Treasury Department Foreclosure Report

Foreclosure and Mortgage Deliquencies

Q4 2009

I finally finished the OCC and OTS Mmortgage Metrics Report for the fourth quarter of 2009 (I know you’re jealous at how much fun I get to have).   The report looks at all first liens held by most of the largest mortgage servicers.  It covers almost 34 million loans totaling almost $6 trillion.  It is the raw data before it gets spun by the press or politicians.  Here are some highlights and lowlights from the report:

Delinquent Mortgages

• Mortgage performance declined for the seventh consecutive quarter.  Delinquent mortgages and mortgages in foreclosure rose to 13.6% of all mortgages (once again, just talking about first mortgages).

• The percentage of mortages 30-59 days late stayed stable, most of the increase was in seriously delinquent mortgages.  This may be a positive as it is showing that the pace of new delinquencies is not picking up, and that loans are staying seriously delinquent longer which is an indication that banks are working longer to modify before moving to foreclosure.

• Option Arms continue to be the worst performing loans with only 662% current.

• There was a large increase in the number of seriously delinquent prime loans as the number jumped fro 838k to 976k in one quarter.  Almost 1 in 25 prime borrowers is more than 60 days late on the mortgage.

• Overall, 7.1% of all mortgages are seriously delinquent (60+ days late) and an additional 3.4% are 30-59 days late.

• Although the Sub-Prime and Alt-A loans have the highest percentage of delinquencies, the Prime loans have the highest number – this is important as if the percentage of prime loans going bad keeps rising it has a real chance of bringing the market down again.  However, these are also the borrowers that have the best chance of recovering if employment and the economy continue to recover after the stimulus expires.

Home Retention Actions

• The number of home retention actions slipped by 19.1% compared to the third quarter.  This is probably likely to the fact that HAMP received so much publicity in the third quarter that most people who were eligible applied then. 
• Discouraging number on the HAMP program was that although 349k people had entered the 3 month trial period in the second and third quarters, only 21k of those received permanent modifications during the fourth quarter.  That’s about a 6% conversion rate (it’s too early to have data to see how many re-default).  If that is an accurate number (it is possible that many were delayed past 3 months by paperwork issues, etc.) then the program is really a failure.  Let’s hope the numbers get better.
• More than 50% of HAMP trial plans and modifications are for prime borrowers
• There were almost twice as many home retentions started as foreclosures (this would also explain the increase in seriously delinquent mortgages as they stay delinquent until fully modified).
• The percentage of loans modified that had principal reductions fell to 6.8%.  Rate reduction and capitalization (adding your late payments back to the loan) were the most common modifications.
• HAMP modifications only included principal reduction 0.1% of the time, but they did utilize principal deferral 26.8% of the time.
• 42% of all modifications decreased payments by 20% or more – this is important to the  borrower being able to keep up with payments on the modified mortgage.
• 82% of HAMP modifications decreased payments by 20% or more.

Modified Loan Performance

•  The performance of modifications continues to improve over time:
  • Only 33.5% of loans done in the second quarter of 2009 were 60+ days late six months later compared to 42.7% of loans in the first quarter.
  • Only 14.7% of loans modified in the third quarter were 60+ days late 90 days later as compared to 30.8% of the loans done in the first quarter of 2009.
• Loans 30+ days late were obviously a higher percentage; 47.5% after 6 months for loans modified in the second quarter and 29.8% after 3 months for loans modified in the third quarter.  Both of these are significantly better than they were prior to the second quarter.
• The highest Re-Default rate is for Government-Guaranteed loans (FHA, VA, etc.)  with 67.8% 60% days late a year after modification (these are obviously reflecting pre-HAMP modifications as none have been modified for a year yet).
• One reason to be a little more positive about HAMP modifications (if more get completed) is that they seem to be reducing payments by 20% or more, and historically loans that have payments reduced by 20% or more have a re-default rate of only 39.8% a year later (as opposed to 67% if the payments are unchanged).

Foreclosures

• Newly initiated foreclosures declined in the 4th quarter as homes are staying in the seriously delinquent phase longer as lenders are working harder on modifications.
• Completed foreclosures increased by 8.6% over the previous quarter and 35.7% higher than a year ago. 
• There are almost 4x as many foreclosures as short sales and Deed-in-Lieu actions, although short sales are up 96.8% over a year ago.
• 7.8% of all subprime mortgages are in foreclosure while only 2.3% of prime mortgages are in foreclosure (however since there are more prime mortgages, there are actually more total prime loans in foreclosure than subprime).

A couple of key numbers to look at next quarter will be:

• How many of the HAMP trial periods get converted to permanent modifications.
• If the loans that are seriously delinquent transfer into the foreclosed or modified category.
• If loans modified in the third quarter of 2009 and later continue to have a lower re-delinquency rate.

I expect that the data for the first quarter will continue to improve and the real questions will come with the second and third quarter data as that data will reflect the market after the stimulus has expired.

