The end of inventory (until September)

So, tomorrow turns into another day and another and another, the next thing you know...it is a week later. Fortunately for me...today just happens to be the same day that the new housing report came out. What better day to finish the post on inventory than today? Here is the gist of the housing report...

"Sales of U.S. previously owned homes plunged 27 percent in July, twice as much as forecast...at the current sales pace, it would take 12.5 months to sell [the current inventory]."

Where does that leave us in our neck of the woods? Well, inventory is down...way down...unfortunately, so is demand. It is very hard to believe that demand would be low because of the expired tax credits. You wouldn't think that $8,000 would have that big of an impact on the market but it does. Having said that, the sales data for July being way down is a little misleading. This is because SO many people did everything they could to close by June 30, 2010, in order to get the tax credit that it inflated June's numbers a little, thus making July's numbers seem that much worse.

Here is the current inventory for Corona broken down by Zip Code.

92879 - 10,755 homes. 166 (1.5%) for sale. 29 standard sales. 98 short sales. 25 REOs.

92880 - 3,729 homes. 231 (6.2%) for sale. 55 standard sales. 136 short sales. 17 REOs.

92881 - 7,510 homes. 118 (1.6%) for sale. 47 standard sales. 45 short sales. 15 REOs.

92882 - 16,310 homes. 235 (1.4%) for sale. 53 standard sales. 122 short sales. 33 REOs.

92883 - 2,015 homes. 220 (10.9%) for sale. 51 standard sales. 120 short sales. 28 REOs.

There are 40,319 homes in Corona, with a total of 970 homes on the market. This means that 2.4% of the homes in Corona are for sale. At the height of the foreclosure market (2007-2008), we were averaging 3,500 homes on the market, which is 8.7%.

Corona Homes Available

92879

REO (18)
Standard (30)
Short Sale (79)

92880

REO (11)
Standard (49)
Short Sale (85)

92881

REO (11)
Standard (25)
Short Sale (30)

92882

REO (17)
Standard (36)
Short Sale (90)

92883

REO (14)
Standard (50)
Short Sale (83)

There are 628 homes available in Corona. I am going to start posting my featured listings this weekend. However, some of them are out of the area (Fullerton, Huntington Beach, etc).

Corona Homes 4 Sale

92879 - REO (16)
92879 - Standard (17)
92879 - Short Sales (87)

92880 - REO (19)
92880 - Standard (19)
92880 - Short Sales (105)

92881 - REO (7)
92881 - Standard (18)
92881 - Short Sales (37)

92882 - REO (15)
92882 - Standard (13)
92882 - Short Sales (65)

92883 - REO (16)
92883 - Standard (41)
92883 - Short Sales (75)

If we add up all of these homes (plus the 1 house listed as an auction/probate sale)...there are 551 homes on the market in Corona.

Short Sale or REO???

Prices continue to drop...interest rates continue to drop...people claim it is a buyers market. How come it takes SO long to get people into all of these homes?

Snapshot:

* a huge percent of the homes are the market are short sales or REOs (also known as lender owned, bank owned)
* a huge number of people can afford homes
* as long as rates stay low the buyers will remain
* as long as there is still toxic debt out there the prices will remain low (pardon me for believing that the government is ridiculous for thinking a bailout will work, oh, yeah...if it does...we will be back at the governments door in 3 years asking for a new bailout 3 times the size AND still owe for this one - was that pessimistic enough????)

(Back to the topic at hand)

Bank Owned homes:

1. Usually get answer in 24-48 hours
2. Usually has mutliple offers
3. Usually counters with "highest and best"
4. Usually can close in 30-45 days

Short Sales:

1. Usually takes 1-2 months to get an answer
2. Usually has multiple offers
3. Usually counters at market value
4. Usually does not close escrow (becomes a bank owned home) - a few months ago the stats were 4% short sales closed escrow

The last piece of information is that short sales have a HORRIBLE reputation. I speak with hundreds of people thinking about buying homes every month. Most of the time they have no idea what a short sale is (except some people think that the escrow is going to be fast - i.e. short). All they know is that short sales are evil.

Bank owned homes do not have nearly the same bad reputation...although, maybe they should. In Corona, CA, where I live and practice real estate the trend is such. Most bank owned homes sell for 2-10% over list price. They sell for this amount regardless of what the comps say. A comp is a comparable home sold in approximately the same time frame. However, short sales languish on the market because; banks do not know how to handle the huge influx in homes, the listing agent doesn't know how to process short sales, etc.

Take these two homes for example...

