Resale Numbers Dissappoint – but…  HAMP was a Success!

NAR released the July home resale numbers, and as predicted, they fell significantly.  The fell far below analysts expectations, and even farther that I predicted in my Coffee on Monday.  Here are two graphs that illustrate the results (once again taken from www.CaluclatedRiskBlog.com)

This first one shows home sales by month (resale homes only):

Existing Home Sales Slump in July

You can see the trend was clearly down until early 2009 when the administration stimulated the housing market with the tax credit.  Sales spiked in November of 2009 with the scheduled expiration of the tax credit and then again early this year with the real end of the tax credit.  Now, we have resumed the downard trend.  Based on August numbers in the San Diego market so far (I know, small sample size), it looks like things may get a little worse (July sales were down in San Diego 20% from a year ago and I think August will be down about 24%), I will look at the numbers more closely in next week’s Coffee. 

With the combination of slower sales and more homes being put on the market by builders (new construction spurred by the short term rise in demand), banks (more aggressively processing foreclosures), and individuals (summer season sees more homes offered for sale), inventory as measured by months of sales, spiked:

Nationwide Inventory Jumps to over 12 months

Ouch, that’s a big jump.  Inventory rising that quickly in one month is a bad indicator.  Plus, as foreclosures will continue to be put on the market, this number could grow to 14-15 months.  Inventory levels over 6-7 months usually result in lower prices.  Fortunately, we are in much better shape here in San Diego with inventory levels still under 5 months.  However, significantly lower sales levels in August will drive that number up.

I found an interesting article about a meeting at the Treasury between top players there (including Geitner) and several prominent bloggers.  You can see the article here.  The blog this is taken from is www.interfluidity.com.  The interesting part was when they addressed HAMP, you know, the Home Affordable Modification Program.  While it has been considered by most to be a failure, the Treasury thinks it was a success because it basically pushed the foreclosure problem down the road 3-6 months so the banks could recover.  The argument was that if all the homes had been foreclosed on instead of going through the delay, the system might have failed:

The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

It’s an interesting take, and correct from the standpoint that it helped the system.  Isn’t it interesting that when the politicians sold it to us, they emphasized the saving of people’s homes rather than saving the system.  Also a sidelight to watch is  now that the stimulus is over, we are seeing the foreclosures that were delayed by HAMP start to be processed just as demand is falling.

Monday Morning Coffee

New Listings Plus Home Sales Data out Tomorrow

Good morning,

I hope you had a nice weekend.  Mine was interupted by something called the Security Tool virus.  A bundle of joy that took 5 hours to fix (of course, I didn’t fix it – luckly, I have a client who is much more familiar with network security who spent a good part of his weekend fixing it.  Thanks Marc!)  I did find time to work with Cori and make our first ever batch of jam from our tree (golden nectarines).  The good news is it tastes good and the jars sealed.  The bad news is it didn’t jell, so we have lots of golden nectarine sorta jelly runny stuff.  Oh well.

This week, the big real estate news will come on Tuesday when the National Association of Realtors announces the Existing Home Sales for July.  Last month was off a bit as the affect of the tax credit started to appear.  This month, I expect it to be off a lot.  The “experts” are predicting a rate of 4.65M annual sales (June was 5.27M).  I think that the number will be closer to 4.0M – in which case the stock market will probably react negatively as a number that low could be seen as a strong indicator of a double dip in housing.

We do have two new listings this week, but they aren’t the two I thought we would have (there is also a home that fell out of escrow:

• A 2 bedroom condo in Point Loma.  This home will be vacant in a couple of weeks and I will get photos and more information to you then.  We have not priced it yet as a lot can change by the time we get ready to go on the market.
• A 3 bedroom home in Sabre Springs with open space behind it.  This is on a sought after street and will be a great home.  We are going to need to paint it and do a few touch ups, but it is a relocation, so it may take a week or two to get going.
• The home we had fall out of escrow is  a short sale on the north side of 4S Ranch.  It is a 4 bedroom homes with almost 3,500 sf of living space.  The approved price for the short sale is $700k with a credit to the buyer.  It fell out of escrow – this is a good one – because the family buying it lives in China and the wife can’t get to the consulate in Beijing to sign documents and won’t be in the US for a couple of months (arrghhhh!)

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

Time

Time is an equal opportunity employer. Each human being has exactly the same number of hours and minutes every day.

