Don't Buy Into the Hype

The Buzz is out there, April resale home sales are up in comparison to March. And Ziprealty's very own REALTOR® Pam is pushing it hard. Here's an e-mail she sent out to one of our BMIT readers:

"Everyone is aware of what happened when prices went too high, credit dried upand sales plummeted. However, the tide may be turning again. Demand is starting to rise quickly but the supply is not. Will this stabilize the fall of prices? It may be too soon to tell. However, what you need to know... sales for San Diego County....

01/2008___18,050 active listings___1,309 sold___13.79 months of supply
02/2008___18,471 active listings___1,426 sold___12.95 months of supply
03/2008___18,588 active listings___1,576 sold___11.79 months of supply
04/2008___18,396 active listings___2,159 sold___8.52 months of supply

There are currently an additional 5,447 listings in escrow. If only half of those close in May, we will have experienced a 30% increase in sales (April to May) as we did from March to April. These numbers would also translate to a 100% increase since January. This scenario would also bring the months of supply down to 7. Six months of supply is considered a normal healthy market."

Wow, that sounds pretty impressive! Sounds like The Bottom is here?! Compared to resale volume of 2,536 units in April of '07, resales are just 5% down. So is Pam right in calling a 8.5 months of supply?

Check out where the sale increases are guys...


O-side is carrying the entire North County Coastal, Escondido is leading the pack in North County Inland, and of course Chula Vista is leading the whole county. Sales in these 3 cities alone account for 25% of the county's total sales in April. And I don't need to explain what has been going on with prices in those cities.

Something else REALTOR® Pam is not seeing but BMIT and Mr. Mortgage both observed: huge amount of Phantom (BMIT-speak) or Shadow (Mr. Mortgage-speak) Inventory...



So judge for yourself. The data is out there, but beware of manipulated and misused data.

First Step in Getting Help: Remove Head From Sand

Over the weekend the Union Tribune once again found fresh meat for their "Money Makeover" series. To fit in with the times, the paper found Antwane and Holly, homeowners that found "their property values have depreciated considerably."

Turns out Antwane was a former mortgage broker who drank the kool-aid and forgot about the cyclical side of real estate. Antwane figured his 6 figure income from Bonita Loans was going to keep on forever, therefore he overstretched and went for a $700k home at the height of the bubble. Needless to say, Antwane and Holly now need some serious help and advice.

Unfortunately, the advice is only as good as the information provided. Here's what the paper said about A&H's two rental properties:

"The couple bought their first rental property for $219,000, which is now valued at $328,000 and has a remaining $321,000 mortgage; the second rental property was purchased at $147,000, now valued at $378,000 with a $364,000 mortgage."

That's a lot of cashing out there, Antwane! But are you sure about these properties' current valuation???


2535 CROSSHAVEN LN SAN DIEGO, CA 92139 (rental 1)
--2 beds, 2.0 baths, 1,024 sq ft
--08/2003: purchased for $210,000 but owes $321,000
--article claims current value of $328,000 ($320/sqft)

2541 CROSSHAVEN LN SAN DIEGO, CA 92139 (rental 2)
--4 beds, 2.0 baths, 1,607 sq ft
--09/1999: purchased for $148,000, but owes $364,000
--article claims current value of $378,000 ($235/sqft)

But just a few doors down at 2567 Crosshaven, a 1,540 sqft home just sold for $268,000 in March, that's at $174/sqft.

What about standing inventory? Looking at homes in the same tract, there's 7080 Beckington also at 1,540 sqft asking for $265,000, 7040 Beckington (1,540 sqft) is asking $245,000, and 2644 Pennington (1,777 sqft) is asking for $289,900. Combined and averaged, we are looking at an average asking $/sqft of $165/sqft.

Let's head to A&H's primary residence, according to the article, "their primary home has depreciated from the $700,000 purchase price to $550,000. They have a remaining mortgage of $560,000."


5969 CENTRAL AVE BONITA, CA 91902
--4 beds, 2.0 baths, 1,920 sq ft
--03/2001: prior sale of $315,000
--01/2006: purchased for $700,000, owes $560,000
--article claims current valuation of $550,000 ($286/sqft)

But just down the street there's a foreclosure at 5356 Central Ave. This 1,917 sqft home previously sold for $800,000 in August of 2006 and is currently asking for $422,900, or $220/sqft. Giving A&H some allowances for upkeep, the pool, and location, true value is probably more likely $450,000 for their home.

To summarize:

Antwane's perceived value for rental 1 and rental 2: $706,000
Actual value for rental 1 and rental 2: $435,000
Antwane's perceived value for primary resident: $550,000
Actual value for primary resident: $450,000

That's a difference of $371,000 between perceived and actual valuation of A&H's properties. Interestingly, Antwane is putting all of his valuations at or just slightly below the loan amounts owed. Which means he and Holly have not fully come to grips with the fact that they are in reality $360,000 in the hole.

