Just when we think it’s getting better, the news comes out that we are in for a double-dip in housing prices. Last year in 2010 things were starting to look up in many municipalities as sales were brisk and housing prices were even starting to inch up again. This year, though, the situation has turned from hopeful to grim. Now it appears that the price increases of last year were mainly due to the home buyers’ housing credit extended by the U.S. Congress to buoy the market. Buoy it they did, but now we’re in for a let-down. In September of 2010 as the last of the home buyer credit buyers closed on their properties, housing started to slide. Of course, it’s natural for sales of homes to slide after Halloween and throughout the winter, especially in cold-weather states, but this year’s slide began earlier and lasted longer.
Compounding the problem was the “robo-signing” scandal which halted foreclosures for several months last fall. Regular sales and short sales continued to pile up as inventory on a stagnant market, then the banks resumed their foreclosures. Foreclosures hit at perhaps a more rapid rate as banks rushed to close out their books at the end of the year. Now, at the end of February, here in Southern California we have not only a huge inventory, but I would even characterize it as a glut of properties clogging up the market.
Another issue adding to the misery is the difficulty borrowers are having obtaining financing. After the bailout, as we all know, banks, instead of spreading the wealth around as was intended, instead simply stopped lending. Belatedly realizing their folly during the bubble years, banks, always ponderously slow and bureaucratic, finally reacted–by clamping down on lending! Too late, banks. It has been estimated that half the population now has bad credit due to the recession in one form another, either a short sale, foreclosure, bankruptcy, late payments on credit cards or, at a minimum, too much debt. Lenders now will not lend to these people
For an analysis of what the near future holds for lending, check out my Pasadena Short Sale Blog. Hint: it’s another downer.
All of these factors have played a part in the current housing glut and consequent stasis. The inevitable result will be–yet lower prices as banks, short sellers and those who must sell for one reason or another, all compete with one another for the few buyers out there. Already this year, analysts have indicated that the scant 2.25% gain in L.A. housing last year has been wiped out. Some experts are predicting that we are in for another dip of approximately 15%. I am not in the prognostication business, but I can say that it’s not looking good.
Already from 2006-2008 many cities in five states, California, Nevada, Arizona and Florida and Michigan, according to Federal Housing Finance Agency data, have lost significant value in housing. Starting with Stockton, which lost 75% of its housing value in those two years, the dreadful list continues with Modesto at negative 73%, Vallejo negative 64%, Salinas at negative 60%. These are horrible numbers. Imagine losing 75% of the value of your home in just two years through no fault of your own!
The roll of California cities continues with Riverside-San Berdo-Ontario tied with Bakersfield at negative 47%, Fresno at negative 45%, Sacramento area at 44%, Oxnard-Thousand Oaks at 41%, Santa-Barbara-Santa Maria-Goleta tied with Santa Rosa at negative 40%. The l ist goes on-Oakland area -38%, Santa Ana-Anaheim-Irvine -36%,LA-Long Beach-Glendale -32, San Luis Obispo-Paso Robles -29% and even Santa Cruz-Watsonville lost 29% in two years.
That just us. Of course, Vegas lost 54% of its value in those years and is still hemorrhaging. Reno-Sparks lost 41%; Phoenix-Mesa-Glendale was down 31% and is still falling. Then, like California only worse because it has a less diversified economy, is Florida which was and still is a disaster zone. Cape Coral-Fort Myers lost 60% of its value, followed by Naples-Marco Island at 54% negative, Ft. Lauderdale -45%, West Palm Beach-Boca Raton down 45% and on and on.
That was the story three years ago. Much as we would like to say it’s getting better, really, it’s not over yet.
Louis XIV of France, styled the Sun King, famously opined, “Apres moi, le deluge.” After me, the flood. He was right, of course, for his excesses so infuriated the people that his successor was guillotined and his monarchy overthrown in the French Revolution.
SoCal Plunge In Foreclosure Filings
Something similar seems to be brewing in Southern California and maybe even nationwide as lenders ratchet up their foreclosure filings after the “robo-signing” lull. Though foreclosures dropped dramatically in SoCal this fall, so, too, did all home sales. The reasons seem to be many: the end of the home buyer tax credit, stubbornly high unemployment and the generally still-moribund economy. In fact, sales are down a full 16% from November of 2009. This at the same time foreclosure filings fell 14% from the previous November after a 22% decline in October for a two-month total 36% decline. Nationwide, the filings fell 21%.
December is traditionally a slow month in real estate as consumers focus on retail buying, parties and holiday travel plans. Typically, though, also in December smart investors are out there snapping up last-minute bargains of the now-extremely motivated sellers still on the market. Competition is almost always much less, to put it mildly, and sellers are determined to close out their books for year’s end. This year seems to be different as even investors are holding back.
That may be because the huge drop in foreclosure filings this fall has ominous repercussions for home prices in the new year. With the foreclosure freeze over, informed observers now expect to see the banks ratchet up their foreclosures with a vengeance, restarting filings begun in October and November and barreling ahead with new ones in January. Executives from RealtyTrac, a real estate data collection firm, speculate that the housing recovery could be set back three months, if not more, as the foreclosures pile up. In fact, we can expect ” an avalanche” of foreclosures shortly.
