This isus jt a short update. I have just been informed that the Attorneys General of the states who were ready to do a terrible deal with the Big Banks, as mentioned in a previous post, have had a change of heart. They’ve shelved the give-away to the banks in the face of MASSIVE PROTEST. No, people weren’t demonstrating in front of their meeting room, though that might be a good idea if I had any idea where it was. It was simply an avalanche of protesting emails, letters and phone calls.
From what I understand, no new deal has been discussed. Simply, the $20-billion giveaway has been quietly laid to rest. It’s really shocking to me that this deal could’ve progressed so far in the first place.
How could these various Attorneys General not realize how angry the populace is over the bad behavior of the Big Banks? How could they possibly think that regular citizens who lost their homes to foreclosure because of the irresponsible lending policies of the Big Banks would think it was fine to allow the banks and their executives to make off with trillions of dollars and then let them off with a mere $20 billion to be shared among 50 states? How could they not realize that people who lost their retirement dreams as their pension funds and 401ks crashed because of the behavior of the Big Banks would not think such a deal was a fine thing? How could they not realize that every single homeowner in America whose home has lost value or whose home is actually underwater puts the blame squarely on the Big Banks?
Luckily, Eric Schneiderman, Attorney General of New York, was not asleep at the switch as so many of these others appear to have been. Were there others who noticed? I don’t know, but I would like to think that Kamala Harris, Attorney General of California, took an active role in putting this terrible deal in the trash bin.
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.
These days it’s a bit confusing because home values have slipped considerably in many places. The key, though, is how much would it cost to replace your home if it were severely damaged or if it were burned to the ground? Obviously, that value doesn’t refer to the purchase price because that included the land which in 99.9% of disasters is still there. The question involves the price of construction in your area.
Home values may have dropped. Has the price of home construction dipped, too?
The Insurance Information Institute recommends the following:
- It’s a good idea to insure your home for the cost of rebuilding it. Check your homeowners’ policy to see the maximum amount your insurance company would pay if it had to be rebuilt.
- Find out what it would cost to rebuild your home. Your insurance agent can calculate rebuilding costs for you or you can hire an appraiser (call me at 626-641-0346 for references). Make sure your insurance agent knows about all improvements you’ve made, such as a deck or larger kitchen.
- Make sure the value of your policy is keeping up with increases in local building costs. Many policies include an inflation guard… if yours doesn’t, consider purchasing one.
- Find out if you have a “replacement cost” policy for your house. If you own an older home, you may have a “modified replacement cost” policy.
- For the contents of your home – find out whether you have “replacement cost” or “actual cash value” insurance.
- Check the limits on certain personal possessions, such as jewelry. Consider buying an “endorsement” to insure valuables separately.
Insurance is one of these intangible products that we pay for and hope we never use. Make sure if you do need it, you have the coverage that you need.
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.
Losing sleep over the precipitous drop in the value of your home? Wondering how you can continue to make payments on that $500,000 loan when the home now seems worth at most $300,000? Casting jealous glances at the newcomers in your area who are getting bargain prices and bargain rates?
Guess what? Now you can short sell your home AND buy another house at today’s prices and rates.
Over 14 million loans in the U.S. are now either underwater or in some stage of foreclosure. About half the nationwide sales to new buyers are either repossessions or short sales. It seems to most underwater homeowners that there ought to be some way to connect the two–now there is. You can short sale your home and buy a similar property for half the price.
Lenders are now coming out with new programs, many insured by FHA, which make it possible for homeowners to short sale their homes and simultaneously buy another property at today’s prices and today’s rates. Many homeowners have allowed their homes to go into foreclosure or waited helplessly for the loan modifications that never came simply because they couldn’t figure out where they were going to live if they left their homes. Some decided to stick out the school year. Others couldn’t bear to leave the neighborhood. Now they don’t have to.
Here are a few of the guidelines that will allow homeowners to short sale their current home and simultaneously purchase another home. First, they must be current on their mortgages. So, owners who have “let the property go” or who were not financially able would not qualify. Finally, here is some reward for those who have steadfastly made their payments in the face of dropping values.
Second, they must be able to qualify for the new mortgage.That means a FICO of at least 640 and income sufficient to pay for the new mortgage.That’s not as hard as it may seem. If a homeowner can pay the $500,000 mortgage at 6% or 7%, no matter with what great difficulty, think how easy it will be to pay the $300,000 with a 5% mortgage for an identical property.
Third, the buyer must have money sufficient to pay the minimum 3.5% FHA down payment and the accompanying closing costs. The short seller will get no proceeds from the sale of his property. That’s a given. So, where will the money come from for the new property? If it’s an FHA loan, the minimum down payment is 3.5% and that total amount can be a gift. Also, the short seller is eligible for the federal tax credit which goes up to $6500 for move-up buyers. That may be applied to the down payment or closing costs, but this is not yet determined.
Finally, some programs require that the new loan cannot be more than the previous loan. So, in this case the new loan cannot be more than the $500,000 which the buyer was paying on the previous home. With the drop in prices today, in most markets, this will be an easy criterion to satisfy.
Impetus to do short sales just got much bigger. If you’ve been dithering about what to do and how to house the family after a short sale, these new loans could certainly aid in the decision-making process and give you peace of mind. Short selling your home and buying another one at today’s much lower values may, in fact, result in a significant improvement in your housing standards…
Finally, in Obama’s plan the federal government is doing something to stem the tsunami of foreclsoures and short sales. It’s trying to keep property values from decreasing further. It’s trying to keep families in their homes.
Even as President Obama was announcing his plan, he acknowledged that it would be just a drop in the bucket. Think about this: the plan offers $75 billion in federal money to help homewoners, mainly by providing incentives to lenders.
Today, one in 10, that’s 10% of all home loans are right now facing foreclosure. It’s estimated that by the end of 2010 at this rate fully 25% of all homeowners will be underwater. That’s closer to $500 to $600 trillion in home loans.
The refis will not be too much help in California because we’ve lost too much value, though they may help in other areas. The loan modifications may help and the Obama team has said that any bank which has accepted TARP or any bailout money MUST do loan mods and good ones.
Still homeowners must have income to do a loan mod. So, if a homeowner has lost a job or has been unemployed for more than a short time, I don’t see lenders offering anything–short sale.
Lately, I’ve been seeing an ad on TV featuring a women who says she gave up her job so she could take care of her mother when she realized she was “failing”. She says she talked to her bank and “worked it out”. This would be laughable if it weren’t so villanous. Calling your bank and telling them you can’t pay your mortgage or only part of it will accomplish only one thing–a faster foreclosure notice. They will definitely tell you to pay whatever you have and to pay the bank first before other items in your budget, probably even food. That’s what I’ve been seeing out in the field. Despite all the bailout money, as we’ve all noticed, banks have gotten more hard-nosed, vicious even, not less.
Wow, I’m glad I got that off my chest. I didn’t realize how much I despise banks, especially the big ones. It seems Obama and his team have already learned the banks will have to be forced to do anything at all to help homeowners.