There are other inconsistencies in the story. A&H told the financial advisor that "their annual $36,000 rental income provides them with a generally even cash flow." But then later on we find out that "they are currently paying 7.5 percent on their two rental properties." Well, with $685,000 in loans at 7.5%, the monthly mortgage is $4,789, meaning an annual payment of $57,468. With addition of property tax at $3,600, we are well into $60,000 annually for the two rentals and we haven't even counted insurance and gardeners. $24,000 in annual negative cash flow is not what I consider 'generally even cash flow.'

Knowing what we know, would the certified financial planner really still say the following,

"They've done a very good job at managing their debt,” Rand said. “They used their emergency reserves first and did balance transfers on their credit cards to keep interest rates low. What they didn't have was enough assets to ride themselves through the real estate correction. Now that things are looking up, and provided their financial situation doesn't worsen, I think they're going to be OK."

And in the final analysis, CFP Rand sees some stormy clouds ahead. But once again guys, the stormy clouds are already here and it is really time to run away.

"Although their mortgages are very manageable today, they may become very unmanageable when their interest rates are set to adjust,” Rand said. “We have no idea what rates will look like several years from now, so this type of adjustment could potentially have a major cash-flow effect. They need to wait until their properties have some equity, then they need to refinance before their ARMs adjust."

Once again, the Union Tribune financial advice proves worthless. But this time, the fault lies squarely at the homeowners still in denial. How many others are still in denial and how long will it take for them to wake up to the new reality?

The Next Shoe to Drop

1656 Pacific Beach Dr, Pacific Beach, Ca 92109
--2 beds, 1.0 baths, 750 sq ft
--10/2007: purchased for $550,000
--loan balance $412,500


5741 Chelsea Ave., La Jolla, CA 92037
--4 beds, 2.0 baths, 1,316 sq ft
--08/2006: purchased for $1.55 million
--loan balance $1.15 million


6616 Tyrian St., La Jolla, CA 92037
--3 beds, 2.5 baths, 1,931 sq ft
--09/2004: purchased for $1.29 million
--loan balance $1.034 million


1104 Missouri St., San Diego, CA 92109
--4 beds, 2.0 baths, 1,860 sq ft
--05/2007: purchased for $910,000
--loan balance $637,000


4 Caves Valley Ct., Henderson, NV 89052
--5 beds, 5.5 baths, 5,695 sq ft
--02/2007: purchased for $755,641
--loan balance $1.24 million

Most of the properties went to NOD in early this year, with re-instatement in April. That's over $5 million in real estate purchases over the last 4 years with $4.47 million owed. The owner is walking a tight rope but still trying very hard to keep her properties afloat.

How did it happen that folks decided it was prudent to loan so much money to one single person? Check out this hour-long episode of This American Life, it is an absolute must-listen.

Back to our example here. With the re-instatements, you can see our owner here is doing all she can to make good. But what if she simply finds all of her efforts to be of little point as property values continue to slide back to "normal" valuation. When these over-extended borrowers walk away en masse, then we'll finally feel the full effect of the next shoe dropping. Until then, buyers beware.

202-456-1414 or 202-456-1111

Call TODAY, tell the live-operator you would like to comment on the possible veto by President Bush regarding the Frank-Dodd bailout bill.

Here's a related story about a possible bailout backlash by the Wall Street Journal.

Just $300 Billion? Are You Sure About That?

This past week, the House approved the much talked about $300 Billion Mortgage Bailout Bill. Specifically, it plans to "will expand the FHA (Federal Housing Administration) program so that borrowers in danger of losing their homes can refinance into lower-cost, government-insured mortgages."

How would this work? "For a homeowner to get a new FHA-backed loan, the holder of the current mortgage would have to accept a loss and take a payment totaling no more than 85 percent of the home's [current] value."

Let's see how this would be applied in real life:

As you all remember, Horizon Court in San Elijo Hills currently has quite a bit of distressed inventory, 6 out of 22 homes on this street are either REOs, NODs, or delinquent in property tax. Some of the homes were purchased for nearly $1 million but now the REOs have pushed the value on the street down to the low $600,000 range.

For simplicity, I'm going to average out the purchase price of these homes to $950,000. And we'll put the current value at $650,000.

Three of the distressed properties are currently pending, so I'll take them out of the equation.

The Bailout Bill's intent is to help with the three remaining homes in distress by making each of the mortgage holder on these properties eat $400,000, or $1.2 million for the three homes.

Then, the FHA-backed loans would kick in and each of these three lucky homeowners, two of them REALTORS, will end up with $550,000 loans. Costing the American taxpayers $1.65 million in loan guarantees. (two of the loans would probably bounce as the out of job REALTORS will remain underemployed even for $550,000 in loans).

