Several newspapers reporting increases in foreclosure filings caused by unemployment. Predictable cause of future foreclosure filings.

One in Three Homes in June Suffer Price Cut ...

One in four homes listed reduced asking price on an average of 10% as of August 1st. This is the third month in a row that the percentage of listings suffered price reductions. Luxury homes, defined as those priced over $2.0 million, took a bigger hit with an average reduction of 14%. Industry pundits recommend that sellers are better off setting the list price under the market to encourage demand and competition rather than to overprice the home.

Although sellers and real estate agents may disagree on the initial listing price, a pre-signed price reduction is advisable to ensure that if a price cut is necessary that it is done quickly. The general rule of thumb in the real estate industry is that a listing may get stale after two weeks on the market without action.

The median home value is down 12.1% during the second quarter compared to the same time a year ago, and 22.3% from the market peak in 2007.

RealtyTrac reports a 7% growth in foreclosure related filings from June to July. July's figures represent a 32% increase from a year ago (July 2008); this monthly figure is the third record in 5 months. A total of 360,149 foreclosure-related filings were tallied by RealtyTrac in July.

"Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we're seeing significant growth in both the initial notices of default and in the bank repossessions" RealtyTrac Chief Executive Officer stated in his official press release. Top ten foreclosure states are: Nevada, California (one in 123 homes subject to foreclosure filings), Arizona, Florida, Utah, Idaho, Georgia, Illinois, Colorado and Oregon.

Watch for this trend to continue over the short term due to broader economic factors, i.e., unemployment, negative equity and overall economic conditions in certain States and markets.

Are You Tracking The Other Market Factors …

Newspapers across the country, as well as micro-bloggers and several industry websites, are reporting mixed economic signals. Articles are reporting market price reductions slowing down or even stabilizing in several areas. Closed sales on existing homes are up in June from May figures, and reductions in inventory are evident across the board. Unemployment figures for July were better than expected; while the Feds attempt to convince the general public that the economy is starting to turn around. Yet other industry insiders are reporting that the real market is still unstable due to the large “shadow” inventory of foreclosure properties held by the nations lenders and service companies. Unemployment in many areas remains in double digits and is unlikely to rebound until early 2011. Furthermore, early results regarding the Feds loan modification efforts (goal of 300,000 loan modifications by the end of December 2009) seem to be generally on target; however, re-foreclosures on these loan modifications are between 25%-60%.

So how does the general public decipher truth from fiction. Well first it would be beneficial to consider who is making the predictions, and determine what might be their motivation in manipulating the facts for their benefit. The Feds and specific industry associations reason for controlling the flow of information, and its interpretation is obvious – they need to sell us on the fact that the economy has bottomed out, is stable and in some market segments actually improving. The agendas of the other prognosticators are not as easily detectable. So what is the current status of the market?

Well, before you draw a conclusion based upon another neophyte economist’s opinions, maybe a pause and consideration of other market forces is in order. Ultimately the economy’s ability to bounce back will be driven by consumers and businesses ability to invest or spend. In order to spend money there must be the ability to make money or continue to borrow (credit line availability). It has been well documented over the past year that credit markets have contracted and/or made more difficult to qualify for new or expansion of credit. So that leaves consumers spending based upon earnings or savings. A watchful eye on unemployment figures thus is critical – for employment and income drives spending and the ability to save. Drilling deeper you might want to look at vertical market fluctuations to determine the present status and future directions. Several vertical markets contain interesting insights for the general California real estate recovery – i.e., the commercial real estate segment, construction activity and new housing permits.

The Wall Street Journal today reports that Southern California’s economy is more reliant on the construction segment than other markets across the Country. In Riverside and San Bernardino counties construction, at its peak four years ago, was the fourth-largest employer. The housing market contributed more than 24 billion dollars in revenue to Southern California in 2008. So construction trends are a significant “pull” in the broader Southern California recovery than what is being reported nationally. The greater Los Angeles area has lost about 90,000 construction jobs recently. The conclusion is that “construction is now literally stopped.” New housing permits in the five-county greater Los Angeles region has dropped 85% from 88,187 in 2005 to a projected 12,990 this year. The drop in housing permits in San Bernardino and Riverside counties is even steeper as it plunged 96% from 45,299 in 2005 to a projected 2,000 this year. The message is that construction is not poised to play its typical role in leading the region of almost 25 million people out of this recession.

So where does that leave Southern California’s economy and housing? There remains a low inventory of existing homes on the market that is keeping home prices relatively stable. The low-end of the market is being supported by first-time homebuyers; while the higher market segments continue to suffer from price reductions and slow turn-over (few qualified buyers buying). The shadow inventory of existing foreclosures, and new foreclosures that will emerge as loan modifications fail and unemployment persists will pose a continued drain over the coming months. When will the market bottom-out will be detectable after the fact, not as it is happening regardless of the countless predictions by market experts (or regardless of our endless desire to know).

