Falling Foreclosure Numbers Real or Fake?

Peter Viles over at LA Land recently reported on an interesting item – it seems foreclosure rates in California are dropping rapidly because of a new law that requires lenders to actually contact homeowners before preceding with foreclosure filings. He cites data from another website, Foreclosure Radar, showing the effect this new law is having:

Foreclosure Radar reports that the number of notices of default filed in September dropped 61.8% from August levels, and the number of notices of trustee sale filings — which mark the end of the foreclosure process — dropped 47.3% in a month.

While it sounds like a good thing, Foreclosure Radars’ founder makes the case that requiring the notices just prolongs the inevitable, and thereby slows an overall recovery. He also says it makes foreclosures numbers a waste of time for those seeking to understanding the market.

Sean O’Toole, founder of ForeclosureRadar, says the new law has made month-to-month foreclosure statistics “useless in understanding market conditions.”

More, from O’Toole: “We expect SB 1137 to have no long term impact beyond delaying the foreclosure process for homeowners, and slowing the overall recovery.”

The new California law encourages loan modifications as an alternative to foreclosure, a common goal of various government programs. O’Toole, however, is doubtful that loans can be successfully modified on a broad scale in California:

Given the significant negative equity now occurring in most California foreclosures, modifying loans to affordable levels either requires large principal balance reductions or extending the unsustainable teaser rates that created the foreclosure crisis in the first place. Wide scale adoption of large principal balance reductions also pose significant risks, as they are likely to encourage non-defaulting homeowners to default in the hopes of securing similar reductions. As such, either type of loan modification is likely to result in increased default, and/or foreclosure activity in the future, a consequence clearly not intended.

So be warned: A drop in foreclosures doesn’t mean we’ve hit the bottom of the market…just that paperwork is backing things up.

Housing Collapse Continuing Through 2009?

The New York Times has a very depressing article today on the continuing fall of housing prices, and the very real possibility that we are nowhere near the bottom. The article predicts continued declines trhough next year, and maybe longer in places like LA where housing is still relatively expensive compared to rents and incomes.

The No. 1 thing that drives housing values is incomes,” said Todd Sinai, an associate professor of real estate at the Wharton School at the University of Pennsylvania. “When incomes fall, demand for housing falls.” ……One reliable proxy of housing values — the ratio of home prices to rents — indicates that in many cities prices are still too high relative to historical norms.

In Miami, for instance, home prices are about 22 times annual rents, according to analysis by Moody’s Economy.com. The average figure for the last 20 years is just 15 times annual rents. The difference between those two numbers suggests that a home valued at $500,000 today might be worth only $341,000 based on the long-term relationship between prices and rents.

The price-to-rent ratio, which provides one measure of how much of a premium home buyers place on owning rather than renting, spiked across the country earlier this decade.

It increased the most on the coasts and somewhat less in the middle of the country. Economy.com’s calculations show that while it remains elevated in many places, the ratio has fallen sharply to more normal levels in places like Sacramento, Dallas and Riverside, Calif.

The article also points out that mortgage rates have bounced back up (last week, they hit a low point, hovering around 6%). The average 30-year mortgage is hovering around 6.75% — and that’s for the lucky people who can qualify. Banks are so tight with lending rules right now that even those with excellent credit and big down payments are being denied.

In an effort to help drive down rates, the Treasury Department has announced plans to buy mortgage-backed securities issued by Fannie and Freddie. The government also recently increased the amount of loans the companies can buy and hold. That’s where government plans to buy mortgage-backed securities comes in, with the hope that will convince lenders to loosen the purse strings, but, as the article points out:

Still, those efforts will take time to have an impact and it is not clear whether they will be sufficient to get banks to lend more freely, especially in areas where jumbo loans make up a bigger percentage of lending, like New York and parts of California and Florida. Economists say that prices in those places will probably fall further.

