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Thursday, January 28, 2010
California mortgage defaults drop 24.3%
California mortgage defaults drop 24.3%
The number of homes entering the first stage of foreclosure fell in the fourth quarter compared with the previous quarter, MDA DataQuick says -- a sign that banks are working with delinquent borrowers
By Alejandro Lazo
The Obama administration's $75-billion program to help troubled borrowers hold on to their homes appears to be keeping more California families out of foreclosure, data released Wednesday showed, but the relief may be temporary.The number of homes entering the first stage of foreclosure declined 24.3% during the fourth quarter from the previous three months, according to MDA DataQuick, a San Diego real estate research firm. The decline in the default number is significant because any new wave of foreclosures, which could swamp the housing market's recovery, would be preceded by a surge in defaults.So far, thousands of California borrowers have had their mortgages modified through Obama's Making Home Affordable program, but only 7.8% of those modifications were permanent through Dec. 31, according to government data. If the majority of borrowers who have received temporary loan modifications are unable to make those changes permanent, another surge of foreclosures could follow."Given what we see in terms of the number of distressed properties that are in the pipeline, we do expect that foreclosures will mount as borrowers are not able to make it from a trial modification to a permanent modification," Celia Chen, senior director of Moody's Economy.com, said. "This will cause home prices to start falling again."The foreclosure explosion began early in 2007 as home values began falling and adjustable-rate mortgages began resetting, putting payments out of reach for many homeowners. Rising unemployment has added to the problem.Of particular concern is the number of people who are underwater, or owe more on their mortgages than their homes are worth. That number soared with the precipitous drop in home prices. At the end of September, about 1 in 4 U.S. mortgage holders was underwater, and more than a third of California mortgage holders were in that position, according to First American CoreLogic, a real estate data firm."If a borrower is deeply underwater, he doesn't want to be in the home," said Laurie Goodman, senior managing director of Amherst Securities. A loan modification would give the borrower more time, she said, "but there is no reason to stay in your home, and you save a lot by just walking away."Consumer groups are calling for more aggressive measures to help struggling borrowers stay in their homes, such as cutting the amount borrowers owe on their mortgages."We believe strongly that principal reduction should be a component of an effective loan modification program, because principal reduction is going to be more effective keeping people in their homes," said Paul Leonard, California director of the Center for Responsible Lending.Principal reductions are a part of the Obama administration's program, but most loan modifications have involved interest rate reductions and term extensions. The Obama administration has resisted calls to increase the number of principal reductions because such a move could encourage some borrowers to fall behind on their mortgages intentionally and increase the cost to taxpayers, Meg Reilly, a Treasury Department spokeswoman, said Tuesday."There are concerns about moral hazard," she said.The Federal Deposit Insurance Corp. is considering how best to implement a principal reduction option into its loss share agreements with banks that have purchased mortgages of failed banks seized by the federal agency, according to spokesman David Barr. Under the proposals, principal reduction would be an option and the agency would share losses with the banks."We are analyzing the overall program," Barr wrote in an e-mail.A key problem is that many mortgages were sold by the lenders that originated them and packaged into complex securities. Most lenders still act as servicers, collecting and dispersing payments on the loans to far-flung investors and may not control the terms of the contracts, complicating negotiations over modifications.One major California bank, San Francisco-based Wells Fargo, has been actively reducing the principal balances of a batch of Wachovia loans that the bank inherited when it acquired Wachovia in 2008. The bank reduced about $2.6 billion worth of principal during 2009. Franklin Codel, chief financial officer of the bank's home-lending unit, said in an interview this week that the fact that the bank owns those loans made the changes easier."To us it is an important part of creating an affordable, sustainable modification for the borrowers," Codel said.Alejandro Estrella, a 47-year-old postal carrier in Riverside, received a principal reduction of about $50,000 from Wells last fall on the two-bedroom house he bought in 2005. It is motivating him to stay in his home, he said."I am happy with what I have gotten," he said. "Now, whatever it takes, I make the payment."Throughout California, 84,568 notices of default were filed at county recorders' offices in the fourth quarter, an increase of 12.4% from the same period of 2008, DataQuick said. Trustee deeds recorded, signifying the actual loss of a home to foreclosure, totaled 51,060 from October through December, up 2.1% from the third quarter and 10.6% from the fourth quarter of 2008.For the full year, 190,360 California homes were lost to foreclosure, down 19.42% from 2008, when foreclosures topped 236,000. That was the most since DataQuick began tracking foreclosures in 1988."Clearly, many lenders and servicers have concluded that the traditional foreclosure process isn't necessarily the best way to process market distress," DataQuick President John Walsh said. He said banks have been negotiating with distressed borrowers to keep them in their homes and increasingly turning to "short sales" in which the banks accept an offer that is less than the value of the outstanding mortgage; banks end up taking a loss on such deals.The worst may be over for California's hard-hit entry-level market, DataQuick said. The most affordable 25% of the state's housing stock accounted for about 35% of all foreclosure activity in the fourth quarter, down from 52% a year earlier. Mortgages were more likely to go into default in inland areas such as Merced, Stanislaus and Riverside counties, which were ravaged by foreclosures during the downturn. The coastal counties of San Francisco, Marin and San Mateo had the least probability of default, DataQuick said.
