Archive for December, 2008
Hit The Reset Button
December 21st, 2008 Categories: Weekly Real Estate Activity In Ventura County
Let me off now. Something is rotten and it is all starting to smell.
What in the world is happening on the National level.
A few billion dollars here; five billion there; here a billion, there a billion……what are we doing? Does anyone know?
The logic appears to be that if we throw a lot of whatever against the wall (money, excrement) something will stick. It gives the appearance that something is being done and that will make people happy and feel good.
A lot of flim flam in the papers and other media. The story line being that a lot of people are being helped as well as a number of businesses.
Before pursuing that line of reasoning I found it of interest that countries such as France and other European nations whom have been described as Socialist are now becoming capitalistic in their approach and we in the United States are doing everything possible to become Socialist.
Well let’s see. Fixed interest rates are hovering around 4.5%. Strange how that happened.
Somebody in Washington states that interest rates will go down to 4.5% and low and behold within days they are at 4.5%. Just imagine if the individual stated 1%. Where would the rates be? Which suggests that if the markets are doing what they are supposed to do (supply and demand) why weren’t rates at 4.5% or lower previously?
Reminds one of gasoline prices. We are experiencing managed economics going sour.
Who is helped with these lower rates? We are being told qualified home buyers (and even some of these are not being helped) including first time home buyers. But there are not many of these people around.
Then another article tells us that of the number that have been helped to renegotiate there mortgage rate and principal, approximately 50% of those people are again behind in mortgage payments and are again flirting with foreclosure.
Hmmmm……that doesn’t appear to be the right correction. Or maybe its me. I must have fallen off the turnip truck and the “new” new math is beyond my comprehension. But none of what is happening makes much sense.
Here is an example of a real world situation. A Pasadena real estate agent told me last week that he had a buyer with a credit score approaching 800; his client was putting down nearly 25% on a property worth a little less than $ 500,000 and the buyer was refused a loan because within a quarter mile of the property being purchased were five foreclosures. The bank felt it was too risky an area.
The questions before the house are: Why do we have banks? What is their business? Who was first in line getting government bailouts? And who is putting the screws to the consumers? To direct you to the correct answer the first letter is “b”, I think you can add the rest of the letters.
Banks (me talking) appear to be holding onto the cash for the purpose of acquisitions and the like and have forgotten their business purpose.
Folks that would like to take advantage of the low rates cannot because they are upside down in property value (thank you Mr. Frank, Mr. Dodd, banks and appraisers who are now low balling property values in a a number of areas).
When looking at the Fitch Report (www.fitchratings.com) for the year 2009 the new home builders appear to be a sorry sight. With the exception of M.D.C Holdings, NVR, Inc., Standard Pacific and Toll Brothers other new home builders appear ready to be taken over (which will probably occur) or are ready to get in line for government bail out money. So the new home building sector appears to be in for a rough year in 2009 as suggested by the following listing.
–Beazer Homes USA (‘B-’; Outlook Negative);
–Centex Corp. (‘BB’; Outlook Negative);
–D.R. Horton, Inc. (‘BB’; Outlook Negative);
–Hovnanian Enterprises, Inc. (‘B-’; Outlook Negative);
–KB Home (‘BB-’; Outlook Negative);
–Lennar Corp. (‘BB+’; Outlook Negative;
–M.D.C. Holdings, Inc. (‘BBB-’; Outlook Stable);
–Meritage Homes Corp. (‘B+’; Outlook Negative);
–M/I Homes, Inc. (‘B’; Outlook Negative);
–NVR, Inc. (‘BBB’; Outlook Stable);
–Pulte Homes (‘BB+’; Outlook Negative);
–Ryland Group (‘BB’; Outlook Negative);
–Standard Pacific Corp. (‘B-’; Outlook Stable);
–Toll Brothers, Inc. (‘BBB-’; Outlook Stable).
Unemployment is heading upward, consumers are tightening their belts and not spending, the recession appears to be getting deeper (maybe the “D” word will start to appear. “D” for depression) and we are watching and listening to the Washington soap opera which is forever trying to blame others for their incompetence. State politics is in the same position.
Why it is that Americans as bright and innovative people hire representatives who are not bright is beyond me. It is what it is and fortunately we can change the cast of characters every two and six years in Congress and four in the White House.
Unfortunately the administrators that have been in place for too long appear to be the people running the operation. Congressional people are figure heads for the grey force.
Eventually when someone takes the time and follows the money we will know who was helped and to be sure the politicians will be a lot richer.
What kind of a legacy are we leaving the next generation? They most certainly will be over whelmed with the debt that they inherited.
Ventura County Level:
On the local level things are becoming squeezed. It is the same story as in prior weeks:
- Listings continue to decrease;
- Properties sold (especially in the price range of less than $ 500,000) have increased;
- The variance between list price and sales price appears to be tilting downward (but the numbers do not show it yet).
The squeeze is taking place and when the jack in the box pops all heck is going to break loose.
