by Calculated Risk on 8/06/2009 12:59:00 PM

Note: Graph is for Orange County only.

From Matt Padilla at the O.C. Register: Foreclosure wave gathers momentum

“To say there is a second wave implies the (current) wave has receded,” [Sam Khater, senior economist, First American CoreLogic] “I don’t see that the wave has receded.”

Click on graph for larger image in new window.

This graph is from Matt based on data from American CoreLogic.

Khater said ... federal and state efforts have mostly delayed foreclosures, preventing few. ... So to tune out the noise, just look at the 90-day rate. In Khater’s view it shows “one giant wave.”

UPDATE: Matt provided me with the definitions:

90 day delinquency rate: "everything 3 months late or more. Likely includes most all Foreclosures in Process. The categories are not separate."

Foreclosure Rate is actual foreclosures in process: "Everything with NOD and Trustee's Sale filing."

REO Rate: "Everything foreclosed but still held by bank or servicer. This category is separate from other two."

by Calculated Risk on 8/02/2009 08:32:00 PM

From Carolyn Said at the San Francisco Chronicle: Oakland group buying Contra Costa foreclosures (ht Walt, John)

Oakland's McKinley Partners is betting that low-end foreclosed homes in eastern Contra Costa County will double in value in five years.

The real estate development company has formed a $6 million fund to buy bank-owned homes in Antioch, Pittsburg and Bay Point.

It aims to spend about $100,000 per home, including rehab, and rent them out for $1,200 to $1,500 a month. Then it hopes to sell them for $200,000 each in five years.

McKinley is emblematic of a major force currently propelling the real estate market: investors and speculators snapping up foreclosed homes. Along with first-time buyers, they are a primary source of increased sales volume.

I know investor groups doing the same thing, and they pay cash too. As far as these numbers - good luck. The numbers only make sense at the low end, and rents are falling quickly. It is very unlikely the price will double in five years - or even ten years. As the price increases, investors will be selling properties, keeping prices down.

Think of investor owned properties as being in storage, and being removed from storage and sold as the price increases (although this is different than the investors during the bubble because of the positive cash flow).

There are headaches managing low end rental properties too. These will be high maintenance, and finding tenants with decent credit will be difficult.

A few of McKinley's buying guidelines are interesting:

-- It avoids newer homes in cookie-cutter subdivisions. "If they're all around the same vintage of mortgage, then they can all go upside down at the same time," [Gregor Watson, one of four managing partners] said. ...

-- It avoids higher-priced homes. "As the price point gets higher, rents don't cover (costs)," Watson said. ...

-- It's finding that inventory is limited because lenders are sitting on foreclosures. "Banks own 530 homes in this ZIP code (Pittsburg's 94565) but there are only 15 on the market," said [Paul Staley, president of Staley and MacArthur Real Estate Services] "It creates a hyper-competitive situation."

And how about that comment on ZIP code 94565? Only 15 houses on the market, but 530 REOs according to Staley.

by Calculated Risk on 7/29/2009 06:34:00 PM

Three stories from DataQuick:

June Seattle MSA Home Sales and Median Prices

Last month 16.9 percent of all resales were houses or condos that had been foreclosed on in the prior 12 months, down from 19.2 percent in May and a peak of 23.9 percent in January this year.

However, there are more foreclosure resales on the way, and they will continue to weigh on home prices for the foreseeable future. In June, lender repossessions spiked: Nearly 863 houses and condos were lost to foreclosure in the three-county Seattle region, up nearly 37 percent from May and up 119 percent from a year ago. It was the highest monthly total since foreclosures began to surge in 2006. The figures are based on the number of trustees deeds filed with the county recorder's office.
emphasis added

Phoenix June Home Sales, Median Prices Up

In June, 60.8 percent of the Phoenix-area houses and condos that resold had been foreclosed on in the prior 12 months, down from 64 percent in May and the lowest since such foreclosure resales were 58.6 percent of all resales last November. Foreclosure resales hit a high of 66.2 percent this March ...

Absentee buyers made up 39.6 percent of all purchases – a relatively high percentage in the West. ...

For the foreseeable future, the Phoenix region will continue to have many foreclosures to recycle, and that inventory of lender-owned property will weigh on home prices. In June, lender repossessions spiked: Nearly 5,800 houses and condos were lost to foreclosure in the two-county Phoenix region, up nearly 38 percent from May and up 40.8 percent from a year ago. It was the highest monthly total since foreclosures began to surge in 2006.