1447 Pinewood Dr, Corona, CA 92881

List Price - $399,000
Sold Price - $392,000
Price/Sq Ft - $120.43
Beds - 5
Baths - 4
Sq. Ft - 3,255
Lot Size - 7,405
DOM - 17

282 Mount Vernon Way, Corona, CA 92881

List Price - $399,000
Sold Price - $400,000
Price/Sq Ft - $147.11
Beds - 4
Baths - 3
Sq Ft - 2,719
Lot Size - 10,018
DOM - 98

Remember that banks set the price of bank owned homes. They set the prices low and hope that people will blindly bid against each other. They are banking on the fact that the buyers will not look at the comparable properties in the neighborhood and will only look at the current situation. Which looks like this, "we have received multiple offers, we need your highest and best". Therefore, people are willing to bid more than the property is worth (sounds a little like what happened in '05 & '06).

On the other hand short sales are starving for qualified buyers. They received multiple offers when the home comes on the market, but most of those buyers end up buying a bank owned home before the bank can approve the short sale. Often, the last offer standing (if there is one) gets the home. We saw this in the illustration above - people over paid for an older, smaller home. The Pinewood property is definitely the better home to purchase.

Eight months ago I would have told my buyers, "steer clear of short sales". However, today - the data seems to say that short sales are the better buy!

Riverside Bank Owned Homes

92501
92503
92504
92505
92506
92507
92508
92509

Mira Loma/Norco Bank Owned Homes

91752
92860

Riverside Repo Lists

92501
92503
92504
92505
92506
92507
92508
92509

Norco/Mira Loma Repo Lists

91752
92860

Corona Repo Lists

92879
92880
92881
92882
92883

You gotta love this market...

I pick up my phone a few days ago in an effort to keep myself on task. I see my next call is a listing agent that I am waiting to hear from about an offer I have submitted for my client.

Here is the backdrop...we submitted an offer for a home in South Corona last Monday. The home is owned by GMAC and they required their own lender to approve the buyer. My client calls the lender, sends their documentation and we wait. On Friday we receive the pre-approval letter and notice that our offer has finally been submitted to the bank. Monday I left the listing agent a message attempting to find out the status of our offer. On Tuesday, they call me back.

"We have a counter for your buyer," the agent says. They rattle off the terms of the counter and tell us to get back to them.

The next morning I call the agent (after discussing things with my client) accepting the terms.

Now, we are caught up to this morning. I call the agent. "Do we have addendum's for the property," is my question to them. "Oh, your client didn't get the house," is their response.

At the end of the day the other agent negotiates with more than one buyer without telling anyone that there are multiple offers in on the property. They sit on our offer for 10 days before they get back to us with a rejection.

Obviously, my clients are very disappointed...you get a counter offer in this market that isn't "highest and best" and you feel good about your chances. You agree to the terms that the bank sets out for you and you like your chances.

The only problem is unethical agents who do not know how to negotiate in good faith! Good luck to this particular agent once the REO market dries up...I predict he is going to have a VERY hard time finding agents who will work with him.

Corona - 92880

As the housing market continues to fluctuate, it seems that as soon as we figure out where it is at…IndyMac fails, Freddie Mac and Fannie Mae need help, etc. So, I decided to take a look at some hard data. Here is what I did: I looked at all of the closed sales in the 92880 zip code of Corona, CA. My intention was to see what information was out there and then what conclusions could be drawn from that information.

The data…81 homes closed escrow. Of these homes the vast majority were REOs (64 of 81). These homes spent an average of 56 days on the market. The homes that spent the longest time on the market were on for 394 and 361 days respectively. Six of them were sold in the first three days on the market. The average sales price was $379,830.25. The average listing price was $377,727.14, generating a difference of only 0.05%.

The biggest changes down were:
Address Sale List Price/Sq Type %down
8608 Vienna Dr 465,000 399,900 $162.99 REO 16.28
13756 Hill Grove St. 385,000 334,900 $116.49 REO 14.96
13746 Apple Moss Ct 390,000 339,499 $130.57 REO 14.86
13331 Kamelia St 410,000 358,900 $117.44 REO 14.24
7854 Port Arthur Dr 405,000 356,900 $133.62 REO 13.48

The biggest changes up were:
Address Sale List Price/Sq Type %up
7173 Cottage Grove 480,000 550,000 $124.97 NEW 12.73
5903 Red Haven St 350,000 398,000 $105.94 S.S 12.07
5940 Red Haven St 341,000 379,900 $184.72 REO 11.24
6171 Royal Diamond 360,500 399,900 $139.78 Resale 9.83
7316 Pinewood Ct 440,000 484,900 $147.90 Resale 9.26
13901 Burrage St 319,000 351,500 $124.22 REO 9.25

Items that are unknown about this data are: 1.) how much paid by the seller for closing costs, 2.) how many offers were received for these properties, 3.) how many of the buyers utilized down payment assistance programs, 4.) the condition of the property, and 5.) how many upgrades were done to the property.