Copyright © 2010, The Los Angeles Times
The number of homes entering the first stage of foreclosure fell in the fourth quarter compared with the previous quarter, MDA DataQuick says -- a sign that banks are working with delinquent borrowers
By Alejandro Lazo
The Obama administration's $75-billion program to help troubled borrowers hold on to their homes appears to be keeping more California families out of foreclosure, data released Wednesday showed, but the relief may be temporary.The number of homes entering the first stage of foreclosure declined 24.3% during the fourth quarter from the previous three months, according to MDA DataQuick, a San Diego real estate research firm. The decline in the default number is significant because any new wave of foreclosures, which could swamp the housing market's recovery, would be preceded by a surge in defaults.So far, thousands of California borrowers have had their mortgages modified through Obama's Making Home Affordable program, but only 7.8% of those modifications were permanent through Dec. 31, according to government data. If the majority of borrowers who have received temporary loan modifications are unable to make those changes permanent, another surge of foreclosures could follow."Given what we see in terms of the number of distressed properties that are in the pipeline, we do expect that foreclosures will mount as borrowers are not able to make it from a trial modification to a permanent modification," Celia Chen, senior director of Moody's Economy.com, said. "This will cause home prices to start falling again."The foreclosure explosion began early in 2007 as home values began falling and adjustable-rate mortgages began resetting, putting payments out of reach for many homeowners. Rising unemployment has added to the problem.Of particular concern is the number of people who are underwater, or owe more on their mortgages than their homes are worth. That number soared with the precipitous drop in home prices. At the end of September, about 1 in 4 U.S. mortgage holders was underwater, and more than a third of California mortgage holders were in that position, according to First American CoreLogic, a real estate data firm."If a borrower is deeply underwater, he doesn't want to be in the home," said Laurie Goodman, senior managing director of Amherst Securities. A loan modification would give the borrower more time, she said, "but there is no reason to stay in your home, and you save a lot by just walking away."Consumer groups are calling for more aggressive measures to help struggling borrowers stay in their homes, such as cutting the amount borrowers owe on their mortgages."We believe strongly that principal reduction should be a component of an effective loan modification program, because principal reduction is going to be more effective keeping people in their homes," said Paul Leonard, California director of the Center for Responsible Lending.Principal reductions are a part of the Obama administration's program, but most loan modifications have involved interest rate reductions and term extensions. The Obama administration has resisted calls to increase the number of principal reductions because such a move could encourage some borrowers to fall behind on their mortgages intentionally and increase the cost to taxpayers, Meg Reilly, a Treasury Department spokeswoman, said Tuesday."There are concerns about moral hazard," she said.The Federal Deposit Insurance Corp. is considering how best to implement a principal reduction option into its loss share agreements with banks that have purchased mortgages of failed banks seized by the federal agency, according to spokesman David Barr. Under the proposals, principal reduction would be an option and the agency would share losses with the banks."We are analyzing the overall program," Barr wrote in an e-mail.A key problem is that many mortgages were sold by the lenders that originated them and packaged into complex securities. Most lenders still act as servicers, collecting and dispersing payments on the loans to far-flung investors and may not control the terms of the contracts, complicating negotiations over modifications.One major California bank, San Francisco-based Wells Fargo, has been actively reducing the principal balances of a batch of Wachovia loans that the bank inherited when it acquired Wachovia in 2008. The bank reduced about $2.6 billion worth of principal during 2009. Franklin Codel, chief financial officer of the bank's home-lending unit, said in an interview this week that the fact that the bank owns those loans made the changes easier."To us it is an important part of creating an affordable, sustainable modification for the borrowers," Codel said.Alejandro Estrella, a 47-year-old postal carrier in Riverside, received a principal reduction of about $50,000 from Wells last fall on the two-bedroom house he bought in 2005. It is motivating him to stay in his home, he said."I am happy with what I have gotten," he said. "Now, whatever it takes, I make the payment."Throughout California, 84,568 notices of default were filed at county recorders' offices in the fourth quarter, an increase of 12.4% from the same period of 2008, DataQuick said. Trustee deeds recorded, signifying the actual loss of a home to foreclosure, totaled 51,060 from October through December, up 2.1% from the third quarter and 10.6% from the fourth quarter of 2008.For the full year, 190,360 California homes were lost to foreclosure, down 19.42% from 2008, when foreclosures topped 236,000. That was the most since DataQuick began tracking foreclosures in 1988."Clearly, many lenders and servicers have concluded that the traditional foreclosure process isn't necessarily the best way to process market distress," DataQuick President John Walsh said. He said banks have been negotiating with distressed borrowers to keep them in their homes and increasingly turning to "short sales" in which the banks accept an offer that is less than the value of the outstanding mortgage; banks end up taking a loss on such deals.The worst may be over for California's hard-hit entry-level market, DataQuick said. The most affordable 25% of the state's housing stock accounted for about 35% of all foreclosure activity in the fourth quarter, down from 52% a year earlier. Mortgages were more likely to go into default in inland areas such as Merced, Stanislaus and Riverside counties, which were ravaged by foreclosures during the downturn. The coastal counties of San Francisco, Marin and San Mateo had the least probability of default, DataQuick said.
Copyright © 2010, The Los Angeles Times
Wednesday, January 27, 2010
Housing data show county's ups, downs
Housing data show county’s ups, downs
Changes in median price are literally all over the map
By Roger Showley, UNION-TRIBUNE STAFF WRITER
Sunday, January 24, 2010 at 1:33 a.m.
If you own a home in western Escondido, you enjoyed a 37 percent increase in last year’s median home price, the most of any major neighborhood in the county, according to MDA DataQuick.
On the other hand, a homeowner in San Ysidro endured a 32 percent decline, the worst drop of any area.
Across the county, median prices in 40 ZIP codes were up, 41 were down and four were unchanged. In other words, it looks like half of the county saw a housing recovery in the past year.
Overall, prices in the fourth quarter of 2009 rose year over year by $15,000 — or nearly 5 percent — to $325,000, indicating a firming of the market.
Although housing experts said the starter-home market at $350,000 has stabilized and appears to be rising as distressed properties leave the market, homes above $800,000 are still falling because of job losses and higher-cost mortgages.
Buyers always want to know where to find deals, but there is no geographic pricing pattern. Some high-end ZIP codes such as Rancho Santa Fe were up, while others such as Coronado were down. North Park dropped, while neighboring Normal Heights-Kensington increased. Spring Valley was up; Lemon Grove was flat.
Veteran real estate consultant Alan Nevin said the local housing market is becoming more stable, but he noted that the quarterly figures do not show a clear trend.
“I was hoping to find a pattern, and there was no pattern,” Nevin said. “Even in neighborhoods where there was a lot of activity, you would have thought, with 300 to 400 sales, you could be pretty reliant on the accuracy of the numbers. I’m not seeing that.”
If the experts are befuddled, where does that leave buyers and sellers?
Throughout the county, the lowest prices in years sparked keen interest from buyers who could not afford to participate during the boom. Jim Bottrell of Realty Experts in Escondido said that Oceanside was particularly active. Virtually all of the 42 transactions Bottrell handled last year involved military families.
“You have a military market that for the last 10 years hasn’t been able to buy,” Bottrell said. “All of a sudden, they can afford to buy a house.”
In western Escondido — ZIP code 92029 — where the median had the sharpest rise, Norman and Marietta Young had to lower the asking price by $30,000 to $465,000 last week on their 2,610-square-foot home on 1.35 acres at Country Club Drive. The Youngs might have been able to sell at $700,000 several years ago.
“It was insane,” Norman Young said. “It was not supply and demand, it was an absurdity.”
They had the home in escrow last year near the first listing price of $495,000 before the buyer backed out because of financing problems.
“I think the pricing of homes right now is a lot more realistic,” Young said.
Their agent, Monica White of Picot Realty, said she plans an open house next weekend and expects to receive offers at the reduced price.
DataQuick analyst Andrew LePage cautioned against reading too much into price increases in certain ZIP codes.
“For now, I think the increases we’re seeing in the median are largely the result of changes in the types of homes selling,”
LePage said, adding that there may be fewer low-priced homes but more higher-priced, discounted homes.
LePage said that while coastal properties generally are holding their values better than inland homes, high-priced properties are still eroding.