How will the market recover, well my guess is that in Southern California broad employment improvements in several market segments will need to occur, along with a viable plan moving forward that encompasses continued lower interest rates; a workable long term plan for loan modifications, short sales and foreclosures; new loan programs that balance the needs of buyers and lenders with reasonable underwriting guidelines that mitigate risk while facilitating market growth; and market equilibrium in supply and demand that allows market prices to increase to a level that pulls more sellers out of a negative equity position without chasing qualified buyers away. As the market shifts there will probably develop several other factors that will impact the market’s recovery, for example Federal, State and local governments investment in the infrastructure, service and technology developments that create new opportunities, foreign investments in local market segments, inflation fears, status of the wars in Afghanistan and Iraq (as well as any other foreign conflicts), large Corporations’ investment in local plants and economies, availability of capital in the higher end real estate market segments, etc. The easy answer is that the market will shift again with a dramatic change in the supply and demand within each micro-market as well as in all the different market segments within each market.

I guess the message is stay tuned … the roller coaster ride of uncertainty continues to be interesting! For more information on the status of the current market and what is available in your market today, please visit www.coastalcommunityhomes.com. In addition if you would like a change of pace from your weekly routine, then enjoy a pause with your morning coffee and visit http://mondaymojo.blogspot.com/. Otherwise, if I can be of service to you or a friend in your real estate pursuits please contact me at jim@peys.net.

Despite falling prices or maybe because of falling prices, annual rate of SFR resales down only 2.9% compared to 2008 at end of 2nd quarter.

Treasury announces the Supplemental Directive for its Home Price Decline Protection (HPDP). HPDP provides incentive payments for loan mods.

Foreclosure stats for July are mixed. Notice of Defaults held consistent at 44,996 filings. Notice of Trustee Sale filings rose to 39,294.

A few prognosticators writing that housing has reached bottom. June home resales up 9%. How do you reconcile unemployment and foreclosures?

SO HAVE WE BOTTOMED OUT … YET?

If you listen to various media outlets the housing market nation wide has reached bottom and the market maybe stabilizing in certain areas. Market pundits and realtor organizations comparing existing homes sales in June year over year and from May figures suggest that we may be through the worst of the market downturn. Realtors report from the trenches that prices in the lower end of the market are selling quickly with multiple offers. So what does all this mean? Have we experienced the bottom? Is this information reliable?

Both National Association of Realtors (“NAR”) and California Association of Realtors (“CAR”) report a 3.6 percent annual increase in June comparing to May’s revised figures. Total units sold in June were 4.89 million compared to May’s revised pace of 4.72 million units. Lawrence Yun, NAR chief economist, stated “we expect a gradual uptrend in sales to continue due to tax credit incentives and historically high affordability conditions.” In California, CAR reported on July 27^th that home sales increased 20.1 percent in June compared with the sales period a year ago. Furthermore, CAR President James Liptak stated that “June marked the 10^th consecutive month of positive sales gains, and the fourth month of rising median home prices.” The other piece of news that has created this “false” sense of recovery is that in California it was reported that the number of properties going to Trustee Sale (the second step in the foreclosure process) decreased by 28.9% in June.

Many people interpret these numbers to mean that the market has reached bottom and is starting to move in the other direction. However, if you “peel back the onion” slightly you might see a different story evolving that may impact your assessment. There are several significant trends worth considering as a part of your market assessment. Realize that any discussion on national and state trends may not be reflective of individual “sub-markets” (aka “micro-markets”) within your particular local market, such as the Bixby Knolls area of Long Beach (90807 zip code). So you need to understand the broad national and state trends, but ultimately evaluate your particular sub-market or micro-market to accurately assess how these trends affect you directly.

The first factor to consider is how unemployment figures into the economy and home values. Recent economists are predicting that unemployment will continue to grow and create a “drag” on the economy through 2011. Some have predicted a continuation of double-digit unemployment. In Southern California, specifically Long Beach, the unemployment is hovering around twelve percent (12%). As unemployment rises fewer people will be able to afford paying their mortgage or purchase new homes. If this number continues to increase you will notice property defaults on the rise, which will over time impact local inventory and property values.

The second factor to track closely is the current foreclosures on the market and the number of properties going into default (notice of defaults actually filed with the County). According to ForeclosureRadar, a company that tracks California foreclosure data, the number of Notices of Default (“NOD” – the first step in the foreclosure process) filed in California increased 11.8% in June to 45,691. This number is the second highest monthly total on record, and is a 10% year-over-year increase from June 2008. Additionally California had over 135,000 foreclosures in process as of June 2009 (NODs filed through Trustee Sale). Furthermore, there are bank owned properties that have been taken back in auction (Trustee’s Sale) not currently on the market. It is common knowledge that the Federal government has encouraged all banks to “honor” a moratorium on REO properties as well as foreclosures – moratorium has kept REO properties off the market and banks have “suspended” any foreclosure efforts since the fourth quarter 2008.