Monday Morning Coffee – Politics as Usual

Monday Morning Coffee

Delaying Foreclosures to Get Re-Elected

February 28, 2010

Good morning,

I hope you had a nice weekend.  We had the open house for our Rancho Bernardo office on Friday afternoon and had a nice turnout.  Thank you to everyone who stopped by.  After being cooped up in the house Saturday, it was nice getting out for a walk with Zach before going to the office on Sunday.  Most of Sunday was spent getting data ported over to our new web site which should be up and running by the end of the week.  Things are getting really busy and with the typical spring increase in activity coupled with ramping up the new office and switching over all our web sites, sleep seems to be  a luxury right now.  Very glad the team is running smoothly right now – speaking of team, Cori is doing well enough in her recovery from the multiple back surgeries that she is back handling our property management again.  It is nice to have her involved again.

A couple of quick notes on the market.  Things seem a little slower now than they were a couple of months ago.  Not so much that homes aren’t selling, but instead of 7-8 offers, we are getting 1 or 2.  It could just be that everyone bought when they thought the tax credit was expiring, but it could also be the start of a trend.

I saw an article last week that didn’t make sense.  The headline was: Obama May Prohibit Home-Loan Forelcosures Without HAMP Review.  I know some of you out there are going to make that silly argument about that Constitution thingy we studied in school, but I think there is a clause they didn’t tell us about where the President can ignore certain parts of it if he really needs to.  The effect of a HAMP review would be to delay the foreclosures for about three months (plus another three while they get the systems in place to process everything), so another 6 months of artificially tight supply.

Then, another piece fell into place on Friday.  A colleague of mine who does a lot of work with the foreclosure departments at many large banks and loan servicers was told that the banks are being pressured to keep their foreclosures off the market until after the mid-term elections.  That made me wonder if maybe the HAMP review proposal was designed to keep the foreclosures from hitting the market until after the election in November.  

Ok, so I went back and did a quick re-read of that same Constitution we slept through in high school.  And guess what?  The whole ”ignore sections of this document if they are inconvenient to your current crises or desire to be re-elected” clause never made it in there. 

I know I am making light of a bad situation, but I think that we ought to consult the original rule book every once and awhile to make sure we are still playing the right game.

Ok, enough on the whole Government hijacking the country theme.  Let’s talk about a positive!

We’ve got a great new listing in 4S Ranch.  This home has 4 bedroom suites (1 downstairs), a loft, and a great layout for the growing family.  Due to allergies of one of the children, almost every room has engineered wood flooring and the house is spotless.  If you know anyone wanting to move into the Poway School District, please shoot them over to the site.

We have a couple more new ones, but the virtual tours are not ready yet, so I will have them next week – along with the new web site!

Enjoy the Coffee!!!

Bad Temper

There once was a little boy who had a bad temper. His father gave him a bag of nails and told him that every time he lost his temper, he must hammer a nail into the back of the fence.

The first day, the boy had driven 37 nails into the fence. Over the next few weeks, as he learned to control his anger, the number of nails hammered daily gradually dwindled down. He discovered it was easier to hold his temper than to drive those nails into the fence.

Finally the day came when the boy didn’t lose his temper at all. He told his father about it and the father suggested that the boy now pull out one nail for each day that he was able to hold his temper. The days passed and the boy was finally able to tell his father that all the nails were gone.

The father took his son by the hand and led him to the fence. He said, “You have done well, my son, but look at the holes in the fence. The fence will never be the same. When you say things in anger, they leave a scar just like this one. You can put a knife in a man and draw it out. It won’t matter how many times you say I’m sorry the wound is still there. A verbal wound is as bad as a physical one.”

 Have a Great Week!

Scott Voak

Monday Morning Coffee – One West Bank and the FDIC

Monday Morning Coffee

One West Bank & The FDIC

February 22, 2010

Good morning,

I hope you had a great weekend.  As I am typing, the sky has opened up on another rain storm in San Diego.  This could complicate things as we have 3 new listings we need to shoot photos for on Tuesday (that’s called a teaser!)  I am going to give you a couple of quick notes and let you click through for more information.  But first – HAPPY BIRTHDAY CORI!  That’s right, my wife turns, well let’s just say younger than me today.  We are looking forward to going out with our friends John and Jean to celebrate tomorrow night.

Secondly, I am VERY HAPPY to announce that I have added Adriana Amon to my team as a buyers’ agent.  Adriana lives a long stone’s throw away from me in 4S Ranch and she has a strong background as a lender prior to stepping into her agent shoes two years ago.  She is very involved in the community and we have served together on charitable foundations in the past.  I was looking for someone who combined a love for real estate with a commitment to the community and for the 4S Ranch and Del Sur areas, she was the only person I considered (so good thing she accepted!)  We are happy to have her on board and look forward to great things.

Ok,  a couple of quick points on the real estate market:

• You may have seen a video last week being sent around that was done by a couple of mortgage brokers that ripped the FDIC for selling the assets of Indy mac to One West Bank.  The terms they allege are pretty bad as One West received a guarantee that the FDIC would cover loses on every loan and the losses were calculated from the original loan balance and not what One West paid for them.  The video is here.
• The FDIC took the unusual step of answering the video as it was spreading viraly.  Their response is here.
• Then, the brokers ran a response to the response which is here.

