Late April stats from DataQuick show a modest slowing in the depth of O.C.’s homebuying slump. Completed sales activity was down 31% vs. a year ago for the 22 business days ended April 22. If that holds, it’ll mean April had O.C.’s slowest rate of sales decline since July, just before the credit crunch zapped the ability to get easy mortgages.
But just 10 of 83 O.C. ZIP codes had year-over-year sales gains. (ZIP-by-ZIP data IS HERE!) Plus, April will certainly be the 31st straight month where O.C.’s buying pace failed to meet last year’s activity levels. (See chart of the losing streak above of how April would shape up, if trend holds for full month.)
Do note, though, the latest inventory stats from Steve Thomas of Re/Max that show O.C.’s pending deals rising in recent months to a level just below 2006’s buying patterns. That’s a hint that when many of these pending deals close in the coming months, O.C.’s homebuying losing streak may come to an end.
DataQuick’s median price continues to run near a half-million bucks, one-fifth less than last June’s peak. (How do other indexes see O.C. pricing? CLICK HERE!) And here’s a look at the rest of the market, for the 22 business days ended April 22, by key slices:
| Slice | Price | Vs. ‘07 | Sales | Vs. ‘07 |
|---|---|---|---|---|
| House | $563,000 | -21.8% | 1,355 | -22.0% |
| Condo | $390,000 | -15.0% | 484 | -37.8% |
| New | $525,000 | -15.8% | 146 | -59.8% |
| All | $509,000 | -19.2% | 1,985 | -31.1% |
Per DataQuick, Single Family Median Home Price:
2006 ~ Monthly
$690,000 = Feb ~ Watts forecast 15% for SFH
$695,000 = Mar
$705,000 = Apr
$705,000 = May
$700,000 = Jun
$699,000 = Jul ~ Watts revises forecast to 11%
$685,000 = Aug
$680,000 = Sep
$665,000 = Oct
$660,000 = Nov
$665,000 = Dec
2007 ~ Monthly
$675,000 = Jan ~ Watts forecast 7% SFH
$675,000 = Feb
$695,000 = Mar
$720,000 = Apr ~ New Century Bankruptcy
$695,000 = May
$734,000 = Jun ~ Peak of Great O.C. Housing Bubble
$718,000 = Jul
$710,000 = Aug
$655,000 = Sep
$650,000 = Oct
$655,000 = Nov
$600,000 = Dec
2008 ~ Weekly ~ Monthly
$600,000 = 01/07 ~ Watts “Pent up Demand”
$595,000 = 01/15
$595,000 = 01/23
$583,250 = Jan
$585,000 = 02/07
$575,000 = 02/13
$575,000 = 02/22
$575.000 = Feb
$580,000 = 03/07
$575,000 = 03/14
$567,000 = 03/20
$570,000 = 03/26
$570,000 = Mar
$553,750 = 04/08
$565,000 = 04/14
$563,000 = 02/22
Per DataQuick, this loss represents a $171,000 reduction in single family home prices from the June 2007 high.
Last month I lost 100,000 in the market.
This month I only lost 110,000.
Gee, I only lost 10 percent of what I lost the month before, things are looking great.
It must be the bottom … again.
Spring bumps and bailouts
False Hope: it springs eternal
Time is running out
Notice that sales are increasing the most for single family homes, yet prices are doing the complete opposite. WHY? Because the bulk of the homes that are selling are distressed properties (comp killers). The best news is comp killers are not shrinking as a percentage of our inventory … in fact they keep increasing. This is compounding the problem and enticing people to “just walk away”.
I happen to know that a lot of people in Orange County are choosing to “walk away” because it no longer makes sense to pay their mortgage for a house that has negative equity and rising mortgage payments, when they can rent for half the cost.
:)
Grave Dancers
As I recall, things were already becoming dramatically slower last year. I wonder how this sales number compares to the average for April over the last 20 years? Jon, do you have that number handy?
The question is clearly how long until we return to a normal rate of seasonably adjusted sales?
Subtle signs. Let’s see if it continues.
lee
How do you know that most sales are distress sales? Has that been established of record?
Also, does a home appraisal take into account that certain comps are the result of forclosure/short sale? I have heard there is maybe some kind of equation that is used.Can they not simply choose actual sales of like size homes from a larger radius?
Another peculiar choice of words:
“slowing in the depth of O.C.’s homebuying slump”
That would imply a downward trajectory, which is NOT the case. I’ve noticed a sublte shift in you Lansner, since you put out your “number of Orange County houses for a US house theory”. Coincidence…or not?
RealtorDaveE,
Please help us understand a couple of facts here. One, what percentage of sales are short sales, foreclosure sales, etc. Put another way, how many are “normal” resales?
Also, during the appraisal process, can an appraiser choose normal sales over distress sales for the appraisal, and if not, is there consideration given to the fact that the comp was not a “bonafide sale for value”?
Thanks
Eventually, we’ll hit the bottom. There are definitely some more attractive prices out there, like the $170 per s.f. mentioned in the article. But most stuff is listed at only 25% off the peak price, rather than 40% especially in the better areas. When we get down 50% in the good areas it will be time to buy again.
VOR, appraisers don’t have to use foreclosures if they have other good comps. If asked by a lender to grid them, they do but the lender can decide to use them or not.
Thanks Thoughtful.
OMG. Oil hit $126 a barrel today. I wonder what that is going to do to the OC consumer. We live in an area highly dependent on driving.
Can you say “RECESSION”?
VOR and Thoughtful:
I’m curious as to why you think short sales and foreclosures should be designated differently in determining market value. Whether sold by a bank or an individual, each sale sets a benchmark for current market value. In many cases, REO properties will sell at or near the bottom of the pricing scale of a specific neighborhood, but why does that sale have any more or less value than a sale by an individual homeowner? In some cases, the pricing of REO properties is not at the bottom of the neighborhood’s pricing. I just got an REO listing from a client who priced it about $60,000 (approximately 25%) over the value that I recommended in my brokers price opinion; this list price is below the most recent closings (which were very limited) but substantially above the list prices of like properties that are currently in escrow and which will soon establish a much lower pricing scale for this neighborhood (as I recall, none were REO or short sales).
