My opinions about this discussion continue to evolve.  But, yesterday I had an experience with Zillow that had me fired up, so much so that I’m breaking my blogging silence.

Hey, I’m the Listing Agent!

One of the themes in the syndication discussion centers around the idea of clearly identifying the listing broker.  I abhor paying Realtor.com to ‘enhance’ my own listings.  I pay them so that I may give them the very content that makes their site worth visiting in the first place.  But, I am unwilling to have a contact form next to my own listing that goes to another agent that may, or may not, know anything about the area.  And, they certainly won’t know enough about my listing to be truly informative when that buyer inquiry rolls in.  As a matter of fact, knowing the stats on REALTORS  responding to internet leads, they may not even respond at all.  THAT does not serve my seller.

Let’s be clear and honest.  Unless you’re the listing agent, a buyer inquiry on a property is a lead.  But, when you are the listing agent, that inquiry is an opportunity to serve your seller and sell their home.

I know, everyone can scream and holler about dual agency.  I’ll let you all work that out in the Facebook Raise the Bar Group.  But, Ken Brand, brilliant guy that he is, noted that you could also avoid the ‘risk’ of dual agency by allowing another broker to put his sign in front of your listings.  Ludicrous, right?  We advertise on and offline to sell our listings.  Handle the dual agency issue how you will, but let’s not say that just because I want my name on my listings in these syndication sites, I’m just looking for dual agency opportunities.  I actually care about serving the seller.

Tsk, Tsk Zillow

A couple days ago, we activated a new listing.  As part of my listing presentation, we always discuss where buyers come from and what we do to reach out to those various segments.  In the 2010 Buyer and Seller Report from the National Association of REALTORs, they reported that 38% of buyers found their home on the internet.  Once I have listed a property, I provide the links to many of the places the seller can now find their property online.  They’ll likely go looking for it anyway, so I’ll save them the trouble and shoot over the links.

While in the course of this little project, I find our listing on Zillow.  Just one problem….someone else is noted as the listing agent.   I know about the ‘premier agents’ that are listed next to my listing.  No big deal.  But someone else is the ‘listing agent’?  I don’t think so.

Zillow was very responsive when I called.  They immediately ‘reclaimed’ the listing for us.  But, of course I wondered, how does this happen?  Who is responsible for policing this?  How often does this go on?  She said that it was being flagged and noted that this gem of a company had claimed 730 listings.  730 listings?!

Zillow sent me a follow up message later in the day, “Thank you for notifying us regarding ReeBroker CA claiming your listing. We have removed the listing from this users account and are handling this issue appropriately.”  I guess I’m wondering what ‘appropriately’ means.  Have 730 listing agents not noticed that someone claimed their listing?  Has anyone else notified Zillow that there is a problem?  How easy is it to claim a listing that is not your own?

The experience made me aware of how much I do care about being the listing agent on MY listings.  I can live with other ‘area specialists’ next to my listing, but this?  Yeah, this is putting your sign in front of my listing buddy, and that’s not happening.

Is IDX Different?  Maybe Just a Little

In many ways, IDX and syndication can be looked at in the same way.  I guess I see one difference.  These heavily trafficked sites are  well known, national channels that buyers visit early in their search.  And really, I think they do offer tremendous exposure for listings.  If 38% of buyers found their home online, then I think it’s fair to say that the seller is reasonable in the expectation that their home is easy found on these sites.

IDX is used on websites that must be promoted locally by that agent or broker.  The work they do to promote that site and generate traffic is to generate buyer and seller leads.  Am I as concerned about making sure that my seller is served in the same way on those sites?  No.  They do get exposure and that agent is generating business from their efforts.  Super.  But in the heavily trafficked national sites, you betcha, I want to have the opportunity to support my seller when a buyer expresses an interest in his home.

Maybe it’s a subtle difference, but to me, it’s significant enough.

The image in this post is from a 2006 ad campaign from N.A.R. stating ‘It’s a great time to buy or sell a home,’  and sadly states that ‘Prices overall have stabilized’.  We all know how that panned out.  In 2006, it was however, a great time to sell.  Is it ever a good time to both buy and sell?  The reality is that it’s one or the other.

