REO & Foreclosure Blog

Orange County home sales for less than a residence’s total debt increased 33.8% in January from the year before, Southern California Multiple Listing Service figures show.

The listing service reported that 487 of January’s deals were “short sales” — or sales in which the purchase price is less than mortgage balance. That’s nearly 28% of all Orange County resales traded through the MLS.

At the same time, bank-owned foreclosed homes sold that month fell nearly two-thirds from the previous January to 293 transactions — a 62% drop.

In January 2008, nearly 800 bank-owned homes were sold, accounting for half of all homes sold through the MLS. This past January, they made up 16.8%.

The combined total for all types of “distressed sales” accounted 49.3% of all MLS deals this past January, compared to 77% a year earlier. The SoCal MLS reported that distressed sales totaled 862 in January, down 27.6% from the previous January’s total of nearly 1,200.

Here are the SoCal MLS figures for distressed sales for the past 13 months:

The former executive with the Howard Hughes Corp., the Rouse Co. and Newland Communities has been running a national real estate development consulting firm with his son, Michael.

The company consults for Van Epp’s former employer, Newland Communities, project manager of Union Park in downtown Las Vegas.

Van Epp says he has no regrets leaving Newland and forming his own company a year ago. He says he was helping Newland downsize to match the economy, and it seemed like a good time to leave.

He says he continues to work with Newland to help Union Park move forward and remains bullish on it. The groundbreaking of the $450 million performing arts center next month will further boost the project.

Van Epp says he is also working on helping Newland recapitalize so it’s prepared once the economy heals.

As for the healing of Las Vegas, Van Epp says Southern Nevada was the first place in the country to go through the downturn in the residential housing market and is likely the first market that will see an upturn because of the increased affordability.

“We had the steepest decline in prices, and we now have single-family homes priced at half of what they were in 2003 and 2004,” Van Epp says. “At that price, you make the single-family home a lot more attractive to a lot more people.”

Las Vegas is also taking the right steps in what needs to be done to correct its economy, Van Epp says. The lowering of room prices by the resorts is the key to getting people to come back in greater numbers, he says.

“They are going to flock back to Las Vegas, and when that happens, our own unemployment rate will get much better and that is part of the equation to buying homes,” Van Epp says.

The commercial market, however, has a long way to go both locally and nationally, Van Epp says.

The office vacancy rate continues to rise and with the high jobless rate, the office market could be in bad shape for a number of years, he says. The retail market has been overbuilt in Las Vegas and across the country, and it will take time to correct that with a construction hiatus, he says.

Commercial real estate will be hurt by the continued credit crunch that’s going to push down values even further, Van Epp says. More experts are raising concerns about commercial foreclosures, and he says he understands why.

“That is the $10 trillion question,” Van Epp says about commercial foreclosures. “On the surface, it appears it could be worse than the housing issue. Nobody really knows. If the government can act fast enough or if enough is done to solve the liquidity of U.S. banks, we can head off a disaster in the commercial market. I think there will be enough focus on the banking system that we will probably avert it.”

With General Growth Properties in the midst of bankruptcy proceedings, Van Epp says the remaining undeveloped parcels of Summerlin will be sold. Having a different owner will be good in the long term, he says.

Finding a buyer, however, won’t be easy. There is no appetite for raw land, and the prices people are willing to pay may not satisfy creditors, he says.

Two years ago, residential land in high-quality locations went for $1 million per acre, but now you are lucky to find a buyer for $100,000 per acre, he says.

That is quite a comedown for Las Vegas.

The city spent years trying to persuade Wall Street that it was a viable city and a place to invest and have confidence in, Van Epp says. The city was successful, but now those same people are gun-shy given the recession, he says.

“It is way too early to predict the demise of Las Vegas,” Van Epp says. “We have a very bright future.”

There is a silver lining to Wall Street and other investors not looking as favorably at Las Vegas, Van Epp says. That holds down the value of real estate, which is great for people looking for a home, he says.

“You need capital for strong growth, but we don’t have to worry about growth at this moment,” Van Epp says. “Once we fully utilize the growth we have, then we can start talking about growth again.”

Windermere report

Robyn Yates, broker/owner of Windermere Prestige Properties, says there is growing evidence that some homeowners who are upside down on their mortgages are purchasing homes and letting their original home be foreclosed.

This “buy and bail” trend is a result of home values declining, she says, and not because those people are unable to make their monthly payments. They don’t want to pass up buying a home at record lows, she says.