Las Vegas June home sales higher; median $ steady

About 70 percent of the Las Vegas-area houses and condos that resold in June were foreclosure resales, meaning those homes had been foreclosed on in the prior 12 months. That was up from 59 percent in June 2008 but the lowest for any month since it was 68.9 percent last December. Foreclosure resales peaked in April at 73.7 percent of total resales ...

Looking ahead, the Las Vegas region will still have many foreclosures to burn off, and that inventory of distressed property will weigh on home prices. In June, lender repossessions spiked: Nearly 3,600 houses and condos were lost to foreclosure in Clark County, up 54 percent from May and up 34 percent from a year ago. It was the second-highest monthly total, behind 3,718 this February, since foreclosures began to surge in 2006.

Las Vegas and Phoenix have far more foreclosure resales than Seattle, but all three cities are seeing a surge in foreclosures.

I spoke with a SoCal developer yesterday, and he said there are some positive signs in the California Inland Empire, but he is worried about another flood of REOs. Every bank he has spoken with (he does some consulting for banks on their real estate holdings) is sitting on a pile of REOs and homes in the foreclosure process.

It is unclear how big this surge will be, but here it comes.

by Calculated Risk on 7/10/2009 10:12:00 PM

Just using Sacramento as an example ... I wish the NAR broke out the data like this!

Click on graph for larger image in new window.

The Sacramento Association of REALTORS® is now breaking out monthly resales by equity sales (normal resales), and distressed sales (Short sales and REO sales). Here is the June data.

They started breaking out REO sales last year, but this is the first monthly report with short sales.

Just over 70% of all resales (single family homes and condos) were distressed sales.

Total sales in June were off 7% compared to June 2008, and that breaks a string of YoY increases.

This is just a reminder - with 70% distressed sales, there will be few move-up buyers for the higher priced areas.

by Calculated Risk on 6/28/2009 01:31:00 AM

First from Matt Padilla: Frenzied bidding on discounted foreclosures

Whenever I attended auctions in 2007 and 2008, investors generally passed on properties. But on June 26 they jumped on houses and condos with discounts of greater than $100,000 on the debt and fees owed on each property.

For example, at least four people bid on a two-bedroom house in Anaheim on Zeyn Street. Winning bid: $206,000. Amount owed before foreclosure: $565,000. Discount: $359,000. ...

The discount is what the bank is willing to accept; it’s not directly related to the current market value, though I am sure the bank has a ballpark value in mind when it decides how much to accept.
...
A few other examples:
•Another property in Anaheim, a condominium on South Walnut, sold for $154,000, 57% off the debt owed of $358,000. At least three investors bid on it.
...
•A property on West Sunflower in Santa Ana went for $110,500, close to a third of $319,663 owed. ...

Normally lenders just bid what they are owed at auction, but I've been hearing for several months about some lenders bidding substantial under the amount owed. Jillayne discussed this a couple of months ago for an auction in Bellevue, WA.

On a slightly different topic - many REOs are receiving multiple bids (because some lenders are trying to price them to start bidding wars). Here is a video from Jim the Realtor (after the ice cream truck bit) of an REO with 18 offers:

by Calculated Risk on 4/17/2009 12:31:00 AM

From CNN: Experts: Some foreclosed homes too damaged to sell

"About a third of all of the foreclosed properties nationwide have been so damaged, either by the previous owners or by criminal gangs coming in after the foreclosure, that they no longer qualify for standard mortgage financing," [researcher] Thomas Popik told CNN. "So there is going to be all kinds of government programs to help, but if they don't qualify for standard mortgage financing, there's no one to buy these properties."

Popik says responses from thousands of real estate agents nationwide to the questionnaires he sends out quarterly indicate that badly damaged foreclosed homes ... are a much bigger element of the national housing picture than officials in Washington have acknowledged.

"In many cases, it costs so much to rehabilitate these houses, it's just not cost-effective," he told CNN. "And the properties are eventually going to be bulldozed."

This probably explains some of the "shadow" inventory.

by Calculated Risk on 3/23/2009 12:08:00 PM

The evidence suggests there has been a surge in rental units in the U.S. - far exceeding the number of new rental units being built (see: The Residential Rental Market Update). I've argued that the key factors in this surge in supply are "REO sales to cash flow investors, and frustrated sellers putting their homes up for lease".

Here is some evidence of investors buying REOs to rent.

From Jim Wasserman at the Sacramento Bee: Novice investors turn repos into rentals

... Preliminary estimates from researcher MDA DataQuick indicate that 28.4 percent of February buyers in Sacramento County were investors aiming to buy, repair and rent out their new acquisitions.

The numbers confirm a huge shift in the Sacramento housing market in recent months, one that has consumed thousands of foreclosure properties and helped prevent a once-feared pileup of for-sale signs.