Gerri-Lynn Fives, president of the Coronado Real Estate Association, said she was not surprised to learn that Coronado’s median price was down 21 percent to $995,000 because many owners of second homes were willing to sell at a loss. Unless would-be buyers can make a 20 percent down payment, they usually cannot take advantage of the lower prices.
In downtown San Diego, hit hard by the overbuilding of high-rise condominiums during the boom years, Jim Abbott of ARG Abbott Realty said there are 411 listings in a market where there were 337 sales in the fourth quarter. The median price was $365,000, down 11.7 percent from a year earlier.
“There’s no question that the first crush of foreclosures that hit the market were snapped up by many all-cash investors,” Abbott said. “That actually stabilized the market and made it very competitive.”
Those investors are largely gone, replaced by owner-occupants who are stymied from buying because of lender rules that are tougher for condos than single-family homes.
“I really think we have another at least three to five years of this, because there’s so much inventory that’s not on the market,” Abbott said.
He was referring to the shadow inventory of foreclosures that banks have not yet listed for sale, plus homes previously offered for sale but taken off the market by owners who did not want to lower their prices.
The result is that as of last week, listings since July have dropped 35.6 percent to 4,706 single-family resale homes, according to the San Diego Association of Realtors. Resale condo listings were down 45.4 percent to 2,571.
Jorge Vega, broker for Community HousingWorks, said the declining inventory of starter homes is forcing first-time buyers to increase their down payment offers to compete against all-cash buyers. Vega said those who want to take advantage of the $8,000 federal tax credit, plus those eligible for the $6,500 move-up tax credit, should be aware of the April 30 deadline.
“I think the market is beginning to demonstrate some consistency, but overall, San Diego’s numbers are so varied that I think we’re still in for some surprises before this is out,” Vega said. “Toward the end of the year, we will be able to have a clear picture of what’s going on.”
Changes in median price are literally all over the map
By Roger Showley, UNION-TRIBUNE STAFF WRITER
Sunday, January 24, 2010 at 1:33 a.m.
If you own a home in western Escondido, you enjoyed a 37 percent increase in last year’s median home price, the most of any major neighborhood in the county, according to MDA DataQuick.
On the other hand, a homeowner in San Ysidro endured a 32 percent decline, the worst drop of any area.
Across the county, median prices in 40 ZIP codes were up, 41 were down and four were unchanged. In other words, it looks like half of the county saw a housing recovery in the past year.
Overall, prices in the fourth quarter of 2009 rose year over year by $15,000 — or nearly 5 percent — to $325,000, indicating a firming of the market.
Although housing experts said the starter-home market at $350,000 has stabilized and appears to be rising as distressed properties leave the market, homes above $800,000 are still falling because of job losses and higher-cost mortgages.
Buyers always want to know where to find deals, but there is no geographic pricing pattern. Some high-end ZIP codes such as Rancho Santa Fe were up, while others such as Coronado were down. North Park dropped, while neighboring Normal Heights-Kensington increased. Spring Valley was up; Lemon Grove was flat.
Veteran real estate consultant Alan Nevin said the local housing market is becoming more stable, but he noted that the quarterly figures do not show a clear trend.
“I was hoping to find a pattern, and there was no pattern,” Nevin said. “Even in neighborhoods where there was a lot of activity, you would have thought, with 300 to 400 sales, you could be pretty reliant on the accuracy of the numbers. I’m not seeing that.”
If the experts are befuddled, where does that leave buyers and sellers?
Throughout the county, the lowest prices in years sparked keen interest from buyers who could not afford to participate during the boom. Jim Bottrell of Realty Experts in Escondido said that Oceanside was particularly active. Virtually all of the 42 transactions Bottrell handled last year involved military families.
“You have a military market that for the last 10 years hasn’t been able to buy,” Bottrell said. “All of a sudden, they can afford to buy a house.”
In western Escondido — ZIP code 92029 — where the median had the sharpest rise, Norman and Marietta Young had to lower the asking price by $30,000 to $465,000 last week on their 2,610-square-foot home on 1.35 acres at Country Club Drive. The Youngs might have been able to sell at $700,000 several years ago.
“It was insane,” Norman Young said. “It was not supply and demand, it was an absurdity.”
They had the home in escrow last year near the first listing price of $495,000 before the buyer backed out because of financing problems.
“I think the pricing of homes right now is a lot more realistic,” Young said.
Their agent, Monica White of Picot Realty, said she plans an open house next weekend and expects to receive offers at the reduced price.
DataQuick analyst Andrew LePage cautioned against reading too much into price increases in certain ZIP codes.
“For now, I think the increases we’re seeing in the median are largely the result of changes in the types of homes selling,”
LePage said, adding that there may be fewer low-priced homes but more higher-priced, discounted homes.
LePage said that while coastal properties generally are holding their values better than inland homes, high-priced properties are still eroding.
Gerri-Lynn Fives, president of the Coronado Real Estate Association, said she was not surprised to learn that Coronado’s median price was down 21 percent to $995,000 because many owners of second homes were willing to sell at a loss. Unless would-be buyers can make a 20 percent down payment, they usually cannot take advantage of the lower prices.
In downtown San Diego, hit hard by the overbuilding of high-rise condominiums during the boom years, Jim Abbott of ARG Abbott Realty said there are 411 listings in a market where there were 337 sales in the fourth quarter. The median price was $365,000, down 11.7 percent from a year earlier.
“There’s no question that the first crush of foreclosures that hit the market were snapped up by many all-cash investors,” Abbott said. “That actually stabilized the market and made it very competitive.”
Those investors are largely gone, replaced by owner-occupants who are stymied from buying because of lender rules that are tougher for condos than single-family homes.
“I really think we have another at least three to five years of this, because there’s so much inventory that’s not on the market,” Abbott said.
He was referring to the shadow inventory of foreclosures that banks have not yet listed for sale, plus homes previously offered for sale but taken off the market by owners who did not want to lower their prices.
The result is that as of last week, listings since July have dropped 35.6 percent to 4,706 single-family resale homes, according to the San Diego Association of Realtors. Resale condo listings were down 45.4 percent to 2,571.
Jorge Vega, broker for Community HousingWorks, said the declining inventory of starter homes is forcing first-time buyers to increase their down payment offers to compete against all-cash buyers. Vega said those who want to take advantage of the $8,000 federal tax credit, plus those eligible for the $6,500 move-up tax credit, should be aware of the April 30 deadline.
“I think the market is beginning to demonstrate some consistency, but overall, San Diego’s numbers are so varied that I think we’re still in for some surprises before this is out,” Vega said. “Toward the end of the year, we will be able to have a clear picture of what’s going on.”
