After the Fires: Summary October 22-28

I apologize for not blogging the latest news last week. As I was getting started, I was notified of brush fires in Santa Clarita, where I have majority of my clients. I spent Sunday through Tuesday calling current and past clients and assisting them as needed. Many were evacuated, but thankfully no one had major fire damage through the Buckweed, Ridge, Magic, Soledad Fires (there’s one fire name I forgot that started in Newhall), and my homes and I are fine as well.

I hope those of you in Southern California are safe, with minimal effects from the wildfires.

This week’s news:
The Federal Reserve meets this coming week. Expected to drop the Discount Rate by 1/4 point on October 31. May drop the Federal Funds Rate by the same or keep it steady.

Home sales decreased 38.9 percent in September in California compared with the same period a year ago, while the median price of an existing home fell 4.7 percent, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported October 24.

California stands to lose $23.6 billion in housing wealth if real estate prices continue to decline, and foreclosures rise, according to a study released by the Senate Joint Economic Committee. San Francisco Chronicle, 10/26.

Bank of America Corp. plans to discontinue offering home mortgages by Jan. 1, and slash an additional 700 jobs on top of the 3,000 job cuts announced earlier this week. Reuters, 10/26
The Commerce Dept. reported Thursday sales of new homes rose 4.8 percent in September, yet remain 23.3 percent below sales for the same period a year ago. CAR 10/24

Countrywide Financial Corp. plans to begin offering borrowers refinancing or modifications on $16 billion in loans with interest rates scheduled to reset next year. AP, 10/23

The country’s second-largest independent mortgage lender, Residential Capital LLC, a GMAC Financial Services subsidiary, plans to cut 3,000 jobs to address the housing freeze. Reuters, 10/17.

2 million empty homes: Number of vacant homes on the market nationwide equivalent to all homes in Detroit; another sign of weak housing market. CNNMoney, 10/28

Countrywide joins with Neighborhood Assistance Corporation of America (NACA), a gadfly/community advocacy group that has been its arch-enemy for years, to help borrowers with a new bailout program to prevent foreclosures.

Oct 25: Census Bureau says the pace of new home sales was weaker in September and revises August's numbers to an 11-year low. CNNMoney, 10/25

Mortgage Rates Fall: Fixed 30-year rate slips to 6.33% on market worries of a slowing economy, a weekly report shows, CNNMoney, 10/27.

Existing-home sales declined 8 percent in September, stemming from problems in credit availability, according to NAR's latest research. NAR, 10/26.

Due to So-Cal Fires, this week's news summary postponed

Due to the fires in Castaic and Agua Dulce/Canyon Country, I am unable to research and post the weekly Real Estate News Summary today.

I've received many emails and phone calls from all over the country regarding the SoCal Fires and making sure I'm okay/safe…I am, but the fires are affecting my clients and keeping me busy…

For those of you around the country, as of 10pm PT Sunday nite, there are 11 major fires in the area currently occurring (or occurred today and in monitoring stages): 1 in Ventura, 2 in Orange County, 2 in San Bernardino County, 2 in San Diego County, and 4 in Los Angeles County. Malibu is getting the attention on national TV, by what I hear, but that has died down; it's at 1200 acres and 2 structures destroyed? They expect to stay on-scene until Tuesday.

There are also major fires in LA County in Castaic (over 2000 acres) and Agua Dulce/Canyon Country (over 10,000 acres, unofficial numbers at up to 20,000, over 16 structures destroyed), which are ones affecting many of my clients and neighbors. I have been in touch with all of them and so far they are safe and their homes are safe. Many are without power due to downed power lines. Castaic is next to Valencia on the North and West-central sides of Santa Clarita, and Canyon Country is on the East. So we're taking it from both sides.

You hear about Santa Ana winds on the news…I remember hearing it when I was living in the Midwest. It's incredible to be out there in 60+ mph winds. Nearly hurricane strength…can't breathe outside and it's hard to stand. We've had much stronger gusts too: a weather station near Castaic recorded a gust around noon at 108mph.

Many of you know I volunteer with the City of Santa Clarita and LA City Fire Emergency Response Teams – today I mainly worked radio communications amongst all the agencies. We've got fire departments coming from all over California, and I still hear we're stretched thin (LA City also had a major building fire requiring 200 firefighters this afternoon). Tomorrow I am on reserve, but I will likely be activated too. Today, I've been making sure my clients are safe today and helping them out with evacuations.

