Southern California Real Estate Bubble Crash Blog

We’ve passed through the $400,000 threshold for the second time.  The first time was better for property owners (like myself) and probably the economy in general.  I’m seeing bulk bank owned packages on the market at 18 cents on the dollar.  You can pick up second TD’s for less than two cents for every dollar of the unpaid balance. $10,000,000 in loans for under $200,000.   Of course, those seconds are mostly worthless now.

Data quick shows the median at $397,000 for December sales but the median for homes sold on the MLS is $380,000.  MLS figures do not include new home sales which tend to sell for higher amounts.  In fact there were 207 new home sales with a median price of $498,000.

Pending sales seem to have slowed a bit with only 3734 homes listed as pending sales as of 1/15/09.  The median list price of those pending sales is $365,000 so it seems a lock that we’ll have at least another 10% decline. 

The low end of the market is still falling fastest.  Every day I see more single family properties listed for under $300,000.   We’re back to 2003.

Brad Davidson
We Help-U-Buy Realty

The end of the year is always the slow season for real estate sales and this year is no exception.  The MLS only has 1,929 recorded sales for November, a drop of almost 400 from the prior month.  The median sales price really took a beating though.  The median sales price of all homes sold on the MLS fell a staggering $36,500 to $380,000.  That is almost a 9% drop from October to November and 40% off the high of $642,000 from only 18 months ago.

Upper end properties are not moving and equity holding sellers are scarce.  Of the November sales, 1,128 were distress sales.  Those 1,128 properties were either bank owned, short sales or in some stages of foreclosure, 58% of all MLS sales. That’s an ugly statistic.

On the bright side, the price decline may be slowing.  The median asking price of pending sales is $375,000.  That’s the smallest price difference I’ve seen between pending sales and closed sales since I began tracking these numbers in the summer.

While the price slide appears to be slowing, there will be a new wave of foreclosures hitting the market after the first of the year.  Fannie and Freddie both put moratoriums on foreclosures through December 31st and lenders are catching up with new notification requirements. 

I’m sure there are lots of situations like the house next door to mine.  It’s been sitting vacant for about eight months now and the bank didn’t bother to file a Notice of Default until September.  No Notice of Trustee’s has been filed and they could have easily foreclosed and had possession by now.   They must be very busy not to have moved on a $650,000 asset in a good neighborhood.  It going to be a very slow recovery.  If you’re looking to buy property, there’s no need to rush out and join the legions bidding up the REO prices, you won’t miss the bottom.

Brad Davidson

We Help-U-Buy Realty

I’m seeing a drop off in the pending sales activity and the prices this month.  Pending sales are down to 3,866 (400 less that last month this time) and median listed price of those properties is down to $375,000.  The banks are trying to move em out before the end of the year and I’m seeing many more asking prices under $300,000 in Anaheim and central Orange County for SFR’s.  There’s a Three 3 bedroom SFR in Santa Ana listed for $150,000.  WOW.

Last month the MLS shows 2,323 residential sales in October with a median price of $416,500.  Down another $12,500 from September.  What a difference two years makes.

In 2005 I sold a rental house I owned on the Westside of Costa Mesa for $500,000.  I’d had the same tenants in it for years and it as a fixer.  The buyer did a quick remodel (kitchen, baths, carpet, paint and added a garage) and sold it for $625,000.  That same house came on the market last week, as an REO, for $311,000.  50% off the price from less than 3 years ago.  OUCH.

Sales numbers are going to creep down for a few months as the end of the year is always slow.  REO sales are also slowing as the brokers are getting fewer assignments because the lenders are having to meet new notification requirements before filing foreclosure notices and holding trustee sales.  But I feel that the reports that foreclosures are tapering off is premature. So many people are upside down that the temptation to walk away will lead to many more REO’s.

While the prospects are dismal if you’re underwater, the demand for low price REO’s never ceases to amaze me.  I’m constantly seeing bidding wars for well priced property.  Ten or more offers are not uncommon and sale prices ten percent above asking don’t surprise me.

Brad Davidson

We Help-U-Buy Realty

The median price continues to fall and if the trend holds it should be under $400,000 by year’s end.  That will be close to a 40% decline.  I believe even Chuck Ponzi is surprised.

From the figures in the MLS the Median price of all homes sold last month (September) comes in at $429,000.  That’s down another $11,000 from August.

