Archive for April, 2008

Coastal San Diego foreclosures lower than inland

April 27, 2008

As tough as the real estate market is right now, coastal San DIego continues to hold its value compared to other regions of the county. The San Diego Union published an article last week showing the foreclosure rates for San Diego County. The stretch between Point Loma and La Jolla had the lowest rates for the city. Scripps Ranch was the only inland community in the city that had a similar rate of foreclosures. The Union also published a table revealing the highest and lowest appreciation rates for the  first quarter. The only communites with positive appreciation were La Jolla (14%), Ocean Beach (11%) and Encinitas  (7%).

The coastal region has and should continue to hold its value in the future. When the market recovers, these neighborhoods will likely be the highest appreciating. In a blog we published last week, we described the “loans gone wild” activities that lead to the huge run-up in real  estate values which, in turn, has lead to the current credit crisis. Tremendous values on the coast can be found in properties that were part of the speculative boom in 2005 and 2006. Remember  the condo conversion craze? Well, if you look closely you can find tremendous income property values near the beach right now. As an example, right now there is a 2 BR/1BA property on Oliver St in Pacific Beach that is a condo conversion. This property might be purchased and rented for a small positive cash flow with only 22% down. Not long ago, 40 to 50% down was required to reach a breakeven point. Furthermore, the GRM (gross rent multipier) is near 10 for this property whereas GRM’s of 20 to 40 were common just a few years ago. Assuming an appreciation rate of 6% over 5 years, an investor could realize an annual, after-tax return of 27% on the down payment with this scenario.

So is this the time to run away from real estate? Baron von Rothschid’s famous quote is pertinent to today’s market conditions: “Buy when there’s blood in the street”. 




Is this the time to buy?

April 23, 2008

The LA Times published an article today announcing the results of a DataQuick study showing the number of foreclosures in California totaled 47,171 during the first quarter increasing from 31,676 in the previous quarter and 11,032 in first quarter 2007. According to DataQuick president Marshall Prentice: “The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the ‘loans-gone-wild’ activity happened in late 2005 and 2006 and that’s working its way through the system. The big ‘if’ right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans.”

Home equity lines of credit played a large part in the current credit crisis. “S&P said that 9.19% of lines issued in 2005 and 11.45% of loans issued in 2006 are delinquent, up 6.49% and 6.51% from February. Serious delinquencies, where lines are 90-days plus overdue or in foreclosure, shot up 8.83% and 8.75% for 2005 and 2006, respectively, representing 5.3% and 6.34% of the years’ total issuance”.

Negative home equity explains many of the problems plaguing the real estate market today. According to Moody’s approximately “10.3% percent of all U.S. homes will have zero or negative equity by the end of this month. Another 10-15 million households are at risk of becoming “upside down” if prices continue falling”.

According to The Daily Kos , the negatve amortization loan was a very popular program with lenders and homebuyers  with “Alt-A” loans, also called “nontraditional” mortgages, offered to borrowers with credit scores between 620 and 700. These include interest-only loans, option ARMs, “no-doc” loans, those requiring little if any income documentation, and others. Almost 90 percent of people who got an Option ARM in 2006 used little or no documentation and more than 90 percent were suffering from negative amortization. Industry insiders estimate at least 60 percent of Option ARM borrowers make only the minimum monthly payment. A Jan 22 issue of “Mortgage Strategist” a research note from investment bank UBS, estimated up to 80 percent pay the bare minimum.

Yale University economist Robert Shiller, pioneer of the widely watched Standard & Poor’s/Case-Shiller home price index, said there’s a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15 percent since their peak in 2006, he said.

The central San Diego coast is somewhat resilient to these problems but certainly many homeowners are faced with falling prices and increasing payments that pose challenges at a time when the economy may be falling into recession. The time may be right to buy if you are in the market do so and, if you need to sell, an intensive marketing campaign and patience will be in order.

You may be interested in viewing the video below relating to this difficult time in real estate.

April 23, 2008

Fannie/Freddie ‘Con’-Jumbos a Bust

San Diego Affordability Index Improving

April 20, 2008

The San Diego Union’s Dean Calbreath wrote a column on the results of a study conducted by Chapman University looking at the change in real estate affordability in San Diego. The percentage of median family income needed to purchase a median priced San Diego home is currently 35.6% down from over 50% in 2006. But this level is still higher than the 32.9% mean of the last 20 years. So the speculation is that housing prices could continue downward.

But San Diego is still quite affordable compared to Los Angeles. The 20 year mean for Los Angeles is 35.7% according to the Anderson study and currently stands at 48.6%. Orange County’s long term affordability index is about the same as San Diego at 32.6% but is currently higher at 39.4%. Inland Empire (Riverside area) is most affordable of the 4 Southern California regions as the monthly payment on a median priced home takes 28.7% of the median income and over 20 years, 22.8%.

Since San Diego real estate prices have adjusted closer to the long term mean, is it possible we will be the first to bottom out? The experts in the Calbreath article are speculating a bottom in 2009.

Glad to be back, San Diego!

April 19, 2008

After a spell in Northern California, I am happy to be back in San Diego, where I was born and raised. We just returned from Danville which is a wonderful East Bay community with great schools, friendly people and good weather (not as nice as San Diego, of course) but my husband Jerry and I thought my real estate career could flourish moreso here on the central San Diego coast than in the Bay area. So I look forward to getting back together with family and friends in person and on this blog and I would love it if you would share this with others you know.

I will be adding comments, statistics and various real estate topics to this blog for your education and enjoyment…look for it.