Skip the Weather Forecast – It’s 70 and Sunny:  No disrespect to the local weather forecasters, but we don’t rely on them for much.  If they predicted 70-something for temperatures year round, they’d be right (or close to it) most of the year.  For many folks, this is the ideal and is one of the reasons so many people love living here.  If you enjoy seasons, it may be an adjustment.  5 minutes of rain = Storm Watch & Traffic

• The Mello Roos Dilemma:  Buying a newer home, sans the Mello Roos bond are contradictory goals.  By and large, homes constructed after 1982 will have a mello roos bond.  The newer the home, the higher that bond is likely to be.  Newer homes and mello roos go hand-in-hand.  Sorry.  I don’t like it either.

• It’s Expensive:  No kidding.  Orange County real estate is still expensive, even after prices have fallen.  As of today, $500,000 will likely get you an entry level home with little or no yard – depending on where you are in the OC.

• Land of the Beautiful People: With nice weather, comes lots of opportunities to be outside to play, to exercise, and enjoy beaches making it easier and desirable to stay in great physical shape.  Cosmetic surgery doesn’t hurt either.

• We Aren’t  ‘Orange County Housewives’:  We aren’t all like that.  Okay – some of us are, but not all.

• ‘Large Yard’ is a Relative Term: The high cost of housing for Orange Country primarily resides in land value.  Land is at a premium and builders structure tracts to maximize return – meaning much smaller lot sizes.   Homes sit on smaller lots and are closer together.  If you are looking for a large yard, with some exceptions, older is often better.  And FYI, generally a 10,000 square foot lot is considered BIG.

• It’s the Burbs:  A lot of Orange County is made up of suburban living with all it’s wonderful pros and a few cons.  Great schools, beautiful parks, proximity to shopping and restaurants, community activities all account for some of the positives.  As for the downside – architecture isn’t always unique and if you’re not careful, you just might find yourself pulling into your neighbor’s driveway.

• Yes, Homes Are Cheaper In Corona:  It never fails; every time I work with someone relocating to Orange County that is unfamiliar with the area there are 3 distinct stages: 1 – Excitement, 2 – Sticker Shock, 3 – So I hear you can get a much bigger house in Corona….  And, yes you can.  Before we go look at those homes however, you are required to sit on the 91 freeway during peak traffic hours and visit during peak smog season.  Then we’ll talk.  Sorry Corona lovers.

• We Like National Chains:  We do have some amazing strip malls with lots of chain stores and restaurants.  But if you look hard enough (and I have as of late) there are some wonderful, privately owned restaurants.  Coastal towns like Laguna Beach, Corona del Mar, San Clemente, Costa Mesa, and Newport Beach are always guaranteed to have some things a bit more eclectic.

• There’s Lots To Do: Kids play outside year round, outdoor exercise is common, skiing isn’t far (Big Bear, or just a bit farther is my favorite, Mammoth Mountain), beaches, amazing surfing, skate parks, and of course, the all-important Disneyland (although you may go less than you think you will).

Alright you OC folk – enlighten me.  What have I failed to mention?

Disclaimer:  This post is deeply biased and written by a 4-Season-Loving, ski fanatic, Oregonian that has called Orange County home for some of the early days of her childhood and the most recent 12 years.   Go Figure.

Guess I’m not entirely surprised to see that the interest in relocating to Orange County, during one of the worst housing crisis’s we’ve seen, was not particularly high.

As I’ve said before, there are several things that have me concerned about the housing market in Orange County.

1. The large number of negative equity homeowners
2. The disproportionate number of homeowners that qualified for their loans with adherence to minimal guidelines
3. The number of homeowners that have negotiated short term solutions to long term loans problems
4. The lack of solid and accessible financing for current buyer demand
5. The long process for handling the abundance of short sale inventory

Some of those concerns, and others, are voiced by Stan Humphries, Zillow’s Chief Economist, in this recent article in the Orange County Register.  According to Humphries, we are looking at 3rd quarter for the ‘bottom’ of this year and a long, flat recovery that will take us into 2013.  His view was one of a national market, and given the magnitude of our housing crisis, I believe it may very well take at least that long.

If you are a seller: consider your options carefully.  Can you hold on for the next few years?  Can you lease the property?  And if you are hanging on to it, think seriously about that decision if you are holding out for growth – that won’t be happening any time soon.

If you are a buyer: Lending will be one of your primary concerns.  Investigate your options carefully and know what you can qualify for before you shop.  Opportunities will be out there, but don’t buy unless you plan on owning for at least 5 years right now.

