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.

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.

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.

I also am leery of anyone claiming to be a short sale expert. Although there are some wonderful agents and representatives that are often assertive and diligent in their efforts, resulting in improved time frames for their clients, every bank is different and ever-changing, and the loans are often sold in the secondary market making the process very removed from the ability to directly to influence.

And while we have consistently been promised a more streamlined, expeditious process, it’s still a rarity.

Thankfully, there are a couple of bright spots.  The good news, is that if you loan is currently with Wells Fargo, but was originally with World Savings and Loan Association, World Savings Bank, or Goldenwest Financial you may very well be eligible for a unique short sale approval process rarely seen.

Darlene Lapeere with Wachovia (confused? Hang in there – World was bought by Wachovia, then Wells Fargo bought Wachovia) is their negotiator for Orange County short sales.  She spoke at a meeting I attended last week and shared their unique short sale process.   Here are the highlights:

• Approval can happen in as little as 48 hours thru 10 days, if going through their fast track process

• Foreclosure may be halted as late as the day before the Trustee Sale as long as there is a purchase contract (on a case-by-case basis)

• Applies to both Owner and Non-Owner Occupied

• You do not have to be delinquent

• Be aware, HAFA eligibility may delay the process

• Ms. Lapeere is the one and only single point of contact. No additional negoitiator is needed

• Will have to determine HAFA eligibility

• They will pay the 2nd lien holder up to 10% of the loan amount as long as the lien has existed on the subject property for 12 months or longer

• Must show evidence of a hardship

Obviously, lack of deliquency requirement, short processing, and the Non-owner occupied property eligibility make this a very unique program. Why is it so rare to see this?

Their ability to work in such a timely manner and with such unique terms is that these are portfolio loans – not loans sold in the secondary market. Often times, the lengthy periods are tied up in securing approval from multiple investors.

If you have questions about whether or not you might have one of these loans, and your are considering a short sale, please don’t hesitate to reach out to me or you may also email Ms. Lapeere with your address and loan number at darlene.lapeere@Wachovia.com.

Whattya know – you just might find a fast – a ‘short’ – short sale afterall.

Wagon Wheel is small community in Trabuco Canyon located off Oso Parkway not far from the south gate of Coto de Caza.  The homes were built in the mid 90′s by Kaufman & Broad who subsidized the original mello roos bonds making it known in part, for it’s very reasonable tax rate.

Homes range in size from the condos in the Dakotas (835 to 1,117 square feet) to the gated community of Stonecliff (up to just over 3,000 square feet).

Current market conditions in Wagon Wheel are not dissimilar to Orange County as a whole.  The upper price points remain very slow and the lower price points are plagued by distress inventory.

Market Conditions

Note that there is very little bank owned inventory on the market currently, but given the recent completion of the moratorium on foreclosures, we are seeing Notice of Defaults on the rise again and in the coming months, I expect to see bank owned homes back on the rise in Wagon Wheel and all over Orange County.

The highest sale year to date is in the California Laredo tract at $725,000 in February.  The next closest sale was $600,000.  The poor sale history for the upper price points is  not isolated to Wagon Wheel and is seen across the market due to the lack of available financing and buyer cautiousness.

The highest sale in the last 30 days was in the California Landmark tract, a traditional sale for $556,000.  Between $500,001 and $750,000, there are 5 available properties and 3 in escrow.

Under $500,000 is plagued by distress sales.  Currently 4 out of 5 active listings are short sales, yet the 4 equity sellers currently in escrow reflect the buyer demand – buyers are often reluctant to wait out the lengthy short sale process and opt for a traditional sale.

Questions?

If you are wondering how these statistics and trends impact your buying, or selling process, please don’t hesitate to let me know.  I’m always happy to help.  No pressure and no obligations.  I can be reached at (949) 939-2514 or emailed at linsey@ocrealestatevoice.com.

This information and stats are from SoCalMLS and are deemed reliable but not guaranteed.

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 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.

This particular buyer is looking in Mission Viejo between $450,000 and $550,000.  He wants a single family residence.  With that criteria, I hit the MLS looking for a picture of where we really are. 

As many of you know, I’m the last person to jump on the ‘Hurry Buy Now’ band wagon.  However, if you are in this price range in South Orange County – this is speaking to you.  What did I find?

There are 40 Active single family residences currently listed in Mission Viejo between $450,000 and $550,000.  How do those breakdown?

• 19 are short sales (BTW – refer to my posts on shorts sales to understand the challenges with these sales)
• 4 Bank Owned
• 17 are supposedly equity sellers.  Upon further reading of the agent remarks in the listings 2 more of these are actually short sales and 1 is bank owned.

So, what does this leave us?  14 Traditional, Equity Sellers?  I should add 5 of these 14 are 55+ communities.  There are really only 9 equity sellers in my client’s search criteria out of 40.

It then becomes important to analyze the recent resale activity.  I pulled sales from the last 30 days with the same criteria - Mission Viejo, single family residences, $450 to $550.  Here are the stats:

• 21 Sales
• 6 Bank Owned
• 3 Short Sales
• 13 Traditional Sales (one 55+ community sale)

No rocket scientist needed here.  This is out of balance.

If you are not a numbers person, it’s okay, just try to stick with me here – 52.5% of the Active Inventory are short sales, but last month only 14.3% of the sales were short sales.

12.5% of the Active Inventory is bank owned, but last month 28.6% of the sales were bank owned.

And most telling, 22.5% of the Active Inventory are equity sellers (not to include senior communities), yet the sales from the last 30 days indicate that 51.1% were traditional sellers.

I’m actually not a numbers guru.  I love reading.  I love writing.  But, I also love logic and this should speak volumes to you.  The sellers that don’t have to sell have chosen not to; they’ve heard the message.  Buyers that have been fence sitting or have had affordability problems, have found that it is indeed their time.  Demand does exist.  The inventory may actually be lacking.  Do I hear – supply and demand?

Just to temper my enthusiasm, let’s look the sales prices.  No question – these are some other stats to consider from the last 30 days with that same criteria:

Short Sales – Sold at 98.29% of asking price with an average days on market of 143.  The average price per square foot was $253.09

Bank Owned - Sold at 101.55% of asking price with an average of 16 days on the market.  The average price per square foot was $263.06.

Traditional Sellers -Sold at 97.38% of asking price with an average of 34 days on the market.  The average price per square foot was $323.09.

I will suspect that the knee jerk response is that traditional sellers are overpriced on a per square foot basis – but look at the demand.   There’s a reason these are selling.  They are in superior condition (sometimes by a lot) and you can actually submit an offer to a live body, that has real emotion, and a desire to sell.  What’s the value in that?

So, if you think it’s a buyers’ market, think carefully and ask for the stats.  You need more than a cursory overview.  You need to drill down into the makeup of what it means to get a clear picture of the marketplace.

This is one picture of the OC marketplace, but from what I’m seeing, in certain pricepoints, it’s not isolated.  Thoughts?  I’m open to our interpretation of these numbers.

The banks aren’t improving things for the local housing market, their other local assets, or the housing recovery itself with this methodology.  But, this conversation serves to continue to illustrate my point about the short sale crisis and its impact on the overall health and stability of our marketplace.  Love to hear your thoughts.