Time to change our Bookmark

4/25 update:   For our newest post, click here:  “A post from Tennessee:  Update on out of state investing“

Starting today, to find our most recent posts, you’ll need to look elsewhere. Specifically, SoCalRealEstateNews.com.

For example, we finally got that post up on who might want to think about buying now. (“More bad news: Time to buy?“) But you’ll have to drop the “wordpress” from the domain name to find it.

You see, we’re in the middle of switching our domain from wordpress to our own host, which we think will give us some greater flexibility in several areas. Or at least we hope so. (Remember, we’re professional Realtors, not bloggers, so we’re doing the best we can as we go. Thankfully with some assistance from my 16 year old son, but high schoolers are busy people. So your input and suggestions on this are more than welcome.)

So right now, you’ll find “SoCalRealEstateNews” in two places, SoCalRealEstateNews.wordpress.com (that’s where you are now, with a photo of Blair and Beth at Crystal Cove across the top), and SoCalRealEstateNews.com (with a closeup of green leaves at the top, for now at least).

For now, when you click on “internal” links, you’ll sometimes find yourself switched to the other site, but the posts themselves are the same. Except for now we’re only adding new posts to the new site.

So if you’ve got us bookmarked, thanks, but please change that bookmark to our new site.

If you’ve set up an RSS feed from our site, you’ll want to switch that over too.

Now we think the world of WordPress, and are still using their software, just not their hosting. Eventually we may phase out the .wordpress.com site–time will tell. Right now we’re just trying to figure out how to send a “change of address” note to Google & company. (If you know, the comment option is right here:)

Chapman’s Affordability Study Predicts Another Double Digit Home Price Drop for Southern California

Just as the National Association of Realtors’ forecasts tend to be overly optimistic (see this morning’s post), Chapman University’s tend to be quite pessimistic. I think they’re still mad that Gary Watts made them look foolish several years in a row, or it could just be something inherent in their system.

Anyway, as part of their coming June “comprehensive forecast of key economic variables,” Chapman’s Economic Research Center today released their projection of Los Angeles County, Orange County, and Inland Empire housing prices based only on one variable, affordability.

To reach the historical average affordability rate, Chapman says L.A.County median home prices need to fall an additional 23.3% and Orange County by another 13.7%. The Inland Empire, which has had the more severe overbuilding and foreclosure rates, need “only” fall another 8.2% to reach Chapman’s magical median.

Now for the bad news:

“It is likely that home prices will decline even more . . . since corrections usually drop the affordability index below the historical mean.”

Their math assumes modest income increases and flat interest rates. Declining rates could significantly decrease the amount of “correction” needed, while more modest pay increases could offset at least some of that.

I think historical trends in L.A. and Orange Counties are skewed by many years of affordable land.  Today’s situation of being practically built out on the coastal plain should result in higher affordability rates, in our opinion.  That doesn’t totally invalidate Chapman’s conclusions–we’d just pick more modest numbers.  We’re also hopeful that continue declines in mortgage rates will increase affordability.

It seems to us that both Chapman University and Gary Watts are like broken clocks.  Gary’s stuck at sunrise:  He always thinks prices will keep going up.   Chapman’s stuck at midnight:  The worst is yet to come.  They’re both right once in each economic cycle, like a broken 24-hour clock that’s right once a day.

Still it’s one more thing to consider.  We think a 5% – 10% additional price drop will hopefully do it for the coastal plain at least.  (See “A Change in Our Projections“).

Like we keep saying, nobody knows for sure (See “How Low Will Prices Go?”).

For Chapman’s full report, including some nifty charts, in PDF form, click here.

And click here for “a little perspective” on our real estate woes, here for “a little more perspective,” here to find out “what to do when nobody knows what’s next,” or here to find out “how to sell your So Cal home for top dollar in 30 days.”

As for me, I think it’s time to get outside in this beautiful weather & go for a jog.

National Association of Realtors’ Economist Still Too Optimistic?

We got our April “Research Update” from NAR yesterday (“Existing Home Sales to Stabilize Before Upturn in Second Half of 2008“) . That seems too optimistic to us.

Maybe Lawrence Yun, their new Chief Economist, hasn’t heard about the annual cycle yet (See “Market Predictions 101:  Our 2 Real Estate Cycles“), because he thinks things will start picking up when they start slowing down in most years.

