Thursday, March 22, 2007

Daily Breeze: Torrance housing boom ends, but not the fallout

This March 21 story by Nick Green (link will expire) in my opinion reveals a potential future direction in our social mood. Residents of Torrance are tired of overcrowding and have started applying the brakes to further development. The current mayor, Frank Scotto (he of the towing service), was elected last year on a platform of slowing residential development. He is concerned about city services being impacted by the addition of many new homes, and wonders where the money will come from to add more services, and wants the time to "play catch-up" before further development. Scotto is also concerned about addressing social issues - having more affordable senior housing available, the use of space for parks rather than cramming more condominiums into them, and so forth.

I don't know if I believe the studies that claim that commercial development and commuters are to blame for the increased traffic (rather than residential development - did home builders fund this study?). But I'll post the article here and you can read it yourself.

With 10 years of residential growth slowing, the city looks for ways to lessen the
impact on infrastructure and quality of life.
By Nick Green

Torrance's almost decadelong residential building boom is over, done in by a 
combination of political and economic forces.

Last year the number of approved housing units in the city declined to double digits 
-- 61 -- for the first time since 1996, when just a dozen were given the green light.

But the legacy of that boom -- an increase in traffic, a strain on some municipal 
services and, perhaps most significantly, an unprecedented shift in the city's 
political climate -- remains.

"It will take us some time to adjust to the additional population we have in the city 
of Torrance," said Mayor Frank Scotto, elected last June along with two other council 
members who shared a platform of dramatically slowing the pace of residential 

"We now have to try to catch up with the city services that are being impacted by the 
addition of all these homes," he added. "Where do we find the money to add more 
paramedic units? Where do we find the monies to add more police officers? That's the 

To be sure, there are still large-scale housing projects going on in the city of 
Torrance. A half-dozen are under way, sprinkled throughout the city, that together 
account for roughly 750 homes.

But all but one of those were approved in 2003, the year residential development 
approvals peaked in Torrance at almost 600 housing units.

There could have been many more, possibly inadvertently creating a housing glut given 
the slowing real estate market.

More than 1,400 proposed homes in three dense developments -- 104 condominiums on the 
former Days Inn site on Pacific Coast Highway, 917 condominiums at Del Amo Fashion 
Center and 409 more near the Costco between Skypark Drive and Lomita Boulevard -- 
were spiked by city officials before they got too far along. Another 226 proposed 
homes behind the Del Amo Financial Center were rejected by the City Council in 2005.

Today, the prospects for new large-scale subdivisions or condominium projects in 
Torrance are poor given the economic and political climate, said developer Doug 
Maupin of Torrance-based Maupin Development Inc., which has built several hundred 
homes locally in the past six years.

Economically, Maupin said he has noticed the slowdown at a 60-unit senior condominium 
project his company built at Torrance Boulevard and Madrona Avenue. "We're at about 
half the (sales) pace we used to be," he said.

Politically, Maupin said, pressure from Torrance's powerful homeowner associations 
has been a major factor in putting the brakes on large housing projects.

"They feel it's overcrowded in the South Bay -- there's too many people," he said.

While studies have shown that commercial development and commuter traffic are more to 
blame for the increased number of cars on Torrance's streets than housing 
construction, the perception of rampant residential growth caught the attention of 
residents and policy-makers.

The 1,400 homes built in the past six years is more than double the number built in 
the preceding six.

That's added an estimated 4,400 people to the county's sixth largest city since 2000, 
sending the population to more than 142,000 in 2005, according to the U.S. Census 

"Traffic, I think, would be the main thing people have noticed in particular," said 
Todd Hays, co-president of the Old Torrance Neighborhood Association and chairman of 
a committee Scotto appointed to examine uses for the Del Amo parcel once considered 
for the dense condominium project.

"It just seems there's a lot more people on the roads, especially at rush hour," he 

The tipping point for residential development came about not solely because of the 
sheer volume of homes being approved -- although that was certainly a factor -- but 
because of how it was being done.

Large parcels of former industrial or commercial land were being rezoned residential, 
infuriating residents who had long cherished the notion -- true or not -- that 
Torrance was a balanced city, as its slogan goes.

Moreover, critics believed those moves often violated the city's own General Plan -- 
its blueprint for growth. A plan update has been halted over concerns it was hijacked 
by pro-growth factions and will be reworked with greater community input.

"When they put in these massive condominium blocks in what used to be commercial 
areas or industrial areas, it just kind of tears at the fabric of the community," 
Hays said. "The backlash against the tremendous residential development that went on 
there for a few years has put the reins on the current development climate."

That backlash also claimed the political careers of former Mayor Dan Walker and two 
City Council incumbents last June.

It was the first time in the city's history voters had dumped an incumbent first-term 
mayor, Scotto said.

The election results confirmed a survey the previous year performed by a coalition of 
Torrance homeowners associations, said Robert Thompson, president of the Madrona 
Homeowners Association.

"(The survey) showed us what the people wanted and the election verified that," he 
said. "(A total of) 98 percent of the people were upset about the way the growth in 
the city was going and the election reflected their feelings."

The scale of the win, which many believe mirrored the depth of the electorate's 
discontent, caught even candidates who triumphed, like Councilman Bill Sutherland, 

"I thought it was going to be close, but it wasn't close in the least," he said. "It 
was quite a mandate."

With that mandate Scotto and the new council have turned their attention to 
infrastructure they believe has suffered from the development.

For instance, the council wants to add a fifth paramedic unit during peak daytime 

No additional paramedic units have been added since 1996, said David Dumais, the Fire 
Department's operations division chief.

Meanwhile, the number of incidents the department has responded to increased from 
10,000 in 1998 to 12,500 last year.

"We've been on an increase the last five years," Dumais said. "We've had an average 
rise in incidents of about 5 percent in the last five years. If it continues, are we 
going to catch up? That's the question."

The aging population has played a role in the increase in paramedic calls -- as has 
the fact that more commuters means more traffic accidents, he said.

More traffic also puts more strain on city streets.