How many REO (“real estate owned”) properties are currently held in inventory by the banks and service companies (i.e., Fannie Mae and Freddie Mac) is unknown; however, it is believed the number is significant. This “invisible hand” has controlled the inventory of homes on the market (if you restrict inventory [supply] and you have a steady number of buyers [demand], then the law of supply and demand will move prices up) and affected prices as a result. As these foreclosures come onto the market it will cause a “bloat” of inventory that will cause a further reduction in the median price for housing in high foreclosure areas.

There has been significant commentary in the press media lately regarding loan modification. Although loan modifications are a preferred option with the Feds (because they are committed to reducing the affect these foreclosures will have on the economy), the industry estimates that anywhere from 25%-60% of these loan modifications have or will re-default, and re-enter the foreclosure process in the future. See the Wall Street Journal article in May of 2009 entitled “Mortgage Modifying Fails to Halt Defaults.” If this trend continues than upwards of 60% of the 300,000 loans currently being modified will re-enter the foreclosure process down the road.

The statistics not being emphasized by the Feds or industry associations (CAR or NAR) will dramatically affect both the inventory levels as well as market valuation in the future. The Feds are committing significant capital and resources into the economy, specifically housing which has softened the down turn; however, there could be further erosion in the market in the months to come due to these other factors. The difficulty is that the Feds are in effect “manipulating” the market in order to reduce the drag housing has on the over-all economy. So the real answer is that the market has improved, but it has a ways to go before foreclosures stop flooding the market and placing downward pressure on prices. The key is to watch current trends with an eye to what is coming along in the pipeline.

If you wish additional information and statistic data on your particular micro-market visit: www.coastalcommunityhomes.com. Otherwise if I can be of service to you, please send me an email at jim@peys.net.

Feds closing in on "bad bank" to place "bad debts" of Fannie Mae & Freddie Mac in: more info see: http://ping.fm/tMUGF

Current foreclosures being driven by unemployment, not subprime and prime loans. To search foreclosures see www.coastalcommunityhomes.com.

The Green Initiative … Energy Efficiency How Does It Benefit Us …

The U.S. government launches new energy efficiency efforts for homeowners. As the House of Representatives passes historic legislation paving the way for a clean energy economy, President Obama and the U.S. Energy Secretary promote aggressive energy efficiency plans that will save consumers billions of dollars per year. What does that mean? How will this energy savings actually be realized by homeowners?

The key provisions contained in the American Clean Energy and Security Act, in part, for homeowners includes:

· HUD and the FHA are encouraged to create a new generation of mortgages that offer 5% larger mortgages to people planning on making energy-efficiency improvements.

· The FHA is directed to insure a minimum of 50,000 new energy-efficient mortgages during the next three years.

· Fannie Mae and Freddie Mac are directed to develop mortgage products and more flexible underwriting guidelines to reward energy-conscious borrowers and builders.

· Real Estate appraisers are required to take into consideration energy improvements and money saved in the valuation of a home.

· Federal financial regulators are directed to support the establishment of privately run “green banking centers” inside banks and credit unions.

· State governments are required that homeowners who through energy conservation measures take themselves “off the grid” are not denied property hazard coverage by insurance companies.

Is this enough to encourage homeowners to invest in energy conservation technologies that are oftentimes cost prohibitive when compared to traditional technologies? Ultimately people will weigh their cost of retrofit (or replacement material), return on investment (“ROI”), along with their growing “moral” and philosophical desire to live in a way that reduces the environmental burden. Given the limited operating hours in a residential application, the cost (depending upon the retrofit options considered) will outweigh the return on investment (payback for your investment will be longer term); however, that is why the philosophical desire will ultimately be what motivates consumers to consider retrofits that are beyond “the low hanging fruit” such as lighting.

Point in case, according to the U.S. Energy Department lighting in your house makes up between 7-38% of your total electrical bill; and you can reduce your bill upwards of 25% using current energy efficient technologies. For example, if your home electric bill averages $175.00 per month ($2,100 per year) and you reduce it by 25% then lighting savings will total approximately $200.00 per year (as per the broad U.S. Energy Department initiatives). So what is the premium you will pay to install compact fluorescent lamps (verses incandescent lamps) and electronic ballasts and T8 or T5 lamps (verses energy saving fluorescent lamps) in your home? There will be an initial “retrofit” cost, and then as lamps fail the ongoing material maintenance cost or premium. Based upon limited operating hours for lighting in our homes, the actual savings will not be as significant as in many types of commercial buildings. The actual savings will vary on usage (total hours you use your lighting system), when you typically use your lights, and your specific utility rate. The other benefit as it relates to most energy efficient lighting products is that the material has substantially longer life span than inefficient technologies (i.e., incandescent lamps last between 800-1200 hours of operation; however compact fluorescent lamps last 10,000 – 12,000 hours). So over the long term you will spend less in material replacement.

So does pursuing energy efficient technology make sense? For the Federal and local governments – absolutely. For individual consumers – the front end retrofit cost can be substantial in some cases therefore tax incentives and financing options reduce the initial burden. Energy cost savings and replacement material savings makes these strategies even more palatable. But ultimately our social conscious will direct our decision to invest the upfront capital.