Here are the first three paragraphs of NAR’s press release:

Little change is expected in existing-home sales over the next few months, before improving notably during the second half of the year, according to the latest forecast by the National Association of Realtors®.

Lawrence Yun, NAR chief economist, said the market will come into clearer focus this summer.  “Existing home sales could start to show a sustained increase within a few months, unless there are some additional economic problems or excessive inflationary pressure,” he said.  “We’re looking for essentially stable sales in the near term, before higher mortgage loan limits translate into more sales in high-cost markets.  The wider access to affordable credit should increase sales activity notably this summer as pent-up demand begins to be met.”

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in February, slipped 1.9 percent to 84.6 from an upwardly revised reading of 86.2 in January, and was 21.4 percent lower than the February 2007 index of 107.6.  “The slip in pending home sales implies we’re not out of the woods yet, though an era of successive deep sales declines appears to be over,” Yun said.

We do see some signs of bottoming, but from where our office sits on the OC/LA County line off the 605 in Lakewood, we really can’t tell if it’s just a spring uptick on a longer downward trail.  We’re still sticking with our most recent forecast (see “A Change in Our Projections?“)

We think DataQuick’s numbers from yesterday only tend to confirm our perspective (“What DQs numbers mean“)

DataQuick’s March median numbers: What to expect & what it means

Update from David Emerson: We wrote the following post early 4/15, in anticipation of DataQuick’s release of their March closing statistics for all of Southern California, including L.A. & Orange Counties, Lakewood, Long Beach, Los Alamitos, and the surrounding area. As we predicted, DQ’s March numbers showed an increase in sales which was quite modest by seasonal standards, and also a modest firming in prices.

We’ll insert excerpts from today’s DQ report at appropriate points through the post below. We’ll indent them & put them in italics. We’re leaving our earlier projections and commentary unchanged, because it’s still applicable:

“DataSlow,” as we like to call them, should be out today with their March closing statistics for Southern California. Here’s our preview & interpretation. We’ll update this as needed once the numbers are out.

Data quick reports Southern California two statistics every week and every month: sales volume and median sales price.

It looks like both will be down from March 2007, which will probably get most of the attention. But the month over month figures should be more hopeful.

We expect sales volume to be up a tad from February,

[Here's what DQ reported:] A total of 12,808 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in March. That was up 18.8 percent from 10,777 the previous month but down 41.4 percent from 21,856 in March 2007.

and median prices to be pretty close to February’s numbers.

The median price paid for a Southland home was $385,000 last month, the lowest since $380,000 in April 2004. Last month’s median was down 5.6 percent from February’s $408,000, and down a record 23.8 percent from $505,000 in February 2007. That peak median of $505,000 was reached several times last spring and summer.

[Dave here. This is still a reduction in the rate of decline, and it was caused by some of the problems with median statistics, details below. When isolated by county, the stabilization is more apparent. For example, Orange County's March median of $506,000 was down less than 3% from February's OC DQ median of $520,000. More significantly, OC's $506k March median was actually up from DQs last 4 week OC reports, which both came in at $500,000. Pretty much what we predicted--but don't read too much into that, bulls (details to follow)

Now a word about what that would mean.

It's important to bear in mind what these numbers actually are. First, in terms of today's rapidly moving market, DQs numbers are ancient history. That's because Data Quick today will report Southern California real estate sales that closed escrow during March.

That means the purchase offer was most likely written 45-60 days earlier: Someplace between January 1 and February 14.

Second, DQ's price numbers are medians. If more homes are selling in stater neighborhoods, the median price will drop even if prices are rising. (For a more detailed discussion of the problems with DataQuick's numbers, see "Two big problems with DataQuick's median prices.")

The sharp and sudden drop of the Southland median price reflects a combination of factors, mainly depreciation, especially in areas hammered by foreclosures, and a big shift in the types of homes selling. Since last August, when the continuing credit crunch hit, sales have plunged for more expensive homes financed with "jumbo" mortgages, which until recently were defined as loans over $417,000.

Sales financed with these larger loans, which the credit crunch made more expensive and harder to get, accounted for just 15 percent of Southland sales last month, down from about 40 percent a year ago.

[This is the problem with medians. DQ explains it, but only in the ninth paragraph of their report.]

Even with their problems, however, DQs numbers can be useful. These should offer something for everyone, but some caution is in order.

Housing bears shouldn’t focus too much on the year over year numbers to the exclusion of some possible modest improvement from February to March.

