Santa Cruz County Median Home Price Drops Below $500K in September

SANTA CRUZ --" The median sales price for a single-family home in Santa Cruz County in September was $490,000, the same as in August. The median, which is the midpoint of what sold, has topped $500,000 only one month this year unlike last year, when the median topped half a million for most of the year.

There were 145 sales in September, about the same as a year ago, but 41 percent involved distressed properties, slightly more than a year ago. Banks sold 37 homes, the third-highest tally this year, and short sales, where the lender accepts an offer for less than what is owed, dipped to 22. Real estate agents have been pushing to streamline approval of short sales since those homes tend to retain more value than foreclosed homes.

The local housing market remains clogged from the aftermath of the bubble that burst. About 1,170 homes are in the foreclosure process, according to the Santa Cruz Record, with another 1,160 having received a default notice for failure to make payments.

This is down from a year ago, when 1,400 were in foreclosure and nearly 1,400 had default notices, but with about 50 homeowners a week entering the foreclosure pipeline or advancing in the process, the pace of recovery seems slow.

In September, default notices were up in Felton but down in Aptos, yet several Aptos homes with loans for more than $1 million are scheduled for a foreclosure auction, according to ForeclosureRadar, which tracks foreclosure data.


Cancellations spiked in Scotts Valley, indicating a successful short sale or loan modification, according to ForeclosureRadar, while in Boulder Creek the number of bank-owned homes is the same as it was a year ago. About 20 percent of mortgage-holders in the county are underwater, according to CoreLogic, which tracks that data.

These borrowers bought or refinanced at the peak when the median home price raced up from $600,000 to $775,000 and now that prices have fallen, they owe more than what their home is worth. Yet million-dollar homes are being sold. About 7 percent of the September sales were for more than $1 million. It was the same percentage sold in that price range in March and May.

The condo market has seen the median price fall from $500,000 during the boom to less than $300,000 for the past year.September's median was $285,000, with 36 percent of the 33 sales involving distressed properties. The Dr. Housing Bubble blogger contends federal policies are pushing an articial recovery for housing "in bubble states like California and New York."

The Senate voted to restore the FHA loan limit to $729,500 from $625,500 as part of a spending bill. This measure requires House approval. Last week, Sen. Charles Schumer D-N.Y. and Sen. Mike Lee R-Utah. introduced a bill that would grant visas to foreigners who spend at least $500,000 on residential property, letting them to live in the United States.

Mortgage-Backed Securities Plunge As Refinance Plan Emerges

Mortgage-backed securities issued by Fannie Mae (FNMA) and Freddie Mac (FMCC) plummeted in price on Monday after the top housing regulator surprised investors by expanding an existing refinancing program to more borrowers and removing a key hurdle that has kept banks from approving new loans.


MBS tied to loans with high interest rates fell the most as those mortgages are the ones most likely backed by properties whose values have fallen below the loan balance, reducing the equity needed for a typical refinance.

Under the new plan, the Federal Housing Finance Agency will allow refinancing of loans guaranteed by Fannie Mae and Freddie Mac no matter the home's value, and extend the term of its Home Affordable Refinance Program through next year and 2013, the FHFA said. It will waive some liabilities to banks, making the lenders more willing to make a new loan with risky characteristics.

Since 2009, only 894,000 borrowers have used the HARP, of which just 70,000 were significantly underwater. The FHFA said the changes "may roughly double or more" the number of homeowners who enroll.

Investors had been speculating about an expansion of the plan for months but the announcement's breadth surprised many, said Scott Buchta, head of mortgage strategy at Sandler O'Neill in Chicago. Some investors expected the changes would be more limited, and thus have little impact on the pace of refinancing.

"They went for shock and awe," said Buchta, who added that the impact will likely be seen in early 2012.

As a loan is refinanced, the principal is returned to the investor at face value, or 100 cents on the dollar. But with high-rate MBS, such as those with 6% coupons trading at 109 cents on the dollar, prepayments cause steep losses.

Fannie Mae 6% MBS fell 19/32 to 109-3/32, underperforming Treasury benchmarks by the same degree, according to Credit Suisse's Locus analytics. Fannie Mae's 4% MBS declined 5/32 to 103-4/32 -- lagging their benchmarks by just 2/32 -- helped by purchases by the Federal Reserve.

