September 8, 2008
Ah, Sundays. A day that many people sleep in, read the paper over a cup of coffee, and hang out around the house all day. Especially this Sunday, with the long-awaited start of the NFL season. (FYI: Football Sundays are a great time to visit Home Depot.)
But Sunday was anything but relaxing for Treasury Secretary Henry Paulsen. Instead of watching his favorite team, he was announcing to the world that the U.S. government was taking over mortgage giants Fannie Mae and Freddie Mac. From the L.A. Times story:
At a news conference in Washington, [Paulson] laid out a plan to place the companies into conservatorship, under which the government will direct their operations from now on. The plan also calls for the Treasury to make capital injections into the companies, up to $100 billion each over time, and to lend them money as needed.
The move was made on Sunday so financial markets would have a chance to digest the news, with the hope of heading off panic when business resumes on Monday. The government did the same thing when it bailed out Bear Stearns, which, incidentally, was announced during another American sports obsession, March Madness. Coincidence?
Plummeting home prices and soaring mortgage defaults have ravaged the finances of Fannie Mae and Freddie Mac, which were created by the government decades ago to support the housing and mortgage markets by buying home loans from banks and thrifts.
Although they were chartered by the government, the companies are owned by investors, making for a strange hybrid that critics have long warned was fraught with peril.
Unfettered for years as they sought to boost earnings for their shareholders, the companies ballooned in size. Between them, Fannie Mae and Freddie Mac now own or guarantee $5.4 trillion of U.S. home mortgages, or about half the total outstanding.
By the way, it’s possible this takeover won’t prevent the economic meltdown everyone is fearing, says The Washington Post:
There is no guarantee that it will work, and it comes at a potentially massive cost to taxpayers. The government has pledged to inject money in the companies in any quarter in which they would otherwise be insolvent — up to $100 billion in total for each company.
“This is a shareholder bailout financed by the U.S. taxpayers,” said Armando Falcon Jr., formerly the chief regulator of Fannie Mae and Freddie Mac.
One analyst noted that the government’s intervention to date hasn’t achieved the desired effect.
“All of the things over the past year that the Fed and the Treasury have undertaken have been intended to stabilize the mortgage and the housing markets,” said Howard Shapiro, an analyst at Fox-Pitt Kelton. “What’s happened over time is that a lot of things they’ve done really aren’t working.”
“If this doesn’t work, there aren’t too many more arrows in the quiver,” he said.
Yikes. For those buying and selling homes, don’t expect credit to loosen up anytime soon, says CNN/Money.
Borrowers, however, shouldn’t expect the ever-tightening lending standards to ease. With defaults and delinquencies multiplying and home prices falling, Fannie and Freddie will likely keep a close eye on underwriting practices. Lenders are demanding credit scores above 700 these days, up from 620 in the past, and downpayments of 20%, up from zero in some cases, experts said.
The bigger picture, though, is whether this takeover will achieve its desired effect and calm the financial markets. Whether you or I can buy a hosue today isn’t quite as important as saving the financial system from collapse.
Recent Redfin posts:
Glendale, Pasadena Foreclosures Show Lower Percentage Drops
They’re Still Flipping in West Hills
A Couple of Eastside Foreclosure Sales
September 8, 2008
I was talking to a local real estate agent out here and was quite surprised to learn that they’re still flipping properties in this market. Take this property on 23340 Bassett St. in West Hills. It has 1,670 square feet of space and is going for $359 a square foot. It’s relatively new on the market. This three-bedroom, two-bathroom home has upgrades like granite countertops, recessed lighting and stone flooring. The owner, I’m told, is a broker and her husband is a contractor.
The husband and wife pair flip on a regular basis in the area and though their margin may be more modest, they do make a decent profit. I suppose they don’t have to worry about the cost of commissions and some of the remodel overhead, so that’s how they can still turn a profit.
Got any stories to share about a flipped property in this neighborhood or any other? I’d love to hear it.
For this Monday, I’ll leave you with a few of my picks in the Valley.
