by Calculated Risk on 4/14/2011 11:50:00 AM

A couple of years ago, when prices fell sharply in many high foreclosure low end areas, we discussed a probable "hard floor" for low end house prices. The price floor would come from investors paying cash and buying low end properties to rent.

Of course this investment strategy doesn't work well in negative absorption areas like Detroit (areas with a declining number of households), but in many areas this is exactly what has happened.

However this doesn't work for high end areas.

Lauren Beale at the LA Times starts with an example: Leasing is in fashion among wealthy house hunters

[A] five-bedroom house in the Sunset Strip area priced at $3.5 million for sale ... the owner recently accepted a short-term lease [for] $10,000 a month to rent.

Why buy when you can't rent for about half the cost? And the renter is not taking the risk of further price declines.

And if we look at this from an investor perspective, no one would pay $3.5 million for $10,000 per month in gross rent. After taxes, maintenance and a high vacancy factor, this is a cap rate under 2%. Ouch (note: high end homes for lease have very high vacancy factors).

More from Beale:

No single clearinghouse tracks such data for all of Southern California, and many top-dollar leases are handled privately, away from the prying eyes of the public. Still, niche data and anecdotal evidence point to an upswing in upscale rentals.

Lease offerings priced at more than $10,000 a month were up 15% through the first part of April over the same period last year on the Combined L.A./Westside Multiple Listing Service, while those in the $7,500-to-$10,000 price range saw a 7% increase

Instead of lowering the price, some owners are leasing - and waiting for a better market:

Adding to the supply of lease houses are absentee owners and investors who haven't been able to sell and decide to take their for-sale homes off the market, put them up for lease and "sit out for six months or a year" or more ...

Just more examples of chasing the price down ... and more accidental landlords.

by Calculated Risk on 4/14/2011 09:57:00 AM

From RealtyTrac: Foreclosure Activity Decreases 15 Percent in Q1 2011

RealtyTrac® ... today released its U.S. Foreclosure Market Report™ for the first quarter of 2011, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 681,153 U.S. properties in the first quarter, a 15 percent decrease from the previous quarter and a 27 percent decrease from the first quarter of 2010.
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Foreclosure filings were reported on 239,795 U.S. properties in March, a 7 percent increase from the previous month but still down 35 percent from March 2010, when 367,056 homeowners received a foreclosure notice – the highest monthly total in the history of the RealtyTrac monthly report since its inception in January of 2005.

“The nation’s housing market continued to languish in the first quarter, even as foreclosure activity fell to a three-year low,” said James J. Saccacio, chief executive officer of RealtyTrac. “Weak demand, declining home prices and the lack of credit availability are weighing heavily on the market, which is still facing the dual threat of a looming shadow inventory of distressed properties and the probability that foreclosure activity will begin to increase again as lenders and servicers gradually work their way through the backlog of thousands of foreclosures that have been delayed due to improperly processed paperwork.”
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A total of 73,393 properties received default notices in March, up 16 percent from February but still down 37 percent from March 2010.
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Foreclosure auctions were scheduled on 93,228 U.S. properties in March, down 4 percent from February and down 41 percent from March 2010.

The decline in default notices is similar to the decline in serious delinquencies. However repossession activity will probably increase as lenders work through the legal issues and the huge backlog of homes 90+ days delinquent or in the foreclosure process.

by Calculated Risk on 4/14/2011 08:39:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending April 9, the advance figure for seasonally adjusted initial claims was 412,000, an increase of 27,000 from the previous week's revised figure of 385,000. The 4-week moving average was 395,750, an increase of 5,500 from the previous week's revised average of 390,250.

Click on graph for larger image in graph gallery.

This graph shows the 4-week moving average of weekly claims for the last 40 years. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 395,750.