The Fed buying of those MBS, which are most closely tied to current mortgage rates, could be expanded, New York Fed President William Dudley said Monday.

While changes help address responsible borrowers who have been plowed under as the housing bubble burst, the new policy runs the risk of alienating the investors that provide the bulk of all credit to homeowners by purchasing the securities packaged by Fannie Mae and Freddie Mac, analysts said. Investors who value MBS based on the level of refinancing have seen portfolios whipsawed as the government tweaked its rules, leading them to raise the premium they require to accept greater uncertainty.

Vast changes could mean unintended consequences of higher mortgage rates if investors begin to back away from the $5-trillion market, David Stevens, chief executive officer of the Mortgage Bankers Association, said earlier this month.

"I think we could potentially run the risk of robbing Peter to pay Paul," he told reporters on Oct. 11.

Analysts said the most significant change is that banks will be largely shielded from the risk that they will have to buy back HARP mortgages. They only will have to verify that borrowers have made their last six payments, have no more than one missed payment in the last year and that they have a job or another source of passive income.

The relief applies to most "representations and warranties," or the legal assurances of loan quality that have cost banks tens of billions of dollars as Fannie Mae, Freddie Mac and private investors hold them accountable for faulty lending during the housing boom. As a new HARP loan is made, the lender would be off the hook for quality of the initial loan.

Edward DeMarco, acting director of the FHFA, on a conference call Monday underscored that the new plan would give "substantial relief" from the representations and warranties. There are instances in which relief would be inappropriate, however, such as cases of mortgage fraud, he said.

"It's clear they listened to the originators," Buchta said, of the FHFA. "The representations and warranties were the friction, and to me nothing else works without that."

CA Pending Home Sales Post Lower in September

Pending home sales in California fell in September, as is typical for this time of year, but were up from the previous year for the fifth consecutive month. Additionally, distressed home sales increased slightly in September from both the previous month and year, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today.Pending home sales:


California pending home sales fell 5.2 percent in September, but were up from a year ago, according to C.A.R.’s Pending Home Sales Index (PHSI)*. The index was 118.5 in September, based on contracts signed in that month, down from August’s index of 125.0. The index was up 8.4 percent from September 2010. September marked the fifth consecutive month that pending sales rose from the previous year. Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.

“While recent pending home sales have increased from last year’s levels, housing inventory remains lean across all property types, particularly REOs (real estate-owned), which currently is at a 2.6-month supply,” said C.A.R. President Beth L. Peerce. “However, some major lenders recently announced they would accelerate the release of REOs onto the market, which should help alleviate the current shortage of housing inventory.”

Distressed housing market data:
The total share of all distressed property types sold statewide rose to 44.4 percent in September, up from August’s 43.7 percent and 43.6 percent in September 2010.

Of the distressed properties sold statewide in September, 20.2 percent were short sales, up from the previous month’s share of 18.9 percent and last September’s share of 19.5 percent.

At 24 percent, the share of REO sales was down slightly from August’s 24.4 percent, but up from the 23.8 percent reported in September 2010.

Equity sales made up the remaining share of home sales in September at 55.6 percent, down from 56.3 percent in August and 56.4 percent in September 2010.

*Note: C.A.R.’s pending sales information is generated from a survey of more than 70 associations of REALTORS® and MLSs throughout the state. Pending home sales are forward-looking indicators of future home sales activity, offering solid information on future changes in the direction of the market. A sale is listed as pending after a seller has accepted a sales contract on a property. The majority of pending home sales usually becomes closed sales transactions one to two months later. The year 2008 was used as the benchmark for the Pending Homes Sales Index. An index of 100 is equal to the average level of contract activity during 2008.

Home Short Sales Rise in ‘Dramatic Shift’ That May Boost Prices

U.S. home prices may get a boost from an unlikely source: a pickup in sales of properties in default before they reach the stage where they are repossessed by the bank and sold. There has been a “dramatic shift” in banks’ willingness to sell a property for less than the mortgage balance to avoid foreclosing, said Ron Peltier, chairman and chief executive officer of HomeServices of America Inc., the second-biggest U.S. residential brokerage.