Rich people can’t buy more time. Scientists can’t invent new minutes. And you can’t save time to spend on another day.

Even so, time is amazingly fair and forgiving. No matter how much time you’ve wasted in the past, you still have an entire tomorrow.

Success depends upon using it wisely – - by planning and setting priorities. Time is worth more than money, and by killing time, we are killing our own chances of success.

Author Unknown.

Have a Great Week!

Scott Voak

Updated Government Foreclosure Data

This week, the government released some updated foreclosure date from Q2.  These charts are re-prints from a blog I subscribe to called CalculatedRisk.   It can be found at www.CalculatedRiskBlog.com  I highly recommend it as the person who runs it does a pretty good job of assimilating different economic data.  Even if I don’t always like it, which brings me to the following charts:

Government Guaranteed and Owned Foreclosures

This first chart shows that Fannie, Freddie and FHA are now the proud owners of almost 250,000 homes (this is not all the foreclosures, just the ones taxpayers are on the hook directly for).  The number is increasing as banks are processing more foreclosures for people who just don’t qualify for a loan modification. 

This next chart taxes it a step farther and is really what caught my attention, it shows how many people are upside down on their mortgages.  This is important because if the economy were to go into another recession, these are people who have less incentive to hold onto their homes.  I look at it as the worst case, since anyone with positive equity would try to sell and avoid foreclosure. 

Almost one-third of homeowners are underwater

 The number are scary – 30.6% of homeowners under water and a total of almost $2.4B under water (this is just the portion of their loan in excess of the home value).  Also, these are first mortgages; more people are under water if you consider their second mortgages also.  But, it’s not all bad.  The next chart made me happy I don’t live in Nevada!

Negative Equity by State

Ouch.  California doesn’t look as bad as some of these other states.  And, for those of us in San Diego, we’re better off than most of California.

 Combining all three of these charts, it is evident that the housing recovery is tenuous at best.   Combined with the slowing pace of sales after the tax credit expiration I believe it is cause for concern.

Monday Morning Coffee

OCC and OTS Mortgage Metrics Report for Q1, 2010

Good morning,

I hope you had a great weekend.  Ours was a nice, quiet one with nothing remarkable – which seems in itself, remarkable. 

Every quarter, I have gone through the report from the Treasury department on the mortgage market called OCC and OTS Mortgage Metrics Report.  The report usually comes out about a quarter after the data it is reporting as it takes awhile to compile it.  I have to confess, that I received the report in early July, but did not look at it until last week.  I am not going to go into as much depth as I usually do because the report was mostly more of the same, but here are a few highlights and lowlights:

• Delinquency rates dropped during the first quarter on all loan types (Yea!)
• The number of foreclosures increased substantially (Boo!)
• Modifications and other retention actions also increased (Yea!)
• Re-default rates for modified mortgages remains high (over 50% are 60+ days late after 12 months) (Boo!)

The last detail I took out of the report has the potential to be good news.  Modifications done in the last 3 quarters have had a lower re-default rate than those done previously.  This is because lenders are working harder to create a significant difference in payments when loans are modified now than in the past.  However, the difference in the re-default rate gets less and less the farther out from the modification date.  In other words, it is possible, that the new modifications are only delaying the re-defaults and not eliminating them.  We won’t know for sure for another couple of quarters, but at least there’s a possibility the efforts might be succcessful.

We don’t have any new listings this week, but are working on a smaller detached home in 4S for next week.

That’s it, enjoy the Coffee!

This week, the Coffee is not a motiviational or inspirational story, I am venturing out on a limb.  I read something a couple of weeks ago that really made me angry.  I try and walk a fairly neutral political line as I have friends and family who are both on the far right and the far left.  I tend to sit in the camp that distrusts most politicians from all parties.  I definitely am in the group that doesn’t care for large political action commities or lobbies (yes, I am aware I am a Realtor and we have one of the strongest of all – that doesn’t mean I think it’s right).  This particular story is a prime example of one lobby putting its members above the children they are supposed to help.  It may be old news to many of you, but for the life of me, two weeks after first reading it, I still don’t get it.

The education debacle of the decade

By Bob Ewing | Published: 3:30 PM 07/06/2010

Dr. Patrick Wolf spoke to a packed audience in the Capitol Visitors Center last Monday.

