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Westcoe Realtors, Riverside California…The local Press Enterprise reported yesterday that on a nationwide level, housing starts were below projections…and this news seemed to startle some on Wall Street.  For those of us in this business who work in the sales trenches on a daily basis, our only response was surprise that anyone in the world could be surprised that housing starts are down.  Unless you have been dwelling on another planet unaffected by the economic issues of the past couple of years, reduced housing starts are a “no-brainer”…and here’s why.

Understand that builders are hampered by such a long time frame between when they purchase land and when they actually have a product to sell (permits, environmental reports, plans, city regulations, etc) that unless they have a really good crystal ball, they are very hesitant to get involved unless they know the market will be good for selling when they are ready.  Holding on to vacant land until the market recovers is how one becomes an “ex-builder” in a hurry, so they want to get in and get out as quickly as they can….anywhere from 12-24 months.  So, until anyone can tell a builder what the market will be like in 12-24 months, most will simply pass and wait…which means once the market actually does get better, the builders will be about a year behind.  Hence, building starts are down, and will remain down until this market becomes stronger…or at least predictable.

Next, there is also the issue of pricing.  Right now, in the Inland Empire area, prices have fallen so much that it would be almost impossible for a new home builder to sell his finished product and break even, much less make a profit.  In fact, one large builder said that land in our area has a negative value…meaning that even if you gave him the land for free, he could not build a home and make a reasonable profit (let’s say around 10%).  In essence, it would cost him more in building and labor costs than he could make by selling the home…and last time I checked, no builder is going to take all the risk to lose money.  In essence, unless the land owner is going to pay the builder to take the land off his hands, the builder will simply wait until housing prices rise enough to make a profit.

All this means is that housing starts will remain down until housing prices start to rise again…and who knows exactly when that will happen.  Almost all of the new homes being sold now were already in the process when the real estate market began its swoon, and therefore the builders had no choice but to forge ahead and finish what they had started.  They were damned if they stopped, and damned if they continued, but continuing was the better of two evils.  However, that does not mean they will volunteer for this path again…which implies that housing starts will continue to decline until there is hope that pricing will rise again…and even then, unless a builder has taken a huge gamble and tried to “predict and jump the market”, new homes will be 12-24 months behind the rising price market.

Take care, have a good weekend, and let us know if there is any issues you would like to see addressed in our blog.

Westcoe Realtors, Riverside California…According to the MLS closing statistics for September, 2009, properties that closed at or above the list price for the Riverside/Moreno Valley has reached a new all time high of 73%.  This is up from 67% in August, and represents the largest jump in the past 6 months.

This increase is the direct result of the vast upward spiral of multiple offers that are now received on most properties currently for sale.  Due to the extreme decrease in the number of properties now on the market (read previous posts on this blog), and the increased demand by first time home buyers anxious to purchase a home at today’s lower prices and interest rates, the number of multiple offers on the majority of properties available for sale has skyrocketed in the past few months. 

More buyers and fewer sellers means everybody is left to fight over the few available properties for sale.  This type of huge inequity between supply and demand means a bidding war for anyone desiring to purchase a home…and this bidding war results in eventual closings for the successful bidder in excess of the original list price.

In the price range of $350,000 and below, the ”overbids’ are actually higher, at 75%…which would make sense given that the majority of buyers are shopping in this price range.  In the higher price range of over $350,000, the statistics fall sharply to 58%, but even at that level, this current 58% is significantly higher than last month’s level of 50%.

Many buyers are concerned and frustrated by this frenzied overbidding process, and hoped that when banks release the thousands of repossessions they still have in some state of foreclosure, then supply will rise and the overbidding will not be as necessary.  However, if the banks continue to “piece-meal” their foreclosures and only release a limited number at a time, then there is no assurances that our current market will change any time in the near future…and the real estate buying public will see these overbidding statistics continue to hover at their current percentages.

