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Rick Solis Joins Bruce Norris on the Real Estate Radio Show #330

Friday, May 17th, 2013

Rick Solis

Appraiser and Investor

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Bruce Norris is joined this week by Rick Solis. Rick wears a lot of hats. He is an investor, an appraiser, hard money lender, a landlord, and on occasion he puts on his teacher’s hat.

Bruce asked what Rick’s least favorite thing is out of everything that was just mentioned he did. Rick answered that it was being an appraiser, which surprised Bruce. Rick said he does this to pay the bills, but when the other things give off enough cash flow he usually does not do the appraisal. Rick said he stopped doing appraisals from 2004-2008. In the next stretch after things mature, he may be able to exit the appraisal definition and possibly even the landlord definition. Rick said he probably dislikes the landlord duty even more than the appraisal. The appraisals are a challenge, and he used to enjoy them a lot more before 2006.

Bruce asked what has changed and if this change has continued into today. Rick said the main changes are that the lenders are so skittish now that they are back in their 2008/2009 mentality. The requirements for the appraisal are a lot more time-consuming, and it seems that no matter what they get they are never satisfied. Rick used to spend four hours on an appraisal report, give them 3-4 comps, and everybody was satisfied. Now he spends close to 7-8 hours on way more comparables, documentation, and photographs. Despite all this, they are still not excited about it and want more.

Bruce wondered if there was a review process that could trump his appraisal pretty easily. Rick was actually talking with an underwriter about this since he wanted to find out, and she said that on every transaction they do they get an automated appraisal done on the computer. These are similar to what Zillow does, although a little better quality. They get to double-check the appraisals, and if there is too much of a disparity between the computer-generated report and the appraisal report, then they order a review appraisal. A lot of times if the first appraisal going in is not extremely strong with 9 or 12 comps, then a lot of the time the review appraisal will come in low and squash the deal. If the review appraiser comes in low, he must be right. Rick said this is not just the case with the review appraiser, but it is also the lowest appraiser in the transaction who is right. If they have multiple appraisals and a review appraiser, the lowest person wins.

This is not the case with the AVM (automatic appraisals) since these are double-checked. However, with the AVM there are also comparables with which the underwriters will review and question them. This is a huge red flag. Bruce wondered if they are mostly concerned about the possibility of them buying back loans if they go into default. Rick actually asked his underwriter about this also; and what she said was after the loan ends up at its final destination, at various times throughout that transaction they will also pull a computerized AVM appraisal. At any point during that time if there are issues, then it does come back on the original lender and appraiser. She said this is not as big a concern for them right now because property values are increasing. This means the AVMs 2-3 months from now will be higher than the AVMs today. It is not as much of an issue now, but in 2008-2011 it was an issue.

Bruce said he would imagine prices going up is going to start affecting a lender’s relaxing standards. Rick said this was what occurred last time. Bruce said it has also happened every time he is aware of, but this time we almost have the only lenders available are Fannie, Freddie, and FHA. Bruce talked to another gentleman when he was trying to understand the ability for an FHA borrower to be qualified. He has a company that is stricter than some other companies. Even though they work with all FHA loans, they have a source where they go to where that company does loans that others won’t do. This is driven by the fear that they may have to buy back the loan, not that FHA would say no to the loan. It is all about how many of them they are going to have to hold for the duration of the loan. Enough of those buybacks will put a small company out of business. Their credit line is being used up solely on existing loans instead of collecting points.

When you have price increases, it seems like that solves most of our problems. Bruce asked Rick what he is seeing as far as price movement and if it is more uneven than normal. When he is appraising properties in a market before it is moving up, it seems like it floats most boats at the same time. Bruce wondered if this is happening or if things are skewed. Rick does not do a lot of the high-end things, but on the low side it is all moving up and moving up fairly rapidly to even 3% a month. In some areas he is even seeing huge shifts. Moreno Valley just did one, and the closed sales are at 175, and they all closed. Everything in escrow was around $10-$15 grand higher than that, and they all went into escrow relatively quickly. This makes Rick think they are going to close fairly close to the listing price. The few active listings that are available are even way higher than that at $200,000+. He is not even talking about 2,000 square feet anymore, but rather 1300-1500 square feet. The active listings are literally close to 20% higher than the ones that closed in March.

At the last bootcamp where Rick helped out, Bruce happened to pull Moreno Valley $150 and under. In, for example, the thirty-day period there was 90 closings in that price range, there were 130 pending and 12 available listings. This is less than a week’s inventory. Bruce does not know how many of these pending sales are going to close, but when you have 12 available listings then you are going to start moving to the next available price range, $175-$200, pretty easily. The 12 all seem like they are much higher than everything else, and they are just either waiting for the market to catch up to what they want or are waiting for somebody to get so desperate that they are going to pay it. The other thing strange about one done in Moreno Valley was that out of the six comparables, four of them were cash sales all at high end values. It was worth $175, and they were paying $175 in cash.

Bruce asked Rick if he happened to notice which investors were local and which were wearing a hedge fund hat. Rick said he did not, although Bruce thought there would have been some of each. However, Bruce thinks the majority of them are being bought by private people as opposed to hedge funds. Rick worked out some comparables, one in Torrance, the second an individual out of Arizona, and the third a private family out of Temple City. What is the most interesting is that these are all far away and not even local.

When Rick says he is required to have 9-12 comps, Bruce wondered if this is commonly available at this point. Rick said he is actually not required to have this many; but they are only required to have four or five. The nine comps he uses for comparables allow the appraisal goes through the transaction with no issues and nobody comes back to him. There is no review appraiser that is going to put that level of effort into smashing the appraisal or cutting the value. You can usually get by with 6, but if there is any question, it is a top of the market sale, and you are having trouble justifying the transaction, then he will put in a couple additional pending sales. He can then document the ones that went into escrow in a week, the listing prices, how close they are. He will then go the extra mile, which costs an extra hour or two with each transaction to make sure the appraisal does not have any issues down the road. If he does not do this, then there is a good chance the people will come back at him and make him spend the extra hour or two anyway.

Bruce asked Rick if he sees a lot of price movement in Moreno Valley, specifically $200,000 and under, then is this true for Moreno Valley at $400,000. Rick said no, and it seems like $200,000 is the cutoff right now. However, it probably will not be the cutoff by the end of the summer. Bruce said something interesting they run across a lot in the boot camps is that you have a 1500 square foot house selling for $200 grand and a 2200 square foot house selling for $230. All of a sudden, you end up asking how much the extra square footage is worth. It usually comes down to $20-$30 a foot. Rick said he has seen this many times, especially in all of the low income, lower-priced areas. The bigger houses usually price around $230; but if you want an even bigger house that is around 5-6,000 square feet larger, then it may go up $10-$15 grand.

The other possibility is getting the standard home where the more the market is willing to buy in that area, the less you get back. Bruce does not remember this holding true in years where you really had established bull runs. In the years 2003-2005, it seemed the square footage was bonused a lot larger. Rick said this is supposedly true in the years 2003-2005; but in going back to approximately 1989, in most of those years they were either gradually dropping or flat. During those timeframes, square footage is not worth as much. Rick said that during the boom times people are willing to pay a lot more.

Bruce thinks the next price range that will have that experience will be the bigger homes and that investors will move to some of that inventory. It would not be a bad plan to loan up on everything now while you do not have to pay a whole lot extra. You could then get a premium for it 2-3 years from now. The only drawback is that it costs a lot of refloor and repaint it every time a tenant moves out. This is the downside of the bigger properties.

It will be interesting to see what builders end up building this time. The rumor was they were going to build a scaled-down house, but he doubts it. Rick thinks there is a huge demand for things that are below 2,000 square feet from 1200-2,000. He says the land, permit fees, and everything the government adds on is so expensive that they really cannot build a 1400 square foot house and make it work. However, there is huge demand for this if they can. The profit at the end of the day is what they are going to look at and ask why they would build a 1300 square foot house when they can build a 3,000 square-foot house. The lot with all the permits and everything costs the same $150 grand for them, whether it is a large house or small. You can see that this will probably not change if they can sell it.

What it will do is delay the timeframe for them to be able to start it. You cannot pencil these homes, yet as far as construction costs you are only getting $20-$30 a foot or less. For the extra 1500 square feet it is hard to build this. This is kind of a shame since there is a huge demand, especially for the 55+ crowd, for a 1-story house or condo that is less than 1800 square feet. When that type of inventory hits in an area where a lot of that type of borrower wants to live, they go on a huge premium. This is especially true if it is a 1-story condo. This will sometimes sell for $50 grand more than a much larger two-story unit right next door. He especially sees this in Glendora, Upland, Claremont, and other areas where the retirees with no children want to live. They just do not build this anymore since this is a product with a huge demand.