The seats were full and people stood all along the edges of the room, even spilling out into the hallway.  We all came to hear him explain his latest research on the tiny education program that has caused a national uproar—arousing so much passion that African-American leaders from around the country recently gathered downtown to engage in an act of civil disobedience.

The Department of Education commissioned Wolf to conduct a series of detailed studies on the results of the Washington DC Opportunity Scholarship Program (OSP).  Established in 2004 as a five-year pilot program, OSP is among the most heavily researched federal education programs in history.

OSP targeted about 2,000 of the poorest kids in DC who were stuck in some of the worst schools in the country.  It gave their parents a $7,500 scholarship to attend a private school of their choice.

The response was immediate.  Four applications were filled out for every slot available.    Parents loved the program, considering it a lifeline for their children, a way to escape failing schools and enter safe, functional schools.

Everyone knew OSP would be a bargain.  DC has among the highest spending per pupil in the nation.  At a conservative estimate of $17,542, the public schools spend over $10,000 more per child than the $7,500 spent through the scholarship program.

But would OSP achieve measureable results?

The answer is a resounding yes.  Previous studies by Wolf showed an improvement in academic performance, to the point that a student participating in OSP from kindergarten through high school would likely be 2 ½ years ahead in reading.  The key finding in this final round of research, Wolf told us, was the graduation rates.   OSP dramatically increases prospects of high-school graduation.

Wolf pointed to research showing that high-school diplomas significantly improve the chance of getting a job.  And dropouts that do find employment earn about $8,500 less per year than their counterpoints with diplomas. Further, each graduate reduces the cost of crime by a stunning $112,000.  Cecelia Rouse, an economic advisor to President Obama, found that each additional high school graduate saves the country $260,000.

Simply put, OSP has a profoundly positive effect not just on students, but on the city and the country as a whole.

So when it came time for Congress to reauthorize OSP, it would seem to be a no-brainer:  Expand the program.

Instead, they killed it.

Buried deep inside a 1000+ page, half-trillion-dollar spending bill was a provision that prohibited any new students from entering the program.  To top it off, the 216 new students added to OSP for the new academic year were pulled out by Education Secretary Arne Duncan just before the school year started.

Why did this happen?  According to former DC Mayor Anthony Williams and former DC Councilman Kevin Chavous (both Democrats), the answer is politics at its worst.

Williams and Chavous co-authored an op-ed arguing that politicians opposing OSP “are largely fueled by special-interest groups that are more dedicated to the adults working in the education system than to making certain every child is properly educated.”

The editorial board of the Washington Post put it a little more bluntly:

It’s clear, though, from how the destruction of the [OSP] program is being orchestrated, that issues such as parents’ needs, student performance and program effectiveness don’t matter next to the political demands of teachers’ unions.

The Post board also wrote that “the debate unfolding on Capitol Hill isn’t about facts.  It’s about politics and the stranglehold the teachers unions have on the Democratic Party.”

As it turns out, the teachers unions are the single largest contributor to federally elected politicians, with the vast majority of their funds going to Democrats.  The teachers unions don’t like programs like OSP because when parents have the freedom to choose, they may choose schools that don’t have unionized teachers.

DC Congresswoman Eleanor Holmes Norton was one of the principal opponents of OSP and was instrumental in ending the program.   Guess who her largest donor is?  (American Federation of Teachers.)

The three main critiques of OSP are that it takes money away from the public schools, is not accountable and does not provide a cure-all solution to improving education.  None of these critiques has merit.

First, OSP takes no money away from public schools.  By stark contrast, it pumps millions of dollars into the public schools. OSP is funded with new federal money as part of a plan that allocates matching funding directly to the public schools.  So for every dollar that goes to OSP, the public schools get an extra dollar.

Plus, the public schools get to keep all the money saved through OSP.  This means that in addition to the matching funds, the public schools receive over $10,000 for every child in OSP—children that the public schools do not have to educate.  Also worth noting, the Education Secretary has a $159 billion budget with billions going to education programs that are unproven.

Second, OSP is truly accountable.  Parents care about the welfare of their individual children more than any politician or bureaucrat. The parents are overjoyed with the program, unlike their prior dissatisfaction with the DC public schools they are desperate to escape.

