Foreclosure discount hits 57% in parts of L.A.

I just put together a gallery of 21 bank-owned listings in greater Los Angeles.  These galleries are always interesting, and I'll leave it up to you to decide whether they are newsworthy.

That said, the asking prices for this batch of listings is showing larger discounts from peak sales prices than previous collections of bank-owned listings did. Six of the 21 listings are discounted 50% or more from their previous peak sales price. The house pictured, 2117 W. Avenue 33 in Los Angeles, is now priced 57.8% below its peak sales price (it sold in 2007 for $510,000, and is now listed for $214,900).

For what it's worth, here are links to the previous collections of listings, with the range of discounts from peak sales price in each collection, and the median discount. (I know, this is not a statistically valid sample, but I like to keep track.)

Feb. 25: Discounts ranged from 14.8% to 41.0%; Median discount: 19.0%
March 6: Discounts ranged from 6.7% to 38.0%; Median discount: 23.9%
April 17: Discounts ranged from 13.5% to  45.1%; Median discount: 28.8%
May 9: Discounts ranged from 7.1% to 44.3%; Median discount: 32.9%
July 9: Discounts ranged from 10.8% to 51.0%; Median discount:  30.9%
August 25: Discounts ranged from 3.2% to 57.8%; Median discount: 46.9%

Analysis: Does this mean that banks are offering deeper discounts on bank-owned listings? Not necessarily. Another possible explanation is that relatively attractive foreclosed homes sell quickly, without huge discounts, and thus don't linger on the market long enough to be included in collections of listings. In other words, these random collections of listings could have a bias toward properties that are sitting on the market, which are the properties that will ultimately require deeper discounts to find a buyer.

--Peter Viles

Your thoughts? Comments? What are you seeing in your neighborhood? If you're a listing agent and would like your bank-owned listings included in future coverage, e-mail Peter Viles.
Photo Credit: Leo Nordine Realtors

Comments

[brady westwater]

Totally bogus posting! The above house - which I think you cited before - was never a half-million dollar house. Look at the lot size:

Property Information
Street Number: 2117:
Street: W Avenue 33
City: Los Angeles
Lot Size: 2,496

It is one-half the legal minimum for a R-1 property. This transaction was clearly a sham as all the comps for a half-million dollar home in 2007 were on far larger full-sized lots.

By using the square footage of the house - someone with a corrupt appraiser got a high loan, pocketed the money and then walked.

[eprobert]

I've been looking at foreclosures lately (I know, crazy, huh?) and the banks really are discounting them that much. Right now new foreclosures are being priced between $100,000 and $200,000 less than comparable sold houses. They're finally getting the memo.

The houses are selling fast too, especially any that are ready to move in - like within a week. The banks really want rid of them now. They're still controlling the flow - most REO agents I've asked say that banks only give them a new property when they've sold one.

[Drew]

Just an observation -- the only one of these 21 REOs that's in a "good" location is discounted less than 4% from past sale.

Most of them look like they need major work. I'd assume that properties in very good shape would not need to be discounted as much.

[Wes Boudville]

Ok, suppose indeed that the more attractive foreclosures get quickly bought, so that this bias exists in the above sample. But if the bias has always existed, then the temporal behaviour of the sample can still be a useful indicator of a trend.

[D]

Gotta love all the zetabid ads surrounding this anti RE blog

[kat]

When I said months ago that the housing bust was a good thing, this is what I was talking about. Now people can buy homes and people who had no business being in $500,000 aren't anymore. Now, because unqualified and undeserving people are not polluting the market and taking up the houses, the price has dropped. The vast majority of people in those over priced homes were speculating so I don't feel bad for them. Now, responsible people have a smorgesboard.

Better by now before the speculators start running up the prices again.

[eprobert]

in my experience the ones that have been on the market for a while (like the ave. 33 one) have something wrong with them that will prevent an FHA loan from being used. Almost all of the first-time buyer action is in FHA now, so houses that are not eligible for FHA sit around for a looooong time.

That Ave 33 house is also on a crappy street - a few blocks away is pretty nice but that street is not.

[Cal]

Peter, The Vegas Blog scooped you on the top foreclosure story of the day :-)

http://vegasblog.latimes.com/

[el guapo]

Drew,

The place in Playa Vista is down 25% - pretty decent area on the west side. As for the 3.2% West Hollywood discount - that's still just an asking price. True, everyone knows it's worse (much) in the IE, etc. The debate is whether that is heading towards the west side, I say it is.

The "higher end" hasn't been tested yet. The Pay Option ARMS are going to be brutal. They are just now beginning to reset.

Think about these "back of the envelope" numbers:

$300B in Alt-A Pay Option loans resetting in California during the next two years. Assume 1/3 are in LA County (10M people in the County, 36M in the state. Assume higher cost of living in urban areas - so more of these loans). So that's 100B in resets in LA. 80% of these loans - people pay less than interest. These loans will reset with a 110-115% balance from peak pricing. Average Pay Option loan balance is in the neighbrhood of $400K (only number that I'm not sure about). 80B divided by $400,000 is 200,000 loans. So....200,000 loans in nicer neighborhoods are going to reset within LA County over the next two years. The default rate is going to be astronomical. People's loan payments will double. If we assume higher loan balances, then it will be fewer homes - but the numbers are still daunting.