Given the opinion of this writer that the banks are more concerned with their quarterly Wall Street profit pictures than they are in selling their massive supply of foreclosed properties (see previous blog post), then the manic, intense-pace purchasing real estate market we are now experiencing will be the norm for quite some time.  We would love to be wrong about this, but we fear we are not.  Only time will tell, but in the meantime, if you are considering purchasing a home in this pricing environment, strap on your helmet, get a good agent who can guide you through this maze, and take a heaping dose of anti-frustration medicine…because if you can get a home at today’s prices, it will be worth it.

Take care, and as always, let us know if there is any issue you would like to see addressed in this blog. 

Westcoe Realtors, Riverside California…According to the July MLS statistics compiled for the Riverside area, the resale housing market is continuing it’s dichotomy of two distinct selling markets.  For all properties that closed escrow in July with a sales price at $350,000 or below, 68% of those closings occurred at a price equal or greater than the original list price.   For homes above the $350,000 list price, the rate of “overbid closings” drops to 48%.  These percentages essentially mirror the statistics from the previous month, which were 68% and 45% respectively.  Overall, when combing all sales for July, the rate of overbid closings was 66%.

The reason for so many properties closing at or above the list price in the lower price range continues to be a reflection of the current supply and demand factors for the Riverside area.  Housing inventory is down substantially due to the California imposed foreclosure moratorium that ends in September, and the demand for entry level houses from first-time home buyers and investors is exceedingly high…and when demand far outpaces supply, then overbidding and “auction-type” frenzy is the only way a buyer can successfully purchase a home.  Multiple offers are still the norm, with most bank owned properties generating between 10-20 offers for the seller to choose from.

In the higher end market, the demand is not as great due to the higher interest rates and loan costs coupled with the larger down payment required to purchase a home in this range.  As a result, demand is not as high, and the overbidding is not as necessary.  Fewer buyers equals less buying frenzy.

In the price range below $350,000, the over bid rate has climbed from a low of 50% in April to the current rate of 68%.  This increase corresponds almost directly with the effects of a slow-down in the availability of foreclosures from both the Federal and State governments.  These programs were designed to give banks more time to work out loan modifications and assistance programs with troubled home owners, but instead has resulted in a minuscule amount of modifications and a massive log-jam of foreclosures simply stacked and packed waiting for the moratorium to expire. 

Many buyers, exasperated with the process of trying to purchase a home in these highly competitive conditions, have decided to wait until more inventory is available for sale.  This is fine if the banks release their foreclosures soon, but there is always the possibility that the banks will ration those releases as well, preferring to maintain the current inequity in the supply and demand chain.  After all, what seller would not like to have 10-20 offers from which to choose…and perhaps get the price bid higher?

Only time will tell what is the correct buying strategy, but for now, what we can say is that this real estate market continues to be red-hot below the $350,000 level…and if you are planning on purchasing  a home any time soon, bring buckets of patience as you travel the path towards your housing dream.  

Westcoe Realtors, Riverside California…Effective July 30, 2009, there are some changes in the way lenders must process new loans that could make closing an escrow take a few days longer.  This is generally not a big deal unless you are in an escrow time crunch, in which case you should be forewarned so you can hopefully prepare the other side of your transaction for the delay.  Given that many of today’s home purchases are bank repossessions, and these banks are almost always in a huge hurry (and often impose a $100 per day fine to the buyer if the buyer cannot close escrow on time), then it behooves a savvy buyer to be aware of these lender changes.

The time sensitive changes are as follows:

1.  When your lender gives you your disclosures on what your loan will cost to obtain (called a truth-in-lending statement), they now must wait 7 days before proceeding with the loan.  This is to give you time to re-think your desire to obtain the loan, and back-out if you want.

2.   This truth-in-lending statement must be given to the borrower again within 3 days of the closing, and if it is off by more than 1/8% from the original, then a new 7 day waiting period must be observed…again to give the buyer time to re-think their new loan conditions and either go or no-go.

