Wednesday, June 20, 2007

CA tops PMI's risk index

California topped PMI's new index of the risk that home prices will be lower in two years (743K PDF report, worth reading in full - thanks, Housing Doom).

Between slowing appreciation, falling demand, and layoffs in the construction industry, we began to see a change in the housing market by early 2006. The contraction of the subprime lending industry in early 2007 added momentum to the transition, and today we are in a vastly different market than we were even as recently as a year ago.

In recognition of this, we are introducing an enhanced U.S. Market Risk IndexSM. Our new model gives more weight to the recent volatility of an area’s price movements and is better suited for the very different market we are in today. ...

While the new model draws on some different inputs, the output is the same: a risk index that predicts the likelihood that home prices in a given metropolitan statistical area will be lower in two years. ...

Here are the top two (of five) rank levels. The top score of 652 means a 65.2% chance that the OFHEO All Transactions House Price Index for that MSA will be lower two years from the date of the data.

Risk Rank 1
652 Riverside-San Bernardino-Ontario, CA
646 Phoenix-Mesa-Scottsdale, AZ
614 Las Vegas-Paradise, NV
607 West Palm Beach-Boca Raton-Boynton Beach, FL

Risk Rank 2
586 Los Angeles-Long Beach-Glendale, CA
577 Santa Ana-Anaheim-Irvine, CA
572 Oakland-Fremont-Hayward, CA
563 Orlando-Kissimmee, FL
560 Sacramento-Arden-Arcade-Roseville, CA
555 San Diego-Carlsbad-San Marcos, CA
542 Fort Lauderdale-Pompano Beach-Deerfield Beach, FL
524 Miami-Miami Beach-Kendall, FL
506 Tampa-St. Petersburg-Clearwater, FL
501 Boston-Quincy, MA
500 Washington-Arlington-Alexandria, DC-VA-MD-WV

Also, be sure to read today's Bloomberg article, "Rate Rise Pushes Housing, Economy to 'Blood Bath'" (thanks, Housing Panic).

33 comments:

war chest said...

Ok so I am going to share something that happened the other day...

My folks got a fedex on their doorstep. In it was a fully executed contract to purchase their home (original copy w/ all signatures and initials), a cover letter from the realtor, and a photocopy of the deposit check written to the realty firm.

This was completely random and out of the blue. I was very interested to see what the "story" was behind the couple who wanted to buy...

The letter said that the couple loved the house, etc and that there were so few homes to choose from that the coulple was now being more proactive and offering to buy my parents house because they wanted to live in it w/family, etc...

However, after doing some research, I saw that this couple had recently flipped a $2 million+ home in Pacific Palisades. They had owned properties in Santa Monica and LA area for the past 10 years and had been buying and selling...Looks like they made good money.

Anyways, I think they targeted my parents house because it is on a good street and could easily be upgraded and flipped for a GOOD profit (given the low offer amount). Maybe these people really do want to live in the neighborhood, however given their history (recent flipping), I would be inclined to think otherwise.

This speaks poorly for the realtor as well as they are basically aiding these people who are fishing to buy an older home from older people at below fair market value with the intention of flipping (all the while complementing the house and saying how bad they want to live in it, etc).

I think this is sickening and I think that it is also really shady for realtors to intentionally mislead potential sellers with respect to both "fair market value" for the home as well as the intention of use.

In the realtor's letter, he says that the offer price was based upon property tax records (HUH???!!!). For a house that was purchases 20+ years ago, property tax records DONT MEAN ANYTHING (thanks prop 13). I would hate to think that some older owner would fall for such a scam and sell their home for 200K+ under FMV. And the fact that this offer came from a well known, highly respected (well, not by us) realty firm makes it that much worse.

Anyone heard of this stuff happening before? what do you think?

dwr said...

I think if there is a return Fed Ex envelope, you should fill it with 20 pounds of junk mail and send it back.

war chest said...

Nice...or maybe a printout of this blog

Anonymous said...

