Levels of CV Doom

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?

Down-Payment Check

The original thought behind examining the size of down payments was to get a feel for the buyers’ intentions – figuring that if they put down a healthy chunk of change, that they probably planned to live there long-term.

But it also helps illustrate who is buying – people with substantial funds available.

Here are the down-payment stats for the Carmel Valley, Del Mar, Solana Beach, and RSF detached sales for June – where the average price was $1,391,764, at an average of $415/sf:

Amt of Down Pmt Number of Sales
0-19% 6
20% 14
25% 7
30-50% 10
51%+ 5
Cash 6

Short sales: 5

Bank-owned sales: 2

Number sold for less than the sellers paid:  18 (37.5%)

Sold before MLS input: 2

So far this month, 44% of the buyers are using at least 30% down payments on very expensive properties.  Yes, the lenders are demanding bigger down payments, but the fact that people have the dough, and are willing to invest it in spite of the headlines, is a healthy sign.

It helps identify the competition for the top-quality properties too – where you will likely be bidding against people with ample horsepower.  Strategize accordingly.

Minimum 20% Down?

From Nick at the wsj.com:

Banking regulators are pushing for mortgage-lending rules that require homeowners to make minimum 20% down payments on loans classified as lower-risk, according to people familiar with the matter.

The proposal is being floated as a way to rewrite the rules for mortgage lending to prevent a rerun of the housing bubble and financial crisis that resulted from years of easy credit. The Dodd-Frank financial overhaul law enacted last year enabled regulators to define a so-called gold-standard residential mortgage that would be exempt from costly new rules.

At least three agencies—the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency—back a proposal to require home buyers to put down at least 20% of the sales price in order to obtain one of these “qualified residential mortgages.” One proposal would also require borrowers to maintain a 75% loan-to-value ratio for refinances, and a 70% loan-to-value for cash-out refinances in which the borrower refinances into a larger loan, according to people familiar with the matter.

Mortgage-finance giants Fannie Mae and Freddie Mac would also be exempt from the rules while they remain in conservatorship, according to these people. The U.S. took over the firms in 2008, and the Obama administration has proposed eventually winding them down.

The behind-the-scenes debate over the proposal could have far-reaching implications for how Americans finance loans, because it addresses how much equity new borrowers should have in their homes.


Haves and Have-Nots

From the latimes.com:

Cash talks. And it’s speaking loudly in California real estate these days, even in the nicest parts of town.

All-cash buyers grabbed a record 30.9% share of the Golden State’s houses and condos in January as low prices lured investors and others, according to San Diego research firm DataQuick Information Systems.

Cash activity has been brisk for months in foreclosure-ridden areas such as Riverside and San Bernardino. But now, the cash buyer has become a major player in Southern California’s most expensive communities, where cash deals account for as much as two-thirds of home sales.

The trend is being driven by several factors, analysts say, including the difficulty of getting a “jumbo” loan from lenders still stinging from the mortgage meltdown. It also reflects speculation by wealthy investors who believe home prices are at or near a bottom.

“A lot of people think housing will outperform other financial investments,” said Andrew LePage, a DataQuick analyst. “This is just a place to park their money.”

In the Southland’s $1-million-and-up market, 29.2% of buyers paid cash last year — the highest percentage since 1994, DataQuick statistics show. For homes selling for $5 million and up, 62.2% paid cash.  Overall, cash deals constituted 27.8% of Southern California home sales in 2010, the most since DataQuick began tracking the market in 1988. It’s also more than double the 13% average for cash sales over the last decade.

The shift toward cash purchases started when foreclosures became a significant factor in the market, said Gary Painter, director of research at the USC Lusk Center for Real Estate. That’s because investors buying properties on the courthouse steps don’t go looking for mortgages.

“There have always been all-cash investors who think they can go in and flip a home,” he said.

There’s just more of them now. Cash buying has reached fever pitch in parts of Orange County, where the Balboa community of Newport Beach saw the highest percentage of sales going to cash buyers last year of any $1-million-plus Southland community — 66.7%.

