July Market Update
Current News Items about the local San Diego Real Estate Market - updated July 2008!
Housing slump in no hurry to end
County prices drop 25.3 percent year over year
By Roger Showley
and Emmet Pierce
STAFF WRITERS
July 16, 2008
Despite the arrival of the traditional peak summer home-buying season, DataQuick Information Systems yesterday reported no sign of an easing in the housing downturn.
Prices in San Diego County slipped by yet another year-over-year record of 25.3 percent to a median $370,000. Sales in June, while higher than those for May, were the second-lowest on record for the month at just over 3,000.
“There's certainly no evidence that prices overall are stabilizing,” DataQuick analyst Andrew LePage said.
Added University of San Diego economist Alan Gin: “Obviously, the housing market is still weak. I anticipate it will be so at least through the rest of the year and probably into the early part of 2009 as well.”
Nevertheless, market watchers noticed that in some places bargain hunters are entering bidding contests for low-priced, foreclosed properties, which made up 39 percent of sales last month.
The price decline wasn't uniform across the county. Looking at the first half of the year, LePage said three areas – Solana Beach, Del Mar and Cardiff – had higher prices than for the same period last year. Other coastal areas generally showed reductions below 10 percent.
By contrast, southern and inland neighborhoods recorded prices as much as 43.1 percent down in Logan Heights, compared with the first half of 2007.
DataQuick reported that there were 3,077 transactions in the county in June, the first month to see a figure above 3,000 since August. But LePage said this was the second-lowest June on record, going back to 1988. It was only four years ago that the all-time peak for any June resulted in 6,926 sales.
The San Diego Association of Realtors reported that active listings yesterday totaled 19,592, down 3 percent from a year ago but up 6 percent from last month's level.
Bucking the declining county sales trend, South County neighborhoods saw a 44.2 percent increase during the first half of 2007, compared with the same period last year.
LePage attributed the South County sales uptick to lower prices.
“Where prices were most negative, meaning prices have dropped to where they are more in line with incomes, you attract more bargain buyers, first-time buyers and investors,” he said.
Not surprisingly, low prices are prompting renewed competition among buyers who are looking for homes, particularly in the foreclosure market.
“We have multiple offers consistently,” said Marc Carpenter, a San Diego real estate agent who sells bank-owned houses and condominiums. “If they are priced right, they are moving.
“Buyers are seeing properties that they watched sell two years ago for $650,000 and now they are priced at $400,000. To them, it's a great value.”
Banks are pricing foreclosed homes 5 percent or 10 percent below the price that comparable homes have sold for recently, “with the idea that they will get multiple bids,” said Encinitas-based real estate agent Marc Zimmerman, CEO of PineappleHut Inc.
This has taken some consumers by surprise, said Brian Yui, chief executive officer of HouseRebate.com, a real estate brokerage that tracks foreclosed properties.
“You have to educate your clients,” he said. “They are used to offering less than the list price and negotiating up.
Yui said nearly 17 percent of home sales countywide that closed in the 30 days ending June 26 were “overbid,” meaning that they sold for more than the original asking price. During the same period in 2007, 6.5 percent were overbid.
Yui found that most overbidding is happening on bank-owned listings under $500,000 in areas where the mortgage crisis has struck the hardest. They include Escondido, Oceanside, East County and South Bay.
Overbidding “is definitely a trend, and I think it is good for the marketplace,” he said.
The bulk of foreclosures remain in entry-level housing, although they are increasing in high-end neighborhoods, Carpenter said.
Vicky Trees, a San Diego payroll manager, recently bought a 1,090-square-foot, foreclosed condo in Tierrasanta for $315,000. Initially she was outbid, but funding for the rival offer fell through.
Trees said the unit sold well below the price of comparable units in the same complex. The native San Diegan said she had been in the market since February, looking for a bargain.
The two-bedroom, two-bath condo, which was built in 1991, needs extensive remodeling, but Trees said the price was low enough to justify her plan to invest $30,000 in improvements.
“I just decided to do it all: new shutters, new windows, everything,” she said. “I decided I wanted it nice.”
Roger M. Showley: (619) 293-1286; roger.showley@uniontrib.com
Senate, Bush need to act on bill to help homeowners
May 18, 2008
After more than two years of declining home prices and rising foreclosures, Congress has finally come up with a proposal that could keep hundreds of thousands of borrowers from losing their homes.
True, the bill is currently stymied in the Senate and faces a veto threat from President Bush.
But it could be the closest thing we'll see to a significant remedy coming out of Capitol Hill. Judging from the wave of foreclosures that is about to hit us, we'll need it.
