(Update: Table added.)
The latest O.C. home market report from Steve Thomas at Altera Real Estate in Aliso Viejo says …
- For buyers looking for a “deal” in purchasing a foreclosure, in October, the sales price to list price ratio was 101%. This means, on average, foreclosures sell for over the asking price.
- The total inventory of foreclosures and short sales increased 5% over the past two weeks to 5,801 houses and condos. The increase was mostly due to short sales, when a borrower lists a property hoping the the bank will accept less than it its owed on the property.
- Minus Talega (down 24%) and Portola Hills (down 24%), every area in Orange County realized a year over year increase in the number of distressed properties (foreclosures and short sales) on the market.
- Higher end markets are no longer immune to foreclosures and short sales, even though they remain a small percentage of the current active inventory within those areas. (84% of all distressed properties can be found at or below $500,000, and 95% are below $750,000.)
- In October, the sales price to list price ratio for short sales was 97%. This means that there was a little bit of flexibility in selling short sales.
Here’s a breakdown of distressed listings:
| Slice | All inventory | Distressed | Share |
|---|---|---|---|
| By price … | |||
| • O.C. $0-$500k | 6,871 | 4,537 | 66% |
| • O.C. $500k-$750k | 2,470 | 830 | 34% |
| • O.C. $750k-$1m | 1,374 | 283 | 21% |
| • O.C. $1m-$1.5m | 996 | 98 | 10% |
| • O.C. $1.5m-$2m | 612 | 38 | 6% |
| • O.C. $2m-4m | 705 | 20 | 3% |
| • O.C. $4m+ | 360 | 0 | 0% |
| All O.C. | 13,258 | 5,801 | 44% |
| • Attached | 5,141 | 2,596 | 50% |
| • Detached | 8,039 | 3,182 | 40% |
| County high share … | |||
| • Santa Ana | 1,275 | 1,003 | 79% |
| • Anaheim | 939 | 707 | 75% |
| • Garden Grove | 491 | 359 | 73% |
| County low share … | |||
| • Seal Beach | 341 | 8 | 2% |
| • Corona Del Mar | 181 | 7 | 4% |
| • Laguna Woods | 421 | 17 | 4% |
And in other mortgage news…
- Sunday real estate reading
- Can a piece of paper prevent another mortgage crisis?
- FDIC proposes $24 billion to pay half of lender losses on modified loans
- When insurers kill your mortgage application
- A little perspective on foreclosure drop
- O.C. foreclosures plummeted in October
- “Worse than the Depression”
- Why loan modifications don’t work
- Paulson says buying bad loans is a bad idea
- ‘Please lend now,’ Fed tells banks
- Fannie, Freddie and Citigroup to offer mortgage aid
- Downey Savings raises doubts about its survival
- O.C. home buyers tap FHA financing
- September surprise … mortgage jobs increased
And here are a few noteworthy O.C. business stories you may have missed …
- Ex-Broadcom CEO wrote he was “not fully functioning” because of drugs
- State Fund to hike workers comp rates 8.9% in ‘09
- O.C. bank gets cut of $700 billion bailout
- Montage Laguna Beach gets more diamonds
- Taco Bell headquarters in Irvine making massive jobs cuts
- Edison’s power shutoffs jump 10%
- Foreclosure: Steal, deal or ‘get real?’
- Free hand massages at Jo Malone
- Bankruptcy sought for ocean-view homes in San Clemente
- ‘Housewives of O.C.’ star’s Ladera home up for sale
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I’ve done some analysis on this list to sales price phenom.
Let me give you some real insight into how the distressed markets worked here in interior South OC (Mission Viejo).
12 Months ago when the market started to role over, the distressed sales would come on market in line with other standard sales. After 6 months, the distress sales sells, and the list to sales prices becomes 90%. House listed for 100k, sells for 90k (example).
Now that REO’s and short sales have become standard, and prices overall have contracted 20-30% over the past 12 months, the new distressed listings come on much lower. Example: standard sales of average condition house lists for 450k, while the REO lists at 385k.
The standard sales sits on market until reduced, while the REO gets 5 offers: 3 under 385k and 2 just above it. Hence, a postive l/sp ratio on the distressed sale. This BY NO MEANS indicates a 1% increase in the price of REO props, rather a mad scramble of fence sitters afraid of missing out, with whispers and advise from their agents to not hesitate making offers. This cycle repeats itself all the way to the bottom of the market until equilibrium is reached.
It could be tricky this time though because of banks holding back REO inventory in hopes of a bailout, and lawyers working with under water borrowers, also hoping for a bailout, and not listing their houses or even talking to banks.
Yep, it all comes down to whether we get a bailout or not.
This will determine where prices go next. Of course, we are talking about the Fed Govt, so dont expect swift action, and when it comes, it is sure to be poorly applied.