Instructions for Form 5405 - First-Time Homebuyer Tax Credit
From the Washington Post:
Instructions for Form 5405
If you've been holding back on getting involved with the new $6,500 federal tax credit for repeat home purchases, there's no more excuse for inaction. You now have all the official IRS guidance you'll need to buy a house, qualify for the credit and pocket the $6,500.To read the full article, including an explanation of the credit, click here.
That's because the Internal Revenue Service finally published the rules for the repeat-purchase credit, with key details for taxpayers that had been missing since President Obama signed the legislation creating the program Nov. 6.
Instructions for Form 5405
Friday, January 22, 2010
Wells Fargo's surprise profit boosts optimism...
Jan 20, 5:28 PM EST
Wells Fargo's surprise profit boosts optimism that lending could rebound in 2010
By STEVENSON JACOBS AP Business Writer
NEW YORK (AP) -- Wells Fargo says the economy is getting better - it sees signs of recovery in its loan business.
But the big bank may be more of an exception than a leading indicator.
Breaking from the cautious, even downbeat forecasts of rivals like JPMorgan Chase & Co., Wells Fargo on Wednesday used words like "favorable" and "confidence" about its future amid tentative signs that its loan defaults are close to a peak or already have peaked. The company believes the recession-weary consumer could be making a comeback.
The company is way ahead of other banks, although the CEO Bank of America, which lost more than $5 billion last quarter, expressed mild optimism that sagging consumer sentiment may be turning around.
Many banking analysts aren't so sure. The reason: Ongoing problems including the deteriorating commercial real estate market and rising credit card defaults could still trip up a recovery. And while Wells' profit report was good news, the bank is ahead of its competitors by having already taken losses on many of its bad loans.
So while Mike Loughlin, Wells Fargo & Co.'s chief credit and risk officer, said a better economic outlook and an improved credit forecast "increase our confidence that our credit cycle is turning," that assessment might be a little premature - if not for Wells Fargo, then for the banking industry as a whole.
Bert Ely, a banking analyst in Alexandria, Va., called Well's performance a "good surprise" but said several potential pitfalls could upend the bank's bold statements about a potential recovery. Specifically, yet-to-be-realized losses on commercial real estate, prime mortgages and credit cards could weigh on all bank earnings well into 2010.
"We still have a lot of problems on the horizon," Ely said. "We're certainly past the abyss, but some banks went deeper into it than others and face a steeper climb out."
Wells Fargo said it earned $394 million, or 8 cents per share, during the fourth quarter. That surprised analysts polled by Thomson Reuters who were expecting a loss of 1 cent per share.
Adam Barkstrom, a managing director at Sterne Agee, shared the skepticism over Well's forecast of an economic recovery, saying: "I think it's still too early to make that prediction."
He said the bank is still highly exposed to risky mortgage markets like Florida and California. It has also restructured many troubled mortgages, which could mean the bank is "just kicking the can down the road" if those borrowers still can't pay their bills.
Moreover, Wells has aggressively written down bad loans made before the downturn while at the same time tightening lending standards, boosting the quality of its credit portfolio compared to its competitors, said Jamie Peters, senior equity analyst at Morningstar. That means other banks that haven't acted as aggressively could still be facing credit problems.
Other analysts aren't so pessimistic.
Gerard Cassidy, banking analyst at RBC Capital Markets, said Wells' earnings report could signal that a credit turnaround is in the offing. He said losses from failed loans historically peak six months after the end of a recession, which means lending could pick up again in the second quarter of this year.
Given Well's surprise profit, "it seems to us that there's ample evidence that banks' credit problems will be peaking shortly," he said. "I think this is very real. I think we're going to be very pleasantly surprised in 2010."
Bank of America, meanwhile, said it lost $5.2 billion after payment of preferred dividends, an amount that reflects the costs of repaying government bailout funds as well as continuing losses from loans. The bank's Merrill Lynch investment banking operations helped offset the lending losses. JPMorgan Chase and Citigroup also reported that their investment banking businesses helped to mitigate the impact of their troubled loans.
Bank of America's loss, which translated to 60 cents per share, was larger than the 52 cents analysts expected.
All the four consumer big banks that have reported fourth-quarter earnings made hefty additions to the money they set aside to cover bad loans. Wells Fargo added $5.91 billion during the fourth quarter, while Bank of America set aside $10.1 billion.
Citigroup said Tuesday it had boosted its reserves by $8.18 billion, and on Friday, JPMorgan Chase said it had added $7.28 billion to its reserves.
Amid the mixed earnings picture, JPMorgan and Citi issued more cautious statements about the future.
At Bank of America, CEO Brian Moynihan said the financial crisis "has taken its toll" on the Charlotte, N.C.-based bank and that economic conditions remain fragile. However, he still sounded a positive note, saying during a conference call, "We believe the economy is stabilizing. Markets are opening, and customer sentiment is improving."
That's a stark contrast from the statements on banking made only a year ago, said Peters of Morningstar.
"Wells was more optimistic than any of the rest. Bank of America was more optimistic than Citi or JPMorgan, which (were) the most cautious," Peters said. "Every time you had a new conference call, it was more optimistic than the last."
Like Wells Fargo, Band of America's prospects going forward are uncertain, said Bart Narter, a senior vice president at consulting firm Celent. While the acquisition of Merrill Lynch is starting to pay off, giving Bank of America an income boost from investment banking, the retail banking part of the business still faces problems.
Chief among them is dwindling profits from retail deposits, a trend that's expected to grow after legislation takes effect this summer limiting bank fees like overdraft charges.
"That's going to hurt everyone, but it hurts Bank of America more because they're already seeing a downward trend," Narter said.
---
Wells Fargo's surprise profit boosts optimism that lending could rebound in 2010
By STEVENSON JACOBS AP Business Writer
NEW YORK (AP) -- Wells Fargo says the economy is getting better - it sees signs of recovery in its loan business.
But the big bank may be more of an exception than a leading indicator.
Breaking from the cautious, even downbeat forecasts of rivals like JPMorgan Chase & Co., Wells Fargo on Wednesday used words like "favorable" and "confidence" about its future amid tentative signs that its loan defaults are close to a peak or already have peaked. The company believes the recession-weary consumer could be making a comeback.
The company is way ahead of other banks, although the CEO Bank of America, which lost more than $5 billion last quarter, expressed mild optimism that sagging consumer sentiment may be turning around.
Many banking analysts aren't so sure. The reason: Ongoing problems including the deteriorating commercial real estate market and rising credit card defaults could still trip up a recovery. And while Wells' profit report was good news, the bank is ahead of its competitors by having already taken losses on many of its bad loans.
So while Mike Loughlin, Wells Fargo & Co.'s chief credit and risk officer, said a better economic outlook and an improved credit forecast "increase our confidence that our credit cycle is turning," that assessment might be a little premature - if not for Wells Fargo, then for the banking industry as a whole.