As of October 4, 2008, there were 4,232 pending sales in Orange County with a median asking price of $399,500.  My tracking of pending sales has been an accurate predictor of future prices thus far and it will be interesting to see if the trend holds true.

I have a lot of contacts in the REO business and I’m being told that the number of BPO (broker price opinion) orders are high.  Lenders order BPO’s when a property enters foreclosure to get an idea of what the property is worth for when it’s an REO or for a short sale negotiation. These contacts feel that the next wave of foreclosures could be big.  Not surprising considering everyone who bought for about a two to three year period is underwater.

Even the house next door to mine is empty and the lawn is brown.  It would have sold for more than $800,000 two years ago.  I’m told no neighborhood will be immune in the next wave.

Brad Davidson

We Help-U-Buy Realty

Back in July I wrote about tracking the median sales price by watching the pending sales.  My theory is to look at the LIST price of pending sales and try and use that number to predict the future median sales price.  When I first ran the numbers at the end of April I found the median LIST price of the pending sales was $475,000.  When the June sales figures came out in July the median sales price was $495,000.  That’s not as close to my number as I thought it would be but I always assumed the median sales price was about a two month lagging indicator. 

There were over 4,000 pending sales when I ran the numbers in April and perhaps it takes the properties longer to run through the system than I had thought.  When the figures for July came out in August the median sales price was $466,000.  Perhaps the median sales numbers are a three month lagging indicator.

Another factor is that the sales numbers as reported in the OC Register from Data Quick include new home sales.  That definitely skews the median upward. 

In July I wrote “For the 4,183 pending sales as of July 7, 2008, the median list price is $439,000.”  Today, September 3, 2008, I looked at closed sales reported in the OCMLS and found 2,351 closed sales reported with a median sales price of $439,000. 

$439,000 seemed like an awfully big drop 2 months ago but I have been shocked at how far and how fast the market has dropped.

I also ran pending sales as of September 3, 2008, and as of today the median LIST price of all pending sales is $411,000.  That is another big drop and it looks like a cold winter for the housing market.

Brad Davidson

We Help-U-Buy Realty

June Sales and Future Median Prices

You’re going to hear it here first. Data Quick will be coming out with their sales figures for June in the next week but I’m going to try and beat them to the punch each month. I don’t know how my numbers are going to measure up in comparison with Data Quick’s far more detailed studies but I’m going to give it a shot. What I think will be very interesting is using pending sales to try and predict future median prices.

Here goes!! According to the totals on the MLS website, June home sales in Orange County totaled 2,176 residential properties. These are mainly resale homes as the majority of new homes are not listed in the MLS. The median sales price of these homes was approximately $475,000.

According to the MLS, May sales totaled 2,135 properties with a median price of $480,000. According to Data Quick and as published in the OC Register, there were 2,266 sales and the median price was $485,000. Given the disparity in the total sales numbers, I’m content with the $5,000 price difference and if the June number is within $5,000 of $475,000 it’s all good.

I’ve always thought that the data provided on homes sales was of marginal value. I’ve long realized that the sales figures as published by the media are a lagging indicator. The 2,176 sales in June are deals that were negotiated in April and May, some I’m sure in March. In essence the median sales figures are two months old.

As of July 7, 2008 residential listings, categorized as pending sales or in back up offers total 4,183 properties. I’ve been tracking this number for the past few months and find it interesting that there are typically twice as many pending sales and back up offers as there are closed sales for the prior month.

A far more interesting number I’ve been tracking is the median list price of the homes categorized as pending or in back up offers.

I wanted to come up with a median sales figure that would be more current and perhaps be a better market gauge than numbers that were essentially two months old. I first tracked the list price of homes in pending sales on April 31, 2008. This is the unscientific part because I’m tracking the price the properties are listed at, not the sales price. While unscientific, my first set of numbers hold up remarkably well. The median listed price of pending sales and back up offers was $475,000 as of April 30, 2008. The same price as I show for closed sales for the month of June 2008!

While I have read that the median sales price number has ticked up a bit, it’s not what I see in pending sales. For the 4,183 pending sales as of July 7, 2008, the median list price is $439,000. If that number were to hold up when the actual sales figures for August are released in September, it would be a continuing slaughter for the OC real estate market. I think the median number will be higher because there are a lot of short sales and REO’s in the pending sales that actually sell for over the list price.