I can only speak directly to my experience with my clients, but they are serious sellers who don’t wish to be holding inventory for lengthy periods of time; their stated desire is to be in escrow within a month (it doesn’t always seem that way, though, given the example I just cited). They evaluate the activity and pricing of a listing every three weeks and reduce the price if necessary. Since my inventory is primarily from sub-prime loans in central OC, there have been some adjustments (less lately) but overall my inventory is moving at a relatively swift basis.
I think it’s obvious that banks do not want to own property, and that they are not nearly as concerned in the equity of any one property as an owner would be. There are also hidden (or not so hidden) costs of repair and replacement. Simply put, they are attempting to dump the property asap.
OC Native, that’s not my opinion, that’s the standard as I know it. The element of duress taints the sale.
Let’s put something into perspective:
If you commute 200 miles per week (20 miles ea way, five times per week), and your vehicle gets 20 mpg, the cost breaks down like this:
200 miles @ 20 mpg @ $4.00 per gallon=$40.00 per week
200 miles @ 20 mpg @ $3.00 per gallon=$30.00 per week
Even though the price of gas seems high, it costs $40.00 per month more now than a year ago to commute. Not really a big difference.
VOR, for most people I agree, not that big of a deal.
but that $40 per month is $500 per year and that gets amplified through our economy……….. $500 less you can spend………. $500 less when everything cost more to ship……. so the cost of goods goes up……
it’s the multiplying effect that really creates problems……
also tell the poor people starving around the world that keeping central bank rates artificially low is a good thing
Thoughtful: ” asked by a lender to grid them, they do but the lender can decide to use them or not”
Is it in the best interest of the lender to use them or not? Given the current market - and if you were a lender using your own money - what would you do? Not saying that is the case - just curious as to why they would exlcude recent sales simply because they were foreclosure sales when they are the ones accepting the risk.
When it comes right down to it - a person bought that home for that price. Period - end of story.
But I do see what you are stating - they can choose either way. I am just curious as to why they would choose either.
VoiceofReason Says: “If you commute 200 miles per week (20 miles ea way, five times per week), and your vehicle gets 20 mpg, the cost breaks down like this:
200 miles @ 20 mpg @ $4.00 per gallon=$40.00 per week
200 miles @ 20 mpg @ $3.00 per gallon=$30.00 per week”
So I guess you don’t drive on weekends or go on vacations. You don’t buy food or anything else that has to be transported. You probably don’t fly on planes either, ah?
Thinking that oil at $126 and food inflation is not going to impact the economy shows how ignorant some people in this country are. That’s why we are in this situation to begin with.
Here’s an interesting item on reo’s. This is FHA guidance for appraising REO properties, but the underlying principal is the same as a standard appraisal:
Sales Comparison Approach
Typically, the Sales Comparison Approach is the most applicable approach to estimate the market value of a REO property. Appraisers may utilize sales comparables from other REO transactions only when such sales are deemed to be the best available for the market area and they meet all of the following criteria:
• located in the subject neighborhood or reasonable proximity
• comparable property subject to reasonable adjustment
• sold with a willing buyer and seller
• exposed to the market for a reasonable period
Inclusion of vacancy rates, rates of foreclosure and a discussion of foreclosure sales in the subject’s market area may be used as additional support for reliance on sales of other REO transactions.
Do not use distressed sales such as Sheriff Sales. These sales do not involve a willing seller nor are they exposed to the market under normal conditions. The resulting value indication derived from the use of such sales is not consistent with the definition of market value.
VOR is also right about the unknown condition of some REO sales.
Not buying it, it’s in their interest to have an accurate value, period. using, high OR low comps are not how one arrives at an accurate value.
Oh My … the Credit Crunch is not over! It showed its ugly face again this morning in AIGs quarterly earning release. It seems, the nations largest insure was recklessly striving for yield, and got caught this morning with its hands in the cookie jar. They invested huge sums of their reserves in mortgage slime. FOOLS!
“NEW YORK (AP) — American International Group Inc. stock took the largest midday loss among Dow Jones industrial average stocks Friday, after the insurer posted a disappointing first quarter and said it will raise $12.5 billion.”
“AIG reported a loss of $7.81 billion in the quarter, mostly due to losses on investments and swaps. The company will raise $12.5 billion to improve its capital position, primarily by selling new stock. Shares fell $3.89, or 8.8 percent, to $40.26.”
Still market losses, not credit losses. Still old news.
Do any of you bears find NationalBubble.com embarassing?
Under typical real estate appraisal guidelines, appraisers are supposed to exclude foreclosures, short sales, and other “distressed” sales and widen their search area for comps.
Realtors will also make a note in the property description on the MLS listing instructing appraisers not to use a particular listing as a comp due to the “distressed” nature of the sale.
Overall, this will lead to stable prices and the Bears that hope for “comp killers” are going to be very disappointed. The same thing happened in the 90’s decline.
Foreclosure is the only best option. If you can not handle the heat, just walk away. No matter what the future is, you can not become a mortgage slavery for the next 30 years.
You are working hard, paying taxes, save every penny, and everything goes to the house. If you are losing your job or one of the income or divorce, you are history.
Can you handle the truth and painful reality?
Bubble,
Comuting is consistantly the longest daily drive. It makes a good comparison. It doesn’t matter though, because it appies to all driving. The difference between 3 and 4 dollars per gallon doesn’t affect the average person that much, unless they drive for a living.
To all the smartest people in the room: This blog could use more in-put like RealtorDave…He seems to be a true objective professional!
I find it interesting that the majority of folks on this blog debate the same thing day-in & day-out, minute-by-minute…Do some of you think you’ve discovered something new just because you woke up this morning? I’ve been buying & selling Coastal OC properties since 1976 (mid-level SFR & Condo’s). I’ve stayed in the NB, CM, LB & AV areas (no more than 5 to 10 min to Ocean). I’ve been thru many cycles like the one we’re in the midst of, (although this one is unique and more protracted) it takes numerous years to turn any real estate cycle.
What’s with this “Bulls & Bears” nonsense? This is not the Stock Market, which turns on a whim (where Big-Block-Traders move the markets)! If you really know what you’re doing, you’d relax and stop with the personal attacks as if you know something no one else has figure out (just ego not facts). The real estate market’s driving forces will take a long time to turn…and then, and only then, will we see a protracted recovery…NOT, a rocket-like shot off of some stock market “Bull or Bear” type-hype.