My thoughts on this are that One West did receive a great deal and I don’t like the fact that some of the One West senior management were the same people that helped cause this crash in the first place.  However, we also have to consider that the FDIC needs to get rid of the assets of these failed banks and there are not a lot of people walking around with the experience to run this type of bank nor the access to cash needed to make this purchase.  Because of these two factors, whomever bought the assets was going to have to get a great deal (if you know a good banker, and have a couple hundred million dollars you can get a hold of, you might get a similar deal).  That said, I think it is disgusting that the bank then insisted that the  borrowers doing the short sale sign a promissory note to complete the sale – the bank was not going to take a loss at all, saddling the defaulted homeowner with a permanent anchor as they try and swim to shore is inexcusable.

My second topic is on short sales.  We are finding the following is happening:

•  There is a lot of agents that are marketing themselves as ”short sale specialists” and are doing more harm than good.  These agents are listing homes 20% under market in order to drive a bunch of offers they can take to the bank.  The problem is, that banks are getting tired of agents underselling homes and are suspicious that the buyer may be related to either the agent or the seller.  Therefore, they come back with a higher counter or just foreclose.  Unfortunately, the house sits on the market for the 6-9 months the agent is trying to get the short sale approved and brings down the value of all the homes around it.  I spoke to one agent this weekend who had done this (and received so many calls she finally would only schedule appointments by text) and her position was that she wasn’t worried about the neighborhood but only about her client.  What she didn’t realize is that this is a tactic that doesn’t w ork anymore and only hurts everyone involved.   I think as agents, we have the responsibility to do the best we can for our clients and that we can do that in a way that doesn’t destroy neighborhood values.  However, we have very low standards of entry into real estate and not all agents share this view.  If you know someone thinking of a short sale, let them know that the banks are not blindly accepting offers significantly below market price and if they just list slightly below market, they will get the offers they need.
• We have noticed a big change in lender negotiating of short sales in the last 6 weeks.  Lenders are insisting on seeing owners IRA and 401k statements even though they cannot legally go after that money.  The strategy the banks are using is that if they own the second loan and turn down the short sale causing the first lender to foreclose, the second loan can chase the borrower for the money they have lost (as long as it isn’t purchase money).  They are betting that the borrower will dip into their retirement for a portion of the loan in exchange for not being chased for years. 
• While this is troubling, I don’t find it unethical by the banks.  After all, the borrower promised to pay the loan back and the bank can negotiate as hard as they want – just make sure you have a good negotiator on your side if you are looking at a short sale.
• I believe we are at the beginning of a trend where the banks are going to be harder on defaulted borrowers.  I think that initially they were fearful that the Obama led government would come down hard on them if they did not cooperate with loan modification programs.  But now that the Home Affordable Program is looking like a pretty solid failure and Obama has lost a lot of his political power, I think the banks are getting bolder in going after people who owe them money and are not paying.  Make sure you have a good legal and negotiating team on your side when taking on your bank.

Ok, we have some new listings coming out this week, but I will wait until we have photos to show you – weather permitting, that will be next Monday.

So, enjoy the Coffee!  This time it is once again by way of my Dad in Arizona (and no, I did not check it on Snopes, it is a good story regardless!)

RED MARBLES

I was at the corner grocery store buying some early potatoes.  I noticed a small boy, delicate of bone and feature, ragged but clean, hungrily appraising a basket of freshly picked green peas. 

With loving gentleness she lifted the lifeless fingers of her deceased husband. Resting underneath were three exquisitely shined red marbles. 