It’s Not a Great Time to Sell

Most homeowners certainly are getting this message. In most cases, those that elect to sell are finding themselves with circumstances that force their hand.  Today’s seller find themselves with no alternative other than to sell, whether it’s significant negative equity position, job loss, divorce, job relocation, or some personal set of circumstances.  In very few cases do we find that they elect to sell today if they don’t have to.  With so many hardship sellers on the market, the downward pressure on pricing continues, making it far from an ideal time to sell.  But for the buyer, this is creating the very environment that makes it a good time to buy.

It’s a Great Time to Buy

Why now?  What makes this particular time to buy attractive?  There are a number of articles talking about the reasons to buy right now but here are a few in particular that I think are worth considering:

• Prices have taken quite the tumble in Orange County and depending on the area have fallen 25 to  50% from the market highs.  There are good deals to be had in every price range.
• If you can manage to get a loan, interest rates are still very attractive, for now.
• Houses love inflation and with a good deal of speculation about the likelihood  for inflationary conditions, we are beginning to see cash purchases are on the rise.  This may be considered an excellent hedge against inflation.

It’s Not Going to Be Easy

The real winner today is clearly the guy with cash.  Cash purchases take out much of the uncertainty in the transaction process.  There is no need for a mandatory appraisal, no underwriters to approve the process, no need to confirm  that the condominium complex complies with FHA guidelines (many don’t), and often cash purchasers have a larger ‘pain threshold’ when it comes to dealing with the cosmetic issues or problems that arise in an inspection.  This puts the cash buyer in an excellent position to negotiate.

Qualifying for a loan today is a far cry from what it was a few years ago.  Buyers will generally have to have great credit, good debt-to-income ratios, documented income, cash reserves, and a solid job history.  While there are still programs for the smaller down payments, like FHA, be prepared to pay for mortgage insurance.  There has never been a more critical time to make sure you are working with a savvy lender.  The documentation required, the tax returns, the bank statements, the investment statements, the verifications of employment and rental history, and potentially the promise of your first born child, will try your patience.

The inventory limited and is often distressed.  Those purchases come with their own hurdles.  Short sales are still a painful and uncertain process.  Bank owned homes currently make up a small portion (2.5 to 10%) of today’s Orange County market. Many homes need some work.

One Last Thing…It’s Not a Good Time to Flip

I wouldn’t plan on buying unless you are willing to own as a long term strategy.  While I think we’ve seen the big fall in prices, there is nothing to say that prices should be considered stable either.  But timing the bottom is tough if you are borrowing money.  If interest rates rise, even if prices decline, the net effect on affordability is a wash.  Find a home that you love, that meets your needs for the long term and get comfy.

No Surprises Here

When I wrote about the upcoming letter yesterday I wondered about the purpose of this outreach given the fact that the difficulties processing short sales are already widely known to those called out in the letter including, ‘regulators, elected officials, nonprofits, business organizations, companies…’ and any individual who has been a party to a short sale transaction since 2006.

Much of the letter paints the well known picture of the crisis, and none of this is new information.

What’s the problem?  For one, no two mortgage agreements are the same, so it can be difficult to standardize short sale processes and procedures.  Many homeowners have second mortgages, which further complicate matters.  Then there’s the challenge of convincing multiple parties to take a financial loss or, in the case of loan servicers, to forego fees they otherwise might earn during the course of the foreclosure process.  Poor and slow service by many banks and servicers has only exacerbated the problem.  Horror stories abound from potential homebuyers and REALTORS® forced to wait 90 or more days for a response to a purchase offer or being required to fax short sale applications or other paperwork as many as 50 times.   These delays discourage potential homebuyers from considering a short sale purchase and undermine the process for those who short sales are intended to benefit – the hundreds of thousands of families facing foreclosure.

We Know the Problems, What’s the Solution?

Yesterday, without knowing what the letter contained, I found it interesting that C.A.R. would need to resort to this course of action to effect change.  Clearly, earlier methods have not created significant impact on the problem since the early stages of this crisis in 2007, so what is the goal of this campaign?  And how are we justifying the use of member dollars?

Many of the loans in question are no longer owned by the original lender.  Many loans when through the securitization process and became a part of residential mortage-backed securities making it incredibly difficult to negotiate.  Servicers, with little vested interest, are left to deal with the processing of payments, collections, and act as the primary points of contact for short sale negotiations.  There is no question that it has become a nightmare for all parties.  So what is the solution?