It’s simply about objective data and not quoting some agenda-riddle-hype-nonsense! When it turns, it will flatten on the bottom like all real estate trends have done. Meanwhile daily in–put will be just that “Daily”…not worth much in the big picture! Otherwise, yo- yawn, tedious & boring! It must be very difficult standing on a pinhead every day? I’ll check-in from time-to-time to see if anyone has anything truly insightful to say…
Hey SOB … you don’t know what you’re talking about.
The deal has to make sense for the banks … they want to know everything about the neighborhood … including the distressed sales.
The banks are the one’s that want to be protected! And they won’t loan money to a borrower to buy an overpriced (appraised) home … that is, unless the borrower has enough down payment to overcome the premium in the non-distressed property.
Appraisals are not a game, were you can overlook other sales in the neighborhood. Though the business has been a joke from 2001 to 2006. That’s over. The banks want to be protected now, and an accurate appraisal is one of their means.
lee,
I’ll go back to my original question. How do you know that “the bulk” of transactions involve distressed properties? And, how do you know what lenders require in their appraisals, especially since we apparently had a post by an actual appraiser? When you throw out statements as fact, it would help if you say where you got it.
Another point for the SOB
Who are you kidding … that’s collusion! You can’t do that. The banks would stop loaning money!
hanks for the kind words, Beachcomber. That’s my goal–I try to do my best.
I used to be a schoolteacher, too. So, children, let’s all calm down and take a deep breath. . . .
(Actually, a blog without lively debate gets boring, so don’t calm down too much! My blog could actually use a little more debate.
Now for a belated response to a couple of earlier questions:
Thoughtful,
Thanks for answering Voiceof Reason’s 2 Qs. Well put–things definitely vary, with newere construction, condos, & other starters having more REOs. OC as a whole isn’t influenced nearly as much as the Inland Empire, let alone much of Florida or Nevada, with much more new construction. In that regard, we really are substantially different.
VoiceofReason,
Sorry for the delay. I’m a full time Realtor and part time blogger–the work does tend to get in the way of the fun!
General comment re. REOs and Short Sales:
Short sales tend to go below market because agents and buyers tend to stay away from them because of all the grief you sometimes get from the overworked, undertrained negotiater for the lender that’s taking the discount. In addition, the seller/owner doesn’t care that much about the net. Unless the lender pre-negotiates a price, which they rarely have the time or inclination to do, short sales seem to go 2% to 6% below market in my experience.
REOs, my experience pretty much dovetails with OCNative’s, although I haven’t gotten any REO accounts in this downturn.
The exception is condition. If the lender’s willing to go for a modest “skin” job, a foreclosure should go at fair market value. If the lender/owner isn’t even willing to send a cleaning crew out, it will go for a lot less than it could have. People do not generally clean their home after moving due to an eviction, and homes tend to fall into disrepair when people don’t have the money to make the payment. In addition, unfurnished homes are harder sells. So, while REOs do go for market, the condition might make market lower than it would be for the same home with a motivated owner/occupant seller.
Hope that helps.
Beachcomber and RealtorDave,
You two seem out of place here with your reasonable opinions. You should join the forums at irvinehousingblog.com, where the level of discussion tends to be a higher quality (even if the majority there are pretty down on the housing market) than the feverish drivel that gets posted in the comment section here.
Dave…by-all-means, lively dabate is important! I live for it, in the logical factual world!
Funny that we’re even talking about the comparable sales approach. Most uberbears say that the only way to value property is by how much profit an owner can make renting it out. Like anyone cares!
Thanks DaveE
We can always use a little reality here.
Hello! I’m back.
Anyone else having problems posting? I dont seem to have a spam word anymore.
Ah it worked that time! Hmmm….
Samson, me too. I think somebody’s messin with my cookies.
“Most uberbears say that the only way to value property is by how much profit an owner can make renting it out. Like anyone cares!”
Actually, what you’ve just referred to is called opportunity cost … and you can’t ignore it. :)
Great story, Alfalfa. Welcome back. Lee, is the reason you like the sales comp approach better now because the income approach would show HIGHER values at this time? Inquiring minds want to know.
To those people with cookie problems — DO THIS
1) Type words
2) Then highlight entire text by holding left mouse button, dragging alone entire text.
3) Then single press right mouse button.
4) Then select cut
5) Then reload web page
6) Then single press right mouse button
7) Then select paste back in comments box
8) Then press “submit comment”
Of course you can ignore opportunity cost. People always have and always will. We’re talking about your home, sweet home. I remind you that calculating opportunity cost is also a forward-looking endeavor with many assumptions.
You’re soooo cool, Lee. Howdythink we’ve been doing it?
Thoughtfull … some of the people here are having problems. I was trying to help them out.
BTW, is your real name Dick?
Just kidding, good instructions. You could also do control+c and control+p instead of the “cut” and “paste” route. I was making fun of your sunglasses, relax.
Lee & Samson,
Yeah, getting a post up is a bit of a nightmare right now. Thought it was my computer, but same problem on my 16 year old son’s “beast” (which, of coursse, is faster & better). Same problem whether I’m using Firefox or (God forbid!) Bill Gate’s Internet Infector, er, Explorer.
Like Lee, I copy every comment (actually I prefer “control C” to mouse clicks) before posting here, then post in a new window if necessary.
It seems like I get one post per window. The spam words are gone, I’m guessing that’s a courtesy for frequent flyers who don’t abuse?
Thoughtful, are you using a Mac or some other magical tool?
Jon, Jeff, or Diane, can you check with your tech people & let us know what’s going on?
Don’t make us take our scintillating discussion to that overused blog up the 5. . . .
Now, I’ll say a prayer, cross my fingers, copy the comment for safety, then click “submit” and hold my breath.
Alfalfa, that was a really great article. It sounds like the going rate for performing loans is 70%-80% and lower for delinquent ones. The investors have definitely arrived.
Increased buying activity is not good news for those of you expecting dramatic price declines.
Foreclosures are beeing bought up with safe mortgages.
Seems the median is stabilizing (for those of you who think it is a reliable number).
Interest rates remain low and steady.