Here's the situation. Nationwide, more than 1.2 million homes are in foreclosure – and we're not even halfway through the foreclosure wave. By the time the smoke clears in 2010, as many as 3 million more homes will be foreclosed upon nationwide, some analysts predict.
Last month alone, there were 5,297 defaults and foreclosures in San Diego County, twice as many as the year before, according to RealtyTrac, a firm in Irvine that tracks the real estate market.
Hardest hit was the city of San Diego, with 1,880 defaults or foreclosures, followed by 730 in Oceanside, 431 in Escondido and 227 in El Cajon, according to Default Research Inc. in Pennsylvania. Not all of the defaults will end up as foreclosures. But then again, those numbers don't count short sales – people who sell their home at a loss to avoid foreclosure. If you factor the short sales in, the number of troubled properties rises dramatically.
To clean up this mess, Democrats on Capitol Hill have been pushing for a bill to help the Federal Housing Administration extend up to $300 billion in low-interest loans to borrowers who have been unable to keep up with the adjustable rates on their current mortgages.
The proposal – which passed in the House 10 days ago but and is now stymied in the Senate – echoes a program that President Franklin Roosevelt introduced in 1933 to aid homeowners in the Great Depression. It was one of the few Depression-era programs to turn a profit, because the vast majority of borrowers repaid their government-backed mortgages in full.
The Congressional Budget Office, which apparently believes today's borrowers are not as trustworthy as they were in the 1930s, estimates that the program could cost $1.7 billion. But considering the downside if a fix doesn't come soon – massive foreclosures, deteriorating neighborhoods, growing numbers of homeless people, depressed property values, a deeper recession, etc. – that seems like a small price to pay, right?
Wrong. Or at least not to everybody.
“What we're talking about here is a $300 billion bailout for those who were scamming the market,” said House Minority Leader John Boehner, R-Ohio. “Democrats are forcing responsible homeowners and taxpayers to pick up a $300 billion tab to bail out scam artists, speculators and reckless borrowers.”
Boehner and the vast majority of House Republicans voted against the bill, including our own Reps. Duncan Hunter, Brian Bilbray and Darrell Issa. Democratic Reps. Susan Davis and Bob Filner voted for the proposal.
Although the bill passed in the House, it has been stuck in the Senate, which has a smaller Democratic majority. Even if it makes it out of the Senate, President Bush is threatening to use his veto pen if the final version of the bill smacks too much of being a taxpayer-funded bailout.
All of this squabbling seems more like political posturing than anything else.
For one thing, Boehner's wrong. The bill is specifically designed to weed out speculators and scam artists. If history is any guide, taxpayers may make a slight profit on the proposal. And even if they don't, the so-called bailout would be less than $2 billion, not the $300 billion that he and other opponents are railing about.
For another thing, there seems to be a great deal of hypocrisy regarding what constitutes a bailout. Throughout the past year, we have seen the administration and the Federal Reserve work to bail out banking institutions such as the now-defunct Bear Stearns.
We have also seen Boehner and other Republicans in Congress refuse to back a previous weak package for homeowners unless it included multibillion-dollar tax breaks for corporations that lost money during the mortgage debacle – regardless of the fact that some of those corporations helped cause the problems by extending risky loans to unworthy borrowers.
The fact is that the vast majority of homeowners who are in trouble now were not “scamming the market.” Speculators constituted a relatively small minority of the buyers who got burned over the past few years – fewer than one in five defaulting borrowers, according to a Federal Reserve study.
“By far the largest category is the people who had mortgages they shouldn't have gotten in the first place, including some who were duped into taking out the loans,” said Jerry Kalman, a real estate agent at the Bonsall office of RE/MAX United. “I've heard stories of how a lot of chicanery went on. It's probably 50-50 as to how many people got their loans through greed compared to faulty guidance or questionable practices.”
Still, there is a valid question here: Should we help out homeowners who made bad choices, whether through greed or naiveté?
In former times, you could make the argument that we should show some compassion to our fellow citizens. But since that argument doesn't seem to go far these days, let's just say that by helping them, we may end up helping ourselves, because the ramifications of the mortgage crisis seem increasingly dire for our economic health.
Federal Reserve Chairman Ben Bernanke – who originally took a laissez-faire approach to the mortgage crisis – is sounding more and more like the poet John Donne. “No homeowner is an island,” Bernanke warns these days. “The bell that tolls in the real estate market tolls for thee.”