Bruce wondered about the Moreno Valley inventory and where it all was a year ago. Rick said it was 30% lower, possibly even more. He also wondered what would be the equivalent price range in Corona where you are having the explosive movement, and then you top out to where the movement is not so great. Rick said Corona is doing well also, but he does not think prices are escalating as rapidly as Moreno Valley. When he did his last comparable in Corona, it seemed like they were going up closer to 2% a month. Everything in Moreno Valley looked like three. This is on everything lower-end in Corona; he is not talking about a 4-5,000 square foot mansion but rather everything below 2500 square feet.

With the square footage he just mentioned, they recently bought a property at a trustee sale they thought was $400,000 six month ago. They bought it for $325,000, but they had a difficult eviction that was going to take six months. They listed it for $500, and it went pending with two all-cash offers in one day. What’s funny is this is like what a quadrant four bonus is: it is anything that takes more time.

Rick owns a fair amount of properties in the High Desert, mostly Hesperia and some of Victorville. Bruce wondered if any of the hedge fund activity affecting his ability to collect rent as far as higher rents go. Rick said they have not been able to raise rents since they started buying in 2009. Lately in the last six months, they have had to drop them and have noticed that there is a lot less tenant selection. When something goes up for rent, instead of having fifty interested people he may have ten. The quality of this ten is pretty low since they are a lot worse than they were ten years ago. When drives through this area either to buy something or look for vacant houses on which he can write numbers, he notices a lot more rent signs than he did a year ago. Since last summer it has been a lot more challenging, and there are no rent increases coming in the immediate future. Just like Moreno Valley, prices up there have also been rapidly escalating.

Bruce asked Rick what he thinks the main cause is of all that is going on with properties. Rick said he thinks it is similar to Moreno Valley in which they have been rapidly escalating. Bruce wondered what the main cause is, to which Rick replied it is a lot of investors flooding in trying to get whatever they can. He does not think there are a lot of owner occupants up in Hesperia as well as in Moreno Valley. There are a lot of cash buyers paying retail, some even paying a little more than retail.

Bruce asked Rick if he thinks inventory levels will be radically different a year from now. He doesn’t think so since it seems like inventory fluctuations are slow. They may be a little higher than now. Once people who started buying in 2009 and 2010 realized they had enough equity to sell what they had instead of living in what they just barely qualified for in 2009, selling it, walking out with a big chunk of cash, and buying something they really want that they will start buying. This is when things are really going to start picking up and prices start going through the roof. A lot of times Bruce hears others say that when those people that are upside-down receive equity from selling, then there is going to be a block of inventory. However, in the next minute they will also become buyers. Rick was surprised that the realtors are not out in force. If he was a real estate agent he would be knocking on every door in Moreno Valley, Fontana, Rialto, of anybody who bought anything between 2008 and 2011. These people all have equity now. This may not be the exact area they wanted to end up with, but they at least ended up with starting somewhere so they can have enough money to move on elsewhere. They all have $40-$50 grand to work with and the rates are lower, so they probably get the same payment for a much nicer home in the area they want.

Rick did very few appraisals prior to last month, in fact almost none to where it was a double transaction. In this situation somebody was selling to buy something else. Prior to 2006, almost 100% of the sales he did were this exact situation. The owners have mostly been short sale along with a lot of investor resales and first-time buyers. There are not too many REOs anymore. On the hard money loan side, Bruce wondered if the private sellers are catching up to short sales. Rick said it almost seems like 1/3 REO, 1/3 short sale, and 1/3 private party.

Bruce asked if Rick saw similar price movements in LA and Orange County. Rick does not work these areas as much, but with the few he did it seemed like it was not as rapid as Moreno Valley. This is usually the case with the higher-end things. The lower-end things in Moreno Valley will just shoot up like crazy. Everything in LA County seems to be 1 ½ – 2% a month for the entry-level housing. This is still at 18-24%, which is amazing. Rick never thought he would live through another time period like this in his lifetime. Rick is really betting that Bruce is right, and he was really happy to hear his opinions. Bruce said what is important is he does not really draw conclusions and then try to prove them.

Rick bases a lot of decisions on inventory levels. When he sees that inventory is tight and everybody is scrambling to buy something, he gets very excited. Bruce wondered when the last time Rick saw these kinds of inventory levels was. He answered that it was almost never, although possibly 2006. Back then we had already spent all of our room as far as affordability. It seems we have a long way to go before we get to anywhere near the house payment of 2006. This is an interesting point he makes because it is important to realize that this is where it could be over. However, we usually take a long time to get there. It will be very interesting to see how long it takes us this time. Rick said it seems right now they are going up as rapidly as they were going down, which is amazing. They were dropping 3-4% in 2008-2009, and now it seems they are going up at that pace. What happens is you have people who build equity at very quick paces to where they can become move-up buyers. This is when things get really good for the realtors, the title companies, escrow companies, everyone. This feeds on itself when afterwards everybody goes out and starts buying things and it begins to pick up more.

For the research on the report he is writing, Bruce looked through the history of magazine covers. It always lags what is next, but in 2005 you had a picture of a guy hugging his house on the front of one of the magazines. This was exactly how we felt about real estate, and Rick is glad to see people are feeling the same way now. They just came out with the first “Real Estate is Back,” so we are not hugging it yet but it won’t take long at all before we do. This is especially true with all the social media we have and the way everyone talks with each other. They are starting to find out how difficult it is for their family and friends who are looking to find things, and we are trying to get out at the same time.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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Rick Sharga, Vice President of Carrington Holding Company, LLC, Joins Bruce Norris on the Real Estate Radio Show #329

Friday, May 10th, 2013

Rick_Sharga

 

Rick Sharga

Vice President of Carrington Holding Company, LLC

(Full Bio)


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Bruce Norris is joined again this week by Rick Sharga. Rick is the vice-president of Carrington Mortgage Holdings and one of the country’s most frequently quoted sources on foreclosure, mortgage, and real estate trends. Rick has appeared on every major network and news show in the country, and he has even briefed government organizations such as the Federal Reserve and Senate Banking committee on foreclosure trends. Prior to being with Carrington, Rick was senior vice president of RealtyTrac, which is responsible for marketing and business development.

Bruce and Rick touched on the subject of low interest rates and affordability. Bruce heard Leslie Appleton-Young do a talk and mention that these interest rates are at 50-year lows. Bruce asked her where she got these statistics from, and she said it was from one of the data providers. Bruce called the provider and asked them where they got their information, and they told him that was as far back as their data went. Bruce thought this was an interesting comment since sometimes we really don’t have data that goes far back enough. He and Sean O’ Toole went to Washington D.C. to the Library of Congress and pulled up microfiche from 1850 to the present. They looked at the Sunday advertisements for real estate interest rates. No one alive has seen these interest rates.

Bruce said this was all interesting since for him this sets off an interesting scenario regarding affordability. You have had a lot of price increases, but the affordability is still very high. Even with the price increases we have seen over the last year to 18 months, we are really only back nationally to 2003 price levels. Essentially, an entire decade of home appreciation vanished. LPS and CoreLogic both put out recent reports on affordability; and the LPS study suggested that if interest rates don’t go up, with current income levels prices could go up almost 35% and still be within the normal range of home affordability levels. CoreLogic’s report was similar in that they said home prices could go up another 22% even with a marginal rise in interest rates.

It clearly is an amazing time to be able to buy in terms of affordability. The catch is how few people how few people actually qualify for the loans. This is a little bit of a Catch-22, but what is interesting is that it usually comes around as loan programs do not produce losses. Bruce said he would think that when we look back at 2011/2012, we are going to discover that was the safest batch of loans ever written. The performance we have seen on loans in the last 2-2 ½ years is better than historic averages. The delinquency states of loans after twelve months are below 2% for the last three years’ worth of loans. Normally, you have a percent of your loans in foreclosure and about 4% that are delinquent. They are performing roughly twice as good as you would expect them to perform.

Bruce said you are also given a ratio because normally the ratio is two delinquencies for every foreclosure. When you have price increases, those delinquencies very rarely result in a loss. What fed some fuel to the real estate boom back in the early part of the 2000s was that home prices were rising ridiculously fast. However, even if somebody got themselves into trouble they were able to get out by simply selling the home at a profit. It really was not until home prices flattened out that all of this became as apparent as it was. You look at your portfolio and see that everybody is qualifying with their eyes closed and we still are current.

Somebody wrote a book in California about a crash coming, and it seemed pressing at the time. You look at the numbers and realize the funny part that you wrote it and don’t even know what a collateralized debt obligation is. The funny part is there were huge financial institutions in New York that were issuing them, and they didn’t know what they were either. It turned out there was only a handful of people who actually knew how to bet against the income that was so obvious if you took time to look at it. The solution that keeps coming out of a certain group of politicians is we need more regulations and regulatory control. The regulators missed all of this, and this was really one of the reasons why the fallout was as bad as it was. It was not just the value of the homes or the mortgages issued against the collateral, but it was all of the exotic financial products that were layered on top of it that really added to the enormous losses.