Given the expenditure by C.A.R. for this campaign, I would have liked to see something significantly less ambiguous than the following that appeared in the closing paragraph of the LA Times:

Increasing the number of closed short sales by speeding up and streamlining the short sale process is one important way we can help California families avoid foreclosure and move our economy closer to recovery. That’s why the California Association of REALTORS® is taking steps to enable more families to arrange a short sale.  Recently, we advocated for improvements to short sale guidelines established under the federal Home Affordable Foreclosure Alternative (HAFA) program.  We’re meeting with major banks, U.S. Treasury officials, government-sponsored entities (including Fannie Mae and Freddie Mac), and others to urge them to standardize processes, comply with federal guidelines, improve communication with other stakeholders and increase staffing with the goal of eliminating service issues.  We’ve also offered our members training in every aspect of the short sale process so they can assist their clients.

So What Was The Real Purpose?

None of those suggestions are particularly new and after 4 years with little improvement, it might be time for some more aggressive suggestions if we are really intent on creating some significant impact.  Given that we didn’t see that here, I’m left wondering what the real intent was for the campaign.  Was it PR for C.A.R. to say, ‘hey, we’re doing all we can and it’s not working’?  Is it to call more attention to the crisis and put pressure on those that have influence?  But without some real concrete suggestions, I’m at a loss as to see how this sheds any new light on this long-standing problem that is certainly at the center of the national housing crisis.

March 9, 2011

Dear Linsey,

As you may know, C.A.R. has been working on numerous efforts to address your concerns about the difficulty of working with short sales.

To that end, I want to give you advance notice of perhaps one of our most visible activities to date, and one that may be a first in C.A.R.’s 100-plus-year history.

Tomorrow, C.A.R. is placing an open letter advertisement in California’s seven largest daily newspapers, calling on lenders and industry regulators to streamline and improve the short sale process.  C.A.R. is taking a leadership role in this effort by getting this letter published and pointing out lenders’ and servicers’ unworkable short sale processes.  We’re also appealing to various constituencies, such as regulators, elected officials, nonprofits, business organizations, companies, and individuals to join us so that more families are able to arrange a short sale, rather than lose their homes.

In the letter, I write, “With the number of homeowners who owe more than their mortgage is worth hovering at 30 percent, experts predict there will be many more foreclosures in 2011 and 2012.  Unless we take immediate, aggressive action to assist these homeowners, any meaningful recovery in the housing market and overall economy will continue to be delayed.”

The open letter will appear in a full-page advertisement in tomorrow’s Los Angeles Times, San Francisco Chronicle, San Jose Mercury News, Sacramento Bee, San Diego Union-Tribune, Bakersfield Californian, and Fresno Bee.  If you live in one of those areas, I hope you can pick up a copy of one of those newspapers tomorrow and read the open letter.  If not, we’ll be sure to post it on car.org.

Help us spread the word further by leveraging your relationships with your local paper and asking them to publish it.  Or post it on your website, if you have one, to reach your clients and other consumers.

Sincerely,

Beth L. Peerce
2011 President
CALIFORNIA ASSOCIATION OF REALTORS®

 

Later I received another email from C.A.R. Newsline that goes to members stating,

“The open letter addresses the following topics: The benefits of doing a short sale rather than a foreclosure; the inconsistencies with short sale processes at banks; the challenges of working with multiple lien holders; and the slow and/or nonexistent communication by banks and servicers to REALTORS®, homeowners, and buyers.”

Scratching My Head

While I applaud the effort to address the issue, there are a few things that leave me a little perplexed.

First, the negative equity situations, and need to negotiate short sales for sellers, began in 2006 and certainly began in earnest in 2007.  We have seen four years of sellers, buyers, and the real estate community suffering through long, painstaking processes that have seen very little improvement during that time.  After four years, the fact that C.A.R. has resorted to taking ads out in major newspaper publications implies that C.A.R. is finding that they are out of alternatives to influence significant change.

Secondly, it’s interesting to me that the Orange County Register has been omitted from the newspapers they chose to utilize for this outcry.  Given the fact that 30 to 50% of the active listings (depending on city and price point) are short sales, this sizable market seems be a place to have had such a discussion.

I’ll be interested to see the piece when it comes out tomorrow.   Ms. Peerce says that the attempt is to appeal to ‘various constituencies, such as regulators, elected officials, nonprofits, business organizations, companies, and individuals’, as well as banking institutions and servicers.  But this problem has been well known by all of these folks for a very long time.  If earlier attempts to streamline haven’t made any headway, I’m not sure how this will improve things.