Within the County it appears that banks (and appraisers) are low balling property values in a number of areas throughout the County needlessly and they will continue to do this until a seller or a group of sellers sue banks, their officers and appraisers who work with them. Then it will stop.
This managed economics as stated earlier has gone sour and there appears to be too many cooks in the kitchen making different dishes that are at odds with everything else.
Unfortunately one has to clean out the whole kitchen and get things back to normal.
The cleaning processes has to be initiated by sellers who are fed up with current property value actions being taken and will constructively attack lending institutions who appear to be selectively low balling a number of areas within the County.
The common denominator is money and it does outpoint greed eventually.
The change made for Ventura County is the forecast appreciation for the County has been increased from 7.6% to 8.4% for the next 12 months. So if the numbers are right it appears that Ventura County will start seeing positive upward growth starting right about now.
Again if unemployment increases significantly and there is no new job creation then things could get a little uglier for the County. With pending layoffs at the State level, County, and local government levels one should see unemployment increase about another 1/2%. This will put a damper on the timing of when real estate prices start going up but as of today we should see a good appreciation in the County.
Comments are welcomed.
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Year 2009 Fearless Forecast for Ventura County Real Estate.
December 14th, 2008 Categories: Real Estate News
The year of 2008 has been a disaster for Ventura County. As shown in the chart below areas that basically held their own were beach properties especially Ventura Beaches. Oxnard Beaches and the Santa Rosa Valley property decreased approximately 10%.
As stated previously owners of beach property are holding onto a gold mine. If you can keep it, do so. The rewards will be outstanding for you.
The inland areas of Santa Paula, Fillmore and Ojai were devastated with property decreases of approximately 50% or more.
Conejo Valley, Moorpark, Simi Valley and Ventura saw property values decreased approximately 25% overall.
Since July, 2008 the downward trend has accelerated significantly and this most often shows the signs of a bottom taking place (which I think has happened) Ventura County Real Estate Doing’s For Week Ending July 26 2008.
The year 2008 was not very kind to real estate.
What will real estate look like at the end of 2009. It appears that 2009 will be a better year with a growth rate of approximately 7.6%.
Two economic situations can change this forecast: unemployment and job creation. If unemployment increases significantly and there is no (or a decrease) in jobs then 2009 can be another disasters year for the County.
Expect unemployment to increase at State and Local levels. Companies will more than likely not increase hiring especially small companies. There will be some exceptions but companies may keep a lid on hiring until the last quarter of 2009.
Self employment will increase significantly.
Of greater importance is the consumer. For the first time in decades debt is being lowered, people are saving money, and people are not spending. This will not bode will for the overall economy.
See article Killer Debt Is Like Quick Sand where it is outlined how people can help themselves shred debt. It will take time but it can be done.
With the new administration one can expect tax increases, however these will not be noticeable until the end of 2009 and 2010. Then its’ a wait and see game.
The States will definitely increase taxes somewhere along the line, earlier than Federal. Hints of an increase in sales tax, auto registration and State income tax are already on the table.
Any increase in taxes will force people to lessen spending except for food and gasoline. Oh….a State gas tax increase is also on the table. Remember when gas was $ 4.00 per gallon. Well expect that again except in this case most of it will be attributed to State tax increases on gasoline.
Foreigners, especially from China, are in frenzy in their purchases of United States real estate.
Your comments are welcomed.
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Red Lining—Alive and Well in Real Estate.
December 12th, 2008 Categories: "Say What? Just Some Real Estate Talk
Red lining. An insidious act that creates barriers and walls off people and neighborhoods by either financial or some other type monetized quantification.
It’s negative transformation at it’s best. Collusion between financial institutions at all levels and appraisers either willingly or unwillingly, directly or indirectly with greed as its motivation.
It appears to be quite prevalent in real estate today and I suspect if one were to undertake a study they would find a correlation between high foreclosure areas such as San Bernardino County, Santa Paula, Fillmore areas and red lining.
The starting point for this disease I suspect is high up in the bundling of mortgages for re-sale on the secondary market (Freddie Mac and Fannie Mae). Meaning that most lending institutions and banks who do not maintain mortgage notes that they have negotiated as part of their own portfolio become active participants to this cancerous disease.
Redlining is a word used to describe an illegal practice of discrimination against a particular group.
It occurs (unilaterally) when, for instance, lenders decide certain areas of a community are too high a risk.
The net effect is that real estate lending institutes who red-line generate barriers by either refusing to give a mortgage to buyers who want to purchase property in those areas, regardless of their qualifications or creditworthiness or make it so difficult that the purchase cannot be pursued.
Today what appears to be occurring regularly are properties in high foreclosure areas are being re-evaluated days before the close of escrow and a pre-conceived (contrived) opinion made and justified (ie., drive by appraisal) designed to decreases a property’s value from 10% to 35% less than the original appraisal taken a few weeks earlier.
Now the lending institution is not saying that it will not make a loan but the action pits the buyer and seller against each other with the buyer wanting to purchase at the lower appraised value and not the contract price negotiatied and agreed to previously.
