Here's how homeowners can get their share of the $25-billion foreclosure settlement.
By Matt Stevens February 9, 2012, 12:17 p.m. Homeowners who were affected by the collapse of the housing market and a wave of foreclosure abuses may get a share of the $25-billion settlement announced Thursday morning.
The up to 2 million people who are struggling to make loan payments, owe more than their homes are worth or have already lost their homes could receive aid from the nation’s five largest mortgage servicers that settled with federal officials and 49 state attorneys general today.
Though it is unclear exactly how much money each homeowner might receive, officials have estimated that about $17 billion will go to current homeowners, to help reduce the principal they owe on their mortgages, while people who have already lost their homes can expect to receive checks for $1,500 to $2,000.
The National Mortgage Settlement has prepared some immediate answers for homeowners wondering how to get their share of the settlement:
Q: What is a mortgage servicer and how do I know who services my loan?
A: The company that you make your monthly payment to is your mortgage servicer. Your mortgage servicer may or may not be a lending institution and may or may not own your loan. Many of the loans administered by servicers are owned by third-party investors.
This settlement involves the nation’s five largest mortgage servicers and you may reach them at the Web sites and phone numbers below: Ally/GMAC: 800-766-4622 Bank of America: 877-488-7814 Citi: 866-272-4749 JPMorgan Chase: 866-372-6901 Wells Fargo: 800-288-3212 Loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement. You may visit the following websites to learn if your loan is owned by either Fannie Mae or Freddie Mac: http://www.fanniemae.com/loanlookup http://www.freddiemac.com/mymortgage These sites will also include information about mortgage and foreclosure programs you may be eligible to access.
Q: How will I know whether this settlement affects my situation?
A: Only homeowners in the states who joined the settlement are eligible for benefits under this settlement. Borrowers from Oklahoma will not be eligible for any of the relief directly to homeowners because Oklahoma elected not to join the settlement.
WASHINGTON (CNNMoney) -- In the largest deal to date aimed at addressing the housing meltdown, federal and state officials on Thursday announced a $26 billion foreclosure settlement with five of the largest home lenders.
The deal settles potential state charges about allegations of improper foreclosures based on robosigning, seizures made without proper paperwork.
The settlement includes the Justice Department and the U.S. Department of Housing and Urban Development, as well as 49 state attorneys general -- all but Oklahoma.
"We are using this opportunity to fix a broken system," said U.S. Attorney General Eric Holder at the news conference announcing the settlement.
The settlement sets up a federal monitor to oversee the process and try to prevent roadblocks and red tape that tripped many homeowners seeking help in earlier programs designed to address the housing crisis.
President Obama said the settlement will "begin to turn the page on an era of wrecklessness that has left so much damage in its wake." "No action, no matter how meaningful, is going to by itself entirely heal the housing market," he said in separate remarks. "But this settlement is a start." Most of the relief will go to those who owe far more than their homes are worth, known as being underwater on the loans. That relief will come over the course of the next three years, with the banks having incentives to provide most of the relief in the next 12 months.
"This settlement is about homeowners, homeowners in distress," said Iowa Attorney General Tom Miller at the news conference with state and federal officials.
What the settlement means to you
Principal reduction: At least $17 billion will go to reducing the principal owed by homeowners who are both underwater and behind on their mortgages.
The agreement calls for principal reduction for as many as 1 million people. But it's unlikely the money will go that far, because many people need more than the $17,000 average reduction that would result if the money is split among 1 million homeowners.
At the same time, total principal reduction could go higher -- to as much as $34 billion -- since the agreement requires deeper principal reductions for the most troubled loans.
Refinancing: Officials say up to 750,000 other underwater homeowners who are current on their mortgages will be able to refinance their current loans at lower rates. They will not receive a reduction in principal, but with mortgage rates now near record lows, they could receive substantial savings on their monthly payments.
The settlement sets aside $3 billion to account for the reduced interest payments the banks will receive after the refinancing.
Robosigning payments: About $1.5 billion of the settlement will go to homeowners who had their homes foreclosed upon between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. They will receive up to $2,000 each.
Accepting that payment does not preclude homeowners who lost their home in an improper foreclosure from suing the bank to recover damages, Donovan said.