But, there’s no question, I’d be happy to see it.

The Sale Price Tells a Story

I decided to pull up some individual tracts to find foreclosed homes, short sales, and traditional or equity sellers to compare the sold pricing.  In an effort to make the comparisons meaningful, all of the following examples have closed in the last 90 days and are close to, if not exact model matches.  The tracts were selected solely on my ability to pull up enough properties for a full comparison.  All provided sale data comes from Socal MLS.

*worth noting standard sale highly upgraded

So why aren’t the bank owned homes selling for the deep discount that some of the media describes?  With the current inventory in some of our South County cities in the range of 2.5% to 10% for that type of sale, there is hardly a ‘glut of inventory’. It’s interesting to note that two of the 4 bank owned homes in the examples sold for over asking, which may indicated multiple offer circumstances.  The number of foreclosures may increase, but throughout this housing crisis, we have yet to see a significant influx of foreclosed homes on the market in Orange County.

So should short sales be your focus for a good deal?  Possibly.  But be aware of a couple things.  There is a significantly longer process while one waits for bank approval, with no guarantees.  And very often the Homeowner’s Association dues are delinquent and in nearly all cases, it’s the buyer that satisfies those delinquencies in a short sale.

Bottom Line on Finding a Good Deal

Be clear about what you are looking for in a home.  When you find the right fit based on your criteria, try to keep from becoming too emotionally attached so that you can focus on negotiating the best price and terms possible.

Two Ways To Buy a Foreclosure

As noted in the piece, there are two ways one can purchase a foreclosure.  The first is to go to the courthouse on the date of the Trustee Sale and bid on the property.  In the television spot, they imply that you may have trouble getting a loan and you will need at least 5 to 10% down.  I’m not sure about other places in the country, but here you will have to show up with cashiers checks in hand.  These are cash purchases.

Additionally, you will be competing at those sales with professionals who are at those sales everyday.  They spend significant time researching the upcoming properties and the competition for the properties at the courthouse is significant.  You are also not guaranteed clear title and there is a fair amount of risk you will be assuming.  As GMA points out, you buy these properties sight unseen.  Many of the opening bids are well above today’s market value because the bank intends to retain the asset to sell on their own, leading to the second way to purchase a foreclosure.

The properties that the bank retains will generally be sold through a real estate agent and placed on the market.  The piece talks about the significant savings one can find by buying a foreclosure. The national median home price is $160,00 and the median home price of foreclosures is 28% less, or a $45,000 savings.  The fact is that the number of foreclosures in the lower price points is significantly higher.  That lower price point will certainly have a direct impact on the lower median price for foreclosures.It’s important to note that while you may achieve some savings, there is a flaw in implying that the 28% is due entirely to a ‘discount’.

I find the example discussed in the piece highly suspect.  The example property sold in 2005 for $300,000 and was purchased today for $175,000 which is 42% less.  That sounds about right in a lot of markets and is probably not far off market value.  They mention that is $100,000 less than nearby homes (putting them at $275,000).  Either the nearby homes have not seen much of a drop in value (which I doubt) or this home is likely smaller than the nearby homes, making the implied savings of $100,000 discount misleading.

Discounts for Orange County Foreclosures

There is no question, there is significant buyer interest in foreclosures.  Buyers are on the pursuit for a good deal, and rightfully so.  So what does that inventory look like in our South Orange County markets?  As of right now, there is a very limited inventory of foreclosures with Aliso Viejo at only 10% of active listings and as little as 2.5% in Coto de Caza.  With buyer demand for these properties, and very few available, the idea that discounts will be dramatic may be misguided.  And keep in mind, many of these will be in poor condition with cosmetic and/or structural work to be done.

So You Want a Good Deal

The available foreclosures is likely to increase.  But these are the current numbers.  So how do you find a good deal?

Short sales are abundant and in many parts of South County, they make up nearly 50% of the available market.  And don’t count out the equity seller.  Those that are listed today are well aware of market conditions and if they have decided to sell now, it’s because their personal circumstances have forced a move.    Most of them are very motivated and the upside of these transactions, there is no waiting for the bank.

