California’s housing market continues to be bifurcated both geographically and demographically, with the San Francisco Bay Area and high-end housing markets outperforming other regions and market segments,” said California Association of Realtors chief economist Leslie Appleton-Young. “A strong job market and barriers to building new housing are creating an imbalance between supply and demand in some housing markets. Buyers who are not impacted by affordability issues are fueling sales in the high-end market, which is putting upward pressure on home prices.
There is not more money coming into the California real estate market, there is actually much, much less. Cash sales totaled 7,547 in August and were 22% of total sales. Cash sales have been steadily declining, down 46.2%, since reaching a peak of 14,028, or 40% of total sales in August 2011.According to Property Radar, flip sales fell 2.3% for the month and are down 36.5% for the year.
Flip sales peaked in October 2012 and have declined 38.2%.California real estate is also quickly losing the attention of corporate money.Institutional Investor purchases edged up 0.9% for the month but are down 23% from August 2013.
As the supply of distressed properties dwindle and prices rise, institutional investor demand has retreated due to the lower return on investment.In general, institutional purchases have posted consistent monthly declines since peaking in December 2012 and are down 43.9% since then. Trustee sale purchases by LLCs and LPs are down nearly 83.6% from their October 2012 peak.
A new study by the University of California, Los Angeles concludes that LA has the least affordable rental homes in America, and other reports rate California as the worst state both for renters and mortgage-payers (see map). The UCLA study reports that tenants in LA spend on average 47% of their gross income on rent—a higher share than in any other city.
Some of California’s green rules drive up rents—and hurt the environment, too. The California Environmental Quality Act (CEQA), signed by Governor Ronald Reagan in 1970, allows almost anyone to sue to block any development, and is used by the slow-growth lobby to thwart vertical expansion. “The irony is that CEQA is now preventing us from building high-rises near public transit, which would improve the environmental quality by allowing people to walk more and not use their cars,” says Richard Green of the University of Southern California.
Developers seeking to build in LA today find that they have to scale back their projects to get them built at all. Construction began on Ponte Vista, a cluster of 676 homes near the Port of LA, earlier this year. The original plans called for three times as many units, but the project was cut back after neighbours protested about the extra traffic it would bring. In February a judge struck down what he called a “fatally flawed” plan to build taller, denser buildings in some parts of Hollywood, after community groups sued under CEQA, complaining that the plan would “Manhattanise” Hollywood.
Zillow shows residents living in Orange County lose about half their income paying their rent or mortgage to live in the least affordable housing market in the U.S., see Orange County Zillow.
Everything is still down. The direction of the housing industry can be seen in the direction of median household incomes, labor force participation and wage growth — all over which are down as you can see in this graph.
Housing activity remains modest with continued declines in new home purchases juxtaposed with several months of improvement in existing home sales. Underlying the month-to-month volatility remains the inadequate momentum in the labor market; consumers remain restrained by lackluster income and job creation.
All this and mortgage rates have been falling so far this year, with the latest conforming 30-year fixed rate down to 4.24% from 4.57% a year ago. Low mortgage rates are not forcing the housing market up. Darn, I thought things were picking up.
The monetary appeal of flipping a home is starting to dissipate as the market returns to historical trends. Back in the second quarter of 2013, 6.2% of homes were flipped, compared to just 4.6% in the second quarter of 2014, according to that newest Residential Property Flipping Report from RealtyTrac.
This is also down from 5.9% in the first quarter of 2014. But when looking at home price trends, it comes as no surprise.
According to Trulia’s home price report, for the first time in more than two years, none of the 100 largest U.S. metros had a year-over-year price increase above 15% as home price increases start to decrease in pace.
“Home flipping is settling back into a more historically normal pattern after a flurry of flipping during the recent run-up in home prices in 2012 and 2013,” said Daren Blomquist, vice president at RealtyTrac.
“Flippers no longer have the luxury of 20 to 30 percent annual price gains to pad their profits. As the market softens, successful flippers will need to focus on finding properties that they can buy at a discount and efficiently add value to,” Blomquist added.
On average, investors made a gross profit of more than $46,000 per flip on homes flipped in the second quarter of 2014, a 21% gross return on the initial investment.
RealtyTrac reported that 8.1 percent of residential sales in Nevada from April through June involved homes that had been purchased and subsequently resold within 12 months. That was exceeded only by the 10.2 percent share in the nation’s capital, the real estate analytics company from Irvine, Calif., reported.