Chris Crocker, a Coldwell Banker broker in Corona del Mar, said well-heeled buyers are using cash to acquire investment properties and second homes or to better their portfolios.

“Buyers are looking out 10 years, and buying a trophy property for 40% off its price” before the housing downturn, Crocker said.

Within a five-mile radius, his office closed 24 all-cash deals in the $5-million-and-up price range in the last six months.

“The smart money is ahead of the game and buying before the summer selling season when they will have competition,” he added.


Cash Buyers

From the WSJ via Calculated Risk – an excerpt on cash buyers:

Residential real estate has been slower to bounce back than stocks, but the presence of apparent bargains is luring in newly confident buyers.

Richard Stoker, a retired sales executive, recently plunked down cash for two condominiums in Miami Beach, and plans to close on one more in coming days. He loves the complex’s ocean views, four swimming pools and activities such as yoga and Pilates.

But what also motivated the purchase, said the 73-year-old, was that “the prices were just irresistible. Florida’s been hit pretty hard.” To pay the $1.8 million, $1.2 million and $1 million prices on the condos, Mr. Stoker and his wife, Jane, cashed out of some financial investments and sold a Roy Lichtenstein painting and an Alexander Calder mobile.

Mr. Stoker could have taken out mortgages, but decided to pay cash. “It was a good time to lighten up in the art market and take on real estate at a favorable price,” he said.

The Stokers have a home in Potomac, Md., but spend most of the year in Florida. Mr. Stoker doesn’t plan to rent out any of his new properties, saying he and his wife will live in one with two dogs, his son might live in another and the third will house an older dog and guests.

The harder a market has been hit, say economists, the higher the percentage of cash deals. Last summer, piano teacher Virginia Hall-Busch told a real-estate agent she met through the Rotary Club to keep her posted on deals on historic houses in Stone Mountain, Ga.

A few days later, Ms. Hall-Busch, 62, got a call about a 1918 bungalow with three bedrooms and one bathroom listed for “short sale,” which in the real-estate world means at a price lower than what’s owed on it. The home had been on the market for $159,000, then dropped to $129,000 and then to $79,900.

“I offered them 50,” she said. “I figured, it wasn’t like I needed a place to live. I can afford to be a little cocky here.”

Ms. Hall-Busch closed in October for $52,500 and began renovations within weeks.

“When you have a bad economy, it’s hard on lots of people,” she said. “But right now if you’ve got the money to put down on a house, long term it’s going to be good thing.”

Big Down Payments Still King

It gets mentioned regularly how the demographics don’t support the housing prices around here.  It makes you wonder, how can so many expensive homes keep selling when the San Diego median income is around $60,000 – doesn’t something have to give?

We’ve seen it consistently over the last year or two – buyers are utilizing bigger down payments to keep the monthly payments down.

Here’s how the SFRs that sold in October were financed in three mid-range areas of the North SD County Coastal region – from the tax rolls:

Area or Town Zero Down FHA 5-19% 20%-25% 30%-49% 50%+ Cash SP=$1M+
Carlsbad SE
8 of 31
12 of 41
Carmel Vly
10 of 29
30 of 101

Sixty percent of the buyers used at least a 30% down payment, and only 6 FHA deals.  It lends more credence to the haves vs. havenots theory – those with ample firepower are buying, with many paying quite a bit more than those who may qualify, but are more frugal.

The three low-down sales in Carmel Valley (2 FHA, one 100% fin) were all at Manzanita Trail. Not surprised to hear that the new-tract lender is finding every available opportunity to assist with sales. 

CV Down Payments

More review of the 101 SFR sales between June 1st and August 17, 2010, in 92130. 

These are from the tax rolls, and include new-home sales, FSBOs, and deals not on the MLS:

1. There were 28 of the 101 that sold for less than they paid, at an average drop of 12%.
2. Five of the 28 sold for a loss of at least 20% or greater. (73 sold for more than they paid)
3. There were nine new Pardee homes sold, between $764,000 and $805,000 (only one on MLS).
4. There were 92 sales on the MLS, plus the one dirty deal on Winstanley.
5. There were 8 short sales, 2 REO listings sold, and one flipper – Adam!