During the final months of 2008, many lending institutions participated in a voluntary moratorium on foreclosures.  Notice of Defaults (NOD’s), the first step in the foreclosure process in California, plummeted.   The final days on the moratoriums have just passed.  Fannie Mae and Freddie Mac’s were lifted as of March 31.

And if you’ve been paying attention to my ‘Microscope on the Market’ series, you’ve noticed the drop in bank owned homes on the market – hence the second half of that headline, ‘Foreclosure Sales Drop’.  Without the new NOD’s, there’s been a dramatic reduction in bank owned homes.

Notice the following chart that tracks Notice of Defaults and Foreclosure sales.  The green line represents California’s NOD filings.  Notice the arrows – the dramatic dip in September and the sharp rise as of March ‘09.

With the rise in filings, we can expect the foreclosures to rise.  Will Obama’s plan help?  My guess is no for Orange County.  Why?  The loan modifications the banks are offering, by and large, don’t change the significant negative equity that many of these homeowners are facing.  Without a substantial equity reduction, many sellers (who’ve already seen their credit damaged) will opt to walk away from the property.

What does this mean for buyers and sellers?  If we see a large rise in distress inventory, this market may see some downward pressure on pricing – although in some of the lower price points, overall inventory is still low (especially if you remove the difficult short sales).  I would expect that demand for this inventory will remain high – as we have seen in recent months.

One interesting note in the Foreclosure Radar report:

The California Foreclosure Prevention Act, which goes into effect this summer, adds an additional 90 days to the foreclosure process if lenders fail to take certain actions.  It is quite possible that the dramatic rise in foreclosure notices occuring now is an attempt by lenders to process as many foreclosures as possible before this law takes affect.

If you are interested in viewing foreclosure data and bank owned homes don’t hesitate to contact me.

This post is LONG, but if you are thinking of buying a short sale (or if you’re an agent looking for an outlet for your short sale frustrations),  PLEASE read.  Understanding this information is a must.

I completely understand the allure of the short sales when you are a buyer.  The prices are attractive and there are SO many of them.  They have become a  necessary evil of the Orange County real estate market.  I get it.

If you really want to pursue a short sale, be forewarned.  Know what you are getting into, understand the risks, the pitfalls, and what is  required to make them happen from a buyer perspective.  They may, or may not, be worth it.

What is a Short Sale?

The seller’s obligations in a sale (loans, encumbrances, and closing costs), exceed the value of the property.  The seller must prove a hardship (job loss, wage reduction, divorce, health crisis, lack of assets) to qualify for a short sale.

A Few Realities

• There is no Standard Operating Procedures for the banking industry to handle short sales.  Every bank has different guidelines and manages them differently; even negotiators within the same bank manage them differently.

• This is important:  Nearly across the board, a banking institution will not consider a seller’s hardship application until they submit an offer with a short sale.  What does this mean to a buyer?  Your offer is used to see if they qualify in the first place.  You may sit in escrow for weeks while the bank considers not your offer, but the seller’s circumstances.

• There is no Standard Operating Procedures for how agents handle their short sale listings.  Frankly, I think there is a lot of irresponsibility in this area.

• Many agents leave their listings ACTIVE in the MLS even though they have an offer submitted to the bank.  Once an agent has a good offer with a solid buyer, it should go in Backup position.  The bank will only look at ONE offer – highest and best – anyway.  Why waste an agent’s time, a buyer’s time and emotion, showing a property that is not really available?

• Even Banks will ask the listing to remain Active after an offer is submitted.  Note the conversation with this agent on Twitter.

• The SoCalMLS has a Special Condition field where agents are required to specify that the short sale has an offer submitted to the bank.  Unfortunately, most agents don’t use it.

• An ‘Approved Short Sale‘ does not necessarily mean that the process will go any faster.  See Countrywide’s response on my short sale last year.

• A short sale process will take as little as 60 days (very rare) or as much as 4 to 6 months (common).

• The list price is not a reflection of what the bank will, or will not, take. The listing price is positioned to generate offers.  Remember, the bank hasn’t even looked at these seller’s situation yet, let alone evaluate the the market value of the home.

• There may be past due HOA fees, property taxes, or other expenses, that the bank will ask for a buyer to cover.

• If the seller declares bankruptcy during the process, your deposit becomes a frozen asset that you likely wait a fair amount of time to recover – if you do.

• Many short sales ultimately foreclose.  Why?  If you find out please tell me.  There is often NO LOGIC in the way banks (and investors) approve, or disapprove these.