Reduced In Woodland Hills: 21901 Dumetz Rd./3bd, 2bth/$545,000 to $525,000
New Construction Fresh On The Market In Tarzana: 4411 Angostura Pl./4bd, 2bth/$879,000
Bang For The Buck In Calabasas: 3948 Black Bird Way/4bd, 6bth/$244 a square foot (average sold: $366 a square foot)/$939,900
September 6, 2008
Friday night and Saturday morning are nice quiet times to step in and take control of a chaotic situation threatening not only the entire U.S. housing market, but U.S. and world financial markets. According to a Saturday update on Bloomberg.com:
Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.
Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to tell them of the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions.
The decision follows the Treasury chief’s repeated comments to lawmakers in July that he wasn’t likely to use taxpayer funds to prop up the federally chartered, shareholder-owned firms hit by $14.9 billion in losses the past year.
Is it still not likely taxpayer funds will be used? The Washington Post also reported this story, as did the LA Times and New York Times (all quoted here in LA Land). Pithy comments and lots of political ruminations on this mess can be found following today’s posts on Irvine Housing Blog and FreeRepublic, and I’m sure many other places as well.
The CEOs of Fannie Mae and Freddie Mac are being removed from their jobs. What I want to know is: how many senior managers in those organizations, at the FDIC, and in outside financial management positions, will be keeping their jobs? How much have these people earned creating (or not preventing) this mess?
Wild times are ahead for the U.S. mortgage market as Fannie Mae and Freddie Mac are restructured. What it means to anyone trying to get a mortgage in the near future, to the market for mortgage debt, and to anyone with a stake in the direction of housing prices, remains to be seen.
What it means to taxpayers is that they now have another very large entitlement obligation as a result of banks extending loans to people who couldn’t pay them back.
Photo courtesy of kevindooley.
September 5, 2008
Palmdale has hundreds, but the Eastside isn’t totally without it’s foreclosure sales. Property Shark sent over some recent listings of foreclosed properties that have been scooped up in the area by savvy buyers:
- 3926 Tracy Street, 90027: It’s a 2/1 with about 1,500 square feet. The buyers got it for $505,000. It was foreclosed on in May for $534,788, and previously sold in 4/05 for $620,00. Tracy has some beautiful homes on it, but it also has Marshall High. This one is across the street from the school, so you’ve got to like teenagers to live here!
- 301 N Vendome, 90026: This is a 1915 3/1 with a bit over 1,800 square feet that just sold for $445,000. It was foreclosed on in Sept. of 2007 for $562,115, and sold prior to that for $460,00 in 2004. Picture up top. Not sure if it ever went into the MLS — I can’t find a Redfin listing for it.
- 1151 Laveta Terrace, 90026: A cozy 3/2 with just over 1,000 square feet, this one went for $425,000. It was foreclosed on in January for $562,134, and sold prior to that in 2005 for $700,000. It’s just off Sunset close to Echo Park Lake in Echo Park.
September 5, 2008
Glendale and Pasadena’s bank-owned listings are being offered at 10 to 40 percent off the last pre-foreclosure sale price. Discounts as steep as those Property Shark reported in outlying L.A. County areas and parts of the Valley (and reported by Anita and Christina on this blog) haven’t quite made it to these enclaves in So Cal.
I have found - and reported on - several properties here that sold for less than the lenders’ costs to take them back (check out this post, for example). It is easy to see a home’s sales history on Redfin listing or sales pages, and to download whole searches to Excel for analysis.
Today, I downloaded August 2008 Redfin sales data, and current MLS-listed foreclosures, for Glendale and Pasadena. My findings:
Average August 2008 Sales Price (226 sales of homes and condominiums):
Glendale: 114 sales, $349 average sales price per square foot
Pasadena: 112 sales, $386 average sales price per square foot
Current MLS-Listed Foreclosures (single-family homes and condominiums):
Glendale: 38 listings, $347 average listing price per square foot
Pasadena: 65 listings, $330 average listing price per square foot
A RANGE OF FORECLOSURE LISTINGS (% lower than pre-foreclosure sale price):
GLENDALE
1414 Thompson Avenue
$499,900 (75%)
3833 El Lado Drive
$899,900 (68%)
3907 La Crescenta Avenue, #203
$334,900 (88%)
PASADENA
1132 N. Raymond Avenue
$419,000 (61%)
314 S. Hill Street
$1,100,900 (74%)
276 E. Elizabeth Street
$384,900 (79%)
Photo courtesy of d&e
September 5, 2008
This cover story in this week’s Business Week is a looooong story about the state of the housing market and its long-term implications for the health of the economy.