Alongside an army of first-time buyers, these investors – many doing cash deals with banks – have fueled growth in home sales for nearly a year. ...

Investor market share in Sacramento County last hit 25 percent in mid-2004, the most frenzied sales year of the region's housing boom. Then it declined by half as the housing market cooled in 2006 and 2007, according to DataQuick.
...
Sacramento County couple Oscar Vargas and Gladys Flores ... bought five houses last year priced between $50,000 and $100,000.

"We buy the repos, and the prices are about what it was 15 years ago," Flores said. "We fix what's wrong with them. We spend a little money and put in new carpets and remodel. We do it ourselves and rent them."

The plan is to hold them for several years to see gains, she said. Flores said it's the same drill as the 1990s downturn. Then, the pair bought houses low and sold them high during the boom that followed. They now own and manage 15 rental homes, she said.

In 2004 the "investors" (really speculators) were betting on appreciation. The current breed of investor is buying for cash flow.

by Calculated Risk on 3/19/2009 04:55:00 PM

From Zach Fox at the North County Times: HOUSING: Banks selling properties in bulk for cheap

Lenders have become so overwhelmed by the foreclosure crisis that they are starting to unload properties in bulk to investor groups at steep discounts.

Investors then flip the properties for a profit without necessarily improving the home.

For example, a unit of Citigroup, the troubled financial giant, sold a foreclosure in Temecula to an Arizona investment firm for $139,000 when comparable homes in the area were selling for $240,000 to $260,000.

The firm listed the home for $249,000, received multiple offers and the property has entered escrow, said Amber Schlieder, the real estate agent who handled the listing.

...the Temecula foreclosure was first listed for sale by Citigroup in May 2007 for $420,000, according to Multi-Regional Multiple Listing Service ...

The property was listed on the site for 19 months before selling to the investors in a bulk sale in December 2008. The lowest price it was listed for was $314,000.

"It should have been listed for less," said Craig Finlayson, a real estate agent in the area who listed the property for Citigroup. "But it would have sold for more than 139 (thousand); 139 was a giveaway price."

There is much more in the story.

I'm hearing stories frequently of banks selling REOs far below market prices, only to have local investors flip the properties.

A reader sent me some info on a property in Redwood City that is typical. The lender turned down two short sale offers at close to $649,000, and then, after foreclosing on the property, the bank listed the property at $509,000. The property sold for $493,000 all cash, even though there were other offers above the list price.

What is going on? I think the lenders are swamped, and this is OPM (other people's money). The money doesn't belong to the people making the decisions, and it is hard for them to accept a short sale, and after foreclosure, it is probably easier for them to just take a check and get the property off their desk. The result is the banks make a series of less than optimal decisions, and they leave money on the table at several points in the process.

In the story above, Citigroup left $100,000 on the table with just this one property.

by Calculated Risk on 9/10/2008 11:16:00 AM

Mathew Padilla at the Mortgage Insider and the O.C. Register is tracking 10 REOs in Huntingon Beach, CA. to determine pricing and how quickly they sell. See: Time to buy a foreclosure in Surf City?

Although this is a small sample, it will be interesting to follow. There is also a slide show of the properties.

My initial reaction is that these prices are still too high. The following 3 BR / 2BA, 1,123 sq. ft. REO is being offered at $449,900. The house was built in 1960, and last sold for $610,000 in Sept 2006.

As houses sell, I'll include an update ...

by Calculated Risk on 7/29/2008 08:39:00 PM

From Jim the Realtor (4 min 16 sec): A Countrywide REO, 3br/2ba, 1,100sf house sold for $465,000 in 2005, now being offered for $180,900. That is 39% of the 2005 price (61% off).

Vista is an improving area (in general), although this is a low end area. It's hard to believe someone paid $465,000 for this in 2005!

by Calculated Risk on 7/23/2008 09:07:00 AM

From Bloomberg: Fannie Mae Unsold $5 Billion Homes Bring Peril to Shareholders

Fannie Mae acquired twice as many homes through foreclosure in the first quarter as it sold, regulatory filings show. ... Late payments on the company's home loans, a harbinger of foreclosures, almost doubled in the past year.

Together, Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, owned a record $6.9 billion of foreclosed homes on March 31, compared with $8.56 billion held by all 8,500 U.S. commercial banks and savings and loans.

A large percentage of existing home sales are previously foreclosed properties (41.9% of sales in California in June were previously foreclosed), and yet, REOs are still piling up at Fannie Mae and elsewhere. The problem is clearly getting worse ...

by Calculated Risk on 7/10/2008 03:00:00 PM

Peter Viles at LA Times brings us another of his series on foreclosed properties in the LA area.

