Real Estate Post Award
The Property Grunt hosted the 7-10-09 Carnival of Real Estate and selected one of our prior posts as a winner:
Bob Schwartz, CRS,GRI presents Cap and Trade: Another Hurdle for the Housing Market | San Diego real estate market blog posted at San Diego real estate market blog.
San Diego Realtor
San Diego Home Foreclosure Ploy
San Diego housing market
In the San Diego housing market the undisputed hottest selling properties are bank-owned, foreclosed homes and condos.
Many San Diego home buyers are exhibiting characteristics of the famous Alan Greenspan term, “irrational exuberance.” Use of the terms, “bank owned,” “bank foreclosure,” “lender reposition,” “foreclosure sale,” etc., are sure to draw a crowd to view the property. If the property shows half-way decently, there will be offers, and sometimes multiple offers.
Adding my observation to the above facts, a number of lenders have hit on a marketing ploy to create a buying frenzy which guarantees an almost instant sale. In the majority of cases the offer(s) exceed what may have been realistically expected if the property was marketed the traditional way.
Here are some actual examples of this technique for San Diego home sales.
- On 4-8-09, a bank owned home in east Carlsbad was listed at $499,900. Based on the location, age and size of the home, I estimated the current value at $575,000 to just over $600,000. Within one day of the listing, the listing agent had multiple offers. According to the agent, the lender required it to be on the market one week before they would look at any offers. The agent speculated that based on the number of inquires, she would have 40 to 50 offers in the one week period. This home sold for $597,000. The sales price was almost 20% over the listed price. Doesn’t a sale of $97,100 over the listed price suggest that it was listed way under the market?
- A bank-owned Little Italy one bedroom condominium was listed in March for $234,900. The estimated fair current value for this condo was approximately $275,000 to $280,000. The listing agent stated that within 3 hours of the MLS listing being submitted, he had an offer. Again, the lender would not look at any offer until the condo was on the market one week. This San Diego property generated 21 offers within the 1st. week, of these, 11 were at or above the $234,900, listed price. This Little Italy condo sold at $295,600, or $60,700, approximately 26% above the listed price! I was told the accepted price was $15,000 above the next highest offer.
- A San Carlos planned-unit-development, bank-owned 4 bedroom was listed at $344,900. The estimated fair value for this condo was approximately $410,000 to $425,000. Inside of one week, this San Carlos property had an accepted offer at $410,000. This was approximately 19%, or $65,100, above the listed price!
Banks are purposely under listing property with the strategy of creating a buying frenzy to result not only in a very quick sale, but, a sale at or above the fair market value. Is this practice fair or even legal? It is on both counts. If the bank does not list it properly, they could end up with a sale way below the current fair market value. On the other hand, it isn’t fair to neophyte buyers/agents. Buyers and/or their agent who do not recognize the ploy, may be wasting quite a bit of time writing offers that in some cases, will not even be considered or countered. Also, what about shattered expectations? A number of buyers/agents may honestly believe that their full price offer has a chance of being accepted. In reality, they not only have zero chance of getting their offer accepted, but in the majority of cases, they will not even get a counter-offer.
So what is a potential buyer looking for a bank owned property bargain to do? If they are smart, the best advice would be to seek out an experienced agent and implicitly follow that agent’s advice.
Government’s New Own to Rent Program
San Diego home
This post is follow-up to my 7-16-09 post about the latest government foreclosure program. If you are unfamiliar with this proposed new government program, please read the prior post.
Capitalists, big business, oil companies, mining companies, coal/oil electric generation, banks, home mortgage lenders, the 700+ scientists who disagree that man is causing climate change and now landlords, are now all cast by the government as needing enlightenment. Thus, it should come as no surprise that another ill-conceived law directly affecting real estate is now being considered. Although cloaked as helping the disadvantaged, it is just another move to re-distribute wealth and force the greedy landlords into submission.
If passed as currently proposed, this new law would create an implicit contract between the lender and borrower that allows the borrower to rent the house after foreclosure. The contract would be defined by the law and applied retroactively to every existing residential mortgage loan. This adds significant uncertainty to mortgage lending and would raise rates and down payment requirements to offset the additional risk to the lender.
To boil it down, this proposal would change one of the building blocks of democracy… the rights of parties under a contract. It would change every mortgage contract, or at least every mortgage contract issued by or underwritten by the government. So, loans sold to Fanny Mae, Freddy Mac or insured through VA/FHA would be subject to this proposal. It would force banks to be landlords. While they may be willing to do it for short periods, I doubt many banks want to be long terms landlords. Think about this: banks would be forced to lease property to people who have already proven they cannot or will not meet their obligations. Not exactly the best tenants. Who will set the rental amount, a new federal rental Czar or a judge? Will the rental amount be at fair rental value or some much lower taxpayer subsided amount?
There is already a government subsidized rental program. Federal assistance provided by the United States Department of Housing and Urban Development (HUD) dedicated to sponsoring subsidized housing for low-income families and individuals. It is more commonly known as Section 8, in reference to the portion of the U.S. Housing Act of 1937, under which the original subsidy program was authorized. Here in San Diego, few landlords in better neighborhoods will accept Section 8 renters. Yes, believe it or not, the government has not gotten around to making it mandatory. Why are landlords reluctant to accept current Section tenants? It is because it’s almost impossible to get them out for lease violations and at the end of the lease term.