Good Advice

The very last moments of the GMA piece advised buyers to get a Owner’s Title Policy when purchasing a foreclosure “in case someone comes along later claiming it’s theirs”.  Sound advice.

So I buckled myself up, and sat in front of the computer for a few hours to extrapolate some of the data from the Multiple Listing Service (MLS).  For a numbers geek like me, it’s pretty interesting stuff. And if you’re not a numbers geek…you might be surprised to find, it’s not entirely boring.  Work with me here…

The Good

There is no doubt that certain communities have been more resilient over the course of this housing crisis than others.  In my recent post discussing the  product profile for new residential construction in Orange County, I discussed the uniqueness of the Irvine market.  It has some of the lowest distress numbers in South County and a buyer demand that is consistently selling out the newest construction projects.  Year-to-date they have had less than 7% of all closings listed as bank owned (foreclosed) property and 22% short sales.  With less than a combined total of 29% for properties closed that were ‘distress’ so far this year, Irvine is one of the strongest cities in the county.

The strength of the Irvine buyer demand may be attributed to the nationally renowned schools, the proximity to Chapman University and University of Irvine, and the attractive commute to many Orange County employers.

My suspicion is also that the buyer profile may have been stronger.  I’d need to do further research, but given the large amount of new construction sold during the boom years, I’m a little surprised to still see a relatively low default rate, or distress market, as compared to other areas in South County that grew up in the boom.

The Bad…Or At Least ‘Not So Good’

Some of the other cities have seen significantly higher numbers of distress sales – bank owned properties and short sales closed.

Lake Forest has seen some fairly dismal numbers at nearly 60% of their closings either bank owned or short sales, with a slight improvement this year so far at 55.9%.  It’s also interesting to note that while some cities (Mission Viejo and Rancho Santa Margarita) seem to be seeing a slight improvement in the percentage of equity sales (owners can sell for a price that covers mortgages and costs of sale) this year, Laguna Niguel and Aliso Viejo have seen decreases. Why?

We’ve seen that some of the higher price points have been stronger for longer.  In other words, it’s only been more recently that we’ve seen short sales or bank foreclosures to any great extent in the higher price points.  These neighborhoods may now be feeling that pinch.

CLICK TO ENLARGE

The Really Ugly

It’s interesting to examine the nature of the neighborhoods that have the highest number of distress inventories.  Upon examining a couple of the neighborhoods, it’s clear to me there are some very real reasons for the challenges some of these neighborhoods are facing.

CLICK TO ENLARGE

It’s important to know the following about the this chart – Ladera Ranch numbers include their gated community of Covenant Hills, and San Clemente’s overall numbers include their newest addition of Talega in their calculations.  For discussion, I’ve pulled out the specifics for both Covenant Hills and Talega.

It’s hard to ignore, out of the cities I profiled, the only one that didn’t have a lower percentage of bank owned homes (foreclosures) was Lake Forest, and certainly Lake Forest has really struggled with high numbers of distress throughout this market as well.

Growing Up In The Boom

I’m particularly interested in the makeup of Ladera Ranch, Covenant Hills, and Talega in this crisis, however.  These are neighborhoods that experienced unprecedented demand, and in the early years, unprecedented appreciation.  The product was new, architecture was unique, planning was exceptional, and it was highly appealing to the buyer profile of the day.  But the one commonality these neighborhoods also face is the fact that they literally grew up in the boom.

And in the case of Covenant Hills (which I intend to explore further in a future post) you have a community, a luxury one at that, that was just in the beginning stages of it’s launch.  And while the construction of the planned community, high-end tract homes, has nearly completed at this point, the high number of available empty lots slated for luxury custom builds, remains vast.

And when you have entire communities that are built in a boom, the overall impact of that bust can be devastating.    For a small community like Covenant Hills – the high end of Ladera Ranch – to see nearly 64% of it’s year-to-date sales as distress, the impact cannot be overstated. With Talega suffering over 60% of it’s closed inventory year-to-date as distress sales, there can be no question that this has dramatic impact on value.

Is There a ‘Good Deal’ for a Buyer Here?

Without a doubt, there are opportunities to get a ‘good deal’ in these neighborhoods.  In some of the hardest hit neighborhoods, prices have fallen and distress inventory is high.  So if a ‘deal’ is the goal, they are certainly here.