With an increasingly urgent tone, Bernanke has been warning lately that if the foreclosure problem isn't fixed soon, the effect on the economy could be much more severe than we're experiencing right now.
“High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets and the broader economy,” he said last week. “Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of the lenders and borrowers. It's in everybody's interest.”
Dean Calbreath: (619) 293-1891; dean.calbreath@uniontrib.com
An educational article about short sales compared to foreclosures -
Short sale still stings, but it's better than foreclosure
By Bob Tedeschi
NEW YORK TIMES NEWS SERVICE
September 9, 2007
Homeowners who have seen the value of their houses drop below the amount left on their mortgages and who are struggling to make their monthly payments often believe their only option is to walk away from the loans and accept a foreclosure.
Not so, lenders say. Borrowers can both avoid foreclosure and escape their mortgage debt, provided they are willing to give up their homes and accept at least some collateral damage to their credit ratings.
This financial work-around is called a “short sale,” and it involves working with the lender and a real estate agent to sell the house at a loss.
For example, consider a borrower who owns a home that has fallen in value from $400,000 to $375,000, but who still owes about $400,000 on the mortgage because the loan required no down payment – a common enough feature before the current mortgage crisis.
If the borrower is struggling with the monthly payments and has no means to pay off the mortgage, a bank will often consider a short sale.
“As long as the customer is being reasonable, we'll entertain this as a possibility, because we don't want the home,” said Robert Caruso, a senior vice president of Bank of America. “We'd rather sell it and take a little more of a haircut on it now than later.”
Banks generally avoid foreclosures because the legal process can be costly and long, and because banks do not want the additional burden of trying to sell distressed properties.
So in the example of the $400,000 mortgage, after the borrower and the bank agree to a short sale, the bank will suggest a real estate agent or ask the borrower to find one, then the house will be listed at its appraised value. When the house sells, the bank takes the money, pays the agent's commission and voids the mortgage.
So assuming the final sale price is $375,000, the bank might end up with $345,000. (By the time a borrower considers a short sale, he or she is often several months behind on mortgage payments and property taxes, which the bank also covers.)
And what about the borrower with the $400,000 mortgage? “We'll typically forgive the debt,” Caruso said. “There may be some impairment to your credit history, showing you have missed payments and the short sale. But it's a lot better than having a foreclosure.”
Caruso and other lenders say they expect to see more short sales in coming months because default rates are increasing, especially among those with poor credit who have taken out adjustable loans that may rise sharply in coming months.
Vikki gets quoted in Business Week -
MAY 7, 2007
NEWS & INSIGHTS
By Christopher Palmeri and Dawn Kopecki
Why This Slump Is Different
Foreclosures are rising fast, investors are sweating, and lenders are now bending over backwards to keep bad loans alive
First comes the reminder notice that a borrower is late on the mortgage payment. Then the phone calls start. Later a brochure arrives, maybe even a DVD, explaining the homeowner's options. Around month four, there will be a knock on the door.
Don't call them bill collectors. Today, the industry has a softer term, "debt counselors," for the swelling ranks of people who are pounding the pavement trying to stem the tide of mortgage foreclosures. Says Steve Bailey, senior managing director at mortgage giant Countrywide Financial Corp., who oversees the company's $1.4 trillion portfolio: "You need to keep the revenue stream flowing and keep hope alive."
As the housing downturn grinds on, that has become the mantra for everyone from homeowners and lenders to agents and investors. There have been previous busts, but this one is markedly different. Never before have home prices fallen so broadly: Median national home prices slipped 0.3% in March from a year earlier, and the National Association of Realtors predicts a fall of 0.7% for 2007, which would mark the first annual drop since the Great Depression era. And foreclosure filings are increasingly common, jumping 42% in 2006 to 1.2 million, calculates RealtyTrac. There's little relief in sight; in the first quarter, 2 million homeowners were at least 30 days late on their payments, an increase of 26% from last year, according to Moody's Economy.com Inc.
Foreclosure is never an attractive option, but now it's even less appealing. With prices falling nationwide, lenders are wary of holding on to properties whose values could sink further. And unlike in previous cycles, a big chunk of the loans made recently are held not by federally insured thrifts or banks but by hard-charging hedge funds and other big investors that are aggressively pushing lenders to stop the bleeding. What's more, the steep rise in second mortgages that accompanied the boom means lenders in foreclosure proceedings are increasingly fighting one another for the scraps. Such pressures are inspiring some to dream up creative alternatives to foreclosure, from tinkering with loan terms to subsidizing sellers.