Third, DC kids need help right now and OSP provides it.  Systemic reform takes time, and while we all should support and applaud recent efforts to reform the public schools, it will be years before they perform as well as the private schools that the OSP students attend, if they ever do.  That is, children in school today need help today.  They cannot wait for years or decades for reform to hopefully come.  

To his credit, Education Secretary Arne Duncan acknowledged that the OSP students are “safe and learning and doing well.” He argued, “We can’t be satisfied with saving 1 or 2 percent of children and letting 98 or 99 percent down.”
The obvious answer would seem to be to expand OSP and “save” more kids, not shut it down and force 100 percent of DC students to be “let down.”

When Congress killed OSP, there was a national backlash.  Editorials in papers across the country denounced the decision.  Thousands of kids from several states rallied on Capitol Hill to save the program.  Black leaders gathered in an act of civil disobedience before the front doors of the Department of Education.  They pointed out that just about half of African-American and Latino students are graduating from high school today and the OSP students are almost completely African-American and Latino.

Even the DC public-school chancellor supported OSP and told Congress that the public schools would likely not be able to reabsorb the students and give them the same quality education.  The DC City Council went so far as to petition Arne Duncan to reverse his decision.

Duncan understands the importance of school choice.  He famously said that “my family has given up so much so that I could have the opportunity to serve; I didn’t want to try to save the country’s children and our educational system and jeopardize my own children’s education.”  So he chose to send his kids to public schools in Virginia rather than DC.

In fact, 38 percent of Congress chooses to send their kids to private schools.  That’s four times the national average.  A vote in the Senate to save OSP was defeated 58-39.  If only the Senators who exercise school choice themselves had voted in favor of OSP, the program would have been saved.

And so OSP will end.  Thankfully, the students currently enrolled will be able to continue through to graduation.  But with no new students allowed in the program, it will die through attrition.

I’ve had the pleasure of working with the OSP parents and kids for the last four years. And I’ve come to know many of them personally, and experience firsthand their reaction to the heartbreaking news.

Latasha Bennett’s son, for example, attends an excellent school on a scholarship and he’s doing great.  Her daughter was going to attend  kindergarten at the same school, thanks to OSP.  And then Latasha got the letter from Arne Duncan stating that her daughter was being forced to leave the program.  Her son was safe, but her daughter was one of the 216.  Latasha cannot afford the school’s tuition and the charter schools were all filled up by the time Duncan’s rejection letter showed up.  So her daughter had no option but to attend the local public school, which has two-thirds of its students failing to meet basic benchmarks in math and reading.

In fact, 90 percent of the 216 kids shut out of OSP were reassigned to failing public schools.

It’s too late to save OSP.  But thankfully, elsewhere the tide is turning.  Two weeks ago a bi-partisan school choice bill was signed into law in Louisiana.  It comes on the heels of a similar program in Oklahoma and is the nation’s 20th school choice program.

People will continue to have intelligent and respectful debates about school choice and education reform.  And whether we are liberal, conservative, libertarian or independent, we can all agree that special interest groups should not be able to force politicians to kill cost-effective programs that work.

It boils down to this:  Parents deserve the freedom to choose the schools that best meet their needs.  And every child, regardless of background, deserves a quality education.  We should not dash their hopes and their futures to appease the politically powerful.

________________________

I wish I could send you in a direction to protest or that I had a great plan.  But, I am dumbfounded.  I don’t get it.  A teachers’ union did this to kids?  Maybe there’s another side to this story, but after 2 weeks, I have not seen it.

Have a great week,

Scott

New Home Sales and Case-Shiller Numbers Easily Misunderstood

This week, two important real estate numbers were reported that had a positive spin put on them that wasn’t really warranted. 

First, New Home Sales were announced for the Month of June by the Census Bureau.  Last month, the May number was reported at 300,000 homes (on an annualized basis) and the forecast was for the sales rate to be at 310,000 homes (annualized) in June, providing an average for the two months of a 305,000 sales rate.  The June number surprised to the high side, coming in at 330,000 which helped spark the market on Monday.  The problem?  The May number was revised downward to 267,000 to provide an average for the two months of 298,000 homes, LOWER than the forecast.  I don’t know why the initial forecast was off by 11% for May.  It could be that since new home sales are calculated when the contract is signed and not when the sale closes, many of the sales cancelled.  If that’s the case,  I would think that the Census Bureau would have allowed for that.  It’s a pretty big mistake, and hopefully we don’t see it again next month.  I like the fact that the government was able to put a positive spin on a negative number, but surprised that the press didn’t question it at all.