Rick has been at the forefront about reporting statistics, and he has talked about shadow inventory. Whatever definition you put toward it, which has changed over time, it does not really look like it is going to have the impact that we once thought. Rick said he has been wrong a fair number of times in making predictions, but early on he said shadow inventory was not going to be the big problem that everybody thought it was going to be. It just seemed incredibly unlikely that the entire financial services industry would suddenly release hundreds of thousands, even millions, of distressed properties into the market all at once. All we would see would basically be a smoking pit of rubble where there used to be a housing market.

If you look at the number of REOs that are not listed for sale, properties in foreclosure not listed for sale, and homes where the borrower is seriously delinquent, you see those numbers go from about 6 million down to about 3 million today. The housing market is very interested in buying distressed properties. There were about 1 million short sales last year and half a million REO sales. You can see that distressed inventory being absorbed by normal demand over the next few years without really causing any major repercussions. The flip side is that as long as we have that backlogged, it does keep housing prices from accelerating even more rapidly because there is always that shadow of distressed priced properties waiting to come to market.

What relieves this better than coming onto market as a distressed inventory is a price increase that does not make it underwater. The really amazing part is how few underwater borrowers are actually delinquent. The overwhelming majority of people that are upside down on their loans are still making their payments on time. With home price appreciation, a single percentage point increase puts a whole slew of people from negative equity to positive equity, and this relieves a lot of the pressure. In California, if we had a 20% price increase, half of the upside-down people would have no more problems. This is a huge deal and completely changes the dynamic in the housing market. It also has to change the payment patterns if there are going to be somebody who was thinking of defaulting. It is encouraging to see a price increase against your loan get pretty close to breaking even. If you have already hung in there for as many years as it has been upside down, you are still going to make the payment.

History will most likely indicate that the majority of people who did default on those kinds of loans probably did so because there was a life event. It was not just because they were upside-down, but something else bad happened. From what analysis they have been able to see, this does seem to be the case in most instances.

Bruce asked Rick what he would say was the main reason we have had price increases. Rick’s answer was simply that there is no inventory. This is classic supply and demand economics if you look at what is available on the market. In some California markets, there is less than a month’s supply of homes available for sale. For those people looking to buy and those looking to take advantage of today’s low interest rates, there is a lot of competition for so little supply. This drives up prices. The other factor is that the mix is changing a little, so we are not seeing 40-50% of the sales being deeply discounted distressed properties. We are starting to see some higher-priced properties moved as well, and this changes the numbers pretty dramatically.

Bruce said he was always looking for these deeply discounted properties in the last couple years, and he still does not understand the discrepancy between what he sees in the marketplace and what seems to be a big discount when your chart shows the difference between an REO and an equity sale. Those discounts do not represent the same discount as what is showing. Rick said Bruce is a lot more precise in his calculations, and he looks at one specific house compared to another specific house that is the same model and size. If you are looking at large data pools, what you wind up doing is blending everything together. Rick knows from working on some of the reports in the past that if you simply did something like adjusting the numbers for price per square foot as opposed to flat costs, you would end up with less of a discount. A condo was measured against a mansion, so the numbers became at least something of a gauge. The discounts were either going up or down, but most people did not get 30-50% discounts on property.

Rick said there are three ways you can get inventory in the market. You can have new homes, existing homes for sale, or distressed homes for sale. Nobody has been building new homes for the last five years, so new home inventory right now is at about a 40-year low. There are simply not a lot of new homes to go around at the moment. We have been in a position for the last few years where 25% of homeowners were upside-down on their loans. They did not want to sell those properties at a huge loss, so we do not have a lot of existing inventory on the market. Partly because of things like the robo-signing scandal and legislative maneuvers, we have seen foreclosures take much longer to process and get to market. Once they get to market, they are getting sold off pretty quickly. An anomaly right now is that all three categories of housing stock are at unusually low periods.

Bruce asked Rick if he sees any of this changing in the next twelve months. Rick said he does because we have seen foreclosure starts increase over the last couple months, and we have also seen building activity and housing starts both go up in the last few months. Rick said he could see a situation where a year from now we may have a little bit too much inventory for what is available in terms of loans. However, there is not enough where we will see a huge falloff in home prices. We are seeing a softening, then acceleration, then this starting over again. Bruce wondered if when Rick says we are avoiding a huge fallout in price that he believes we will have at least a flat price. Rick said he does not think we will continue to see prices accelerate at the rate they have been both this year and last year. Certain markets will probably be outliers, but Rick looks at it as being a saw tooth recovery. We are going to see prices go up and down, and generally trend upwards. However, it is not going to be a straight shot up.

Bruce specializes in a part of the country where this could be one of the outliers. We have seen the most highly accelerated prices in the markets that had the most precipitous fall off from the peaks. If you are looking at San Bernardino, Riverside, or somewhere else in the Inland Empire where prices literally fell off a cliff, you could see sustained home price increases in those markets. It is other markets that are going to behave a little more traditionally.

Bruce looks at the inventory levels, and he sees that they are a third of what they were a year ago. Bruce wondered how you would get this tripled since this would literally be to get back to a six-month inventory. To go from two to six you have to triple, and Bruce does not see how this is possible. Rick said it probably is not, so it will take longer for that area to normalize. You are starting to see some home building getting started again, and some of these distressed properties will come to market. The other thing that will happen over time is as home prices go up, fewer and fewer borrowers will be upside down. There have to be some borrowers in those situations who would have already sold their house and, if they had a chance, re-enter the market. You will most likely not see an immediate tripling, but over time you will see all three of those categories start to fill back up again.

Bruce wondered if they will be repeat buyers who will sell and go on to another home. This has not been happening in the last few years. Those people have been doing short sales, taking a loss, and they are gone. Rick thinks we are also going to see increased household formation, which is going to provide more renters and homeowners over the next couple years as parents decide it is time to kick their kids out of the basement. What is interesting is that there is definitely the generation that is dating everything late. What is funny is Bruce has heard people speak on how this generation does not even want what the other generations want. You come to find out that at about thirty, they do the same thing as the prior generation.

Rick said he remembers in the ‘60s you could not trust anybody over 30, and now he does not trust anybody under 30. This is also tied into employment. If you looked at the recent homeownership rate report that came out; the group that had the lowest percentage of homeownership was the 35 and under group. Rick believes only about 43% of them were homeowners. This was a huge drop from the national averages. Rick thinks they are waiting longer, but this is also the group that has the highest unemployment in the country. Until they are gainfully employed and in a job they want to stick in for a while, they are probably not going to be anxious enough to sign up for a 30-year mortgage.

Bruce asked Rick if he thinks college debt is as big a deal as people are saying. Rick said what is interesting is that the only category of consumer credit spending that is going on is student loans. Rick thinks it is a mitigating factor when it comes to the length of time it takes a younger person today to buy a home since they do have to get that college debt paid down. It is a debt that will follow them forever. Bruce asked why we can’t sell them the house with nothing down in California. Then they can own it for two years and pay off their debt. Have them start a business that has to hire five people. Rick said you could have them default on the house, then pay them $20-$30,000 to leave. Then they could use that to defer the student debt.

Bruce asked Rick what he expects in price movement. Rick said if you are looking at median prices nationally, we are probably looking at somewhere in the neighborhood of a 4-5% price range increase this year over last year. California is obviously going to be higher than this, but he does not have any specific numbers on what they are expecting in California. One of the categories Rick brought up was the construction of new homes. It is like when you have an interest rate hike and someone says interest rates went up ½ a percent. You say to yourself that it is all the way up to four, but to Bruce and Rick this is laughable to have something that is under 6. When you say construction of new homes is up 25%, it may be up this amount but it is down by 90%. It is going to take a long time to come back.

Rick Sharga said at the peak of the boom they were selling 120-150,000 new homes a month across the country. We are at a 40-year low in inventory and a 30-year low in sales. Whether we are talking about home price appreciation or new and existing home sales, we have to keep this recovery in context. This is not 2005 again. Home prices are all the way up to 2003 levels. New home sales are up to a third of what they used to be. Inventory levels are a third of where they are in a healthier market, and we are still going to sell 2 million properties less this year than we did at the peak. We are off the bottom and coming back. Although it feels better, we are not yet where we need to be to really call this a successful recovery.

Bruce asked Rick what he would call a successful recovery. Rick said the obvious ones are you look at sales volume as one metric, and until you are up over 5 ½, approaching 6 million units a year, it will be hard to believe that you would be at a real recovery. The other is you look at inventory levels. Until you have a steady 6 months’ supply of inventory, it suggests you are going to have a lot of the volatility we are seeing today. Bruce said the truth is you never have a 6 month supply of inventory once you start a price increase, specifically in California. This is why Bruce looks at charts and does not really know about caring about the average, but he can say that when you have price increases in California you have a real hard time having inventory increase.

