So Cal Real Estate News

Default Research, Inc. has posted their California county by county foreclosure numbers for March, and So Cal county numbers are pretty much up across the board to the highest numbers yet for the current downturn.

This report is made up primarily of Notice of Defaults (NODs), the first step in the 4 month foreclosure process. It sounds like the number of bank owned (REO) homes coming on the market will continue to increase well into fall throughout Southern California.

Bear in mind that filing for bankruptcy can add several months to that 4 month process, and additional time is required by the lender to gain occupancy and then make any needed repairs. So these NODs reported for March will be coming on the market as REOs no earlier than July, and well into fall. Of course, not all NOD properties end up foreclosed. (For tips on buying foreclosures, click here: “Foreclosure Tips.”)

But there’s a big “if.” One of the unknowns is what will end up in the Housing Relief Act currently working it’s way through Congress. If Congress gets it right, that could dramatically reduce the number of homes actually taken back by the banks.

We’re hoping Congress and/or the lenders come up with a reasonable program to allow qualified owners to hold onto their homes, but we’re not exactly holding our breath, either. We think debt relief for qualified buyers primarily provided by their lender in exchange for concessions by Congress and the borrower could significantly mitigate the impact of all these foreclosures on the market, but I’m starting to sound like Bernanke, which is really scary!

So I’ll leave what Congress might do for another post, except to say two things:

1. Some home owners who bought with subprime 100% liar loans that really have no business owning property.
2. We are at some risk of another Great Depression caused by the current crisis, and if some unworthy homeowners and lenders are helped in the process of saving the rest of us, so be it. When my lifeboat’s sinking, I prefer to focus on bailing it out rather than arguing about who got us into the mess. “Blessed are the merciful. . . ” wasn’t my idea, but it saves a lot of grief in the long run.

Bottom line: Looks like the bottom for prices is still a ways off, maybe a long ways. Like Freddie Mac’s Chief Economist told us last October, we’re in uncharted territory, and nobody really knows what’s going to happen next (see “How Low Will Prices Go?“).

That said, we’re still sticking to our best guess that prices are most likely to hit bottom either this December or next (see our most recent projections post, “A Change in Our Projections?”

BTW, this market is troubled, but not dead. We just put our last listing into escrow in 3 days last week. Like we keep saying, it’s not rocket science (see “How to Sell Your So Cal Home for Top Dollar in 30 Days“).

Default Research uses actual visits to the court houses to collect their data, which should make it more accurate and more timely than most other foreclosure reporting services. If you want to look directly at their charts for every county in California going back to 2006, just click here. We also have a direct link to their “California N.O.D. (Foreclosure) Stats” under “Great Links” near the top of our right sidebar.

You will see each Southern California county had a new record for NODs in March, with one anomaly. Most lenders do not file NODs over the Christmas holiday period. (I’ve been told that’s because lenders really aren’t total Scrooges, but I suspect it may also be because they take some time off then.) So you will notice NODs were down about 50% across the board for December, but up about 50% for January. That’s why some counties show higher numbers for January than for March–but not if you average the two winter months.

Stay tuned for more breaking news as our adventure in So Cal real estate continues. . . .

In the meantime, forward to our next post, “Let’s Go Ducks!”, for something a little more positive. We hope.

Got into a little “discussion” today on Jon Lansner’s O.C. Register Real Estate Blog about why prices are dropping faster inland than on the coast. Thought it might be worth repeating here.

Here’s the initial question, posed in a comment by “Jimmy:”

How bizzare. While you are all looking for a bottom in inland real estate, I am still waiting for a price decline in CdM (Corona del Mar). This is so unusual that it should be a real concern. You have to be concerned about making any real estate investment until someone explains why CdM and NB(Newport Beach) seem to be hanging on while some inland locations plummet.

Here’s our response:

There are at least 4 reasons the Coast & the I.E. are on different tracks:

1. Tons more new construction in the I.E. Unsold inventory, possible overbuilding, & lots more recent purchases near the peak being foreclosed. Plus lots more subprime home loans. Last time I checked, the I.E. offices of the firm I work for had hundreds of unsold REOs in their listing inventory.
2. Lots more equity near the coast. These are prime, move-up, destination neighborhoods. People buy there and stay put. And they generally put money down–lots of money–from the home they’re moving out of. CdM and NB ain’t exactly “starter” neighborhoods. And the folks who do start out there usually have a big chunk of change to put down anyway.
3. Supply and demand. There’s still dirt to build on in the I.E.
4. Gas prices. Not to mention traffic. Who wants to live on the 91 with gas this high & heading up?

There is a theory out there that a dropping tide will eventually lower all ships. I suspect that’s true, but if it does come don’t look for as big a percentage drop on the coast as inland.

Hope that helps.

I remember back during the last big slump, in 1994 when you could hardly give a home away in the inland parts of South Orange County. Bach then there was more new construction there–it was a bit like the Inland Empire was today, but South OC was a lot closer to being built out. South OC prices jumped dramatically during the last boom, and today they’re not down nearly as sharply as the I.E.

We’re still thinking prices throughout So Cal will probably be lower this November and December, but nobody knows for sure, as we keep saying.

The best time to buy is just before the bottom.

When REOs in the I.E. are selling for less than the cost of land, it may be a good time to buy, or at least to write some lowball offers. Auctions can be another thing (see “Foreclosure Tips“)

Earlier today we discussed the stats that showed median prices in Southern California as a whole were down 19% last month from their peak in July of 2007, also touching on our projections for the rest of this year (“So Cal Price Update”).

