Here's recent history of the Fed’s policy committee and its Fed Funds rate. Next Fed decision is June 24/25.
Foreclosures 4 in 10 SoCal home sales
May 19th, 2008, 6:00 pm · 35 Comments · posted by Jeff Collins
DataQuick reports today that nearly four out of every 10 homes sold in Southern California last month was formerly a home foreclosed upon by a lender. That binge of bargain hunting boosted sales to their highest level since the credit crunch hit in August and cut the median price of a Southern California home by nearly 24% from the peak price reached several times last spring and summer.
It also pushed home sales in Riverside County – which DataQuick called “the epicenter of Southland foreclosure activity” – above year-ago levels for the first time in two years. Meanwhile sales continued to fall below the pace of activity from the year before in all other counties. It was the 15th consecutive month of falling sales in the region as a whole.
DataQuick quoted its president, Marshall Prentice, as saying: “We continue to look for evidence of a sales bounce in the mid-priced and higher-end markets along the coast. If the higher conforming loan limits are making a difference in those areas it’s certainly not a large one, at least not as of the end of April.”
The percentage of home sales financed with “jumbo” loans fell to 15.1% in April. Before the credit crunch, which dried up funding for home loans, nearly 40% of SoCal home sales were financed with jumbos. The typical monthly mortgage payment in the region fell 33.1 percent from the June peak, down to $1,716 last month.
ZIP codes in Lake Forest and Anaheim were among the region’s areas with relatively large annual sales gains, DataQuick said. Here is a breakdown of prices and sales by area:
| Area | Median Price | Vs. 07 | Sales | Vs. 07 |
|---|---|---|---|---|
| Los Angeles | $435,000 | -19.4% | 5,016 | -30.6% |
| Orange | $500,000 | -20.5% | 2,166 | -19.2% |
| Riverside | $295,000 | -27.9% | 3,186 | 6.7% |
| San Bernardino | $265,000 | -28.4% | 1,667 | -18.6% |
| San Diego | $400,000 | -18.4% | 2,809 | -18.2% |
| Ventura | $445,000 | -22.2% | 771 | -13.4% |
| SoCal | $385,000 | -23.8% | 15,615 | -19.0% |
May 19th, 2008 at 6:06 pm
Today’s DataQuick numbers confirmed what we predicted: We’ve definitely passed the bottom for sales, but probably not for price. (See “Snapshot from the front lines: One bottom, maybe two.”)
This isn’t rocket science: all those REOs are now starting to close escrow. Banks are the ultimate motivated seller, so those REOs are pretty much guaranteed sales. That’s what’s brought the market down so fast, and most of those REOs are at the lower end.
If supply and demand stayed balanced, this might be a bottom for price as well, but it appears that there’s more REO inventory “in the pipeline” for the rest of the year than there will be buyers. Couple that with rising interest rates, and it’s hard to see a price bottom before winter.
Ironically, today brought news that the Senate has reached a compromise on foreclosure relief. The details are just beginning to emerge, but it sounds a whole lot better than Barney Frank’s $1.7 billiion bailout. (See “Cheaper Senate Housing and Foreclosure Relief Bill Moving Forward”
The real indicator to watch, however, is mortgage interest rates, which have been heading steadily up with inflation.
Our Senators would have done housing a bigger favor had they taken steps to curb the deficit rather than expand it.
May 19th, 2008 at 6:16 pm
“If supply and demand stayed balanced, this might be a bottom for price as well, but it appears that there’s more REO inventory “in the pipeline” for the rest of the year than there will be buyers.”
Dave, how do you know that there won’t be buyers for the REOs?
May 19th, 2008 at 6:26 pm
Hopefully the foreclosures are being bought by people who intend on occupying the homes and not “investors”. There are alot of “investors” out there that stuck the banks with some very big losses. If they had kept there original downpayment intact, their equity probably would have never gone negative. By the way, I really do not like big banks. In fact, I think they should be split up as they are too big to be run efficiently.
May 19th, 2008 at 6:33 pm
There is a lot of great information, stats and news coming to us (complements of Jon and Matt) and we definitely don’t give enough credit to these 2 gentlemen for doing such a stellar job of providing the up to the minute information they print every day.
Whether we agree or disagree with their posts, we should all give credit where credit is due.
Thanks guys!
May 19th, 2008 at 6:35 pm
Thoughtful-
Dave wasn’t saying there wouldn’t be buyers for the REO’s, only that there wouldn’t be as many buyers as there is additional inventory coming on the market.