Rick talked to the Chief Economist at a conference a couple weeks ago, and they have a metric out right now where they say the housing market is 56% back to normal. Somebody asked when it was 100%, to which he laughed. He acknowledged that it is really never at 100%. Sometimes it is at 101, other times it is at 73. It is kind of a floating number. The other number he looks at is on the distressed side of things. With foreclosure activity being where it is, it feels a lot better than it did back in 2010. However, we are still running at 3-4 times normal levels, so this is another metric to watch in terms of where the market is and how much further it has to go.

Sometimes the California Association of Realtors will do a presentation showing that Riverside is still in the 45 percentile of some type of forced sale, whether it is a short sale or a foreclosure. Normal is probably 5%, so even at the improved levels we are about 5-10 times that level. This shows the very serious localization of real estate trends. We talk about national tendencies, but it really comes down to a local market and what is happening in Riverside and San Bernardino. It is very different than it is across the border in Orange County, even if you split it between the north and south counties. Rick looks at broader market trends to see if everything is going the right direction.

What is interesting is that when Rick mentions us being back to 2003 price levels is if you convert that to a payment level, that is more revealing in the sense that you look now at what percentage of income is being required to buy the median price home. Getting back to the affordability discussions, it is probably about half of what it was at the peak of the real estate boom. The affordability levels are at, if not all-time lows, they are at least as good as they have ever been.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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The Norris Group Real Estate News Roundup 3/27/13

Wednesday, March 27th, 2013


Today’s News Synopsis:

The National Association of Realtors reported pending home sales decreased 0.4% month-over-month in February.  According to the latest Mortgage Bankers Association survey, mortgage applications increased 7.7% from last week.

In The News:

Housing Wire - “FHFA expands suite of loan mod tools” (3-27-13)

“Servicers dealing with loans guaranteed or owned by Fannie Mae and Freddie Mac will soon be required to offer eligible distressed borrowers ways to lower their monthly payments if the homeowner shows a willingness and ability to make three on-time trial payments, the Federal Housing Finance Agency said.”

Inman - “Pending home sales slip in February” (3-27-13)

“Pending sales of existing homes dipped 0.4 percent from January to February, but remained at their second-highest level in nearly three years, according to an index maintained by the National Association of Realtors.”

Realty Times – “New Home Building Gains Momentum Despite Labor Shortages” (3-27-13)

“In keeping up with the housing recovery, new home building gained momentum in February despite a labor shortage in the trades necessary to build a home.”

Mortgage Bankers Association – “Mortgage Applications Increase in Latest MBA Weekly Survey” (3-27-13)

“Mortgage applications increased 7.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 22, 2013.”

NAHB - “NAHB Certified Aging-in-Place Specialist (CAPS) Program Hits Milestone with 5,000 Graduates” (3-27-13)

“Jeffrey Tucker, president of Tucker Building & Design LLC in Wadsworth, Ohio, recently became the 5,000th graduate of the of the National Association of Home Builders’ (NAHB) Certified Aging-in-Place Specialist (CAPS) program.”

Inman - “Fannie Mae REO specialist allegedly asked for kickbacks” (3-27-13)

“A former Fannie Mae sales associate who allegedly promised to provide listings to a real estate broker from the mortgage giant’s REO inventory in exchange for kickbacks has been indicted and charged with three counts of wire fraud.”

Housing Wire - “FHFA continues to chip away at foreclosures” (3-27-13)

“The amount of borrowers underwater improved significantly during the tail end of last year, with the government-sponsored enterprises doing their best to prevent foreclosures.”

DS News - “New FHFA Initiative Simplifies Modification Process” (3-27-13)

“The Federal Housing Finance Agency (FHFA) introduced a new tool to help seriously delinquent borrowers avoid foreclosure.”

Hard Money Loan Closed

Gardena, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $150,000 on a 2 bedroom, 1 bathroom home appraised for $234,000.

 

The Norris Group will be holding their Distressed Property Boot Camp from March 26-28, 2013.

Bruce Norris of The Norris Group will be presenting How to Make a Million Dollars Maximizing the Next 24 Months on Saturday, April 6 in Sacramento.

Bruce Norris of The Norris Group will be presenting his newest talk Poised to Pop: Quadrant Four Has Arrived at with High Desert Real Estate on Thursday, April 11, 2013.

Looking Back:

According to the latest Case-Shiller index from Standard & Poors, home prices decreased in 16 metropolitan areas for the fifth month in a row in January 2012.  After a year, consumer confidence was still at its highest level at 70.  Sales of distressed properties decreased in California, while at the same time equity sales increased the previous month after having been at a two month low.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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The Norris Group Real Estate News Roundup 3/18/13

Monday, March 18th, 2013


Today’s News Synopsis:

Attorney generals are demanding FHA acting director Ed DeMarco to be replaced.  Builder confidence decreased by two points to 44 according to NAHB.  Zillow predicts a 22% increase in home values by the end of 2017.

In The News:

Housing Wire- “Attorneys general call for DeMarco’s replacement” (3-18-13)

“Prominent state attorneys general are calling on Capitol Hill to remove Ed DeMarco, the acting director of the Federal Housing Finance Agency, urging for a new permanent director.”

DS News – “More than One-Third of Homes Sold Within 2 Weeks: Redfin” (3-18-13)

“More than one-third of homes were taken off the market in two weeks or less last month, Redfin revealed in its most recent monthly housing report.”

NAHB – “Builder Confidence Slips Two Notches in March” (3-18-13)

“Builder confidence in the market for newly built, single-family homes paused for a third consecutive month in March, with a two-point reduction to 44 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.”

Realty Times - “Fiscal Cliff Legislation Saves Tax Credits For Energy-Efficient Upgrades” (3-18-13)

“You need a scorecard to keep up with Washington’s budgetary moves these days.  When legislators kept the nation from toppling off a fiscal cliff, they left a host of key housing and mortgage related benefits intact.”

DS News - “Industry Experts Predict Price Growth into 2017″ (3-18-13)

“If projections hold out, home values will rise 22 percent cumulatively by the end of 2017, according to Zillow’s first-quarter Home Price Expectations Survey.”

Housing Wire - “Supreme Court refuses to hear Goldman Sachs RMBS case” (3-18-13)

“The U.S. Supreme Court punted on a chance to hear a case that could have a significant impact on the scope and size of residential mortgage-backed securities cases in the Second Circuit.”

DS News - “Report: Impact of Investors on REO Inventory Uneven Across Markets” (3-18-13)

“REO inventory declined at an accelerated pace in 2012 as investor activity intensified, but the impact of the reduction has been uneven across markets, according to an analysis from CoreLogic.”

Bloomberg- “Bullish Bets Jump Most Since July as Gold Rebounds: Commodities” (3-18-13)

“Investors increased wagers on a commodity rally by the most in eight months as signs of a U.S. economic recovery bolstered the outlook for demand and drove rallies in crude oil, cotton, copper and gold.”

Hard Money Loan Closed

Burbank, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $170,000 on a 2 bedroom, 1.5 bathroom home appraised for $304,000.

 

The Norris Group will be holding their Distressed Property Boot Camp from March 26-28, 2013.

Bruce Norris of The Norris Group will be presenting How to Make a Million Dollars Maximizing the Next 24 Months on Saturday, April 6 in Sacramento.

Bruce Norris of The Norris Group will be presenting his newest talk Poised to Pop: Quadrant Four Has Arrived at with High Desert Real Estate on Thursday, April 11, 2013.

 

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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The Norris Group Real Estate News Roundup 2/27/13

Wednesday, February 27th, 2013


Today’s News Synopsis:

The Mortgage Bankers Association reported mortgage applications decreased 3.8% from last week.  Pending homes sales increased 4.5% last month to their highest level in almost 3 years.  Federal Reserve chairman Ben Bernanke spoke to the House Committee regarding changes to QRM standards and other issues with housing.

In The News:

Mortgage Bankers Association – “Mortgage Applications Decrease in Latest MBA Weekly Survey” (2-27-13)

“Mortgage applications decreased 3.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 22, 2013.”

Housing Wire – “Lack of Inventory hinders top real estate markets” (2-27-13)

“Higher priced homes are typically a strong indicator of the overall health of a real estate market and, according to Pro Teck Valuation Services, these homes are leading the recovery currently.”

DS News - “January Pending Home Sales Rise to Highest Level in Nearly 3 Years” (2-27-13)

“The National Association of Realtors’ (NAR) Pending Home Sales Index (PHSI) rose 4.5 percent to 105.9 in January, its highest level in almost three years, NAR reported Wednesday.”

Realty Times - “Housing Market Healing With Stable Mortgage Rates” (2-27-13)

“With a housing recovery that is gaining momentum, the importance of where mortgage rates are now and where they will be heading becomes a significant factor..”

Housing Wire - “Bernanke tackles risk in housing” (2-27-13)

“Federal Reserve Chairman Ben Bernanke testified before the House Committee on Financial Services tackling housing issues, while identifying a need for the timely release of qualified residential mortgage standards.”

DS News- “Survey: Price Gap for Damaged REOs, Non-Distressed Homes Widens” (2-27-13)

“The price gap between non-distressed properties and prices for damaged REOs is widening, according to results from the January Campbell/Inside Mortgage Finance HousingPulse Tracking survey.”