The transactions, known as short sales, typically change hands at a discount of about 20 percent to homes not in financial distress, compared with a 40 percent price cut for bank-owned homes, according to RealtyTrac Inc. Short sales jumped 19 percent in the second quarter from the prior three months while foreclosure sales were flat, the data seller said.

“Banks have become much more supportive of short sales,” said Peltier, whose Minneapolis-based company is a unit of Warren Buffett’s Berkshire Hathaway Inc. “That’s better for the lenders, who have smaller losses on a short sale, and it’s going to be better for homeowners, who won’t have as much psychological distress as a foreclosure.”

Distressed sales brokered by HomeServices used to be 60 percent foreclosures and 40 percent short sales, Peltier said in an interview at Bloomberg headquarters in New York. Now, that ratio has flipped, according to the CEO, whose company is second in size to NRT LLC, a unit of Realogy Corp. in Parsippany, New Jersey, that owns the Coldwell Banker brand.

Default Backlog
“There’s a huge backlog of homes in default that the banks want to get rid of,” said Thomas Popik, research director for Campbell Surveys in Washington. “They don’t want to be homeowners.”

Banks are being more agreeable to short sales as foreclosures slow following a yearlong probe of so-called robo- signing, or pushing through unverified default documents. Foreclosure filings have fallen for 12 straight months through September as banks work through a backlog of paperwork, according to RealtyTrac.

Almost a third of all home transactions in August were foreclosures or short sales, according to the National Association of Realtors. While short sales were flat compared with a year earlier, the trade group’s count only includes deals completed with a broker, and short sales often are handled directly with lenders.

Quicker Approvals
Banks are not only approving more short sales, they’re doing it in less time. In the second quarter, short-sale homes, also known as pre-foreclosures, sold an average 245 days after default, down from 256 days in the previous period, according to Irvine, California-based RealtyTrac. That reversed three straight quarters of increases.

The time frame remains a lot longer than traditional sales. In a normal transaction, a buyer bids on a home and gets a decision from its owners within days, if not hours. Getting a bank response to a short-sale offer can take two months or more.

“No matter how streamlined a short sale may be, it’s always going to be a frustrating experience,” Popik said. “Too many people are involved -- investors, servicers, owners, real estate brokers, mortgage insurance companies.”

Half of troubled mortgages have so-called second liens, such as home equity lines of credit, according to the Treasury Department, so there may be two mortgage holders with a stake in a short sale. If the property has mortgage insurance, that company may be involved in the negotiations as well.

Neighborhood Values
Because short sales typically are occupied soon after the deal, neighboring properties take less of a hit in values, according to Popik. Prices for distressed homes often are used by appraisers to gauge surrounding values, even if the nearby homes aren’t in default. Also, owners who voluntarily give up their homes tend to leave them in better shape than people who are evicted, reducing costs for banks, he said.

“Anytime a short sale can be substituted for a foreclosure, it’s going to prop up prices and it’s going to cut losses because it’s going to sell for more,” he said. Home values have declined 31 percent in the last five years, according to the S&P/Case-Shiller index of values in 20 U.S. cities, as competition from foreclosures pressures sellers to lower their asking prices. The resulting crash was worse than the 27 percent plunge in values during the Depression, said Stan Humphries, chief economist of Zillow Inc., a Seattle-based real estate information company.

Underwater Borrowers
The drop in home values has pushed almost a quarter of U.S. mortgage borrowers underwater, meaning their debt is more than their homes are worth, according to a report by CoreLogic Inc. (CLGX), a real estate data company in Santa Ana, California. That so- called negative equity prevents owners from conducting traditional deals because they would have to pay the difference between their loan balance and the sale price.

Short-sellers can negotiate with banks to forgive the unpaid portion, according to Steve Beede, an attorney in Fair Oaks, California, who specializes in dealing with loans in default. Even if they succeed, a second-lien holder in most states can pursue people for mortgage-payoff shortfalls, he said.