That's prompted a renewed focus on street projects, for example, and the city has 
allocated $1.5 million to repave 190th Street in conjunction with neighboring Redondo 

But in the wake of the growth the city plans to reassess all its needs -- from 
recreational amenities such as gyms and swimming pools to public transit and 
affordable housing.

The buzzword now is smart growth rather than unrestrained growth.

"The sad part of all this is that with all this building we haven't addressed the 
social issues -- we haven't even built any affordable senior housing," Scotto said. 
"There's locations in the city that potentially could be park sites and things like 
that rather than more housing development.

"This council recognizes that we need to do everything in our power to increase these 
services," he added. "Hopefully in the next three to five years we'll be able to do 
that catch-up we need to do."

Wednesday, March 21, 2007

L.A. Times: L.A. Housing market holds its ground

This March 18 story by Diane Wedner all but implies that the slumping sales volume of the past year in the Los Angeles area and the subprime implosion haven't affected housing prices. The logical extension of that is that these problems won't affect housing prices negatively. I view this as yet more rationalizations to minimize the problems out there. But let's see what the analysts are saying.

For the first two months of 2007, L.A. County median price rose 8.2% YOY to $525,000. Fewer homes sold but levels remain "well above" the mid-90's slump. According to DataQuick analysts, high-end markets are "doing just fine", while low and middle areas are "satisfactory". In the six-county Southern California region, the median price for January and February together was $489,500, up 5.5% YOY.

So why is Los Angeles levitating while San Diego, Orange, Ventura, and Riverside markets have not fared so well. Leslie Appleton-Young of CAR believes that sellers are pricing their homes more realistically, while buyers are coming to realize that sellers won't give their homes away at liquidation prides. Oh really? Does that mean that sellers in Orange, San Diego, and Ventura aren't so realistic? Is it something in the water in L.A. that makes us so special?

Oh, it's true that sales volume continued to fall, but the pace of meltdown was less than mid-2006, so that must mean a bottom must be near. Far be it from me to question why they are comparing winter sales volume to summer sales volume! At least the analysts doing economic forecasting at USC are hedging their bets, saying that activity for the next six months will be "very informative...much depends on how much the supply of existing homes goes up, which could push prices down". And the big question of course is how the below-par quality loans will affect the market.

Amazingly, only 11% of California's 806,022 subprime loans are delinquent, compared with 13% nationally. California's buyers may be well-heeled comparatively speaking. And DataQuick says not to worry, since the vast majority of properties are bought with straightforward loans.

But another DataQuick analyst hedges his bets. "It's hard to be bullish or bearish at this point", he says.

Overall, this sounds a lot like more of the same blah blah we got last year which just indicated to me these analysts really don't know where things are going, or maybe they do, but still aren't willing to publicly admit it. I won't blame them for this, because it's just part of human nature. But I do place great accountability on certain NAR and NAHB cheerleaders who are doing all they can to get people to buy homes when it might not be in their best financial interests to do so.

L.A. Business Journal: Subprime Loans Concentrated in Low-Income Areas

This story by Jabulani Leffall in the March 19-25 edition (registration or subscription required) of the L.A Business Journal caught my eye this morning.

Subprime loans constitute at least 20% of all mortgages in almost 30 Los Angeles county zip codes over 2005 and 2006, and at least 10% for another 107 areas. The subprime loans are concentrated in lower income areas of South Central Los Angeles, Latino neighborhoods such as Pacoima, and high desert communities like Palmdale and Lancaster. According to the article these numbers are conservative because the study was not able to review all subprime loans.

These are the communities with the highest percentages of subprime loans in 2005 and 2006 home sales:

ZIP    Community        Home Sales  Subprime   Percent
90059  Willowbrook       1,174        319       27.3%
91340  San Fernando        690        186       27.0%
91331  Pacoima           2,250        583       25.9%
90002  Watts             1,348        346       25.7%
90043  Windsor Hills     1,050        247       23.5%
90062  South L.A.          701        164       23.4%
90037  Exposition Park     969        225       23.2%
91402  Panorama City     1,524        352       23.1%

Economists like Chris Thornberg at Beacon Economics point out that real estate trends tend to be localized, however, if prices dive in places like Watts, it could stir a dive in places like Venice, Palms, the Valley, etc. And there could be major price volatility in the middle, where the bulk of buyers are. He and other analysts theorize that the "trade up" trend could be affected.

The L.A. Business Journal study revealed "surprising" numbers of subprime loans in working clas and middle-income neighborhoods throughout Los Angeles county. Subprime lending at a saturation level of at least 10% has penetrated about half of the county neighborhoods (I am assuming they are equating "neighborhood" with "zip code" here.) This includes places like Pasadena, Whittier, and Woodland Hills. Throughout the county, subprime loans have penetrated the 2005-2006 markets by at least 13%.

Mortgage defaults more than doubled in Los Angeles county YOY in Q4 2006,, from 3,480 to 7,445, according to information from DataQuick. Even analysts at the perennially optimistic Lusk Center for Real Estate at USC state, "the whole market can eventually be dampened by this."

The study only took into account loans issued by Fremont Investments and Loans, WMC Mortgage, and New Century Financial Corp. It did not consider subprime loans issued by Countrywide Financial Corp and Wells Fargo so the numbers understate the extent of penetration.

The lower-income neighborhoods (what the L.A. Times at one point called the "bright spot" of the county housing market) definitely seem to be the focus of the study. 90059 (Willowbrook) had more subprime loans than all of the zip codes of Santa Monica, Beverly Hills, Malibu, BelAir, Palos Verdes, Pacific Palisades, San Marino, and Manhattan Beach in aggregate.

Here are the zip codes with the fewest pecentage of subprime loans issued during the 2005-2006 market:

ZIP    Community         Home Sales  Subprime   Percent
90401  Santa Monica          71        0         0.0%
90071  Downtown L.A.         11        0         0.0%
90402  Santa Monida         237        1         0.4%
90274  Palos Verdes         638        3         0.5%
90272  Pacific Palisades    488        4         0.8%
90077  BelAir               228        2         0.9%
90266  Manhattan Beach    1,050       10         1.0%
90265  Malibu               545        7         1.3%
91108  San Marino           338        5         1.5%
90403  Santa Monica         519        8         1.5%

I don't know if this story reflects a classic rationalization to minimize a problem to make it appear smaller than it is, but I am glad that somebody has at least attempted to analyze how subprime lending will affect L.A. County. The article also does not look at negative amortization loans, HELOCs, and the like, so we still don't know how deeply these other kinds of loans have penetrated individual neighborhoods.

