Wagon Wheel

Wagon Wheel is small community in Trabuco Canyon located off Oso Parkway not far from the south gate of Coto de Caza.  The homes were built in the mid 90’s by Kaufman & Broad who subsidized the original mello roos bonds making it known in part, for it’s very reasonable tax rate.

Homes range in size from the condos in the Dakotas (835 to 1,117 square feet) to the gated community of Stonecliff (up to just over 3,000 square feet).

Current market conditions in Wagon Wheel are not dissimilar to Orange County as a whole.  The upper price points remain very slow and the lower price points are plagued by distress inventory.

Market Conditions

Note that there is very little bank owned inventory on the market currently, but given the recent completion of the moratorium on foreclosures, we are seeing Notice of Defaults on the rise again and in the coming months, I expect to see bank owned homes back on the rise in Wagon Wheel and all over Orange County.

The highest sale year to date is in the California Laredo tract at $725,000 in February.  The next closest sale was $600,000.  The poor sale history for the upper price points is  not isolated to Wagon Wheel and is seen across the market due to the lack of available financing and buyer cautiousness.

The highest sale in the last 30 days was in the California Landmark tract, a traditional sale for $556,000.  Between $500,001 and $750,000, there are 5 available properties and 3 in escrow.

Under $500,000 is plagued by distress sales.  Currently 4 out of 5 active listings are short sales, yet the 4 equity sellers currently in escrow reflect the buyer demand – buyers are often reluctant to wait out the lengthy short sale process and opt for a traditional sale.

Questions?

If you are wondering how these statistics and trends impact your buying, or selling process, please don’t hesitate to let me know.  I’m always happy to help.  No pressure and no obligations.  I can be reached at (949) 939-2514 or emailed at linsey@ocrealestatevoice.com.

This information and stats are from SoCalMLS and are deemed reliable but not guaranteed.

Today’s Microscope on the Market focuses on the Laguna Niguel real estate market.

Homes Under $500,000

In the under $500,000 market, Laguna Niguel does not vary from any of the cities I focused  on in South Orange County with a whopping 63.9% of the active properties in a short sale situation.  Couple of things to note – it would appear that there is significant movement with 71 properties in escrow.  Sadly, 38 of them are short sales and those can sit in escrow for 60 to 180 days and that can skew the perception of significant movement.  Notice only 18 have actually closed escrow in the last 30 days.

I want to also point out the very low number of bank owned inventory.  Pay close attention to this number in the coming months.  It will increase again based on the end of the moratorium on Notice of Defaults.  Filings are back up to levels prior to the moratorium so watch for this number to increase.

Also of note, despite the large supply of short sales, buyers still look to bank owned homes and equity sellers for their purchases by a significant degree in relation to the supply.

Homes $500,001 to $750,000

Again, despite the large number of short sales, buyers love bank owned inventory and it doesn’t last on the market and their is still a significant demand for reasonable equity sellers.

Homes Over $750,001

As I noted in Coto last week, there is just very little in the upper price points that is moving.  At this rate of consumption (12 homes a month), we have a 12.25 month supply of homes.  If nothing else were to list in this price range, it would take us over a year to consume the existing inventory with current buyer demand.

The good news in Laguna Niguel – there is very little bank owned inventory and very few short sale listings.  That can be good news for values in the coming year.  I’m not suggesting any appreciation guys – but even with slow sales, these folks may have the financial strength to hang on.

Today the microscope is on Mission Viejo.

So many of the media numbers focus on Orange County performance, but real estate performance can vary dramatically within our large county and particularly at various price points.

I’m going to spend the next several posts breaking down each of the South Orange County cities to give you an idea of local performance.  Whether you are buying, selling, or just keeping an eye on your local market, these numbers tell the story.

BTW Dear Friends/Readers, if you find this number crunching downright boring – stay tuned.  I always come back to the conversations that are much more fun than this! 

