MORTGAGE RATES REPORT

San Diego County Houses For Sale Down. Is This a Head Fake?

Jeff Dowler reports that Oceanside supply (number of properties available) is dropping precipitously.  This phenomenon is happening all over San Diego County causing new home buyers to get into bidding wars for aggressively-priced, bank-owned properties:

At the end of May 2009 there were 726 Oceanside homes for sale (380 detached and 346 attached) a decline of 7% from the end of April (this includes the homes with Contingent status). This represents an inventory of only 1.8 months for detached homes and 3.7 months for detached homes based on the current rate of sales over the last 6 months, both of which declined again from the previous month.  These absorption rates continue to be impressive when compared to many other parts of the country, some of which have over 2 years of inventory. Indeed we are seeing more multiple offers, not only on distress sales but also on regular sales, especially below $400,000. 

In May we saw 162 homes come on the market, 31% fewer than in April (and almost half the number of new listings in March) . During May 211 homes went pending, about 20% fewer than in the previous month. So coupled with another decline in inventory (with fewer new homes for sale) we saw an increase in volume, which has resulted in the low absorption rates noted above.

Is this the bottom of the real estate market or, as Greg Swann referred to this phenomenon in Phoenix, a "Fools Gold Rush" ?

Here's what's really going on: Last fall FannieMae and FreddieMac, along with some of the bigger private mortgage banks, declared a moratorium on new foreclosures.

So for four months, homes that would have been foreclosed on sat on the sidelines of the real estate market.

And for those same four months, inventories of already-foreclosed homes declined. In March of 2009, for example, a total of 7,621 listed homes were sold in the Phoenix area, of which 5,066 -- two thirds! -- were lender-owned homes.

That sounds good doesn't it? Even better, as I write this, only 7,607 lender-owned homes are listed as being Active in the MLS database. That's just a month-and-a-half's supply. Happy days are here again!

Not quite. That Fannie/Freddie moratorium on new foreclosures ended on April 1st. In the first three weeks of April, there were 2,460 new lender-owned listings. And there are still two years of foreclosures in the pipeline.

What we're seeing is a Fool's Gold Rush. The perceived shortage of housing is an illusion, an artifact of a normal number of buyers competing for an inventory that seems to be declining rapidly. It isn't. Instead, even now the inventory of lender-owned homes is surging.

Head fake or hard numbers?  The federal foreclosure mortatorium is over but the State of California just initiated a like measure for ninety days.  Are these moratoria government's efforts to delay the inevitable or are bargains really available to the San Diego County home buyers?  Keep in mind that lenders will have been forbidden to pursue a defaulted San Diego County homeowner for seven out of twelve months this year.  This could lead to an onslaught of inventory after Halloween.  That might just be okay because we're seeing lots of pent-up demand to mop up that excess supply.

A first-time home buyer tax credit, combined with relatively low mortgage rates still might make today's property offerings a bargain.  You might analyze each property the way we do so that your downside is limited.  Certainly, property prices should be higher in 2020 than they are today.  Just be careful to do your homework.

Whichever you decide, Jeff Dowler is a pretty sharp North County real estate agent.  Use his Search tool to look at the properties offered.

How Important Are First Time Home Buyers To the California Real Estate Market?

I asked my LinkedIn community how important first time home buyers were to their (local) real estate market. 

Rosemary Joles of San Diego said:

Many of the San Diego first time home buyers thought they had been priced out of the market at the top of the real estate boom. They now are beginning to realize they can fulfill the dream of home ownership again here in San Diego. 50% of my business is first time home buyers, so they are extremely important to me. In addition they are very important to the revitalization of the housing market as a whole. Especially since they make up 41% of the current market share.

I agree, Rosemary.  Two years ago, I warned of the impending collapse of the under $500,000 market in San Diego County.  Last year, I thought that market would be robust this year and that the $500,000- $1,000,000 market would suffer due to lack of available financing.  As it turns out, I was right both years.  I think we'll continue to see "bargains" in the under $500,000 market, well into 2010 and increasing value in the mid-priced homes, as its prices collapse.

