Hot market: Under $300K for foreclosed houses

Worth reading: This story just posted on LATimes.com about the market for foreclosed houses, which includes the following nuggets/insights/claims:

"REO homes (bank shorthand for "real estate owned") that are in good condition and listed at $300,000 or less are drawing as many as 15 to 20 bids from home buyers and investors looking for bargains, area real estate agents report," Dinah Eng reports.

--"Right now, anything under $300,000 is a hot price," according to Century 21 Wright G.M. Earl Bonawitz, who is based in Temecula.

--"A $650,000 to $700,000 appraisal a year ago in some areas is now worth about $350,000," Bonawitz said. If you are scoring at home, that's a discount from previous appraised price of up to 50%.

--"Prices are more realistic. Time on the market is coming down. I've seen bank-owned properties sold within five days recently, compared to an average of 95 days for REOs at the first of the year." -- Stephen Yeager, president and chief executive of Weichert, Realtors-Foothill Properties in the Inland Empire.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: L.A. Times

Comments

[Laker]

From the article: A story of a flipper:
Kirby Palmer, that is doing that as part of his retirement strategy...
"....The lender required a 10% down payment, as well as six months' worth of mortgage payments and the construction costs upfront at 13% interest for a six-month loan....Palmer rehabbed much of the house himself and was paid back the construction costs by the lender as the work progressed. All told, he put up $64,000 on a $238,000 house....He put it back on the market at $349,000 in March but has had no offers yet..."
The kicker: no offers yet...If it doesn't sell, I can rent it out and wait for the market to bounce back," he said. "It's not a huge risk....

Based on the flipper's numbers he put in $302,000. There is also interest kicking on about $214,000 based on his 10% down at HARD MONEY interest rate of 13%. That is $535 a week or $2300 per month loss of interest paid. He also losing on his down payment of $23,000 and $68,000 cash that he put/borrowed to fix.
He still needs to pay RE commissions of say 5% that is about $17,000. He is saying that he can always rent it out and wait for the market to bounce back ...to what??? The haydays of 2006??? This guy is going to lose his retirement money and his shorts.
The guy is an idiot!

[amir]

Yep, the 50% discount is here. Of course, it's only at the outskirts of LA, but have no fear, it will show its face in the nice neighborhoods as well. The banks will take it there.

The biggest unknown is the recession. If a serious recession hits - as I anticipate - prices could go even lower.

And by the way, interest rates won't remain low forever. At some point, Bernake will have to raise rates to protect the dollar and stop rampant food and energy inflation.

By the end of this crash, 50% in all areas will be normal, with some hard hit areas seeing 60-70% declines.

Or... I could be wrong. Predictions are tough, especially about the future.

[mike]

what is a flipper??? that was a fantasy for a few years. now people think 4-5 years is a long time to hold real estate.
anyone who thinks real estate is an investment for less than 15 years is a fool thats right a FOOL . real estate is a long term investment meaning 15 years or more and that is if you can get a good 15-20 year loan. the longer you hold the better. that is the way it has always been , save for a few short years recently, which by the way are gone now.
why don't people wait and then buy for the long haul when things loosen up again. it's happening as we speak.

[150 multiple choice questions]

Still too early, but not big $ #'s so the fools who think they're smart are getting in!

Looking forward to reading the lies about how they "broke even." It funny, even with the 50% drop in prices, no one ever seems to lose money.

[Cal]

This is not a bad market, it is just bad market knowledge. Available financing is better than 10 years ago and interest rates are lower. It is just the lack of market knowledge (price only go up!) and unable to make a market by Realtors that made sales get so bad. Price to recent realistic comparables (realtors comparables when trying to get listing are usually optimistic) or below in a down market. If it doesn't sell, keep cutting until it does. This ain't rocket science.
There could be much worse lending enviroments than the one we are currently in.

I do love the cheerleading, SRAR last week had this to say:
"“But multiple factors argue against steep declines in single-family home prices:” Link said" "

The sentence almost right before that one was :"Single-family home prices hit the record high of $655,000 in June of last year but have been inching lower at a much slower pace than condos. Last month the median came in at $465,000, down 25.6 percent from the prior year and off 1.1 percent from March."