Homes Under $500,000

I think one of the revealing things about the under $500,000 market is the fact that while nearly 68% of the active inventory are short sales, they make up less than 28% of the homes that closed in the last 30 days. Demand also is high for bank owned product but very little currently exists – only 6.2% in this price range.

Homes $500,000 to $750,000

Again, very little inventory in the bank owned market, but significant demand.  There were very few sales in $500,000 to $750,000 market, as well as the $750,000 market as shown below.

It’s important to note where the demand is: of the closed sales in the last 30 days 81.1% have been in the under $500,000 market.

Homes Over $750,001

Interestingly, there are significantly less short sales in this price point. The bad news – sales are slow and with current buying trends, it would take 12.25 months to exhaust the current inventory of homes if nothing else were to come on the market.

However in the under $500,000 market, it would only take 4.12 months to exhaust all the inventory at the current rate of consumption. As I have mentioned many times here, the short sale listings takes months to close and skew the numbers dramatically. With current inventory, it would only take 1.9 months to consume the equity seller and bank owned listings under $500,000.  This sector of the market is no longer a buyers market.

I did some research for a client tonight and the findings are important to share with readers here.  If you are a serious buyer or seller, this information is telling.  Please stick with the tedium of the stats because the story it tells is meaningful.

This particular buyer is looking in Mission Viejo between $450,000 and $550,000.  He wants a single family residence.  With that criteria, I hit the MLS looking for a picture of where we really are. 

As many of you know, I’m the last person to jump on the ‘Hurry Buy Now’ band wagon.  However, if you are in this price range in South Orange County – this is speaking to you.  What did I find?

There are 40 Active single family residences currently listed in Mission Viejo between $450,000 and $550,000.  How do those breakdown?

• 19 are short sales (BTW – refer to my posts on shorts sales to understand the challenges with these sales)
• 4 Bank Owned
• 17 are supposedly equity sellers.  Upon further reading of the agent remarks in the listings 2 more of these are actually short sales and 1 is bank owned.

So, what does this leave us?  14 Traditional, Equity Sellers?  I should add 5 of these 14 are 55+ communities.  There are really only 9 equity sellers in my client’s search criteria out of 40.

It then becomes important to analyze the recent resale activity.  I pulled sales from the last 30 days with the same criteria - Mission Viejo, single family residences, $450 to $550.  Here are the stats:

• 21 Sales
• 6 Bank Owned
• 3 Short Sales
• 13 Traditional Sales (one 55+ community sale)

No rocket scientist needed here.  This is out of balance.

If you are not a numbers person, it’s okay, just try to stick with me here – 52.5% of the Active Inventory are short sales, but last month only 14.3% of the sales were short sales.

12.5% of the Active Inventory is bank owned, but last month 28.6% of the sales were bank owned.

And most telling, 22.5% of the Active Inventory are equity sellers (not to include senior communities), yet the sales from the last 30 days indicate that 51.1% were traditional sellers.

I’m actually not a numbers guru.  I love reading.  I love writing.  But, I also love logic and this should speak volumes to you.  The sellers that don’t have to sell have chosen not to; they’ve heard the message.  Buyers that have been fence sitting or have had affordability problems, have found that it is indeed their time.  Demand does exist.  The inventory may actually be lacking.  Do I hear – supply and demand?

Just to temper my enthusiasm, let’s look the sales prices.  No question – these are some other stats to consider from the last 30 days with that same criteria:

Short Sales – Sold at 98.29% of asking price with an average days on market of 143.  The average price per square foot was $253.09

Bank Owned - Sold at 101.55% of asking price with an average of 16 days on the market.  The average price per square foot was $263.06.

Traditional Sellers -Sold at 97.38% of asking price with an average of 34 days on the market.  The average price per square foot was $323.09.

I will suspect that the knee jerk response is that traditional sellers are overpriced on a per square foot basis – but look at the demand.   There’s a reason these are selling.  They are in superior condition (sometimes by a lot) and you can actually submit an offer to a live body, that has real emotion, and a desire to sell.  What’s the value in that?