Will Handley, a Los Angeles home inspector said:

First time buyers are the industries life blood. My business expands and or contracts based on the healthy in-flow of new first time buyers into the market. With employment numbers in decline, the corporate transfer client base is shrinking as well. Thank goodness for the exceptionally robust REO market.

Amen, Will.  The REO market (foreclosed homes being offered by the bank) isn't just healthy for the real estate industry, its healthy for the economy if we intend to battle back from this recession. 

John Pucciano, a REALTOR in the DC-area, remarked:

At this stage, particularly with the $8,000 stimulus credit for first time buyers, low interest rates and affordable housing, first timers make up more than 40% of my business. This appears to be more than a local market experience (see resources below). While they do require additional effort, it is very satisfying to help the first timers progress to home ownership. I have been making a concerted effort to reach out to them.

John's correct.  The $8,000 tax credit, for people who have not owned a home in the past three years, is akin to federal bribery.  Simply put, the Government is willing to give you eight grand if you'll buy a home between now and December 1.  I think the problem is that many first time home buyers either:

(a) don't know that the program expires December 1, 2009
(b) don't believe the Government will stop the program.

I can't intelligently speculate about the unpredictable actions of our Government but I do know that its prone to do whatever will garner them votes.  Unemployed, unhappy people don't vote for the party in power so take that into account.

Back To The Future In Lending

A couple of years ago, I said this to Maryland Real Estate Broker, Lenn Harley:

We agree on this subject that all are getting their just due,

I cautioned of the bloodbath [next year here].  I'm afraid that the fallout will be more than just a "blip" though.  I'd appreciate your thoughts.  Many homeowners got into these loans without income verification and extracted equity to pay their bills within the last two years.

The result could be extraordinarily tightened lending guidelines.  A loss in liquidity is never a good thing for real estate markets

Posted by Brian Brady on 10/14/2006

Lenn's comment about my "crystal ball" led to my Real Estate Outlook for 2008 post.  You can read the full text of it here but the salient points were:

• More not less of the foreclosure activity we saw these past 5-6 months will continue through 2008. 
  
• The housing recession will extend to the American economy. 
  
• There will be a marked class distinction that develops within the next 6-7 years. 
  
• Housing prices will drop...more.
  
• Real estate agents and mortgage originators will flee the industry
  
• People will buy homes, they always do. 
  
• Fundamental underwriting guidelines will reign supreme for the next 12-18 months. 
  
• More home buyers will go online to start their home search.

I"m compiling my thoughts for the 2009 report and read some issues about lending.  I one commented that we were headed "back to the future" in lending.  I think the year 2000 will be a good benchmark for lending guidelines.  In this article, a senior bank official agrees with me.  The future is NOT completely bleak in lending but remarkably optimistic for people who can afford mortgages.

Is it difficult for a qualified buyer to get a mortgage today?

"It is not as difficult as people might imagine," Shield said. "Mortgage lenders are happy to make loans to qualified buyers who are interested in becoming long-term owners."

Today lenders are carefully evaluating three critical factors with regard to borrowers: their willingness to repay a loan, their ability to repay that loan and the value of the collateral, which is the house they are buying, Shield explained.

"All three of these important factors got left by the wayside to some degree over the past few years and that is why the industry ran into trouble," he added.

A borrower's willingness to repay loans is reflected in their credit score, which is the record of what they have repaid in the past. Also, because of the stated loan programs requiring no proof of income, borrowers' ability to pay was ignored. And it was assumed that the value of the collateral would continue to rise - which it didn't.

"And, unfortunately, for some people who got in too deep, foreclosure became the easy way out," Shield continued. "Even if they could continue to make their payments, when their house lost value and was no longer worth what they borrowed to purchase it, they just decided to let the bank take it back - even though it ruined their credit," he continued.

Take these comments from Mr. Shield to heart.  If you need a primer read this.