Banks are starting to “get their act together” with short sales, said Cameron Novak, a broker with The Homefinding Center in Corona, California. The company handles about 15 of the transactions a month, he said.

“There’s been improvement in the last few months, and response times are getting to be a little quicker,” Cameron said in a telephone interview. “It’s about time.”

US Foreclosure Activity Increases

Foreclosure activity increased during the third quarter of 2011, driven largely by a spike in early filings in August. Data for September showed a return to the trends reported in earlier months. This information came Thursday in quarterly U.S. Foreclosure Market Report issued on Thursday by RealtyTrac. The report also includes statistics on September activity.


The Irvine, California firm issues regular reports on foreclosure activity throughout the United States, tracking foreclosure filings in three categories:

Notice of Default (NOD) and Lis Pendens (LIS)
This is the first legal notification from a lender that the borrower on a mortgage loan has defaulted under the terms of their mortgage and the lender intends to foreclose unless the loan is brought current.

Auction - Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS)
If the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.

Real Estate Owned or REO properties : "REO"
REO stands for "real estate owned" and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.

There were foreclosure filings on 610,337 properties during the third quarter, an increase of 0.35 percent over Quarter Two and a drop of 34 percent from the third quarter of 2010. One out of every 213 U.S. housing units received some type of foreclosure filings during the third quarter.

During September there were 214,855 filings affecting one in every 605 homes. This was a decrease of 6 percent since August and was 38 percent lower than September 2010. This was the sixth straight month when the filing rate was lower than it had been one year earlier.

Default notices were filed on 195,878 properties in the third quarter up 14 percent from the second quarter. Much of the increase occurred in August which set a nine month high in this category. September filings totaled 70,710, down 10 percent from the August numbers. Year-over-year comparisons improved for both quarterly and monthly data. Quarterly filings were 27 percent lower than Q3 2010 and September's numbers were down 31 percent from the same period a year earlier.

During the quarter foreclosure auctions were scheduled for the first time on 217,929 properties, 79,098 of these filings were in September. The second quarter figures were down quarter over quarter and year-over-year by 6 percent and 41 percent respectively and September's figures were down 6 percent from August and 45 percent from one year earlier.

Foreclosures were completed on 196,530 properties during the quarter, 4 percent less than in Q2 and nearly one third less than a year earlier. Foreclosures in September totaled 65,047; an increase of less than 1 percent from August and down 36 percent from September 2010 which was the peak month for bank repossessions in RealtyTrac's reporting history.

The timeline for all processes related to foreclosures continues to grow. RealtyTrac found that it now takes 336 days to complete the foreclosure process compared to 318 days in the second quarter. The time required to sell property keeps climbing as well. It took a record high average of 318 days during the quarter to sell a property in process of foreclosure - usually via a short sale - compared to 245 days in the second quarter. REO sales were occurring, on average, 193 days after the banks took possession of the property compared to 178 in the previous quarter.

"U.S. foreclosure activity has been mired down since October of last year, when the robo-signing controversy sparked a flurry of investigations into lender foreclosure procedures and paperwork," said James Saccacio, chief executive officer of RealtyTrac. "While foreclosure activity in September and the third quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up.

"Third quarter foreclosure activity increased marginally from the previous quarter, breaking a trend of three consecutive quarterly decreases that started in the fourth quarter of 2010," Saccacio continued. "This marginal increase in overall foreclosure activity was fueled by a 14 percent jump in new default notices, indicating that lenders are cautiously throwing more wood into the foreclosure fireplace after spending months spent trying to clear the chimney of sloppily filed foreclosures."

It took an average of 986 days to foreclose on a property in New York, the longest of any state and a record high for the state. The second longest average foreclosure process was in New Jersey, at 974 days, and the third longest average foreclosure process was 749 days in Florida. In contrast, the Texas average is 86 days and in Tennessee a typical foreclosure takes 94 days.

As usual Nevada, California, and Arizona were the most active states for foreclosure filings although the numbers are shrinking in all three states. The incidence of filings was one in 44 in Nevada, one in 88 in California and one in 93 in Arizona. Other states with high rates of filings were Georgia, Florida, Utah, Michigan, Idaho, Illinois, and Colorado.