But the foreclosures have consequences even if someone gets a lower-priced home in return, Yates says. The foreclosure affects credit and hurts a person getting a car loan, student loan or credit card. It will also take a minimum of four years before the person can purchase another home.

In other news:

• Prudential | IPG announced it has formed its Commercial REO Division, a platform established to assist banks and lenders in managing the growing number of commercial defaults in Southern Nevada. The Las Vegas-based operation is designed to work with financial institutions chief credit officers and special asset managers, says Hayim Mizrachi, a senior commercial adviser.

• Colliers International has named Patrick Murray as a managing partner and senior vice president responsible for its portfolio of 14.5 million square feet of retail, office and industrial/flex properties in Nevada and California. Gretchen Lee, senior portfolio manager, will continue as the contact and facilitator of Nevada properties. Murray worked at San Francisco investment firm McMorgan & Co. as a senior vice president

U.S. property foreclosures hit a record-high rate in April, but Indiana dodged the dismal trend with fewer foreclosures.

The record 342,038 repossessions, default notices and other types of foreclosures filed last month probably can be attributed to the end of moratoriums on foreclosures put in place earlier this year by President Barack Obama and individual lenders, said RealtyTrac. The California-based company tracks foreclosures nationally.

Indiana, which in 2005 ranked among the top five states for foreclosure filings, dropped to 15th in April, with 5,019. The number is a 2 percent decrease from March and practically unchanged from April of last year.

But the Indianapolis area's home-buying market continues to see large numbers of foreclosures and short sales, in which proceeds from the sale fall short of the balance owed. They made up one-third of the 1,700 home sales in the nine-county Indianapolis metro area in April, said Re/Max of Indiana.

Nationally, Nevada, Florida and California showed the highest foreclosure rates last month. One of every 135 Florida housing units received a foreclosure filing during the month.

Las Vegas posted the highest foreclosure rate among cities, with 14,073 filings, or one for every 56 Las Vegas housing units. The other top 10 metro areas for foreclosures were all in California or Florida, said RealtyTrac, which markets foreclosure properties online.

Driven by a whopping 40 percent reduction in prices, home sales soared in April in the Las Vegas area, the Greater Las Vegas Association of Realtors reported today.

The Realtors said single-family home sales in April totaled 3,198 -- up 7.3 percent from 2,980 in March and up 78.3 percent from 1,794 sales in April 2008.

Condominium and townhome sales totaled 727. That’s up 20.4 percent from 604 such sales in March and up 242.9 percent from 212 one year ago.

The median price of a single-family home sold in the Las Vegas area decreased by 4.9 percent during the month, from $149,000 in March to $141,720 in April. This current median price is down 39.9 percent compared to $235,875 in April 2008.

I feel like I just stepped out of a time machine after travelling back to 2003. That was when I first moved to Las Vegas from New York. The real estate market hadn’t reached the bubble phase yet but the market was strong. Entry level new homes were selling for about $90 per square foot with premium homes in the $100-125 range. Resale homes were going for about the same price depending on age and location. The buyer’s choice was to purchase a resale home that was ready now or buy a new home that could be tailored to their individual taste but required a wait of six months or more before it would be completed.

I was one of those who opted for the new home. I purchased it in February of 2003 and it was completed in September of that year. In the time it took for the builder to complete the home, the prices of the same model had increased by about $30,000, or about 8%. That number pleased me because it indicated that the market was appreciating nicely. It turned out that I had bought my home just before the boom took hold.

This city was among the first in the nation to fall victim to the real estate collapse. Now it seems to be in the earliest stages of a recovery, a hopeful sign for an economy mired in trouble and anxiety.

Investors and first-time buyers, the traditional harbingers of a housing rebound, are out in force here, competing for bargain-price foreclosures. With sales up 45 percent from last year, the vast backlog of inventory has diminished. Even prices, which have plummeted to levels not seen since the beginning of the decade, show evidence of stabilizing.

Indications of progress are visible in other hard-hit areas, including Las Vegas, parts of Florida and the Inland Empire in southeastern California. Sales in Las Vegas in March, for example, rose 35 percent from last year.

“It’s fragile, and it could easily be fleeting,” said an MDA DataQuick analyst, Andrew LePage. “But history suggests this is how things might look six months before prices bottom out.”

Hope for housing was on full display in the stock market on Monday. News that pending home sales rose in March instead of falling, coupled with improved construction spending, propelled a strong rally. One broad market average, the Standard & Poor’s 500-stock index, is now in positive territory for the year, after being down 25 percent on March 9.