Participating banks: The five mortgage servicers that are parties to the settlement -- Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500), Wells Fargo (WFC, Fortune 500) and Ally Financial -- will pay a total of $5 billion to the states and federal government. Some of that money will go to foreclosed homeowners and the rest to the states.
Federal officials say negotiations are underway to expand the settlement to nine other major servicers, which would raise the overall value of the settlement to $30 billion.
Related settlements: The deal spurred pacts between the authorities and banks in similar cases.
Oklahoma Attorney General Scott Pruitt announced a separate $18.6 million settlement that addressed homeowners whose homes were foreclosed through improper means, but did not provide help to those whose mortgages were underwater. He said he believes the broader agreement "overreached" the authority of both federal and state governments.
"We had concerns that what started as an effort to correct specific practices harmful to consumers, morphed into an attempt by President Obama to ... fundamentally restructure the mortgage industry in the United States," Pruitt said.
The Federal Reserve said it had reached an agreement with the five banks to pay $766.5 million in sanctions related to their servicing practices. And Loretta Lynch, the U.S. Attorney in Brooklyn, N.Y., announced a $1 billion settlement with Bank of America to resolve claims of underwriting and mortgage origination fraud by BofA and mortgage lender Countrywide Financial, which BofA bought in 2008.
The bigger foreclosure problem: The $26 billion deal announced Thursday is the second biggest settlement ever involving states. It trails only the $206 billion pact in 1998 with the tobacco industry.
And it dwarfs any settlements that major Wall Street firms have reached to resolve other allegations of misdeeds related to the financial markets meltdown and the Great Recession.
Still it only will help a faction of those homeowners who are struggling with mortgages. The relief would not be available to those homeowners whose mortgages have been sold to the government-sponsored mortgage guarantors Fannie Mae and Freddie Mac.
There are 1.5 million homeowners who are 90 days or more delinquent on their mortgages but not yet in foreclosure, according to the most recent estimate from the Mortgage Bankers Association. An additional 1.9 million are in the foreclosure process. And CoreLogic estimates that 11 million homeowners are underwater on their mortgages. Obama proposes new home refinancing plan.
The settlement does not preclude criminal prosecutions from being pursued. It also doesn't stop investigations into other allegations of misdoings, such as the process of bundling loans into mortgage-backed securities and selling them to investors.
"It wasn't the servicing practices that created the bubble nor caused the collapse," said Donovan. "It was the origination and the securitization of these horrendous products. We will be aggressive about going after those claims."
The deal is supposed to protect consumers when it comes to robosigning, and ensure that mortgage servicers agree to communicate better, avoid delays and give homeowners who are late on mortgage payments a fairer shake.
New York's participation had been shaky this week, because some of the banks involved in the multi-state deal had also been sued by Attorney General Eric Schneiderman last week. Those banks -- Bank of America, Wells Fargo and JPMorgan Chase -- had also asked for a legal pass from Schneiderman's lawsuit, which accuses them of deceptive foreclosure practices for relying on the Mortgage Electronic Registration System. On Tuesday, Schneiderman's office organized a media briefing to talk about the deal and then canceled it minutes before it was supposed to begin.
The big question throughout the negotiations was how much money would be available to help homeowners, which depended on how many states agreed to the deal. California's participation raises the total settlement value by several billion dollars. At least one consumer advocacy group, the Center for Responsible Lending, has said the deal -- while "no silver bullet" -- leaves room to hold banks accountable in other mortgage probes, said Kathleen Day, a spokeswoman for the nonprofit. But other left-leaning groups, including Move On and the New Bottom Line, are continuing to urge states to hold out for a big criminal investigation and a $300 billion settlement award. --CNN's Jessica Yellin contributed to this story. First Published: February 9, 2012: 10:07 AM ET
Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.
The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.
Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.
However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.
Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.
Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”
In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.
While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.
Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.
The Standard & Poor's/Case-Shiller index of 20 large U.S. cities
fell 1.3% in November from October as foreclosures continue to drag
down the housing market.
By Alejandro Lazo, Los Angeles Times
February 1, 2012
Three straight months of
home-price declines in the biggest U.S. cities showed that foreclosures
remain a significant drag on a housing market that is entering its fifth
year of deterioration.