Additional changes that will not necessarily add time to the process, but are changes none-the-less:

1.  All borrowers must receive their original truth-in-lending statement within 3 business days of making the loan application.

2 The lender is prohibited from collecting any fees other than a credit report fee until the 3 business days have passed for your review of the truth-in-lending.

3.  The lender must give the borrower a copy of the appraisal at least 3 business days prior to the close of escrow…although this requirement can be waived by the buyer if desired.

This new set of rules falls under the consumer-protection guidelines, and while the intent is to make sure that no borrower feels forced into a loan, the fear amongst real estate and lending professionals is that buyers who are fully aware of their loan details will be forced to wait anyway…and thereby possibly jeopardizing their ability to close escrow on their new home. 

Most reasonable home owners would understand the new regulations and simply comply with the mandated ”wait” period…but lenders who are selling foreclosed properties are not known for their patience with delays, so the prudent buyer will make sure the listing agent of any bank owned property is aware of these new regulations, and does not hold them against the borrower if there are any delays.

Good luck with your new loans, and as always, if there are any issues you would like to see addressed in this blog, please let us know. 

Westcoe Realtors, Riverside California…Normally Friday is Good News day, but with tomorrow being a holiday for many, we are fast forwarding the calender this week.  Speaking of holidays, it seems only appropriate that given the celebrations that will be taking place throughout our country this weekend, perhaps this is the time to give some thought and appreciation for some of the freedoms and rights we all take for granted…specifically the right to own real estate in our country.

It is unimaginable for any of us to envision an environment where our government forbids us, as citizens, to own property.  Owning a home is about as basic a right as we have in America.  Yes…we have financing issues, zoning issues, code issues, etc., to sometimes wade through, but in the end, no one just issues a proclamation that states we, the citizenry, simply cannot own a home. 

No one tells us at birth that our “class of citizenship” will keep us from ever owning property.  No one says that due to our religion, we are locked out of the home ownership process.  No one looks at our job, our income, our politics, or our geographical location and says that because of these things, we are not allowed to pursue the American Dream of home ownership.

We do not have to worry about going to bed at night, only to wake up with a new, military-overthrown government denouncing our property rights, and claiming that which we own now an asset of said new government.  Yes, we have eminent domain laws and issues, but they can be addressed in a court of law, not down the barrel of a gun.

In the end, while I can, at times, be very critical of some of the things our government does that adversely affects our housing industry, I am always thankful for both the right I have to voice my opinion, and the right I have to represent an industry that is there to help anyone purchase a home.  We live in a wonderful country, complete with its flaws and warts…yet hopefully we will all take the time at some point this weekend to contemplate the multitude of sacrifices that have made these freedoms a part of our daily life fabric.  Indeed, we are the fortunate few who are Americans.

Westcoe Realtors, Riverside California…We had someone email us with some questions regarding the 65% overbidding statistic discussed in yesterday’s blog post.  Specifically, they wanted to know the context of this percentage relative to previous months numbers, and if this is any different, then why so?

Thanks for your questions….they are both very good.

 First, the percentages for 2009 are as follows:  Jan…60%, Feb…59%, Mar…59%, Apr…50%, and May’s of 65%.  If you want to go back further, the last 3 months of 2008 averaged 61%.  SO…yes, there was a spike in May, and my 30+ years of experience tells me that June will be just as high as May, and maybe even higher.  Why?  Well, that leads to the second part of today’s question…”Why the spike in May?”

Easy…more buyers fighting over fewer pieces of cheese.  This is the simple economics issue I referred to yesterday.  When you have an overwhelming demand for properties (as our Inland Empire area does), and you artificially limit the supply of foreclosure homes for sale (as our Federal and State governments have), then the result is too many buyers fighting for the same properties, and that leads to bidding, bidding, and more bidding as the home ultimately goes to the highest bidder.  Now, whether the home can appraise for that high value is another matter, but even if it can’t, it probably will appraise for a value over the original list price…and that leads to our 65% overbid closing stats for May.