Good stuff about foreclosures as comparables in an appraisal. I talked to a buddy of mine whose been an apprasier and he pretty much confirmed what Thoughtful posted. The key is sales used need to be an arm’s length transaction nat made under duress of anykind. He said a foreclosure could be used but it should be identified as such and adjusted for. He said the problem is that although appraisals must identify a foreclosure, BPO’s are held to no standard and can use any sale they want. I checked it out and found that a bogus BPO can undervalue a property by 20%. And this is the problem. The banks were being fed bogus BPO’s by bogus agents in order to knock prices down for a fast sale. My buddy told me that they are having BPO’s reviewed by apprasiers now and if it looks stinky they have a full appraisal done and try to identify sales that are not foreclosures to use as comparables.
In defense, the vast majority of the LOWEST subprime borrowers did NOT get 100% LTV loans. The cutoff was widely at 580. Exceptions? Probably, but FHA has been giving out loans to this type of borrower for many years.
Wonderful Pozzo, but Mr. Barnes didn’t mention that it was Mr Franks and his chort in Congress that opened up the lending standards to include Sub Prime and now they’ve got to do a CYA. But again it wasn’t just the borrower with the bow wow FICO, it was the flippers taking advantage of those programs to get several properties under control for very little money then try to flip them for as much as possible. When the maket stalled they just walked away and started the downward cycle. And they don’t care about a FICO because they have cash and can write the check. Thats what worries me, these creeps coming back in the market now and if things don’t pick up they’ll walk again. I think the banks are wise to this now though and may look at these guys alittle tougher.
SeekingAlfalfa
Why are you blaming the guys doing the BPOs. Listen, the brokers that inventory REOs, don’t do it to sit on the MLS for months at a time. Some of these guys are taking on 50+ REOs a month. They are interested in moving the house, then going to the next one.
Besides, the BPO is just an opinion, the asset manager who works for the bank ultimately makes the final decision on the asking price. The banks are overwhelmed right now, and are (finally) starting to accept lower bids.
If you follow the trend you can predict we are headed for another downfall in sales and prices.
Reeking Falfalfa and Snoughtful: Get a life man.
Wow, that article sounds reeeaally interesting. Thanks for posting it Snoughtful.
I’m tellin’ my mom on you.
I thought YOU were my mom! I mean, gee, all the nagging and authority… See ya mom!!
Lee, the Asset Mgrs get bonus’ on closed sales so they have an interest in closing them fast too. BPO’s should never be used for anything except figuring a listing price. Other than that they are worthless. A BPO can use any sale just about anywhere as long as it’s in the same zip code and I have no idea why in the hell the banks would even look at one to detrmine value on a house. But one of the things my buddy whose been an appraiser for 30 years told me is that they are already reworking the Fannie Mae agreement to reign in BPO’s and they’ll be subject to a review just like an appraisal. And so what a house sits for 90 days? Maybe that’s a good thing to slow things down abit.
Pardon me if I don’t take an improvement from 50% to 30% YoY declines and continued price drops as a buy signal.
I have about $100,000 worth of credit on my master card and visa. I’m thinking it may be time to go and max out the cards……………I am sure that there will be a massive surprising to excuse credit card debt once we get the debt forgiveness programs going.
PLEASE CALL THE WHITEHOUSE AND RICHARD SHELBY!!!
Everybody who comments and reads this blog needs to take 60 seconds and call the Whitehouse and Richard Shelby’s office and tell them you support the Veto of the housing bailout. It doesn’t take long and it is hopefully a little more productive than our justified rants on this blog. We will pay for the estimated 33% of the homes that will enter this bailout program and still default. The Washington Post already wrote a piece about it.
Just pick up the phone and call. It’s easy.
The Whitehouse - 202-456-1414
Richard Shelby’s office in DC - 202-224-5744
Ya Know all this talk about appraisals and appraising gave me an idea. I looked up Apprasial jobs on google and found the Appraisal Institute. They have a career center so I checked. There are a lot of jobs for appraisers all of the sudden. I know alot of people in that business folded thier tents and vamoosed. And I don’t know what the job picture looked like a few months ago but somebody’s hiring. So if more apprasiers are being hired that may mean more lending activity. Right?
Thanks Lee and Thoughtful…I am having cookie problems……..let me try your method
Cool…
Thanks guys
Bill, Garbage in Garbage out
Companies defaulting on their junk-rated debt and filing for bankruptcy in North America is running at its fastest pace in five years amid the slowing economy and contraction in credit markets.
So far this year, 28 “entities” have defaulted, according to Standard & Poor’s. The defaulted debt of the one Canadian and 27 US companies totals $18.4bn and exceeds the 17 defaults in the US for all of last year.
The surge of defaults in the early months of 2008 is the first leg of an extended period of high default occurrences that will characterise the rest of 2008 and 2009.
When the recession bcomes deeper and longer than expected and lending constraints worsen more markedly, the default rate could be significantly more pronounced and severe, possibly reaching 8.5 per cent. Such a rate would reflect 136 defaults.
More Good news from the same lender as my last post:
The Economic Stimulus passed in February allowed FNMA and FHLMC (FannieMae and FreddieMac) to purchase High Cost Area Conforming Jumbo (HCACJ) loans from lenders. Loans made between $417,000 and $729,600 started closing in March of this year, but no one was willing to buy them. FNMA had not yet created bundles of mortgage securities for these HCACJ’s, nor clear guidelines on how to sell the loans in the first place. In late April these agencies contracted with several banks to accept an HCACJ loan which is why pricing for these products have dropped. What was a 6.5% 30 year fixed HCACJ in April is now a 5.75% HCACJ in May.
Good news indeed. If you are a buyer with 20% down on a $1,000,000 priced home you can get a $700,000 1st at 5.75% and a $100,000 HELOC 2nd at 5.25%. Interest rates on jumbo loans are no longer the biggest stumbling block in front of home buyers today.
And, yes, Virginia, there are PLENTY of such buyers out there, going into escrow.
The above post thoroughly VALIDATES a point I made here TWO months ago.
As a former loan officer for BofA, I can tell you absolutely that REO’s will be counted in appraisals, especially if they represent 15 of the last 19 sales.