This slight of hand by the lending institutions generates a depressed sale if the seller has to sell or forces the buyer to come in with more funds to complete the purchase.
The instigator (the bank) sits by and waits for the chips to fall, immune of any responsibility or wrong doing. If challenged it becomes a case of finger pointing and feign incredulity that they would be accused of doing something of this nature. There appears to be limited or no re-course for a seller to challenge these contrived actions.
Is it illegal? The Federal Community Reinvestment Act of 1977 supposedly put an end to real estate red lining. However over the years it appears that legislation may have been enacted which minimized the intent of the 1977 Act or the intent of the act is simply being ignored.
Today, because of the current foreclosure mess, it appears that anything and everything is allowed using the excuse that normality has to be brought into the market place. Essentially it is turning a blind eye to a bad situation.
The amusing thing (if one can call this amusing) is that the institutions who created the foreclosure mess with exotic mortgage products now have flipped to the other side and appear to be the van guards in red-lining high foreclosure areas. Why? They will probably say these areas are poor economic risks.
In effect what is being created is a false market (relative to property value) at the expense of sellers in those areas and supporting the continuation of a down market.
Your comments are welcomed.
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40%/60%.
December 7th, 2008 Categories: Weekly Real Estate Activity In Ventura County
The headlines are shouting this morning that 40% of homeowners (at least in California) who purchased homes over the last five years are upside down.
Which means that 60% of those who purchased within the same time span are upside right.
Why are 40% upside down?
If you lived on a different planet you probably wouldn’t know that the 1990’s Congress(Sen. Dodd and Congressman Frank take a bow) instituted legislation that basically told anyone that could breath ”you can have a house”. And the banks (indirectly I suspect should be the acceptable wording) catered to the wishes of this legislation and today we are witnessing the impact.
Those exotic loans that people were lead into basically represent a good portion of the 40% who are now upside down.
But lending institutions are part of the problem with their desktop (drive-by) appraisals. Lending institutions in the 1990’s gave the store away with exotic loans which the tax payer will have to pay. They were buyer oriented.
Today these same institutions are screwing sellers with their drive-by (desktop) appraisals by unilaterally generating and perpetuating an artificial downside market.
Side bar: Yes. I am still miffed that I lost a real estate transaction because of a drive-by appraisal. Two appraiser valued a property above $ 440,000. One at $ 440,000; another at $ 479,000. The lender a few weeks later says no…..it’s only $ 405,000. Dead deal.
If anyone in the blog world (and I am sure there are many) has had similar experiences let me know and if you would mentioned the real estate area. I have heard of an individual agent who experienced a $ 90,000 decrease in Santa Paula/Fillmore area via a drive by appraisal. I am sensing that lender actions are directed to the more depressed areas with these drive by appraisals. Just my suspicions.
Back to the general topic. Another headliner most read in the papers today are the actions that the Federal Reserve and lenders are taking to help people keep their home. It has been stated that the Reserve wants to get the mortgage interest rate down to 4.5% or lower.
Interest rates should have been 4.5% months ago (if not years ago) but lenders have been keeping interest rates artificially high for years. If oil companies or any other large corporation undertook what lenders have been doing for years, these corporations would be investigated for collusion and all heck would break loose. Not so with financial institutions.
So where is all of this help going? Some to financial institutions, banks, it appears that auto industry will get help, some mortgage help limited to a narrow group of people who are W2 wage earners, have equity in their home and very good FICO scores. But the list for assistance continues to grow.
Those who are self-employed or who are 1099 people are having difficulties getting any kind of a loan. Most of these people have excellent credit, are professional people with good incomes, good FICO scores yet they cannot get reasonable loans because they do not have W2 income. Maybe it is me but there is something wrong with this picture.
Keep in mind another group of folks who are W2 wage earners with good FICO scores, making very good money who cannot get help because their property is upside down. Now that is a group in need of help. I wonder how helpful lenders have been with their drive-by appraisals in these areas?
Most certainly I am glad that some people are getting help. But there are a great many others (the self-employed, other professionals and others) that need help as well and these people are being ignored. Again if you see this happening in your areas let me know.
Overall these actions will create more harm than good in the long run and the impact to real estate on both the National and local level (Ventura County, CA) will suffer significantly.
Ventura County.
It’s the same story as shown in the chart below.
- Listings DOWN.
- Properties Sold-FLAT.
- Days on the market….basically flat.
- Variance between list price and actual average sales price holding at about -5%.
As mentioned in last weeks article everything is being pushed down and like the little box with a spring inside is opened things will break out in an all out frenzy and prices will escalate beyond your imagination. The prices of 2003-2005 period will be exceeded significantly within a short period of time.
Unemployment which has increased substantially over the last several months will act as a temporary brake but once jobs are found and unemployment decreases watch out.
The above chart illustrates the decrease of property values since January, 2008 in Ventura County based on the average actual sales price. Not pretty.
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