So, if you think it’s a buyers’ market, think carefully and ask for the stats.  You need more than a cursory overview.  You need to drill down into the makeup of what it means to get a clear picture of the marketplace.

This is one picture of the OC marketplace, but from what I’m seeing, in certain pricepoints, it’s not isolated.  Thoughts?  I’m open to our interpretation of these numbers.

I had this conversation on Twitter today and had to share it as further evidence of the common problems we see in the marketplace when it comes to the handling of Short Sales.  In case you are not familiar with Twitter, it’s a social media and micro-blogging platform.

The banks aren’t improving things for the local housing market, their other local assets, or the housing recovery itself with this methodology.  But, this conversation serves to continue to illustrate my point about the short sale crisis and its impact on the overall health and stability of our marketplace.  Love to hear your thoughts.

The new buyer profile today is understandably looking for a ‘good deal’.   With the major changes we’ve seen in Orange County in the last 2 years, the buyers that feel ready to jump into the market are consistently saying, ‘If I find a good deal…’

So what is a ‘good deal’?  Let’s examine the potential opportunities.  There are 3 types of listings that are predominately found in the active market today:

1. Short Sales
2. Bank Owned (or REO’s)
3. Traditional Sellers

Short Sales: A short sale is a listing in which the seller currently owes more than the home is worth in today’s market.  I have discussed the process of a short sale in other locations on this blog.  Do your homework here if you are interested in this type of purchase.  It is a process that will take time and not every short sale will actual sell.  Some seller’s don’t have a legitimate hardship (required for a bank to approve their short sale).  Some will go into foreclosure after weeks of tying up a buyer(s) hoping to buy that home.

Is this a good deal?  Maybe.  Remember, they are usually priced very low to attract offers.  A bank won’t even consider a seller’s hardship until they have an offer.  This may mean that the home is priced far below what the bank may ultimately take.  And if the home is in disrepair, you’ll need to add the cost of repairs into your calculation.  A short sale will take time, patience, and a little luck.  I have seen some ‘good deals’ here but you’ll need to go into the process with ‘eyes wide open’.

Watch for rising interest rates in the meantime.  This can impact your affordability.  Also, watch the market.  What may seem like a ‘good deal’ now, may not seem so great in 4 months when the short sale has been approved if the neighborhood values continue to decline.

Bank Owned or REO’s: This is generally some of the most aggressively priced inventory on the market in Orange and Riverside Counties.  The banks don’t want to carry the inventory and they are priced to move.   The decline in prices have reached a level that has become affordable again for the first time buyer and appealing to the investors.

Steven Thomas, President of Re/Max Real Estate Services recently said in his Market Time Report, “For those looking to find a great “deal” by offering to purchase a property far below the asking price of a distressed home, good luck.  Your chances are much greater in winning the California lottery….The sales to list price ratio, how close a home is sold compared to the asking price, is between 99% and 100% depending upon the price range.“  He continues to make the point that the way that they are priced is already a deal.

After recently working with a buyer on the purchase of a single family home, we consistently found ourselves in multiple offers on bank owned homes – and not just 2 or 3 offers.  Often times there were 10 + offers in place within 48 hours of listing.  Who was awarded the purchase of those homes?  Cash is king here my friends.  Those with cash down, few contingencies, solid credit, and a strong offering price came away with the home.

Traditional Sellers: Some parts of the market are moving more slowly than others.  The bulk of the distress sales, 93% according to Steven Thomas, are under the $750,00 price point and subsequently there is a great deal of pressure on prices in those lower price points.

Are there good deals with traditional sellers?  The short answer – Yes!  Most people that are listing their homes today understand that it is clearly a buyers’ market in Orange County.  They generally know that it won’t be easy and those that are motivated to sell, are pricing their homes to compete with the inventory.  And often times that inventory consists of short sales and banked owned homes, especially in the price points under $750,000.

The bonus on many of these, there still is pride of ownership.  Is a bank owned home still a good buy if there is $50,000 in cosmetic or structural repairs?  Maybe, but maybe not.