Nineteen of the 20 metropolitan areas tracked by the Standard &
Poor's/Case-Shiller index fell in November — the second consecutive
month that every metro area other than Phoenix was down and the third
consecutive month that the overall index has declined. The index fell
1.3% from October to November and 3.7% from November 2010.
Home prices typically fall
during the winter, when investors looking for lower-priced homes make up
a larger share of the market. In addition, most home-buying is done in
the spring and summer. Nevertheless, economists viewed the continued
home-price weakness as a sign that any recovery this year would be
anemic.
"We have more house-price declines coming," said Mark Zandi, chief economist at Moody's
Analytics. "I'm more optimistic about improvement in sales and
construction figures, but I think prices will fall further this year,
largely because we still have to work through the mountain of foreclosed
properties."
Karl E. Case, a Wellesley College professor and co-creator of the index,
said the nation's housing market could be approaching a "rocky bottom,"
meaning the big drops in home values characteristic of earlier in the
crisis are perhaps over, but any improvements would come in fits and
starts. The huge percentage of American homeowners who owe more on their
properties than those homes are worth remains the biggest barrier to
recovery, Case said.
About 1 in 5 borrowers are underwater, according to the most recent data
from Santa Ana firm CoreLogic. That slice of the market is important
because these property owners will continue to enter the market and put
downward pressure on prices whenever demand for homes picks up, Case
said.
"There are still going to be problems getting people out of these
negative-equity positions," Case said. "We won't know the effect until
it's over; it could drag out."
The Case-Shiller index, created by economists Case and Robert J.
Shiller, is widely considered the most reliable read on home values. The
housing index compares the latest sales of detached houses with
previous sales and accounts for factors such as remodeling that might
affect a house's sale price over time.
U.S. home prices are back to their mid-2003 levels, according to the
20-city index. They are down 32.9% from their peak, in July 2006.
Values hit bottom in April 2009 during the depths of the financial
crisis and briefly dipped below that threshold in March. Prices began
gaining ground again last year as the spring and summer selling season
picked up.
With three consecutive months of decline, prices are again poised to dip
below that post-crisis low, with the 20-city index hovering only 0.6%
above the "double-dip" territory as defined by S&P/Case-Shiller.
"We will probably see some decline in nationwide prices, not a plunge,
but maybe 4%," said Dean Baker, co-director of the Center for Economic
and Policy Research. "There will be a lot of regional variation, but I
think the overall trend is still downward."
Atlanta continued to show the poorest price performance, posting a new
index low in November. That city was down 2.5% after dropping 5% in
October, 5.9% in September and 2.4% in August. Las Vegas, Seattle and Tampa, Fla., also all reached new lows in November.
In Los Angeles, prices were down 1% in November after falling 1.5% the
month before. Year over year, L.A. prices were down 5.4.%.The index does
not track prices in California's Central Valley or the Inland Empire,
where housing is still weak and the foreclosure rates of many cities are
among the nation's highest.
The share of distressed properties for sale in each area tracked by the
index appears to be playing a significant role in how those markets are
doing.
After being hit hard by foreclosures earlier in the crisis, Phoenix has
posted home-price gains in recent months as investors snapped up
low-priced properties and the job market showed some improvement.
Foreclosures in Phoenix accounted for 38.5% of all resale homes in
November, the lowest share of the market since May 2008, according to
San Diego real estate information firm DataQuick.
On the other end of the spectrum, Atlanta had the largest number of
foreclosed properties for sale by government-controlled mortgage giants Fannie Mae and Freddie Mac in November, Patrick Newport, U.S. economist for IHS Global Insight, noted Tuesday, citing a Federal Reserve white paper sent to Congress last month pushing for more urgent action on housing.
Given the continued malaise in housing, the Obama administration has
taken new measures to right the property market. Last week, the
government announced the expansion of its signature foreclosure relief
program, a new refinancing plan for borrowers and a new investigative
unit that will further probe the mortgage-related abuses that caused the
housing collapse.
News of the latest housing value declines came as consumer confidence in
the economy turned negative in January after improving in December,
according to the Conference Board's consumer confidence index. The index
had increased in December but fell 3.7 points.