UNDERWATER EPIDEMIC
Many of the homeowners in trouble are first-timers who bought recently or investors who got in over their heads. Vikki Kuick, a real estate agent in San Diego, has a listing on a three-bedroom condo that the owners bought as an investment property three years ago for $447,000. Payments on their adjustable-rate loans have since gone from about $2,000 a month to $3,800, while their tenant pays just $1,800. Kuick says she has an offer for $370,000, which she has taken to the couple's lenders. If the lenders agree, the holder of the second mortgage would receive a token amount—as little as $1,000. "If it goes to foreclosure, [the second lender] may get zero," she says.
For the first time in years, houses are hitting the market with asking prices below the value of their mortgages. Stretched owners are hoping for a so-called short sale, in which the lenders forgive the difference. National statistics are scarce, but according to a study performed for BusinessWeek by the online agency ZipRealty, there are 1,100 such listings in Miami, nearly 1,000 in Atlanta, and 700 in the Washington area. In Sacramento, real estate agent Patrick Hake counts 1,079, more than 10% of the total homes on the market. "If home values are falling, short sales are better because they can be done cheaper and quicker [than foreclosures]," says Kevin J. Kanouff, head of the bond group at mortgage consulting firm Clayton Holdings Inc.
Quick is good, given the unprecedented pressures lenders are facing. In previous downturns, most loans were owned by federally insured lenders. Now roughly 56% of all loans outstanding, $5.7 trillion worth, have been pooled into mortgage-backed securities, vs. just 12% in 1980. "Wall Street has been very tough, and it's encouraging lenders to act rapidly," says Douglas G. Duncan, chief economist for the Mortgage Bankers Assn. "The faster you act, the lower your losses."
With so much at stake, lenders are scrambling to cut delinquencies and avoid foreclosures. In Dallas, EMC Mortgage Corp., a unit of Wall Street investment bank Bear, Stearns & Co., recently set up a "Mod Squad" team—short for loan modification—of 50 workout specialists who travel the country helping homeowners renegotiate. Citigroup Inc. and Bank of America Corp. have pledged to make a total of $1 billion in new, below-market loans to homeowners in trouble through the nonprofit Neighborhood Assistance Corp. of America. Ocwen Financial Corp., which collects payments on $50 billion in mortgages for other lenders, has recently doubled the size of its loan-mitigation department and has put people on the ground for face-to-face meetings with borrowers before there is a problem. It even pays its staff bonuses if they can avoid foreclosure. Says John Vella, president of EMC: "We want to protect the loan from going all the way south."
EVERYONE TAKES A HIT
That's good for everybody. Each foreclosure costs lenders, the government, and homeowners an estimated $80,000. Even neighbors take a hit, since foreclosure can have a ripple effect on property values. One foreclosure can cut the price on nearby homes by 1.4%.
Still, with so many loans packaged and sold as pools, the industry has tied its hands to some extent. To take advantage of the accounting and tax benefits, many lenders wrote restrictions on the mortgage-backed securities; generally just 5% of loans in such investments can be renegotiated. Some pools containing subprime loans already have delinquency rates of 8% or more. It's possible to change the deal, but it's time-consuming and costly. "What was once a simple, often personal relationship between a borrower and lenders is now a complex structure involving many parties, including services, investors, trustees, and rating agencies," said Federal Deposit Insurance Corp. Chair Sheila C. Bair in testimony to Congress.
By keeping borrowers in houses they never should have bought, lenders could simply be setting everyone up for a steeper fall down the road. But for now the focus is on working out some alternative to foreclosure. With the housing market being buffeted by the harshest storm it has seen in memory, everybody's just trying to hold on.
With Mara Der Hovanesian
NEWS & INSIGHTS
By Christopher Palmeri and Dawn Kopecki
Why This Slump Is Different
Foreclosures are rising fast, investors are sweating, and lenders are now bending over backwards to keep bad loans alive
Don't call them bill collectors. Today, the industry has a softer term, "debt counselors," for the swelling ranks of people who are pounding the pavement trying to stem the tide of mortgage foreclosures. Says Steve Bailey, senior managing director at mortgage giant Countrywide Financial Corp., who oversees the company's $1.4 trillion portfolio: "You need to keep the revenue stream flowing and keep hope alive."
As the housing downturn grinds on, that has become the mantra for everyone from homeowners and lenders to agents and investors. There have been previous busts, but this one is markedly different. Never before have home prices fallen so broadly: Median national home prices slipped 0.3% in March from a year earlier, and the National Association of Realtors predicts a fall of 0.7% for 2007, which would mark the first annual drop since the Great Depression era. And foreclosure filings are increasingly common, jumping 42% in 2006 to 1.2 million, calculates RealtyTrac. There's little relief in sight; in the first quarter, 2 million homeowners were at least 30 days late on their payments, an increase of 26% from last year, according to Moody's Economy.com Inc.