If sales of REO’s in the OC were 40% of the 2100 sold, say 800, and there is a higher volume coming, unless prices fall further, one can surmise that there were 800 buyers where prices fell within their target range. Not 600 buyers, not 1000 buyers.
If REO’s increase in inventory and there are still only 800 additional buyers (in any given month), then Dave is correct in his supposition.
The fact that buyers are not utilizing Jumbo loans just goes to show that buyers don’t have the verifiable income needed to buy over $500K. Hence the stagnation at the higher price levels.
And if interest rates start to rise, as they seem like they must eventually, given the deficit and the dollar and the price of oil and food, this will only depress prices further, because buyers will have to use more of their monthly income for interest expense, instead of higher loan amounts.
But time will tell, won’t it?.
May 19th, 2008 at 6:47 pm
Thoughtful,
Good question.
Homes going into foreclosures have been going up each month this year, and those homes won’t hit the market for 5 - 8 months. (See “Predictions 101: Our 2 market cycles“).
Buyer activity tends to peak in the spring, inventory in the winter (See “Predictions 101: Our 2 market cycles“).
In addition, mortgage rates seem to be rising again, fueled by inflation. So I think supply will outstrip demand through this winter. But I could be wrong–because, to quote Freddie’s Chief Economist, “We’re in uncharted territory, and nobody really knows what’s next.”
Bill,
A hearty “Amen,” but don’t forget Jon’s colleagues, Jeff and Diane.
Marcia,
Exactly.
May 19th, 2008 at 6:52 pm
Oops. Sorry for the redundancy. The foreclosure post was “So Cal April Foreclosure Data Just In” But I think most posters here are familiar with the foreclosure trends & timeframes.
I just wish I could figure out how not to have to open a new window every time I want to post a comment. I think I preferred the hard-to-read words to copy.
May 19th, 2008 at 7:03 pm
Defaults
January 2352
February 2352
March 2476
April 2598
755 Defaults through April 2007
3130 Defaults through April 2008
We have seen what the 2007 tidal wave of foreclosures has done to this market (-20%)
What are these staggering default numbers going to do in the coming months?
Realtor Dave,
What is your opinion?
May 19th, 2008 at 7:21 pm
Sorry for the error*
*February 2008 - 2254 Defaults
Realtor Dave - read your link
Good post.
May 19th, 2008 at 7:42 pm
Of course the defaults are ugly. But not unexpected, given the collapse of the credit markets. We are 8 months out from the beginning of that shockwave. Let’s see what the next 90-180 days brings. It will also depend on where they are. I really believe you have people giving up in the dead zones. I don’t see that becoming commonplace, just don’t.
May 19th, 2008 at 7:52 pm
Agreed Thoughtful…
May 19th, 2008 at 8:34 pm
Marcia said:
“And if interest rates start to rise, as they seem like they must eventually, given the deficit and the dollar and the price of oil and food, this will only depress prices further, because buyers will have to use more of their monthly income for interest expense, instead of higher loan amounts.”
RealtorDaveE said:
“Our Senators would have done housing a bigger favor had they taken steps to curb the deficit rather than expand it.”
You two pretty well surmised the reasons why so many of us have been bearish about RE and, hence, the economy in general. If the government is helpless to fight inflation and the recession, it is highly unlikely that they’ll save the RE industry.
May 19th, 2008 at 9:18 pm
The question is: how many people who have a down payment saved up and plenty of income didn’t buy a home in the go go years of 03 to 06? That is the problem with the REO, who is left on the sidelines to buy all this stuff?
How many people sold at the top, took their gains and are waiting? Most people bought a bigger house in 05 or a second house or whatever. They are now tapped out and cannot buy this stuff.
That’s why prices will continue to fall.
May 19th, 2008 at 9:23 pm
It’s not a question of “giving up” Thoughtful, its a question of being realistic about the value of a $150,000 construction cost home. $300,000 maybe, if the economy is good and wages are strong. $730,000?? That was a fantasy!
May 19th, 2008 at 9:40 pm
Bill,
Thanks for the stats–my point exactly. These defaults pretty much guarantee REO sales through winter.
But when will the increase in defaults stop? The default rate in OC may be nearing a peak in the next few months. The worst of the non-qualified buyers have probably lost their homes by now.
The Senate and House “Foreclosure Relief” Bills are aimed at slowing foreclosures, but the Senate bill won’t even kick in until this October.
Then we have to guess what the economy will be doing. And interest rates. And more legislative and Fed actions. Or what the lenders will come up with next. How about who controls the White House & the Congress next year.
