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S&P puts LA/OC home prices off record 26.7%
October 28th, 2008, 7:16 am · 36 Comments · posted by Jon Lansner
| 1 year | vs. peak | |
|---|---|---|
| Phoenix | -30.7% | -36.3% |
| Las Vegas | -30.6% | -35.9% |
| Miami | -28.1% | -34.7% |
| San Francisco | -27.3% | -30.7% |
| LA/OC | -26.7% | -30.9% |
| San Diego | -25.8% | -32.8% |
| Tampa | -18.1% | -26.8% |
| Detroit | -17.2% | -27.2% |
| Washington | -15.4% | -22.4% |
| Minneapolis | -13.8% | -17.1% |
| Chicago | -9.8% | -11.3% |
| Seattle | -8.8% | -8.9% |
| Atlanta | -8.5% | -8.5% |
| Portland | -7.6% | -7.8% |
| New York | -6.9% | -10.7% |
| Cleveland | -6.6% | -10.5% |
| Denver | -5.1% | -5.4% |
| Boston | -4.7% | -10.8% |
| Charlotte | -2.8% | -2.8% |
| Dallas | -2.7% | -2.8% |
| 20-city-index | -16.6% | -20.3% |
LA/OC home values tumbled 26.7% in the year ended in August, according to the S&P/Case-Shiller indexes. (Release is HERE!) Please note:
- That’s the biggest LA/OC loss in Standard & Poor’s 22-year collection of data.
- It’s also the 19th straight month of year-over-year losses. In the last cycle — for those wondering when this might end — it ran 71 months.
- From July, LA/OC values fell 1.8% in a month — 23rd straight monthly decline.
- Locals can take a dash of solace from this: It’s worse in Phoenix, Vegas, Miami and San Francisco, on a year-to-year basis!
- As for the nation, “The downturn in residential real estate prices continued, with very few bright spots in the data,” says David M. Blitzer at Standard & Poor’s.
More O.C. business news …
- Mild rebound forecast for O.C. economy in 2009
- No end seen for Calif. homebuilding slump in 2009
- Realtors see 6% drop in Calif. home prices
- O.C.’s foreclosed homes sell 19% below median price
- Tell us, ‘Is housing’s bottom near?’
- Housing rebound? No way! Try 8 to 10 years
- Realtors see O.C. house values down 27.9%
- Stable for 12? Seller seeks $8 million for Coto estate
- Wall St. woes could smack Newport Beach
- O.C. home values ranked 7th in nation
- Where in O.C. will rents jump 12%?
- O.C. rent increases becoming a rarity
- Renting for many a matter of $$$
- Gov. vetoes foreclosure help for Calif. renters
- Renters favor Obama on housing issues. Do you?
- Sales rose 35 % in Huntington Beach for September
- Video: Ed McMahon “raps” for O.C. credit-report firm
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All I can say is: Ouch!!!
This is going to be all over the media today
Can someone tell me how in the hell is the OC real estate market going to reverse anytime soon? I mean after all, prices are still way too high for their fundamental support levels, and Wall Street ain’t gonna provide the ponzi scheme financing anymore.
Orange County has a goal, and it’s got 1998 prices all over it.
This must be part of the ’soft landing’ some of you idiots were talking about.
yes, this is a mess. With unemployment rate in OC going up, the home price declines are accelerating. I hope most people out there were able to save some money during the boom because the next couple of years are going to be horrible for our country.
The Fed has tried everything possible to stop the crash but things are getting worse by the day.
The OC’s Biblical housing implosion continues……………and now new and improved by the global market’s credit implosion………………………………………………..
Ofcourse, the beach communities are immune because they are sooooo cute!!!!
Housingtracker.net is showing a downward acceleration in the median asking prices for OC homes. The median asking price wend down over 3% from last month. As long as the asking prices for homes continues to go down,,,,,,,,the selling price will go down.
I’m glad I sold my house this last summer. I was planning on buying a new one this Winter, but have changed my mind…
How funny that so many said Orange County was going to be like San Francisco. I guess we are, they even beat us :)
wow mick good timing!
Global recession. Unemployment. Banks hoarding cash. Distrust among institutions. Deleveraging of derivative instruments creating more losses on balance sheets. Falling prices = falling wages. Retailers closing shop. Currently, government spending just for the sake of spending in order to show a symbolic response. Tomorrow, Democratic government in place to pass sweeping spending bills and raise more taxes. Social security headed to bankruptcy = more panic. And this is just starting.
We are definitely nowhere near the bottom in housing prices, folks.
WELL ANOTHER DAY OF DROPPING PRICES AND CONSUMER CONFIDENCE DOWN TO LEVELS NOT EVER SEEN…..
AND NOTHING SEEMS TO BE WORKING AND MORE BAD NEWS FOR ECONOMY TO COME……
RETAILERS BRACE FOR WORSE HOLIDAY SALES …….
WELL I DID ALL MY XMAS SHOPPING ON CRAIGS LIST….