No one in Sacramento is predicting that local housing prices, which have been cut in half from their mid-2005 peak, are going to reclaim much of that ground anytime soon.

Instead, this is what passes for wild-eyed optimism: a belief that things have finally stopped getting worse. “A period of price stagnation would boost a lot of spirits,” Mr. LePage said.

When a market bottoms, foreclosures usually stop piling up and banks become more willing to make loans, confident the collateral backing them will not fall in value.

Nationally, signs of progress in real estate are still faint at best. Existing home sales in March were down 7 percent from last year, according to the National Association of Realtors.

The supply of unsold homes was about 10 months, a number that has changed little over the last year and is abnormally high. But first-time buyers were an impressive 53 percent of the market — and that was largely before a first-time buyer’s tax credit of $8,000 became available.

With the tax credit in place and interest rates low, the pace of sales may be picking up. The Realtors’ group said Monday that the number of houses under contract in March was up 1 percent from a year earlier. Those pending deals will be reported in the existing-home sales for April and May.

Sales volume tends to recover long before prices. In fact, some analysts think price declines in many markets are accelerating. First American CoreLogic, a real estate data firm, reported that “the depth and breadth of price declines continued to worsen in February.” Fitch Ratings recently revised its estimate of future declines to 12.5 percent, from 10 percent, saying the drop would extend to the end of next year.

Amid the uncertainty, Sacramento is drawing scrutiny as a test case. The area boomed in the first part of the decade; the population of Sacramento County increased 10 percent, to 1.4 million, as San Franciscans sought cheaper places to live.

When the market peaked and the ability to refinance all those costly mortgages dried up, the carnage began. There have been 28,898 foreclosures in Sacramento County since 2005.

Sales in the top half of the market remain slow. The Federal Reserve reported on Monday that half of all banks recently tightened their lending standards on prime mortgages. Many would-be buyers, here as elsewhere, simply cannot get financing.

Sellers, meanwhile, are reluctant to lower their prices, preferring to bide their time. New construction is nearly nonexistent.

What drives the market here, then, are all those foreclosures. Two-thirds of the 2,092 existing single-family houses and condominiums sold here in March were bank repossessions, up from 8.5 percent two years ago, according to MDA DataQuick, a real estate research firm.

These cut-rate properties are engendering the same frenzy and frustration that symbolized the boom, as Rebecca and Chris Whitman discovered when they started looking for a house in December. Ms. Whitman’s new job as an athletics director at Sacramento State required an immediate move from Chico, two hours north.

In two months the couple looked at 100 houses, nearly all foreclosures priced under $200,000, making verbal offers on 20. Only rarely did they get a response. Banks trying to unload large numbers of properties are less interested in traditional transactions with individuals than all-cash offers from investors.

As interest rates fell, the Whitmans were able to increase their price limit. They ended up buying from investors. A syndicate had bought a three-bedroom foreclosure on a cul-de-sac in eastern Sacramento last fall for $172,000, made a few improvements and was flipping it — another boom-era element that is back. The Whitmans bought it three weeks ago for $224,500.

“We think we got a good deal,” said Ms. Whitman, 31. Their monthly payment, including property taxes, will be about $1,200. Renting an equivalent house, with space for their two dogs, two cats and the baby they are expecting, would have been hundreds of dollars more.

When buying is cheaper than renting, markets begin to turn. At the current rate of sales, there is less than three months of inventory in the Sacramento market. In normal times, that would indicate a seller’s market.

Except these are not normal times. The unemployment rate in the county is 11.3 percent, the highest in decades. That will prompt more foreclosures all by itself. Furthermore, banks have lifted various processing moratoriums that lowered foreclosures last fall.

These two factors yielded a rise in the number of default notices filed in Sacramento County in March to 2,819, a record. Thousands more bank-owned houses are likely to come to market this summer and fall.

“That will stall any progress toward stability,” said Michael Lyon, chief executive of Lyon Real Estate. “The prospects for a recovery are fool’s gold.”

Mr. Lyon expects further price declines and slowing sales. But David Berson, the chief economist for the mortgage insurer PMI, argues that such bleakness from the people whose livelihood is selling houses is itself a positive sign. “Things are awful at the bottom, and we’re at the bottom,” Mr. Berson said. “No question about it. But the trend going forward should be higher sales, and that will eventually affect prices.”