SoCal Home Prices
The most immediate effect of an avalanche of foreclosed properties on the market will be to further depress prices in Southern California which had started a slight upward movement. Los Angeles County home prices had dropped 1.2% over November 2009 to a median of $325,000. Riverside and San Bernardino Counties, the hardest hit by the bursting of the real estate bubble, lost 2.5% and 5.0% respectively to medians of $195,000 and $152,000. But, that is a huge improvement over the 30% and 40% drops of previous years. Other SoCal counties actually gained in value. Orange County eked out a .6% improvement for a $435,000 median home price. San Diego topped the charts with a 3.1% improvement over last year to a median of $335,000 with Ventura County just behind at 2.7% uptick to a median of $375,000.
Future: More Underwater Homes
These hard-earned gains will soon be lost as the promised avalanche of foreclosures hits the market. Perhaps sales will pick up as buyers and investors are lured back into the game. But, bargain-hunting fun aside, another price drop for already distressed homeowners will plunge yet more homeowners underwater. That, in turn, spirals down into more foreclosures and more equity loss in future.
Like Louis XIV, banks see this as well as anyone, yet still refuse to modify loans in any serious way. Like Louis, they see, but, obviously, don’t give a damn as long as they get their bonuses. Short-term is the only term.
Sales in Southern California counties are slowing. While this is normal for this time of year as most of the population is occupied with holiday preparations and parties, the amount of real estate inventory continues to grow. The rise in inventory will, in turn, lead to a further decline in home values as home sellers, including banks, attempt to price their properties competitively.
This is the latest real estate info for Southern California counties. Compare to one month ago here. Time on the market is lengthening and prices are dropping–again…
Here’s the latest housing values news for many Southern California counties. Compare to one month ago.
Loan Mods Are Not Working
Despite high hopes and great fanfare, loan mods, it seems, are just not working. Various figures have been bandied about. At the beginning of December, Treasury Department officials determined that about 700,000 mortgage modifications were in process under the federal HAMP [Home Affordable Modification Program], announced in March 2009, but only about 31,000 had actually been made permament.
Those figures are dismal enough, but here’s the kicker–about 25% of homeowners who received mods have already fallen behind on their payments!
Banks Just Don’t Want To Do Loan Mods
Many excuses have been offered for these pathetic figures: paperwork gets lost, homeowners lose patience with the tedious process, the process is so long homeowners’ situations have changed drastically. Some blame the Obama administration. Here’s what I see.
No matter how much the Obama administration admonishes banks to do these mods, the banks are clearly dragging their feet. Good old B of A, for instance, claims 158,000 trial mods, but only 98 have been made permanent. In a year! Then, there’s JP Morgan. It approved 16,000 loan mods in a year, but says it’s a “struggle” to make them permanent because only half of those who have completed the 3-month trial program had completed all the paperwork, read financial statements.
Banks Make the Process Tedious
There’s the real issue…Banks require a ton of paperwork, far more and far more complex than most homeowners have either the time or the capacity to supply. It’s a huge job. I know because I have helped many homeowners complete it. As with everything else, the banks take forever to process the paperwork, yes, often losing it and requesting replacements or updates, drawing out the time frame to 6,7, or 9 months before even a 3-month trial period begins. In the meantime, the homeowner who often waited until he was up against it to even apply for the mod is supposed to continue making the regular payment.
Homeowners Must Qualify
Oh, and did I mention, that losing a job or having hours cut back may eliminate the chance to even get a mod. Why? Because although homeowners focus on the hardship, banks focus on the income. If you want a loan mod, you had better have sufficient income. How much is enough? Good question? The problem is the answer changes from month to month and bank to bank. But, here’s the bottom line: if you have real financial hardship, you probably won’t get a loan mod.
So far, I haven’t seen any official statistics on what amount of relief the loan mods already processed have actually offered to the homeowners. One survey says $640 a month or 40% reduction. If that’s true, not bad. Unfortunately, I don’t think it’s accurate. The ones that I have seen offer much less and usually require a several thousand dollar payment to get into the trial period.
Loan Balance Reduction Is a Dream
What is most significant to the homeowner and why most start this tedious loan mod process is to obtain a loan balance reduction. In my experience, that is completely fanciful. None that I have seen include a principal reduction, though many I meet claim to know someone else who got one. I’ve never met one of these mythical creatures.
Think about it: prices around here have dropped 40% or more in the last 2 years. How do you feel about paying your $600,000 mortgage when similar homes in your area are now selling for $300,000? Yet, the banks are not offering these homeowners struggling to make their payments any reduction in their principal balance. Extending the loan to 40 years, yes–but no reduction in loan balance.
What’s the answer? Try doing the loan mod if you are willing to put in the time and effort involved. At the same time, though, I recommend attempting a loan restructuring. Next post will explain the process.