The president's proposals include an expanded refinancing plan for struggling homeowners and a new, aggressive probe of financial firms' mortgage practices.
By Jim Puzzanghera and Alejandro Lazo, Los Angeles Times January 26, 2012
Reporting from Washington and Los Angeles— Two new initiatives from President Obama to address the foreclosure crisis — more help for struggling homeowners and aggressive investigations of financial firms — face significant hurdles as the nation's real estate troubles linger in a volatile election year.
A new refinancing plan that expands on an existing initiative would allow homeowners who are current on their mortgage payments to retool their loans and save as much as $3,000 a year on payments. This expansion would be paid for by a new tax on large banks that Obama originally proposed in 2010 that has gone nowhere in Congress — and is unlikely to be approved by Republicans facing reelection in the fall.
The new investigative effort, to be co-chaired by New York Atty. Gen. Eric Schneiderman and four federal officials, will try to coordinate a number of existing federal and state probes into mortgage practices that led to the financial crisis.
Although Schneiderman promised Wednesday to move aggressively, many of those investigations have been going on for years. If the goal is to get criminal convictions — Obama called in his State of the Union address "to hold accountable those who broke the law" — it will be difficult to accomplish, said Thomas Gorman, an attorney at Dorsey & Whitney in Washington.
"Frankly, it's coming to the table somewhat late," said Gorman, a former enforcement official at the Securities and Exchange Commission. "There's a huge body of information out there about what happened, and there have been very few criminal charges brought."
Obama administration officials released few details about the initiatives Wednesday. There was not even a price tag on the refinancing plan, which will be part of legislation to be outlined in the coming days, the White House said.
The proposal builds off the Home Affordable Refinance Program, which was revamped last year to ease rules and reduce fees to make 1 million to 2 million homeowners eligible to take advantage of historically low mortgage rates. That plan applied only to loans owned or backed by mortgage finance giants Fannie Mae and Freddie Mac, but the new plan would apply to any mortgage, the administration said.
Jed Kolko, chief economist and head of analytics at real estate website Trulia.com, said other potential government initiatives would "help the housing market more directly." Such initiatives could include converting foreclosed homes into rentals or increasing loan modifications.
"This is primarily economic stimulus," Kolko said. "It puts money in the pockets of people with mortgages. It won't impact the housing market much."
"Underwater borrowers," or those whose mortgage balances exceed the value of their homes, "will remain underwater, and you need to be current on your payments to refinance," Kolko added.
The White House had no details on what Obama called "a small fee on the largest financial institutions" to offset the costs. In January 2010, Obama first proposed a "financial crisis responsibility fee" of 0.15% annually on the liabilities, excluding domestic deposits, of banks and other financial firms with at least $50 billion in assets. The fee would have raised $9 billion a year for 10 years.
But with strong opposition from the financial industry, Obama was unable to push the fee through the Democratic-controlled Congress. With Republicans now controlling the House, "the bank tax is definitely a poison pill," said Edward Mills, a financial policy analyst at FBR Capital Markets & Co.
The new investigative effort will focus on "every aspect of the conduct that created the bubble and crash," including the origination of mortgages and the packaging of them into securities, Schneiderman said. The unit will be part of the existing federal Financial Fraud Enforcement Task Force, which Obama created in 2009.
"We're undertaking a more coordinated effort to pull together all of the various strands of investigations relating to the conduct that created the mortgage-backed securities bubble and led to the market crash," Schneiderman told reporters Wednesday. "We're now making a concerted effort to pull everything together and move forward aggressively to address these issues."
Some liberal groups have been pushing for a broader investigation into the financial crisis and praised the initiative.
"By launching this investigation, President Obama will take a crucial step toward holding the 1% on Wall Street accountable for the big bank fraud that nearly torpedoed the economy," said Justin Ruben, executive director of MoveOn.org.
But Anthony Sanders, a professor of real estate finance at George Mason University, said the new unit would be regulatory overkill and was designed to pressure banks to agree to a proposed $25-billion settlement with federal officials and many state attorneys general to address foreclosure paperwork problems.
"This could have been a last-ditch effort to push them to the finish line," Sanders said of the settlement talks.