Grand Ave. Gets Big Bucks: Foreclosed Condos Don’t

The money-plagued Grand Avenue project in downtown LA, across from the Disney Concert Hall, just got a Korean fairy godmother…with $100 million dollars. The LA Times reports that the Honua Group will drop the cash into the project’s long-awaited first phase. As the real estate market has continued its downward slide, the project’s developers have had a hard time coming up with investors- despite another $100 million it received from Dubai’s royal family.

The project has been described as LA’s “most ambitious effort to create dense, high-rise residential developments next to rail lines, offices, cultural attractions and shopping.” The Times article describes it this way:

The $2-billion Grand Avenue plan, designed in part by Frank Gehry, calls for building shops, condo towers and a boutique hotel — as well as a civic park — on city and county land near the Walt Disney Concert Hall.

It’s definitely ambitious, but I really question more condos downtown right now. Clearly the current investors are taking a long-term view, but prices downtown have dropped so drastically and there is so much inventory on the market, I think it’s going to take a long time for values to climb back up. Especially since banks seem to be getting aggressive in this area with unloading their foreclosures. There are a lot of properties selling at a loss. But projects like this could be good for the overall picture, making the area more desirable. Still….glad it’s not my $100 million.

Here’s a few examples of bank-owned properties:

• Here’s a bank-owned unit in the Skyline on W. 9th for $360,500. It’s last sale price is listed in May 2007 for $434,788. There are about a half-dozen units for sale in the building, just from the listings I see.
• Another bank-owned unit going for $218,500 over on W. 5th. The price has been dropped from $230,000, and it sold in July 2006 for $460,000, then looks like the bank took it back in April 2008 for $357,256.
• And here’s one in the Little Tokyo Lofts for $239,000. It’s down from $249,000. It’s last sale was November 2006 for $400,000, then looks like the bank took it back in Feb. 2008 for $303,750.

Mortgage Rates Fall Below 6%

Mortgage rates slipped below 6% percent today—posting their first decline in more than 3 weeks. Analysts say the dip came as investors turned to the safety of Treasury bonds. The increase in investments there caused yields to fall on that debt, which in turn helped lower mortgage rates, which are often tied to related indexes.

Locking in a rate is always a roll of the dice, but I doubt rates are going to slide much farther in the near future. So if you are in a position to get approved for a mortgage in this credit crunch, now may be a great time to lock in the rate. Historically, a 30-year at under 6% is a great deal…and this week, a 30-year fixed rate was averaging 5.94%, down from 6.1% last week. CNN also reports that mortgage applications were up slightly, despite all the turmoil in the banking world. According to Reuters, that was a slight uptick after a big hit last week:

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity rose 2.2 percent in the week ending Oct. 3 to 465.5 after falling 23 percent the prior week to the lowest level since the end of August.

A Few New Listings – On the Market 24 Hours – Links Working

The financial markets may be in turmoil and the real estate market in the doldrums, but houses are still being listed for sale. Here’s a round-up of what’s new on the market this week on the Eastside:

• Here’s a bold for-sale-by-owner (although there is also a listing agent mentioned) in Eagle Rock/Pasadena. It’s a 4/2 mid-century modern with “walls of glass on 3 sides.” It’s only been on the market one day. The owners are asking $1,095,000, but paid $760,000 in 2003.
• THIS ONE HAS DISAPPEARED FROM THE LISTING SINCE YESTERDAY – I’LL KEEP AN EYE OUT FOR ITS RETURN. This bank-owned foreclosure in Echo Park near downtown was listed yesterday for $175,000. It’s tiny— a 1/1 with 624 square feet. The last sale (when the bank took it back, probably) was in July for $221,000.
• This 2/2 in Echo Park has been recently redone with all the usual amenities. It’s got 1,200 square feet and is listed for $599,000.
• Last up is this 4/4 in Los Feliz with 3,579 square feet. It looks kind of 80’s modern inside and out, but it’s in a great area north of Los Feliz Boulevard up near Griffith Park.