Bert Ely, a banking analyst in Alexandria, Va., called Well's performance a "good surprise" but said several potential pitfalls could upend the bank's bold statements about a potential recovery. Specifically, yet-to-be-realized losses on commercial real estate, prime mortgages and credit cards could weigh on all bank earnings well into 2010.
"We still have a lot of problems on the horizon," Ely said. "We're certainly past the abyss, but some banks went deeper into it than others and face a steeper climb out."
Wells Fargo said it earned $394 million, or 8 cents per share, during the fourth quarter. That surprised analysts polled by Thomson Reuters who were expecting a loss of 1 cent per share.
Adam Barkstrom, a managing director at Sterne Agee, shared the skepticism over Well's forecast of an economic recovery, saying: "I think it's still too early to make that prediction."
He said the bank is still highly exposed to risky mortgage markets like Florida and California. It has also restructured many troubled mortgages, which could mean the bank is "just kicking the can down the road" if those borrowers still can't pay their bills.
Moreover, Wells has aggressively written down bad loans made before the downturn while at the same time tightening lending standards, boosting the quality of its credit portfolio compared to its competitors, said Jamie Peters, senior equity analyst at Morningstar. That means other banks that haven't acted as aggressively could still be facing credit problems.
Other analysts aren't so pessimistic.
Gerard Cassidy, banking analyst at RBC Capital Markets, said Wells' earnings report could signal that a credit turnaround is in the offing. He said losses from failed loans historically peak six months after the end of a recession, which means lending could pick up again in the second quarter of this year.
Given Well's surprise profit, "it seems to us that there's ample evidence that banks' credit problems will be peaking shortly," he said. "I think this is very real. I think we're going to be very pleasantly surprised in 2010."
Bank of America, meanwhile, said it lost $5.2 billion after payment of preferred dividends, an amount that reflects the costs of repaying government bailout funds as well as continuing losses from loans. The bank's Merrill Lynch investment banking operations helped offset the lending losses. JPMorgan Chase and Citigroup also reported that their investment banking businesses helped to mitigate the impact of their troubled loans.
Bank of America's loss, which translated to 60 cents per share, was larger than the 52 cents analysts expected.
All the four consumer big banks that have reported fourth-quarter earnings made hefty additions to the money they set aside to cover bad loans. Wells Fargo added $5.91 billion during the fourth quarter, while Bank of America set aside $10.1 billion.
Citigroup said Tuesday it had boosted its reserves by $8.18 billion, and on Friday, JPMorgan Chase said it had added $7.28 billion to its reserves.
Amid the mixed earnings picture, JPMorgan and Citi issued more cautious statements about the future.
At Bank of America, CEO Brian Moynihan said the financial crisis "has taken its toll" on the Charlotte, N.C.-based bank and that economic conditions remain fragile. However, he still sounded a positive note, saying during a conference call, "We believe the economy is stabilizing. Markets are opening, and customer sentiment is improving."
That's a stark contrast from the statements on banking made only a year ago, said Peters of Morningstar.
"Wells was more optimistic than any of the rest. Bank of America was more optimistic than Citi or JPMorgan, which (were) the most cautious," Peters said. "Every time you had a new conference call, it was more optimistic than the last."
Like Wells Fargo, Band of America's prospects going forward are uncertain, said Bart Narter, a senior vice president at consulting firm Celent. While the acquisition of Merrill Lynch is starting to pay off, giving Bank of America an income boost from investment banking, the retail banking part of the business still faces problems.
Chief among them is dwindling profits from retail deposits, a trend that's expected to grow after legislation takes effect this summer limiting bank fees like overdraft charges.
"That's going to hurt everyone, but it hurts Bank of America more because they're already seeing a downward trend," Narter said.
---
Wednesday, January 20, 2010
County leads region in home-price gains
County leads region in home-price gains
Pace of sales, compared with ’08, also increasing
By Roger Showley, UNION-TRIBUNE STAFF WRITER
Wednesday, January 20, 2010 at 12:02 a.m.
Pace of sales, compared with ’08, also increasing
By Roger Showley, UNION-TRIBUNE STAFF WRITER
Wednesday, January 20, 2010 at 12:02 a.m.
San Diego County, with a 10 percent increase, led Southern California in home price improvement last month, although Los Angeles had the highest sales growth on a year-over-year basis, MDA DataQuick reported yesterday.
Overall, the six-county region had a 4 percent increase in median price, rising from $278,000 in December 2008 to $289,000 last month. It was the first year-over-year improvement since summer 2007. The one exception was the Inland Empire, where prices in Riverside and San Bernardino counties were lower in December than a year earlier.
Sales were up 12.1 percent regionally, while San Diego, as earlier reported, was up 9.8 percent and Los Angeles was up 31.3 percent.
Kelly Cunningham, senior economist at National University’s Institute for Policy Research in San Diego, said the coastal counties typically fare better than the Inland Empire because of the historic preference for living near the beach and the lack of new development in the nearly built-out coastal zone.
“It’s somewhat encouraging that things are picking up,” he said.
During the mid-2000s boom, many San Diego workers fled to southern Riverside County to take advantage of lower prices for bigger homes. With the latest figures, the price gap between San Diego and Riverside grew from $91,000 in December 2008 to $134,000 last month. But Cunningham said San Diego workers looking to buy may still find it more affordable and tolerable — at least for now — to stay local than to endure the hour-plus commute.
“At some point, I think it will turn around, but we’re not there yet,” he said.
In other findings from DataQuick, the “flipping rate” — resales of homes within three weeks and six months of the initial purchase — was lowest in San Diego County in December at 2.4 percent and highest in San Bernardino County at 3.8 percent. The regional average was 3.1 percent. Cunningham said the lower rate in San Diego County may reflect relatively more investor interest in foreclosure properties elsewhere.
The percentage of resales that had gone through foreclosure in the previous 12 months was 39.6 percent regionally in December, up from 39 percent in November. San Diego’s rate was 35.8 percent last month, up from 32.6 percent in November.
In financing, Southern California buyers typically paid $1,231 per month in mortgages last month, up from $1,207 in November but down from $1,239 a year earlier. Adjustable-rate mortgages accounted for 4.6 percent of home loans, the highest since September 2008 but far below the 51 percent average level since 2000.
Federal Housing Administration-insured loans accounted for 39.6 percent of all home purchase mortgages, up from 39.1 percent in December 2008; 24.9 percent of sales were all-cash deals involving no mortgage, compared with 22 percent a year earlier — another indication of investor interest in foreclosures.