SO MANY PEOPLE SELLING FLAT SCREENTVS FOR PENNIES ON THE DOLLAR AND EVRYTHING ELSE THEY HAVE. I JUST BOGHT 65 INCH FLAT SCREEN FOR 700.00 ONLY 1 YEAR OLD……….LOLLL
I TOLD U ALL THESE PEOPLE WERE BORROWING MY STUFF AND GOING TO SEL;L BACK AT DISCOUNT PRICES JUST LIKE THAT HOUSE THEY BOUGHT AND HAVE LOST…. HE WHO LAUGHS LAST LAUGHS BEST AND CHEAPER TOOO…LOLL
Here is a way out of this mess.
Convert all foreclosures to rentals. This takes inventory off the market and makes them income producing assets. Then they can sell them into residential REIT markets.
comments?
GREG
YOU DID IT U SOLVED THE CRISIS IN JUST 3 SENTENCES..
WOW U ARE GOOD………….LOLLLLLL
Greg, interesting idea but if you convert to rentals then you’ll effectively be taking the loss on the mortgage and STILL have to maintain the house. By foreclosing the lenders and banks take the loss but mitigate future loses. They’re dummies for sure but not dumb enough to keep the houses off the market in hopes that prices will come back up to nose bleed levels. Sell now or die!
Once they are rentals though they can be sold to REITs that specialize in residential property. These sales don’t impact mls stats and are stealth to the consumer market.
greg,
Some mortgage servicers have already started to rent foreclosures. It’s not as simple as just converting them all to rentals. There has to be an economic benefit for the servicers and investors. For instance, a foreclosure with a market value of $1,000 in Detroit would not make a good rental candidate, because those homes are worth more as scrap. But, the servicers/lenders are starting to move in this direction. Just remember, somebody has to manage all of these rentals, which means hiring new staff and starting new departments, so it’s going to be slow in coming. Also, this is a relatively untested business model for loan servicers, so I think they’re testing the waters to see how viable this is.
greg-
You’re thinking along the right lines. I don’t know if they plan to sell to REITs, but I do know that they see this as a way to stabilize the value. Since investors are the main buyers of foreclosed properties, why not clean the property and get it rented out, which is what an investor would do anyway? Again, servicers are testing the waters to see if this concept is viable on a large scale.
I guess you haven’t heard, there are vulture funds popping up left and right. The latest is the guys from Impac. They have started a fund to buy REOs and resell them to you at market plus 10% in fees. REDC is also planning this. They will absolutley corner the market. You will not be able to escape them. Then there are the funds that buy the loans themselves. They will cut balances and rates for owners and if that’s not sucessful, they will gladly sell the same properties to you later at market plus a fat profit. All you people are wasting your life sitting here day after day talking about the “coming resets”. Every last arm holder will get their own rescue plan. You’d think this would be obvious by now.
Sure seems you could offset some of the costs of the entire costs of managing the property with the income from the property. How much impact on price stabilization would you think would happen if this happened on a large scale?
Well, half of your inventory would disappear, so your Steve Thomas “market demand” would double overnight if you could pull them all off the market. It would obviously put downward pressure on rents, which would still put downward pressure on prices, but overall it should have a stabilizing effect.
But from the perspective of a servicer, they don’t necessarily want to stabilize prices on a macro scale. They just want to extract the greatest value from their REO inventory. This is a strategy they believe will minimize losses during the downturn.
Its in the bag - BHHAHAHAHAHAHA
Gary Watts is an idiot!
For them to sell it, they have to take a rather large loss, probably at least 50%. If they can get 51% without doing cleaning and renting, they’ll come out ahead.
Prisoners Dilemma. Whoever gets out first lose less money.
Mass rental maintenance in California is a terrible idea for a few reasons:
1. Because these homes need TLC to be in “move in” condition, you’ll be spending at least 2-3 month’s rent bringing them to code
2. You’ll be renting to people with bad credit, so they have no qualms about walking out on rent and making you spend time and money to get rid of them - easily 2-3 month’s lost rent plus costs.
3. Typical rent in Anaheim is $2000, but net after costs is more like $1200 for the first year (broker fees, repairs, tax and insurance). REO value for that same home is $375K. That’s less than 4% cap rate. How horrible.
My question is this, lets say someone bought a house for 700,000 (average house during the boom). What would the rent have to be on that property to justify renting it to offset coast and any losses? If you have to lower the rent price low enough for someone to actually rent the place why would you do that then work with the current owner and reduce the principle as long as they can pay at a certain price? It seems to me either way the banks are going to lose money on the deal.If you are going to sell to REIT what are you going to get for the house (not 700,000) so they would lose money that way to. Why would the banks create extra burdens on themselves by renting?
I am honestly surprised that banks are not working harder at lowering peoples principles rather then having the owners default and going throught the process of foreclosure which the bank will be out even more money.
The only answers I can come up with are that the amounts people are able to actually afford to pay are to far lower then what the banks are willing to drop the principle down to or they do not want everybody (including people not behind) to come in and ask for a reduction in principle.
Whats worse to the bank, lower principle or the loss on a foreclosure?