Housing Wire- “Freddie Mac calls 2012 a golden year for multifamily” (2-27-13)

“Freddie Mac announced it posted a record $28.8 billion in multifamily business volume in 2012. That volume includes both loan purchase and bond guarantees.”

Realty Times - “Hefty National Home Price Gains May Not Reach Double Digits” (2-27-13)

“Healthy home price gains in three national indexes reveal a housing market that continues to pull the economy out of the doldrums.”

Hard Money Loan Closed

Oceanside, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $155,000 on a 3 bedroom, 2 bathroom home appraised for $250,000.

 

Bruce Norris of The Norris Group will be presenting his newest talk Poised to Pop: Quadrant Four Has Arrived at FIBI Long Beach TOMORROW.

The Norris Group will be holding their Distressed Property Boot Camp from March 5-7, 2013.

Bruce Norris of The Norris Group will be presenting his newest talk Poised to Pop: Quadrant Four Has Arrived at IVAOR on Wednesday, March 6, 2013.

Looking Back:

Sales of existing homes increased in January of last year for the third month in a row. Construction jobs also increased with people’s positive outlook on the housing market and increase in remodeling projects. In the housing market as a whole, market trends were showing signs of improvement amidst a weak market.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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Vice President and Chief Economist of CAR Leslie Appleton-Young Joins Bruce Norris on the Real Estate Radio Show #317

Friday, February 15th, 2013


Leslie Appleton-Young

Vice President of C.A.R.

(Full Bio)


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Bruce Norris is joined this week by Leslie Appleton-Young. Leslie is vice-president and chief economist for the California Association of Realtors, a statewide trade organization with 155,000 members dedicated to the advancement of professionalism in real estate. Leslie directs the activities of the association’s member information group. She oversees the analysis of the housing market and brokerage industry trends.

For someone like Leslie who really heads up a lot of the talks in front of realtors, it must be quite a relief for her to say some pleasant things about the market. Leslie said what is particularly interesting is to go back just twelve months and be right at the cusp of the acceleration that we saw in 2012, then look back and see how quickly things changed. Bruce said in the January 15th report that really covered the final numbers for the year, the median price was $366. This was a change of 27% year-over-year and an unbelievable price change. It begs the question if the inventory mix was different or if the prices have really moved that much. Leslie said it is really a combination of both. We have had a really significant shift in the last year in what is selling. If we go back to December of 2011, 27% of the closings in California were REO. A year later in December 2012, it was only 11%. In one year you went from over a quarter of a market to about 10-11% of the market.

Equity sales or traditional sales that were not distressed went in the same twelve month period from 48% to 64%. Short sales stayed about flat at 24% a year ago and 25% now. You can see that you had a big drop in the available supply and hence sale of REO property, which tended to be at the lower end of the price scale and a lot more sales at the upper end. It was the same in 2012, at least for California, which is leading the rest of the country in the housing recovery since we led the downturn. We have seen a very significant shift back towards a traditional non-distressed market.

Bruce said what is interesting about this is we are at 64% traditional sales. Bruce wondered if it was ever really this low during the 90s. 64% is an improvement from where we were, but Bruce does not know if we have ever had 64% traditional sales in our history. Leslie said she thinks he is right and this is a point that gets to the whole issue of negative equity. You go back to the 90s, and the percent of people who were underwater was less than the 29% that we have today in California. It is a whole different ballgame.

One of Leslie’s quotes from this cycle that we have just been through, as painful as it was, was the quote, “If you do not have equity in your home, you’re not a homeowner.” This is relevant on so many levels. If you look at the 90s and see how people behaved in a market where prices went down but they still had equity in their home, they hung in there. This time around, prices came down, people went into foreclosure, and they walked away because there was nothing left to save. This has likely been what has made this cycle so painful and drawn out.

Bruce said we went down in the 90s very gradually over a period of 5-6 years. It seemed like it was a repetitive 5% a year, whereas this time we dropped off a cliff and sometimes it seems like we are going down 3-4% a month in some counties. There was no way to catch that falling knife. It solves very quickly when there is nothing left to save. On top of that, we had a hard macro picture in terms of job losses and job opportunities, which exacerbated the declining price situation for many people.
Leslie mentioned the REOs becoming a smaller percentage. In one of her presentations, she took a look at the REO sales as a per dollars per square foot. For example, if you have it down as $116 a square foot and you have equity sales at $243 a foot, that is definitely not the same inventory. As an investor, there is virtually no discount in the marketplace for an REO, so it is a significantly different house. It is almost apples and oranges except when you are reporting on state as a whole with aggregate data. Then everything gets put in the same pot. Slicing and dicing this data in a meaningful way is the only way you can figure out what is going on. As Bruce noted earlier, the median home price in California increased 27% in December. It was buffeted around as an example by such a change in the composition of what was selling.

What is interesting is that the composition could be changing for two reasons. One would be if the jumbo loan market improved. However, we also could just have more houses turning to be expensive because of price appreciation. This is something that is being seen in Corona. Right now we see almost a 4% price movement per month. You are seeing this in areas where prices sell dramatically and were extremely attractive to first-time buyers and particularly investors. This was the canary in the coal mine investor that was looking to buy as early as 2008. Bruce said they did not have a lot of company when they were doing this, and a lot of people were talking about the pending shadow inventory and the extra price decline it would bring. At this point Bruce thinks most people would have to either believe they were mistaken or things are not going to happen because of policy changes.

Leslie said it is often hard for people to look ahead because the reality of today is so real. The question is how many people in our industry thought we would be in this situation today where we have a market that is really the strongest individual sector in the entire economy. Bruce said when you try to make decisions based on current emotions, that is dangerous. Bruce is thankful he has charts he can look at and see what is inevitable. For instance, regarding the inventory decline we have, a report came out saying that at the beginning of 2012 there was 4.3 months, and now there is about 2.6 months. It really does not feel like there is 2.6 months of available inventory somehow. It seems like half of it is pending because it seems like every time there is a house, it goes pending unless there is something radically wrong with it. This could be if it is so overpriced it’s ridiculous or it is missing a kitchen. Things are going into escrow very quickly.

The policies that were in place for 2012 that took inventory down by about half have not changed. You have all this demand that is still potential, only it is chasing half of the inventory. There are some data issues, and one of the things that seems to be propping up in a lot of discussions around the state is the off-market listings that are not counted in the MLS. You have to get the property in within the first 48-72 hours after having had a proliferation of private groups that are keeping it off. This may be a factor in under counting. Right now we are in the process of seeing how big that is, but it may be a little bit of a data issue.

Another thing that has been discovered is in past cycles investors tended to buy, fix the property up, and get it back on the market ASAP. This time, eight out of ten plus are fixing them up and renting them because the economics of renting is attractive in a market with low rates, rental appreciation, and price appreciation. This is keeping homes off the market as well, so there is a variety of reasons why you have inventory as low as it is. All of these things are probably going to continue to be so in the future. You have a great demand for the product, and you have a good chance that you are going to balance two months of inventory for the entire year. The big question mark in terms of forecasting sales for 2013 is on the supply side, not the demand side. So the question is how much inventory are we going to have.

What you have to then look at is the CoreLogic data that has 20% of the mortgages in the state being underwater. This is a lot of people, over 2 million properties, that are not really doing anything yet. Some of them are going to become whole as price appreciation increases, or they may do a refi and stay, and they may list. Whatever they do is going to happen slowly, so there is not really any magic bullet. Your forecast ahead is always gradual, but you look backwards and things turn on a dime occasionally. This may happen with inventory, but Leslie said she is trying to get her head around what that could be. She does not see it, and neither does Bruce.

When we said there was going to be 20% price appreciation in 2013, a good part of it was Bruce said he could see the demand side of it being real. However, he cannot see the supply side changing radically since they are not going to do REOs in quantity. FHA is selling their notes that are delinquent, so that is not going to be a big HUD list like we used to have. Only about 70% of your equity sellers are capable of putting these on the market without it being a short sale. Therefore, you are just naturally drawing from a diminished pool for the moment. What is nice about that you only need about a 20% price increase to solve half of that list. Once we get there, it is game over and the rest of them will be encouraged to keep hanging in there. Bruce thinks anyone who is current is going to stay.

Leslie said the big question mark is how soon the economy will reach the 6.5% unemployment target and start giving some higher rate messages to the market. When rates start going up, you are going to get movement in terms of some of the investors. They will see higher yields in other areas of the economy. This will most likely not happen this year since this economy is still struggling. You could also have California react very differently from the rest of the country, and this is one of the things that encourages Bruce about California. It is going to fare much better than the nation, so you will probably get a national policy that stays at this low rate that will be given to a California that doesn’t really need it anymore. We could probably survive just fine with a 4 ½% mortgage rate, but we are going to have it at 3 ½% or less.

