This may not be the most politically correct piece that I’ll write but that’s never been my goal here on OC Voice.  So here goes….

One of my clients sent me a link to an article published online on CNBC about ‘Mortgage Re-Defaults Rising with No Sign of Slowing’.  The article states that, “…after 6 months, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent,”  and goes on to say that, “after three months, 19 percent were 60 or more days delinquent or in the process of foreclosure.”

There is no question that watching a family lose their home is beyond heartbreaking.  The article did point out a small piece of good news in this fiasco – 9 out of 10 home loans are current.

The article has me thinking about a few things.  Why does someone default?

The rates on the adjustables are actually lower in recent months than they were a year ago.  In addition to that, some of the Interest Only notes have yet to adjust at all.  Payments in many cases are the same, or even less than they were one year ago.

I’ve seen that in some instances, people frankly are not interested in paying $500,000 for a home that is now worth $375,000 and decide to walk away from the property.  Does a loan modification make sense for those owners?

Lending restrictions were way too lenient up until recently.  Some folks were approved for loans that they never would have qualified for under the strict requirements of today’s lending standards.  Does a loan modification make sense for those owners?

Temporarily reducing the interest rate, tacking on the arrears to the back-end of the loan may provide immediate relief but is it only delaying the inevitable?  Do loan modifications like this make sense?

Maybe it’s time to be honest and say that current levels of home ownership are higher than they’ve ever been, and just maybe, that isn’t a good thing.  It’s not good for the homeowners that aren’t really qualified, and it’s not good for the housing market.

Maybe it’s time to really help those homeowners get out from underneath the homes that they cannot sell for what they owe.  Maybe it’s time to let this market run it’s course without trying to fix it with band-aides and superglue.  Maybe it’s time to get a really efficient and effective short sale process to assist these distressed homeowners.

Bailout plans that focus on loan modifications and saving the homes may not necessarily be the answer.  As I’ve said before, where is a Bailout plan that really deals with the heart of the crisis?  Where is a plan that is effectively dealing with the real issues on Mainstreet?   I’m waiting…and not patiently.

Even in a tough market for sellers, there are still those that must sell due to personal circumstances.  Whether it’s a divorce, job relocation, or financial strain – there are still homeowners with equity, that find themselves in the position of having to sell and in this market, that can pose some challenges.

I come across articles all day on the Internet and share with you those that I find most interesting or those that in which I feel compelled to share my 2 cents.  This article on foreclosures and pricing from early December on CNN Money, was sent to me by a past client that is selling a home out of the area.  She is also a buyer in Orange County and sees the significant impact that foreclosure pricing has on her view of traditional, or equity, sellers.

It creates an interesting dynamic for her – she is both a buyer and a seller in this market.  That dual role allows her a tremendous clarity in the ability to position her listing.  She knows that she must price it to compete with the distress inventory in her marketplace.

As a buyer, she is also seeing that the although distressed inventory in our marketplace is not always in great condition, the best deals are often in that sector of the market.

As stated by CNN Money, “In California, the median price for an REO listing was $259,000 during the week of November 10, 23% lower than the non-REOs on the market according to Trulia.com.”

With REO’s in the state priced 23% lower than the traditional seller, it definitely puts the price pressure on equity sellers.  You must price to compete.

That being said, I have noticed (and discussed here) that traditional sellers do seem to get a higher price per square foot ultimately.  The possible reasons?  Full disclosure from the seller about past problems, often superior condition, less competition with other buyers because many investors target foreclosures, and the ability to have a timely response to an offer as opposed to the lengthy one in short sale circumstances.

Bottom line – look at your competition.  Are there distressed properties in your sector of the market?  You may have a bit of an edge as an equity seller, but buyers are looking for a good deal.    If you want to sell, you must be perceived as a good deal with pricing that is competitive.

This morning I came across an article on CNNMoney.com.  They predicted the top 10 worst housing market for 2009 across the country and California had the unfortunate distinction of having 8 out of 10 spots. 

Ranked as number 6 for the worst real estate markets in the country was the Santa Ana – Anaheim area.  The Median sales price for 2008 was stated at $532,140.  The prediction for ‘09 was a 23.7% decline.  The prediction for 2010 was a 3.5% decline.  If these predictions are accurate, that would leave us with the median sales price around $391,812 at the end of 2010.

Couple things to note from this report – it’s important again to remember the definition of median sales price as I discussed in my previous post.  We still have a tremendous amount of distress inventory to consume and  much of it is in the under $750,000 price points.

These bank owned properties and short sales that will make up a tremendous amount of our 2009 activity will result in a lower median sales price.  I am not saying that prices won’t decline, but again, it’s important to look at the meaning of these numbers in the right context.

The other question that I find confusing is what is meant by Santa Ana – Anaheim area.  Did they look at the numbers from those two metro areas?  They don’t appear to be referring to Orange County as a whole and Santa Ana has been in the top of the worst performing zip codes in the county so that I’m not sure we can say these are county wide predictions.  The news is not good nonetheless.

Other California cities that were facing some unpleasant predictions include Los Angeles (ranked as the worst real estate market in the country), Stockton, Riverside, Sacramento, Fresno, San Diego and Bakersfield.

The only two cities that were out of the Golden State were Miami – Miami Beach and Washington, D.C.

It doesn’t happen often but when it does, it’s breathtaking. Saddleback Mountain is the backdrop for South Orange County. If you live in Mission Viejo or Rancho Santa Margarita, the views can be spectacular. Here is a rare glimpse of Saddleback with snow sent to me this morning from a wonderful past client. The photos were taken from the view in their Mission Viejo backyard.