I just want to thank all of you for your thoughts. If you're wanting to follow along, you can view live coverage online at cbs2.com (or kcal9.com, same website) and hear good coverage on knx1070.com.

--Wayne

The Real State of Real Estate

The Real State of Real Estate
Presented by: Gary Watts – Real Estate Economist, California Previews Retreat
Monterey, August 2007

Brief History of Real Estate
Historically, housing downturns average 27 months. We are in the 23rd month of the current downturn, so once we are past this financial over-reaction, things should improve. The national median price of a resale home is 3.4% higher than a year ago and the pending sales index is moving back up. There may just be some light beginning to shine at the end of this tunnel!

1970 to 1980
Prior to my entering real estate in 1971, a quote appeared in Business Week (late 1969) due to an increase in housing prices: “The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000. “In 1972, interest rates were 7% and it would take over 24 years before a home buyer could be able to obtain those low rates once again - today, we are in the low 6’s. In 1973, banks had a run on deposits and for a period of approximately 8 months there were no lenders who were in a position to make loans to home buyers. This should have caused a collapse in the real estate market, but home prices continued to rise. In 1977, the National Business magazine stated: “The median price of a home today is approaching $50,000. Housing experts predict price rises in the future won’t be that great.”

1980 to 1990
At the end of the 70’s and into the 80’s, inflation hit 21.5% and home loans were reaching 18%! This was followed by a crash (and later bail out) of the savings & loans industry in America. Although large job losses were creating foreclosures, home prices continued to rise. By 1985, Money Magazine made this prediction about home prices: “The golden-age of risk free run-ups in home prices is gone.” With a buildup in defense spending and huge growth in manufacturing sector in the late 1980’s, increased job creation led to a boom in home construction and home prices continued to rise. Then on November 11, 1989, a dramatic event took place: the Berlin Wall came down! With the Evil Empire (the Soviet Union) breaking up, things were going to change around the world and change quickly!

1990 to 2000
In early 1990, Congress began slashing funds for defense spending. Within a very short period of time, a lot of highly paid workers in both defense and manufacturing had lost their jobs. California home prices declined about 12% by 1996 when the San Francisco Examiner said: “A home is where the bad investment is. “In the following 3 years, California home prices rose 19.7% wiping out all the losses of the early ’90’s and ended the decade with a net gain of 9.35%. The median price in California has not declined since 1996.

The Media
Today’s media plays up bad economic news now more than ever, which leads to misconceptions about economic realty. Our economy is extremely strong, profits are superb and the world economy is exploding.
• All you read and hear is that real estate is going down, yet last month, prices in the U.S. rose
3.4% from a year ago and California is up almost 1%. The Bay Area prices have gained 4.1%
over the last year and southern California median price is up 3.7%.
• Foreclosures are supposed to be at a record high - but last year 98.83% or mortgages did not go to foreclosure. Today, the Bay Area’s foreclosure rate is up only 1.5% over last year while southern
California’s foreclosure rate is up 2%.
• The media reported 53,942 notices of default for the 2nd Quarter - a near record high. They are
comparing it to the 1st Q. of ‘96 when 61,541 notices were filed but fail to mention that 2 million
more home have been built in California since then!
• What if the media’s headlines read: 99.2% of Mortgages are Not in Foreclosure?
• The media and the financial markets have greatly over-reacted, to the real problems that have
been revealed in the lending marketplace, which is typical.

