San Diego UNION-TRIBUNE - September 20, 2008
Foreclosures also decline; experts say it's too soon to know what data mean
Default notices to San Diego County homeowners fell for the fourth straight month in August, signaling a possible easing of the housing market slump, MDA DataQuick reported yesterday.
Defaults, the first step on the way to possible foreclosure, numbered 2,850 last month, down from 3,006 in July and off 13.6 percent from the record set in April.
Foreclosures also dropped, with 1,979 in August down from the record 2,004 in July. It was the first month since March that both defaults and foreclosures were down, according to the San Diego-based research firm.
“I think it's too early to say it's a definite sign of a peak or plateau, but it might be,” DataQuick analyst Andrew LePage said. “There's a lot of talk of multiple waves (of foreclosures and defaults), and this just may be one cresting – there's no way to really know that. This would be heartening for the (real estate) industry.”
Still, there were more new foreclosures than sales of previously foreclosed homes. DataQuick previously reported 1,211 foreclosure sales, or 43.2 percent of all August resale transactions in the county. A year ago, there were 361 foreclosure sales and 825 foreclosures.
The declining default count could stem from several factors, LePage and other observers said. It could mean that fewer people are having trouble keeping up with their monthly payments. More banks might be helping owners avoid default by restructuring their loans. Or lenders may be so overwhelmed with nonpayment that they are falling behind in sending default notices.
“The next two or three months will be telling for San Diego to see if that pattern holds,” LePage said. “Again, it could belie the actual amount of distress out there. It could be a rerouting (of troubled loans) toward workouts and more short sales.”
According to the state Department of Corporations, workouts – lenders restructuring loans – increased 16.7 percent statewide from June to July, the last month for which there is information. Since January, the monthly count of loan modifications has more than doubled to 12,657.
There is no accurate count on short sales – homes sold at less than the loan balance – but DataQuick estimated that more than 60 percent of homes sold at a loss this summer in the county, compared to their previous purchase price.
Meanwhile, the U.S. Department of Housing and Urban Development's Western regional office is setting up a Foreclosure Solutions Clearinghouse as a forum for communities to share ideas on how they're coping with the subprime mortgage meltdown.
“It will be a resource on what local communities are doing – whether it's new laws, new strategies, or just plain new thinking with new players – with info on who to contact, what results they appear to be getting, when it started, and all the other things folks will want to know,” according to the HUD office's online newsletter.
Mark Goldman, a mortgage broker with Windsor Capital Mortgage and a lecturer in the real estate program at San Diego State University, read the latest figures as a possible stabilization of the distressed-home market.
“There's still work to be done, unfortunately, but hopefully we've gone over the crest,” Goldman said.
He said a new wave of troubled loans is on the horizon – including negative amortization loans, under which the loan balance grows rather than shrinks because borrowers are allowed to pay less per month than usual. Holders of adjustable-rate loans, taken out at the peak of the market, also could face higher loan payments in coming months and fall into default and foreclosure.
Paul Leonard, director of the Center for Responsible Lending, said the deteriorating California economy – unemployment rose sharply to 7.7 percent statewide, according to figures released yesterday – may complicate any housing recovery.
“(That) should also put more upward pressure on default rates for all types of loans,” he said.
Meanwhile, a new state law that became effective this month requires more time before lenders can send a notice of default.
And local organizations are gearing up to take advantage of $4 billion set aside in the recent federal housing bill to deal with abandoned or foreclosed-upon properties.
Even before the funding became available, Jim Bliesner, director of the San Diego City-County Reinvestment Task Force, had been advocating establishing a land bank to buy foreclosure properties.
How much San Diego will get is unknown, but the allocation formula is tied to the number of foreclosures in local jurisdictions. Later this month, HUD expects to announce a breakdown of how much money various communities will receive.
“We've been working with a broad group of community organizations and government agencies to identify a local strategy that involves the land bank, foreclosure counseling and preparing qualified new home buyers,” Bliesner said. “The task force will take its recommendations to the San Diego City Council within the next 30 days.”
HUD spokesman Larry Bush said Northern California communitiesalso are coming up with plans on how to spend the money.
“San Diego may well provide a model that a lot of communities may want to use,” he said.
A housing flip-flop
San Diego Union-Tribune - September 5, 2008
Local market now most 'undervalued' in state, study finds
San Diego, which three years ago had one of the most overvalued housing markets in the country, is now the most undervalued in California, the economic and financial analysis company Global Insight reported yesterday.
The market has improved because housing prices have fallen about 32 percent from their peak, while incomes have continued to increase.