BUT, If the Feds let this “thing” go, and the banks also let this “thing” go, look out below. Banks are holding onto a lot of empty houses, and have cut deals will a lot of “deadbeat” borrowers. Upon a signal that no bailout is coming, they will fire sell the inventory. Then bank after bank will dump product, and we will reach and pass bottom REALLY fast.
As painful as it may be for some, this is probably the best way to solve this problem, and maintain some sort of capitalistic integrity along the way. We have always had free markets. Why should today be any different? Because your team is losing? I dont think so?
nice write up oc appraiser, i really enjoyed readling what you had to say.
Wow!!! Only 1% above asking.
They are listing at 2002 prices and lower.
Damn - I hate it when the bears are right!!!
I think the analysis by the Blogger “OC Appraiser”
is correct. They are many homes in default with the “foreclosure process being currently halted”, or REOs not being taken to the market. Lenders are hoping for (1) some bailout, (2) loan modifications (some with Fed. Gov. Support), (3) a possible dramatic drop in home loan interest rates to 3-4% under Obama, or (4) not to flood the market with REO’s with no buyers which hurt loan to value ratios for other loans they have on their books.
I think the conclusion of the OC Appraiser is correct. If these programs fail, there will be a huge amount REO Inventory for sale not just in CA but other states as well. If the programs are a successful, it would “unnaturally” stabilize the real estate market, and prolong the problem or limiting future home appreciation for a number of years.
P.S.
Another short-term problem for CA lenders, a new law which requires them to work with the homeowner for 30 days to help the homeowner from foreclose explaining them all their options. There is legal concern among lenders, because the burden of proof is on them to demonstrate they complied with this new requirement. If they do not properly comply, their Trustee Sale to get the Property could be set aside. Anyone buying REO’s, should get representations & warranties the lender has complied the new laws.
Under the new laws, the foreclosure process will increase by at least a month: Notice of Default is a 90 day Notice + 30 days new CA laws, + 21 days for Trustee Sale plus time to prepare for market. My guess is CA lenders will be conservative and the new 30 day period will turn into 35-45 days, and maybe 60 days. They may go through the whole process except the Notice of Trustee Sale (21 Days) waiting to see what Obama does.
I would not be surprised under Obama, to see home interests mortgage dramatically drop for a certain period of time to help refinance and go way of the Japan with 40 year mortgages. The question would be if the low interest rates apply to all? Democrats also talking about a plan to decrease the loan balance on certain homes underwater. This liberal type of plan would be combined with low interest rates would also “unnaturally” stabilize the real estate market. It would also cost us taxpayers too much money.
Bottom Line: There is still much uncertainty regarding the real estate market. Too early to call a bottom. Especially if we have high unemployment rates in 09, and a long and protracted recession. Loss of jobs, loss of home equity, stock market losses, plus tighter underwriting standards equals fewer buyers being able to qualify for home loans. Also, there are many “rumblings” the commercial/industrial loans are just beginning decline with many foreclosures to come.
Hey, if a home sells for $100, of course I’ll offer $101 to get it.
The problem is that when volume is low enough, you have a limited number of buyers who are mostly investor types looking for a “deal”. This 1% premium will not slow the general decline of the overall market. It just demonstrates that there are investors out there willing to bet that we’re near bottom.
Trojan has it exactly right. This phenom was evidenced during this past decline. For example: Mission viejo went from 650k to 550k, then to 450k, where we are now, generally speaking.
Looking at “price action” between the 550-450k range, we saw listings come out at say 470k, and be sold for 490k, notwithstanding the fact that the properties’ peers were selling closer to 550k.
It is this very phenom that propelled the market so rapidly downward. So now we sit at around 450k and listings come out at 425, 400, 385k. Investors come in, take a look, scrambled to offer up what they think is a deal. At this point, I dont think anyone knows what a “good deal” is. But true to form, this downward price action continues.
I’ll offer my 2 cents on pricing.
Home prices in MV are still declining, but they aren’t headed for zero. They aren’t even going to $160K (about the average cost to build 1000 sf apartments in OC). Nor should they have ever risen to over $650K. They got to those lofty levels only through creative financing that collapsed under its own weight.
Here are a couple of comparative numbers. $180K in 1985 would equal about $350K in 2008. $250K in 1996 would equal about $330K in 2008. These numbers aren’t precise, but they are roughly what I recall were average MV starter home prices in those eras, where nobody really worried much about a housing bubble.
So as prices descend below $400K in MV, I’d speculate that we are getting toward the 7th or 8th inning in terms of price declines. There is still lots of product priced too high, but I would guess the motivated sellers will get us to a clearing price some time in 2009.
The investors I work with define “good deal” in the following ways:
1. If he’s borrowing money, he’s inquiring whether rent can produce the cash flow to cover debt service and expenses so he can just hold onto this property until the market turns around. It literally costs him nothing to own this property over the next 5 years.
2. If he’s all cash, he’s pricing it for an 11% cap rate or better once tenants are in place.