The Bottom Line: Seriously consider the potential for a great value from a realistic, traditional seller.  You’ll have the benefit of full disclosure from the seller (which you don’t have in bank owned homes), you’ll have the opportunity to request repairs, you won’t be competing with the buyers that are focused on – “I want to buy a foreclosure’, and you won’t be dealing with the unknowns and long waits of the short sale process.

If you find the great deal you’ve dreamt about in a short sale or bank owned, by all means, go for it.   But be an educated buyer and understand the process and expenses when determining if you really have a good deal!

I got an email from a client and friend this morning.  He and I have had some wonderful conversations about the market over the last couple years.  As I was putting together an email for him – I thought this is a great topic for ‘The Voice’.

 

The good news in Orange County…Steven Thomas, Re/Max Real Estate Services’ President, wrote in his May 29th Market Time Report, “Current Orange County houseing demand not only obliterats 2007 levels, but it now has surpassed 2006 levels as well.  Demand has reached a mark not seen in 24 months.” 

 

So what is holding back a real estate recovery in Orange County?

 

?  Short sale inventory- I’ve said it before but it’s worth repeating…this is dramatically impacting the market.  Banking institutions could easily improve this by changing their approach and preapproving a hardship and determining a short sale price before properties hit the market. 

A few years ago many of us, including a lot of Realtors, didn’t know what a Short Sale was.  To be clear, a Short Sale is when the value of the property is lower than the encumberances (loans against the property) and the necessary costs of sale.  In short (no pun intended), the loans against the house are more than the house is worth.

Today, both sellers, buyers, and definitely Realtors are very clear about Short Sales.  It impacts everyone, at every level of the process.  And in truth, the poor, reactive approach the banks are taking to this epidemic problem is really only hurting them, and consumers, here in Orange County and across the country.

To truly understand all the implications here, it’s important to understand the process.  Please note, this varies from bank-to-bank and there are currently no industry standards to the process.

• Seller determines they are in a Short Sale position and must sell.
• Sellers apply for a Hardship Package from the bank.  A consumer can complete the package verifying they have suffered a hardship (loss of job, divorce, illness) and can no longer make the payment.  They also must show they do not have other assests to cover the shortage.
• The package is submitted to the bank.  Here is where the problem lies.  Banks likely will not even consider the Hardship Request until a seller supplies them with an offer.  And this is where I think the banks are really hurting themselves and consumers.  Lets talk about that…..

If you are a seller and have been told that your hardship package won’t be looked at until you bring an offer with it to present it to the bank, what do you do?  It’s often at this point that agents are brought into the matter. 

As an agent, you have a seller in distress, possibly in foreclosure, and in need of a quick sale.  What will the bank take?  No one knows.  Will they approve the hardship?  Maybe, maybe not.  Precarious and odd position to be in as an agent.  Where do you price the home to get a quick sale?

 Let me give a hypothetical, but not unrealistic circumstance.  For this example let’s assume the following:

Home’s Value Based on Recent Sales:  $500,000

Amount Owed:  $575,000

Closing Costs:  $35,000 (may include unpaid taxes and HOA dues)

# of competing homes on the market: 25

Now – an agent knows that getting Agents to show their Short Sale Listing will be difficult.  Why? 

1. Some of these agents have been working with these buyers for months or more.  They know the short sale process sets up their clients for heartbreak and delays a successful transaction.  In addition, Agents commissions are often severely cut.  While the brokerage fee may say 3%, it may actually be only 2% or less. 
2.  The bank may take weeks to respond.
3. There are likely multiple offers due to the low price (we’ll get to this)
4. A hardship may never be approved in the first place.
5. Their impatient buyer will still be looking in the meantime and possibly want to move on to something ‘better’ making this sale an exercise in futility.

So how does an agent attract showings to their Short Sale Listing?  A low price!  It looks like the best deal in town.  In our example a $425,000 list price wouldn’t be unrealistic.  The seller doesn’t care where it’s priced anymore.  The bank has given no guideline.  The agent has to generate offers to submit to the bank for consideration of that Hardship Request.