Peter features one on his blog L.A. Land: In Fontana, foreclosure discounts hit 50%. Check it out.

Here is another example - this one is in Lake Elsinore, an exurb of Los Angeles. This is one of the areas getting hit hard by the housing bust and high gas prices (because of the commute).

3313 Banyon Circle, Lake Elsinore 92530

Agent's description: "This 5 Bdrm, 4 BA gem is located in the Alberhill Ranch community. Boasts granite countertops, upgraded cabinets & stainless steel appliances. Travertine tile throughout downstairs, bathrooms & laundry room."

• Sales history from Redfin.com: Sold for $570,000 in August 2006

• Current listing price: $349,500

• Discount from sales price: 38.6%

by Calculated Risk on 7/02/2008 03:33:00 AM

HousingWire has the story: FDIC Warns Banks on HELOC Freezes, REO Management. On the HELOC story:

[B]anks are moving to freeze HELOCs globally, and then evaluating available credit later on a case-by-case, property-by-property basis ... The FDIC letter warned banks that such a shotgun-style approach to freezing HELOCs might violate Truth-in-Lending regulations; under Regulation Z, lenders can reduce an applicable credit limit only in the event of “significant decline” to the value of an individual property (a “material change” in the borrower’s financial condition — such as the loss of a job — qualifies as well).

And on REOs:

Our sources suggest that some banks are choosing not to pay taxes on certain low-value REO properties in hard-hit neighborhoods, in the hopes that local municipalities will take the property to a tax sale rather than force the lender to carry the property on its books.

The FDIC reminded banks that doing so would violate existing bank safety and soundness guidelines ...

Here is the FDIC Guideline on REOs. And some of the instructions:

Maintenance. ORE should be maintained in a manner that complies with local property and fire codes. Other requirements, such as homeowner association covenants, may also require careful attention. Efforts to ensure an ORE property is maintained in a marketable condition not only improve an institution's ability to obtain the best price for the property, but also minimize liability and reputation risk.

Real Estate Taxes. Taxes on ORE should be paid in a timely manner to avoid unnecessary penalties and interest.

Insurance. A review of an institution's umbrella insurance policies should be performed to determine if adequate hazard and liability coverage for ORE exists. If not, management should consider obtaining policies on each parcel of ORE. If an institution decides to self-insure, this decision should be documented in the ORE file.

Other Expenses. Management should implement reasonable procedures for managing any other miscellaneous expenses the institution may incur during the ORE holding period. These expenses could include, but are not limited to, sewer and water fees, utility charges, property management fees, and interest on prior liens.

In other words, pay the bills!

by Calculated Risk on 6/30/2008 04:34:00 PM

Realtor Jim has informed me that they have two firm offers at full price for the REO featured in Oceanside REO: Back to 2002 / 2003 Prices.

These are owner occupied offers. That is what I suspected since the property doesn't make sense for cash flow investors at the current asking price.

The important point here is the difference in market dynamics between the low end (with significant investor activity) and the mid-range markets (most homes will be bought by owner occupants). Investors will probably set the price floor for low end single family homes and condos, but owner occupants will probably be more prevalent in the mid-range - buying at prices above what most investors are willing to pay. Just something to keep in mind ...

by Calculated Risk on 6/30/2008 10:43:00 AM

Here is another Countrywide REO in Oceanside offered at $359,900 (from Jim the Realtor). This house sold for $469,000 in early 2004, and is now being offered at late 2002, early 2003 prices. (see graph at bottom of this post)

Unlike the low end home discussed last month, these mid-range homes are not as attractive to cash flow oriented investors. Jim says the rent would be $2000 per month (maybe as high as $2500 per month all fixed up). The cap rate would probably be around 4.5%; too low for most investors.

Hey, where is the shower?



The following graph is the Case-Shiller home price index for San Diego, using the previous sales price of this Oceanside property to scale the price ($469,000 in Feb 2004). NOTE: These prices are not for San Diego and are used just to put this property on the Case-Shiller graph.

Click on graph for larger image in new window.

Although this REO is priced below the current Case-Shiller price - and is being offered at late 2002 / early 2003 prices, this is probably still too high for most investors.

This type of property will probably sell to owner occupied buyers, as opposed to investors, unless the price falls another 20+% (my guess is investors would be interested around $275,000). Although there are many more low end REOs on the market, lenders are starting to price those properties aggressively, and will probably sell many of those properties to investors. These mid-range REOs will probably linger on the market waiting for owner occupied buyers (or even lower prices). Jim did tell me there might be an offer coming in, but he noted: "I'll believe when I see it".

by Calculated Risk on 6/19/2008 02:00:00 AM

Eugene Garcia at the O.C. Register has a followup to his earlier photo tour of foreclosed homes in Orange County: UPDATE: Auction prices for 'The real foreclosures of Orange County'

Garcia notes:

It’s important to note that the winning bids are subject to an undisclosed reserve price set by the seller.