So, why is the government limiting the number of repos on the market?  Far be it for me to even try to imagine what goes through the head of a Federal or State legislator, but the bottom line is that while there are thousands and thousands of foreclosures that need to flow through our system for things to get any better, both levels of government have done all they can to try to slow this process.  The list is long, but as an example, we are currently 8 days into a  90 day California mandated foreclosure moratorium that is only delaying the inevitable sale of these properties.  It makes no sense to us, but no one asks our opinion on this stuff…we are simply left to clean up the mess.  What can we say?

So…thank you for your question about the 65% overbidding number, and let us know if there is any other questions we can answer for you. 

Westcoe Realtors, Riverside California…OK, so we realize that the heading for today’s subject is a bit direct, but after what we witness in the real estate trenches every day, there is simply no other way to describe the processes referenced above.  Loan modification programs and short sales are designed to assist sellers so that both they and the banks who hold their loans can ease the hassle and pain of going through the foreclosure process.  That’s the theory.  In reality, both of these programs are so screwed-up by bureaucratic nonsense that it is a wonder that any seller even tries. 

In the movie Cool Hand Luke, there is a great line by Strother Martin (the warden) as he addresses Paul Newman’s character Luke….”What we have here is a failure to communicate.”  My God, how simple and enduring some truths are over time….because the communication from lenders to sellers regarding loan modification programs,and their cousin short sales, is absolutely abominable.  Are there exceptions to this?  Sure…but they are very few and very far between.  To fully grasp the frustration here, let us deal with each program separately.

Loan Modification Programs

Let’s face it…many politicians are masters of the sound bite…and no real estate related program is more attractive to a sound bite than one in which the intended goal is to “help the little guy” dig out from underneath the crushing weight of a sumo-style mortgage.  The President, Federal Congress, State Governor and State Congress have all jumped in to “help”…and the net result is a tangled mess of rules and regulations that make the tax code look like lite bedtime reading.  Any level of government can mandate whatever they want, but unless there is a very simply, easy way to implement the mandated program, then the banks will simply give lip service to the idea, and do 1% of what they should just to look good for those same, sound-bite politicians.  Let us give you just one example.

Currently, the State of California has imposed a 90 day moratorium (June 1-August 31) on banks foreclosing on almost any loan created in California between 2003-2008.  There are exceptions, but this moratorium covers, by estimate, 90% of the loans originated in that 5 year span.  In conjunction with this 90 day stay on foreclosures is a companion Loan Modification Program that will give the banks a way to work with troubled sellers to modify (and thereby save a foreclosure) the existing loan.  The paraphrased quote from both the Governor and State Congress is “this will allow the banks time to help those homeowners in need with their mortgages.”  Sounds good, eh? 

Want the reality here?  At least two bank CEO’s that we communicate with on a regular basis have both indicated that the loan modification program outlined by the State Government is so cumbersome and so clogged with junk, that both of these large, local banks will not touch the modification programs as they stand.  Both of these banks would rather sit for 90 days unpaid on their loans than even attempt to comply with a boggled, bureaucratic mess such as this.  How’s that for a sound bite?  For a great article on the hassles some individual homeowners and real estate agents have faced recently while trying to negotiate the modification maze, read Leslie Berkman in this past weekend’s Press Enterprise newspaper.  She hits the nail right on the head.

Short Sales

Again, in theory, a short sale helps both the bank and the homeowner by working out a price to sell the property so that the lender will accept less than what is owed on the home in exchange for not having to go through the foreclosure hassle.  Saves everybody time and money…a real win-win for everyone involved.  What could go wrong here? (if this were a movie script, there would be a remark about rolling one’s eyes at that last line).