“A metro area like San Diego has, in a sense, fallen too much,” said James Diffley, who directs Global Insight's regional services group.
But he cautioned that prices could drop an additional 10 percent over the next year before they level out and start climbing again by 2010. Diffley cited the continued influx of foreclosures on the market, the weak economy, and tougher lending standards that will make it difficult for buyers to get mortgages.
On the other hand, Southern California benefits from a strong export market and is not as depressed economically as some other regions of the country.
“You still have a huge amount of properties for sale,” Diffley said. “That's going to depress prices further, regardless of what you think about the (area's economic) fundamentals.”
Global Insight, a Massachusetts company that conducts economic and financial analysis and forecasting, has more than 3,800 clients in 14 countries.
Drawing on data from National City Corp. in Cleveland, Global Insight said San Diego single-family resale housing, which had a median price of $349,300 in the second quarter, was 17.2 percent undervalued, based on household income and prices. In the second quarter of 2005, single-family housing, then with a median price of $505,900, was 39.1 percent overvalued.
In national terms, San Diego ranked as the 29th most-overvalued market in 2005 and, most recently, the 33rd most-undervalued in the ranking of 330 metro areas.
The rankings are based on price-to-income ratios, mortgage rates and historical trends in each metro area. An area is deemed undervalued when the value is at least 15 percent under the fair value and deemed extremely overvalued when it is at least 35 percent over the fair value.
Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange, said he agreed with some of Global Insight's findings. But, he said, the outlook is clouded by the prospect of more troubled home loans and tighter underwriting standards by lenders.
“There's still downward pressure on prices, in spite of improvements in affordability,” Adibi said.
He predicted Southern California's economic outlook remains cloudy because of the housing downturn.
“We benefited disproportionately from construction spending and the mortgage industry,” Adibi said. “Now, they are the two industries that are the weakest and, consequently, we are disproportionately hit harder.”
The Global Insight analysis noted that San Diego's last housing downturn lasted 27 quarters, from 1990 to 1997. Prices, which were overvalued by 19 percent in the fourth quarter of 1989, dropped a total of 14 percent.
This time, prices have dropped much faster in a much shorter period, but the timing of the upturn isn't clear.
“So many things have to fall in place,” Adibi said, “and I don't think they will all fall in place in the very near future, in 2009.”
W. Erik Bruvold, president and chief executive of the San Diego Institute for Policy Research, said the current economic downturn is so different from the past that it is difficult to predict the outcome.
But the strength of San Diego's non-real-estate economy should bode well for a quick housing upturn once it happens, he said.
“Our future, in a lot of ways, looks like the Bay Area's within the coastal hills,” Bruvold said. “We have no vacant land; it's all infill (for future housing development), and people still want a detached home with a yard and kids.”
Norm Miller, academic programs director at the University of San Diego's Burnham-Moores Center for Real Estate, discounted Global Insight's undervaluation findings as virtually meaningless for San Diego. Miller said the prices are based on low-priced foreclosed homes, which are dominating the market.
And in high-priced areas such as San Diego, buyers typically pay more of their income or draw more from their assets to buy than in other areas.
MDA DataQuick previously reported that nearly 41 percent of all resales in July involved foreclosures, while the number of foreclosures topped 2,000 for the first time, three times the figure of July 2007.
Miller agreed that prices will drop further, probably an additional 5 percent, and that a recovery is six to 18 months away.
“We're still softening and going to soften until more of the inventory and shadow inventory – which is expired listings that didn't sell – come back on the market (and sell), and that takes a while,” he said.
Miller said a forecast he developed for Los Angeles probably holds true for San Diego – with prices bottoming out in the second quarter of 2009 and increasing starting in 2010.
Global Insight said Los Angeles was 5.2 percent overvalued in the second quarter, virtually the same as 5.3 percent in Riverside-San Bernardino.
The San Francisco Bay area, with an undervaluation of 15.9 percent, was the only other California market to be considered undervalued in the Global Insight analysis. Orange County had an undervaluation of 12.4 percent.
Among all metro areas, Atlantic City, N.J., with a median price of $258,900, had the most overvaluation at 51.6 percent. Houston, with a median of $122,300, had the most undervaluation at 34.4 percent.
Global Insight said prices nationwide dropped less in the second quarter than in the first, while only six markets, primarily in the Northwest, were judged extremely overvalued, down from 51 in 2005.
“Nevertheless, real estate markets are not ready to recover,” Global Insight said. “The building and financing excesses of the boom years have yet to be worked off. There remains a huge inventory of unsold homes on the market, with foreclosures adding more daily.”
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