• More banks are trying to do loan modifications for sellers rather than approve short sales and in some instances, they are incentivized by the government to do so.

Real Life Examples

The following are scenarios that have been experienced by me, my agents, colleagues, and my buyers.

• My Listing last May:  I had 8 offers in 3 days.  The highest was $580,000 and it took 4 months to get an approval from Countrywide.  By the time it was approved, the market value had fallen precipitously and the buyer was no longer interested.  When I asked Countrywide if the process would go more quickly with a new buyer given the hardship had been approved, their response was that the each buyer was a new file and they couldn’t provide better than a 4 to 6 month time frame.  The home sold for $490,000 4 1/2 months later.

• An agent within my company, had a short sale in escrow with a solid buyer for 90 days.  The bank asked the insolvent seller to come to the table with $3,500 on the $165,000 sale.  When the seller was unable to, the bank refused the short sale.  The home is currently vacant and worth about $145,000 6 months later.  Currently, it’s not in foreclosure and the seller hasn’t made a payment in about a year.

• This week alone, I’ve shown 2 different short sales, marketed on the MLS as Active, that already had offers submitted to the bank without notation in the listing.  When I called expressing my buyer’s interest in one of the properties, the agent subsequently told me, ‘the deal is done’.  When asked, “Then why is it active?”, his response was, “Don’t tell me how to run my business, sweetheart.”  BTW – Don’t call me sweetheart unless you’re loving me or you’re my husband. 

• One of my recent short sale listings was in escrow 60 days with a qualified, ready-to-go buyer.  In that time, the bank reviewed the seller’s hardship, denied it, and offered a very poor loan modification.  Buyers lost 60 days and their offer was never considered.

• I currently have an investor buyer in escrow on an ‘approved short sale’. We’ve been in escrow 90 days on a property that had an Notice of Default filed in March 2007!  Not only has there been no news, the listing agent has told me essentially – don’t call us, we’ll call you if there is an update.  Not very reassuring to my buyer.

This is the tip of a massive iceberg.  So if you want to buy a short sale, you certainly have my blessings.  Just be armed with patience, don’t become emotionally attached to the property, and be prepared to potentially go through the process more than once.

If you have questions, if you think I’ve gotten any of this wrong, or if I’ve just scared the hell out of you – leave a comment or give me a call.  Happy to chat with you.  If you want to create a strategy to buy in Orange County – whether it’s a short sale, bank owned, or an equity seller, just let me know and I’m happy to help.

Happy House Hunting!

Today’s Microscope on the Market focuses on the Laguna Niguel real estate market.

Homes Under $500,000

In the under $500,000 market, Laguna Niguel does not vary from any of the cities I focused  on in South Orange County with a whopping 63.9% of the active properties in a short sale situation.  Couple of things to note – it would appear that there is significant movement with 71 properties in escrow.  Sadly, 38 of them are short sales and those can sit in escrow for 60 to 180 days and that can skew the perception of significant movement.  Notice only 18 have actually closed escrow in the last 30 days.

I want to also point out the very low number of bank owned inventory.  Pay close attention to this number in the coming months.  It will increase again based on the end of the moratorium on Notice of Defaults.  Filings are back up to levels prior to the moratorium so watch for this number to increase.

Also of note, despite the large supply of short sales, buyers still look to bank owned homes and equity sellers for their purchases by a significant degree in relation to the supply.

Homes $500,001 to $750,000

Again, despite the large number of short sales, buyers love bank owned inventory and it doesn’t last on the market and their is still a significant demand for reasonable equity sellers.

Homes Over $750,001

As I noted in Coto last week, there is just very little in the upper price points that is moving.  At this rate of consumption (12 homes a month), we have a 12.25 month supply of homes.  If nothing else were to list in this price range, it would take us over a year to consume the existing inventory with current buyer demand.

The good news in Laguna Niguel – there is very little bank owned inventory and very few short sale listings.  That can be good news for values in the coming year.  I’m not suggesting any appreciation guys – but even with slow sales, these folks may have the financial strength to hang on.

Today’s Microscope on the Market focuses on Coto de Caza.

If you aren’t from Orange County – yes this is the home of the infamous Real Housewives of Orange County, although I can’t say that the friends that I have living in Coto are anything like the woman as depicted on that show.  It’s really a beautiful gated community with homes in a wide variety of prices ranges.  But I won’t kid you – some of the highest priced homes in Orange County are behind these gates.

