Monday Morning Numbers 8/30/10

Good morning again, and welcome back to another exciting edition of Monday Morning Numbers! Let's see what's happening in the Lompoc Valley real estate market this week:

Active Listings: 125

Contingent Listings: 42

Pending Listings: 47 (22.0% of the inventory)

New listings: 14

Months of inventory: 5.4
Click here for the updated price per square foot chart.

These are some pretty stable numbers from last week, with a little bit of an increase in contingent and pending sales. Remember a couple of weeks ago I told you that I expected to see a small influx of REO listings soon? We got six of them this week, and 10 of the 14 new listings were distressed properties. We still have a small backlog of REO listings that have yet to hit the market, so it wouldn't surprise me to see them continue to trickle in.

Later this week I'll be taking a look at the Southside.

Focus On Short Sales

Like I said on Monday, putting on that Foreclosure Avoidance Seminar last week put me in a short sale state of mind, so it seems only natural that I'd take a look at the short sale activity in our market this week. Well, that and the fact that I was way overdue to give you an update on this segment anyway. January? Really? How did I do that?

No surprise, short sales are continuing to be a big part of our market. As I had mentioned in my Focus On Equity post several weeks ago, we're very much in a negative equity market right now, with somewhere near 40% of the residential properties in the Lompoc Valley having more debt than value. So if someone has to sell one of those, well, you know the drill.

As of this afternoon, short sales account for 28.2% of our active inventory, 74.4% of our contingent listings, 27.7% of our pending sales, and 17.7% of our sold units over the past three months. That percentage on the sold units is down a bit, but based on the pending numbers, I expect it to rebound by the end of the quarter. At some point in the next few quarters, I fully expect short sales to be the largest segment of our sales.

Our real estate community had a presentation today from a title company on a couple of topics, and one of the things that the presenter touched on towards the end was foreclosures and short sales. Shocking to think that when you get a roomful of people in our industry that we'd talk about these things, I know, but there it was. Someone asked her how long we were going to be in this market, and she hemmed and hawed a bit and said maybe two years. Well if you know me, you know I don't shut up and listen all the time. So I had to present a different view - I said that I thought we were in a distressed property market for about 5 years.

When I thought more about that later this afternoon, I realized that I was probably wrong. It's probably longer. Let's run the numbers, and I'll tell you why:

Using the number that I used for that equity post, we have 4410 homes in our market (41%) with negative equity. Like I said at the time, based on the fact that they use an automated valuation model to estimate those numbers, I think that's pretty conservative. But let's be optimistic and assume that's pretty accurate. What's it going to take to get us out of that? Two things, essentially - price appreciation and property transfers. Price growth will eventually bring some of the homes that are closer to the edge back into positive equity over a period of time. And we wipe out negative equity when we sell one of those homes.

In the first half of this year, we sold 156 distressed properties in our market. If we hold that pace, we'll sell 312 for the year, which would eat up about 7% of that total number of homes in negative equity. Let's make an optimistic guess here that we'll sell more of those. Let's say 8% for the next five years. Now let's make another optimistic guess that we'll roll off another 5% to price appreciation, just for the sake of having a number. I don't know if that will happen, but let's just plug it in there. We'd be knocking 13% a year off our negative equity total. What does that look like?

2010 - 4410 total homes with negative equity
2011 - 3837
2012 - 3338
2013 - 2904
2014 - 2526
2015 - 2198

That would cut the total number of homes with negative equity down to around 19% in 5 years. That's a big improvement, but it's still a lot of homeowners upside down. Now, it's possible that we'll see a larger and larger percentage of sales in this segment over the next couple of years, so maybe the transfers will do more to get us further along. Maybe we can get it down to 12-15% in 5 years. If banks started doing meaningful loan modifications where they wrote down principal, that would also help. Don't hold your breath for that one... And maybe if we get a big boon to employment on a local level we can do a little better. But the flip side is, if we dip further into another recession and we lose a lot more jobs locally - well, let's just not go there.

Yes, I'm being Dr. Doom here. But now let me tell you the good news. Short sales are improving. Banks continue to get better at them and are training huge numbers of people to process them. Our industry is getting better at the process. The last time I reported on these, we had about a 32% success rate on short sales - meaning that 32% of the resolved short sale listings over the previous year got sold. In the space of about 7 months, we've improved to about 47%. That's significant progress, and I think we'll continue to see improvement in coming months.