Thoughtful is correct though. If the bank is requiring 20%-30% down, and the loan amount is 10% BELOW the lowest REO sale, then the bank will probably do the deal.
Why not more? With the CRAM DOWN loan moving to the President’s desk, and Fannie verging on the brink of bankruptcy, banks have no incentive to jump back in this market.
Congress, in their attempt to help, is actually making this situation worse, by forcing banks to TIGHTEN their lending at a time when we need them to LOOSEN.
Never ask an 800-lb gorilla to do brain surgery. Actually, an 800-lb gorilla would probably do a much better job than Congress is capable of.
I agree. Call the President’s comment line. Only remember that the Pres works 9A-5P eastern time.
Ask the Pres to veto the cram-down mortgage bill.
Why a former loan officer? And what the bank will consider is not the same as what an appraiser is ethicaly supposed to do. If there are 15 of 19 properties that are REO’s the appraiser should give the 4 that aren’t REO’s more credence. That’s why the banks prefer the BPO. Shame on the banks.
Actually what I said was they may be ignored completely!
There are 100 things that get looked at in a loan file. Having an appraisal with arms-length comps (non distressed) is fine, even if there are REO’s in the area. The reason? There is a box for “declining markets” which will probably kick in first. Or, there could be ltv pullbacks that make extra cuts to value redundant. Those are the facts. All else is heresay.
Hey! Thoughtful It sounds like you know your stuff!
I try.
Our economy has a cancer and is running on morphine, the effect will disappear after elections and the Olympics games, As we and the current administration waiting in a hope for a magical cure while keep injecting morphine. We need to start the chemotherapy and radiation treatment before it spread all over the place. This patience is much sicker then they let you believe.
Wakeup people
Thoughtful…Good stuff…finally some substance folks can use! Don’t forget that lender-underwriters have appraisal review now for very good reasons…It’s called more experienced lenders…after-math of Sub-prime w/580 scores 100% ltv, not to mention the declining market…the loan will stop if the appraiser can’t substantiate the internals……
Wow, Thoughtful’s talking to himself with no less than three aliases now. I like your female alias, Thoughtful, the best, as your female impersonation act is a riot.
What is common between a perma-bull Troll and zebra mussle?
Both serve the purpose of clogging the flow. Zebra mussle reproduces fast and clogs flow of water inside the pipes. Thoughtless/Truthi Troll is trying to do the same here by using various name and clogging the flow of information.
Thoughtless BTW, complimenting yourself again and again using a different name is an old trick by now.
I’m not thoughtful…I think she’s an agenda driven person. But, I’ll give objective praise when it’s finally substanitive.
My post earlier today says how I fell about things:
Beachcomber Says:
May 9th, 2008 at 10:22 am
To all the smartest people in the room: This blog could use more in-put like RealtorDave…He seems to be a true objective professional!
I find it interesting that the majority of folks on this blog debate the same thing day-in & day-out, minute-by-minute…Do some of you think you’ve discovered something new just because you woke up this morning? I’ve been buying & selling Coastal OC properties since 1976 (mid-level SFR & Condo’s). I’ve stayed in the NB, CM, LB & AV areas (no more than 5 to 10 min to Ocean). I’ve been thru many cycles like the one we’re in the midst of, (although this one is unique and more protracted) it takes numerous years to turn any real estate cycle.
What’s with this “Bulls & Bears” nonsense? This is not the Stock Market, which turns on a whim (where Big-Block-Traders move the markets)! If you really know what you’re doing, you’d relax and stop with the personal attacks as if you know something no one else has figure out (just ego not facts). The real estate market’s driving forces will take a long time to turn…and then, and only then, will we see a protracted recovery…NOT, a rocket-like shot off of some stock market “Bull or Bear” type-hype.
It’s simply about objective data and not quoting some agenda-riddle-hype-nonsense! When it turns, it will flatten on the bottom like all real estate trends have done. Meanwhile daily in–put will be just that “Daily”…not worth much in the big picture! Otherwise, yo- yawn, tedious & boring! It must be very difficult standing on a pinhead every day? I’ll check-in from time-to-time to see if anyone has anything truly insightful to say…
I was under the impression thoughtful was one of these folks who thinks the bottom is here? I strongly disagree with that naive premise!
Speaking of the main topic of this thread, I had predicted back in December that as we go into third year of RE slowdown, year to year comparisons will become harder. RE sales are down historically now. We will soon stop seeing any further year over year declines in sales. That will not stop prices from dropping.
While year over year sales were dropping, prices were still going up at the beginning of this downturn. This is typical of RE downturns. Similarly prices will keep dropping even if year over year sales stop dropping.
I have mentioned to Moody’s economy.com’s prediction for California real estate few times in the past. Let me repeat it here. Bottom of California RE will not happen before fall of 2009 as per Moody’s economy.com.
ReatorDave stop complimenting yourself for stating the obvious and face the reality. No matter how much you want to sugercoat the bad news, we are nowhere close to bottom in prices.
I sold my most recent AV end-unit luxury condo 7/06 for $570K. I just checked my PacWest MLS and the same 3/2 is asking $379 (REO). CAR said they look for an additional 25% decline (prices not volume). But, I don’t think much more of them than I do NAR’s agenda! Also, median price means nothing!
When the really low priced deals dry up we will be back to square one, sellers with over priced properties looking for buyers, and buyers saying I can’t afford that.
Many more months of the same until buying makes sense for those who normally would support the market as they really don’t have a choice at the current price.
Thats why the 2004 pricing is working but its not enough, back to 2003 and will see.
Yes, I agree…I lived thru and owned LB ocean view property in the early 90’s crash…That’s where I first learned about short-sales. It took about 18 mos for the lenders to get real back then too! Difference is these lenders are Wall-Street-Lenders. They’ve invented a new game. No RTC to take them over for non-performing loans! I think we’re going to 02 prices, then who knows? Check-ya later…
SeekingAlfalfa-
I am no longer a loan officer because I am now a Finance Director, having moved on up the career ladder.
A bank is a private entity that manages its funds for the benefit of the stockholders, not the borrowers.
As a lender, a bank is required to complete a level of due diligence that will include anything that will impair the value of the collateral being offered to secure the loan.