Foreclosure is never an attractive option, but now it's even less appealing. With prices falling nationwide, lenders are wary of holding on to properties whose values could sink further. And unlike in previous cycles, a big chunk of the loans made recently are held not by federally insured thrifts or banks but by hard-charging hedge funds and other big investors that are aggressively pushing lenders to stop the bleeding. What's more, the steep rise in second mortgages that accompanied the boom means lenders in foreclosure proceedings are increasingly fighting one another for the scraps. Such pressures are inspiring some to dream up creative alternatives to foreclosure, from tinkering with loan terms to subsidizing sellers.
UNDERWATER EPIDEMIC
Many of the homeowners in trouble are first-timers who bought recently or investors who got in over their heads. Vikki Kuick, a real estate agent in San Diego, has a listing on a three-bedroom condo that the owners bought as an investment property three years ago for $447,000. Payments on their adjustable-rate loans have since gone from about $2,000 a month to $3,800, while their tenant pays just $1,800. Kuick says she has an offer for $370,000, which she has taken to the couple's lenders. If the lenders agree, the holder of the second mortgage would receive a token amount—as little as $1,000. "If it goes to foreclosure, [the second lender] may get zero," she says.
For the first time in years, houses are hitting the market with asking prices below the value of their mortgages. Stretched owners are hoping for a so-called short sale, in which the lenders forgive the difference. National statistics are scarce, but according to a study performed for BusinessWeek by the online agency ZipRealty, there are 1,100 such listings in Miami, nearly 1,000 in Atlanta, and 700 in the Washington area. In Sacramento, real estate agent Patrick Hake counts 1,079, more than 10% of the total homes on the market. "If home values are falling, short sales are better because they can be done cheaper and quicker [than foreclosures]," says Kevin J. Kanouff, head of the bond group at mortgage consulting firm Clayton Holdings Inc.
Quick is good, given the unprecedented pressures lenders are facing. In previous downturns, most loans were owned by federally insured lenders. Now roughly 56% of all loans outstanding, $5.7 trillion worth, have been pooled into mortgage-backed securities, vs. just 12% in 1980. "Wall Street has been very tough, and it's encouraging lenders to act rapidly," says Douglas G. Duncan, chief economist for the Mortgage Bankers Assn. "The faster you act, the lower your losses."
With so much at stake, lenders are scrambling to cut delinquencies and avoid foreclosures. In Dallas, EMC Mortgage Corp., a unit of Wall Street investment bank Bear, Stearns & Co., recently set up a "Mod Squad" team—short for loan modification—of 50 workout specialists who travel the country helping homeowners renegotiate. Citigroup Inc. and Bank of America Corp. have pledged to make a total of $1 billion in new, below-market loans to homeowners in trouble through the nonprofit Neighborhood Assistance Corp. of America. Ocwen Financial Corp., which collects payments on $50 billion in mortgages for other lenders, has recently doubled the size of its loan-mitigation department and has put people on the ground for face-to-face meetings with borrowers before there is a problem. It even pays its staff bonuses if they can avoid foreclosure. Says John Vella, president of EMC: "We want to protect the loan from going all the way south."
EVERYONE TAKES A HIT
That's good for everybody. Each foreclosure costs lenders, the government, and homeowners an estimated $80,000. Even neighbors take a hit, since foreclosure can have a ripple effect on property values. One foreclosure can cut the price on nearby homes by 1.4%.
Still, with so many loans packaged and sold as pools, the industry has tied its hands to some extent. To take advantage of the accounting and tax benefits, many lenders wrote restrictions on the mortgage-backed securities; generally just 5% of loans in such investments can be renegotiated. Some pools containing subprime loans already have delinquency rates of 8% or more. It's possible to change the deal, but it's time-consuming and costly. "What was once a simple, often personal relationship between a borrower and lenders is now a complex structure involving many parties, including services, investors, trustees, and rating agencies," said Federal Deposit Insurance Corp. Chair Sheila C. Bair in testimony to Congress.
By keeping borrowers in houses they never should have bought, lenders could simply be setting everyone up for a steeper fall down the road. But for now the focus is on working out some alternative to foreclosure. With the housing market being buffeted by the harshest storm it has seen in memory, everybody's just trying to hold on.
With Mara Der Hovanesian