The second number was the Case-Shiller Home Prices Index that was released on Wednesday.  The 10 city composite was up 5.4% and the 20 city composite was up 4.6% compared to a year ago.  Case-Shiller is a great index and tool for tracking the real estate market and I know a lot of large banks and investors rely on it because it actually looks at sales of the same home over different periods rather than a median which changes as the size and type of home change.  This makes it a very reliable number.  The weakness is that it is not able to track recent trends.  The reason is that it is a 3 month moving average with a 2 month lag.  In other words, the numbers that were reported up on July 27th were the months of March, April and May – the end of the tax credit when people were paying more than homes were worth to capture the tax credit.  We won’t see the result of the end of the tax credit until the July, August, and September numbers come out in late November. 

So, while I welcome the good press for the real estate market, tread carefully; there was more to the story.

Monday Morning Coffee

A Sink Hole in San Diego or Why I Have to be Good at Real Estate

Good morning,

I hope you had a great weekend.  Ours was a little slow with only one open house and activity generally slow, Cori and I actually were able to see a movie – Early Grammy betting tip: Salt will not win best picture.  Those of you who have read the last couple of Coffees will remember that I am slooooowwwwlllllyyyyy converting our “spray everything including the side of the house” sprinkler system to a drip system.  Well, it slowed down again this week when I discovered a small sink hole in my back/side yard. 

Now, I am brave enough to try and conserve some water and be more efficient in my application thereof, but when it comes to undermining the integrity of the hardscape in the backyard, I draw the line.   So, I called the gardener in (he is not the same that installed the original system) and fortunately the problem was that the initial contractor did not use much glue at a specific joint and the increased pressure from capping some of the sprinklers caused the joints to slip out.  He quickly fixed it and there should be no more problems…unless there are more joints with insufficient glue. 

Hmm.  I think I will proceed slowly.

Speaking of slowly, how about that real estate market?  This morning, the Census Bureau is set to announce the number of new home sales in June.  When the May number came out is was 30 something percent under last year and increased the worry for a double dip recession.  Well, if you want to sound smart this morning – it’s going to be low again.  So show off at the coffee machine and predict about a 30-35% drop from last year with  the numbers being close to May of this year (the reason is that the tax credit sucked all the demand into the early part of the year).    The residential resale side is really slowing also (at least in San Diego).  Last July, we sold about 2,900 homes throughout the county and last month it was just over 3,000.  Right now, with five workdays to go and sixteen behind us, we have 1,591 closed.  My guess is that we close about 2,350 for the month which would be about a 20% drop from last year .  I expect the homes in escrow will be about the same at the end of the month as last month, indicating the liklihood that August will bel slow also.

With this slowdown, there are some good opportunities for patient investors – and there will be more coming down the line.  I think the end of this year will provide some excellent opportuntites for investors looking for one or two properties in San Diego.  For people buying a home, I don’t think there is a problem buying a home now, as long as you are planning on staying several years.  Yes, the market is going to go down a bit, but if you have found the right house for your family, there is no guarantee it will be there once the market falls a little, and these rates are incredible.

No new listings this week, so time for the Coffee:

A Healthy Life

  by: Jaye Lewis

I’ve never been an athlete. I’ve never been much interested in sports, ever since I stopped playing touch-football with the boys, when I hit puberty. I’ve tried tennis. I hit the ball too high, too long, and way over into left field. I’ve tried softball. Thank goodness that ball is “soft” and big, because it felt just awful when it hit me in the eye. I tried running, but I couldn’t get anyone to chase me.

I tried swimming, but even though I float like a cork, and have had numerous lessons, I can’t seem to get over the idea, that I’m really going to drown. Finally, I settled on walking, and for a number of years, I walked 3 to 5 miles a day. I realize that there is an Olympic sport referred to as “walking,” but when I tried that, all I succeeded in doing was throwing my hip out.

I’m definitely NOT an athlete, but I make do, especially in my “mid-life” years. Which brings a question to my mind. When did I hit mid-life? I remember when I hit thirty. I had to visit a grief counselor, because I knew my life was over. I remember forty. I had to see a grief counselor, the day after my first child graduated from high-school and moved out of the house, because I knew my life was over. I remember forty-four. For some reason I thought my life was over. Then I hit fifty, and I was all excited, because I was able to join an organization called AARP. My husband was, especially, excited because he is younger than I, and he got to join, too!