I was at the corner grocery store buying some early potatoes.  I noticed a small boy, delicate of bone and feature, ragged but clean, hungrily appraising a basket of freshly picked green peas. I paid for my potatoes but was also drawn to the display of fresh green peas. I am a pushover for creamed peas and new potatoes. Pondering the peas, I couldn’t help overhearing the conversation between Mr. Miller (the store owner) and the ragged boy next to me. ’Hello Barry, how are you today?’ ’H'lo , Mr. Miller. Fine, thank ya. Jus’ admirin’ them peas. They sure look good.’ ’They are good, Barry. How’s your Ma?’ ’Fine. Gittin’ stronger alla’ time.’ ’Good. Anything I can help you with?’ ’No, Sir. Jus’ admirin’ them peas.’ ’Would you like to take some home ?’ asked Mr.. Miller. ’No, Sir. Got nuthin’ to pay for ‘em with.’ ’Well, what have you to trade me for some of those peas?’ ’All I got’s my prize mar ble here.’ ’Is that right? Let me see it’ said Miller.. ’Here ’tis. She’s a dandy.’ ’I can see that.. Hmmmmm, only thing is this one is blue and I sort of go for red. Do you have a red one like this at home ?’ the store owner asked. ’Not zackley but almost..’ ’Tell you what. Take this sack of peas home with you and next trip this way let me look at that red marble’.. Mr. Miller told the boy. ’Sure will. Thanks Mr. Miller.’ Mrs. Miller, who had been standing nearby, came over to help me.. With a smile she said, ‘There are two other boys like him in our community, all three are in very poor circumstances. Jim just loves to bargain with them for peas, apples, tomatoes, or whatever. When they come back with their red marbles, and they always do, he decides he doesn’t like red after all and he sends them home with a bag of produce for a green marble or an orange one, when they come on their next trip to the store..’ I left the store smiling to m yself, impressed with this man. A short time later I moved to Colorado , but I never forgot the story of this man, the boys, and their bartering for marbles. Several years went by, each more rapid than the previous one. Just recently I had occasion to visit some old friends in that Idaho community and while I was there learned that Mr. Miller had died. They were having his visitation that evening and knowing my friends wanted to go, I agreed to accompany them. Upon arrival at the mortuary we fell into line to meet the relatives of the deceased and to offer whatever words of comfort we could. Ahead of us in line were three young men. One was in an army uniform and the other two wore nice haircuts, dark suits and white shirts….all very professional looking. They approached Mrs. Miller, standing composed and smiling by her husband’s casket. Each of the young men hugged her, kissed her on the cheek, spoke briefly with her, and moved on to the casket.. Her misty lig ht blue eyes followed them as, one by one; each young man stopped briefly and placed his own warm hand over the cold pale hand in the casket. Each left the mortuary awkwardly, wiping his eyes. Our turn came to meet Mrs. Miller. I told her who I was and reminded her of the story from those many years ago and what she had told me about her husband’s bartering for marbles. With her eyes glistening, she took my hand and led me to the casket. ’Those three young men who just left were the boys I told you about. They just told me how they appreciated the things Jim ‘traded’ them. Now, at last, when Jim could not change his mind about colour or size…..they came to pay their debt.’ ’We’ve never had a great deal of the wealth of this world,’ she confided, ‘but right now, Jim would consider himself the richest man in Idaho.’ With loving gentleness she lifted the lifeless fingers of her deceased husband. Resting underneath were three exquisitely shined red marbles. 

Have a Great Week!

Scott Voak

Monday Morning Coffee – How does Greece affect your mortgage?

Monday Morning Coffee

Greece Defaulting Could Ripple into Your Mortgage

February 14, 2010

Good morning,

I hope you had a very nice Valentines Day.  We celebrated a day early and enjoyed a quiet night at the Rancho Bernardo Inn (no 6:00 am wake-up!)  I’ve been reading a lot of various “experts” talk about what direction the market is going to go.  What I have found is the stock analyists in general say we’re going up (they sell stocks, so that makes sense).  People in the bond market say we’re going down (also makes sense as they want to sell bonds).  People selling gold, well they’ve been saying the end is near since just about the begining.  So, I don’t have any answers at this point, but I sure don’t feel very comfortable with rising debt, Greece potentially defaulting and the end of the stimulous around the corner.  My guess is that the Fed steps in and extends (although at about 1/2 the rate) the purchase of mortgages in an effort to provide a soft landing for the real estate market.

I was spending some time trying to write out in easy terms how we got into this mess (mostly hoping it would help me see how we were going to get out of it).  After about 6 hours, a client showed me a very cool web site (if he had come in the day before, I could have saved the 6 hours!).  This is the best description I have seen for how we arrived where we are today, and it is done at about the 8th grade level.

We have a new site up for our listing in the Garden Gate community of 4S Ranch.  We started showing this 4 bedroom, 2300+ sf home yesterday and currently have one offer in.  If you know someone who would be interested, please have them call me!

We also have a great 3 bedroom condo in Pacific Beach for rent.  It is located on Crown Point with a view of the water.

That’s it for this week.  Enjoy the coffee!

Just Five More Minutes
  by: Author Unknown, Source Unknown

While at the park one day, a woman sat down next to a man on a bench near a playground.

“That’s my son over there,” she said, pointing to a little boy in a red sweater who was gliding down the slide.

“He’s a fine looking boy” the man said. “That’s my daughter on the bike in the white dress.”

Then, looking at his watch, he called to his daughter. “What do you say we go, Melissa?”

Melissa pleaded, “Just five more minutes, Dad. Please? Just five more minutes.”

The man nodded and Melissa continued to ride her bike to her heart’s content. Minutes passed and the father stood and called again to his daughter. “Time to go now?”

Again Melissa pleaded, “Five more minutes, Dad. Just five more minutes.”

The man smiled and said, “OK.”

“My, you certainly are a patient father,” the woman responded.

The man smiled and then said, “Her older brother Tommy was killed by a drunk driver last year while he was riding his bike near here. I never spent much time with Tommy and now I’d give anything for just five more minutes with him. I’ve vowed not to make the same mistake with Melissa.

She thinks she has five more minutes to ride her bike. The truth is, I get Five more minutes to watch her play.”

Have a Great Week!

Scott Voak

Monday Morning Coffee – What happens when the Fed stops buying Mortgages?