Other measures of beach cities market activity, February 2007

Shorewood has published February numbers.

The average DOM for the beach cities, by Shorewood calculations, is 60. The moving average also shows 60. My calculations of median DOM and average DOM for Redondo Beach in February are both running well above 100 - my last calculation was 132 for median, 128 for average. That's twice the DOM that Shorewood gets for the beach cities. My calculation is somewhat closer to what some realties call "continuous DOM", or CDOM, which avoids the "reset to 0" problem for some relistings, though CDOM isn't foolproof. I hope my separate, independent calculations for Redondo Beach provide a more realistic picture of how long it really takes to sell a house here.

Here is my homegrown measure of beach cities "supply strength", which takes a ratio of inventory and sales. For the beach cities, it has (by pointing down) been recovering over the winter months, but the trend is leveling off somewhat in February. With listings expiring over the winter months, that shrank inventory, bringing the ratio down. If we are correct about a psychological backlog of homes to sell, this should start climbing again in a month or so.

My own count of Redondo's new listings for February is 109. My count of new listings is conservative, since I do not count anything that's been relisted since the end of September. By Melissa Data numbers, there were 57 sales in 90277 and 90278 in February. (Perhaps a tiny fraction of these were really in Torrance.) By this measure, the new inventory count is roughly twice the sale count. In spite of a recent few decent months, and in spite of the possibility of another decent sales month or two, I still don't have reason to believe that sales are soaking up excess inventory.

Here is the median price of a home sold in the beach cities in January. I would trust this more than what DataQuick tells us, because this data is an aggregation of the four beach cities and forms a larger dataset so small number errors don't cause a problem. It is continuing off a low from January. I have also plotted a simple moving average.

This last chart is the %YOY change on the simple moving average of the median price. In the January report I suggested that this might rebound somewhat before the subprime lender implosion hits. That indeed appears to be what is happening. Although I've noticed fewer mortgage ads in the local papers, it is still not clear to me how deeply this will affect, say, Manhattan Beach. If you read my recent post on notices of default, you'll know that there are problem loans in Redondo and the problems are not diminishing by any means.

Tuesday, March 20, 2007

South Bay Resale Activity for February 2007

Last month I said that I think Shorewood's way of reporting data is better than DataQuick's. DataQuick reports data by splitting resale properties out into SFRs and condos in each zip code. The problem with that is that with sales volumes dropping so low per unit type/zip code, one cannot arrive statistically at any valid conclusion about price trends. On the other hand, Shorewood aggregates data for all the beach cities and then comes up with a median price on a larger dataset that I believe is more reliable. So I don't take these charts derived from DataQuick's data too seriously. And by the way, I am not intending to pick on DataQuick. The way they report data is not a new problem or unique to them.

                          SFR   MEDIAN   %YOY    CONDO  MEDIAN   %YOY  
LA/Westchester    90045   26    $760     -1.2%     3     $480    18.1%  
El Segundo        90245    3    $855     -7.1%     5     $630    35.5% 
Hawthorne         90250   26    $550      2.6%     3     $455    22.0%  
Hermosa Beach     90254    8    $950     -2.1%    11     $894   -20.2%  
Lawndale          90260   10    $535     -7.8%     1     $440    18.9%  
Manhattan Beach   90266   29  $1,900     -2.6%     2   $1,107    30.2%  
Palos Verdes Pen. 90274   22  $1,233    -10.4%     2     $481   -30.8%  
Rancho P.V.       90275   22  $1,096     -0.3%     3     $500   -14.2%   
Redondo Beach     90277   16    $999     -0.1%    12     $752     7.4%   
Redondo Beach     90278   29    $740      1.2%    28     $679     1.3%  

Saturday, March 17, 2007

L.A. Times: A town right on the default line

In my anticipation of housing market doomsday, one thing I had not considered was the emergence of bad loan ghost towns, but now I am wondering if that is so far-fetched. From the tone of this March 16 article by David Streitfeld, it appears that entire housing communities have been built in recent years and funded by substandard loans. I am more inclined to think that properties will pass like hot potatoes from flipper to flipper, or at least those too quick and eager to buy the dip. In the meantime, we patiently wait to see what transpires.

The article chronicles what is happening in Perris, a town in Riverside County. The dream of the suburbs is in danger from lenders too eager and willing to lend and borrowers who thought their houses were ATM machines. Right now 1 in 53 houses in the central zip code of Perris have received notices of default. Lake Elsinore and Moreno Valley are not far behind in these glum races to see who can default the fastest and the mostest.

Comparatively, Palmdale currently has 1 in 105 getting NODs; 1 in 150 for Van Nuys; 1 in 189 for Northridge, and 1 in 293 for Altadena. The coastal beach communities have NOD rates too low to make the top list. When you look at the search utility alongside the article to look up default notices, keep in mind that the search utility reports by zip code. I think the article reports these default rates for these particularly cities in aggregrate, however.

Some homeowners in Perris are gritting their teeth, determined to "ride it out", and "look at it for the long term." Only there is a problem with that reasoning. It sounds brave on the surface. But famous books on financial manias and panics state otherwise that the grind down lasts a lot longer than most people can.

You can check out the L.A. Times search utility here.