Perfect example we have right here in our office.  We have an agent who has been negotiating with a bank for 11 months on a short sale…and may finally be getting somewhere because we are now on our 3rd bank counselor, who insists that this can all be wrapped up within 90 days.  That will be over 1 year the bank has gone without any payments…and the bank has still not filed the paperwork to even begin the foreclosure process!  On top of that, we have sent them all the paperwork required of the seller, and at least 4 offers on the property from prospective buyers.  1 full year everyone has waited around for a decision that should not take over 30 days.  Amazing…but wait, it gets even better.  The real kicker here is that even though all four separate buyers submitted lower original offers that were eventually raised substantially by all parties, the bank is ignoring the newer, far higher offers and only wants to deal with the lower, original offers.  We are not kidding here, and we have no words…but we can give you the banks words: “We don’t need all the added “stuff”…we’ll just work with the original offers we have here and pick one of them.”  And we all wonder why the financial world is insane.

So what’s a seller to do?

Well, we suggest you keep on plugging away, and perhaps you will be the 1% (our estimate) of successful loan modifications (the percentage is slightly higher for short sales, but not much) that are successful.  However, to help with the frustration that surly lies ahead, may we offer you the one thought that we have learned over and over again that may help…and that is the following:

 THE BANKS DON’T CARE…about you, your situation, your intent to do the right thing, your job loss, your medical issues, or your dog.  They simply don’t care.  They are geared-up only for what their regulations tell them, and if you present any type of uniqueness to their system, then you only represent a problem.  They take the path of least resistance, embrace what is systematically easy, and will not work with any situation that displays any sort of individuality that may require a decision contrary to the formula worked-out by some nameless corporate bean-counter.  Yes, there are a few (very few) who actually try to help…but the majority are simply faceless organizations who only know the “rulebook” as dictated by the people in the back room.  We know this is not what you want to hear, but it is the reality we deal with every day…and if you can embrace this last paragraph, then perhaps you can endure your struggle without caving into the massive frustration that lies here…in the real estate Twilight Zone.

Westcoe Realtors, Riverside California…The most recent closing statistics for the Greater Riverside area in the month of November 2008 show that real estate market closing prices continue to remain strong when compared to the list price.  In November, 59% of all properties that closed escrow in the area closed at a price that was either at or above the list price.  In October, this indicator was also 59%, and it was 62% in September.

When broken down by list price, the percentages become very interesting, indicating that the lower price ranges are far stronger than the upper levels.  For homes priced below $350,000, the percentage of homes that closed at or above the list price climbs to 62% (367 closings, 227 at or above the list price).  For those homes above $350,000, the percentage falls to 40% (63 closings, 25 at or above the list price). 

The above numbers show that certainly in the price range below $350,000, many areas are no longer experiencing pricing declines…and indeed have bottomed out and are now remaining stable.  Almost every property that sells at a price higher than the list price is the recipient of multiple offers, in effect creating a bidding process for the successful buyer.  This bidding between multiple potential buyers drives the prices up to the eventual sales price…which 59% of the time in November was equal too or higher than the list price.

In the end, the bank repos will continue to dominate the real estate horizon for some time, but it is apparent that in some areas, the prices may have reached a stabilization point.   The huge supply of inventory will probably mean that prices will not be rising soon, but the above numbers do indicate that in many cases, they are no longer falling…and this is good news for almost every homeowner.

Westcoe Realtors, Riverside California…The latest conversation coming out of Washington DC these days regarding housing interest rates is the concept (or rumor) of government backed 30 year fixed interest rates at 4.5%. The theory here is that with “normal” interest rates at such an incredible low, this would spur additional buying, acting as a stimulus for the beleaguered housing industry…and it would.  The question is….should a buyer wait to purchase a home until these rates become a reality, or should a buyer jump in now while there is an oversupply of well priced bank repos?

