More homeowners than ever are selling at a loss!
The real estate Web site Zillow.com has reported that in the 12 months that ended June 30, nearly 25% of all homes sold nationwide fetched less than sellers originally paid. Other interesting facts from this report showed:
A. In Merced, Calif., 63% of homes sold during the past 12 months brought in less than what the owner paid. Prices there have fallen 40% over the past 12 months and 56% from their 2006 peak.
B. About 63% of sellers in Stockton, Calif., lost money during the same period, 60% in Modesto, Calif., 55% in Las Vegas and 38% in Phoenix.
C. In Merced, 74.9% of sellers took a loss when they sold during the three months ended June 30 compared with just 28.7% during the same period in 2007.
What happened to all the home buyers in 2006 who thought they had gotten a great home buys when compared to the 2005 homes sale prices? From the same Zillow report we can now see the real answer to this question:
In Stockton, Calif., 2006 buyers now owe a median of nearly $171,000 more than their homes are worth. In Salinas, Calif., 2006 buyers now have median negative equity of $161,000, and in Merced, the figure is nearly $160,000.
Though not in in the report, I would venture to say that one would be hard pressed to find any 2007 home buyers whose homes are worth more today, that what they paid! San Diego California investment property sales
Greenspan … Housing Bottom In Sight
Former Federal Reserve chairman Alan Greenspan said this week "Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009, prices could continue to drift lower through 2009 and beyond." Let's all hope he is right. But, a quick review of his past real estate bust comments, shows that this week's bottom call is Greenspan's third such prediction.
First in late 2006, the former fed head said: "I suspect that we are coming to the end of this downtrend, as applications for new mortgages, the most important series, have flattened out. I don't know, but I think the worst of this may well be over."
The second Greenspan call was in April 2008, when he said "the drop in U.S. home prices will probably end well before' early next year as the number of houses on the market diminishes, aiding an economic rebound."
Will this week's Greenspan market bottom call be any more accurate than his prior two calls? I personally hope so! But, I do have my doubts. It used to be that when Greenspan spoke one was never really sure of exactly what he was saying. Now, his latest comments are crystal clear…Hmm! San Diego income property sales
NEW SINGLE-FAMILY HOME CONSTRUCTION DECLINES 3.5 PERCENT IN JUNE
Construction of new, single-family homes across the country as reflected by issued building permits in June declined 3.5 percent to 613,000 units, compared with 635,000 units in May, according to the latest data from the U.S. Dept. of Commerce. Nationwide, total new home construction in June was at 1,091,000 units, 11.6 percent higher than the revised May rate of 978,000, but 23 percent below June 2007. Housing starts were up 0.9 percent in the West.
Another Look at the June Rise in Pending Home Sales
On a year-over-year basis, pending home sales are DOWN 12.3 percent. The real key for the San Diego housing market is NOT home sales, but, home prices! To me, today's San Diego anemic housing activity indicates that home prices will continue their fall and even accelerate in Winter as home prices approach 50% of their 2005 highs in many communities. San Diego income property sales
The number of existing homes entering the purchase contract stage during June rose 5.3 percent after a downwardly revised decline of 4.9 percent in May. Sounds good at first blush, but, in San Diego and most other housing bubble areas, it is estimated that One-third of all home sales are now distressed properties.
Credit Impact of Real Estate Short Sales & Deeds In Lieu
Many San Diego homeowners mistakenly believe that their credit rating will be better off with a short sale vs. a foreclosure. This belief may be seriously flawed.
Short sales, deeds in lieu of foreclosure and foreclosure usually don't minimize the impact on a borrower's credit score. All three proceedings have roughly the same negative impact on an individual's credit score, according to Craig Watts, a spokesman for Fair Isaac Corp., which created the widely used FICO score.
Mr. Watts says that to date little analysis has been done distinguishing, for instance, the credit risk of individuals who completed a short sale versus those involved in a foreclosure. For that reason, "the model ends up treating them [a short sale, a deed in lieu of foreclosure, and a foreclosure] all the same." San Diego income property
Reworked Subprime Loans … 40% End Up Defaulting
Moody’s Investors Service: More than two of every five subprime borrowers whose mortgages were reworked in H1’07 are defaulting anyway. Among subprime adjustable-rate mortgages modified in H1’07, 42% were at least 90 days late on March 31. Modifying loans granted to consumers with poor credit records has gained favor as record numbers fail to keep up with payments and home prices tumble. San Diego California real estate
San Diego Real Estate … The Coming Next Wave of Foreclosures
The first wave of foreclosures occurred due to the re-setting of some "sub-prime" loans. These loans were predominantly the 80/20 loans that were used to assist buyers to obtain property with no down payment. Later in the cycle of the origination of these loans, the documentation requirements were lessened considerably, so that by 2005, buyers were able to obtain 80/20 loans to purchase property with little- to no-income documentation. Buyers speculated on properties increasing in value and had little regard for the payments. As the loans re-set (usually 2-3 years later), the buyers found themselves unable to make the payments or unable to refinance, and the properties ended up in foreclosure.
Here's what we need to understand about these loans:
1. Is that they were spread across the United States (demographic and geographic distribution) and
2. There were a lot of them done for buyers buying new homes. In San Diego, we are seeing the results of these loans as properties in newly constructed developments (Eastlake, San Marcos, Condo conversions, etc.) are defaulting in high numbers. However, the buyers of these properties generally DID understand that the loan would convert or "adjust" after an initial 2-3 (in some cases 5) year period. Further research suggests, however, that these buyers were not necessarily defaulting due to rising payments (the Fed has reduced short term rates significantly, thereby reducing the impact of the adjustment) but rather were defaulting to rid themselves of a negative equity position.