Nevada’s share of sales that involved flipped homes dropped from 9.1 percent in the second quarter of 2013. That was consistent with the national trend, with flipping in the United States hitting a two-year low.
Gross profits from flipping are also on the decline nationally, but more so in Nevada. Flippers statewide earned a mere 4.8 percent gross profit on flips based on home purchases that averaged $195,649 and sales that averaged $204,952, RealtyTrac reported. That was the lowest profit margin among 30 states whose data was available.
WHAT A LONG STRANGE YEAR ITS BEEN In the Spring of 2008, Las Vegas homeowners stopped paying their mortgage, and filed predatory lending lawsuits against their lenders alleging mortgage fraud including RESPA and TILA violations. Hundreds of those cases were filed in the Clark County State and Federal Courts. The year following those filings, testy Las Vegas judges dismissed 99% of those cases reasoning that no one, no matter what, should live for free in America.
In the Fall of 2008 laid off mortgage brokers started mortgage modification companies by the hundreds, often requiring the homeowner to pay $2,000 through $4,000 up front and in advance. But 90% of the time, the loan modification company couldn’t modify the mortgage and the home was sold at a foreclosure auction to out-of-state investors.
In the Winter of 2008, the late Keith Schwer, the former head of the UNLV economics department, took the position that the only way to end the Las Vegas Real Estate crises would be to somehow reduce the principal amount of the mortgage to the present value of the house. But a wholesale principal reduction, claimed Schwer, could have severe unintended consequences.
In the meantime, Mexican drug cartels sent their salesmen to Las Vegas to start multi-level marketing loan modification companies- just like Amway. These young men gained the confidence of the Las Vegas Hispanic community who gladly gave them their money. Likewise, pretty Filipina mortgage and real estate brokers lured other Las Vegas Asians into paying them upfront and in advance for loan modification services.
Wall Streeters and Hollywood media buyers wearing Jack Nicholson sunglasses, sent their salesmen to Las Vegas to spend millions on prime time Las Vegas TV advertisements, and spout false promises on hundreds of billboards all over the Las Vegas Valley. Websites with surreal images of Leave it to Beaver type families playing on the front lawn promised to save your home.
By Spring 2009, Hispanics and Asians became the number one group of Las Vegas people to have been ripped-off, in their native tongue, by loan modification businesses.
Over one hundred California Lawyers were charged with loan modification fraud in 2009.
In early 2009, the House of Representatives passed the infamous “Cram Down Bill” that would authorize bankruptcy judges to reduce the principal balance of mortgages for homeowners in bankruptcy. Las Vegas judges began attending meetings on how to handle the new onslaught of Cram Downs. California and Nevada lawyers began hiring more staff and scheduling Cram Down seminars.
But the Senate carved out the Cram Down provision of the bill and it died. President Obama signed the bill without the Cram Down feature in March 2009. The solution had slipped through America’s hands.
In Summer 2009, in response to a record number of Las Vegas foreclosures, the Nevada Supreme Court convinced the state legislature to pass AB 149- the Foreclosure Mediation law, which allowed more people to discuss why things weren’t working out.
The answer became clearer to more people, principal reduction was always the way.
Lenders still won’t authorize a principal reduction outside of a foreclosure or short sale, 99% of the time. But ironically, lenders have done tens of thousands of “principal reductions” in Nevada and millions nationwide as the natural result of every foreclosure trustee sale.
Continuing at an increasing rate, principal reductions will come in the form of short sales which will include the lender waiving its right to pursue the homeowner for a deficiency judgment. Expect more short sales and expect all lenders to waive the right to a deficiency judgment. Expect more foreclosures too. This is how the real estate crises will finally come to an end- through principal reductions.
Home prices continue their slow upward climb in most U.S. counties.
Despite a weak start to real estate transactions in the first quarter, home prices continued to trend higher and increased for the eleventh consecutive quarter, rising 1.3% in the first quarter of 2014, according to the Federal Housing Finance Agency House Price Index.
Compared to last year, house prices escalated 6.6% from the first quarter 2013 to the first quarter 2014. The FHFA’s seasonally adjusted monthly index for March was up .7% from February.
“Modest inventories of homes available for sale likely played a significant role in driving the price increase, which was similar to appreciation in the preceding quarter,” said FHFA Principal Economist Andrew Leventis.
Out of the 50 states, the HPI increased in 42 and the District of Columbia, up from 38 states in the fourth quarter of 2013. The top annual appreciation was in: (1)Nevada, (2)District of Columbia, (3)California, (4)Arizona and (5)Florida.