About a month ago we may have found some merit in waiting (although a month ago, there was no mention of 4.5% interest rates…that has only happened in the past 10 days or so), but not now.  Our advice, as a major real estate company who works closely with both buyers and bank owned properties, is to buy now and don’t worry about your potential 4.5% interest rates.  Why buy now?  Well, let’s count the reasons.

First, the current 30 year rates are now at 4.75%, so waiting doesn’t really help that much.  As an example, at 4.75% the monthly payment on a 150,000 loan is $783 per month, principal and interest.  If you wait for the 4.5% rate, the payment drops from $783 to $761 per month…which would be nice to save the $22 per month, but there might be strings attached to the 4.5% interest rate that would make this $22 per month savings not seem so beneficial.  What strings, you ask? 

Well, that is the problem…no one knows…which leads to the second reason not to wait…which is that it is entirely possible this 4.5% government backed rate will never materialize.  Right now, it is only a rumor, floating out there for everyone to talk about.  It’s like cotton candy…looks good, but not a lot of substance.  Who knows if we will ever see it?  Anyone out there ever seen the government change their mind?  Also, this 4.5% “projected” rate looked great when rates were in the 5.5%-6.0% range…but not so dramatic when the current rates are at the 4.75% mentioned above.  If the normal, “non-governmental backed” rates are only .25% higher, the government may pass on backing rates that only save .25%.  Remember, the goal was to stimulate home buying, and it appears that buying and refinancing at 4.75% is doing the trick.  Only time will tell, but I would not hold out to save $22 per month on the hope that the government will act on a projected program in the near future.  Too many “ifs” for me.

Lastly, there is the supply of foreclosed homes…which as we have mentioned numerous times in previous blogs, are the fuel that is attracting today’s buyers.  Eventually, the number of repos will begin to dwindle as the lenders become increasingly willing to negotiate with homeowners before they lose their homes…but getting to this level is a cumbersome process.   So for now, the supply of available repos is large…and this large supply is leading to great deals for buyers…lots to choose from, and the prices are right.  Our real estate agents who work with the banks indicate that in the immediate future, there appears to be plenty of inventory coming…but even our crystal ball only goes out about 90 days with any degree of clarity….so waiting for that elusive, hopeful, government “promised” 4.5% rate may not be worth it.

In the end, while we are all for saving whatever money you can, sometimes one in the hand is worth two in the bush…especially when the bush has anything to do with government policy.  Unfortunately, everyone is in this boat for the 1st time…and while I make the assumption that our government has our best interests at heart, they simply change course too many times to really count on anything at this point. 

So…the real question is this…is the “promised” 4.5% interest rate really worth waiting if you can get 4.75 FOR SURE right now?  You make the call, but be careful if you wait too long.

Westcoe Realtors, Riverside California…This is intended to be a quick update to the most recent post of yesterday regarding Renters and why they should buy a home in this market.

 In yesterday’s post, the interest rate used for all examples was a fixed 30 year rate of 5.5%…which on a $150,000 loan translated to a monthly principal and interest payment of $783.  On a $200,000 loan, the monthly payment would be $1136.

HOWEVER, THE INTEREST RATES HAVE DROPPED SUBSTANTIALLY SINCE THE FEDERAL RATE REDUCTION OF YESTERDAY AFTERNOON.

Therefore, as of today, the 5.5% rate is a thing of the past…and is now replaced by a fixed, 30 year rate of 4.75%.  This means the $150,000 loan now only costs $783 per month (a $69 per month savings), and the $200,000 monthly payment drops to $1044 (a savings of $92 per month).

All other numbers quoted yesterday regarding taxes and insurance remain the same, as does the premise of the blog post…which is there really is no better time to invest in real estate as a buyer.  It is absolutely crazy to continue paying rent when you can own your own home, get the tax benefits, AND PAY LESS THAN THE RENT YOU NOW PAY SOMEONE ELSE.  These are amazing times in the real estate world…don’t wait until the window of low prices and low interest rates passes you by before you realize how incredible this current situation has become.

Good luck, and let us know if we can help.