But I’m curious about your perspective as a buyer – and I’m interested in your feedback.  If you find a property that is 50% off it’s peak in Covenant how do you respond to that?  Do you feel like it’s a better deal than the property that is only 30% off the peak in another neighborhood – some parts of Irvine for example.

It’s an interesting concept to consider.  Every buyer I talk to has one request in common – a good deal.  I think that’s an important thing to define in your search for a home.  Is the ‘deal’ the predominant factor, really?  Is the long term value of the community a consideration?  Do the amenities impact your decision?

However, one may consider the long term prospective recovery in Covenant Hills as a real opportunity.

It really begs the question – from a buyer perspective, what do you consider a ‘good deal’ in this environment?

Short Sales and Volume

Some things to note from the above numbers, in 2008 the foreclosed/bank owned homes were the more common distressed property available.  In 2009 the tide shifted and short sales played a much more significant role, one which grew further this year.

Also, it’s interesting to note volume.  Nearly across the board, the number of sales increased from 2008 to 2009.  Jury is out for 2010 – but my personal opinion, given the expiration of the Housing Tax Credit, things may be fairly quiet for the 4th quarter of this year.

Jon Lanser with the Orange County Register recently did a post breaking down the number of sales and the change in median price per zip code that might be interesting to check out.

I’ve been somewhat reluctant to participate so I’ll start with this disclosure:  Until recently, I have followed politics superficially at best, I have limited understanding of how housing policy is decided upon, and I generally think Hahn derives some pleasure from his consistent ‘sky is falling’ outlook.  That being said, I will credit Hahn with a breadth of understanding on the topic, and a careful consideration of the political underpinnings.  He inspires me to become significantly more aware of the way the political environment impacts the industry and overall economy.  Clearly, in today’s environment, a superficial understanding falls far short.

And while I try to avoid politics here, the current market environment makes it unavoidable.  The current administration policies have pushed us closer to Socialism than we’ve seen before in our history -  whether it’s Wall Street, the automobile industry, or health care.  The housing market appears to be next.

Much of what I deal with on this blog tends to be local market considerations.  Yet, there is no question that the changes that are clearly coming down the pike have the potential to have a massive impact on the housing market – nationally, and locally, so I feel like it certainly has a home here.

Housing Policy Changes in the Air

July’s housing numbers rocked the nation.  They had been expected to be low given the expiration of the home buyer tax credit, but sales down 27%…that was a little steeper than had been anticipated.  In the days following, it created a tidal wave of response. I saw articles come out on, and offline, both indicating this was nothing to worry too much about, as well as those that would make one decide not to get out of bed again…ever.

There’s no question, housing policy is one of the most important matters impacting our economy today.  And certainly significant change is coming.  As Treasury Secretary Timothy Geithner states, “This administration will side with those who want fundamental change. It is not tenable to leave in place the system we have today.“  It’s the specifics of that change that are of interest and of concern to me.

‘Fundamental change’ is too ambiguous at this stage.  I’m interested in seeing change that reflects a solution to the existing problems.  What parts of the ‘system’ that got us here – are not ‘tenable’?  Let’s come from the three C’s of home ownership perspective:

1. Capacity – the ability to repay the loan (employment history, salary)
2. Credit – the history of how one has paid back debt
3. Collateral – the value of your home (recently justified by overbloated appraisals brought about by easy lending practices)

What if we simply embrace these simple tenants:  make quality loans, with credit worthy individuals, on quality property.  In the past decade, had we not swayed from that simple idea, it’s highly likely, we wouldn’t be here.

No More Mortgage Interest Deduction?

Since Hahn has one more of the dismal outlooks, I think it’s interesting to examine it from his ‘worst case scenario’ environment.  In a recent post, he speculated on some of the possibilities:

1- The mortgage interest deduction will be eliminated, or at least sharply scaled back
2 – Fannie/Freddie will wind down participation in the single family residential market, and raise participation in multifamily housing (aka, rentals)
3- The 30-year fixed rate mortgage is headed to the ash bin of history; I rather expect the “new normal” will be something closer to a 10-15 year adjustable rate mortgages that adjust every year or even every quarter.
4 – Down payments are headed up, up, up from its current levels (some FHA loans are still requiring only 2-3% down); Bill Gross of PIMCO has said that if he were funding mortgages, he’d require a minimum of 30% down payment.  I think that’s where we’re headed.
5 – Some form of national regulation for rentals, in order to (a) encourage rentals by those who would otherwise be first-time homebuyers, and (b) protect renters from eeeeevil landlordz.  It may be as heavy handed as a national rent control regime, or (more likely) an expansion of Section 8 to include far more “middle-income” units.