Here’s how the buyers financed their purchases:

Down Payment # of
Zero 1 (this was a no-down doctor loan)
3.5% FHA 4
5% 1
10% 4
20% 23
25% 10
30-40% 19
41-50% 19
51-75% 12
100% all-cash 8

Over 90% invested at least 20% down, and 58% used a down payment of at least 30%. 

For those homebuyers looking to purchase in an area that has a lower threat of foreclosures in the future, Carmel Valley is about as safe as it gets – at least on the surface.  These buyers must have felt pretty comfortable with their personal financial situation to invest as much as they did, and it’s been the trend that we have seen lately in the CV!

Carmel Valley In-Depth

The Spring Kick statistics for North SD County’s Coastal region are likely to be tepid, at best, over the next few months, just because of the low inventory – the quality buys are hard to come by.

But if there was an area that could continue to beat the odds, it’s 92130.

Month # of Sales $$-per-sf SP:LP DOM
Feb. ’09
Jan. ’10
Feb ’10

I think most of us figured that Carmel Valley would be at $300/sf by now, but all four of these stats are holding up – why? The strength of the buyer pool is phenomenal, and the amount of cash is mind-boggling. Here are the down payments of the Carmel Valley SFRs closed this year (1/1-2/22):

0-19% 20% 25% 30% 35% 40% 50+% Cash

It’s been like this for months, 77.5% of the buyers have at least 25% down, and 35% used more than 50% down payments. Two thoughts: We’re probably not going to see cascading defaults of recent buyers in the future, when they have invested so much down-payment. Their payments are lower (though not low), and they must feel comfortable with their finances to invest so much up front – they must intend to stay a while. Secondly, we should grapple with the likelihood that real estate in the area has turned into a rich-man’s game….only. We know that homeownership isn’t for everyone, but if these trends continue, buying a house will just be for the elite, at least in 92130.

Are the sellers having to take big hits to sell?  From the tax rolls, here are the same-house-sales data; the amount of price change between the last sale and the most recent (between Jan.1 – Feb. 22):

2002 and before:
+144%,+138%,+113%,+102%,+99%,+83%,+80%,+47%,+34%,+20%,+14% (REO)
+33%,+28%,+19%,+14%,-4% (REO)
-10%, -17% (REO)
+8%,-5%,-12%,-13%,-20% (REO),-22%

Will there be enough peak-buyers that either can’t afford their payments, or bail out due to being underwater that we’ll see a significant change in the trend? I think it would have happened by now, but if it’s still coming, we should see more signs in the next few months.

An indicator to watch is the amount of new listings coming on the market. This month isn’t over, but here are the number of February detached listings from 2001 to 2010:

85,70,81,63,70,79,75,73,73,and 69 so far this month.

Levitating, or just beating the odds – either way, it;’s been impressive in Carmel Valley!

Cash Is King

The type and method of financing should indicate something about the buyers’ intentions – if they are putting down a boatload of money, they’re probably planning to stay a while. As we’ve seen all year, the big down payments are the preference in North SD County Coastal.

Here’s a check of the last 100 SFR sales in Carlsbad, Encinitas, Cardiff, Solana Beach, Del Mar, and Carmel Valley (omitting RSF and LJ) that occured between November 12th and December 1st:


0-5%:  12

6-19%:  6

20%:  23

25%:  10

30%:  10

40+%: 26

Cash:  13

Total: 100

Eighty-two percent of the buyers used at least a 20% down, and nearly half (49%) used a down payment of 30% or more.


VA: 1

FHA:  11

Conv:  75

Cash:  13

You can’t say the govies are carrying the SD North County Coastal market.


O/O:  75

N/O/O – local:  18

N/O/O – out of state:  7

Based on their mailing address on the tax rolls.


More: 70

Less:  30

The average drop in price for the 30 who sold for less was $144,000, after throwing out the high and low number.


2004:  4

2005:  16

2006:  5

2007:  3

2008:  2

You can’t really say we’re back to 2003 prices currently.


REO:  9

SS:  11

Reg:  80

It’ll be interesting to see how these split this time next year!

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