Fifty became the magic age. I knew that as long as I was in good health, in this day and age, I probably had a good fifty years ahead of me. Then came the asthma. O.K., I had that much earlier, but it only became life threatening after fifty. Then came the firbromyalgia. O.K., I had THAT earlier, but it’s not life threatening. Then came the arthritis, and, more recently, at fifty-five, came the diabetes. Somewhere, along in there, I became very interested in pharmaceuticals, and, finally, one day, I became free.

I began by noticing the sunsets, and I had the time to stop and really wonder, at the beauty and the magnitude of it all. Then I moved onto the sunrises, and I quickly found out that if I wasted the early morning, I missed the loveliest part of the day. Then I began to notice how grateful I was to be able to witness the changing of the seasons. The first whisper of spring; the rustling of the leaves beneath my feet, in the fall; that first breathless covering of a winter’s snow; and in the summer, all the flowers, and the buzzing of a bumblebee.

When illness would hit me, I found that I, actually, enjoyed the solitude. A time to reflect, gather my thoughts, and pray, at leisure. I found that I was “experiencing” this mid-life season, and I was no longer missing every moment, shackled to the chains of worry, and what “might” be. I found that worrying about tomorrow, only served to make me overlook the blessings of today.

It’s not always easy. A few loads of laundry, and a pile of dishes can take an entire day; but then I don’t push myself a lot. So, I forget to make the bed, as I watch the rosy glow of dawn meet the rising sun. I have time to walk our little, wooded acre with my little dachshund straining at the leash. I get to read the “signs,” with my Happy Dog, sniff the air, and gaze out at nowhere, studying the sky, with the same intensity that my little dog studies the ground.

I get to meet the day, every day. I get to say “good-night,” to the sunsets. I’ve studied a lot of sunsets, in the last five years, and I’ve never seen two that were alike. I get to know my Creator as I never have before, and I’ve gotten to make MY mind up, about the mysteries of life; and I have grown certain, that all this was no accident.

I feed the birds, and I take great delight in their multicolored hues, especially in the spring. I drag a chair to stand on, so that I can fill the feeders to the brim, myself. I say a little prayer, as I wobble, a little cock-eyed on the chair, and I laugh, at myself, and all the pretensions of my younger life. I take great delight in my life. I thank God for all the precious little things of every day. Friends. Family. Neighbors. And health. A health of the soul. For I have come to understand what real health is, and when you have REAL health, then you truly have everything.

Have a Great Week!

Scott

Monday Morning Coffee
Real Estate Slowdown Ahead

Good morning,
I hope you had a great weekend – and for those of you who extended the 4th of July weekend into a weeks vacation – congratulations. Now, get back to work:-)

The market has definitely slowed, which has allowed me to get to a couple of projects around the house. We had planted a few vegetables and we have a spaghetti squash and butternut squash plants that have taken over the side yard and are about to try and break into the house. This made me finally tackle the sprinkler system in the yard – trying to convert it to a drip so I stop wattering the house and patio. Of course, only when I got to Home Depot did I realize that I did not even know how much I did not know about what I was trying to do. Four trips back and forth and eight sprinklers (about 40 to go) have been transitioned to drip or capped off – and only three of them leak.

But I digress from the main point, and that is that the only reason I have time to do this is the market has slowed down. Two weeks ago (I took last Monday off too) I said that things felt like they were slowing down. In July of 2009, we sold over 2800 homes. So far, 6 business days into a 21 day month, we have 475 sold. Now, the homes in escrow have increased by 300 so far this month, which might indicate that closings will ramp up at the end of the month, but I still think we could be down by about 20-25%. I hope I am wrong, but it sure feels slow out there. It is moving to a buyers’ market and I think now is the wrong time to try and squeeze every last dollar out of your home if you are selling. The risk/reward of holding out over the summer is not in the sellers favor right now.

That said, we have three great listings to tell you about – should have been four, but we bucked the trend and sold one of them last week:

3 bed townhome in 4S Ranch. This home is in the Gianni complex on the north side of 4S Ranch and is impeccably updated. Walking distance to Monterey Ridge, the Gianni complex is very popular for young families with elementary aged children. The home is priced at $429k.