It would be an adjustment and would have an impact. It is not that it will not create a reallocation of capital. The idea that these low rates are going to be with us forever is not going to be the case. David Stockman, Reagan’s CBO director, talked about another bubble. His argument was you have so many properties owned by investors that if and when rates go up significantly or even not significantly enough to make a difference, they are going to list and sell and move onto something else. It is an argument you have to think about because we have not really been in this situation before where you have such a large segment of the market being purchased by investors.

Bruce said an investor by definition is the cash flow type where a lot of the people would ultimately like to pay off the property and own it free and clear. In that case, the property is not going to re-emerge. One of the things that could be done for the glut of these properties not to re-emerge is to give them financing that they can go along with. The unfortunate fact of this is you cannot. You can get ten loans, and then you have to go to a loan like Bruce provides. He is giving a 9.9% interest rate, and it still makes sense that it will cash flow and they will buy it and hold it for appreciation. That person will sell that property because the real gain is in the appreciation. We could have a market that would be very different if we could give financing to investors.

You have the large Wall Street companies coming into the marketplace, so Leslie asked Bruce what his take is on Blackstone and the hedge funds. They may be responding a little bit differently than the individual investor who wants to pay it off and own it forever. Their game plan would be very different, and Bruce thinks sometimes they will form a REIT. In this case the properties may just stay permanently rentals. There are other companies such as Carrington who probably have a goal price, and then they will exit.

What is interesting is we are asking ourselves if these people are really market makers and if they are changing the prices and rents right now. Bruce thinks this is one of the things that is going to start to happen. Bruce does not know if they have calibrated, but the big group of people foreclosed on in 2008 and 2009 can now save money going from renter to owner, which is unprecedented in California. It would seem if they are buying 500 rentals in an area like the Inland Empire, and at the same time the people who were foreclosed on in droves are trying to go from renter to owner, they may not get the yield they were thinking. It may be that they exited them earlier. There are already a couple companies that have exited their game plan. They thought they were going to do it, and then they found out it was not that easy to manage 500 scattered homes.

The people who are buying in bulk have to hold for five years. Fannie Mae most likely has a share in the appreciation of it, and it is almost like they are partners. This is a totally different game, and Bruce does not know how many Southern California properties are involved in this. It would seem like it would be a lot, but both Bruce and Leslie do not think it is. The situation involves more the 5-10 units individual investor. Bruce has met with several companies, and the reason they wanted the meeting was they wanted him to gather a group of investors who would flip them properties. They were having a hard time finding properties since they were not available. They were sitting there with a big check book, and they are spending a lot less of their money than they thought they were going to be able to spend.

Leslie said it is a much better market, but it is a frustrating market when you look at multiple offers and over bids. Some of the data Leslie has seen, particularly coming out of the Silicon Valley, is really disturbing in terms of how quickly that market is moving and the proportion of all cash transactions still happening. A lot of money on the sidelines is coming back into the market even today with a vengeance. Bruce said he is pretty republican politically, but this is the one time he has looked at a market and said he really does not think Wall Street is serving a purpose for the public for it to be here driving up prices and making inventory non-existent.

Bruce said when he buys and sells homes, they usually have 130-150 sales a year, but they sell none of them to the people even though they receive offers from them. They sell it to owner occupants because that is why they are here. Bruce has been on the other side, and they deal with realtors who deal with 50 buyers that have no income or sales. They are trying to buy a property, and they get beat out left and right by something that is easier to close, such as a cash sale. You cannot blame anybody since all cash rules. It is unfortunate. NAR just came out with data on housing affordability, and you look at this data and see how it has never been this positive. Rates are so low, but if you have to finance it all then you are at a disadvantage in this market.

Bruce looks at investors, and he sees a lot of people have it in their mind that foreigners are buying up everything. Looking at a chart they have, you see that they represent 5% of the market. It is small if you look at the whole state, but it is much more significant if you look at specific areas. If you take 5% of 500,000 sales, all of a sudden you are looking at 25,000 homes statewide. This is not a market maker in the sense that you are going to change the dynamics of a whole state if every one of those people decided to put up a house for sale. You know they are not all going to do this. Bruce said he does not know if the hedge funds own more than what the rest of the world is buying, although they are having a hard time buying their share. Bruce does not know the impact, although it really depends on how high they let prices go at these low interest rates. This is something they are both concerned about as they do not want to see a $600 median price with a 3% mortgage rate. Leslie thinks we will see rates come up way before this. Bruce said it depends since California may have a much brighter picture than the rest of the country.

Leslie thinks the long-term sustainable improvement in the housing market is directly tied to jobs. In California, Silicon Valley and the Bay Area is the best economy in the state, and we certainly have come down in terms of the unemployment rate being better than it was three years ago. We are making progress. One of the things Leslie likes to talk about is pent-up demand. This is all of the households that would have been formed that were not formed because college and high school graduates could not get jobs and had to move back in with their parents. The actual number of households that are invisible right now is between 375,000 and 575,000 depending on what kind of a growth rate you would have extrapolated with. This means you have people who just aren’t going to be able to make a market until they get jobs. California is doing a little better than the nation as a whole, but we need to do a lot better in order to really have this not be a financial phenomenon but rather an economic growth issue that is shared throughout the state by the population. This is what is still missing.

It is very powerful to talk about a state that sells 500,000 homes, and you have almost a year’s supply of pent-up demand due to unusual circumstances such as the recession. When that changes, you are going to have another group wanting to get into a fixed housing cost as opposed to a variable called rent. This is going to create a lot of demand.

To find out more information, you can visit CAR’s website at www.car.org. This site contains fantastic information to keep you updated on all of the current statistics on sales, price, and affordability.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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The Norris Group Real Estate News Roundup 1/25/13

Friday, January 25th, 2013



Sources:
Home Values See Largest Annual Gain Since 2006
Home sales slip nationally in December as inventory drops
Fitch: U.S. RMBS Delinquencies Improve in Q4
Home prices maintain upward trajectory
LPS: Foreclosure Inventory, Delinquency Rates Decrease from Year Ago
Mortgage rates on rise, Freddie Mac says; 30-year fixed at 3.42%
Housing likely to contribute to 2013 GDP
U.S. Bank Deposits Drop Most Since 9/11 Terror Attacks
Fannie Mae: Slow Economic Growth May Be the Near-Term Norm
SEC nomination reawakens RMBS fraud debate
Research Points to Strong Multifamily Sector This Year

Today’s News Synopsis:

This week’s video is a slideshow of some of the big news stories in real estate.  Mary Jo White was nominated by President Barack Obama to lead the Securities and Exchange Commission, but her nomination has brought back up the issue of mortgage fraud as several wonder how she will handle it.  New home sales dropped unexpectedly in December by 7.3%.

In The News:

Housing Wire- “Freddie Mac monthly purchases drop by nearly half” (1-25-13)

“Freddie Mac bought $33.6 billion worth of mortgages and mortgage-related securities in November, down almost 50% from $62.5 billion purchases in November.”

Bloomberg – “U.S. New-Home Sales Drop Blemishes Best Year Since 2009″ (1-25-13)

“Purchases of new U.S. homes unexpectedly decreased in December, a temporary blemish as the industry wrapped up its best year since 2009 to emerge as a bright spot for the economy.”

DS News- “Agents Report Strong Homebuyer Traffic Despite Winter Season” (1-25-13)

“Winter weather did not slow down the housing market’s momentum, with homebuyer traffic still going strong in December, according to survey results from Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.”

Housing Wire- “Cloudy future for REO-to-rental asset class” (1-25-13)

“While the single-family/real estate-owned rentals could grow in the short term — absorbing excess inventory through shadow inventory pipeline — the long-term outlook remains cloudy.”

Realty Times - “Fixed Mortgage Rates Move Higher” (1-25-13)

“In Freddie Mac’s results of its Primary Mortgage Market Survey®, fixed mortgage rates moved higher from the previous week.”

Inman – “Alleged scam site shut down after Realtor investigations” (1-25-13)

“A site that had allegedly been posting false complaints about Realtors and then offering to remove them in exchange for money has been shut down, according to the National Association of Realtors.”

Housing Wire- “SEC nomination reawakens RMBS fraud debate” (1-25-13)

“President Barack Obama officially nominated Mary Jo White, a white-collar prosecutor with significant Wall Street experience, to lead the Securities and Exchange Commission Thursday.”

DS News – “Research Points to Strong Multifamily Sector This Year” (1-25-13)

“The industry seems to agree the multifamily housing market is recovering well and will continue to show positive signs this year.”

Hard Money Loan Closed

Winchester, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $195,000 on a 5 bedroom, 3 bathroom home appraised for $289,000.

 

The Norris Group will be holding their Distressed Property Boot Camp from January 29-31, 2012.

Bruce Norris of The Norris Group will be speaking at the 2013 Real Estate and Tax Strategies Kick-Off Brunch on Saturday, February 9, 2013.

Bruce Norris of The Norris Group will be presenting his newest talk Poised to Pop: Quadrant Four Has Arrived at OCREIA on Thursday, February 21, 2013.