If there are 15 of 19 sales that are REO’s, the “prudent person” rule would require a bank place a discount on any property that has an appraisal in excess of those REO prices.
I am sorry if that doesn’t jive with your desire to get a bank to lend more than is warranted.
RE agents and Mortgage brokers, being intermediaries, and not the ones who actually put their money into the loan, don’t care one hoot that the collateral might be impaired by a declining market. Their only goal is to get paid.
Hence, in this kind of market, most good banks will require larger downpayments to make up for the discounted value of the collateral (home) the buyer is offering to secure the loan.
Hopefully this isn’t too complicated a concept for you to grasp.
Beachcomber-
Thoughtful has predicted the bottom every month for the past 9 months.
Marcia…again, another useful objective-post! I like it!…I’ve only been reading the blog for a short time…yes, I can see the folly about those 9 mos posts…I think I might be older than most who post on here. I’ve been in the Coastal OC since 1964…Good night!
Beachcomber-
Thank you.
And I would encourage you to enlighten those of us, like myself, who don’t have the benefit of 40+ years of experience with the ups and downs of the RE market, and the valuable perspective that brings.
So please continue to participate, as it helps to keep those who like to blow copious amounts of smoke, from dominating the conversation.
Sweet dreams!
Marcia, nice smokescreen with your mantra of “when 15 of 19 houses are REOs”. Everyone ELSE here knows we are not speaking of those freak occurances. As for me claiming the bottom for 9 months: I called bottom (in jest) for January 2008……on March 24th. Although I continue to believe that was a major turning point. You are quite deceptive, I see you don’t like it when you are proven wrong. Grow up.
Has anyone else noticed how close the writing and presentation styles are between Buy Houses Now! and Marcia? Very interesting.
Marcia… a perfect person for me to ask these questions..
I recently made an offer on a bank owned property. It was, I admit, a low offer but I did offer a 30% down and got pre approved by the same bank that owns the property. We gave the bank 5 days to respond to the offer. The five days have passed and no response. I know the unit is still active and the listing agent have told us on the day the made the offer that she had a higher offer but she did not tell us what the higher offer was.
Is it normal for the bank to totally ignore the offer and doesn’t respond at all? I would consider raising my offering price, but without a respond from the bank or the listing agent, I wouldn’t know where to raise my price offer to. Any suggestions???
Marcia, sounds like a lot of CYA to me. Loan Officers and underwriting and funding are the ones that would pound on the Collateral Risk Dept. to sign off on properties that didn’t cut the mustard back during the Boom and now it’s Mea Culpa, I am looking out for the interest of the stockholders. Yeah right. And I really got a laugh out of the Prudent Person BS. The Banks weren’t to prudent a few years ago and it sure seems funny to me that they didn’t show the same kind of restraint then as they do now. They’re like the school marm that had a wild weekend and is now trying to straighten her skirt and regain the moral high ground. Grasp that. I don’t think you work at a bank anyway. I think your’re a seminar blogger.
Good luck to you sharpster (sincerely), at least you’re out there in the real world, judging for yourself. I tire easily of all the bluster about banks being the bears’ b!tch right now. I’ve yet to hear any evidence that it’s true. All I ever hear are stories similar to yours.
thoughtful, I have been looking and in my personal experience, prices have dropped quite a bit and seem to continue dropping. I have friends that bought about 6 months ago at a “great deal”, that are now sorry they bought. They could have saved $75,000 on a similar unit had they waited (Garden Grove, Anaheim area).
In this particular unit that I’ve made the offer on, I would not offer the full price because I feel that the price will continue to fall and I can wait. Again, my offer was/is a very low offer. Frankly, I wasn’t surprise that they didn’t accept, although I was hopeful. I thought they might at least counter though.
Past performance is no guaranty of future performance, sharpster. Many are finding that owners of all stripes are not willing to concede discounts for future events that may or may not happen, nor should they. Too bad for your friend, they picked the worst of the worst areas to buy in. Those areas are clearly seeing voluntary foreclosures. That is not a universal problem here.
“I would not offer the full price because I feel that the price will continue to fall”
Then don’t be surprised when you don’t even get a reply! BTW, if you are so committed to your point of view, why would you consider a higher counter?
In regards to the REO properties… I must say the banks really are not at the beck and call of the buyer. Two of our offers came from buyers who had put out multiple offers on multiple REO’s. After waiting months of not hearing anything, they both decided to go with an equity seller (me.) My agent has also said she will no longer handle REO and pre-foreclosure offers because of the extensive wait on a response and also buyers are getting outbid time and time again. As bearish as I am, I would have to say I am no longer interested in looking at REO properties when I can get something of similar value next door that does come with a home warranty, a quick escrow, etc. A REO property is nothing more than perceived value in my opinion.
thoughtful, it doesn’t matter where my friend bought. True, GG and Anaheim dropped quite a bit compare to other areas, but if people bought anywhere in OC 6 months ago, at the time when you thought the market had bottomed, more than likely they’d be down today.
“Then don’t be surprised when you don’t even get a reply! BTW, if you are so committed to your point of view, why would you consider a higher counter?”
thoughtful, I wonder if you sincerely read my posts at all. I already said I wasn’t surprise and my offer was VERY low. I would consider meeting the counter offer half way but still below the current asking price. As far as I’m concern, they can sell it to me now or come begging for me in a few months when they don’t get what they want.
“Past performance is no guaranty of future performance”
thoughtful, there is no guaranteed but people do look at the past trend to predict near future movement. In stock trading, they call it momentum and real estate is similar, I imagine. But the problem with our real estate market is far worse than just the negative momentum.
Nothing goes up or down forever and eventually this real estate will bottom, but not yet in my opinion. 2009 at the earliest
I don’t buy the theory that a price from six months ago is universally better today. That is NOT the case in my neck of the woods.
……..a lot of people don’t buy the theory of evolution………..
No, mav, I fully believe you came from apes.
Sharpster…I believe your mistake was giving the bank (REO I assume) a time frame to respond. I’ve made short-sale offers with no time-frames (Glenwood Park AV…WaMu) and it took them 7 wks to respond. When they did respond like the typical Wall-Street-Lender they’ve become, they countered at full appraisal price, which was totally out of line with the comps! It later became an REO and sold $10K below my initial offer… I’d try and get to the Lenders legal dept…not loss mitigation, they are a waste of time and are really just puppet/mouth pieces. Some times the lender doesn’t want to take your deal depending on their stock reporting cycle. You have to wait them out. If you can’t, I’d make numerous offers. You can always come back if/when they respond. Don’t fall in love with any property in this declining market!