Schneiderman has been one of the most aggressive state attorneys general in investigating the actions of financial firms and others leading up to the housing bust. Along with California Atty. Gen. Kamala D. Harris, Schneiderman has balked at broadly releasing banks from legal liability as part of the foreclosure settlement talks.
They and several other attorneys general are concerned that the immunity would be so broad that it would preclude other investigations into the causes of the crisis.
A spokesman for Schneiderman said he would not sign on to any settlement that would limit his ability to investigate the mortgage crisis. Meanwhile, a spokesman for Harris said the attorney general believes that the current settlement proposal is inadequate for Californians.
Despite Obama's announcements, California House Democrats on Wednesday asked to meet with him to appeal for more aggressive action to deal with foreclosures, including putting in place a plan to reduce the principal on underwater mortgages.
"We've met with everybody else in the administration with no satisfaction that they fully understand the magnitude of this problem with respect to the families that we represent," Rep. George Miller (D-Martinez) said.
jim.puzzanghera@latimes.com
alejandro.lazo@latimes.com
Staff writer Richard Simon contributed to this report.
Sales of previously owned homes rose in December for the third straight month, bringing the supply of homes listed for sale to the lowest level since 2006 and offering a glimmer of hope that the housing market could be starting to climb out of a profound downturn.
Existing-home sales increased 5% in December from a month earlier, to a seasonally adjusted annual rate of 4.61 million units, the National Association of Realtors said Friday. Lawrence Yun, the Realtors' chief economist, called the December gain "a good finish to a very tough year."
Many economists had predicted that 2011 would be the worst year on record for existing home sales, but the year ended with 4.26 million sales, about 1.6% higher than the 4.19 million existing homes sold in 2010. Market-watchers attributed this to a minor surge in sales at year-end, driven by historically low mortgage rates, falling prices, active investor-buyers and increasing consumer confidence.
Still, economists cautioned that it's too early to assume that the market is recovering. "These were positive numbers, but that doesn't mean the market is getting better. Lenders have been trying to get rid of distressed homes, and investors been snapping them up," said Patrick Newport, chief economist at IHS Global Insight. According to the Realtors report, investors purchased 21% of all homes in December, up from 19% in November.
The inventory of homes for sale declined in December to 2.38 million, the equivalent of a 6.2-month supply, assuming the pace of sales remain at December's level. A six-month supply of homes typically is considered healthy, although NAR's numbers don't take into account the "shadow inventory" of homes that are either in foreclosure or on bank balance sheets and not yet listed for sale.
Prices, meanwhile, continue to fall. The median price in December was $164,500, down 2.5% from a year earlier. Prices were down in all regions except the West, where prices rose slightly, compared with a year ago. For all of 2011, the median was $166,100, the lowest since 2002.
"What you really want to see is sales going up, inventories going down, and prices going up, not down," said David Semmens, an economist with Standard Chartered. "People still feel they can hold off buying a house because the recovery won't be that aggressive. It's still very much a buyer's market."
That buyer's market allowed Andrew Gonzales, a 24-year-old police officer in Santa Fe, N.M., to be picky about price when looking for a home for himself and his three-year-old daughter. He closed last month on a $132,000, three-bedroom home in Rio Rancho, a suburb of Albuquerque, after the price was cut twice. Just before closing, the home was appraised for $18,000 higher than the sales price, at $150,000, by a private appraiser.
"I got tired of paying rent, and I'm a single father, so I wanted a home for my daughter," he said. "I was just waiting for the price to come down."
Vision Equity, a company that buys foreclosed homes at auctions in Indianapolis, stepped up the volume of its purchases this winter, buying about 45 homes a month in October, November and December, compared with about 30 homes a month last summer.
"There's a lot of cash investor activity right now," said Steve Olson, a spokesman for Vision Equity. "The chatter at the courthouse was, there's going to be a lot more product coming on the market, and the pricing is going to be good for investors. And we prepared our own investors for that."