This week Jonathon Lansner did his recap of the Dataquick report on the Orange County real estate market. Where are we today?  And what does it really mean?

The Median Sale Price as reported by Dataquick for a home in the OC was $400,000 – which brings us back to May of 2003 if you’re tracking the bust backwards.  Lansner states, “That means that 53% of the 1996 to 2007 profit has evaporated.”

I found some other interesting tidbits on the DQNews site to report:

• 44.2% of sales in Orange County in the month of November were foreclosures.
• Sales volume is up 38.9% in November ‘08 as compared to November ‘07 numbers.
• Median sales price is down 31.4% from the median sales price in November ‘07.

I want to draw your attention to one common misconception.  Take yourself back to your statistics class (come on now – don’t kick and scream like that – it will be a brief visit, I promise).  Remember the definition of median.  Dictionary.com defines ‘Median’ as “the middle number in a given sequence of numbers”.

Look at the above statistic and look at it with that definition now applied.  Median is not the average.  It just means that if there are 5 sales – the price of the number 3 sale is the median home price.

You cannot draw the conclusion that prices have all fallen 31.4% when comparing November ‘07 and ‘08 median home price figures.  Remember that 44.2% of the sales in November were foreclosures.  Much of the movement in our market is in the lower price points and in the most distressed price points – hence a lower median price.

Median home price is still a valuable indicator in the market but you must be careful of the conclusion you draw from the information.  There is no denying prices have fallen precipitously.  But, I do think it’s important to evaluate the numbers in the right context.

Okay – statistics class dismissed.

My husband, Michael cringes when I post things like this – but I never promised to bring you just the Pollyanna good news in the market.  The ‘60 Minutes’ piece speculates that we are about halfway through this housing crisis.  According to the show, the first wave of this crisis was made up of sub-prime loans.  The second wave is predicted to be  Alt-A loans and Option ARMs that have adjustments coming.

Watch CBS Videos Online

Sean Egan, considered to be one of 6 Wall Street experts that ‘predicted the fall of the financial giants’ says that the housing market is incapable of a recovery until we ‘clear out the garbage’.  I couldn’t agree more – and this point always takes me back to the same frustration.  If there were real solutions in how banks were processing the glut of short sale inventory, we could expedite the cleanup and expedite the recovery.  Unfortunately, that is not happening.

One portion of the ‘60 Minutes’ piece that had me roll my eyes just a bit was the acupuncturist – turned real estate investor that was supposedly clueless about those Option ARM loans she used on her multiple investments.  She was putting 20% down, but didn’t ask questions about the loans she was using.  Why?  She was busy. “Busy looking at properties.  All day.  All the time.” Give me a break.

The arguments were a bit one sided and accomplished what the media loves to do – speak to people’s fears.  Consumer confidence is a facet of recovery and  pieces like this don’t help.

That being said, there is no denying another wave is coming.  If the Alt-A and Option ARMs are with folks like our acupuncturist friend, then clearly there is reason for concern, but I believe that there are a good deal of folks who understood their loans and investments.  Maybe I’m wrong.  Time will tell. I also think there are a good deal of these folks who will likely refinance these notes given the current low interest rates.

Mr. Egan cites the NAR stats of record supply.  That’s a statistic that you must evaluate locally.  Steven Thomas, President of Altera Properties, noted recently on his blog that demand in ‘07 was ‘51% less than it is today’.  Mr. Thomas goes on to state, “Last year the inventory was at 16,128 homes, 3,740 additional homes compared to today, 30% higher.  Two years ago the inventory was at 12,661, 273 additional homes compared to today.”

As we have mentioned here, in the lower price points we are seeing significant movement and dramatically less inventory.  The upper price points are not enjoying those bits of good news.

When I was a kid, and while in college as an adult, it was not unusual to get bundled up, carry hot cocoa in thermoses (might not have been cocoa in college….but I digress), and head out into the woods to cut down our Christmas Tree.  Although I was born in Southern California, I moved to Oregon when I was 11.

I moved back to Orange County in 1998.  I still miss having real seasonal changes – yes, including the rain.  This is the time of year that I struggle living in Orange County just a bit.

When we moved back to the OC, my father promised me and Michael (my husband), that we would in fact, go pick out our tree and cut it down.  We did – sans thermos and winter coats.  It was a tree farm off the 133 and the 5 freeway.  You weren’t allowed to cut it down yourself either, but you did get to watch them do it.  Close, but not exactly the same thing.

This year was like many recent years – the Home Depot parking lot.  Nearly every year we skirt around a marital encounter as I pick out trees for Michael to hold up so I can judge the fullness, symmetry, and the like.  He has the patience of a saint as I stand back, analyze the choice and ultimately decide that isn’t the one.  He assures me he’s happy to help me find just the right one that I like.

So today, I looked around at guys holding trees for their gals and for a moment I swear it was a ‘Saturday Night Live’ skit.  Those poor husbands and boyfriends nodding to one another, a show of understanding and encouragement, and the ladies analyzing the tree as if it’s a fixture in their home for the next 3 years instead of 3 weeks, and I knew it was time to go.  At that moment the one Michael held, became the one. “That’s it, let’s go!”

I packed my 3 thrilled kids into the car, Michael loaded the tree on top, and I turned on the A/C – it was a little warm, ya know…

I noticed the tree has a pretty significant hole, but we have that part facing the wall.