Also, ignore the naïve agenda of the bottom-is-here folks. My MLS shows me it’s still dropping like a rock…don’t believe it’s only SA & Anh!
Thoughtful Says:
May 10th, 2008 at 8:04 am
Has anyone else noticed how close the writing and presentation styles are between Buy Houses Now! and Marcia? Very interesting.
Same thing with Lee in Irvine, Eat it in OC and a few other names. They all use the same buzz words and phrases: Ponzi Schemes, HELOC as an ATM machine, etc etc
Beacomber, with respect, you do not follow my neighborhood. Prices here are been stable over the past six months.
Sorry, “Beachcomber”.
Good point Beachcomber, I’ve learned from my stock trading days not to fall in love with a stock, thus the same applies to real estate.
My concern though about not giving time frame is that … am I obligated to buy if the bank accepted my offer a couple months later?? I don’t know the answer to that. I want to be free to look for other properties.
sharpster…I could hardly believe they’d counter without some kind of change to the offer…they always have their own forms or disclosure that are contingent upon acceptance! Plus these days there are too many contingences that do allow you to cancel your offer. Just don’t have a new-bee or passive realtor represent you. Also, (although I’m a realtor and represent myself in deals) I’d never have dual-agency of any kind if I were you. I know some would debate that with me, I understand. I don’t believe anyone can aggressively rep both sides! Also, I find I need to know the reo Trustee Deed info…ie: what did the sale show they took it back for? Junior loans go away in Trustee sales, 1st mort only applies…Get your realtor to look up the APN info…hope that helps!
Thoughtful…Just wanted to clarify …I like your honest response!…I do agree all real estate is local…your area maybe in my beloved NB or LB etc (exceptions?) and yes, the $900 plus psf hasn’t changed to much…It’s follow the money! I just believe in being objective about real data. I mean, MLS data not all these modern day self appointed Nostrodomists (follow the money again!)…Even DataQuick has been wrong on how they report/interpret MLS data (median price? nonsense)…Also, the MLS can change in one qrt…it takes 3 plus qrts to get a true hindsight-pic…adjusting for seasonal data…
Respect right back at you!…I’ll read your response but I got to run for now…
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sharpster:
No, you are not obligated to buy the property a few months down the road. For one thing, your offer has expired. Secondly, even if it hadn’t, after they accepted it would have to come back to you to confirm. Hope this helps.
Sharpster-
Please excuse the delayed post…I’ve been away from my pc all day.
As to why a bank wouldn’t respond when they had a higher offer, I will defer to Beachcomber as to why you didn’t get a response.
My guess is that if that higher offer falls through in a couple of weeks, you will get a response.
I agree with Beachcomber, you need to get to the decision-makers. The challenge is finding out who they are.
I also agree that the closer you are to the end of the quarter, the more aggressive the bank will be in getting rid of the REO. If they can close before March 31, June 30, Sep 30 or Dec 31, and remove that REO from their past-due portfolio, they will. So if your offer came in around April 1st, I would say you need to re-visit that offer again sometime around the end of May.
You might want to hire Beachcomber to help you. I have limited experience with selling REO agents, but the few I’ve tried to work with seem more interested in preserving the median than in selling the REO property. My guess is their commission is less than what a regular listing would give them.
If the REO is still held by the bank like Countrywide, or BofA, or Wells, and not an investment bank like JP Morgan, you can still get to the dept that is responsible for the decision-making. You just have to keep asking for help, and keep getting routed, past numerous dead-ends, until you finally reach the unit. It is like a huge labyrinth, even for those who work inside the bank.
The best way to navigate it is to find a local employee that you can go sit down with in their cube or office, and just have them spend 20-30 minutes finding the dept you need.
Beachcomber, can you help Sharpster on the front-end on this?
P.S. - The reason for the importance for the quarter-end dates is that banks have to report their past-dues to the Comptroller of the Currency every quarter, and set loan loss reserves for them. If they remove a loan off their books, it is one less loan they have to reserve for, even if they have to take a hit to earnings to do it.
the only problem in the housing market is all the people who think there is a problem. foolish.
Marcia…I think you’re presenting real insider/useful info here…This is just the kind of stuff I’d like to see talked about on this blog. I don’t always have a lot of time to participate in the comments. But this is substantive info. I haven’t been working with clients since (1999). My real love is buying, rehabbing & selling my own properties. The last client I represented was while doing commercial & apt/investment properties at Re/Max NB. I hang with an independent Broker these days… I’d be happy to advise all I could. I might consider working with clients in the near future though? As my handle implies, I’ve gone to the beach with my money during this protracted shakeout…
If I were Sharpster, I’d find an agent who doesn’t have commissions as their first thought. Other clients can tell them if the agent hangs until the deal goes thru or dies a painful death of it’s own! By the way, CW is an investment bank! THEY & bear Sterns pretty much invented the Sub-Prime world-wide money sources…All Mozilo seams to care about is adding to the $400 M plus he’s taken from that Co…He’s more concerned about the money he’s going to receive, if he can pedal the CW sale to close. He’s trying to get another $10 mil personally. Til then they have many reo’s that are being held in trust out of sight!
I’m not really sure how the FEDs regulate CW (if at all)? However, they do have depositor’s money? I’m still learning there? Anyone have insights on that?
Thank you Beachcomber.
I agree that CW used to be an investment bank. But it seems to me they got caught with their hand in the cookie jar, and so now have a ton of REO’s to work off the books. They must be taking back bad debt out of the SIVs (”structured investment vehicles”…read “pools of prime home loans with the Sub Prime loans slid in with no one noticing”) they off-loaded to the Chinese and Europe. That’s all I can figure. They’ve been hiring big-time (so I’m told) for their REO division to clear the books so BofA will still buy them.
If they were a pure investment bank, they wouldn’t need to clear their books it seems to me. So kind of a hybrid bank/broker.