Write to Robbie Whelan at Robbie.Whelan@wsj.com
By ROBBIE WHELAN
Wednesday, January 25, 2012
SANTA BARBARA ASSOCIATION OF REALTORS 2011 Real Estate Year in Review
Something happened last fall here in Santa Barbara. Real estate prices for houses took another dip. Not huge, mind you, but significant. The median price for houses in Santa Barbara’s South Coast dropped from $815,000 at the end of the third quarter 2011 to $790,000 at year end 2011. That’s a 3% decline in three months. That wasn’t indicative of the rest of the year, as the median house price dropped just 4.1% for the prior nine months. What happened this last quarter? What does it mean for 2012? To many of us working in the field, this decline appeared out of place. All of a sudden there were three or four tract houses listed in Goleta for $399,000. (Turns out all three had significant foundation issues, but still.) Then there were homes listed in other Santa Barbara, Goleta, and Carpinteria neighborhoods, mostly short sales, in the $450,000 range. And these were livable! Can you imagine being able to buy a two‐ or three‐bedroom house in the Santa Barbara area for under a half million? A house with a working roof, good foundation, fenced yard, and in a residential neighborhood. We’re not talking about the little fixer perched under the electrical wires or adjacent to the cement factory; we’re talking decent houses in decent neighborhoods. All of a sudden, the cost of home ownership was neck‐and‐neck with the cost of renting, maybe even less expensive with the tax considerations. Interest rates for 30‐year fixed mortgages were hovering around 4.0%, and lenders had loan programs with as little as 3.5%, 5%, and 10% down (and still do).
Sellers who owed more on their mortgage than the property was worth were aggressively pricing their homes to submit a short‐sale offer to their lender (a much better option for many sellers than foreclosure). Other sellers in the neighborhood needed to adjust prices to compete with these short‐sale homes. Bank‐owned homes were also priced aggressively in this under‐$500,000 market. This remarkable perfect‐storm for buyers hasn’t been seen in Santa Barbara for nearly two decades. Can you imagine what happened next?
The buyers came out in force, especially for houses. The number of pending sales (new transactions that opened escrow) in December 2011 totaled 102, as seen in Table 1. This is a 62% increase over the number of pending sales in December of the prior year. November had 102 pending sales, and October had 104 homes that entered escrow that month. This is what we’re accustomed to in our best selling seasons, spring and summer, not in the fall and winter months. It’s not all rosy for buyers, however. The competition for these homes is steep. Most of the well‐priced homes had multiple offers (two, three, or sometimes more buyers bidding on the same home). Short‐sale sellers on Del Monaco dropped their price to $449,900 in late October, which immediately generated three offers. A cute two‐bedroom house on the Westside on Clearview listed recently for $630,000 – a normal sale ‐‐ and had ten offers within the first five days (and sold for over asking price). That left nine buyers out in the cold, hunting for another good value. Sometimes misguided sellers price their underwater property way below market value, as was the case for a two‐bedroom Highlands condo recently. The $299,000 list price generated a flurry of offers, but once reviewed, the short‐sale lender countered with a price $50,000 higher (substantiated by their appraisal) and rejected the offers. Although buyers occasionally get lucky and a low‐ball bid gets accepted by the bank‐seller, more often than not, the banks do know the value of the property and counter at or just below market value. Table 2 shows the combined number of pending sales for both houses and condos. (Remember most of the new activity has been for houses; pending condo sales actually decreased in December after taking a jump in November.) The time span from negotiating a purchase contract to closing escrow can be 30 to 90 days (or longer for short sales), so the bump up in closed sales in December reflects this jump in pending sales (contracts signed) in October and November.
Like other industries, we call the available number of homes for sale “inventory.” At the end of December, we had just 3.9 months of inventory in our whole south coast market (3.8 months for houses and 4.1 months for condos), see Table 1. Economists tell us that an inventory of about six months is balanced between buyers and sellers. An inventory of less than six months eventually puts upward pressure on prices (and is a seller’s market); an inventory of over six months puts downward pressure on prices (and is considered a buyer’s market). Our inventories have been low this entire last quarter of 2011 in all areas except Montecito and Hope Ranch. Look again at Table 1 at the Months of Inventory column. Both Goleta and Santa Barbara houses have inventories of around 2.5 months! It makes sense that with all the buyers out there, prices at the lower end will start to rise, and favor sellers. We are not seeing this yet, but we are seeing more price stability (especially in condos right now), and plenty of frustrated potential home buyers. Stay tuned to this column to see if the current buying frenzy at the lower end of our market translates into higher prices in next few months. Table 3 reflects these figures, showing which price ranges logged the most sales: $500,000 to $600,000 for houses, and $300,000 to $400,000 for condos.