By the way, I've been starting to keep track of properties "in trouble" in Redondo Beach. It's not a complete list, but the amount of trouble is definitely on the rise here. I think I recognize some of these addresses as recent odd sales.

xx218 Eladsgnik Ave
8122  Seehroov Ave
5152  Eigenrac Ln
6082  Niabcm Avenue      03/13/2007
6072  Noslen Ave         03/05/2007   05/26/2006  03/14/2007
1291  Aisetra Blvd       03/05/2007   12/23/2004  03/14/2007
7181  Drofnats Ave       03/01/2007
8042  Rellefekcor Ln     02/23/2007
3252  Tlibrednav Ln      02/15/2007
0152  Ruomra Ln          02/07/2007
3142  Namirrah Ln #B     02/05/2007   10/25/2005  02/14/2007
2022  Notgnitnuh Ln #B   02/05/2007   03/22/2005  02/23/2007
3152  Swehtam Ave #A     01/29/2007   08/20/2004  02/22/2007 somebody bought 02/21  
                                                             $670K, seller paid $650K
81581 Eladsgnik Ave      01/29/2007   05/04/2006  02/08/2007 saved?
308   Relgalf Ln         01/28/2007
2112  Kralc Ln           01/28/2007
9062  Sitruc Ave         01/28/2007
206   Nalehp Ln          01/22/2007   06/20/2005  02/06/2007
32581 Nirub Ave          01/16/2007
4142  Noslen Ave #A      01/02/2007   03/31/2005  01/11/2007 sold for $686,219?
0141  Aisetra Blvd       12/26/2006   10/05/2005  01/12/2007
1501  Euneva D           11/27/2006   08/05/2005  12/08/2006 sold 02/14/07 for
                                                             $745,715, listed again
                                                             in March for $835K                    
7001 S. Anilatac Ave 206 11/06/2006   06/30/2005  11/27/2006     
3391 Anomrif Ave         10/30/2006   03/14/2002  11/02/2006
206 N. Cificap Tsaoc Hwy 09/05/2006   09/21/2005  09/20/2006    
4033 Egdnir Ln           07/31/2006   11/01/2005  08/09/2006
8011 Onimac Laer 301     07/03/2006   08/22/2000  07/12/2006
5022 Notgnitnuh Ln #B    06/26/2006   03/22/2005  07/07/2006
757  Euneva C            05/01/2006   10/13/2004  05/08/2006
932 N. Atinauj Ave #A    04/10/2006   11/29/2004  04/27/2006
3022 Naatab Rd #A        04/10/2006   08/10/2004  04/20/2006
2072 Eigenrac Ln #2      03/27/2006   07/06/2005  04/10/2006
0112 Dleifllahsram Ln #A 02/27/2006   04/26/2005  03/07/2006
8102 Dnalhur Ave         01/03/2006   04/16/1992  01/11/2006 somebody bought 12/15/05 
                                                             for $850K
4061 Dnomro Ln           12/12/2005   02/15/2001  12/22/2005         

Thursday, March 15, 2007

More Redondo Beach sales statistics for February 2007

If you are trying to sell a home in Redondo Beach and you are pricing it realistically, not holding on to last year's dream asking price, it can still take at least 4 months to get it sold. That's about twice the published DOM for the beach cities. If you are new to this blog, I calculate DOM from an original listing date I have in my own records. I don't rely on the DOM statistic in MLS listings.

February was not especially a good month for selling bloatominiums. The median square feet of properties sold was 1639.

Here is a view of what sold in terms of SQFT versus SALEPRICE in February. Offhand I'd say that the best "deals" were below that red line. But they were deals only for about 10 minutes. By this time next year it will probably be apparent that the buy-the-dipsters overpaid.

Here is a comparison of outstanding inventory versus February sales. This includes all records in my dataset for which there are no sales recorded, not just the new inventory in February. As you can see, all the outstanding inventory is pretty consistent with the new inventory in February that I showed in prior postings. There is a stingy amount of inventory to meet buyer demand in the lower end, up to $800,000, particularly in the $700,000-$750,000 range.

You can see the spread of February sales against outstanding inventory here. The blue diamonds are the inventory and the red squares are the February sales.

This is the same chart blown up in the region of the median asking price point and the median sale price point. The big green dot is the nearest sale to the median sale point, and the big yellow triangle is the nearest inventory listing to the median inventory point.

L.A. Times: O.C. home prices decline

Orange County has joined the other Southern California counties already in the negative appreciation club. According to this March 14 story by Annette Haddad, Orange County in February posted its first YOY price decline in more than a decade. Now, Orange, San Diego, and Ventura counties have shown negative YOY appreciation rates and Riverside has shown no appreciation, also for the first time in a decade.

Amazingly, Los Angeles county median price remains levitated, as does San Bernadino's median, though less so. Those two counties were enough to push the median Southern California home price up 5.3% YOY.

In the meantime, sales volumes have continued their plunges off the cliff.

Here are the sales and price information for the Southern California region, according to DataQuick. These figures are for new and previously owned homes:

County         # sold    %YOY chg   Median $$$  %YOY chg
Los Angeles     6300       -11.1%   $528,000    +7.8%
Orange          2449       -16.$%   $620,000    -0.4%
Riverside       3057       -36.3%   $410,000    +0.0%
San Bernadino   2274       -31.4%   $369,000    +2.1%
San Diego       2863       -19.8%   $480,000    -5.9%
Ventura          737       -16.4%   $584,000    -3.5%
SO CAL         17680       -19.8%   $495,000    +5.3%          

It's amazing how Los Angeles manages to levitate, isn't it. And how it and San Bernadino are bolstering the median price for the entire So Cal region.

I also find it remarkable how DataQuick's numbers differ from those of Home Data's numbers, posted in the L.A. Business Journal. Home Data's total for February is 4538, off considerably from the 6300 that DataQuick posts. Apparently these two firms use two different cutoff times when collecting data at the end of the month.

In terms of how credit tightening is affecting the market, DataQuick notes that in February 2006, 74% of originated loans were adjustable rate, whereas this February, 61% were adjustable rate.

February is the beginning of the "official" spring selling season. The area's inventory levels are 30 to 40% higher than a year ago. According to Zip Realty, inventory has not ballooned month-to-month, as the higher inventory is "putting pressure on other people not to put their homes on the market...the people who have to sell are selling, but others are being more cautious". In November, 40% of listings had price reductions, but only about 30% of listings had price reductions as of March 2.