South 4S Ranch View Home – This is one of two homes we have on Lone Bluff Way. This home is 4 beds, 3 1/2 baths, almost 2,900sf and a great view of Black Mountain. The yard is big enough for a pool. It is priced at $720k and we have 2 offers in. It will likely be gone by Monday evening. So if you are interested, let us know ASAP.

4 bed with loft – This is the other home available on Lone Bluff Way. It has a bedroom dowstairs as well as 3 beds and a large loft upstairs. It is over 3,200 sf of living space on a great cul-d-sac on the south side of 4S Ranch. Asking price is $745k.

That’s it for this week. Enjoy the Coffee (and tell all your friends to help the market and buy a house!)

This week’s edition comes because of those darn books you read to 4 year olds. You know, the ones you can’t get out of your head. Interestingly, there is sometimes more to learn from children’s books than from “adult” books. So, here is some wisdom from Theodore Geisel:

• A person’s a person, no matter how small.
• You have brains in your head. You have feet in your shoes. You can steer yourself, any direction you choose.
• Don’t cry because it’s over. Smile because it happened.
• Today is your day! Your mountain is waiting. So… get on your way.
• If you never did, you should. These things are fun, and fun is good.
• And will you succeed? Yes indeed, yes indeed! Ninety-eight and three-quarters percent guaranteed.
• Sometimes the questions are complicated and the answers are simple.
• All alone! Whether you like it or not, alone is something you’ll be quite a lot.
• The more that you read, the more things you will know. The more that you learn, the more places you’ll go.
• Today was good. Today was fun. Tomorrow is another one.
• Unless someone like you cares a whole awful lot, nothing is going to get better. It’s not.
• I’m afraid sometimes you’ll play lonely games too, games you can’t win because you’ll play against you
• I’m sorry to say so but, sadly it’s true that bang-ups and hang-ups can happen to you
• I know up on the top you are seeing great sights, but down at the bottom we, too, should have rights.

By Theodore Geisel (aka Dr. Seuss).

Cmon, I can’t be serious every week,

Scott Voak

San Diego Home Inventory Rises – Sales Fall

*Note that this data is from the SANDICOR MLS as of July 5, 2009 and does not include homes sold by builders that were not sold through the MLS (New Construction) nor homes sold at Trustee Sale (Foreclosures).

Current numbers shown for June 2010 San Diego Home Sales indicate both a rise in supply and a drop in demand.  The combined affect is an increase inventory (as measured by months required to sell the existing homes for sale at the sales rate of the past year) of 19% over 12 months ago (although at 4.3 months, it is still not at a level that can be considered high).  The specific numbers are:

• There were 3,004 homes sold in June of 2010 as compared to 3,288 a year ago and 3,219 in May of 2010.
  • After last month’s drop in homes that were in escrow, this was to be expected.  Although, it is still dissappointing in that we all hoped the tax credit would help keep demand going through June.
• At the end of the month there were 12,175 homes on the market as opposed to 9,443 a year ago and 11,257 at the end of May, 2010.
  • This was caused by a combination of fewer homes going into escrow (lower demand) and the normal increase in inventory we see over the summer.  Both are expected as the tax credit expiring removed the urgency to purchase for a lot of first time home buyers (similar to when Cash for Clunkers expired for cars, we will likely see an extended period of below average demand for houses now that the tax credit has expired).
• Homes in escrow dropped to 4,961 from 6,862 a year ago and 5,546 in May of 2010. 
  • In the last two  months, the number of homes in escrow has dropped 23%, which points to continued slowness.
• Homes that are “Contingent” fell by 5% in June.  This is  a designation most commonly used for short sale homes that are awaiting bank approval of an offer and might mean that the banks are in fact getting better an processing short sales in a timely fashion.

Monday Morning Coffee

Successful Haircut!

Good morning,

I hope you had a great weekend.  Saturday was a milestone of sorts as it is the first time I took Zach for a haircut where he didn’t completely freak out and yell “Done! Done! Done!” from the moment we walked it.  I was so relieved he got his own hot dog at Costco.  Well, we were supposed to share it, but he figured out if he tore the bun and gave it to me, he could have the hot dog to himself. 

Saturday evening we went to Rythm and Vine with our friends John and Jean.  It was a Boys & Girls Club fund raiser with local restaurants, wineries and breweries sampling their specialties. 