Several states bucked the national trend with significant quarterly increases in REO activity during the quarter. These states and their quarter-over-quarter increases are Massachusetts (62 percent); Oregon (47 percent); Georgia (42 percent); and Illinois (27 percent).

There were also large increases in default notices during the quarter: Massachusetts (65 percent); New Jersey (29 percent); Florida 24 percent); Ohio and California (21 percent each).

Economy Delays Boomers Plans to Sell Home

In a survey by Coldwell Banker Real Estate, results found that 9 out of 10 brokers said “the economy is delaying baby boomers’ plans to sell their homes, compared to a few years ago.”

The big issue is the huge number of foreclosures we are seeing. Jim Gillespie, CEO of Coldwell Banker Real Estate said it really depends on how long it will take to work through the foreclosures in the system. No one seems to have a definitive answer on the timeline. All of this is based on Americans going back to work and consumer confidence coming back. That’s the big overhang.

However, the survey pointed out the baby boomers desire to purchase and own a home remains strong. The reason? Gillespie believes the American dream of owning a home is alive and well.

Home ownership is still American dream. “60-75% of Americans say investing in a home is the safest or second safest investment,” said Gillespie. It all boils down to life style. “Long-term future of the housing market looks good,” added Gillespie.

Gillespie pointed out a lot of the young people are living with their parents, grandparents or other family members. Once we see job creation, consumer confidence bounce back, Gillespie expects demand to pick up. Right now, many young people out there are renting because the economy is weak, there may be not as much funds available to them.

Is this just a temporary trend? Gillespie dismisses the idea we are turning into renter’s society.“That is not the case,” added Gillespie.

Currently, the baby boomer generation accounts for 79 million Americans. The survey divided up the boomers into two groups, younger baby boomers (ages 47 -55) and older baby boomers (ages 56 – 64). “31 percent of respondents say that younger baby boomer clients are selling their current home and looking for a larger home, compared to 6 percent of older boomers,” based of results of the survey.

4 out of 5 agents said that ‘older’ baby boomers are two times more likely to want to downsize than ‘younger’ ones. Gillespie stressed that half are downsizing for simpler lifestyle, not downsizing for economic reasons.

According to the survey, “49 percent of agents say the primary reason boomers want to downsize is because they desire a simpler lifestyle, while only 28 percent said the leading reason boomers are downsizing is to save money.”

US Real Estate Recovery Years Away Experts Say

It really is a tale of two trends when it comes to the U.S. housing market. Over the short term, things are looking a bit better: According to the Standard & Poor's Case-Schiller Home Price Index, the housing market has shown four straight months of home value growth, with S&P's 10-city and 20-city indices, both up 0.9% in July. The Case-Schiller reading, taken Sept. 27, shows that even sluggish markets such as Detroit and Minneapolis showed improvement on a month-to-month basis.

"With July's data we are seeing not only anticipated monthly increases, but some fairly broad improvement in the annual rates of change in home prices," David Blitzer, chairman of the index committee at S&P Indices, said in an official statement. "While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery."

Now, new data show recovery could be further off than homeowners had hoped. The Fair Isaac Corp.'s(FICO) latest quarterly survey of bank risk managers, released Sept. 30, estimates that a U.S. housing recovery won't happen before 2020. And that's a rosy scenario.

Specifically, the FICO survey asked bank risk managers if U.S. housing prices would return to 2007 levels before 2020, and 49% of the bank managers said "no," with 21% answered in the affirmative.

And that's not all -- FICO has some more bad news for the housing market:

73% of bankers say mortgage defaults would "remain elevated" for five more years.


46% of bankers say mortgage delinquencies will rise over the next six months.


Only 15% of bankers say mortgage delinquencies will fall over the next six months.

FICO analysts are talking about a "generational" timeline for home prices to recover -- that's the kind of talk Americans haven't heard since the Great Depression. "Housing has been an enormous drag on the economy for over three years as U.S. households lost trillions of dollars in equity," Dr. Andrew Jennings, chief analytics officer at FICO, noted in a statement. "While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation. This puts the devastation of the housing crash into perspective."