I can interpret that last fact in a few ways. I've actually seen a number of listings increase prices. (1) People who enter data at Zip Realty are terrible typists, and they keep having to adjust the asking price because of their errors. (2) Sellers are increasing prices, forgetting last year ever happened and anticipating a glorious return to the boom days. (3) Another possibility is that newer sellers see the market struggling and are pricing their homes realistically, so they haven't reduced their asking prices. From my own analysis of Redondo Beach data I'd say (2) is very much in force, with a little of (1) and a pinch of (3). There is a dichotomy among sellers. Some sellers still insist on holding out for top dollar, but some are really trying to price in "real time".

I am not familiar with all the mortgage loan products available, but I really question whether merely tightening the standards on adjustable rate loans is enough to bring sanity back to mortgage lending. Are there products out there with fixed rates and balloon payments, which can still potentially put the borrower in a bind? What about negative amortization loans, and interest-only loans?

Wednesday, March 14, 2007

Bloomberg: Senate Weighs Aid to 2.2 Million Subprime Borrowers

A massive Socialist bailout for subprime borrowers is being cooked up in Congress right now. The very thought of it makes me sick. Now is the time to let Congress know exactly what you think.

You will find the Senate Banking member list here: U.S. Senate Banking, Housing, and Urban Affairs. There are no CA members.

You will find the House Financial Services member list here: House Committee on Financial Services. The CA members include John Campbell (R), Gary G. Miller (R), Edward R. Royce (R), Joe Baca (D), Brad Sherman (D), and Maxine Waters (D).

If you know your 9-digit zip code you can look up your local representative here and get a link to your representative's website. In my area that is Jane Harman.

Here is the page to links for Senators Barbara Boxer and Dianne Feinstein.

I'm writing my letters THIS WEEKEND.

Monday, March 12, 2007

Odd sales in February

I've been seeing unusual sales in Redondo Beach. They have gotten to the point where I had to add exclusion fields to my database records so I can exclude these sales as outliers whenever I do calculations of median and average sale price.

In case you are new to this blog, whenever I discuss a specific property, I always reverse the address numbers and the letters of the streetname, to protect the guilty and the innocent. Sometimes I exclude the number and give the actual street name.

316 S. Adurtreg is one of the February sales for which I never had an inventory listing. According to the county tax asssessor it has 2331 square feet, 4 bedrooms and 3 baths. A 02/26 sale is listed for $363,636. This obviously isn't what 2300 square feet homes go for in South Redondo. So is this property now bank-owned, or what? Somebody got a deal here, and this kind of stuff annoys me because I'm sure there are tons of people out there who would love to pay that price for such a property in South Redondo, and they'd be able to make the payments.

Here's another one: 3142 Namirrah Lane #B. It has 1896 square feet, 3 bedrooms and 3 baths. A 02/21 record claims it sold for $169,005. Again, I did not have a matching inventory record. Some kind of weird deal went down here. This is not listed in the tax assessor site. That price is unreal. Or it is a data entry error. Or something!

Or how about this one: 1071 Xamol Lane. This place sounds like a monstrosity with 3742 square feet, 8 bedrooms and 6 baths. At first I thought it was an apartment building, but no it's a SFR. It sold for $895,000 on 02/23. That sale price sounds low, but get this - the same place sold just last November 15 for $890,000. Was this a flip gone wrong? What?!? I didn't have an inventory record for this one either.

The last odd sale I'll highlight is 5361 Reyemevah Lane. This is a 2250 square feet 4 bedroom 2+ bath house. According to my records it was listed August 9 at $876,000, then reduced around October 11 to $849,000. The 02/23 sale record says $152,500. If it's a bad sale record, I don't know how Zillow gets such things.

Los Angeles Business Journal: Drop in number of homes sold (in February) is deeper than expected

Los Angeles Business Journal (subscription required) reports in its March 12-18 edition that the number of homes sold in Los Angeles County is hitting three year lows. The print copy sub-headline says "Prices stayed up, however." I think that is very misleading.

According to HomeData Corp, there were 3,661 homes sold in the county, a 31% decrease in sales volume YOY. The USC Lusk Center of Real Estate, which I've long believed is just a branch of the National Association of Realtors, puzzles, "we probably haven't seen this since about 1999...on the other hand, it has been lower, for example during the 1991 recession." The article does cite the sub-prime implosion as one factor leading to this mess.

The time it is taking to sell all homes on the market is also rising. February numbers are not available, but according to the California Association of Realtors, that time was 7.3 months in December and 10 months in January. In January 2006 it was 6.2 months. The experts have been saying a "healthy market in equilibrium" should have about a six month supply of homes. I think this applies to Los Angeles County. For the state as a whole, a CAR news release states that for January this was running at 9.1 months. The article also states average DOM as 63 days for Q4 2006, compared to just 28 days in the same period in 2005. Again, I think this applies to Los Angeles County.

The article claims that the median price for Los Angeles County was not much affected, at $550,000 in February. The price has been hovering at that level for about 11 months now, and is up 4.8% YOY. "Anecdotal evidence" suggests that "high-end" market activity is picking up. Malibu, according to Coldwell Banker, had 41 homes drawing multiple offers in February. One West Los Angeles home received 57 offers and was bid up from $1.2 million to $1.5 million.

Robert Kleinhenz, deputy chief economist of CAR, does concede that inventory is rising and it is "hurting" the market. "...increases in inventory [in L.A. County] are beginning to show up in terms of sales and probably in terms of prices as well." Gee, wasn't Leslie Appleton-Young assuring us that inventory was declining, just a few short months ago?

With sales volume way down, county's "overall housing picture remained cloudy". Really? I agree that when sale volume gets very low it is difficult to draw meaningful statistical conclusions about price data, but I think the trend is rather clear. Also, a handful of high-end blockbuster sales in the luxury areas don't help the average Joe and Jill Schmoe who want to buy or sell a house.

This article continues the trend of falling back on a "widespread consensus" that the strength of the local economy "should prevent any collapse in the housing market", like what occurred in the early 90's. Gee, if the economy is so healthy then how did housing prices get so out-of-control to begin with?