The market continues to be very hot in advance of the Federal Tax Credit expiring, with lower priced homes receiving multiple offers and getting bid up over asking price.  Everyone is working like crazy to try and help people get into homes and hoping it doesn’t completely slow down once we get to May.

We were able to get two of the four homes I wrote about last week on the market.  The other two will come this week.  Here are the ones that we opened up for the first time on Sunday:

4 Bedroom in Garden Gate at 4S Ranch.  This is a 2,317 sf Plan 3 home with a full bedroom downstairs, an oversized granite island in the kitchen and a great southern exposure with a view of Black Mountain.

3 Bedroom in Garden Gate at 4S Ranch.  This is a 1,914 sf Plan 1 home with an office and full bath downstairs (the office can be used as a guest  bedroom with an armoir).  The highlight of this home is that it is the largest lot in Garden Gate and has a sunset ocean view (the ocean is a ways a way, but on a clear day, you can definitely see it).

That’s it.  Will have 3 more for you next week.

Enjoy the Coffee!

A Different Kind of Athlete

  by: Jaye Lewis, , Source Unknown

We found out that Jenny was hearing impaired, when she was four and a half years old. Several surgeries and speech classes later, when she was seven, we found out that Jenny had Juvenile Rheumatoid Arthritis.

She could not put pressure on the heels of her feet, so she walked on tiptoe, and when the pain became unbearable, I carried her. Jenny was fortunate, though, because she did not suffer the deformities, often associated with JRV.

All through grade school, and on into high school, Jenny suffered, yet never complained. She took her medicine, and I would often wrap her feet in steaming towels, and hold her until the pain eased. But, as soon as she could withstand the pain, Jenny, immediately, carried on, as though she were pain free.

She wore a smile on her face, a song on her lips, and a love and acceptance of others, that was, simply, amazing. I don’t remember her ever voicing self-pity. She ran, when she could run. She played when she could play, and she danced when she could dance. And, when she could do none of these things, she took her medicine, and she waited until she could.

Jenny, a beautiful blonde, with warm brown eyes, was never a cheerleader. She never competed in a sport. She could not even take part in a Gym Class, though she took the same health class four years in a row, just so she could pass with a substitute credit each year. She joined the band. She won a place in the Governor’s School for the Arts; yet, no one in the Charleston, South Carolina School System knew what to do with Jenny. The perimeters were, simply, not in place to deal with a student, who was both active and handicapped.

Jenny continued to have one surgery after another on her ears, all through school. Her hearing improved to 60%, and she taught herself to read lips. She carried a pillow to school, all through high school, and once, when she suddenly experienced crippling pain, her friends scooped her up, and carried her from class to class.

She was totally mainstreamed, popular, and funny, attending every football game, cheering the team on, carrying her pillow everywhere she went, so that she could cushion the pain, when she sat down. Then came her senior year. She would be considered for scholarships; however school activities, especially sports, could often mean the difference between receiving an award or losing out.

So Jenny came to a decision; and in her quirky, unorthodox manner, she began to bombard the high school football coach. She begged. She pleaded. She promised. She got her best friend to sign up with her. Finally the coach gave in, with the admonition, “If you miss ONE game, you’re out!” So, Jenny became Manager of the Garrett High School Football Team.

She carried big buckets of water to her teammates. She bandaged knees and ankles before every game. She massaged necks and backs. She gave pep talks. She was continually at their beck and call, and it turned out to be one of the best years for Garrett High School Football Team, in its twenty-five year history. Often Jenny could be seen carrying a bucket of water in each hand, nearly dragging them, along with her pillow tucked under her arm.

When asked why he thought that the team was winning all their games, even in the face of injury, one linebacker explained, in his soft, Charleston drawl, “Well, when you’ve been knocked down, and you can’t seem to move, you look up and see Jenny Lewis, limping across the field, dragging her buckets and carrying her pillow. It makes anything the rest of us may suffer seem pretty insignificant.”

At the Senior Awards ceremony, Jenny received a number of scholarships to College of Charleston. Her favorite scholarship, however, was a small one from the Charleston Women’s Club. The President of the Women’s Club listed Jenny’s accomplishments, starting with her grades, and ending with an excited, “…and the first girl to letter in football, in Garrett High School history!!”

Have a Great Week!

Scott Voak

858 688 0189

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.