The Sub-Prime Market
It may surprise you to know that sub-prime loans make-up only 5% of the U.S. total loan market and Alt - A loans (those with credit better than sub-prime but less than prime) total only 8% of all loans in the U.S.!
1. These exotic loans became a major influence in the early 2000’s, but anyone obtaining them up through 2004 had very few problems due to rapid equity growth. Many with no-money-down purchases soon found they had 20% (+) equity within a year or two!
2. Most of the problems with sub-prime loans originated in the summer of2005 through 2006. In
California, 43% of all loans funded during that time were sub-prime loans.
3. Sub-prime loan investors that needed to sell their loans were liquidating their paper for $.96 on the dollar. There has been no current data on sales since August 5th, but with the current turmoil in the financial markets, I am sure they are being “dumped” for less.
4. Here is a financial report on some of the banks that provided the sub-prime money:
• Bear Stearns 2nd quarter revenue was $2.512 billion - a new record!
• Merrill Lynch saw 2nd quarter profits rise 30.2% Morgan Stanley (holding $5.2 billion in subprime
loans) had a 60% jump in earnings.
• Goldman Saks earned $2.33 billion in the past year.
• Bank of America (#2 U.S. bank), after putting aside $1.81 billion for potential credit losses, saw
net income rise to $5.76 billion - up from $5.48 billion last year.
The media will still report about massive delinquencies and huge foreclosures in the sub-prime market, but those reports will not be accurate because they don’t explain the difference between a delinquent payment, a notice of default or a foreclosure. They tell us “Foreclosures at Record High!” but that is not accurate.

Source: Mortgage Bankers Association, National Homebuilders Association, Inside Mortgage Finance

Delinquencies vs. Notices of Default vs. Foreclosures Delinquencies
Delinquencies cover any missed payment - even if it is just for one month, it is reported as a delinquency.
1. The delinquency rate on sub-prime loans was running at 13.77%, which is up 13.44% from the
previous year. In the last quarter, the delinquency rate dropped to 12.4%!
2. The delinquency rate on Alt-A loans is only 2.69%, while prime loans are at 2.57%.
3. Combining the three rates with the loan volume gives you a delinquency rate for all loans in the U.S. of only 4.84%. The record low is 4.0%.
4. On jumbo mortgages (anything larger than $417,000) the delinquency rate is 0.37% 5. California’s delinquency rate is only 3.25%.

Notices of Default
Notices of Default are filed when lenders’ loans have been delinquent for a specific period of time. These loans begin the foreclosure process. The four states of California, Florida, Nevada and Arizona currently have the largest amount of loans in the foreclosure process. Yet, in the 1st Quarter, 24 states saw a decline in foreclosure starts and 36 states saw a decline in the 2nd quarter!
1. Only 3.23% of all sub-prime loans have entered the foreclosure process, with most of the defaults occurring on loans from Jan. 2005 to June 2006.
2. Only 1.28% of all prime loans have entered the foreclosure process.
3. In California, the last quarter saw 53,943 notices filed, with most filings being on loans from the summer of 2005 to the summer of 2006.
4. The lowest number was 12,417 in the 3rd Quarter of 2004.

Foreclosures
Foreclosures occur when the buyer has been unsuccessful in curing the debt, and either a lender or an investor has acquired the property. As of last month, there was 1 foreclosure filing for every 693 homes in America.
1. For sub-prime loans, 68% of the buyers are able to prevent the foreclosure by either refinancing the property or successfully selling their home.
2. For prime loans, the foreclosure rate is 0.86%. Last year, the U.S. saw a combined foreclosure rate of only 1.09% while California’s rate was 1.17%!
3. California now ranks #4 in the nation in foreclosures - down from #1!
The media will try to scare you with numbers like $1 trillion in loans needs to be recast this year and that foreclosures could cost lenders as much as $2.3 billion dollars! They never mention that there is $10.4 trillion of mortgages with $56 trillion dollars of equity in American households.

Add to that the wealth of the U.S. at $70 trillion, with the value of stocks between $15 and $20 trillion, while the bond market is even larger. So these loses (should they occur) should not have any great effect on home prices.

A final note about foreclosures: The #1 reason they occurred was due to fraud. The #2 reason was
unethical lending, followed by #3 - loss of job, and finally #4 was medical reasons. By the way,
mortgage insurers are in a good position to cover losses at these (high) levels.

Source: Mortgage Bankers Association, Federal Reserve, Federal Bureau of Investigation

Why the World Changed in 1979 Baby Boomers’ Impact
Never before in the history of the world has a generation accumulated so much wealth as the baby
boomers. The Internal Revenue Service will tell you that from 1945 to 1979, incomes increased at the same rate for all tax brackets. By 1979, the early baby boomers had been in the workplace for over 10 years. They were the most educated generation to enter the work force, and they had the skills for our changing world. Today, the IRS tells us that, from 1979 to 2004, the median income in the U.S. rose 18%. From 2004 to 2005, incomes grew 5.8%.