Using actual sales data but applying the law hypothetically to the past few years: A homeowner purchased a luxury condominium in the Mission Valley area of San Diego in 2005, for $675,000. In 2008, the homeowner had financial problems and a $270,000 negative equity position on the condo. Let’s say the owner applied to the “rent vs. mortgage” program and gave up his/her position as owner and just rented the unit from the bank. Now in 2009, the tenant (former owner) decides to move after one year. The bank, which was blocked from selling the property in 2008, will now discover that based on the San Diego Association of Realtors, San Diego condominium prices have dropped an additional 35%. just in the one year period. So, the Mission Valley condominium that was worth $405,000 a year ago, is now worth just $263,250! Who pays for the $141,750 in additional loses the lender was forced to suffer because their right to foreclose and sell the condo was stripped by this proposed law? Does the term U.S. taxpayer sound familiar?
Since January 2009, with tongue-in-cheek humor, I’ve been suggesting that the government’s real goal with these foreclosure plans is just to let these poor, disadvantaged and troubled homeowners remain in their homes for free. This action would be the ultimate sign of Omaha’s ‘redistribution of wealth’ campaign promise. This proposed own to rent program is just a small step away from my prediction.
San Diego California Realtor
San Diego Real Estate Values
Below, www.brokerforyou.com looked at selected San Diego neighborhoods in May 2009 & May 2008. The graph shows the median sales prices as compiled by the San Diego Association of Realtors.
Charts produced by www.brokerforyou.com
San Diego condominium sales
San Diego home prices
One should keep in mind the above charts are just for a one year period (May 2009 vs. May 2008) and San Diego home values topped out around the Summer of 2005!
Lastly, I would note that these figures do not take into account the very prevalent seller concessions (usually payment of thousands in the buyer’s closing costs) necessitated by an ultra strong buyers market place.
Govt. to Cut Foreclosures by 75%!
Barack Obama - wikipedia
After the government’s massive stimulus spending plans, the Obama administration is probably disappointed with the continuing and escalating home foreclosures. Yesterday the Obama administration announced that they have conceived a new program that would convert potential foreclosures into rentals. A spokesman said it’s reasonable for policymakers to consider options for loan forbearance — allowing borrowers to delay, defer or skip payments — that are more effective than those currently available in the private sector.
The idea is to turn mortgage defaulters into renters. Such a plan would let borrowers who have fallen behind on their mortgage payments, avoid eviction by renting their homes. They’d give up all their equity (what equity?) and future claims on the equity, in exchange for getting to stay in the home.
How brilliant! I can see the headlines now: Foreclosures Cut 75% – Obama rescues troubled Homeowners – Obama Cures Foreclosure Problem. Perhaps the real benefit of such a program will be the banks. Banks, now showing these homes as non-paying liability, would be able to show them as a paying asset. Plus, tens of thousands of troubled homeowners would now be assured of voting for Obama’s re-election so they can insure their handout-living continues. Depending on how the plan works, the government would establish a rental Czar and thousands of government jobs in the new government rental management program. A real win-win situation for everyone . . . except for the taxpayers.
It was also reported that officials are creating a “housing stipend” added to unemployment benefits of homeowners. The hope is that by paying this additional money to the un-employed, it would lessen the chance for additional foreclosures. What about additional money for existing renters? This could be considered discrimination against those renters.
In my opinion, what needs to happen, what must happen, is the flushing of bad debts once and for all, massive bank losses, and a return to reasonable living and lending. Handing out ever more exotic loans on ever expanding time horizons is a bad choice, whether or not it will work.
If you try and rig the market to give benefits to people who don’t pay their mortgage… don’t be shocked when less people stop paying their mortgage. When you change the rules in the middle of the game… don’t be shocked that the prudent people get angry.
Another way to look at this plan is it basically makes government REITs. This new deadbeat homeowner rental program could be known as: Shared Homeowners Assistance Management; SHAM for short.
Our government now controls banks and car companies, and will soon control health care and energy/utilities. Then, rents and whatever else they can decide. Your costs will be going up, but your income– should you be lucky enough to have income that is not provided via government check– will not be increasing. I hope all the people that voted for Obama because Bush was in the pocket of the banks are happy now.
San Diego Home Sales Rise – San Diego Home Prices Fall
San Diego California home prices
Today, DataQuick real estate information reporting services of La Jolla Ca. reported that San Diego home sales increased by 20% , while median San Diego home price dropped 15.1% in June 2009 vs June 2008. Also, this same report showed home sales in the six-county Southern California region in June increased 29% over June 2008. But, here too, for the region, home prices dipped 26.4 %.
John Walsh, MDA DataQuick president talking about their report, said: “The rising median should still be viewed mainly as a sign the market’s moving back toward a more normal distribution of sales across the home price spectrum. Sales in many higher- cost neighborhoods couldn’t have gotten much lower, so this recent uptick in activity should come as no surprise. The recession and problem mortgages are fueling more high-end distress, hence more high-end `bargains.’ What’s missing, still, is a wide-open financing spigot for the would-be buyers of these more expensive homes.”