Isn't it amazing how the media continues to find one straw to cling to in the continuing stream of bad news over the past year? Some months back, the L.A. Times talked about the more "affordable" areas like Carson, Compton, and South Central Los Angeles being the "bright spots" of Los Angeles County housing market. Now this article pins its hopes on places like Malibu. How about all the rest of us and all the places in-between?

Here are some Home Data numbers for the South Bay:

          Feb SFR Sales   %       Feb Median (1000's)  %        
ZIP Code  2007   2006     Chg      2007     2006      Chg
COUNTY    3,661  5,309   -31.0%    $550     $525      4.8%   
90045        24     17   +41.2%    $735     $755     -2.6%
90245         1      5   -80.0%    $970     $879     10.4%
90250        41     33    24.2%    $549     $539      1.9%
90254         4      5   -20.0%  $1,288   $1,101     17.0% 
90260         5     16   -68.8%    $565     $600     -5.8%
90266        19     26   -26.9%  $1,799   $1,530     17.6%
90277        10     17   -41.2%  $1,128   $1,129     -0.1%
90278        22     21     4.8%    $738     $849    -13.1%
90501         8     20   -60.0%    $574     $651    -11.8%
90502         3     11   -72.7%    $495     $501     -1.2%
90503        12     13    -7.7%    $740     $756     -2.1%
90504        10      9    11.1%    $530     $600    -11.7%
90505         9     10   -10.0%    $760     $732      3.8%

          Feb Condo Sales %       Feb Median (1000's)  %        
ZIP Code  2007   2006     Chg      2007     2006      Chg
COUNTY      877  1,324   -33.8%    $426     $405      5.2%   
90045         2      4   -50.0%    $551     $406     35.7%
90245         3      5   -40.0%    $630     $465     35.5%
90250         7      3   133.3%    $580     $330     75.8% (includes Centex Fusion)
90254         2      2     0.0%    $922     $478     92.9% 
90260         2      3   -33.3%    $395     $370      6.8%
90266         2      3   -33.3%    $746     $659     13.2%
90277         8      6    33.3%    $718     $984    -27.0%
90278        17     16     6.3%    $740     $857    -13.7%
90501         4      7   -42.9%    $525     $447     17.4%
90502         8     21   -61.9%    $384     $320     20.0%
90503         9     11   -18.2%    $525     $580     -9.5%
90504         2      2     0.0%    $474     $346     37.0%
90505         4      2   100.0%    $342     $852    -59.9%

My own belief is that those buyers who were "tired of waiting to buy" have been going out and buying. They are the buy-the-dippers. It remains to be seen whether they will get their butts sliced on granite countertops, but I think the trend will eventually lead to that.

Saturday, March 10, 2007

Sneak look at February sales, February new inventory, and a theoretical "fantasy gap"

For those of you who might be curious about such things, this is what my database and spreadsheets currently spit out in sales statistics for recent months:

STAT     DEC 2006   JAN 2007    FEB 2007
records        50         48          64
MEDIAN   $737,000   $724,500    $745,358
AVERAGE  $769,170   $762,005    $787,799
MIN      $400,000   $389,000    $387,500
MAX    $1,400,000 $2,100,000  $1,878,000

This chart compares the asking prices on 109 new inventory properties in February with the sale prices on 64 sold properties, all Redondo Beach. I always think it's instructive to compare what actually sells to what is coming on the market.

Here is a simple statistical comparison of Inventory asking price to Sale price:

             FEB          FEB
           INVENTORY     SALES
MEDIAN      849000      745358
AVERAGE    1131221      787799
MIN         439000      387500
MAX        4990000     1878000

Notice the median asking price is $849,000, but the median sale price was $745,358. To meet the expectations of new sellers, buyers will have to pay 13.9% more (the sellers' fantasy gap). To meet the expectations of new buyers, sellers will have to cut their asking prices by an additional 12.2% (buyers' fantasy gap). How much will this sub-prime mess affect these gaps?

I've noted in previous entries that a lot of new higher-end property is now on the market. 6.4% of new February inventory is in the $2 million plus range. 34 out of 109, or more than 31% of the new February inventory, is in the $1 million plus range. Yet only 14.1% of the sales in February fell in this range. 26.5% of the sales fell in the range up to $650,000, and 43.8% of sales fell in the range above $650,000 to $800,000. In particular, more than 1 out of every 5 sales fell in the $700,000-$750,000 range. Yet the new inventory certainly doesn't seem to be matching that apparent demand at the lower end.

Just so I'm clear, when I say "new inventory" I don't necessarily mean new construction, though there is a lot of new construction. My definition of new inventory is any property that is being listed for the first time since the end of September, so new inventory in February is anything newly listed in February that hasn't been listed since before the end of September, when I started keeping track of these listings.

It all kind of makes me wonder if new construction is betting too heavily on the high-end luxury market. Builders have been known to complain in recent months that it is too difficult to make a profit at the lower end because of too many rules and regulations. So are upscale buyers safely shielded from the sub-prime nuclear blast and subsequent fallout? If there is contagion, I wonder if the builders would have been better off trying to meet the needs of the lower end buyers and settling for smaller profits.

I've been noticing a lot of odd sales recently. I'll discuss them in my next post.

L.A. Times: Loan turmoil closes doors for buyers - "I knew I was in trouble the very next month"

Unless something has changed, it is my understanding that Susan Bies is a soon-to-be ex-Federal Reserve governor, that she has resigned and is not even serving out her full term, which was due to expire in 2012. She was considered THE resident expert on banking and risk management. Around February 20, she was hyping about 93% of the mortgage market as being "problem-free" and that she could "sleep at night."

That's what they always do, try to minimize the extent of the problem when something blows up, don't they? Susan Bies may be saying something a little different now, according to this March 10 article by Annette Haddad and Scott Reckard.

Countrywide Financial in Calabasas announced on Friday it would no longer make 100% ARM loans to customers with low credit scores and undocumented income. Ditto WMC Mortgage in Burbank.

Now Susan Bies says this is "the beginning" of a wave of troubles the central bank is monitoring, though she claims that the Fed has not yet seen contagion into the Alt-A tier.