Overall, the six-county region had a 4 percent increase in median price, rising from $278,000 in December 2008 to $289,000 last month. It was the first year-over-year improvement since summer 2007. The one exception was the Inland Empire, where prices in Riverside and San Bernardino counties were lower in December than a year earlier.
Sales were up 12.1 percent regionally, while San Diego, as earlier reported, was up 9.8 percent and Los Angeles was up 31.3 percent.
Kelly Cunningham, senior economist at National University’s Institute for Policy Research in San Diego, said the coastal counties typically fare better than the Inland Empire because of the historic preference for living near the beach and the lack of new development in the nearly built-out coastal zone.
“It’s somewhat encouraging that things are picking up,” he said.
During the mid-2000s boom, many San Diego workers fled to southern Riverside County to take advantage of lower prices for bigger homes. With the latest figures, the price gap between San Diego and Riverside grew from $91,000 in December 2008 to $134,000 last month. But Cunningham said San Diego workers looking to buy may still find it more affordable and tolerable — at least for now — to stay local than to endure the hour-plus commute.
“At some point, I think it will turn around, but we’re not there yet,” he said.
In other findings from DataQuick, the “flipping rate” — resales of homes within three weeks and six months of the initial purchase — was lowest in San Diego County in December at 2.4 percent and highest in San Bernardino County at 3.8 percent. The regional average was 3.1 percent. Cunningham said the lower rate in San Diego County may reflect relatively more investor interest in foreclosure properties elsewhere.
The percentage of resales that had gone through foreclosure in the previous 12 months was 39.6 percent regionally in December, up from 39 percent in November. San Diego’s rate was 35.8 percent last month, up from 32.6 percent in November.
In financing, Southern California buyers typically paid $1,231 per month in mortgages last month, up from $1,207 in November but down from $1,239 a year earlier. Adjustable-rate mortgages accounted for 4.6 percent of home loans, the highest since September 2008 but far below the 51 percent average level since 2000.
Federal Housing Administration-insured loans accounted for 39.6 percent of all home purchase mortgages, up from 39.1 percent in December 2008; 24.9 percent of sales were all-cash deals involving no mortgage, compared with 22 percent a year earlier — another indication of investor interest in foreclosures.
Tuesday, January 19, 2010
County Median Housing On Upswing
County median housing price on upswing
December report indicates stability
By Roger Showley, UNION-TRIBUNE STAFF WRITER
Tuesday, January 19, 2010 at 12:02 a.m.
December report indicates stability
By Roger Showley, UNION-TRIBUNE STAFF WRITER
Tuesday, January 19, 2010 at 12:02 a.m.
San Diego County’s median housing price rose in December for the first time in four months, MDA DataQuick reported yesterday, adding further evidence that the housing market is stabilizing after four years of declines. Above, property for sale in Rancho Bernardo earlier this month.
San Diego County’s median housing price rose in December for the first time in four months, MDA DataQuick reported yesterday, adding further evidence that the housing market is stabilizing after four years of declines.
With sales rising, inventories lower, interest rates attractive and buyer interest growing, the latest report suggests that the market reached bottom last year and a recovery, if not under way, will come soon.
“Home values have stopped falling and there are signs that they’re edging up from the bottom,” said University of San Diego economist Alan Gin. “I think we’ll see some stability in the housing market. But it’s going to take a long time — we may not get to the inflated heights for a long time.”
DataQuick reported that the median rose $5,000 to $330,000 after remaining unchanged for four months at $325,000. It was up 10 percent from December 2008’s median of $300,000.
There was also nearly a 10 percent increase in the number of sales from December 2008. The 3,652 sales was the best showing in December since 2006.
Compared with a year ago, many doubts about the real estate market have dissipated, said Ross Starr, an economist at the University of California San Diego.
“A year ago, the world was falling apart,” Starr said. “We were hanging on for it to stop — and it stopped.”
Starr said the market is now in a “rocky period” of adjustment and it is unlikely prices will climb quickly.
“The good news is the market is in adjustment,” he said. “The bad news is this is as fast as it can go and it’s going to take at least another year to sort this mess out.”
San Diego County’s median price reached a peak $517,500 in November 2005 and fell to $280,000 last January before starting to rise again. Even with last year’s increases, the median is still 36.2 percent below the peak. Some experts don’t think the previous highs will be equaled for eight years.
Anticipating such a slow recovery may have prompted some owners to let their homes fall into foreclosure. In December, 35.8 percent of the county’s resales involved houses and condominiums that had been foreclosed on in the previous 12 months. That was up from 32.6 percent in November and the first month-to-month increase in a year.
“The notion of one-third of sales being distressed properties is really extraordinary,” Starr said. “That’s a problem that still has to play out.”
But DataQuick analyst Andrew LePage said the flood of foreclosures is being sopped up by investors and first-time buyers eager to take advantage of low prices.
LePage said that demand should lessen worries about the shadow inventory — homes that lenders have foreclosed on but have not yet been listed for sale. Some analysts have feared that banks would try to sell too many properties at once, depressing prices and leading to more foreclosures.
“My hunch is most foreclosures, if they’re priced right, go really fast,” LePage said. “We snapped up in California, on average, 17,000 to 18,000 foreclosure homes a month in 2009. It was an impressive clip, and that’s what kept the inventory of foreclosed homes from ballooning way out of control.”
In San Diego, he said 83.8 percent of foreclosures had been sold as of last fall and some that hadn’t changed hands are being rented.
For all of 2009, DataQuick said there were 39,298 sales, up 14.6 percent from 34,294 transactions in 2008. It was the highest volume since 44,580 in 2006. The year’s lowest median was last January and it has risen or remained unchanged every month.
However, the December report reflected significant differences among housing categories. The most striking month-to-month price change was the 28.4 percent increase in the new-home category, which includes new construction and condo conversions.
LePage said the increase likely reflects a surge in high-priced houses and townhouses that closed escrow last month, compared with lower-priced conversions and small condos.
In addition, builders typically offer incentives to complete a sale by year’s end for tax reasons. The federal first-time home buyer tax credit of $8,000 was originally set to expire Nov. 30, but it has been extended to spring and expanded to apply to move-up buyers who stand to receive a $6,500 credit.
Another sign of stability was found in the cost per square foot of homes that have sold. This helps eliminate the differences in homes of a different size, age and location. In every part of the region except East County, Le-
Page said, the cost per square foot was higher in December than a year earlier.
He also noticed that higher-priced homes are representing an increasingly larger share of the market, as distressed sellers find buyers eager to snap up move-up homes at prices not seen in years.
Using as a barometer the sales in the North County coastal zone excepting Oceanside, he said the market share in December was 9.3 percent of all sales countywide.
That’s not far off the 9.6 percent average since 2002.
Meanwhile, South County sales, where widespread distress and foreclosure have been endemic since mid-2007, have fallen back from a peak 18 percent market share a year ago to 15.3 percent last month; the eight-year average is 12.4 percent.
