Copy for Real Estate Guide Column for 7-30-10
REAL ESTATE PATTERNS
By Ken DuVall

SALES AND DEFAULTS UPDATE

Even with loan rates at their lowest in 50 years- the 30-year fixed averaged 4.69% last week- we are witnessing the worst performance for new home sales in modern times, while existing home sales are relatively OK. Of course, it varies from market to market. For instance, in the Sacramento area new home sales are down some 50% from a year ago. Here in Chico new home sales are down too. As we know, they are important to our economy and the hundreds of jobs involved.

Economists and industry analysts tell us new home sales are now “abnormally low, pointing to a market correction as it seeks equilibrium.” But down is down, period. I’m looking at a graph of historic lows for housing starts and it looks exactly like a roller coaster in free fall, up and down, up and down, through the years from 1977, with 2010 being the lowest point. The number of mortgage-loan applications for home purchases dropped to its lowest level in 14 years last week. Refinance applications were almost 79% of all applications.

Don’t think the European financial turmoil with possible defaults on their debt obligations in Greece, etc., doesn’t affect us too. Global capital is now at-risk. The full impact won’t be clear for years. Our economic growth could be impacted. This is a big unknown as we rely to a degree on foreign funds.

And here’s something new: the richest among us have become the biggest segment of loan defaulters. The housing bust is now striking the upper class in many privileged enclaves such as Silicon Valley. More than 1 in 7 homeowners there with loans in excess of $1 million are seriously delinquent per data from CoreLogic.

In contrast, homeowners with less lavish housing are much more likely to be current on their loans. Only 1 in 12 mortgages under the $1 million are delinquent. This data suggest that many of the well-to-do are deliberately dumping their financially draining properties, just like they would with any sour investment. “The rich are different: they are more ruthless” says CoreLogic’s senior economist. Five properties in Los Altos were up for auction this month with the highest mortgage being $2.8 million!

The Cook County, Illinois sheriff is in big demand these days evicting foreclosed owners in their upscale suburbs. The same in Las Vegas. A high-end REALTOR there commented, “I’ve never seen the wealthy hit like this before.” In Los Altos, the median home price is $1.5 million, making it one of the most exclusive towns in America. One home there with a $1.3 loan is in foreclosure. The owners, who had lost their jobs, were moving in with relatives.

There are 130 million homes in the U.S. Of the 5.5 million borrowers who are at least 30 days delinquent, up to 11 million of them could make their payments- but won’t. Owners in some of the more expensive San Francisco areas are also beginning to head for the exit. There are 1 million foreclosures expected this year, vs. 900,000 last year per RealtyTrac. There used to be only 100,000 annual foreclosures. We’re not out of the woods yet.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

Copy for Real Estate Guide Column for 7-16-10
REAL ESTATE PATTERNS
By Ken DuVall

MORTGAGE TRIMMING AND FLIPPING

California is going to use Federal money to pay down the loans of struggling homeowners. The California Housing Finance Agency (CalHFA, known as “Chafa”)) has announced they will spend $420 million to trim individual mortgages by up to $50,000 each. Borrowers who owe more than their homes are now worth would qualify. Lenders will be asked to match the amount, a deal which could make thousands of existing mortgages newly affordable.

The program will launch November 1st and run on a first-come, first-served basis under CalHFA’s “Keep Your Home” initiative. Unfortunately, they expect much more demand than supply. Specifics on the selection process are still being worked out but they will exclusively fund applicants in the low to moderate income households.

Borrowers will have to be already delinquent or in imminent danger of defaulting, but must show adequate income to continue making their payments after getting the help. People who are currently struggling to make payments now shouldn’t wait for the program to start but should contact lenders and loan counselors now.

CalHFA, the State’s affordable housing bank, estimates this program will help 40,000 households avoid foreclosure over the next 3 years. In all, the agency received $700 million for relief programs, part of a $1.5 billion Federal initiative to curb foreclosures. Chafa is in hopes that the banks will match the $700 million. “We’re asking lenders to come to the table with us on this. We can’t force them to, but many have already indicated they will happy to cooperate.”

They could alternatively receive up to $15,000 to catch up on delinquent payments. And could also get $1500 month “unemployment” coverage while looking for work for 6 months to help make house payments. Finally, borrowers could receive up to $5000 for moving expenses if they can’t afford their mortgage under any of the above loan modification scenarios.

In another vein: Uncovering unexpected tax liens, finding major home components missing, and paying occupants $1000’s of dollars to vacate. This is the exiting new world of house flipping. Yet in the Sacramento region alone, some brave investors earned $1.4 million for less than a month’s work.

They buy severely discounted houses repossessed by banks at auction. Then, in less than a month, they resell them. Average gain: $40,000 per house. Homes with troubled histories get bought, repaired and resold, generating cash for them again and again. It’s something that has taken off in many markets.

You have to pay cash in full. You don’t get title insurance. You don’t get to inspect the house. You may have to evict the current occupant. You may be buying a big headache. That’s why these homes are being sold on the courthouse steps at huge discounts.

One investor discovered the prior owner was a drug dealer and had committed suicide in the home. Even though he sold it for more than he paid, he still lost money after clean up and an unexpected $12,000 tax lien. Not for the faint of heart, folks.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.