Echo Park Birds Stuck in Muck

Looks like I’m not the only one who has noticed how many birds are dying and sick in Echo Park Lake. Chicken Corner, an Echo Park blog, wrote this week about the problem, with lots of locals weighing in as well. The blog’s author, Jenny Burman, apparently spoke to a Parks & Rec worker who thinks it may be avian botulism. Yuk. It does sound like it could be, though—the sick birds seem stuck and unable to move in whatever the toxic-spill looking stuff is on the edges of the lake.

With that lovely image in your minds, how about a look at some lake-view houses? Here are a couple in the hills (more like bumps) close to the lake:

• Here’s a 3/2 short sale for $380,000. The listing photo was apparently taken by a blind person, because it seems to be a shot of the floor of the garage. Not too helpful.
• Here’s a pretty 5/2 that’s billed as being in a historical district. It’s listed at $799,000 and has been on the market a mere 24 hours.
• And here’s something for the adventurous buyer—a build-it-yourself opportunity. This is listed as a “single family home with approved plans for six 1600 sq. ft. houses on 6 small lots.” They are asking $649,000…but I’ll be curious to see if there are any takers on developing in this market.

Silver Lake Gets Needed Traffic Light

The Los Feliz Ledger reports this month that a traffic light has been approved for Silver Lake Boulevard at Earl Street (I’d post the article, but for some reason the Ledger’s website is always a month behind their print edition!). While not all residents are happy about it, I think it’s a much-needed safety measure as the walking path and meadow around the reservoir gets ready to open. As most Silver Lake residents know, this street is a huge cut through for commuters and cars routinely zip along at high speeds. The problem is, it’s also a big walking and jogging area with lots of curves…so you get a bad mix of fast cars and people on the street. The article says that the street actually gets 19,000 cars each day!

It’s a great area, though, and buyers with a little bit of money can do really well for themselves with lake-view homes that only a few months ago were well above $1.5 million. Here are a couple worth looking at – this first one looks really interesting:

• This one is on Kenilworth, one of my favorite streets. It’s an English Tudor in the Ivanhoe school district, and it’s seen almost $300,000 in price reductions. Currently, it’s $999,000.
• Nearby on Moreno is this 3/3.5 for $1.295. It’s got 2,633 square feet, and the price has come down $100,000.
• This 2/3 has a modern/industrial vibe, and can’t seem to sell – it’s been on the market 479 days! Maybe it’s the price…$1.399 for a 2/3.

Foreclosure Numbers Keep on Rising

Property Shark released another foreclosure report, and despite a slow down last time around, this time it looks like the numbers are going up. Los Angeles leads in the metropolitan areas the report looks at (New York, Miami, and Seattle being the others) with a 196% increase compared to Q3 of 2007 in foreclosures. Ouch.Those numbers mean that .5% of all homeowners in LA are in foreclosure.The good news, if you can call it that, is that all of these foreclosures continue to be centered in the outlying areas like Palmdale and Lancaster (see chart, also courtesy of Property Shark). In the year or so that I’ve been following Property Shark’s reports, I have never seen any central or westside zip codes pop into these heavily-foreclosed categories. It really does seem like in LA, we’re dealing with pockets of very bad real estate that are dragging down prices and sales across the board.The report also made an interesting finding about who is behind all these bad loans: In Los Angeles, Countrywide had the most loans scheduled to foreclose, followed by Washington Mutual. Like most Americans, I’ve been watching the bailout debacle pretty closely, and have actually had mixed feelings on bailing out homeowners who got themselves into bad mortgages. I personally have always been pretty financially cautious and believe in a 30-year fixed with a monthly payment you know you can manage, so I have little sympathy for those who signed up for 1 or 2 year adjustables with a vague hope that they would be earning more or win the lotto by the time the payment changed. But when I see that Countrywide and Washington Mutual are holding so many of these bad mortgages, it does make me give more weight to the predatory lending argument. I have trouble believing that all irresponsible borrowers magically found their way to these 2 lenders. It does make it seem like there was pressure or bad advice being given. I’d be curious to hear what others think….