Monday Morning Coffee

What Happens when the Fed stops buying MSBE’s?

Januray 17, 2010

Good morning,

I hope you had a great weekend.  We were very busy as we had 18 friends over for dinner on Friday night and went to the San Diego Association of Realtors Installation Dinner where our friend Mark Marquez was installed as President on Saturday night.  So now, it is a race for bed!

Updated my blog earlier today with a post on what is going to happen when the Fed stops buying MSBEs in March.  The short version is that the market will slow, interest rates will rise and they will step in again to resume purchases, but on a smaller scale with rates up about 1% over the year.  The long version is here.

We have a new couple of new homes this week, but due to lingering issues with the office move, I do not have single property sites up for them yet.  Both are short sales:

Palomino Plan 3 in 4S – 4550sf 6 bedroom home with a 4 car garage on a very large lot.  It is priced at $900k.  We have offers on this and will probably be off the market early in the week.

Canyon Ridge Plan 2 in 4S – 3600+ sf 4 bedroom home with an loft and an office over the garage.  This is also a large lot and has a pool (but there is an issue with underground water that needs to be dealt with or at least acknowledged).  There are no showings on this until next weekend when we will have an open house (owners are packing).  It is priced at $800k.

That’s it – I will have single property sites for them next week.

Enjoy the Coffee!

This week I am revisiting a story I posted last year for an update.  It’s the one about the autistic basketball player and hits home for Cori and I as Zach’s Fragile-X puts him on the autistism spectum.  As he is getting older, his issues are becoming more pronounced and we gain more respect every day for both our own son and other families that navigate the world of autism/Fragile-X every day.  He is almost 4, and although I prefer he take up soccer to basketball (due to my own limited skills), any way he can have a moment like this would be worth it.  Videos like this are a great source of hope for parents who have handicapped children.

Have a Great Week!

Scott

Prediction for when the Fed stops buying MBSEs

I was looking at numbers over the last year as they related to sales values to try and figure out what effect that Fed’s purchases of Mortgage Backed Securities has been.  A major problem it getting accurate numbers is that housing prices are reported as an average or median price.  In markets that are consistent, this is a good method to use.  However, when the market changes (as it has recently) the median price especially becomes less and less meaningful.  Here’s a quick explanation:

Let’s say there are 10 houses that sell. 

• 4 are two bedroom homes that sell for $200k.
• 2 are four bedroom homes that sell for $400k.
• 4 are six bedroom homes that sell for $600k. 
• In this case, your median price is $400k (median is the price of the average home, not the average price of homes). 

 Now, let’s say the price for each home increases $50,000.  However, due to a factor such as loans being difficult or no inventory being available on 6 bedroom homes, we sell the following homes:

• 4 two bedroom homes for $250k.
• 2 four bedroom homes for $450k.
• 1 six bedroom home for $650k.
• In this case, your median price is $250k. 

Here is a simplistic example showing that the median price fell even though the price on every home increased.  It is also the reason why current data on housing prices is to be viewed a little skeptically.  My guess is that the data on median prices is under reporting the gain in housing because the shift has been towards more less expensive homes selling which brings the median down. 

So, I looked at my favorite housing micro-economy, 4S Ranch.  Here I can break houses down to similar sizes and ownership (condo vs fee simple) and look at what a slice of homes has done over several years.  In some of the data segments, there are not enough sales to be meaningful,  but in others, there is a large enough sample size to give a relatively clear picture.  A problem does come into play when one segment has several short sales or foreclosures in a quarter as they skew the prices downward.  Going through the home sales for the past year and trying to adjust for foreclosures, etc.  I come to the following conclusions (with reservation as this is not exact by any means and there is a good margin for error):

• Detached homes priced under $650k were up 5-12% (the 12% is a little shaky due to small sample size).  I would feel fairly comfortable saying these homes are up in general about 7% in the last year.
• Homes priced above $800k slumped early in the year, but have made it back to about even. 

I think a large part of the difference here is the fact that loans are much easier to get in the lower price ranges (in fact, all of the homes I have sold over $800k in the last year have been bought by buyers with large downpayments.  There are almost no loans above $700k to be had).  The only reason that loans below $700k are available at current interest rates is that the Fed has been buying them from the banks to the tune of many BBBBillions of dollars a week.  If this ends as scheduled in March, rates are going to have to rise for the following very simple reason – we have to entice someone else to buy the loans.  Here’s a fictional conversation between Bank of America and China:  Remember those BBBBillions of dollars of loans we sold you a couple of years ago?  We know it didn’t turn out real well for you what with all those defaults and foreclosures.  But….how about buying a couple hundred BBBBillion more?  It is not too hard to see that China (or any other buyer of mortgages) is going to want a higher return for taking on the risk.  A higher return for them means higher rates for you and me. 