That’s just how it seems to me…
SoCal78 Says:
May 10th, 2008 at 9:15 am
In regards to the REO properties… I must say the banks really are not at the beck and call of the buyer. Two of our offers came from buyers who had put out multiple offers on multiple REO’s. After waiting months of not hearing anything, they both decided to go with an equity seller (me.) My agent has also said she will no longer handle REO and pre-foreclosure offers because of the extensive wait on a response and also buyers are getting outbid time and time again. As bearish as I am, I would have to say I am no longer interested in looking at REO properties when I can get something of similar value next door that does come with a home warranty, a quick escrow, etc. A REO property is nothing more than perceived value in my opinion.
.
SoCal78: Your description of timing sounds far more like a short sale than a REO. My clients typically respond within 24 hours with the rare exception taking 48 hours (weekends excluded); anything longer than that with my clients is freakishly rare. This morning was a bit quicker than usual: I sent over an offer submitted to me by another agent over the weekend at about 8:00 am and had a counter by 10:00 am.
I can’t speak to all banks and financial institutions, but REO responses are generally pretty quick. Short sales, on the other hand, often take months before a decision is made. I don’t blame your agent for not wanting anything to do with preforeclosures.
Here are some good news “snippetts” from a lender friend of mine:
So you’ve heard a lot of mortgage ads on the radio this week. Some offer rates below 5.6 percent (“because we’re nice people too…”) while others “won’t bother” if your rate is above X, no matter if you need cash by the way. Some lenders talk about a “4.5% 30 year fixed refinance strategy” (false) and another one says “you can pay off your loan in 7 years without increasing your current monthly payment (kinda true. LL has this financing product by the way). During the good old days of 2004-2006 when homes sold in hours not months, we saw burped up into this industry the worst loan brokers ever. Sure, you could get a stated, stated 100% financing $1,000,000 loan for a person paid minimum wage, but was it the best for the client? Clearly not, since these loans funded by fly by night operators produced the price suppressed market we’re in today. These opportunists have begun to come back out with mailers, ads, and other gimmicks to again take advantage of your buyers and seller. They whisper fantastic tales of loan rates ultimately too good to be true. To quote The Who*…..“Don’t get fooled again”. Make sure your clients don’t chase rate, but get a program and payment they can live with in the house today, and the one you’re going to sell them when they want to move up.
* you know, the ones whose songs start each of the CSI shows… (the only current cultural reference most will recognize for a band that is as old at the Rolling Stones. But I digress)
Home Buyers, Start Your Engines. By Brett Arends, WSJ On Line. May 15, 2008
If you were thinking of buying a home, start looking. The latest data from the housing market shows that sellers, after months and years in denial, are finally giving in to reality and slashing prices. There is a distance still to go. There may even be a lot to go. But the process, long delayed, is now well underway. The National Association of Realtors on Tuesday released its long-awaited report on prices from the first quarter. The price drops were startling. In many of the former hot spots, from Florida to Nevada to the Californian “Inland Empire,” single-family home prices plunged by 20% to nearly 30% in a year.
Nationwide, the decline from the previous quarter was about 5%, says the NAR. And this, ultimately, is good news. We know prices have to fall. The sooner it happens, the quicker the market can clear. We may not be at that stage known on Wall Street as “capitulation,” but there is more than a whiff of it in the air. Far too many people in the real estate market have spent far too long insisting that denial is just a river in Egypt. They refused to accept there was a bubble on the way up, and refused to admit it even on the way back down. (There’s a few still out there: Last week I got an angry email from a broker who blamed the whole slump on “the media”.) It is simply remarkable how slow this bubble has been to deflate. That, bluntly, is part of the problem. As well…you can imagine what fantasies the sellers were clinging to. “Well, two years ago this home was worth half a million bucks.” The problem: So what? It doesn’t matter what prices were three or two years ago. We were in a bubble. Market psychologists call this “anchoring”, because people anchor their expectations to the past, and it’s a fallacy. Just five years ago, the same home sold for $270,000 and 10 years ago just $200,000. Are those relevant anchor points too? But sellers have at least returned to the bargaining table. If you are in the market for a home, it is time, cautiously, to take a look and, maybe, see if you can play, “Let’s Make A Deal.”
Some good news for a change….. but with important conditions.
Fannie Mae Scraps Declining Markets Policy By Robert Freedman for REALTOR® Magazine.
Fannie Mae will no longer require borrowers to put up an extra 5 percent down payment when purchasing homes in areas deemed “declining markets,” the country’s largest secondary mortgage market company said Friday. Fannie Mae had been hearing concerns from REALTORS® and others for months that its declining-markets policy was bad for the housing market because it discouraged consumers from buying homes in markets hardest-hit by foreclosures. Under the policy change, borrowers can get loans up to 95 percent loan-to-value, even in markets in which prices have been falling. Prior to the change, borrowers could only get loans up to 90 percent to give lenders a 5-percentage-point cushion to protect against possible price declines in the future. The new policy takes effect June First.
Anyone notice what is missing? High Cost Area Jumbo Conforming loans are not part of this policy change. From $1.00 to $417,000 you can get a 95% LTV loan. From $417,000 to $729,600 the maximum is 90%, but lenders will still hit those loans with a 5% reduction in maximum financing so a 90% max is really 85%. The good news is that 95% purchase loans can be had for prices up to $439,900. Anything over a $439,900 price where a buyer wants to put 5% to 10% down will have to close as an FHA purchase. Freddie Mac, Fannie Mae’s competitor in the mortgage market has had this policy in place for about 30 days already.
Rates below assume a 20% down fully documented purchase transaction with a clients FICO score at or above 700. Rate and terms as of 05/16/08 and are subject to change without notice. APR’s have not been calculated.
Conforming 30 Fixed $417,000 and below: 5.625 1.0 point
HCAJ Conforming 30 Fixed $417k to $729k 5.750 1.0 point
Jumbo 30 Fixed $417,000 to $2m 6.875 1.0 point
Standard FHA 30 Fixed $362,000 and below: 5.875 1.0 point
HCAJ FHA 30 Fixed $362k to $729k 6.125 1.0 point
Conforming 5/1 ARM $417,000 and below 4.875 1.0 point
HCAJ Conforming 5/1 ARM $417k to $2m 5.750 1.0 point
( End of report.)