The smart rental solution: rent back to the homeowners at 40% of their income. No repairs, timely rent payments, all built in. And then when it’s time to sell, give these homeowners first refusal rights at the listed price with a loan that doesn’t take into consideration the foreclosure as part of the credit score.
The reason banks can’t lower principal is because it’s often not the “bank” that makes the decision but rather the “trust” which owns a whole bunch of these derivative loans. You have a trustee that represents literally hundreds of investors. This trustee has a fiduciary duty to his beneficiaries and would be subject to investor lawsuits if he lowered the principal.
People don’t understand that when the banks “wholly” own a note, they are very willing to do what it takes. The complication is when the note is owned by 100 different investors under a trust instrument, then it’s up to the trustee to decide what to do and his hands are tied due to the guidelines set up by the trust. The government would have to pass a law insulating the trustee from investor lawsuits in the event he “negligently” modifies a loan that’s considered against the best interest of the trust.
Let’s see. Pay utilities and maintenance and fix up property to compete against hundreds of others and bring in NO money or
fix up and maintain and receive money every month until cooler heads prevail. Seems like a better option to me.
octrojan,
Thanks for clearing it up for me. I got dumb for a minute and forgot that a lot of loans are packaged and resold to investors and other enitities. Nothing is ever as easy as it may seem. Its sad that the foreclosure process will result in more losses but there is not that can done to circumvent it.
Fight On Beat the Huskies
greg,
Again you make it too simple. Wwill the rent they are able to get offset what it costs the bank to have a declining asset? I think you are naive in what you think the properties could be rented for. Heck the prices to rent are what current owners could problably afford.
# brad Says:
October 28th, 2008 at 10:09 am
“I guess you haven’t heard, there are vulture funds popping up left and right. The latest is the guys from Impac. They have started a fund to buy REOs and resell them to you at market plus 10% in fees.”
How are they going to get market + 10% on REOs that didn’t even get less than market at auction? What makes anybody think that they can start selling homes at market + 10%? Are you talking about Impac Mortgage holdings? Whose stock is valued at <1% of what it was in 04? LOL!!! HAHAHA!!!! This plan should just about finish them off.
“REDC is also planning this. They will absolutley corner the market. You will not be able to escape them.”
I will absolutely be able to escape them…by not buying their crappy overpriced homes and watching them fail as nobody else buys their crap either.
“Then there are the funds that buy the loans themselves. They will cut balances and rates for owners and if that’s not sucessful, they will gladly sell the same properties to you later at market plus a fat profit.”
Again, this concept of selling properties to me at greater than market. Why wouldn’t I just buy the non-REO house next door for market + no fat profit? If lowering the balances and rates was such a great easy profitable solution, why wouldn’t the current loan holder just do this?
“All you people are wasting your life sitting here day after day talking about the “coming resets”. Every last arm holder will get their own rescue plan. You’d think this would be obvious by now.”
Wait, so you just got done talking about all these companies who are going to corner the REO market but now you’re saying there isn’t going to be an REO market because everyone’s bad loan will get saved?
Brad, was your post meant to be sarcasm? If so, it is full of win and I applaud you, and I will upgrade my sarcasm detector. If not, then I just pity you.
greg and the rest of you einsteins who think you solved the crisis in 3 sentences….
here’s the problem….. the rent minus the cost to rent would be less than half the amount necessary to service the toxic bubble loan…… that doesn’t solve the problem….. cue in the MARGIN CALLS….
in addition the toxic bubble loans look something like this: 80% first lien, 20% second lien…… and then who knows what the drunken sailor did with HELOCS, refis…….
…. then most of this crap was packaged and who knows who owns it…….. there are laws set up to liquidate this crap…..and the 80% first liens own the home….. banks who hold that loan want the home…. not some crack head lay-a-way plan….
and then there is brad, hey brad this buds for you:
“RealtyTrac’s Sharga says more than a third of work-outs end up back in default within three months, reducing these efforts to just “delaying the inevitable.”
“But the main problem is that so many mortgages have been grouped together into securities and sold off to investors worldwide. These mortgage-backed securities typically carry terms that severely limit the homeowner’s ability to renegotiate a mortgage. ”
“So the banks that typically service the mortgage—collecting payments from homeowners and passing them on to the investors—risk being sued if they deviate from these terms. And those servicing the loans often make more money in foreclosures than in renegotiating a loan, giving them even less incentive to help out homeowners.”
mav,
I’m have to think that a modification of agreement between the investor and the servicer could be done to allow the bank to act on their behalf within certain parameters. They must be working on this as we speak (?) Or, maybe they’d rather just cut their losses and walk away.
VOR, you are right…. but there would have to be one bank involved…. and no HELOCs…..
the problem is that most of the toxic crap has multiple tiers of creditors and of course the creditor at the top just wants the house…. if they held 80 cents on the dollar and they can sell for 65 cents on the dollar that makes much more sense than some crack head lay-a-way plan…..
Those modifications should count as sales since they are just re-selling the house to the mortgage owner. Thus new comps can be set and everyone will be happy. Right?
Eat in…… loan modifications are by definition deflationary in every way possible….
Got it. Might work for some….