Likewise, housing bulls should be wary of reading too much into what might just be a normal seasonal increase in activity and prices (see “Southern California’s 2 housing market cycles“).

Over the past 20 years Southland sales have risen by an average of 38 percent between February and March. Last month’s 18.1 percent increase from February was the lowest in DataQuick’s statistics, which go back to 1988.

We don’t think today’s DQ numbers will change our own position on what’s ahead (See “A change in our projections?” for our April 4 projection post, or our “classic” November post on this market, “How low will prices go?“)

DQs report is available here. You might also want to check out Peter Hong’s concise, well-written article on today’s DQ numbers.

For a little longer term perspective, you might want to click back to either of our last two posts, (“A little more perspective”) and (“A little perspective“).

A little more perspective

Yesterday’s paper brought an uplifting story that helped put our real estate woes in perspective.

Today’s paper was a little more brutal. “The Next Big Quake: Big One Nearly Certain by 2038,” screamed the Register. The Times was a bit gentler: “Likelier here: the next Big One.”

Fortunately, I try to start each day with a something a little more inspiring. This year I’m reading through Wisdom for Today, a daily devotional by my Pastor, Chuck Smith.

Appropriately enough for April 15th, today’s devotional was taken from the Biblical book of Job.

It’s based on advice the troubled Job received from Eliphaz, a friend who had come to “comfort” Job in his distress. Possibly the oldest book of the Bible, Job could have been written yesterday for today’s California home owners.

Titled “Nothing + Nothing = Nothing,” today’s devotional is taken from Job 15:31, “Let him not trust in futile things, deceiving himself, for futility will be his reward.“

Here’s the first paragraph of “Pastor Chuck’s” thoughts on the passage:

“In his attempt to understand why God had stripped Job of all his possessions, Eliphaz reasoned that Job had foolishly put his trust in those possessions. Though Job had not done so, Eliphaz was right in speaking against the folly of those who are lulled into a deceptive sense of security by their wealth.”

Like maybe thinking Southern California real estate can only go up in value?

Bottom line, even if that were true, you still can’t take it with you!

1,500 years after Job, Jesus put it this way:

“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also.” (Matthew 6:19-21)

I find that last sentence especially interesting. Jesus’ reason for not focusing on material wealth wasn’t so much that “you can’t take it with you,” as that it will distract our hearts from far more important things. Things that are eternal, like our family, our neighbors, our character and God.

Hopefully the last few year’s “shake up” in Southern California real estate values or the coming “shake up” reported in today’s paper will help us all focus more on things that can’t be shaken.

A little perspective

Woke up this morning to one of those stories that makes you thankful for what you have. Even if it is going down in value.

Worth a read:

“Pride in A Paycheck”

There’s more to life than money. Way more.

Real Estate Bottom Near?-

Maybe it’s not going to get as bad as we’ve been thinking?

Seems like I woke up to nothing but good news today.

Let’s start in Tokyo, where this week Alan Greenspan, apparently fleeing the U.S. for his own protection, proclaimed that the housing bottom isn’t that far away.

The former Fed chairman told a banking conference there that he expects the drop in U.S. home prices will probably end early in 2009 as housing inventory is reduced.

Here’s the really good news (if you’re a homeowner, at least. Greenspan thinks “…it is very likely that home prices will stabilize well before that.”

Greenspan said that in spite of apparently taking off his rose colored glasses, because he also thinks that the damage from the subprime crisis won’t be fully apparent for months. He also called the current credit crisis the worst in 50 years.

A bottom this coming winter has been the most optimistic of our “most likely” scenarios. In fact, the ongoing increase in Southern California foreclosures had us thinking the bottom’s more likely at least two years off (see yesterday’s update to our most recent projections post).

We’re not saying we agree with Greenspan, who we think had a lot to do with getting us into this mess (see “How We Got Into This Mess” for details). But he does have an awful lot of experience, access to more data than I can imagine, and a lot more credibility than Gary Watts.

Then I go to check the O.C.Register’s Mathew Padilla’s “Mortgage Insider Blog” to discover he’s finding signs that the bottom might be behind us. Now that’s the most optimistic scenario possible!

He sites two specific “signs:”

1. “Our local superstar investment manager, Bill Gross of Pimco, has been buying mortgages.“
2. Goldman Sachs CEO Lloyd Blankfein said the credit crisis is “closer to the end than the beginning,” and that the U.s. economy “will be on a growth curve again” by the end of the year.