I have a mastiff that takes very large craps. Let me know if you need one to include in the envelope.

Anonymous said...

Scan it in and let everyone know who it is.

Westside Bubble said...

How about emailing this to Peter Viles of the LA Times LA Land blog? This is a potential scam that needs wider visibility.

I heard that agents for a well-known north-of-Montana developer back in the 1980s were doing something similar, making low-ball offers to old people who didn't know what their houses were worth.

war chest said...

westside,

I figured stuff like this has happened before...its just so god damn sleezy though. And for the realtors to actually be the ones trying to push and get the deal done really shows their lack of ethics. I guess the buyer's agent does not have a fiduciary duty to the seller and it is certainly not illegal to submit low offers, but this whole situation absolutely stinks.

I don't really want to expose the realtor or the folks who made the bid...I just wanted to share this because I thought this blog would find it interesting. Feel free to e-mail the la land blog if you want, but again my main desire here was to share with you guys.

latesummer2008 said...

If the realtor is soliciting the owner, they could have a fiduciary duty to the seller as well. If the owner is not represented by another broker, than the agent IS representing BOTH, the seller and the buyer, AND has a fiduciary duty to BOTH seller and buyer. It is also possible, the agent could have OTHER interests in the transaction as well. (partners with the buyer).

Good old fashion R.E. Scam..

War chest said...

good point latesummer.

On another note, I have been tracking 1143 26th #C for a while now...I posted about how it was in default, foreclosed, auctioned (but bank took it back), and then relisted 32 days ago by the bank.

Well, I checked zip realty today and the bank has now cut the price.

Price Reduced: 06/22/07 -- $599,900 to $575,000

So maybe this is a sign of things to come? Bank taking action on price after about 1 month. The behavior of banks is going to be key as all the short sales and REOs should be the "comp killers" we are looking for...

Anonymous said...

westside bubble -- I'm not seeing the weakening in Northern Santa Monica... the lot in the 900 block of 25th that everyone was laughing about sold; 848 26th went above asking; all the recent fixer sales North of Montana... do you still think it's just a matter of time, or that the area is subject to different price pressures than other areas, and different price pressures than condos in the same zips (ie might not collapse)?

war chest said...

Anon,

Can you provide the sales amounts for both properties you mentioned (25th and 26th)? Are they still in escrow or have they closed? (I assume 25th would be in escrow as the realtor signs are still up).

As far as pricing is concerned, I am not sure how things will play out (obviously, because nobody is), but I think that it is simply a matter of time. I have done a lot of research and looked up loan documents for many homes both north and south of Montana (90403 and 90402) and I have seen some interesting trends.

1. A lot of the people who bought a long time ago and have significant equity have been tapping into it via helocs and refis.

2. North of Montana housing is now dominated by spec builders. Pricing is set by these "investors" because they are the ones who buy up the empty lots and then build 5,000 square foot homes.

3. While I have yet to see a 100% financed purchase north of Montana, I have seen it on marginal single family units and it has been used a lot on condos.

Now lets talk condos...a lot of the "condos" being sold are just apartment units with some granite. I have recently been in the market for a rental and I have run the numbers on renting vs buying and I can tell you that it is not even remotely close. Many times it is more than a 2 to 1 ratio (using interest only). This means that condos were bid up to a huge extent based on the idea that they would continue to appreciate.

This appreciation is taking longer than I imagined to slow down. However, I have highlighed several short sales and foreclosures (see my comment above) which have taken place recently. When I pull up Zillow and see all the people who bought 2 bedroom condos for $800K in late 06 and early 07, I am more and more convinced that serious declines are inevitable.

What this all means in my opinion is that we will see pressure on Santa Monica from two directions. Condos should slow down and the short sales and foreclosures will start putting pressure on prices. That should also cause the higher end condos to slow and come down...the leverage here is huge because many places are bought with dodgey loans and/or $0 down. Combine this with higher interest rates and a tighet mortgage market and I don't see good times ahead.