Many buyers in San Diego County who purchased properties in the $500k range and borrowed the entire $500k, and now find the property worth a current estimate of $400k are choosing to walk away from the negative equity position, regardless of ability to handle the payments. Research by the Federal Reserve has deemed these "unpreventable" foreclosures in that the property cannot be refinanced and the borrower is not compelled to keep the property with no hope of any short term appreciation.
However, the impact of these resets is nothing compared to the upcoming impact of the "option ARMs" that are going to reset in 2009 – 2011 (peaking in 2010).
During the housing heyday, borrowers quit even asking about rate, and asked instead "what are the lowest payments you can get me for this home." Lenders responded by offering the option arms with a 1% (or other similarly low) start rates but with a "real" rate tied to the LIBOR or to US Treasuries or other indexes. The use of these loans peaked in 2005. These loans were predominantly used in Southern California and other high cost housing areas and were used with a much greater frequency than in more "affordable" areas in middle America (not near the geographic diversity as the sub prime loans). Here's where it gets tricky. While folks with the 2/28 loans knew an adjustment was coming, many option arm borrowers are NOT aware that an adjustment is coming. Almost ALL option arms are structured in a similar fashion. They have a feature where they "re-cast" every 5 years. This means that at the end of the initial 5 year period, the initial start rate (often called the "teaser" rate) goes away. The loan will then reset or re-cast and the payments will be based on a full amortizing loan amount for the remaining 25 years of the loan. Many of the people with this type of loan simply do not know or understand that this will happen.
Here's an example. Let's say that a buyer purchased a property in 2005 for $550,000. If they put 10% down, they would have a loan amount of $495,000. With an initial "teaser" rate of 1%, they would have minimum payments for the 1st year of $1592 per month. If the "fully amortized" or "real" payment was based at say, 6.5%, the loan balance would go up by over $1500 per month. So, where would the buyer be at the end of the first year? Assuming that the buyer made only the minimum payment (which most do), the minimum payment can only increase by 7.5% of the PAYMENT AMOUNT. So, the $1592 payment become a $1711 payment. However, the buyer owed an additional $18,000 more than the $495,000 because of the negative amortization. What happens next?
In the 5th year, the minimum payment will be just over $2100 per month. Assuming that the "real" rate is in the 6.5% range over the initial 5 yrs (which looks pretty realistic based on current rates), the loan balance would have increased to approximately $550,000. What happens now?
This is the interesting part because even many savvy and educated buyers and borrowers simply do not know. What happens is this: The loan at that point "re-casts" and becomes amortized over the remaining 25 years at the current rate. If we continue to use the 6.5% as a reference point, the payment will go from $2100 to over $3700 a month!! Thats right, a $1500 per month increase ($550,000 at 6.5% for $25 yrs yields a pmt of $3713).
Meanwhile, the median value of a home that was worth $550,000 in 2005 might only be $400,000 in 2010 (assuming a decline of 25% in value. Per today's San Diego Union Tribune, the value of the average SD home lost 25% in the last year alone, so the $400k estimated value figure might be generous). Now, imagine how many people with a $400,000 property and a $550,000 loan are going to hang in there after finding out that their payment is going up $1500 per month?
This will be the next wave of foreclosures. These loans and properties are in all areas of San Diego, not just the newly constructed properties on the outskirts of town. The fallout of these foreclosures in San Diego will hit higher end and coastal areas and everywhere in between. YIKES! Many thanks to our guest author, Mr.Greg Brooks Southwest area manager San Diego Mortgage Network for this enlightening post. *Ed notes: The next bank with possible trouble??… I've been told Downey Savings & Loan was a major player in the option arm business and about a year ago their non-performing loans were at appx. 1.3%. In June 2008, it's said that Downey's non-performing loans are now appx. 15%! San Diego real estate blog
San Diego Real Estate Pent-Up Demand .. It’s Real & About To Kick-In
The latest San Diego sales mantra goes like this: “Sure the market is down, but it’s been down for a few years now and there is terrific demand to purchase building up. Now could be the best time to get into the San Diego real estate market before that pent-up demand kicks in.” Read more 
Bad Real Estate Loans Cause IndyMac Bank To Be seized By FDIC
Worried customers lined up outside IndyMac to withdraw their money this morning. IndyMac was seized by federal investigators on Friday. The Federal Deposit Insurance Corp automatically insures customers with accounts worth $100,000 or less.
IndyMac is the fifth U.S. banking company to fail this year, and the largest since the 1980s savings-and-loan crisis.
Gerard Cassidy, an analyst at RBC Capital Markets, on Sunday estimated that 300 U.S. banks might fail over the next three years because of credit losses and tight capital markets.
Regulators expect the IndyMac takeover to cost the FDIC $4 billion to $8 billion.
Real Estate – Jim Rogers says Fannie and Freddie are a ‘disaster’
"The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an “unmitigated disaster'' and the largest U.S. mortgage lenders are “basically insolvent,'' according to investor Jim Rogers.
Jim Rodgers, is the chairman of Rogers Holdings, in April 2006 he correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, also said the commodities bull market has a “long way to go''. Rogers, a former partner of hedge fund manager George Soros, predicted the start of the commodities rally in 1999. San Diego real estate agents