Now here's the unintended consequence of this bill:

There's still 16 homes on the street that are underwater!

Assuming 50% of the remaining 16 homes have little or no money down, that means 8 additional homeowners jumping on the delinquency bandwagon! Suddenly mortgage holders now have to eat an additional $3.2 million to bring the value down to the current pricing.

As for the taxpayers, instead of guaranteeing $1.65 million, now we are looking at $6 million in loan guarantees on one single block! Assuming just 1/3 of the loans default, We The People are out $2 million on a single block!

Somehow I don't think $300 billion is going to be enough if this plan really goes into effect.

Here's how you can make a difference. According to the article, Bush says he will veto the Frank-Dodd bailout bill.

Let him hear your voice! Please call the White House to show him your support of a veto of the housing bailout bill:

Ph: 202-456-1414 or 202-456-1111

Just say, "I am calling to ask you to veto any housing bailout that comes out of Congress." A live operator actually picks up and directs you to a comment line. Our democracy is counting on you!

San Diego Foreclosures Break New Heights

According to Ward Hanigan's Innovest, April's NODs are now at 3,601 and the foreclosures are at 1,512. Needless to say, another record breaking month once again.

A Case for a More Stringent RE Licensure Exam

When REALTOR® Moon passed his real estate license exam back in 2003, he figured he had finally made it. No longer is he just Fresh-Off-the-Boat, but now he is Somebody!

As a real estate professional, he understood the market and he understood when was the best time to buy. And thus in May of 2005, he purchased a 5 beds, 5 baths, 4,225 sqft monstrosity in Carlsbad for just $1.133 million.

However, with the market slow down, REALTOR® Moon now decides it is probably a good time to unload this thing. Being a competent and experienced REALTOR®, the natural choice of course is to sell this thing himself. Priced at $1.277 million to $1.320 million, this gem can almost sell itself, especially with these pictures below:

Well, maybe the write up would help a bit more...

"Butiful coner lot! La costa community, gourment kitchen extra nature stone floor, jumbo large island granite counter, wet bar area, butiful landscaping with builted bbq, fire pit, large backyard you can put pool. Butiful California Style Shead home! House has all nature ston floores, nice 4 Double French doors around back, Master suite with double door entry and fire place, master bath has separate Vanities, soaking tub, seperate clear glass shower and His/Her's closets, loft area enjoing family fun thater or other entertaments, all pre wired for surround sound system! outside viewing barcony butiful city light at night! or more goods make offer! "

Oh, by the way, I forgot to mention that this La Costa Oaks home belongs to the "SAN DIGEGITO" School District.

This one sounds like a real winner. Best of luck, Moon!

Don't Cry For Me, Just Get Me My Principal Reduction

4565 Casa Nova Court, Otay Mesa, CA 92154

--6 beds, 4.0 baths, 3,240 sq ft

--04/2006: purchased for $855,000

4573 Casa Nova Court, Otay Mesa, CA 92154

--6 beds, 4.0 baths, 3,240 sq ft

--04/2008: listed then reduced to $400,000

Mr. Bernanke, that'll be $455,000 to keep the poor folks at 4565 Casa Nova from foreclosing, thank you very much kind sir.

Helicopter Ben to the Rescue in El Cajon

The All Powerful and All Knowing Chairman Bernanke is once again out there pushing his principal reduction plan. Let's see how this would work in real life...


In October of this year, this 896 sqft 3 bed/1 bath home on 684 N. Pierce in El Cajon was sold to its lucky owner for $375,000. Price per sqft at $419/sqft.


5 months later, just a couple of blocks to the west, a 964 sqft home also with 3 beds and 1 bath at 665 N. Cuyamaca St sold in April of 2008 for $220,000. Price per sqft of $228/sqft.

Within a month after 665 N. Cuyamaca closed, its neighbor on the same block at 752 N. Cuyamaca with 3 beds and 1 bath at 1,000 sqft is listed for $199,900, or $200/sqft.

Under Chairman Bernanke's plan, instead of Prozac for 684 N. Pierce, it would be a gift of $196,000 in principal forgiveness within 6 months since his purchase.

As for 665 N. Cuyamaca, the gift would just be $27,000 as the purchase was just a month ago. (this one was actually purchased for $480,000 in Sept of '06 and sold recently as a REO).

And what about 752 N. Cuyamaca? Well, the current owner purchased the home for $415,000 in Feb of '06. With the current value at $200,000, this owner can receive a gift of $215,000.

According to Bernanke's principal reduction program, the cost of reducing these 3 homes' principal totals $438,000, and this is including homes purchased during the downturn! A workable plan? More of a laughable one.

hat tip to Peter Viles of LA Land on the Bernanke story, and thanks to MtgFraudGuy on the examples of amazing price drops in El Cajon.