So, if the Fed stops buying mortgages as planned in March, rates will rise rather quickly.  How high and how fast?  Well they have to rise high enough that the rest of the world will buy the loans, but not high enough that people stop buying houses.  Market “experts” think rates will rise between .75% and 2%.  If they rise 1.5%, it could take someone who qualifies for a $640k loan down to about a $495k loan.  That would take the wind right out of the housing market.  A buyer who has been looking at a $675k house an imagining the four bedrooms is not going to put the same payment into a three bedroom condo.  They will likely sit on the sidelines and we will see the number of transactions slow dramatically until prices fall enough to put our buyer back into a four bedroom house. 

So, do I think prices are neccessarily going to drop 20%?  No.  For the same reason I predicted in August that the Home Buyer Tax Credit would be extended – politicians are running the show.  I am not an economist, but I have at least a basic understanding of the markets.  However, I think it is fairly easy to predict what is going to happen – so, here it goes:

• Rates will start to rise in mid-late February (loans that start in mid February will be completed in mid March and have to be sold in late March, when the Fed is scheduled to stop buying them).
• By the end of March it will be pretty clear that rising rates have slowed down the housing market and talk will start fresh about a housing led double-dip recession.
• Democrats who control the entire political engine in Washington will very quickly realize that a summer recession with ever increasing unemployment and vacant foreclosed homes will translate into a lot of lost seats in the House of Representatives in the November election.
• By mid-April (if not sooner) the Fed will announce that they will resume buying MBSEs although on a smaller scale (this will be an attempt to create a soft landing).
• The market will stabilize again although we are not likely to see the same enthusiasm for real estate as we are seeing right now.  This is because the Fed eventually has to get out of buying all the mortgages the banks can write (don’t they?), and as they do, rates will slowly creep up.

Since I am making the prediction, it is sure to not happen, but I think we will end the year with mortgage rates about .75-1% higher than they are today and prices within 3-5% of where they are although they may bounce around a lot before settling down.

When the Music Stops – Tax Credit

Another important component when considering the real estate market for 2010 is the tax credit that runs through the first quarter of next year.  According to the National Association of Realtors, over 40% of home purchases in the third quarter of 2009 were motivated by the tax credit.  The tax credit combined with the artificially low interest rates (see my last post on interest rates) are encouraging people who might otherwise buy in the next two years to buy now.  These buyers have been responsible for the surging demand that has helped the market recover some of its lost ground at the entry level (I am writing generally about California and specifically about San Diego County).

This has been fantastic for a number of reasons:

1. The rising real estate market has helped the emotional state of economy and provided hope that things are getting better – with that hope, people may spend a little more which will help the economy further.
2. The rising prices at the low end of the market may allow some people to re-finance their homes when their rates adjust in the next few months as increased prices mean an incease in equity.
3. The increase in transactions has helped those of us (like yours truly) who sell real estate be able earn an income and not have to get a real job (since my last job as a busboy in high school didn’t work out so well, this is by far the most important result of the rising market).

However, there is a downside.  If buyers who would normally make their first home purchase over the next two years are buying now, who is going to buy in the next two years?  I think that when the tax credit expires, we are going to find that the demand is going to slow down and be lower than expected for one to two years (for a parallel example, look at the car industry which did great with Cash for Clunker when people who might have bought a car over the next year and an incentive to do it earlier – however the following months have disappointing as the people who would normally be buying now have already purchased).

Will this in and of itself be a disaster?  I don’t think so.  However, combined with tighter financing and higher interest rates I think that it will be a serious drag on the market.

By now you are saying, “This guy isn’t too bright.  He needs to sell houses because he can’t bus tables and yet he’s saying the market could be in for a downturn.”  Well, you’re right.  But those of you who know me are aware that I am comfortable losing a sale if it means I am honestly letting you know what I think the market is doing.  I lost a lot of buyers in 2005-2007 because I was honest about where I thought the market was going.  That doesn’t mean you shouldn’t buy (and for many people who bought in 2005-2007 it was the right move).  I am still saying the same thing now I was then:  If you are buying a home to put down roots and raise a family, you should do so.  If you are buying a home for two years, think carefully.

I think the combination of currently low interest rates and easy financing make it a great time to buy a home.  Just be sure you get yourself in a 30-fixed loan and get the best interest rate you can.  Also, buy a home that will work for 7-10 years.  Although I would love you to buy another in 2 years, that is not a smart plan of action right now.  If you are newly married and planning a family in 2 years, buy a 3 bedroom so you can grow into it.  Maybe you won’t need to stay in the home for 7 years.  Maybe I’m wrong and the market will keep shooting up.  Great – turn it into a rental if that happens.  Think conservatively at this point as the market direction for the next two years is murky at best.

Monday Morning Coffee

Monday Morning Coffee 

November 16, 2009

 Good morning! 

I hope you had a great weekend.  We went to a Brewmaster’s Dinner with some good friends and had a great time.  Of course, five different high octane beers paired with dinner on Saturday meant it was a lllooonnnggg Sunday with a 3-year old.  Last week I mentioned I was going to try and break down the foreclosure market and what I want to do is look at each different type of loan and when they re-set and project the number of foreclosures vs modifications to create a timeline that might give us an idea how long the housing “crisis” will last.  I had two problems with getting this done last week.  The first is that finding the detailed data has been very difficult and second, the data that is available is about to be updated with Q3 numbers, so it doesn’t make sense to use 5 month old information.  So, I will keep trying to put it together and hopefully have it in the next couple of weeks.