Looking ahead, LePage and the two economists agreed that forecasts are difficult.
“There are too many unknowns about the economy, foreclosures and government stimulation levels to call this a permanent bottom,” LePage said.
USD’s Gin said the worst appears to be over, but in the next couple of months, he cautioned, “I wouldn’t be surprised to see things weakening a little bit.”
As for potential home buyers, UCSD’s Starr said now may be the time to strike, given historically low interest rates and reduced prices.
“For a well-financed buyer who stayed on the sidelines in 2005, 2006 and 2007 and who said prices were ridiculous, his foresight has been fulfilled and this is a great time,” Starr said.
Roger Showley: (619) 293-1286; roger.showley@uniontrib.com
Monday, January 11, 2010
Housing Picture Not all Gloomy
Housing picture not all gloomy
Median price 48.4% higher than in January 2000
By Roger Showley, UNION-TRIBUNE STAFF WRITER
Sunday, January 3, 2010 at 12:02 a.m.
Peggy Peattie / UNION-TRIBUNE
The Krumweide family — including Hanna (left), 7, Chloe, 9, and their mother, Molly — bought a house in University City 10 years ago and have seen it appreciate significantly.
For all the talk of the housing bust, San Diego County’s median price ended the decade up 48.4 percent from 2000.
If in January 2000 you bought a home at the median price of $219,000 and went to sleep like Rip Van Winkle, you awoke at the end of 2009 to see your home worth $325,000.
This means that many longtime homeowners are still sitting on big gains even after seeing the market skyrocket to a peak of $517,500 in November 2005 before plummeting.
Take the Krumweide family in University City. The family bought a 2,800-square-foot home for $432,000 in June 2000, took out a small amount of equity for home repairs when they refinanced and now could sell the house for about $850,000, according to their neighbor and original real estate agent, Ann Throckmorton.
“We’re just relieved we stayed with our guns, stayed with our heads,” Molly Krumweide said.
Thousands of San Diegans aren’t so fortunate. Either they bought in the midst of the bubble and paid far more than what their homes would command today or they piled on debt by refinancing their homes to pay for cars, vacations or everyday expenses.
When the housing bubble burst at the end of 2005, dreams became nightmares, and the bad vibes are likely to ripple through the economy for years.
Throckmorton likened the market to a game of musical chairs: “Not only did more than one person not get a chair, there was a lot of falling over each other. There was much damage.”
During the decade, about 510,000 homes changed hands, but 41,100 were lost to foreclosure through November. Nearly 121,000 notices of default were lodged against local residents. Thousands more are delinquent in their payments and hoping their lenders will modify the loans or let them do a “short sale” — sell for less than the outstanding mortgage balance.
“The greatest recession since the Depression and the financial market meltdown in the last year has changed people’s behaviors, and changed lenders’ willingness to extend credit to a lot of people,” said Andrew LePage, an analyst for San Diego-based MDA DataQuick. “It will take years to recover that (lost) equity, and they won’t have much equity.”
But according to MDA DataQuick’s findings, things are not as bleak as they seem.
Home prices in all but a handful of neighborhoods have bounced back from their lows since 2006. Three are less than 20 percent from their peaks — Scripps Ranch, Rancho Peñasquitos and eastern Rancho Bernardo.
During the decade, Jamul was the only neighborhood with a monthly average of at least 10 single-family resales not to see higher prices.
What’s in store for the new decade — more boom and bust or a steady increase in values as supply and demand get back in balance?
Economists and market analysts who watched the decade’s gyrations can imagine both a worst-case scenario or a best-case outlook, but they stress the need to return to market fundamentals.
“Over the long haul, house prices can’t grow faster than people’s income,” said James Hamilton, an economics professor at the University of California San Diego. “Many people ignored that lesson over the last decade and paid a pretty high cost.”
Some economists say prices could dip in 2010 as foreclosures and defaults multiply. But over the long run, many expect appreciation of a few percentage points over inflation — roughly 6 percent annually. San Diego’s year-over-year price change in November was 6.6 percent.
If that rate persists, the peaks reached several years ago will be seen again by 2018, said Robert Kleinhenz, a former Cal State Fullerton economics professor and now an economist at the California Association of Realtors. That date seemed reasonable to analysts not tied to the real estate industry.
“Whether we hit that mark or not, I’m not making a forecast,” Kleinhenz said.
One reason prices could bounce back is that home building did not suffer the excesses of the 1980s and entered the recession with a relatively small number of completed but unsold properties. Also, building has virtually come to a stop since then.
The 2009 building-permit count, estimated at 2,900 housing units, was the lowest since World War II — which explains the big layoffs in the construction sector. Only 4,000 permits are expected next year, said University of San Diego economist Alan Gin.
“At some point in the next two or three years, we’re going to be stuck once again with a lot more demand for available housing than we’re able to build,” said Kelly Cunningham, an economist at National University’s Center for Policy Research.
Together with San Diego’s historic slowness in approving new housing, “that will only drive up prices again,” Cunningham said. “It can quickly turn again. I’m not sure when — probably in a few years, once we work through all the foreclosed homes and existing homes (for sale).”
One of the high points of the decade was a rise in homeownership rates, up to 58 percent in San Diego and nearly 70 percent nationally. Granted, many buyers have lost their homes — but not all — and owners-turned-renters will be able to buy again once they rebuild their credit scores and bank accounts.
“The other thing we can assume is as the market improves, lenders will not go quite to the loose lending practices of the last cycle but definitely will swing the pendulum back to the middle,” said Jeff Meyers, who runs a local real estate consulting firm specializing in the new-home market.
Christopher Thornberg, a former UCLA Anderson Forecast economist and co-founder of Beacon Economics in Los Angeles, rang early warning bells about a pending real estate bust — calls that he said were usually met with laughter at his speaking engagements. Thornberg said he believes San Diego is well-positioned with a diversified economy to recover from the recession and the real estate debacle.
“In the long run, I’m optimistic,” Thornberg said. “I worry about the next couple of years. … We have not escaped the consequences of our actions quite yet. I wouldn’t call the new decade a clean slate by any stretch of the imagination.”
New Home Sales Activity on the Rise in Downtown San Diego
New Home Sales Activity on the Rise in Downtown San DiegoBy - 1/4/2010San Diego Business Journal Staff
By EMMET PIERCE
The lingering recession continues to create a drag on San Diego’s downtown residential real estate market, but analysts say they’re encouraged by a surge of activity during 2009.
Developer Sherman D. Harmer Jr., chairman of the Downtown Residential Marketing and Builders Alliance and president of Urban Housing Partners Inc., notes that there were 511 new home sales downtown in the first 11 months of 2009, compared with 280 in all of 2008 and 349 in 2007.