Are These the Changes That Repair Housing?

There are some valid arguments for some of the preceding speculations.  As  Hahn states, “…the overall impact is to decrease the pool of buyers, drive housing prices lower, and have fewer transactions.“  This may in fact be a requirement of the overall recovery.  There were less buyers, lower prices, and less transactions when stronger lending practices were in place.

However, when the Housing Policy changes are considered I wonder about this simple statement of fact from Mark Zandi, Chief Economist for Moody’s Analytics, “…when housing values are falling, nothing really works all that well in our economy.“  Our economy cannot possible heal with a crippled housing market.  And some of these speculations from Hahn only seem to me as the types of things that can only further cripple the housing market, in an extreme way.

While Hahn is rather fluent in politics and rather adept at speculation, one area of expertise I have is in understanding the profile of today’s distressed homeowner.  I know what it’s like to sit across the kitchen table from someone that is faced with these very real and personal set of circumstances.

Lest the Pendulum Swing Too Far in the Other Direction

I will grant you, in the early days of this crisis, those faced with short sale scenarios or potential foreclosure, might have been the higher risk buyer profile.  They may have been the 100% down buyer.  They may have had the ‘Neg-am loan’ or some other questionable loan program.  They may have been the buyer that had borderline qualifications coming into this game.

However, the Orange County homeowner of today that sits across from me at the kitchen table is often the one that put a fair amount of money down, they may have been highly qualified, excellent credit, documented income sources, and yet, with the decline in values, personal circumstances (divorce, long term unemployment, relocation) they are forced into a financially devastating course they couldn’t have anticipated.  And these homeowners ask the same question nearly every time:  ‘How long do you think it will be before I will recover enough to be able to buy a home again?‘  They ask this because they value home ownership.  Remember, they were not in this market for a quick turn on their money.  While some bought houses, the short sale/foreclosures we are seeing today are the buyers that bought homes.

These individuals consider home ownership as part of their claim to middle class.  They certainly consider it part of their ‘American Dream’ and they fully anticipate their ability to reestablish that claim.   They are voters.  They have historically been high income earners.  And I highly doubt they will be interested in satisfying themselves with long term rentals as their housing solution.

And why, in the course of establishing a National Housing Policy, would we take measures that serve to cripple the ability for those individuals to own again, cripple the potential recovery, and cripple our ability to recover some economic stability – because clearly, they go hand-in-hand.

The Meaning of Home Ownership in The United States

It’s interesting to look at the psychology of home ownership in this country.  The big land rushes of the late 1800′s illustrate the deeply ingrained desire to own a chunk of dirt to call your own.  That desire is something you can’t simply legislate away, and I really believe voters’ voices will be heard when you start hacking away at their long term ability to grab that golden ring once again.  I think it will take more than a Time Magazine article to convince them that home ownership is not all it’s cracked up to be.

There was a time when home ownership was valued for the sake of owning a home, and not much more.  Then came the profit taking in the later 80′s as home prices soared with the onslaught of dual income families.  The late 90′s and early 2000′s brought easy money and get-rich-quick buying, leading to our current collapse.

But I still believe, most folks want to own their home, they will take a mortgage to buy it – maybe even without a mortgage interest deduction.  Prices may fall.  Maybe we’ll adjust our expectations.  Maybe we’ll begin to be satisfied with a slow appreciation over the life of a homeowner, rather than the promise of a lifetimes wages in a year or two of owning a home.

Kicking the Dog While It’s Down…

Some of the things Hahn is speculating may indeed come to pass, in one form or another.  But, I think there is value in considering the fact that kicking the proverbial dog while it’s down, may not be the answer.  Bill Gross, with PIMCO, states, “Policymakers should quickly re-engineer a refinancing opportunity for all mortgagees that are current on payments and are included in GSE securitized mortgages.“  There are some solutions that could be examined that help sustain those that are currently impacted and in turn further housing and economic recovery.

The pendulum may have swung too far in encouraging home ownership, but it would seem a mistake to me to have it swing so far the other way that we eliminate the ability for our middle class to recover and reclaim their ability to own once again.