Anyway, that's my rationale for thinking this is the calm before the storm by the coast. I don't know if you were just lamenting that the discount was small or if you feel that the nicer areas are immune. So anyway, my two cents..

[Laker]

Peter,
On the house number 5 i think, the pomona house that we discussed on Friday, the $308,000 is NOT the last sales price. The last sales price was $95,000, but the number you're looking at is actually $430,000 i think. From public records (via property shark), that is the amount that the dropped should be based on. Also, there might have been 2nd mortgage or HELOC - so it could be much worse of a ratio....

[Drew]

With regard to the "ALT-A" loans being reset, unless interest rates increase significantly, many will still be under 6% (using the 1-year LIBOR rate plus 2.5%, which I understand to be fairly common).

The question is, how many "ALT-A" loans were properly amortized, and how many were permitted the option of negative amortization? I suspect there are fewer of the latter included in the $300B total cited.

[zach]

I understand now, a high percentage of the foreclosures and hot deals were made in bad parts of LA

a 20k dump that no one would touch was driven up to 500k based on fraud and deception

so now these places need to go back down to to ghetto prices, why pay top price to live in the ghetto ?

good one Lawrence Yung

[El Guapo]

Drew,

80% "picked" the bare minimum on the Pay Option. This have been referenced in a variety of places - Mr. Mortgage makes a pretty compelling case. So they are neg am. This is why I believe the problem is that nasty. Also, this feature speeds up the reset timing. So a 5 year ARM resets at roughly 3.5 years.

http://mrmortgage.ml-implode.com/2008/08/05/
pay-option-arms-up-to-48-default-rate-first-federal-
featured/

[Drew]

Posted by: El Guapo | August 25, 2008 at 07:53 PM:

"80% "picked" the bare minimum on the Pay Option. This have been referenced in a variety of places - Mr. Mortgage makes a pretty compelling case."

Sorry, I don't buy that "statistic" for a minute.

I don't know anything about the credentials of "Mr. Mortgage" -- is he related to "Mr. Plow"? -- but even he admits that nationally, "option ARMs" are less than 20% of the total of "private label ALT-A loans" -- whatever those are.

I just wonder what his agenda is -- it isn't objective reporting, that's all I know.

[Anonymous]

Seems like a whole bunch of "For Sale" signs are popping up around here. Also seems many of the ones that have been for sale are languishing for months and then taken off the market.

Is there really any financing for higher end homes still available?

[E]

I've seen bigger discounts than that Pete although they are in neighborhoods that I don't want to live in.

How much do you want to bet that I can find 75%?

You willing to take me up on it or are your bosses paying you to be a shill now?

[peteviles]

E writes, "I've seen bigger discounts than that Pete although they are in neighborhoods that I don't want to live in. ...
How much do you want to bet that I can find 75%? ... You willing to take me up on it or are your bosses paying you to be a shill now?

Thanks, E. (typing that makes me feel like a character on "Entourage.") Not only am I not being paid to be a shill now, and not only will I take you up on it, I'll go one more: if you find a foreclosure discount of 70% or more in L.A. County, I'll drive over to the house and take a picture of it and put it on the blog.

[Cal]

70% is tough, 50-60% is much easier to find. For every 10% of the high price you are talking huge price drops.

Still I got one pretty quickly:
12125 Kagel Canyon Rd

Just limit your search under 250k and zoom around redfin, sort the results below by lowest price first.

And there is already a picture so I saved Peter a trip!

[peteviles]

Thanks, Cal. E's got to find the house first. But you have laid out a nice roadmap to finding it. E?

[Cal]

Pete,

I was just trying to save you a trip to Lancaster, lol.

[Laker]

I can add a point that will narrow the search dramatically. Apply a search criteria that will only show places that last sold in 2005 to 2007.
(once again sorry for ranting, Cal)

[Laker]

Cal,
Funny, but your 12125 Kagel Canyon Rd place seems like an FHA loan that got busted...
Looks like the tax payers just wrote off $426,000 - 170,000 = $250,000 and now asking $132,000..
It is not clear, but if it was FHA and 3% down kicked back by seller...That i will be a nice $400,000 loss...
(not ranting)

[A Scanner Darkly]

The home on Hooper in Watts for $94.9K looks like a good deal. Small lot, small house, Palestinian-like neighborhood.

[Laker]

Peter, Listen to Cal,
If it was me, I would make you drive to Merced, (Cal's favorite place for RE investments) There you could get places for better than 60% declines.
(Will not rant today)

[E]

You know I was just kidding about being a "shill" Pete.

but here's a house....

1518 N Avenue 55
Los Angeles, Ca. 90042

MLS# 12104223

Sold 4/12/2006 for $545,000

Currently listed for $125,000

It's in Highland Park so you can stop off and have a beer with Milla!

Don't forget to bring your bullet proof vest!