Looking Back:

Bloomberg reported the sales of pending homes decreased 3.5% the previous month, and at the same time contracts for existing home sales were at the highest in 19 months.  In his latest State of the Union Address, President Barack Obama announced that he intended to start a new refinance program allowing homeowners to refinance at low interest rates and therefore save almost $3,000.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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Tony Alvarez, the REOMentor, Joins Bruce Norris on the Real Estate Radio Show #314

Friday, January 25th, 2013

Tony-Alvarez


Tony Alvarez

REOMentor and Owner of Evergreen Properties

(Full Bio)

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Bruce Norris is joined this week by Tony Alvarez. Tony is the owner of Evergreen Properties. He buys and sells, buys and holds, manages his own properties, and has become one of the most sought after speakers and trainers.

Bruce asked what part of his schedule is now taken up with training and teaching or speaking in front of clubs. Tony said he has actually not been doing a lot of this because there was a moment in time when he realized he became a bit of a distraction. He was not focusing on his core business. He took some time off and reevaluated how his time should be spent. He refocused it on his own acquisitions and revamping his own management. A lot of things go sideways when you put your attention no something else, and teaching takes a lot of your focus and attention. There is also the follow-up. You teach a class, and there are students who come back and want more. Tony is the type who does the teaching and feels obligated to stick with them and explain everything to the last minute detail. Right now about 0% of time is being dedicated to teaching and 100% to acquisition. Their acquisition shifted into high gear now.

The year 2012 was split between training and gradually getting back to buying properties. Bruce wondered what Tony’s deal source was in 2012. He said it was primarily real estate agents. Going back to when Bruce spoke and showed a diagram displaying what was happening to the deals, he showed 40% of the transactions were falling apart. In Tony’s area it was more than 50% of the deals. Tony zeroed in on this and designed a whole marketing program to go after agents. It was not so much deals, but rather agents and asking them to consider Tony’s group. That marketing campaign included detailing a specific property they had pending and reminding them it was pending. There could potentially be a pending property that would fall apart over the course of 12 months. By the end, these agents were completely frustrated, especially in Tony’s area where the commission checks were not big bucks.

Tony even added a special Christmas advertising where he tells people he can save their Christmas money. If a deal falls apart, they will close it by the end of the year. He did it with humor, so a lot of the agents were responding and are still responding. He received a call on Thursday from Sabrina, his acquisition person, who told him to check his computer. He was told to punch in an address in Google. He typed in the address, and sure enough it popped up on Google. Sabrina told him to click on the house, and he saw a house built in the 1950s that was perfectly restored. He looked at, and before he could even get the words out Sabrina told him it was owned by the city. He asked her why she told him to look at it. Typically a house that has a market value of $100,000 will be listed for $165 or $170,000. The agent called Sabrina telling her the city had been sitting on it for over a year, and someone had just broken into the back and caused damage. They were looking to sell the house that very day. Tony asked what they had to do, and she told him they were going to drop it to $65,000 and want somebody to buy it that day. Tony did not want to pay $65,000 for the house, so she said they would have the agent make an offer and asked him if he was on board with it. He said he was, and she said she had already made the offer.

This is the kind of situation they are getting a lot of today. They are getting calls from an agent where something shifts, and the next thing he will do is have someone contact the city and ask what else they have. Tony focuses his attention on getting leads from agents, specifically the deals that fall apart, and that has been enough.
Bruce wondered if the REO agent has translated their abilities to the short sale world. Tony said they have, and in particular one guy will identify himself in the office as the REO guy. All his understaff became REO specialists at one time, and now their card says “Short Sale Specialist.” Tony no longer looks at the source of whether it is an REO. He calls himself the REO Mentor, but he never really looked at it as REO. He always looked at the agent. He wants the person who understands him, understands what he is trying to accomplish, and then makes the deal happen. He wants someone who can help him accomplish that close.

Usually the agent who ends up helping Tony is a repetitive source for a long time. Tony wants them to have these niches and wants them to be the REO, short sale, or probate agent to where they always have those motivated sellers who are not after your only home in the world for a sale house. Rather they should have these niches of as-is properties that would make perfect sense to get out of in time. Tony identified long ago that there is a very small group of agents that handle all of these stress situations, and in markets such as Riverside you have agents who do mostly probate, although some of them do it all across the board depending on the time of the market. Some of them specialize in one more than the other, but they also know each other.

Oddly enough people think there is a lot of competition between them. The real pros who have been around for a long time did not experience that feeling, even when they are starving. Instead, what they do is try to cooperate more. This year Tony received calls from a couple agents who said someone recommended him, so the agent called him in case he had something to sell. These are some of the agents who are representing some of the larger equity funds. Now they are looking to bulk buy, and they are looking with tenants. Tony wasted their time as long as he could and sold them nothing.

Tony has no complaints in the acquisitions part; he still swears by his relationships with agents. Bruce was actually the one who introduced Tony to marketing at a certain point in the real estate cycle, including going after deals absent the owners. In his career, these were the most profitable deals besides commercial, and they came directly from an owner/seller. Tony said they are structuring things now; and since they are a really small office with not a lot of people, he is trying to figure out how to not bring things into his office as much. The people who work with Tony are his girlfriend Dana, who handles all the bookkeeping, and Sabrina, who manages all the properties they have. She is also learning and helping Tony with acquisitions; and when she had called Tony earlier regarding the property she had two court dates to appear.

In one court case, Tony’s group actually sued a tenant in small claims for a back-rent. Another case involved an eviction. Tony said this has been his highest eviction year in probably two decades. Half of the two evictions he had this year was a Section 8-10. They had a problem with Section 8 and were going back and forth. Section 8 was trying to drop their portion and try to get them to pay more. Since the tenant was not paying them, Tony said they were seriously holding her feet to the fire on her end of the deal.

Regarding hedge fund buyers, Bruce wondered how they have affected the rent market in Lancaster. Tony said he thinks they have an over-abundance of rentals right now. Thankfully, they do a terrible job of managing their real estate, so you see several houses for rent in which the houses are actually terrible. Tony would love to record the people who come into his office to rent from them because they tell him they love the house, even though it’s older than the house they are in currently. They have seen a lot of older homes, but the condition is unbelievably atrocious. They are not managing that said really well since they probably have so much inventory. However, this has affected their rents, especially in Orange County. He has not seen any articles about rental increases in the Antelope Valley since 2008. If anything, it has declined.

Part of it involves the pricing structure and a 3 ¼% interest rate, which would certainly make ownership a lot cheaper than rent. Tony said the typical rent that they were getting about $1195-$1200 for is now renting for about $995. Section 8 has reflected this as well, although Tony would say it has been more dicey. Less than 15% of Tony’s inventory is Section 8 rentals, but he did this because he got concerned after he saw that they were getting letters saying they were reducing rents for Section 8. This goes back about two years. Tony immediately thought that maybe their budgets are cutting back or they are looking to do some things toward the future. They then pulled themselves back to get away from this. If they are going to have to charge lower rent, he started thinking in terms of qualifying the tenants a little bit more hard. You have to be careful since you cannot discriminate when renting to different people, especially regarding their sources of income.

Bruce asked what has happened to the supply of homes as far as month’s supply. Tony said the last time he checked they were at about a month and a half. Bruce asked if this inventory has changed in type, if it has gone away from REO to short sale. Tony said it has and that REOs are the smallest piece. They probably still have ten times as many REOs as everybody else does, but you are also talking about 12 as opposed to 1200. The short sales have definitely increased and are still increasing, and this is definitely the dominant part of the market. They have seen some standard sales, but the short sales rule.

Bruce asked Tony if when he drives through neighborhoods now it is still really obvious there was a problem where you have constant vacancies and see that the neighborhood has a vacancy problem. Tony said they do see a lot of vacant homes in the area, although this is not typical in all neighborhoods specifically in the Antelope Valley. Going back about two years ago, it was the newer things that were more vacant. Nowadays it has dropped to more of the older houses. These are homes that are not for rent or sale; they are just there. Tony noticed these since he is always writing down addresses, following up, and seeing who owns them. The number of rentals is definitely a marked increase, and you see these sings everywhere.

With a month and a half supply of inventory, Bruce asked Tony if he has started noticing any price aggression. Tony said there has been price increases, but it is not consistent. It really depends on some markets, for example in the Antelope Valley, and what is going on that month. It is very inconsistent. You may have very few, if any listings; or you may have a lot of attention for these couple listings. The next month you may have the same street where the price was $105,000 for a house that would typically be priced at $100,000. A couple months before they may have been in the 90s, and now all of a sudden there are four or five houses for sale. These houses are all short sales and are all within a couple blocks of each other, and you see these prices start to constrict. Across the board we have seen some increase in pricing, although not very much, because of this situation. As soon as the house goes up for sale in the neighborhood and closes escrow, you seen an increase in listings within a month. They are not necessarily at prices they will be able to sell at, so you know things like this are silly. Tony thinks agents are out there marketing to the owners, telling them what they sold and how they can do the same for them.

