California ratio of 6.13%, there should be around 22,195 homes that are more than 60 days late on their mortgage payments.

How many are in default currently in SD County?

NOD = 5,097

NOTS = 6,036

Total = 11,113

Only half of the delinquents have been served their notice.  With servicers now claiming to process loan-mods within 30 days, if you are more than 60 days late, aren’t you already on your way out?

Foreclosed in 2012 = 4,000/7.5 months = 533 per month (July had 482 foreclosures)

Short sales closed in 2012 = 4,962 = 662 per month (In July we closed 712 short sales)

San Diego County Average Free Rent, days (in green)

Bottom Line:

The combined foreclosure/short-sale machine is clearing roughly 1,200 properties per month, which means that we have about 9-10 months’ worth of known defaulters to clear out. But we can estimate that are another 11,000 roughly who are more than 60 days late, and with the California Homeowners Bill of Rights expected to stall the machine further, I think it is safe to say that we have a minimum 2-3 years left of this madness.  It wouldn’t surprise me if it ends up 5-10 years either!

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