How is this affecting pending escrows? "You don't know how frustrating it is to have a client who was approved for a loan 60 days ago, and then the bank calls to say it won't honor the deal", according a loan officer for United Pacific Mortgage in West Los Angeles. We're "back to real credit standards" says another in Newport Beach.

Sub-prime loans were just 7.4% of all mortgages in 2002 ($213 billion nationally). This escalated to 21.3% ($665 billion) in 2005. In 2006 this was 21.5%, $640 billion. Apparently, as home sales began to slide, credit standards were loosened even more in desperate attempts to sell loans. Now some lenders have as much as 20% of their loans already in some kind of trouble.

Wall Street until recently has been buying these shaky loans and bundling them as mortgage-backed bonds for your mutual fund portfolios. Makes you feel great, doesn't it? That's one of the reasons why I say yes, this is a national housing bubble and that's why I keep as little money as possible in any income/money market mutual funds. Wall Street is trying to get lenders to buy back these loans - good luck guys! I have a feeling Joe Schmoe mutual fund mortgage bond holder will be left holding much of this bag.

According to Bear, Stearns, as many as 1.1 million people could be closed out of the housing market this year.

Martin Weiss, writer of Safe Money Report and the Money and Market e-letter, believes the contagion has already spread to the Alt-A (medium quality) tier, and may hit major investment banks. He's been screaming about this for well over a year.

Is Susan Bies in fact stepping down early? Does the Atlanta bank have a new president? And is the Chicago Fed president stepping down this year? And is the Boston Fed president also stepping down this year? Why all these sudden resignations at the Fed, if their monetary policy has supposedly been putting us on such sure footing?

Thursday, March 08, 2007

Real Estate $$$ Transacted through February 2007

Well I waited.

The overall numbers were looking pretty dismal for the zip codes I reported on, the last time Melissa Data was updated, so I figured that there was still some outstanding data for February. It is now March 8, and there are still no updates. Did February really suck as bad as it appears to have?

Of the zip codes I chart, the ones in which sales volume met or exceeded February 2006 sales volume are: 90008, 90034, 90045, 90066, 90249, 90278, 90293, 90504, and 90505. Only in 90250 and 90064 can one claim that sales volume majorly exceeded February 2006 volume. Browse through the charts of the remaining zip codes and you will see some big plunges.

Are the implosions of sub-prime lenders already affecting the housing market? Are escrows being hung up or falling through? I don't know how much the sub-prime market affects the beach cities in particular, but I can only imagine it might have some effect on the "affordable" areas that the L.A. Times has claimed were the "bright spots" in the Los Angeles housing market.

It's getting hard to publish the YOY rankings here because so many of them are now in negative territory. This month, I am introducing an additional measure, which is the second number you see on each row. It is my crude way of measuring the area on the YOY charts. I simply take the cumulative percentage. In some ways I think it is better than the YOY measure because there is more history built in to it. The lower the number, the more pain a zip code has been feeling in terms of dollar volume drying up. The higher the number, the less pain that zip code feels. For February, the minimum was 0.1, and the max was 4.5 (Playa Vista).

90305        38.5%  3.6 Inglewood
90249         8.1%  1.0 Gardena
90250         2.8%  1.1 Hawthorne
90303        -0.3%  1.4 Inglewood
90047        -2.6%  1.6 South Central
90746        -2.7%  2.1 Carson
90301-90305  -6.7%  1.7 Inglewood/Lennox combined
90044        -7.0%  2.3 Athens
90502        -8.5%  1.6 Torrance
90066        -8.9%  0.4 Mar Vista
90302        -9.1%  1.5 Inglewood
90045        -9.5%  0.5 Westchester
90062        -9.9%  1.6 South Central
90037       -10.3%  1.3 South Central
90275       -14.8%  0.1 Palos Verdes Estates
90035       -15.0%  0.6 West Fairfax
90503       -15.8%  0.6 Torrance
90064       -18.5%  0.3 Rancho Park/Cheviot Hills
90043       -19.0%  1.1 Hyde Park, Windsor Hills
90293       -19.0%  0.6 Playa del Rey
90230       -19.7%  0.8 Culver City
90501-90505 -19.7%  0.7 Torrance Combined
90278       -19.8%  0.4 Redondo Beach (north)
90501       -20.6%  0.9 Torrance
90277-90278 -20.8%  0.3 Redondo Beach combined
90277       -21.9%  0.1 Redondo Beach (south)
90016       -22.2%  1.3 West Adams
90504       -22.3%  0.5 Torrance
90019       -22.9%  1.0 Country Club Park/Mid City
90056       -23.4%  0.7 Ladera Heights
90732       -24.7%  0.8 San Pedro/Rancho PV
90260       -25.6%  1.0 Lawndale
90291       -25.8%  0.6 Venice
90301       -25.9%  1.4 Inglewood
90266       -26.4%  0.3 Manhattan Beach
90401-90405 -26.5%  0.4 Santa Monica combined
90008       -26.6%  0.9 Baldwin Hills / Leimart Park
beach cities-27.3%  0.3 4 Beach Cities combined
90018       -29.5%  1.5 Jefferson Park
90505       -29.7%  0.4 Torrance
90717       -32.4%  0.5 Lomita
90036       -33.7%  0.6 Park La Brea
90245       -34.7%  0.7 El Segundo
90292       -39.2%  1.8 Marina del Rey
90304       -40.3%  1.4 Lennox
90254       -42.1%  0.4 Hermosa Beach
90007       -44.8%  1.4 South Central
90232       -44.9%  0.7 Culver City
90745       -46.0%  1.4 Carson
90034       -47.1%  2.0 Palms
90094       -52.6%  4.5 Playa Vista
90744       -55.0%  0.9 Wilmington

Sunday, March 04, 2007

L.A. Times: A cooling trend in real estate flipping

According to this March 4 article by Jennifer Lisle, the number of flippers in the California (a flipper as defined as somebody owning a house six months or less) has decreased from an already mere 4.2% of home resales in 2005 to 3.2% in 2006. The article makes it sound like there were never that many to begin with, and I wonder if the definition is a bit too narrow. But in any case, I find it interesting that the media features a story on flipping as a profit opportunity. It's as if the number of flippers getting burned hasn't reached a critical mass yet.