Beyond housing, the FICO survey looks pretty grim across the board. Bank managers say credit card accounts, student loans and auto loans should all see a rise in delinquent borrowers through the first quarter of 2012. The survey says consumers will continue cutting back on credit card use for at least five more years, and that could be a drag on the U.S. economy.

Furthermore, only 34% of bank professionals expect credit to small businesses -- widely considered a harbinger of economic growth -- to increase through the same period.

Comparisons to Japan's recent "lost decade" have started bubbling up in the financial media over the past month or so. With a full-blown housing recovery at least nine years off, those comparisons are starting to look more prescient every day.

SOCAL Commercial Real Estate Market Going Backwards

Inland Southern California is running out of industrial space, especially for the users of high-profile, big-box distribution centers. But while developers are purchasing and building new warehouses in Riverside and San Bernardino counties, the head count in its office buildings is getting even lighter. The vacancy rate for the office market is expected to end 2011 at 25 percent, one commercial real estate operator predicted late last month.

That means that, in two years, one of the unhealthiest facets of the Inland economy has gotten worse, not better. However, there are a few subsets of this sector that would take exception to the definition of “worse.” One would be investors, who have been able to buy distressed properties for far less than the cost of a new building.

Another is the existing office tenant. Many are locking up very favorable long-term lease rates. Marcus & Millichap is predicting a 25 percent vacancy rate at the end of the year, one of the highest in the nation. If the forecast holds true, it will mean a slight worsening of the 24.8 percent at the end of 2010. Some 2- or 3-year-old buildings are still mostly empty or unoccupied.

Professionals in the industry say they have to look no further than the latest statistics from the state on job growth to explain why one in every four square feet of Inland office space is empty. Right now, few employers are in position to put new people at Inland desks. “Whether it’s government or education or consulting, it’s just not getting better,” said Mary Sullivan, a commercial real estate consultant. “The office market is tied more to employment than the other commercial markets.”

The latest report on job growth for Inland Southern California shows a decline of more than 12,000 government jobs in the last year. More than two thirds of those lost jobs are in education, but many are desk jobs. There have also been year-over-year job losses in professional and technical offices, and the financial sector, an area that saw companies fight each other for the best office space five years ago, is barely growing now.

VACANCIES ON THE RISE
Vacancies are highest in Ontario and Rancho Cucamonga, the cities considered the Inland Empire’s economic center. In the last 12 months, the vacancy rate increased faster in the Temecula and Murrieta area.
Eastern San Bernardino County, including San Bernardino and Redlands, will likely be the only submarket to see its vacancy rate drop in 2011, and only by about half of one percent, Marcus & Millichap is predicting.

The office market’s struggles mirror the Inland area’s residential housing situation in many ways. There was a construction fervor that started in 2005 and 2006, but by the time many office buildings were completed the area was in the grips of a recession and few firms wanted to expand.
But while there are few new buyers coming to the area, it does not mean the commercial real estate industry is fallow. Burback said many tenants already in the Inland area are either trying to renegotiate their leases or are willing to look for cheaper space that offers similar amenities.

That means there’s lots of activity, none of which drives the vacancy rate down. Burback said that, for tenants, deals like those make sense. “If my lease were up I would renegotiate or move to a comparable Class A space, probably at a 15 to 20 percent lower rate,” Burback said. “I know I could do that.”

‘BURN OFF’ EXCESS
There are no plans for new larger buildings. “We have to burn off that excess inventory and have a reason to build new buildings,” John said. “But that won’t be here for a while.”

Investors could be another beneficiary of a depressed market. About three months ago, Newport Beach-based TA Realty Advisors purchased the four-story Empire Corporate Center, a Class A tower in Ontario, for $9.25 million. The $113-per-square-foot price tag was significantly less than the replacement value, which was probably about $150 per square foot.

Also, in the last two months, smaller buildings in Corona and Murrieta were sold by lenders. Neither had anywhere close to a full roster of tenants, but the upside was the price. The depressed market is an opportunity for doctors who, in search of a nest egg, might want to buy a property that will provide retirement income.

Neither of those trends will dent the 25 percent vacancy rate. But Sullivan predicted that, when companies are ready to expand, the region’s Class A buildings will be noticed.