That’s why I keep saying we really can’t know for sure.
There seems to be no shortage of buyers right now, but the home had better be priced right. It’s nothing like ‘93 and ‘94 when buyers for OC almost didn’t exist. So I think the bottom could be closer than most of us think. But I’m not ready to bet on that.
I can guarantee most buyers today that they’ll be paying 20% - 30% less than at the peak, with a much greater choice of homes and little “hurry up!” pressure. They might save another 5% if they wait, maybe more, but rising rates may keep they payment the same.
You don’t have to buy at the bottom or sell at the peak–it’s like horseshoes: “Close” counts.
Buyers who are ready might want to start trying some lowball offers at least. And renters should be cleaning up their credit and saving for a down payment (look it up).
The bottom will come someday–we can all agree on that.
But when you really don’t know the answer, it’s best to say so.
May 19th, 2008 at 9:45 pm
TMPit-
I agree. All you have to do is look at the “ceiling” on sales prices. Everything that qualifies at the original conforming loan rate of $417K and below is selling.
Why? It has nothing to do with the sales price, but rather the monthly payment. If most folks can afford about $2400 a month, including PITI, which translates into about $1800 a month after tax, then that equals the payment on about a $300,000 loan at a fixed rate of between 5.5%-6.0%. For a $417K loan, PITI would be about $3000 a month. That requires about $100K/yr in gross income.
Once you get above that income level, it is jumbo territory.
I know there are thousands who are above that level in the OC. The only problem is, as Money Pit pointed out, most of them already had purchased homes before the bubble burst. The only difference between them and the rest of the “po” folk, is that the higher income folks can ride out the downturn without getting into trouble on their payments. But they didn’t necessarily “wait” to buy, anymore than anyone else did.
So with few buyers in the market who don’t mind being hoodwinked, that leaves the rest who will buy when there is a deal to be had, ala REO’s. So take the REO’s out of the market. That means there were 1300 sales for the month of April. Down from 2600 last April.
I don’t know. That seems like a bigger problem that is only being masked by the large REO volume.
Prices are still too high.
May 19th, 2008 at 9:49 pm
P.S. - I’m not a RE bear; just an Economist. I suppose one could say they are one and the same, since Economics is called the “dismal science”.
Watching markets like this one move through their phases is an economist’s dream, even if it is some family’s nightmare.
But, Federal Gov’t intervention notwithstanding, it is fascinating to watch the supply-demand principles at work, much to Thoughful’s and Mulligan’s and all the other perma-bulls’ dismay.
May 19th, 2008 at 9:53 pm
Good post Marcia.
Without REO, sales numbers would be way down.
I don’t know what bulls are celebrating.
May 19th, 2008 at 10:38 pm
wwww
May 19th, 2008 at 10:55 pm
Anyone want to comment on the next crisis - ‘option-arm’ mortgages, which comprise of 30-50% of the loans in high-cost areas. These won’t start to reset in mass until 2009-2011. Since 80-85% only make the minimum payment, the actual balance on these loans has increased some 10-15%, and even with static home prices (which is not the case in most housing neighborhoods), who will these loans be refinanced?
Just take a sampling of $1million plus homes purchased in 2005-2006 (or refinanced during that period), and 7-12 of them in any given neighborhood are option-arm. I don’t see Congress feeling sorry for $1m homeowners. These are resetting later this year, with more in 2009-2010.
OF course, no gov’t authority is going to react until the ‘crisis’ hits, and meanwhile, the current loan holders are hoping for a 10-20% turnaround in the next 24 months.
Not going to happen.
May 19th, 2008 at 11:06 pm
The median earner makes 40K per year. Right now that is going into food, gas, car payment, insurance, medical, maybe cable, taxes. What is left? Anything for the mortgage at all? Was it all just a cash-out refi dream?
May 19th, 2008 at 11:16 pm
Marcia, this is guaranteed to be one of the great case studies in economic history. Amazing to watch it in real time.
The other one worth watching is oil. If production simply cannot rise because of resource constraints, and the Chinese are building 1,000,000 cars per year. What happens?? Supply and demand in action!!
May you live in interesting times, indeed!!
May 20th, 2008 at 12:40 am
Thank God it’s all over and prices can go back up to 15 times income.
May 20th, 2008 at 12:42 am
Hey RealtorDave,
Is now a good time to buy or sell a house?
My guess is “Yes!!!!”
D. Lereah
May 20th, 2008 at 7:13 am
“It’s not a question of “giving up” Thoughtful, its a question of being realistic about the value of a $150,000 construction cost home. $300,000 maybe, if the economy is good and wages are strong. $730,000?? That was a fantasy!”