As Washington policymakers struggle to keep the U.S. out of recession, the swirling confusion over the housing market is making their job a lot tougher. Will American consumers keep shopping or be forced to pull back? Will banks lend freely or be hamstrung by mortgage defaults? What are the best policy options right now? Those and other important questions simply can’t be answered without a good idea of whether home prices will rise, flatten out, or keep dropping.
The magazine, after interviews with numerous experts, decides that prices will keep dropping –”an additional 25% over the next two to three years, returning values to their 2000 levels.”
Shocking though it might seem, a decline of 25% from here would merely reverse the market’s spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation.
The rationale for the predicted drop:
Remember the two powerful forces that pushed [prices] up: lax lending standards and the conviction that housing is a fail-safe investment. Now both are working in reverse, depressing demand for housing faster than homebuilders can rein in supply. By reinstituting safeguards such as down payments and proof of income, lenders have disqualified thousands of potential buyers. And many people who do qualify have lost the desire to buy.
Other points:
- Denial is perpetuating the problem.
A Harris Interactive survey for Zillow.com in December found that 36% of homeowners thought their homes had increased in value over the past year, vs. 23% who thought they had decreased. That willful optimism translates directly into the record overhang of unsold existing homes: more than 4 million.
- Tight credit is hindering sales.
A survey of real estate agents found that a third of planned home sales were canceled or delayed last fall because of loan problems.
- The long-term outlook for housing isn’t promising.
When the huge boomer generation shuffles off, the nation’s housing needs will wane. That will create an oversupply unless builders see it coming and reduce construction. Judging from the recent overbuilding binge, though, their forecasting abilities leave a lot to be desired.
- There is a bright side to all this.
[The housing crash] will force Americans to live within their means, which will enable the U.S. to work off some of its towering debt, says Peter D. Schiff, president of Darien (Conn.) brokerage Euro Pacific Capital, who was early in predicting the crash.
These are national predictions; every market is different. There are good deals to be had out there, to be sure; some homes in SoCal are selling for 50% off what they sold for two or three years ago. But if the experts are right about where prices are headed, deals should remain plentiful for the foreseeable future.
Recent Redfin posts:
Foreclosure Resales Highest in Glendale 91206
Foreclosure Central in the Valley
Foreclosures Selling for 1/2 Original Price
September 5, 2008
My fellow blogger Anita Chabria just wrote a post about foreclosures based on Property Shark’s Foreclosure Report for August 2008. And guess what? Once upon a time, Palmdale/Lancaster was the only area leading the pack in foreclosures, but several zip codes in the Valley are placing in the top five trustee sales for August.
They include Sylmar for third place, with a total of 103 new trustee sales. The average amount owed on a home is $402, 687. Pacoima takes fourth place with a total of 100 new trustee sales. The average amount owed on a home is $378, 491. Anyone ever been out to Sylmar or Pacoima? No offense to anyone who lives there, but they’re both way out in the northern part of the San Fernando Valley - right before you make your departure to Valencia.
North Hills took the #15 spot with 58 new trustee sales. The average amount owed on a home there was $403,615.
According to the report, many of these homeowners paid double what their homes are worth now. (Yikes!) The foreclosed homes were mostly purchased from 2005 through the first half of 2007. For instance, the July stats say that in the 91432 zip code (Sylmar), homeowners who paid $520,519 for homes that are now worth $326,798. (That’s not quite double, but it’s still a painful drop.)
Check out the charts for yourself. (Click to enlarge.)
September 4, 2008
Property Shark has released its foreclosure report for August, and it has some really interesting stuff in it. As Elise points out, there are some new areas popping up in terms of having lots of foreclosure sales, like this area of Glendale she writes about.