Again, we’ve got two credible sources, but sources who may well have their own agendas.

Meanwhile, the Senate passed their version of the “Foreclosure Prevention Act” by a lopsided 84 – 12 vote. On first pass, we think the bill, which will probably be modified significantly in the House, does some things well, others poorly, and others not at all.

Overall, we think it’s a step in the right direction, and we feel the bipartisan support is significant, as well as the fast action. Here’s a link to today’s L.A. Times‘ article on the bill.

But foreclosures are still on the rise.

Like we keep saying, nobody really knows what’s next.

But today things look a little brighter than they did yesterday.

Maybe.

P.S. For something more uplifting, you might want to check out our next post, “A little perspective.”

Let’s Go Ducks!

I know–this is a blog about Southern California real estate. Hey, I helped pick the name. Just because I own property in So Cal doesn’t make me stupid, does it?

OK, forget that last question.

Because it’s time to be a little bit positive about this little piece of almost paradise (on a good day) that we call home.

It’s time for our home team (or at least one of them), the reigning Stanley Cup Champions, the first California team ever to win that famed prize, to begin their playoff quest to keep Lord Stanley’s trophy right here in the land of sunshine and palm trees for one more year.

It’s time to remember just how good we have it here in So Cal, even if our homes are “correcting” their value a tad right now. A big tad, maybe, but who cares?

Hey, the Ducks and Lakers are in the playoffs, the Dodgers and Angels are contending, the sun is shining, the air is clear, the high’s forecast for 78 comfortable degrees, and I just got an e-mail from Mt. Baldy ski lifts telling me they still have 1 – 2 feet of snow and half off weekday rates.

And you wonder why I don’t live in Boston or Florida? or Tennessee (see “What I Learned from Investing Out of State“).

Back to our boys in black, orange, & gold. I’ve only been a hockey fan for less than a year. Got hooked during the Stanley Cup playoffs last year, actually. Nothing quite like the Honda Center. On hockey nights it’s an ice palace surrounded by palm trees. Where the opposing team complains about “bad ice” because our outside weather’s so good! And where our team’s the champions of a Canadian sport!

It’s hard to think of something more So Cal than tailgating in the shadows of both the 57 freeway and palm trees in glorious California sunshine before crossing the street to see the Anaheim Ducks win that legendary cup last year with my son and son-in-law.

This year, they’re back, although not seeded nearly as high. But we’ve been getting better and healthier as the season progressed, and this might just be our year for a rare Cup repeat. They’re the favorites in their quarterfinal, best of 7 series against the Dallas Stars, but it’ll probably be close.

Now I know you don’t really understand hockey. Not really sure if I do, for that matter. I’d tell you it’s kind of like soccer played on ice, but you may not understand soccer either.

But we live in a multi-cultural paradise, where even I speak two languages. Why not learn a little about the national sport of our neighbors to the north?

If you tivo tonight’s game, starting at 7 on Prime Ticket or Versus, you might just like what you see. (BTW, hockey has 3 “periods” of 20 minutes of play, separated by two 20 minute intermissions, so you might want to wait until around 8 to start playing back the game. Or just watch it live & take two 20 minute breaks.)

Maybe you’ll see the beginning of a two month march to an historic second Cup. Have something to talk about at work tomorrow, too.

And benefit from a reminder it’s not all news about dropping values and rising foreclosures here in beautiful So Cal.

We’ve still got weather and sports!

Addendum, 4/10, 10:30 p.m.: OK, so our guys decided to spot Dallas the first game. Kinda took the day off–laid back, California style. Just like the real estate market’s apparently doing this year.

No problem. The weather was fantastic, & the Malard-gater bar-b-que before the game was as unbelievable as ever.

Just wait ’til Saturday!

4/12 update:OK, maybe I should have made that “Wait ’til next year!” Or maybe just switched the topic to the Lakers.

Or the “Malard-gators” tail-gate tonight. Best b-b-que chicken I’ve ever had! Sausage & braut as good as ever, too. That, & the 2nd period, kept the evening from being a total bust. That glorious warm but dry late afternoon weather was an upper, too.

The Ducks were better than Thursday, but not good enough long enough. Too many stupid offensive penalties. And I think something’s still wrong with Giguirre. Pronger seems injured too. They might regroup & turn things around in Dallas, but not if they keep playing like the last two games.

We may see the housing market make a comeback before the Ducks do.

Stay tuned.