Hmmm, free land?
May 20th, 2008 at 7:22 am
Marcia, I don’t think you’re “watching supply and demand in action” at all. You are watching market psychology and the effects of a credit collapse. How else can you explain a slump that encompasses the entire country? That psychology is turning at this very moment. The rest is guesswork.
May 20th, 2008 at 7:52 am
LaderaRenter: Great point. My thoughts exactly.
The Money Pit: Yes, let’s not forget all those cash-out-refi’s. My, those homeowners are going to have one nasty hangover when they wake up in the morning.
May 20th, 2008 at 8:11 am
Take a look
at what is happening to the high end housing market. Interesting to see that none of the permabulls here mentioned that their hero Steve Thomas said the following:
“The market over $1 million has definitely changed,” in the LA Times interview.
May 20th, 2008 at 8:25 am
Hey, Relish Brain, your stupid website is quoting a 37% drop in “price” for Newport Beach/92660, but you forgot to show that there’s also a zip with 160% price increase and another with a 38% price increase. It’s either all accurate, or it’s all dog excrement.
Newport Beach 92660 $1,020,000 -37.80%
Newport Beach 92661 $2,700,000 38.50%
Newport Beach 92662 $5,495,000 #N/A
Newport Beach 92663 $2,325,000 160.70%
May 20th, 2008 at 9:21 am
Hey, D. Lereah,
My guess is you don’t know me and assume all Realtors think alike. Truth is, there are a number of honest, experienced Realtors.
However, there’s a couple problems with your question, “Is now a good time to buy or sell a house?”
That’s like asking, “Do I need a hammer?” Depends on your situation. Do you need to drive a nail or cut a board?
It’s not a good time to buy a house at market value if you plan on selling in a few years and don’t want to lose money.
But it might be a great time to buy the dream house you’ve always wanted if the seller’s motivated, you plan to live in it for a long time, and you can afford the payments on a fixed loan. Especially if you’re more interested in a house as a home than as an investment.
You might want to check out “More bad news: Time to buy?“)
“Is it a good time to sell?” is a whole different question, but the answer’s the same: Depends on your situation. If you’re trying to protect what equity you have left, and need to sell in the next 8 months, I think you need to do your homework & get it listed today. (See “How to sell your So Cal home for top dollar in 30 days“)
If your primary focus is market timing, I’d suggest getting your ducks in a row now (down payment, good credit), maybe get familiar with areas, & clear some time in November & December. (Maybe this November, maybe next–too early to tell now.)
Not exactly the answer you predicted.
May 20th, 2008 at 10:47 am
Wow, a 37% drop in price in NB. Not looking good.
May 21st, 2008 at 5:28 pm
RealtorDave - I’m a home renter in LA and have documented income, down payment, and gold cred to purchase now. One thing you didn’t mention in time-to-buy advise is “bang for your buck”. This is one of my main reasons for waiting as I plan on staying in my house for 8+ years and don’t want to get stuck in 1100sqft bungalow.
I’m happily renting a remodeled 2800sqft home for $2100.00 a month; which includes pool and lawn service. This home would cost me almost twice that to purchase on fixed rate; which I couldn’t afford. I’m happily sitting on sidelines until prices are forced down to affordable rates. I just signed another year lease, as I think the stalemate between buyers and sellers will go on for some time. I hope more and more REO’s do sell, as it will continue to lower home prices.
I’ve spoken to multiple realtor’s over the last year, and ran across only one that was truly honest with me. Other’s assumed I knew nothing about the current market and pressured me to BUY NOW! I’m glad that most of these agents are now getting weeded out of the landscape; giving business back to ethical realtor’s working in interest of their clients - not their own.
May 28th, 2008 at 10:09 am
[…] As odd as this study may sound, it’s pretty much in line with other work. S&P/Case-Shiller’s studies of gains and losses of all individual sales (since ‘87) found LA/OC sales in March off 24% from the recent peak. DataQuick’s tracking of the moving median price in SoCal found prices off 24% in the year ended in April. […]
May 29th, 2008 at 7:49 pm
[…] S&P/Case-Shiller found LA/OC sales in March off 24% from the recent peak as DataQuick saw SoCal prices off 24% in the year ended in April. Like this item? Click on icon to share; first one emails it! These icons link to social […]
June 13th, 2008 at 2:49 pm
Ha, you all need to leave California and move to Texas like i did. well i did that in 2005…