What conclusions do we come to?

Of the six biggest downward changers, only two were bank owned properties. All six of the biggest shifts up were bank owned homes. This tells me that the banks, for the most part, are listing the homes low in hopes of running the prices up. It also tells me that the new homes, resale homes and short sales are still pricing their homes too high.

Conclusion: the banks are driving the price in this area.

How much is too much?

"How much should we offer?" exclaimed my client as we enjoyed our vanilla lattes at the Coffee Bean.

It is an interesting question. It implies that the bank will accept less than the listing price. Also, most buyers are under the misconception that banks "always" counter-offer. I am not sure where this myth has come from... It also implies that the bank will accept "less" than the listing price. I say this because I hardly hear, "I know they are asking $300,000, but I think it is worth $350,000, therefore offer that."

I have a couple of clients looking in the same area of Corona. So, I thought I would go back and look at the homes that we have made offers on (and not gotten accepted). All of the offers were written between 30-60 days ago...and most of the homes closed escrow in the past 10 days.

The statistics are a little surprising. On average homes sold for 5% ABOVE list price - please remember these are closed statistics on homes that I have written offers on. The lowest below the average was 1.1% below the asking price. This was on the second highest priced home in the data. The highest above was 7.9% above the asking price. This was the highest priced home in the data.

As we continue to look at this numbers we see that a total of 10 homes were in the field and only 2 of them sold for less than the asking price. And as we saw above...this was not that far below asking price it was just over 1% below asking price. Last bit of information of the 10 homes, 9 were REOs and 1 was a short sale...there was NO resales in the data.

A couple of suggestions for why this is: 1.) the listing agents have lowered the prices to make "virtual auction". By lower the price below market value, they get people to perceive it as a "bargain". 2.) the buyers are frustrated at writing low offers and not getting a home so they reverse course and begin to offer MORE than asking to "just get a home."

How then do we go forward?

We base our offers on the "market value" of the property. We don't decide before we walk through the doors how much we want to pay for the home.

My usual response to the question I got that morning at the Coffee Bean - "I think they will accept 10% below market value" - just isn't accurate anymore. My boss always says, "I know they will accept the listing price" - this might not be the case either!

Math that makes NO cents...

One lazy day last month I was sitting at my computer when an email comes over from a client.

"Tim, the house we made an offer on last month is back on the market. It is on the market for a lot less than we offered. Can you tell me what is up with that?"

What happened next was truly puzzling. It also is something that most clients (and this Realtor) don't fully understand.

First, a little background. The home is in Lake Arrowhead, CA. My client is looking for a second home. We went up to Arrowhead in April and looked at 7 homes (5 REO, 1 Resale, 1 Short Sale). As usual my client loved the short sale. It was a quaint Chateau just outside of the "woods" in Lake Arrowhead. The home was built in 1963 and has a very nice view of the lake. However, because it is outside of the "woods" it does not have access to the lake. The home was listed for $279,900. We ran a comp check and determined that this might be a bit high, yet we made a full price offer because of the short sale status. The listing agent said that they had already done a BPO and had approval at $325,000. Side-note...it is amazing to me how many listing agents list homes BELOW their approval price.

After a few weeks of waiting, the bank came back saying, "we will not go lower than $315,000." I advised my client not to raise their offer. I felt that the home was actually overpriced at $279,900. We sent over comps on the property showing the bank closed sales in the area (out of the "woods") for $240,000. We let them know that we were still willing to pay $280,000 (my clients really liked the place).

"No," the bank said.

My client was disappointed. We moved on. We have continued looking in the area finding nothing that knocked their socks off.

After a very short month...I got the above mentioned email.

The house was back on the market for $218,000. This bank had an offer for $280,000 that they would not accept 28 days before. On this day, they were about to accept a "full price" offer of $218,000. Literally, they cost themselves $62,000 + any foreclosure fees (usually $20,000-30,000).

We have a couple theories as to why this happened. 1.) The seller didn't qualify for a short sale, so the bank would rather foreclose than help out the seller. 2.) The lost mitigation departments at banks pay their employees more for the disposition of an REO than they do for a short sale.

These are just theories...all we know for certain is that when short sales are involved banks make no cents!