The upper end of our market, defined in our charts by Montecito and Hope Ranch, has more inventory, 12.3 months and 8.5 months, respectively. This is nearly identical to December 2010. Median price for a Montecito home dropped year over year from $2,400,000 to $2,100,000, a 12.5% decline. Hope Ranch median price for 2011 is $1,950,000, down from $2,212,500, an 11.6% decline. Remember, though, that only part of the median price calculation is due to declining values. The other variable is the mix of home prices. More homes sold at the lower end and fewer at the upper end brings down the median price.
Condo prices are holding steady with just a 1.6% decline in the fourth quarter 2011 (from $425,000 to $418,000 after hovering near $425,000 for several months), and a 3.7% drop year over year.
This analysis would not be complete for 2011 if we didn’t also look at distressed sales, that is, the number of closed escrows that are short sales or bank‐owned properties (foreclosures). The number of short sales that closed in 2011 totaled 200. In 2010, this number was 137 (and in 2009, it was 92). More and more sellers are becoming aware of the benefits of a short sale, and are choosing that option. As for bank‐owned properties (REOs), Santa Barbara saw 184 close escrow in 2011, as compared to 154 in 2010 and 165 in 2009. The total number of all sales, regular and distressed, in our south coast is consistent year‐over year, with 1,257 residential properties changing hands in 2011 (2.5% more than last year’s 1,227). Therefore, the percentage of homes sold that are distressed has increased to 30.5% from 2010’s 23.7%.
My recommendation for sellers who have a “normal” property to sell: since many of the distressed homes are in poor condition or unkempt, make your house stand out by staging it and giving it a thorough cleaning – make it shine. Be flexible on your closing date and other timelines, and be willing to make repairs. Not all buyers are willing or able to work with the peculiar timelines and demands of purchasing a distressed property and might pay a premium to buy a home from a “real” seller. If a buyer needs to move in by a certain date, or needs a house in move‐in condition, that buyer would be best served by purchasing a “normal” sale; cater to that buyer.
What does all this foretell for 2012? Philosophers are quick to prophesy about the year 2012 based on ancient history. Our recent history would be a better guide. With an increase in distressed sales lowering property values across the board and a flurry of buyers who realize now is the time to buy, I predict a steady pace of sales in 2012. The number of sales will be limited by the low inventory, and buyers will continue to compete for the best deals, but be reluctant to overpay. Sellers will have to compete with others who are underwater and trying to beat the foreclosure clock with a low listing price, and with bank‐owned properties. Prices will rise slightly at the lower end, and stabilize in the middle and high‐end markets.
As we enter this much‐prophesied year of 2012, I’d like to propose a new idea. Psychology has long recognized the power of self‐fulfilling prophecy (a prediction that directly or indirectly causes itself to become true, by the very terms of the prophecy itself, due to positive feedback between belief and behavior [Wikipedia].) For example, if you think the real estate market is going to tank, then you won’t purchase a home (and if you’re an expressive type, tell others why they shouldn’t either) – which, if enough people feel the same way, will slow home sales and contribute to that original prediction. If you think that we’re at the bottom in prices and interest rates, and now is the best time to buy because both are going to go up, then you will figure out a way to purchase, as well as talk to others about the great opportunities in real estate, which, you guessed it, contributes to the number of sales and raises prices (thus helping to fulfill the original expectation). Economists measure something called the “consumer confidence index” (CCI), which is the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending. Businesses make decisions to expand or contract, offer products or not, and economists make their predictions based partly on this index — that is, on our expectations of what the economy (or the real estate market) will do.
What if, in 2012, we all predicted – expected — a stable, even sustainable, real estate market? What if we predicted that the unsustainable highs and lows of the last decade are coming to a close, and a new era is beginning? Real estate has not always been a commodity, and perhaps if we collectively begin to look at it as a long‐term investment, and a place to call home (or provide others with a home), we will begin to act in such a way to make that prophecy come to light in 2012. -Kalia J. Rork Prudential California Realty