It all comes down to numbers. We're looking at some pretty daunting statistics here. All we can do is deal with this problem and keep trying to fill up this gaping hole of equity. Grab a shovel and start in.

Monday Morning Numbers 8/23/10

Good morning. Crazy week last week for us between taking on some new listings and having that foreclosure avoidance seminar, so I didn't get around to a second post. I'll try not to let that happen this week. That seminar, by the way, was very well attended. We got some good feedback, and we've come up with a few ways to make it even better next time. We'll probably do one again in a few months. Let's take a look at this week's numbers:

Active Listings: 127

Contingent Listings: 37

Pending Listings: 45 (21.5% of the inventory)

New listings: 16

Months of inventory: 5.2
Click here for the updated price per square foot chart.

We had another very active week for new listings, with 9 of the 16 being distressed sales. We're still seeing an influx of non-distressed properties coming on the market. Inventory continued to climb again this week, and sales activity remains pretty stable.

Since I spent so much time talking to people last week about short sales, I figured that it's just natural that I'd cover short sale activity later this week. I have a couple of interesting numbers to share, so make sure you come back for it.

Monday Morning Numbers 8/16/10

Good morning! It's time once again to take the temperature of the Lompoc real estate market. If I can just get the market to hold this thermometer under its tongue for a few minutes...

Active Listings: 120

Contingent Listings: 38

Pending Listings: 45 (22.2% of the inventory)

New listings: 18

Months of inventory: 5.2
Click here for the updated price per square foot chart.

We had what might have been the highest activity week we've seen in our market all year. Lots and lots of "hotsheet" entries every day. Of the 18 new listings, 10 were distressed properties this week. Despite a lot of churn, the numbers don't look much different than they did last week. Inventory is still slowly edging up week by week, and sales activity is slower than it was in the first half of the year, but still pretty solid.

I've been remiss in mentioning it here, but we are having a Foreclosure Avoidance Seminar this week at our office. There are two sessions from which to choose - Wednesday at 7:00 PM or Saturday at 10:00 AM. We'll be giving an overview of the foreclosure process and some solutions to help prevent that sad fate, to include short sales. And we'll have Patrick Chandler from Bank of America Home Loans to talk about some of the loan modification and refinance options that might be available. If you know anybody who has been struggling with their mortgage payments - and I think almost all of us know somebody - please let them know about this event. If anybody has any questions about it, call me at 757-3762.

The Flip Is Back

One of the things that has come back into our stabilized market is the investor who picks up a home on the cheap and turns it around for profit. The common term that we use is "flipping". It never really went away - even in 2006 & 2007 when prices felt like they were in free fall, we had a few brave souls looking for and finding the occasional opportunity to turn a profit. Of course, it's a little dicier maneuver in that kind of environment.

Now that prices have flattened out -and maybe even started to inch back up - we have a few more players in this game. In our market we have three or four pretty active investors buying and flipping properties at the moment, and a few more doing one here and there. We've spoken to a couple of potential investors who have some interest in these opportunities as well. We even considered doing it last year ourselves on a small basis, and probably would have done so if we hadn't found the long term investment that was our ultimate goal first.

The basics are pretty simple. Buy low, sell high. In most cases, these investors are adding some value and taking a profit. I've heard a few people grouse about the practice, but if you ask me it's as American as political sex scandals and apple pie. Where would we be without risk takers?

There are a couple of different ways that people are going about this. First, we have some investors who pick up listed properties at great prices, usually but not always REO properties. These are usually very rough and need some rehab. So the investor gets the needed work done in a reasonably inexpensive fashion, and then puts it back on the market as quickly as possible. This is usually the less risky of the two methods, because you can do a little bit of investigation during escrow and you're getting title insurance.

The riskier method is to pick up a property at a trustee's sale at the courthouse steps. I talked about this a little bit when I wrote about our investment adventure last year. Bottom line, it's cash (well, cashier's check) on the barrel head. No inspections, no title insurance, no contingencies, no loans, no escrow period. The hammer falls and it's yours. If it has a bad foundation? It's yours to fix. Any back property taxes or liens that weren't wiped out by the foreclosure? Yours. You get the picture. So the people who are doing this with any regularity are pros - they do their legwork on properties up front as much as they possibly can. And even then, they get the occasional surprise. The upside, however, is that these are usually picked up below where they would be available if listed, and there usually isn't a lot of competition. Sometimes they need to put some more money into the house, and sometimes they get off without much rehab expense at all.