BTW Rob – it may satisfy you to know, this may be one of the longest posts I’ve ever written.

Who Is Building My House?

It’s not exactly a coup for the home building industry.  The big beneficiary of this new construction will rest squarely with the land owner, The Irvine Company, or Donald Bren. Of course, we understand that one of the biggest land owners in Orange County would have a good deal to gain, so how is this different?

Normally a home builder ‘takes down’, or buys the land and they develop that housing project.  Today, the builder’s inability to secure financing has forced home builders out of the role of developer.  Instead, in the most recent, and upcoming projects you see in Irvine, The Irvine Company has decided to step back into the role as developer.  They are responsible for sales, marketing, warranty, design, options, etc.

And the home builders they have hired for the construction process are in essence, simply acting as general contractors.  The home builders are taking what they can to stay afloat and finding new ways to adapt their company skill set in this economic environment.

It helps to illustrate the pains that the builder Lennar is experiencing as land owner for the languishing Great Park.  Without the ability to finance, development continues to be at a standstill.

No More McMansions – Today’s Housing Product

The Irvine Company has been around the proverbial block once or twice.  Their development plans have been well thought out.  They’ve carefully crafted a plan based on solid consumer research, a real understanding of the local economy, and I suspect, a fair amount of insight into the National Housing Policy.

The emphasis is clearly on higher density product – apartments, condos, and high density single family housing with nothing over 2500 square feet.  Long gone are the days of the McMansion development.

The Characteristics of Today’s Orange County New Home

• Open floor plans – big windows, great rooms tied to the kitchen.  Great rooms are genius – space where we live!
• Granite is standard – we love our granite for some reason
• Goodbye to formal areas – don’t pretend you are disappointed.  I sit in my formal living room once a week, just to say “See, I use it”.  My husband would rather move the furniture out and use it as an indoor football field.
• Pre-wired for plasma television – sorry, I just can’t relate to our love affair with the idiot box, but there it is….and standard no less.
• Big fireplaces – slightly confused here, but they didn’t call me for this one.  It can’t possibly be those harsh cold winters…maybe we’re just romantics.
• California Rooms – now this, I like.  They are stucco covered patios with ceiling fans in the backyard – it’s a form of extending the living space.  The downside, when you have little or no yard (as these developments surely do), it pretty much takes up what little yard space you have.
• Smaller homes – no more sprawling floor plans and massive square footage.  Very little is over 2500 square feet.

But Is Anyone Buying? Actually, They Are …In Irvine

There’s an interesting phenomenon happening in Irvine.  Demand has remainded strong throughout this bubble burst, and interestingly enough, Irvine has one of the lowest percentages of distress inventory in South Orange County.  It appears to be it’s own micro-economy supported by local industry, UCI, and the long-standing desire that consumers have had to own within Irvine.

The premium location, the highly ranked school district, the low crime rate, and the ease of commute, keep Irvine highly sought after.   Recently, the KB Home’s Southern California president stated that the KB Coronado development in Irvine, was their best selling product in the nation.

By creating lower price points with some of the new high density product, those that have wanted to live in Irvine, but previously may have found it out of reach, are finally finding their way in.  This type of product has never been available on the ‘ranch’.  Homes are selling same day as release and people are on a waiting lists.

The upcoming projects will continue to be in Irvine and some development is slated for the Laguna Audubon area.  Although the original product was to be luxury, large homes, those projects have again been scaled back to high density product as well.

Friends know that I think one of the great gifts of South Orange County is Saddleback Mountain.  Growing up in Southern Oregon, surrounded by hills, mountains and lush trees, I have often struggled with the Southern California transition.   Part of the reason we chose to live in the Rancho Santa Margarita area, was the solace I find in living with that mountain as the backdrop.

Robinson Ranch is a community served well by the varied elevation, affording residents spectacular city light and Saddleback Mountain views.  With just shy of about 1500 homes, it’s got an intimate feel in the vastness of Orange County.

Property taxes are relatively low.   Original period of construction varies from late 80′s to early 90′s.  Beautifully planned with large greenbelts, tennis courts, trails for hiking or horseback riding, this community is one that continues to appeal to buyers attracted to close-knit communities, cul-de-sacs and views.

Robinson Ranch is served by the Saddleback Valley Unified School District.

Here are a list of the current homes for sale in Robinson Ranch

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