Now that the First Time Home Buyer’s Tax Credit has been extended, I think the changes they made to it are going to be very positive for values in the short term.  By applying the law to people who have owned a home recently and allowing the maximum income for a couple to reach $225k before they lose eligibility, we might extend the market gains we are currently seeing on homes under $625k up to homes in the $800k level.  Let’s hope so anyway.

Nothing new on the market this week although we are talking to a couple of people about putting homes on the market in early January.  We do have one offer in on the short-sale home we showed last week and are planning on taking it to the bank early this week.  If anyone else wants to get in and see a 4 bedroom in 4S for under $600k, let me know.

That’s it.  Enjoy the Coffee!

I am a week late with this one.  This was supposed to run last week for Veteran’s Day at the request of Kim (who keeps things running smoothly around here).  She recently married Brian, a Marine pilot who is heading for Afghanistan in a couple of weeks.

Ten Tenors Tribute to the Military

Have a Great Week!

Scott Voak

858 688 0189

Monday Morning Coffee -

Monday Morning Coffee – Tax Credit Extended

November 2, 2009

Good morning,

I hope you had a great weekend.  Just a couple of quick notes – a few weeks ago I mentioned that I thought the government would extend the first time home buyer’s tax credit in an attempt to keep the economy rolling so they can keep their agenda moving.  I also said it wouldn’t be done until late October or early November.  This time, I was right on both counts as it was passed by the Senate last week and is expected to get Obama’s signature this week. 
Don’t know if you caught this on the news, but this guy had the market pegged.  Cori said he’s pretty good looking too.

We accepted an offer on one of our silent short sales in 4S, but still have a very nice condo in Torrey Highlands (3 beds, 2,000 sf with about 400sf of additional storage off the garage that is not included in the sf).  If you are interested, please let me know.

We also will have a short sale in 4S listed this week.  4 beds, 2344sf in Garden Walk.  Let me know if you would like an early peak at it.

Enjoy the Coffee!

How To Love Yourself

Stop All Criticism – Criticism never changes a thing. Refuse to criticize yourself. Accept yourself exactly as you are. Everybody changes. When you criticize yourself, your changes are negative. When you approve of yourself, your changes are positive.

Don’t Scare Yourself – Stop terrorizing yourself with your thoughts. It’s a dreadful way to live. Find a mental image that gives you pleasure (mine is yellow roses), and immediately switch your scary thought to a pleasure thought.

Be Gentle And Kind And Patient – Be gentle with yourself. Be kind to yourself. Be patient with yourself as you learn the new ways of thinking. Treat yourself as you would someone you really loved.

Be Kind To Your Mind – Self hatred is only hating your own thoughts. Don’t hate yourself for having the thoughts. Gently change your thoughts.

Praise Yourself – Criticism breaks down the inner spirit. Praise builds it up. Praise yourself as much as you can. Tell yourself how well you are doing with every little thing.

Support Yourself – Find ways to support yourself. Reach out to friends and allow them to help you. It is being strong to ask for help when you need it.

Be Loving To Your Negatives – Acknowledge that you created them to fulfill a need. Now, you are finding new, positive ways to fulfill those needs. So, lovingly release the old negative patterns.

Take Care Of Your Body – Learn about nutrition. What kind of fuel does your body need to have optimum energy and vitality? Learn about exercise. What kind of exercise can you enjoy? Cherish and revere the temple you live in.

Mirror Work – Look into your eyes often. Express this growing sense of love you have for yourself. Forgive yourself looking into the mirror. Talk to your parents looking into the mirror. Forgive them too. At least once a day say: “I love you, I really love you.”

Love Yourself .. Do It Now – Don’t wait until you get well, or lose the weight, or get the new job, or the new relationship. Begin now — and do the best you can.

– Louise L. Hay Educational Institute

Have a Great Week!

Scott Voak

858 688 0189

Monday Morning Coffee

Monday Morning Coffee

Concentrated Benefit vs. Diffuse Harm

October 26, 2009

Good morning!  I hope you had a great weekend.  On the real estate side of things, the market is still slowly shrinking with 8397 total active listings in the county (not including mobile homes).  This continues to fall by 50-100 each week.  I received some interesting articles last week relating to the economy and real estate in specific. 

  The first one was the monthly report from Foreclosure Radar for September.  They looked at all the homes that have been taken back statewide and compared them to the number of homes the banks have sold.  They came up with a couple of interesting conclusions:

• There is no shadow inventory.  The banks are selling all that they are taking back.  The banks have been reducing their inventory over the past several months as demand has grown and the number of homes they have foreclosed on has gone down (due to delays caused by various moratoriums and the Home Affordable Modification Program). 

• The number of scheduled Trustee Sales has increased, indicated that the Home Affordable program may have delayed foreclosures while banks investigated modifications, but has not seriously halted the foreclosures – they are still coming.