Then again, when I first ran these numbers in April and came up with the $475,000 median, data Quick had just released the March numbers showing a median of $506,000. $475,000 seemed pretty low then too.

I hear Orange County is looking for a new real estate oracle now that Gary Watts has publicly apologized for being wrong. I’ll track these number every month and report here and see how I do.

Brad Davidson
We Help-U-Buy Realty

I see every day how badly the banks are getting hammered on the bad loans they made. It’s made me a lot of money shorting banks stocks and writing puts.

Here are some prime examples of the losses they’re taking.

23 Leeds Ln., Aliso Viejo

3bdr 2ba 1800 sqft. On the market for $489,000. This house sold for $685,000 in May 2004. We weren’t even at the peak yet in 2004. The buyers put $75,000 down when they bought but pulled that same $75,000 out a year later. The bank eats the entire $685,000 plus the 4 to 6 month of payments that weren’t made plus 6% of the sales price going to commissions.

Let’s add it up: (all rough numbers but close enough)

Price difference    $196,000

Missed payments $ 18,000

Commission           $ 29,000

                               $ 243,000

2 or 3 different lenders are losing $243,000 on a $685,000 loan. That’s a 35% loss. And we’re talking Aliso Viejo, an area of relative stability.

Next.

21595 Audubon Way, Lake Forest

3brd 2 ba, 1070 sqft. On the market for $372,500. This house sold for $605,000 in November 2005. 100% financing. Interesting fact…. the Trustees sale date in the tax record is dated 5/29/08. The bank took this property back less than a month ago.

Here’s what the banks lost:

Price difference     $233,000

Missed payments $ 17,000

Commission      $ 30,000

                           $270,000

Lenders are losing $270,000 on a $605,000 loan. That’s a 44% loss. I’m really surprised at how hard hit Lake Forest has been. I’ve always thought of it as a desirable area.

Here is the winner, or loser if you own stock in large lending institutions.

1609 S. Woodland Pl., Santa Ana

3 bdr 2 ba 1290 sqft. On the market for $305,000. Sold for $587,000 in August 2005. 100% financing through New Century. Plus they got a $25,000 equity loan from BofA in 2006.

Bank Loses

Price difference     $ 282,000

Missed payments  $   17,000

Equity loan             $  25,000

Commission            $  18,000

                                 $352,000

Lenders are losing $352,000 on a $587,000 loan. That’s a 60% Hit!!!! That is a big fat red mark on the balance sheet and there are hundreds more in Santa Ana.

Greetings fellow real estate watchers. I appreciate this opportunity to share my thoughts on the Southern California Real Estate market. I know real estate agents are not held in the highest esteem here but please, give me the benefit of the doubt before passing judgement.

You can go back and read my initial interview with Chuck Ponzi (then known as John Doe) about my We Help-U-Buy Realty concept from June 2006 and see my thoughts from then on “The Bubble”. I prefer my crow medium well please, because I was wrong , wrong, wrong. I knew the market couldn’t keep going up and that there would be a correction but I didn’t understand the implications of the ridiculously lax credit standards and what would happen when banks stopped handing out free money. At the time I thought there would be a softer landing.

The Option ARM loans made me see the light. I was still dabbling in the lending business 18 months ago and when the lenders started offering up to 4% commissions to sell people negative amortization loans I could smell trouble. By last summer, before the credit crisis, I was telling clients to not buy houses. It tends to have a significant impact on sales when you start telling your clients not to buy what you sell. However, I sleep very well at night and have a very loyal client base.

There are still storm clouds on the horizon as foreclosures continue to rise, the median price continues to fall and sales gains are driven by low priced bank owned properties. I do see some stability in prices at the levels at which banks are selling their REO properties. People are lining up to buy the REO’s and if they continue to show up and buy these properties a base will be established. If sales die off, as they usually do at the end of summer, inventory will rise again and prices could fall some more.

With the banks foreclosing on over 2,000 Orange County properties in May and June, REO’s are piling up in the banks inventories faster than they can be sold. Even though I see considerable pent up demand, and I’m busier than I’ve ever been, prices will be stagnant at best through next year.  It’s going to take at least that long to work through all the distressed properties that will come onto the market.

I hope I’m better with my predictions in June 2008 than I was in June 2006. These are very interesting times and I look forward to passing along what I see in the marketplace and getting your opinions about real estate in Southern California.