There could be something to that. According to the story, the number of flipped sales resulting in a loss turned out to be 7.5% in 2005, but up to 24.9% in 2006. 1 out of 4 flipped sales incurred a loss last year. But the flipping dream lives on.

Now you have to know what you are doing. "The market where you could just go in, tidy something up, and move on is gone" according to an experienced flipper and Beverly Hills broker. According to this same agent, the number of clients he has had looking for flips has declined by 75%.

One savvy flipper, a real estate agent in the San Fernando Valley, has become increasingly more stringent in her criteria for what might constitute a flip. Potential profit for a home in the $500K to $700K range must be (after improvement costs and closing) $80K or more, and she says that most properties are just not priced low enough for that. She also pads in a 10% cushion in the event "the market falls" by the time property is back on market.

Michael Corbett, the host of "Mansions and Millionaires" and author of "Find It, Fix It, Flip It" suggests looking for properties in historically low-priced areas that are on the upswing. Ah yes, "gentrification" areas. Corbett suggests Watts as a potential flip area (as well as Echo Park, Atwater Village, and Culver City). I distinctly remember a conversation I had one morning with my busdriver about the places we live, and he lives in one of those "gentrification" areas and complained about how the local residents can no longer afford the rents not to mention housing prices. I can hardly blame him!

Then there are those flippers hedging their bets, flipping properties that are highly rentable. One flipper says "you have to make sure the rent you could get would cover your costs" in case it doesn't resell quickly.

Teacher, I have a question! If these flippers are trying to sell into a softening market at the same time, and then they all try renting out their properties at the same time when they are unable to get their sale prices, won't that soften the rental market too?!?!?

And what kinds of upgrades should savvy flippers undertake? One agent interviewed said that you "can't just upgrade kitchen counters without making sure that the cabinets are of the highest quality and that the appliances have name brands such as Viking and Miele. (Now where have I been?!? Here I have been living in apartments for many many years, I thought happily so, and didn't even know unfulfilled and unsatisfactory my life has been because I had never heard of Miele!)

Corbett, the Flip It author, warns that if you exceed your renovation budget, "a soft market will not bail you out." In terms of upgrades, Corbett likes "lifestyle renovations", features that increase the perceived living space, or add state-of-the-art home features such as digital thermostats.

Neighborhoods worth flipping over, according to the article interviewees:

Traditionally upscale:

Hancock Park
Larchmont Village
Los Feliz

More desirable neighborhoods:

Studio City
Valley Glen
Valley Village

Older homes in transitional areas:

Echo Park
Atwater Village
Culver City

Gentrification areas:

Highland Park
Echo Park
Glassell Park

"I've always done well in these areas"

Silver Lake
Long Beach

So now we've got a media story saying you can still flip IF you know what you are doing. I also love the "well you can always rent it out" psychological plan B. What does it realistically cost to rent it out? How many flippers in this market are seriously overestimating their skills and smarts, especially in the face of what could be some serious price trouncing?

Be sure to check out Flipper Nation for some laughs if you haven't already done so!

Saturday, March 03, 2007

L.A. Times: Builders see some growth in residences - "People are tired of waiting to buy"

According to this March 2 article by Annette Haddad, homebuilders are seeing a 40% bounce in new-home orders. In addition, in the first month-over-month increase since June, permits for single-family homes have risen, in January, by some 18%.

Homebuilder Standard Pacific attributes the gains to an "aggressive pricing strategy."

According to the homebuilder, the rate at which buyers are canceling orders is declining. January-February cancellations ran at 24%, better than Q4's 43% drop and 2006's 26% drop.

Industry observers state that new-home community traffic has picked up. One observer says, "Developers say the lights went on at the beginning of the year."

We know what "aggressive pricing strategy" is a codephrase for. Before we celebrate the housing bottom, it should be noted that January permits were still down 21% YOY. And a few industry analysts want to see what happens this spring before making any prognostications about the market.

Yes, we know that January was somewhat of a rebound month. It showed up as such, in the attitudes of homebuyers. That same attitude can show up in homebuilders. What is still apparent here is that the media takes any little blip up in a bigger overall downturn and trumpets it as a sign of recovery. In my opinion, the psychology isn't right for a recovery.

I am not even sure if all the sale data for February is reported, so I am holding off posting the February dollar volume charts. Let me put it this way - in terms of where the data is now, dollar volume in some zip codes in the area I cover (southwest Los Angeles County, (excluding 90249, 90274, and 90710 due to wacky data) are showing plunges to 5-year lows and even exceeding that. So I want to be sure all the data is in. Thanks for your patience.

Thursday, March 01, 2007

L.A. Times: Sub-prime lending shakeout heats up - "Think how that's going to ripple through the economy, it could really affect home prices"

This February 28 story by E. Scott Reckard discusses the continuing trials and tribulations of sub-prime lenders. Freddie Mac is tightening its standards and refusing to buy "foreclosure-prone" loans. Ameriquest is looking for a buyer or potential partner, exploring "strategic alternatives". Santa Monica's Fremont General Corp said on Tuesday it was delaying the release its 4th quarter financial results. We already know about Irvine's New Century Financial, which has stated heavy losses, and we know that Ownit Mortgage of Agoura Hills has filed for bankruptcy protection. Other mortgage companies, like Countrywide, have been announcing layoffs.

The music has stopped for serial refinancers and they are now stuck with payments that are likely to explode upwards. Some analysts fear that the toxic effect of the sub-prime market will spill into the prime market and perversely damage the economy. (Economist Nouriel Roubini has recently posted about the possible contamination.)

Layoffs in the mortgage industry have been affecting the employment picture in Southern California, too. There was a net loss of jobs last summer for the first time since mid-2000. The mortgage industry had been a "major growth engine" in Orange County and is now a "big drag" on growth.

It still continues to amaze me that even though there are economists and financial analysts out there who see the handwriting on the wall, we have yet to see a discussion in the newspapers of a potential for severe price declines.