From a buyer's perspective, it's really not much different than buying any other property, except that in some cases it can be problematic to get an FHA loan on one. A few years ago, FHA put in a rule that said that they wouldn't insure loans on properties that had been owned for less than 90 days. There had been some fraud back when the market was red hot (but then, when isn't there some fraud?). Early this year, they changed those rules to allow this practice, but they still had some restrictions. And many lenders weren't willing to go back to writing FHA loans on flipped properties, although there are some who do.

I did a quick search through our MLS this afternoon, and at a glance I could identify 5 active listings and 7 pending sales that I know are flips, and 11 sales since the beginning of the year. Most of these have been picked up on the courthouse steps. So far this year, we've had 25 houses in the Lompoc Valley go to investors at trustees' sales, and 8 just in July. It would appear that this trend is going to grow. It's not likely to become a huge segment of our market, but unless we start to see a downturn, we'll have these opportunities available.

Monday Morning Numbers 8/9/10

Oh, I like the synchronicity of today's date. 8/9/10. That must mean everything is going to line up perfectly. Uh-huh... Let's take a look at this week's numbers, fresh out of the oven and piping hot:

Active Listings: 118

Contingent Listings: 37

Pending Listings: 43 (21.3% of the inventory)

New listings: 11

Months of inventory: 5.0
Click here for the updated price per square foot chart.

Hey, wait a minute, those look suspiciously like last week's numbers. It's almost like somebody just pulled them off the shelf, popped them in the oven for a few minutes to warm them up, and tried to pass them off as fresh. But as it turns out, we really haven't seen much change this week once again. I'm still waiting to see if a small influx of REO listings will come on sometime soon. But for right now, things continue to look stable.

Later this week I'm going to examine the resurgence of the "flip" in our market. Should be interesting, check back in for that one.

Focus On Mission Hills

It's been a crazy week again, so here I am getting around to my focus post on Saturday. Hey, that happens sometimes. And I know that everyone has been waiting with eager anticipation to see what's happening in Mission Hills all week, so let's get to it.

A quick refresher on the area: We're looking at a pretty homogeneous area here in terms of age and style of houses. The whole development was built as workforce housing in the late 50's/early 60's boom period when Vandenberg was ramping up. These are pretty much entry level homes, with the bonus for some buyers of being in some of our more sought-after school districts. Some of the houses in this area are a little bedraggled, but there are also some very nicely maintained homes as well. It's a mixed bag.

Once again, the activity in this area is light enough that I'm incorporating some data from Central Coast MLS in with my usual Lompoc MLS data. For various reasons, this neighborhood seems to attract a bigger percentage of out of town agents than most of our areas.

We have 4 active listings in the area at the moment, 2 short sales and 2 REO's. That's pretty light, but it's up a bit from the last time I reported on the area. Contract activity has picked up a bit, with 4 contingent sales in the area (all short sales) and two pending units (interestingly, both traditional sellers).

We've only had two sales in the area in the past three months, but that was mostly due to a lack of inventory there earlier this year. One of the sales was a short sale, which sold for a pretty good price. The other was an REO, which went a bit below where I would have expected it to sell. It's hard to say what the price trend is in this little micro-market, but I suspect that it's probably tracking with the rest of the market - flat or very slightly appreciating.

Next week I'm going to try to dig into a trend that we've started to see in our market and other areas - the resurgence of property flipping.

Monday Morning Numbers 8/2/10

Good morning again! We had the dog show in our back yard this weekend, and aside from some more traffic around the neighborhood, you'd never know there was anything going on. I would have figured that if you bring in that many dogs, one of them would start barking, then the rest would start, and it would be a non-stop symphony. But nope, good doggies. Let's take a look at our market stats this week:

Active Listings: 118

Contingent Listings: 36

Pending Listings: 41 (21.0% of the inventory)

New listings: 10

Months of inventory: 4.9
Click here for the updated price per square foot chart.

Nothing notable changed this week for the second or third week in a row. We seem to be on another one of those plateaus. I was looking at my unlisted REO inventory over the weekend, and that has climbed up to 68 units. What I've seen in the past when we've gotten that high is a 2-3 week period where we get a small increase in REO listings. So I'll be looking for that in the near future.

Come back later this week for an update on Mission Hills activity.