How do these people have an credibility? Link was saying these exact same phrases last year and the year before.

I think Muhammed Saeed al-Sahaf is now employed by the NARs media department.

[mbob]

With apologies to tin pan alley:

"...catch a falling knife and
put it in your pocket
hope it won't cut something awaaaay...."

[Fred]

I think a recession is the least of our worries right now. The entire foundation of America is showing some cracks. Gas prices are going to cause some very ugly problems very soon. 50% in the bubble areas is all but guaranteed. That would be the case even if the economy were strong - just normal bubble correction (over a 50% rise, always at least a 50% fall). But the closest historical approximation of the economic turmoil to come is the Great Depression.

[Nick]

amir said:
"And by the way, interest rates won't remain low forever. At some point, Bernake will have to raise rates to protect the dollar and stop rampant food and energy inflation."

Respectfully disagree. That may have been true when the CPI was remotely accurate as a measure of inflation, but in it's current dismantled, inaccurate, and easily manipulated state, it can be kept low forever, regardless of actual inflation. Unless the news media get the general populace to demand reform to the CPI, official inflation can/will remain under control forever, and the Fed can always claim food & energy should be discounted due to wide fluctuation.

Besides, raising rates while the country is in a recession would be counter to Benn'y entire mindset on how to prevent long-term stagnation. Banks may raise rates when they realize the CPI is bogus and real inflation is through the roof, but I wouldn't guess the Fed rate will go much higher for a long time.

[tarbubble]

$300k for an SFR sounds great. i would happily pay that for a decent house in my area, but so far the lowest i've seen is $399k. it's still much cheaper for me to not buy right now. to quote a band i hate: time is on my side.

[150 multiple choice questions]

Two other things...

1. Why does anyone believe what these realtors say? Realtor = liar and who wants to bet this is more cherry-pick / unsubstantiated crap.

2. When will people understand that low interest rates don't matter, low prices do!

[mbob]

Yo Fred, Soros and Buffet are singing the same tune. So am I.
Looking around at a ruinously costly military action in the Mideast, global competition for scarce petro and grain, a 4 trillion wad of imputed residential real estate over-valuation, no mas home equity as an ATM plus an aging population of high-wage earners, I get the shiverin' willies.
Less than a year ago a major TV network carried a "what if" news-like segment that mocked up our world if bbls o' crude hit $200. Empty airports. Vacant freeways. Hoovervilles.
Sooooo, now that we're within sniffing distance of that oil cost, how long will it take for overburdened credit card accounts to go pffft and the trailing impact of reduced purchases to hit us? Ugly doesn't begin to describe what could well be next year at this time.

[shockg]

Increased sales is like holy water to the speculators on this blog.

[Laker]

shockg, increased sales mean prices are dropping. Without price drops there were no sales.
Most of the sales are at 2004 prices and lower, so it only help to set lower comps, and bring on new set of loan owners being put in upside down position as we speak...
That alone guarantees a nice steady "supply" of new foreclosures.....I'm sure speculators like you like it.

[Nelcisco]

I live in Santa Maria which is in the central coast, there's a section thats being built in the south end in Orcutt called Rice Ranch,you ought to see the developement that's going on there, the developer is building like its was 1946 after World War 2 when the GI's came and they were all looking for housing. watching this thing go up is a pretty guttsy move.
I went roaming around, saw some models and spoke to one the marketing reps who to his own addmission didn't know a whole lot about financing and how it worked, he initially didn't know I was in loans, bless his heart he was positive in his presentation on the developement and how there's this optimism in the market because intrest rates are low and the conforming loan limit are now 729k instead of 417k

These homes were in the 500k to 680k range....very nice homes, something to be excited about. He was telling me that I can do financing pretty easy now that FHA is more available now than during the bubble yrs. he asked me what I did and I told him I was in loans myself...Oh, he said "whats your take on the market"? he asked , thanx to this group of people on this blog (meaning all of & you comments) I gave him my take on the market, the truth of what it takes in this market to truly qualify for a loan,he was suprised by what I was telling him.
here's the problem.
Santa Maria is an Agriculture low income to middle income community, one of the more secure jobs in this whole region is at Vandenburg Air Force base some 25 miles away

It drives me nuts that real estate and mortgage people still have their heads buried in the sand regarding this market, after all the data about the market in California, the articles by Peter, the comment by all of you insightfull people on this blog, they think that because conforming went up from 417k to 729k, now they can sell 680k conforming to a 40k median household income community. Hell, its tough to sell homes and make loans works in the best market incomewise in the state...LA,some would say SF, buts it tough to make it work there too.