The number of taxpayers making more than $100,000 grew by 3.4 million and accounted for more than two-thirds of the growth vs. 2000! Half of Americans make less than $30,000 and two-thirds make less than $50,000.

Those making more than $1 million grew by 26% and numbered 303,817 in 2005! These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005.

The top 85% of the nation’s wealth resides with the richest 15% of Americans; the bottom 50% of Americans holds only 2.5% of the nation’s wealth. Over the next decade, there will be a 25% increase in the population over 50 years of age. They have more money than any preceding generation, due to having dual incomes, equity growth, and record inheritances (60% goes to the top 40%)! This age group is spending $2 trillion dollars annually! Last year, 2.1 million boomers turned 60, with 25% planning on not retiring.

They found a way to mix leisure with work and are not ready to fully retire - they have money and income and they are still investing in real estate.

Weekly Roundup, October 14

No new housing stats from Antelope Valley, as I was hoping for last week.

Foreclosures drop, but they're nearly double 2006Home foreclosure filings dropped 8 percent in September, nearly twice what they were a year ago.

House OKs $1 billion-a-year housing fundThe House of Representatives approved legislation Wednesday that would siphon off up to $1 billion a year from Fannie Mae, Freddie Mac and the Federal Housing Administration to build affordable rental housing and provide down-payment assistance for first-time home buyers.

C.A.R.'s California Housing Market Forecast for 2008:Statewide median price down, pace of sales decline moderates after tumultuous 2007 Home prices throughout most of California will post modest declines next year while sales of existing homes will stabilize from the precipitous decrease experienced in 2007, according to C.A.R.'s "2008 California Housing Market Forecast" released today.

C.A.R. reports sales decrease 27.8 percent in August, entry-level median home price falls 5. 1 percent Home sales decreased 27.8 percent in August in California compared with the same period a year ago, while the median price of an existing home increased 2 percent.

USA Today: Home builders' foundations shift with shaky market10/09/2007Home builders are bracing for what many predict will turn out to be a more painful market correction than the real estate downturn of the 1980s.

Associated Press: Foreclosures drop, but they're nearly double 200610/10/2007Home foreclosure filings fell 8 percent in September, but are still at levels nearly twice what they were a year ago.

September foreclosures fall
10:06am: Mortgage delinquencies slip 8% nationwide; Sun Belt, Rust Belt states continue to dominate top foreclosure rates, according to a monthly survey.

Dems OK on Fannie, Freddie caps
Oct 11: The move would allow the government-sponsored mortgage companies to increase debt holdings for six months.

Mortgage rates edge up
Oct 11: Employment figures push fixed 30-year rate up to 6.4%, according to a weekly report.

Sources: CAR, SRAR, AP, CNN, USA Today.

Weekly Roundup October 1-7

The news in real estate in bullet points!

* San Fernando Valley: 33% decline in home sales, yet median resale price continues to rise

* Santa Clarita Valley single-family home sales off 26%, prices down 9%

* Antelope Valley has not published new numbers since early September. Hopefully it will be posted next week.

* Gov. Schwarzenegger announced Wednesday he intends to sign two bills aimed at protecting homeowners from falling prey to unscrupulous lending practices.

* The Mortgage Tax Relief Bill (H.R. 3648) passed the House on 10/4, next step is the Senate. Officially termed the “Mortgage Debt Forgiveness Relief Act,” the bill passed by a wide bipartisan majority [386-27] to help address the subprime lending crisis and ongoing turmoil in the housing market.

* August National Association of Realtors Pending Home Sale Index released 10/2 is at an all-time low, but was expected considering the severe credit crunch. Expect September numbers to also be artificially depressed, but with credit market problems largely over, NAR expects October numbers, released in early December to be better.

* Up to 30% of accepted contracts fell through during escrow in August, mostly due to the changes in the mortgage programs.