This is the 7th consecutive week with the 4-week average below the 400,000 level (not by much). This is the highest weekly level since early February.

by Calculated Risk on 4/13/2011 11:37:00 PM

A few stories ...
• From the LA Times: Senate panel concludes Goldman Sachs profited from financial crisis

Asked if he was disappointed that no Wall Street figures had gone to jail in connection with the crisis, [Sen. Carl Levin] responded, "There's still time."

• From the LA Times: Banks, regulators act to correct foreclosure flaws and here is the press release from the Federal Reserve: Federal Reserve issues enforcement actions related to deficient practices in residential mortgage loan servicing and foreclosure processing

• From the White House: President Obama’s Framework for $4 Trillion in Deficit Reduction

• Retail Sales increased 0.4% in March

• BLS: Job Openings increase in February, Highest since 2008

• Beige Book: Fed sees economic improvement

• Lawler: Early Read on Existing Home Sales and Inventory for March

by Calculated Risk on 4/13/2011 06:58:00 PM

From DataQuick: Southland Home Sales Still Slow, Prices Edge Down

A total of 19,412 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in March. That was up 35.1 percent from 14,369 in February, and down 5.2 percent from 20,476 in March 2010, according to DataQuick of San Diego.

Sales always increase from February to March. Last month’s sales count was 21.4 percent below the 24,706 average for all the months of March since 1988. Sales so far this year are 20 percent below the norm. During the last half of 2010 sales were 25-30 percent below average.
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Sales of newly built Southland homes totaled 1,144, the lowest March in DataQuick’s statistics, which go back to 1988. The peak March was in 2006 with 7,205 sales. The March new-home average is 3,661.
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“As an indicator of upcoming trends, the month of March is actually pretty reliable. We got off to a slow start with sales this year and it doesn’t look like that will change anytime soon. Two of the likely game changers in the short run would be a surge in job creation or another round of price corrections,” said John Walsh, DataQuick president.
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Absentee buyers – mostly investors and some second-home purchasers – bought 26.0 percent of the Southland homes sold in March, paying a median $205,000. The absentee share of the market reached a peak in February at 26.4 percent. Over the last decade, absentee buyers purchased a monthly average of 16.3 percent of homes.

Another weak sales month, especially for new home sales - and right at the peak of the "buying season".

by Calculated Risk on 4/13/2011 04:22:00 PM

From economist Tom Lawler:

Based on the available data on home sales from local MLS, I estimate that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of around 5.08 million in March, up 4.1% from February but down 6.6% from last March’s pace.

Based on various data sources, including local MLS reports, I’d estimate that existing homes listed for sale increased by 1.5-2% from February to March. However, for some unknown reason the NAR’s methodology has tended to show bigger increases/smaller declines in February, and smaller increases/bigger declines in March, than available data on listings suggest. (That “trend” was evident again this February, when listings data suggested a small monthly decline but NAR “showed” a 3.5% increase). If past “NAR strangeness” holds, then the NAR will probably report inventories that are flat to maybe even down slightly from February to March – even though “they weren’t.” If the NAR’s inventory reading were flat then the NAR would show existing home inventories as being down 3.8% from last March – and any reasonably reading would show a YOY drop, as the VAST majority of local MLS have reported inventory declines from a year ago.

For those who forgot, the NAR doesn’t actually “add up” existing homes listed for sale across the country to derive its existing home inventory number. Rather, the NAR gets data on “months’ supply” from the 160+ MLS/associations in its sample, and then – after “grossing up” sample sales to a “national” estimate (based on decadal benchmarks, the last one being done a decade ago) – uses the reported “months’ supplies” to get a national inventory number. As noted before, the “definition” of “inventory” varies across MLS. In addition, not all MLS run reports exactly on the same time. Moreover, inventory numbers in an MLS at a given time may not always accurately reflect the listing status of a given property.

CR Note: The NAR needs to fix these data issues. Hopefully the new methodology will be announced this summer.

Existing home sales for March will be released next Wednesday, April 20th, at 10am ET.