Frankly, in our primary market areas of West Orange County and Greater Long Beach, we believe prices actually peaked in the summer of 2006, based on comparable homes. DataQuick’s 7 county numbers were skewed by the huge foreclosure problems in the Inland Empire, as well as inherent flaws in their median pricing system. The Orange County Register’s Real Estate Blog has a good summary and explanation of 8 different indexes & their most recent reports for Orange County. DataQuick showed the greatest year-over-year decline (16% in O.C.), while the other indexes ranged from 15% to 6% drops.

Basically, we still believe we’re in uncharted territory & nobody knows what’s next, as we wrote back in November (”How Low Will Prices Go?”).

Our recommendation for Los Angeles and Orange County buyers and sellers is still to focus primarily on where you are in life, not where the market is. Since nobody really knows what’s next, don’t get too obsessed with what the future holds.

If selling makes sense, why roll the dice & wait up to six years (or more?) for prices possibly to just get back where they are now?

As for buying, if you can buy a home that works for you with a 30 year fixed loan, why gamble on rates or prices going up, or waste several years of your life gambling things will get worse before they get better. (see “What to Do When Nobody Knows What’s Next.”)

We’re not saying it’s time to buy for speculative reasons, and we certainly wouldn’t be trying to “flip” right now unless I got an extraordinarily good buy (and that does happen in market’s like this). I’m certainly not saying we’ve hit bottom.

We’re saying nobody really knows, because we’ve never seen anything like this. For example–we think the Fed caught just about everybody by surprise this week with their creative moves to enhance liquidity.

Who know what might come next? If some lenders were smart, they’d just shave $100,000 off the loan if needed to avoid foreclosure. They’d certainly drop interest rates or eliminate the obscene resets they have coming. (Of course, if they were smart, they wouldn’t have made 100% loans to subprime borrowers without income verifications when the market was obviously peaking, but maybe they can learn. . . .)

We’re saying nobody knows what the future holds, especially this time. So if you’ve always dreamed of a home on a lake in Lake Forest & find one that works for you with 30 year fixed financing, & if you’ve got a stable job & aren’t moving, why not make an offer & start living your dream? If it works, maybe you should let your life determine decisions, not speculation. Here’s a novel thought: think of it as a home, not a piggy bank!

Ditto to sellers. Forget what your neighbor got 2 years ago. Prices on your next home are down too, and so are interest rates. Maybe you can’t get the triple garage, but maybe you never would. If everything else works, give it a shot. You’re not getting any younger!

We’ve watched the market and buyers and sellers for 30 years, and we see some unique opportunities right now that may not last. And we see too many people making decisions based on ego or gambling in stead of getting on with their lives.

Feel free to call 562 822 SOLD or simply comment if you want specific input on your situation.

Reporting from the front lines of the real estate battles here in Los Angeles and Orange Counties, we can now definitely say that sales activity and even prices are bouncing back from the record lows of November – January.
We think this provides local sellers with a window of opportunity, but it’s a window that will most likely be closing in a matter of months. . . or weeks.

Want evidence? We discussed our own increase in sales activity in our 2/29 Market Update post–3 listings sold in an average of about 8 days each. Then Blair noticed that our office “board” of new escrows was full for the first time in about a year, another major increase in activity. Then last night I ran into Ken, our termite expert from Coastline Termite, at the Anaheim Ducks game, and he reported a dramatic increase in sale inspections.

Trouble is, we experienced a similar bump last winter, but it petered out as interest rates went up in the spring. Then it fell apart as the subprime mortgage mess exploded, making it difficult to impossible to get a mortgage. Long term mortgage rates are rising again, as our elected officials try to borrow their way out of a recession, especially with an election breathing down their necks. And the “other shoe” of the subprime mess is dropping as I keyboard, with foreclosures only increasing their record pace.

Then there’s the annual cycle–busy spring, slow fall, prices dropping by winter. Put it all together, and it’s our opinion that sellers need to “make hay while the sun shines.” And it could stop shining sooner than you’d like. If you’d like more info, leave a comment or give us a call at 562.822.SOLD.

What about buyers? Prices, and even interest rates, could well be lower this coming December. In fact, the whole thing might fall apart in 2009, once the election’s behind us. But we wouldn’t be too surprised if prices continue to slowly move upwards, at least in the coastal plains of L.A. and Orange Counties. So, if you find a home that you really like, and you can afford with a 10 – 30 year fixed loan, and it’s in a good location, go ahead & buy it now. If not, keep saving up a down, paying down credit card debt, & looking around. If you want a direct portal to the Southern California Multiple Listing Service, just click on the link you prefer under “Multiple Listing Services” near the top of the right column.  We suggest you start with “Info & Tips on M.L.S. Searches.”

Finally, a word about timing. We’re talking about current activity–homes going into escrow. What the media usually reports is closed sales, which take place roughly 45 days after a home goes into escrow, then get reported in DataQuick’s confusing median price summaries about two weeks after the end of the month in which they close, which is about 60 – 90 days after they went into escrow. So the increases we’ve seen over the last few weeks won’t be reported until long after they close in April and late March.

Just mark your calendar–around 4/15 DataQuick (or “DataSlow,” as we prefer) will report a remarkable increase in sales for L.A. and Orange County homes, which will continue into the April closings they report mid May. You read it here first.

So, that’s today’s word from the front lines. We’d appreciate your thoughts & comments. Personally, we hope the Anaheim Ducks repeat last year’s spring performance, but the So Cal real estate market takes a more steady, less bumpy road this year. If not. . . there’s always baseball! Anybody up for a Freeway World Series?