I toyed with varying the breakdown that I usually do (Under $500k, $500 to $750, and over $750), but I’ve decided for a number of reasons to leave them.  More later….

Homes Under $500,000

Although clearly, there is not a lot in Coto in the under $500 market, the buying behavior is similar to other parts of the county – all 5 that are in escrow and the 1 closed sale are all either bank owned properties or short sales.

Homes $500,001 to $750,000

This was one of the rare instances where current equity sellers in escrow actually exceeded the active listings that were equity sellers. I’m not ready to ready too much into it – we are only talking about 6 sellers.

Homes Over $750,001

Given the wide range of values in the upper end of the market in Coto, I think it’s important to take note of just a few things in the over $750,000 segment:

• The highest priced home currently in escrow is $1,099,000.
• The highest sale in the last 30 days is $1.6 million.
• The highest sale in the last 6 months per SocalMLS was $2.9 million.
• The only sale over $2.9 in the last 12 months was the record sale on Violeta for $19.5 million.  There have been no sales other sales over $2.9.
• In the preceding 12 months there were 7 sales over $2.9 million ranging from $3.2 million to as high as $6,643,750.  (Where did that buyer profile go?)
• Currently, there are 24 homes over $2.9 in Coto de Caza – 16% of the active inventory.

While the residents of Coto de Caza may be used to having a longer time on the market given the price point, there is no question that they are certainly feeling the shift in the market at the higher end as well.  We have seen the high end somewhat insulated until recently, but when you seen see such a significant drop in purchases at the highest end, you know that no one (not even the ‘Real OC Housewives’) is protected.

Today the microscope is on Mission Viejo.

So many of the media numbers focus on Orange County performance, but real estate performance can vary dramatically within our large county and particularly at various price points.

I’m going to spend the next several posts breaking down each of the South Orange County cities to give you an idea of local performance.  Whether you are buying, selling, or just keeping an eye on your local market, these numbers tell the story.

BTW Dear Friends/Readers, if you find this number crunching downright boring – stay tuned.  I always come back to the conversations that are much more fun than this! 

Homes Under $500,000

I think one of the revealing things about the under $500,000 market is the fact that while nearly 68% of the active inventory are short sales, they make up less than 28% of the homes that closed in the last 30 days. Demand also is high for bank owned product but very little currently exists – only 6.2% in this price range.

Homes $500,000 to $750,000

Again, very little inventory in the bank owned market, but significant demand.  There were very few sales in $500,000 to $750,000 market, as well as the $750,000 market as shown below.

It’s important to note where the demand is: of the closed sales in the last 30 days 81.1% have been in the under $500,000 market.

Homes Over $750,001

Interestingly, there are significantly less short sales in this price point. The bad news – sales are slow and with current buying trends, it would take 12.25 months to exhaust the current inventory of homes if nothing else were to come on the market.

However in the under $500,000 market, it would only take 4.12 months to exhaust all the inventory at the current rate of consumption. As I have mentioned many times here, the short sale listings takes months to close and skew the numbers dramatically. With current inventory, it would only take 1.9 months to consume the equity seller and bank owned listings under $500,000.  This sector of the market is no longer a buyers market.

Then the announcement came regarding an $8,000 tax credit.  Forgive me, but whoop-dee-do.

While this may be meaningful in the lower price points, we aren’t having trouble there these days.  Market time in the under 500,000 range is running around 4 months, and 30 days if it’s not a short sale.  Clearly, that is a strong seller’s market.

Where do we need help?  The higher price points are hit hard by tight financing, consumer confidence, and high inventory.  And frankly, in those price points, the value of a home could potential fall $8,000 while you are in escrow.  Not to mention, first time buyers that qualify for the tax credit, aren’t generally buying in that price point – so I guess that doesn’t excite me much.

Most recently, plans were announced to cut mortgage deductions for those in the higher income tax bracket.   Now, if you live in Orange County and you are making $208,850 or more, you are living a lifestyle that is a far cry from someone living in the Midwest on the same income.

Example:

You may have purchased a home in 2006 that you are affording (barely because your bonus didn’t come through this year), and you may have lost 30% of the value since you purchased.  Since you are considered part of the ‘wealthy’ in the country, you are now on the verge of loosing some of your mortgage deduction.  You know – the mortgage you’ve been trying to hang onto, even though you owe more than the house is worth….

I’m waiting for the part of this plan that impacts California.  Maybe I wasn’t clear last time I mentioned this – one that impacts California in a positive way.

If you are sizing up a purchase or sale, looking for an opinion on ‘the bottom’, this is worth 13 minutes.