Here are the same two houses I featured last week with updated auction results. See Garcia's article for much more. Note: photos used with permission.

515 W. CAMILE, SANTA ANA: This Dali-inspired home (3 bed, 2 bath, 894 sq.ft.) went for $175,000 in cash. I tried to catch up with the two investor-looking guys who bought it, but they left the auction pretty quickly. I guess when you pay cash, there's not too many papers to sign. PRIOR SALES: Mar 2006: $585,000 Apr 2007: $515,198. (CR note: Starting bid was $99,000)

If the $175,000 price sticks that is 70% off the 2006 sales price. My guess is it will stick.

4 LANGFORD LANE, LADERA RANCH: This one came back to the auction block a second time after the first high bidder ($675,000) dropped out. Curiously, the bid went up to $680,000. There was frenzied bidding on this house. And many exited the auction after the 4 bed, 2.5 bath, 2600 sq. ft. home was sold. PRIOR SALES: Oct 2007: $808,120 Feb 2006: $1,000,000 (CR note: the starting bid was $299,000).

by Calculated Risk on 6/16/2008 02:41:00 PM

O.C. Register photographer Eugene Garcia takes us on a tour of foreclosed homes in the O.C.: The real foreclosures of Orange County

Here are a couple of samples (photos used with permission):

My first stop is at 512 W. Camile St. in Santa Ana. This foreclosed 2 bedroom home sold for $585,000 in March of 2006. ... the starting bid is just $99,000. Hopefully they'll throw in some buckets of paint. But - hey- what's that passage down below? (see Eugene's photos for the answer)

This house sold for $585,000 in 2006?

NO AREA IMMUNE: Quite a change in environment here. This 4 bedroom, 2.5 bath foreclosure at 4 Langford Lane in Ladera Ranch sold at the peak in 2006 for $1,000,000. Neighbors said the last buyer owned a mortgage company that went under. Starting bid is $299,000.

by Calculated Risk on 6/13/2008 09:21:00 AM

From Bloomberg: Foreclosures Rise 48% in May as U.S. Bank Repossessions Double

One in every 483 U.S. homeowners lost their houses to foreclosure or received either a default warning or notice that their home would go up for sale at auction, RealtyTrac said.
...
The number of national foreclosure filings grew 7 percent from April, according to RealtyTrac.
...
Lenders took possession of 73,794 houses in May, more than doubling the 28,548 REOs in May 2007, RealtyTrac said. That pushed total REOs to more than 700,000, RealtyTrac said.
...
Foreclosures will account for 30 percent of national home sales this year as 1.2 million foreclosed single-family homes will eventually enter the market, [Michelle Meyer and Ethan Harris, economists at Lehman Brothers] said.

Update: here are the actual stats from RealtyTrac (hat tip many)

The total REOs available increasing to 700,000 is a key number, as is the estimate that foreclosures will account for 30% of sales this year.

The beat goes on ...

by Calculated Risk on 6/11/2008 05:37:00 PM

From the WSJ: Foreclosures Make Up Majority of Sales in Sacramento

The Sacramento Association of Realtors says that a whopping 65.5% of 1,654 homes sold by Realtors in May were bank-owned, foreclosed, homes.
...
In Las Vegas, for example, about half of recent sales have been lender sales.

Is it any wonder pending home sales clicked up a little?

by Calculated Risk on 6/03/2008 04:11:00 PM

From Peter Tong at the LA Times: Foreclosures lead a town's downturn

It wasn't long ago that Andy Krotik was selling houses to out-of-town investors who would sometimes buy two at a time.

Now, Krotik spends his days warily entering abandoned houses, checking for angry holdouts or startled squatters. He wants to make sure the properties are empty and secure so he can sell them for the banks that have repossessed them.

"We're experiencing a tsunami of bank-owned properties," said Krotik, who has been selling real estate in this Central Valley town since 1989.

Few places in California flew as high in the real estate boom and crashed as hard as Merced.

For some of these fairly isolated communities, it will probably take years to absorb all the excess inventory built during the boom.

The lead in this story reminds me of commercials on TV (circa 2005) urging homeowners to take equity out of their homes and "build an empire". I can just imagine these equity rich homeowners as "out-of-town investors", driving to Yosemite, and stopping at Merced to buy "two at a time". Ouch.