Secondly, higher end stuff will suffer if people stop buying $5 or $6 million dollar "finished product" (think spec builder homes). If this happens, then lot values and/or construction costs have to come down for spec building to remain profitable. I think lot values will come down and this in turn hits everyone else. Then south of Montana single family homes feel pressure from the high end (NOM) and low end (condos).

From what I understand, prices slipped anywhere from 20-35% in the early 90s, so it is not out of the question for it to occur again (given the continued deterioration of fundamentals). Be patient, get a cheap rental, save lots of cash and check back in 2 years from now and see where things are.

Joey said...

War Chest,

I see nothing wrong with exposing the realtor that send the package. Your folks did not ask the realtor to send the package, did they? The realtor is trying to scam them, aren't they? So I don't see any responsibility on your part to protect the realtor, especially since they have no qualms about ripping off your folks. Plus, if you let people know who they are, you might save some other unsuspecting older folks from the same scam :)

P.S. It's funny the Blogger tries to correct "realtor" spelling so it's a capital "R." Is the NAR in bed with Google too??

-Joey

Anonymous said...

Hey... just read this story about a Valley realtor. Fraud is alive and well:

http://smurl.name/p34w

war chest said...

Joey,

I agree...however I think I will still hold off on posting any further details unless something else happens.

Just know that the agent was not some nobody from a no name firm. The well known, high end realtors are completely in cahoots with anyone who will give them a commission (or part of the action on investments). If and when I end up taking part in any transaction with anyone involved in the real estate field I will be certain to do all of my own due diligence and be extremely cautious about everything. Buyer/seller beware!

Anonymous said...

war chest and joey and everyone else - i must be missing something. can someone explain how is the realtor and the buyer are trying to scam your parents? i don't see anything illegal. tell me, how is that diferent from a low ball offer? If in fact it is a low ball - you're the first one to write here that sm market is going down the tubes, so based on your comments, your parents should take advantage of the "idiot" buyer!
for the most part, how is that a realtors fault - this is called capitalism and if you don't like it you don't have to either buy, sell, listen, look, vote, etc.
stop bashing and start delivering valuable facts.
with this type of an attitude all is left just to hang oneself, because all of these realtors, lawyers, sales people, doctors, dmv clerks, republicans, democrats, accountants, grocery clercks, taxi cab drivers, police, homless people, nurses, wallgreens pharmacists, .................
get the point?

Westside Bubble said...

I'm not seeing the weakening in Northern Santa Monica [...] do you still think it's just a matter of time, or that the area is subject to different price pressures than other areas

I agree so far, Anon. I wonder if a falling stock market will change the psychology there? Those buyers are more about their assets and income, not mortgage rates. Prices did fall there around 1/3 from 1989-1994.

i must be missing something. can someone explain how is the realtor and the buyer are trying to scam your parents? i don't see anything illegal.

Two issues, Anon2. Unsolicited low-ball offers are suspicious and sleazy, an attempt to take advantage of uninformed homeowners. And legally an agent represents, therefore has a fiduciary duty to, the seller.

Anonymous said...

westside bubble - anwer to anon #2 does not address the issue at hand only states your opinion - if it is sleazy and suspicios, than just igmore it.
In any event, this is my last visit to this blog because it is detached from reality. Good luck you all wating for the crash, for which you've probably been wating for the last several years that is yet to come.

Westside Bubble said...

if it is sleazy and suspicios, than just igmore it.

I did when I received similar letters in the past. But certainly doesn't elevate the public perception of real estate agents, does it?

In any event, this is my last visit to this blog because it is detached from reality. Good luck you all wating for the crash, for which you've probably been wating for the last several years that is yet to come.

Are you arguing a crash is "yet to come" or won't come?

There's a duality here: reporting what "is" based on current data, as well as what many of us see as coming, based on larger trends. I've learned there are always cycles. We'll see if the bulls or bears were right on this one.

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