Dead in Eagle Rock

The Los Angeles Times has an interesting piece today about an abandoned loft project in Eagle Rock on Colorado boulevard that local residents say is an eyesore and danger, and that the article’s author is using as an icon of the recent real estate bust. The 17-loft project was started on a triangle of land that had previously seemed impervious to development…big columns went up, but then heavy rains came down and things seemed to crumble:

Today, a half-built, block-long still life of concrete and rebar has supplanted the grass and ivy. Cinder-block walls are tagged with graffiti. Trash — a crumpled milk jug, a condom wrapper — is caught in the weeds. All of it is framed by 40 towering pillars. The developer says the project is effectively dead. It’s unclear whether anyone — the developer, the lender, the city — has the wherewithal or the inclination to do anything about it. Neighbors fear the site could stay this way for years; seeking some sort of progress, they are planning to sprinkle the site with morning glory seeds.

Next to downtown, Eagle Rock is one of the neighborhoods where I consistently have seen the most price drops and homes lingering on the market. The article describes the area as a “village” and an alternative to Los Feliz, Silver Lake, or even Glendale and Pasadena.

Eagle Rock stumbled into a terrible decline in the 1970s. In the ’90s, it began to ascend, fueled by millions of dollars in public and private investments — and a wave of artists and bohemians priced out of the beach and unimpressed with the hip scenes of Los Feliz, Silver Lake and Echo Park. Along with counterculture types who’d never left, they sought to create a different sort of community on what might be called an urban seam — not quite city, not quite suburb; edgier and funkier than nearby Glendale and Pasadena, but more forgiving and artsy than the metropolitan center to the south.

I think all that is true, but when it comes down to it, real estate really is location, location, location. Eagle Rock’s alternative vibe – the very thing that drew many there in the first place – also makes it a “not for everyone” kind of place, and I think that’s really hurting real estate values right now. Here’s a few places for sale near this lot:

• A 2/1 for $339,900 – its a 2/1 with 995 square feet.
• This cute bungalow is a 2/2 for $449,000 and 1,144 square feet.
• This is a short sale north of Colorado Blvd. It’s listed at $475,000 for a 2/2.
• And here’s a cute traditional for $499,000, making it a very low $293 per square foot.

Are Short Sales an Illusion?

Lauren Beale of L.A. Land over at the L.A. Times blogged recently about an interesting finding buried way down in the recent UCLA Anderson Forecast on the California economy — that short sales, despite how many there are on the market right now, are really a false barometer of current market values because they aren’t selling. Banks are simply not moving fast enough to make these realistic opportunities — what buyer wants to wait 2 months to find out if their offer was accepted? So they sit on the MLS listings and give an unrealistic view of what buyers should expect to pay. Here’s an excerpt (the “he” is Ryan Ratcliff, forecast scholar and assistant professor at the University of San Diego):

An admittedly imperfect parsing of 2008 MLS data for San Diego County supported (this) observation: short sales accounted for 36% of listings but only 12% of sales. “The short sale listing and its attractive price were essentially just an illusion,” he writes.

The home shopper-economist also found that the time between listing and closing was almost six weeks longer for a short sale and that such listings are largely in the bottom half of the home price spectrum.

As short sales relate to the question of a housing rebound, he concludes, that they “have temporarily hijacked the market mechanism” and that “the near-term course of the housing market will be determined more by the procedural timelines of foreclosures and short sale approvals than any notions of a magic price that will clear existing inventory.”

Here’s some local (90039) short sales and foreclosures. Another thing I’m really noticing is that in the better areas (like Silver Lake and Los Feliz), the high-end houses aren’t in default. I’m seeing more low-end, starter homes in questionable locations that are falling into trouble. I think there are deals out there, but fewer that recent news accounts would have buyers believe.

• 2706 Newell St: This 1/.75 with 598 is a short-sale, listed at $392,000. But that’s still $656 a square foot!
• 3465 Perlita: This Atwater 2/2 has 1,285 square feet and is bank-owned.
• 3837 Brunswick: A2/1 with 1,128 square feet, another REO for $415,500.