Man....I don't get it!!!

do you???

[Cal]

Turns out when prices fall, sales rise.

This shocking secret (it is apparently a revelation to shockg) has gone undiscovered for centuries.

[Brad Neal]

150 multiple questions you are pathetic. Seriously, have yo ever even owned real estate? Unlikely. Things don't look good but placing the blame on realtors is plain silly. Your earlier ad hominims directed at me when I offered evidence of some local valuation strength in Venice (332 Brooks sold for $150 over list with 8 offers last month) you dismissed me as another unethical realtor. I happen to own and have owned beach front properties for over 20 years and have no respect for someone like you.

[Inland Empire]

1. Why does anyone believe what these realtors say? Realtor = liar and who wants to bet this is more cherry-pick / unsubstantiated crap.

Let me clarify for you. I am not a real estate agent. I am looking for a single family home. I have bid below, at or above on nine homes in the last four months. I have not gotten one of them due to being out bid. (This is only the houses I have bid on in Southern California - I am in escrow on another house in another state right now but I had to do a little shopping and bidding before I got that one also).
If you add two of the departments at my workplace together, here are about 15 people. Four of them (including myself) have been actively seeking to buy homes. Only one has succeeded and she had to do quite a bit of shopping and bidding before getting it.
Things are not as expensive as they were and the prices may come down a bit yet. But the fact is that good homes ARE selling. People still want a home, need a place to live or want to invest.

[Keith]

Fred,
You are right on the money. Journalists, whose job is not to distribute useful information, but to write 500 words by 5pm, write whatever industry people tell them, because that way they don't have to think, just write. For this reason, the problems with the economy are always reduced to one problem. The financial press has decided the only problem right now is Liquidity. So every time some expert says "Hey, banks are lending money," the press states, "The Liquidity Crisis (the only problem) may be over."
But in fact the press is too shallow to see how scary the economic landscape is.
In the same way that nobody in the LATimes, NYTimes, or any of the mainstream press reported on the housing bubble until it had started popping even though it was obvious years before that, the press is not even touching the depth of trouble now.
The closest they come is the sob story of Joe and Mary Jane Average, who spent $60k on junk on their credit cards and HELOCs and now they're having a tough time. Now the press needs to take 50million stories like that and figure out what it means. And take the Bear Stearns collapse as the tip of the iceberg. But they won't. Their job is to write embarrassingly formulaic essays filled with quotes by paid spokesmen.

[amir]

Nick,

Regardless of what the Fed does, a raging inflation would mean higher mortgage rates because they tie in to long term rates. Higher mortgage rates, even by one percent would mean much lower real estate rates.

[150 multiple choice questions]

Brad, I don't care about 322 Brooks. You got ANYTHING else?

[150 multiple choice questions]

And in an odd coincidence Brad, I lived on Brooks in the early 90's in a nice spec duplex... It was a very good deal considering the seller lost ~50% when they finally unloaded the 2nd unit.

And do you think realtors are not to blame? Certainly they're not solely to blame but I think it's about time the reality about realtors gets put out there because they've been putting out their very organized crap for years.

And I didn't use Ad Hominem with you, I repeatedly said that I didn't care about a single cherry-picked example, which you kept giving.

As for the others looking to buy, I know from experience it's very frustrating and the market never goes to zero transactions as much as you would like it to. Be patient, you'll find your home, and keep in mind that every day you wait, you're paying less.

[pugtv]

Shock"Speculator"G,

Your comments aren't going to influence the market. You've speculated and lost. Let it go.

[BK Landlord]

The flipper in the story needs to re-fi w/ a 30 yr. fixed @ 6%. . A $280K mortgage would be about $1900 mo. PITI. Yeah, he could probably rent it for that.