So Cal Defaults Up Again & What It Means

Default Research, Inc. has posted their California county by county foreclosure numbers for March, and So Cal county numbers are pretty much up across the board to the highest numbers yet for the current downturn.

This report is made up primarily of Notice of Defaults (NODs), the first step in the 4 month foreclosure process. It sounds like the number of bank owned (REO) homes coming on the market will continue to increase well into fall throughout Southern California.

Bear in mind that filing for bankruptcy can add several months to that 4 month process, and additional time is required by the lender to gain occupancy and then make any needed repairs. So these NODs reported for March will be coming on the market as REOs no earlier than July, and well into fall. Of course, not all NOD properties end up foreclosed. (For tips on buying foreclosures, click here: “Foreclosure Tips.”)

But there’s a big “if.” One of the unknowns is what will end up in the Housing Relief Act currently working it’s way through Congress. If Congress gets it right, that could dramatically reduce the number of homes actually taken back by the banks.

We’re hoping Congress and/or the lenders come up with a reasonable program to allow qualified owners to hold onto their homes, but we’re not exactly holding our breath, either. We think debt relief for qualified buyers primarily provided by their lender in exchange for concessions by Congress and the borrower could significantly mitigate the impact of all these foreclosures on the market, but I’m starting to sound like Bernanke, which is really scary!

So I’ll leave what Congress might do for another post, except to say two things:

1. Some home owners who bought with subprime 100% liar loans that really have no business owning property.
2. We are at some risk of another Great Depression caused by the current crisis, and if some unworthy homeowners and lenders are helped in the process of saving the rest of us, so be it. When my lifeboat’s sinking, I prefer to focus on bailing it out rather than arguing about who got us into the mess. “Blessed are the merciful. . . ” wasn’t my idea, but it saves a lot of grief in the long run.

Bottom line: Looks like the bottom for prices is still a ways off, maybe a long ways. Like Freddie Mac’s Chief Economist told us last October, we’re in uncharted territory, and nobody really knows what’s going to happen next (see “How Low Will Prices Go?“).

That said, we’re still sticking to our best guess that prices are most likely to hit bottom either this December or next (see our most recent projections post, “A Change in Our Projections?”

BTW, this market is troubled, but not dead. We just put our last listing into escrow in 3 days last week. Like we keep saying, it’s not rocket science (see “How to Sell Your So Cal Home for Top Dollar in 30 Days“).

Default Research uses actual visits to the court houses to collect their data, which should make it more accurate and more timely than most other foreclosure reporting services. If you want to look directly at their charts for every county in California going back to 2006, just click here. We also have a direct link to their “California N.O.D. (Foreclosure) Stats” under “Great Links” near the top of our right sidebar.

You will see each Southern California county had a new record for NODs in March, with one anomaly. Most lenders do not file NODs over the Christmas holiday period. (I’ve been told that’s because lenders really aren’t total Scrooges, but I suspect it may also be because they take some time off then.) So you will notice NODs were down about 50% across the board for December, but up about 50% for January. That’s why some counties show higher numbers for January than for March–but not if you average the two winter months.

Stay tuned for more breaking news as our adventure in So Cal real estate continues. . . .

Fed’s Last Rate Drop Caused by Recession Worries

Apparently the majority of the Federal Reserve’s Directors were afraid things might get a lot worse when they approved last month’s 3/4% rate drop, according to minutes released today from that meeting.

Here’s the top of the AP’s report on it:

Worries about a deep recession–not a shallow one–drove Federal Reserve policymakers to slash interest rates again last month, according to minutes of their closed-door meeting.

Even as the Fed battled in almost unprecedented fashion to stem a widening credit and housing slump, some Fed members fretted over the possibility of a “prolonged and severe” business downturn.

It was in that environment that they voted–with two dissents–to cut this important interest rate by three-quarters of a percentage point, to 2.25 percent.

That action capped the most aggressive Fed intervention in a quarter-century.

Some Fed policymakers thought that such a widening recession could not be ruled out given the further restriction of credit availability and “ongoing weakness in the housing market,” according to the meeting minutes that were made public Tuesday.

That doesn’t mean we will fall into a prolonged & severe recession. In fact, it means policy makers are doing all they can to prevent one. But it does mean that’s one possibility that must be considered, as we’ve been saying for months.

To us, it’s just more evidence that nobody really knows what’s going to happen next (See last Friday’s “A Change In Our Projections?“. Maybe “What to do when nobody knows what’s next“)