 The second article was the text of a speech given by David Einhorn of Greenlight Capital.  He pointed out that there are two major flaws with our current system of government when trying to deal with an economic crisis such as we are in now:

 1.      Officials favor policies that have short term impacts over policies that will do the most good long term.  This is because they get elected based on short term results and won’t be around for the consequences (easy enough for even a Realtor like me to understand).

 2.      Concentrated Benefit vs. Diffuse Harm.  Also known as special interests – and the banks are using this to their advantage.  For those of you who weren’t aware of the problem (lol), imagine that your child goes to school with 19 other kids.  One of the kids can’t afford lunch, so the teacher asks each other student to bring him lunch every 19 days.  Now, we all believe it is good for all kids to have lunch and we each only have to make an extra lunch every 19 days, so we all agree (this is called charity, neighbor helping neighbor and was how it was done when our parents were kids).  Then, another child needs a lunch and of course, since we are caring parents, we all chip in – now we are making an extra lunch every 9 days.  Two more kids need lunch, we all pitch in and 16 of us are making an extra lunch every 4 days.  Now, here is where it becomes a problem.  The parents of the four kids getting the free lunches have a lot more interest in the free lunches than the 16 parents who make an extra lunch every four days, so the 4 parents band together and get the school to declare that the lunches you make must be of a certain quality and since we can’t be counted on to make them, we should just send the school enough money and the school will make them (this is called welfare).  Well, they aren’t that efficient and it costs them more money to make them that it does us, so the cost goes up.  The school is worried that we will get tired of supporting the program, so the principal starts to send home notices telling us we need to “step up and do our part”.  Then more parents decide they want in and pretty soon 12 parents are supporting all 20 kids.  (If this sounds familiar, that’s because 12 out of every 20 in the US population pays 100% of the federal income taxes). Eventually, the “lunch makers” become overworked (taxed) and the school prints IOUs to pay for the lunches thinking someone else will pay it back sometime later when someone else has to worry about it (this is called passing the buck and is how it is done now).  What some people are worried about is when taxes are high enough that your income all goes to buy lunch for kids whose parents don’t want to work, everyone stops working.  (I have many right wing friends and left wing friends and am not going to get into the free market vs socialism argument, this is more about how in a democracy as people vote themselves more benefits the system gets weighed down). 

The article goes onto discuss the differences between what the government is saying and what it is doing. With President Obama advocating the end of “too big to fail” and Secretary Geitner creating systems that protect the big from failing by moving the risk to the people while keeping the profit with the (bank, hedge fund…)  He goes into a lot more technical detail, but suffice to say while the first article had me happy that the market was absorbing all the current foreclosures, the second had me more worried about the overall economy three years out.

 Ok, back to cheerful real estate – I have the web site up for our downtown condo with Ocean Views that we listed last week.  A couple of you had expressed an interest, so if you would like to see it, please let me know.

 I will have more information on the silent short sales we listed last week, but that will have to wait a week.

 Enjoy the Coffee! 

The Wooden Bowl

 A frail old man went to live with his son, daughter-in-law, and a four-year old grandson. The old man’s hands trembled, his eyesight was blurred, and his step faltered. The family ate together nightly at the dinner table. But the elderly grandfather’s shaky hands and failing sight made eating rather difficult. Peas rolled off his spoon onto the floor. When he grasped the glass often milk spilled on the tablecloth. The son and daughter-in-law became irritated with the mess. “We must do something about grandfather,” said the son. I’ve had enough of his spilled milk, noisy eating, and food on the floor. So the husband and wife set a small table in the corner. There, grandfather ate alone while the rest of the family enjoyed dinner at the dinner table. Since grandfather had broken a dish or two, his food was served in a wooden bowl. Sometimes when the family glanced in grandfather’s direction, he had a tear in his eye as he ate alone. Still, the only words the couple had for him were sharp admonitions when he dropped a fork or spilled food. The four-year-old watched it all in silence.

 One evening before supper, the father noticed his son playing with wood scraps on the floor. He asked the child sweetly, “What are you making?” Just as sweetly, the boy responded, “Oh, I am making a little bowl for you and mama to eat your food from when I grow up.” The four-year-old smiled and went back to work. The words so struck the parents that they were speechless. Then tears started to stream down their cheeks. Though no word was spoken, both knew what must be done. That evening the husband took grandfather’s hand and gently led him back to the family table.

For the remainder of his days he ate every meal with the family. And for some reason, neither husband nor wife seemed to care any longer when a fork was dropped, milk spilled, or the tablecloth soiled. Children are remarkably perceptive. Their eyes ever observe, their ears ever listen, and their minds ever process the messages they absorb. If they see us patiently provide a happy home atmosphere for family members, they will imitate that attitude for the rest of their lives. The wise parent realizes that every day that building blocks are being laid for the child’s future.

Let us all be wise builders and role models. Take care of yourself, … and those you love, … today, and everyday!

Have a Great Week!

 Scott