[Nelcisco]

150 multiple

I can empathize with your view but in all fairness to realtors, the real culprits are the mortgage people...not me of course, I'm one of the honest ones that see the truth for what it is, thats why I'm still in the game, struggling but still in it driving a Nissan Altima & Dodge Neon instead of a 750 beemer and out of the loans business.

realtors can blow smoke all they want but the RE transaction is really in hands of the LO

[shockg]

Shock"Speculator"G,

Your comments aren't going to influence the market. You've speculated and lost. Let it go.

Posted by: pugtv | May 31, 2008 at 09:29 AM

I dont need to imfluence the market. I didnt bet my primary residence on the crash like you and your buddies did.

[150 multiple choice questions]

Without question the mortgage brokers, especially the independents, were a huge part of everything that broke, but the realtors were standing right there saying how "you better get in now" and "you can't lose money in real estate," etc, etc. There's PLENTY of blame to go around, and I put much of it on the buyers - because even though it's work, it's not that much work to educate yourself and make your own decisions.

But the most frustrating thing is you go to an open house still today and you'll be lied to by a realtor. Early and often and without reservation or fear of penalty. Then you'll be given bad/misleading/cherry-picked data... and this should change.

[Brad Neal]

150 multiple questions: OK I was a bit harsh. I'm sorry. By the way, not a single condo sold in Venice last month. And not a single Seller reduced their price. Venice is an anomaly for sure.

[sheila]

It seems to me like the "money quote" was once again ignored in the blog summary of the article, unless everyone now wants to slam DataQuick as being lying, corrupt enablers or whatever the latest phrasing is around here:

John Karevoll, an analyst with DataQuick Information Systems, also is seeing that REO prices have come down and more homes are closing escrow than a few months ago.

"The big question is whether we're in a recession," he said. "If we are, we're in for some more downturn. If we're not in a recession, it's likely that prices have found their bottom and that most of the declines are behind us. That's true for REOs and the market as a whole."

[Nick]

To amir, and sorta OT, but hopefully interesting:

While it's true that loan rates are related to long-term rates, they are more directly influenced (as far as I can tell) by the Fed rate, the long-term treasury rate, and inflation expectations. Let's look at each of those:

- The Fed will keep rates low as long as the economy is in recession and inflation appears under control. Since the government directly controls the CPI through hedoic regression, it can be made low forever. There is a huge amount of Alt-A loans, underwater "owners", and personal debt, and that should keep personal spending depressed for a while. Since personal spending is the bulk of our GDP, we will probably be in a recession for a while.

- The long-term treasury rate varies inversely with the price of long-term treasuries. That price varies inversely with the perceived long-term value of other fixed-rate investments (such as mortgage-backed securities and corporate debt instruments). So as MBS's and private bonds are seen as risky long-term investments (which they will be while the economy is in a recession), treasuries will be artificially highly valued, and thus have low rates.

- Inflation expectations are driven (currently) primarily by the CPI, which is freely and fraudulently manipulated by the government. As long as inflation is undesirable, the government will keep the CPI low; and until the news media gets more vocal about how inaccurate and manipulated it is, it will still be used as a measure of inflation (and drive inflation expectations).

As I said before, banks may demand higher rates once they realize the old metrics they relied on are no longer valid. However, as long as they rely on the current metrics to determine mortgage interest rates, and/or the FHA gives loans at the fake low rates, and/or the GSE's buy loans at the fake low rates, the rates will stay low.

[Valley Observer]

150 et al, I agree that the individual buyers who are now underwater and/or faced with resets they can't afford are at fault for entering into unrealistic deals. They had a lot of help from the brokers and lenders, but they did it themselves, so I don't feel very sorry for them.

But as a homeowner and owner of a property I'd like to sell in the near to medium future, I am faced with a large-scale disaster, and I can't blame any individual borrower who's over his head for creating it. The problem as it effects me isn't that somebody made an unwise decision that has led to foreclosure, the problem is that millions of people did, and that's a giant systemic problem, not a lot of individual problems. The lenders made loans likely to go into default, helped by their accomplices such as the rating agencies and secondary marketeers who fobbed these off as solid securities, "as safe as houses". They should have acted as the adults in the game and maintained reasonable underwriting standards.

http://www.washingtonpost.com/wp-dyn/content/
article/2008/05/30/AR2008053002568.html?hpid=
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