Time is of the essence in these situations.  Pricing it agressively, they will get many offers of anxious buyers looking for a deal and NOW they have the offers to submit to the bank so that they will consider the seller’s hardship.

In the meantime, traditional sellers and other bankowned homes are forced to compete with the short sale.  In all likelihood, the bank will never approve the sale at that price but at least you get the hardship approved and you can reenter the market at a bank approved price of, in our example, $475,000.  In the meantime, traditional sellers have been competing with $425,000.

The implications:

1. Listings remain in ‘Active’ status while waiting for the bank approval.  They aren’t really ‘Active’ but meanwhile it misrepresents the inventory to be higher than it is.
2. Traditional sellers are competeing with lower and lower prices that may not every even sell at that price.
3. Banks create their own comps for future Short Sales, Foreclosures and Bank Owned inventory.
4. Buyer demand is pent up while they wait for the word from the bank.

Why don’t banks take a proactive approach?  Review hardship requests first.  Reach out to delinquent sellers and disuss Short Sale options.  Establish an approved Short Sale Price before the home ever enters the marketplace! 

This type of strategy would serve their own interest, the sellers they are servicing, the buyers they are hoping to sell to, and the agents working in the industry.  Reactive is not working!  It’s driving prices down, misrepresenting inventory, and impacting consumer expectionations and results.  It’s a no win for anyone.

Isn’t this the million dollar question!  People talk about it, speculate over it, study it, and try to make buying and selling decisions based on all of it.  So when will the Orange County real estate market improve?

I thought we’d be in this condition at least until Spring of ‘09, because historically election years are not strong real estate years.  Even summer of ‘04 was a tough patch in our market.  With the financial crisis, energy crisis, inflation pressure, and overall economic state, combined with the bizarre election year, I have begun to wonder if Spring ‘09 was even too optimistic.

When a client and friend asked me the question recently, I discussed some of this with him and thought ‘this is a great blog topic!’ 

The one thing I am sure of is that until our short sale, foreclosure, and bank owned inventory is absorbed, the market will not begin to recover.   The traditional sellers are forced to compete with these listings and this continues to drag prices down.

I wondered how much of this inventory made up our existing market.  One of my listings is a condo in Rancho Santa Margarita for $285,000 with 2 bedrooms.  There are currently 36 listings with 2 bedrooms under $300,000 in Rancho Santa Margarita but of those only 9 are NOT short sales! 

So how much of the current market is in ‘distress’?  I should have paid more attention in my Excel class because I would love to chart this (add Excel to my list of technology skills to work on).  The following breaks it down a bit for just some of our local cities as of 5/21/08 (please note that distress sales are all things bank owned, short pays, probate, foreclosure, etc. and all information was gathered from stats on SoCalMLS and deemed reliable but not guaranteed):

Rancho Santa Margarita                                      Canyon Areas

Active Listings           383                                           Active Listings           177

Distress Sales           152  or  40%                            Distress Sales           66 or 37%

Laguna Niguel                                                        Laguna Hills

Active Listings           446                                         Active Listings           205

Distress Sales           152 or 34%                              Distress Sales           80 or 39% 

Mission Viejo                                                           Coto de Caza

Active Listings           450                                           Active Listings           166

Distress Sales           185 or 41%                               Distress Sales           33 or 20% 

Aliso Viejo                                                                Ladera Ranch

Active Listings           301                                          Active Listings           310

Distress                      133 or 44%                              Distress Sales           103 or 33%

If you were to look at some of the coastal communities the numbers are significantly lower:

Newport Coast and Newport Beach     6%

Laguna Beach  7%

Dana Point  12 %

Currently, higher price posts are less impacted than properties like my $285,000 condo in RSM but according to the May 20th artcile in the LA Times, luxury homes prices are beginning to feel the impact.

I’ll continue to watch and post these numbers.  As the # of distress sales begin to decline, that is a likely indicator that the market is beginning a true recovery.