Bruce asked what prototype house Tony had in 200-2006. He wondered if it was the same inventory he just rebought. He also wondered what the homes are worth at the peak of the price in 2007 compared to the peak the prior years. Tony said at the end of the last market, he was reminded by Bruce that too many people were fighting each other over inventory stuff and to keep an eye on newer tracts as well as look to the market as a source of inventory. This was difficult for Tony because he had never bought new homes. However, at the end of the market he went out and bought some 2,00o square foot brand new homes, and the developer was dying to sell them out so he could go take care of another tract. Tony did not quite understand the reasons behind it, but the developer was explaining how he needed to sell these out first before he could get the financing he needed on the other properties.

Tony ended up buying four one-story, four-bedroom, 2 bathroom homes for $237,000. He ended up selling these upside of $350,000, and the prices were just crazy. He also rented the houses out for the two-year period and made a killing on the rents. He mostly rented them to engineers. A $350K house in that neighborhood today would be about $200,000 tops, past the 50% point. Those houses did not go down in that neighborhood lower than $165-$167. However, this is really not his prototype inventory for his rental. The rental is more 3-1 or 3-2. He owns a lot of properties that were built in the 1950s, the 3-1s being less than $1100 square feet. He also owns some 4-bedroom, 2-bathroom homes that are about 1200 square feet. He also owns some properties that are from the 1980s, with tile roofs. However, this is a smaller part of his inventory.

When Tony sold his inventory it was around $250-$300,000. He can’t even believe most of the houses he sold, especially when he is buying them back. He bought some of them back that he sold for $280-$290,000 at a prices of $45-$60 grand. Now they are probably not even half of the former value. Someone just made him an offer an a 1100 square foot house for $125,000 for which he paid only $60 grand in 2008. He did not buy it from him.

Bruce asked if anyone was still building anything out here. Tony said they are not and the city is the only one that actually even tried to develop some lots that were not finished. This has been a disaster. Bruce thinks there is a really healthy price increase for most areas, but Tony’s area really has not taken off yet. When Tony and Bruce met, one of the things that was a stark difference was that Tony was about to exit his inventory while Bruce was looking at his set of charts and had not even started to build yet being 9 miles away. We are almost in that same situation where it doesn’t pencil to build, so it sure isn’t time to sell either. This is going to go aggressively up before these people start creating building lots.

Tony said he was considering selling this year. Sometimes he will wake up in the morning, and the last thing he wants to do is buy another house. He was enjoying himself at home drinking pretend coffee when the phone rings, and it’s Sabrina asking him to buy another house. How good of a negotiator does this make him that he would have to have it at 65%. She told him she was going into the city after she got out of court, and Tony told her to have at it. He couldn’t even get worked up about the thought of going down and talking to them about it, even though he is friends with them.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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The Norris Group Real Estate News Roundup 1/14/13

Monday, January 14th, 2013


Today’s News Synopsis:

Foreclosure inventory declined drastically in 2012 as a result of the national foreclosure settlement.  Inventory decreased to 3.51% in November, down 2.84% from October and 10% from September.  The total number of home sales increased 6% last year to 4.2 million.  Mortgage delinquencies also increased in states such as New York, New Jersey, and Connecticut where Hurricane Sandy hit the hardest.

In The News:

DS News – “The Rise and Fall of REO Sales” (1-14-13)

“REO sales no longer play the dominant role they once did in real estate transactions.  The recent decline in REO sales, along with the decrease in inventory, is helping the market see an improvement in prices, according to a report from Corelogic.”

Housing Wire- “National foreclosure inventory drops: LPS” (1-14-13)

“U.S. homes in foreclosure fell significantly in the latter part of 2012 as the influence of the national foreclosure settlement took hold, delaying the overall pace of foreclosures.”

Bloomberg- “Mortgage Delinquencies Jump in Areas Hit Hard by Sandy” (1-14-13)

“Mortgage delinquencies have jumped about four times the U.S. average in areas of New York, New Jersey and Connecticut that were damaged by Hurricane Sandy, according to Lender Processing Services Inc. (LPS).”

Inman- “Century 21 expects Super Bowl ads to boost website traffic” (1-14-13)

“Hoping to see the same kind of boost in website traffic that it did last year, Century 21 Real Estate is creating four separate ads as part of its second consecutive Super Bowl XLVII TV ad campaign.”

Housing Wire- “Total home sales jump 6% in 2012″ (1-14-13)

“The year 2012 brought a housing turnaround with total home sales increasing 6% to 4.2 million sales for the entire year, CoreLogic said Monday.”

CNN Money – “Will the bank stock rally last?” (1-14-13)

“Bank stocks outperformed the broader market last year, but that trend may not last in 2013.”

Bloomberg- “Mortgage Bonds Slump as Fed’s Buying Boost Fades: Credit Markets” (1-14-13)

“After posting their worst returns since 1999, government-backed mortgage bonds are starting 2013 with losses on speculation the end of Federal Reserve purchases is in sight and as homeowner refinancing roils the market.”

Housing Wire- “QM may bring euphoric end to RMBS rally” (1-14-13)

“The release of the final qualified mortgage rule resulted in positives for home prices and created additional upside potential, market analysts said.”

Hard Money Loan Closed

North Hollywood, California hard money loan closed by The Norris Group private lending. Real estate investor received loan for $480,000 on a 3 bedroom, 2 bathroom home appraised for $795,000.

 

Bruce Norris of The Norris Group will be presenting his newest talk Poised to Pop: Quadrant Four Has Arrived at the Apartment Owners Association on Thursday, January 17, 2013

Bruce Norris of The Norris Group will be presenting his newest talk Poised to Pop: Quadrant Four Has Arrived at the Buena Park Apartment Owners Association on Wednesday, January 23, 2013.

Bruce Norris of The Norris Group will be presenting his newest talk Poised to Pop: Quadrant Four Has Arrived at the Apartment Owners Association at the Scottish Rite Center on Thursday, January 24, 2013.

 

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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Short Sales in 2013

Tuesday, January 1st, 2013

Danica PattonWell, let’s talk about what is due to expire and what, if anything, will be extended into 2013.

First and foremost are, Fannie Mae and Freddie Mac.  Fannie Mae and Freddie Mac’s HAFA Short Sale Program for a borrower is due to expire this month, December 31, 2012.  The current deadline is December 14, 2012 for all Short Sale Agreements to be issued out to the borrower.  Now it’s just my opinion, but that alone will cause a huge uproar with homeowners and real estate agents. I predict fraudulent letters will be issued, and they won’t be coming from the banks.

Fannie Mae and Freddie Mac are putting a disclaimer to the deadline saying the borrower(s) MAY still be accepted for a HAFA Short Sale if the fully- executed Short Sale Agreement is uploaded into the Equator system on or before December 31, 2012.  After December 31, 2012, there will only be two programs, Cooperative Short Sale Program and Traditional Short Sale. Once again, these programs MAY offer relocation assistance to the homeowners. I do not foresee Fannie Mae or Freddie Mac extending this program in the near future.

So the question still remains…Short Sale or REO in 2013?  I like to look at the numbers on this one.   The mortgage default filings hit their lowest point since the first quarter of 2007. Los Angeles County was down 30%; Riverside was down 27.3%; and San Bernardino was down 21.7% from 2011. Short sales were overtaking foreclosures in 2012 — but will that be the case in 2013 with the Mortgage Debt Relief Act expiring this month?

To me, this is the most important law for my business.  …The Mortgage Debt Relief Act is due to expire December 31, 2012.  As of today, we still do not know for certain if the Act will be extending into 2013, so let’s look at this as a whole.  Back in August 2012, the Senate Finance Committee approved the bipartisan bill that would extend the Act through 2013. The committee managed to pull enough votes to pass the extension and move it to the full senate.  The senate was supposed to take action last month and the word on the street is there will be smaller tax extensions, as this Act will be lost in the dust storms. They most likely will oppose the debt relief extension because they see it as another costly bailout funded by taxpayers. The estimated cost for a two-year extension is $2.7 billion. This is a scary one — they are stupid not to extend this Act, but when you look at how much it will cost us, we are in enough debt as it is.

I like to end on a high note…a friendly reminder that the California Homeowner Bill of Rights will go into effect starting January 1, 2013. This law prohibits unfair bank practices and restricts dual-track foreclosures.  The bottom line is these new rules make the foreclosure process more transparent so the loan servicers cannot promise one thing while doing the exact opposite!

My feeling is still the same as we approach 2013: Short sales are the way of the future for getting a great deal but you need to have a great team who knows how to do short sales. You also should be somewhat educated on what options the sellers have in today’s market as well so you can help the seller while benefiting yourself as the investor. It’s a win- win situation. If you have questions or  want to drop a line, feel free to check out www.wheredoyougofromhere.com or www.capropertysolvers.com, or visit us on Facebook.

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