What caught my eye, though, is the price foreclosed properties are going for: Half of what they last sold for! That’s a big discount and potentially a great buy, depending on the condition and location of the property. Here’s what Property Shark found:
Foreclosed owners in Los Angeles paid almost twice current values: Owners of Los Angeles
properties facing trustee sale in August originally paid almost twice what similar properties sold for in July of this year. For example: Zip code 93535 (paid on average $303,088, now selling for average of $152,614), zip code 93534 (paid $303,733, now $153,584), zip code 91342 (paid $520,519, now $326,798), zip code 93550 (paid $329,585, now $171,837).
But even though the report says that zip codes in the San Fernando Valley for the first time broke into the top 5 by number of sales, it is still Palmdale, Lancaster and the surrounds that account for most of these numbers. We are simply not seeing these kinds of firesales on a large scale in more central areas, and definitely not in desirable and established areas like Los Feliz and Silverlake. Those zip codes Property Shark is citing breakdown like this:
- 93535 - Lancaster
- 93534 - Lancaster
- 91342 - Sylmar
- 93550 - Palmdale
So if you’ve been sitting on the sidelines waiting for the absolute bottom to buy, is it time? Well, if you’re planning on moving to one of these zips, then don’t be greedy - start looking for a deal. Because it does seem like the brunt of foreclosures has peaked….read my next post on that!
September 4, 2008
Could the end of summer be bringing the end of the LA foreclosure boom? Property Shark released its August report this week, and it has some encouraging news: For the first time in many, many months, the number of new trustee sales declined over the previous month—the rate dropped 18% over July.
We’ve still got a ton of foreclosures happening—make no mistake. That 18% drop still translates to 4,907 new foreclosures. It’s hugely more than other big urban centers: Miami had 994, NYC had 383 and Seattle had 175. And it’s still a 159% increase over last August. So it’s not a rosy picture. But it is encouraging. We may have worked our way through the largest chunk of defaulters, and be able to land on more stable market ground as fall approaches. Let’s keep our fingers crossed: A more stable market will be better for everyone in the long run. Even though buyers are looking to swoop up steals, as long as the market is flooded with foreclosures, it will be difficult to gage whether you’re getting a bargain or a bad deal. If the next few months continue to see a drop off in foreclosures, it gives buyers a bit of confidence that today’s purchase price won’t drastically fall in the next year.
September 3, 2008
Property Shark’s July 2008 data on foreclosure resales in L.A. County show zip code 91206 with the highest number of sales - nine - in the Glendale/Pasadena area.
My Redfin search, zooming in south of the 134 Freeway, turned up 12 single-family home sales and 23 condominium sales.
Only a few blocks in this area have not yet been swallowed by condominium projects, and the building continues seemingly unabated. For those willing to tolerate high density surroundings (and nearby construction) to gain a central location, this is a great neighborhood.
There are still some vintage single-family homes here, and they sit together on flat lots walking distance from mall shopping and restaurants to the west (the Galleria, Americana, and Brand Blvd.), and staples and services to the east (grocery stores, Virgil’s Hardware, car repair shops, even Staples itself). In addition, LA Metro and Beeline buses run along both Brand Blvd. and Glendale Avenue.
While this is a great walking neighborhood, I’ve seen many reckless pedestrians like those spotted on its streets by Tropico Station. Glendale also has its share of reckless drivers, so pedestrians should be doubly alert instead of barely aware.
Foreclosure resales in central 91206 were exclusively condominiums. Here are two:
301 N. Belmont Street, #103
$366,000 (7/22/08)
Sold for $527,000 (3/9/07), and taken back by the lender for $400,500 (1/23/08).
401 N. Kenwood Street, #108
$355,000 (7/28/08)
Sold for $475,000 (12/14/05), and taken back by the lender for $375,601 (12/11/07).
My Redfin listing search showed an average asking price of $433 per sq.ft., with 2 single-family homes and 22 condominiums on the market. The second home is actually advertised as a teardown for investment purposes:
417 N. Isabel Street
$480,0002 bed/1 bath
1,164 sq.ft.
$412 per sq.ft.
On Redfin 5 days
1128 Stanley Avenue
$559,000
2 bed/1 bath
836 sq.ft.
$669 per sq.ft.
On Redfin 23 days
The listing states that the property comes with permits and designs to build four 2 bed/2 bath apartments on the lot.
Photo courtesy of Legendary Classic.