“It is a very significant increase,” Harmer said. “If you factor in what we think we will sell in December, it will put us at 550 new homes for the year, which puts us back to where we were in 2000.”
As of Dec. 1, there were 521 housing resales downtown, compared with 552 in 2008 and 467 in 2007, the MarketPointe Realty Advisors research firm reports. That puts downtown at more than 1,000 sales overall through November.
Many view 2009 as a turnaround year. It was the best year for new home sales downtown since 2006, when there were 1,055 new home transactions. Harmer notes that prices are stabilizing. MarketPointe places the average resale home price as of Dec. 1 of the fourth quarter at $437,658, compared with $398,548 in the third quarter.
Prices remain well below their peak, however, creating opportunities for buyers. MarketPointe says the average new home price downtown was just under $500,000 through Dec. 1 of the fourth quarter. In the fourth quarter of 2008, the average price was $714,000.
The condominium tower construction that has reshaped downtown’s skyline in recent years won’t resume until the real estate market improves. Eventually, the lack of new product is expected to lead to a shortage that will boost prices. Sales patterns have been closely tracked by researcher Russ Valone of MarketPointe. The downtown area had 1,032 new and resale transactions through November, compared with 832 in all of 2008, he notes.
Leading The Way
“The downtown marketplace appears to be picking up and leading San Diego County in 2009,” Valone said. “Downtown is emerging a little bit faster from the recessionary cycle.”
Many investors and people who simply want to live downtown recognize that now is a good time to get a deal, Valone says.
“A lot of these projects are at the end of their cycle. Builders have paid off a lot of their loans. They want to sell and they will negotiate.”
The inventory of new homes downtown was 741 units on Dec. 1, MarketPointe reports. “It is one of the lowest levels of inventory we have seen downtown for quite a while,” Valone said. “There was maybe double this a couple of years ago.”
Abel Solano of ARG Abbott Realty Group says one concern sellers have is that banks soon may place more foreclosed homes on the market, creating a drag on prices.
“Asset managers are telling us that February is going to be a month where we are going to see an increase of REOs (real estate owned units) coming onto the market,” Solano said. “They will not flood the market. They will slowly release them.”
Plenty Of Offers
Credit remains tight but buyers with cash are finding good deals, he says. Many investors from Los Angeles are putting their money into downtown San Diego real estate as an alternative to the stock market. Some are focusing on foreclosures, which often offer discounts of 10 percent.
“At the bottom range, it is a frenzy,” he said. “We are having anywhere from 20 offers to 50 offers on aggressively priced units. Everyone is looking for a deal … I have seen some agents having their best year ever.”
Solano, who represents numerous landlords, says the ailing economy has made it hard to rent out the priciest units. Condos that rent for $3,200 per month and below remain in demand, however.
Louis A. Galuppo, director of residential real estate at the University of San Diego’s Burnham-Moores Center for Real Estate, says the downtown condo market likely will emerge from the present slump sooner than other condo markets around the county.
“Downtown is a unique marketplace because it offers so much, so many different things to do,” he said. “It is substantially different than it was in the early 1990s. It is a completely different place.”
Emmet Pierce is a freelance writer for the Business Journal.
By EMMET PIERCE
The lingering recession continues to create a drag on San Diego’s downtown residential real estate market, but analysts say they’re encouraged by a surge of activity during 2009.
Developer Sherman D. Harmer Jr., chairman of the Downtown Residential Marketing and Builders Alliance and president of Urban Housing Partners Inc., notes that there were 511 new home sales downtown in the first 11 months of 2009, compared with 280 in all of 2008 and 349 in 2007.
“It is a very significant increase,” Harmer said. “If you factor in what we think we will sell in December, it will put us at 550 new homes for the year, which puts us back to where we were in 2000.”
As of Dec. 1, there were 521 housing resales downtown, compared with 552 in 2008 and 467 in 2007, the MarketPointe Realty Advisors research firm reports. That puts downtown at more than 1,000 sales overall through November.
Many view 2009 as a turnaround year. It was the best year for new home sales downtown since 2006, when there were 1,055 new home transactions. Harmer notes that prices are stabilizing. MarketPointe places the average resale home price as of Dec. 1 of the fourth quarter at $437,658, compared with $398,548 in the third quarter.
Prices remain well below their peak, however, creating opportunities for buyers. MarketPointe says the average new home price downtown was just under $500,000 through Dec. 1 of the fourth quarter. In the fourth quarter of 2008, the average price was $714,000.
The condominium tower construction that has reshaped downtown’s skyline in recent years won’t resume until the real estate market improves. Eventually, the lack of new product is expected to lead to a shortage that will boost prices. Sales patterns have been closely tracked by researcher Russ Valone of MarketPointe. The downtown area had 1,032 new and resale transactions through November, compared with 832 in all of 2008, he notes.
Leading The Way
“The downtown marketplace appears to be picking up and leading San Diego County in 2009,” Valone said. “Downtown is emerging a little bit faster from the recessionary cycle.”
Many investors and people who simply want to live downtown recognize that now is a good time to get a deal, Valone says.
“A lot of these projects are at the end of their cycle. Builders have paid off a lot of their loans. They want to sell and they will negotiate.”
The inventory of new homes downtown was 741 units on Dec. 1, MarketPointe reports. “It is one of the lowest levels of inventory we have seen downtown for quite a while,” Valone said. “There was maybe double this a couple of years ago.”
Abel Solano of ARG Abbott Realty Group says one concern sellers have is that banks soon may place more foreclosed homes on the market, creating a drag on prices.
“Asset managers are telling us that February is going to be a month where we are going to see an increase of REOs (real estate owned units) coming onto the market,” Solano said. “They will not flood the market. They will slowly release them.”
Plenty Of Offers
Credit remains tight but buyers with cash are finding good deals, he says. Many investors from Los Angeles are putting their money into downtown San Diego real estate as an alternative to the stock market. Some are focusing on foreclosures, which often offer discounts of 10 percent.
“At the bottom range, it is a frenzy,” he said. “We are having anywhere from 20 offers to 50 offers on aggressively priced units. Everyone is looking for a deal … I have seen some agents having their best year ever.”
Solano, who represents numerous landlords, says the ailing economy has made it hard to rent out the priciest units. Condos that rent for $3,200 per month and below remain in demand, however.
Louis A. Galuppo, director of residential real estate at the University of San Diego’s Burnham-Moores Center for Real Estate, says the downtown condo market likely will emerge from the present slump sooner than other condo markets around the county.
“Downtown is a unique marketplace because it offers so much, so many different things to do,” he said. “It is substantially different than it was in the early 1990s. It is a completely different place.”
Emmet Pierce is a freelance writer for the Business Journal.
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