Other Economic Numbers:
* Job Growth back on track in September. August number revised to a gain.
* Factory-order drop was the worst in 7 months
* Unemployment claims soar, higher numbers than national average in the Southern California area.
* Expect a less than stellar holiday season with average Holiday Sales rising 2-5% (most numbers at the lower end of the range), versus last year’s sales rising 4.6% over the prior year.
* Federal Reserve meets October 30-31. Next rate announcement on Halloween. Most expect at least one or two more quarter-point drops by the end of the year.
* Announcement this past week that CitiBank and other banking companies consider their losses from the mortgage sector to be a one-time hit. CitiBank expects following quarter to be back to normal. These announcements helped fuel the stock market hitting new record highs this past week.
* Fannie Mae stated mortgage rates eased a little bit this week: 30-year prime conforming mortgages was 6.37% versus 6.42% last week. 15y fixed averages 6.03%, 5/1 adjustible hybrid 6.11%, 1y adj 5.58% (all these numbers were on programs with 1/2 point in upfront fees and charges). Jumbo loans (over $417k) were 1/2 to a full percentage point more expensive versus the conforming programs.

Sources: Southland Association of Realtors, KNX-AM los Angeles, CNN, Sacramento Bee

For further information, please contact changhomes@gmail.com.

Latest Housing Numbers in the Tri-Valley Area

San Fernando Valley: 33% decline in home sales, yet median resale price continues to rise
Realtors helped negotiate and complete a total of 552 single-family home sales throughout the San Fernando Valley during August, a drop of 33.1 percent compared to the 825 sales of August 2006, the Southland Regional Association of Realtors reported Monday, Oct. 1.

Condominium sales of 188 units were 40.7 percent below year ago levels.

The median price of single-family homes that changed owners during August was $645,000, up 5.7 percent compared to a year ago. The August median price was $10,000 below the record high median price of $655,000 which was set in June.

The condominium median price of $389,000 was down 2.8 percent from a year ago and off 4.5 percent from this July. The record high median condo price of $415,000 was set in February 2006.

Lenders continue to offer a wide variety of loan options at attractive terms and low interest rates. No doubt, it takes longer to obtain a loan and lending is stricter, conforming to traditional standards – such as, showing proof of income, savings and a consistent, solid credit history. Yet by no means does the disappearance of loans in the sub-prime market – where loans were made to buyers with shaky or no credit – suggest that this is a difficult time to obtain a mortgage.
There were 7,706 active listings at the end of August, up 12.8 percent from a year ago. Of that total, 5,566 listings were single-family homes and 2,140 were condominiums.

At the current pace of sales, the total active inventory represents a 10.4-month supply. August was the first month since September 1995 that the supply broke into double digits.

While a 10.4-month supply is above the 5- to 6-month inventor that real estate experts believe represents a balanced market, it still is well below peak levels reported during the national recession of the 1990s and the restructuring of the local economy.

The inventory peaked in July 1992 with a record 14,976 active listings – which equaled a 17.6-month supply at the then current pace of sales. In February 1993 the inventory compared to the pace of sales hit a record 23.0-month supply.

At the height of the recent sellers’ market the inventory often hovered at barely a 1-month supply.

Santa Clarita Valley single-family home sales off 26%, prices down 9%
Single-family homes sales in the Santa Clarita Valley during August totaled 186 transaction, down 25.6 percent from a year ago, the Southland Regional Association of Realtors reported on Monday, Oct. 1.

It was the second lowest tally for the month, behind the 169 sales reported in August of 1997, however, the 25.6 percent drop was lower than the statewide average decline in resale activity of 28 percent.

The median price of single-family homes sold during August in the Santa Clarita Valley was $560,000.

That was down 8.9 percent from a year ago, or $55,000 lower than the August 2006 median of $615,000 – well above the statewide median price of $588,070. The record high median price of single-family homes in the Santa Clarita Valley of $643,000 was set in April of 2006.

Realtors also negotiated a total of 63 condominiums sales last month, down 40.6 percent from a year ago.

The median price of condominiums that changed owners during August was off 2.2 percent to $362,000 from a year ago August when the median was $370,000.The record high condo median of $397,000 was set in January of 2006.

There were 2,509 properties listed for sale throughout the Santa Clarita Valley at the end of August. That was down 3.4 percent from a year ago, but up 6.4 percent from the July tally. Of that total1,852 were single-family homes and 657 were condominiums.

At the current pace of sales the inventory represents a 10.2-month supply – above the 5- to 6-month inventory that Realtors believe represents a balanced market. At the height of the recently concluded sellers’ boom market, the inventory hovered for many months at less than 1-month supply.

Antelope Valley has not published new numbers since early September. Hopefully it will be posted next week.