Apartment rents falling in Southern California

The USC Casden Forecast's recent report is saying something I've known personally for over a year: rents are falling. A friend of mine is having to drop the rent on her town home by $200 to even get interested parties, and out in the desert areas of Palm Springs and environs, you can now rent a 4-bedroom home with a pool and spa on a 10,000-square-foot lot for just $1,500 per month! Yet not all areas are performing equally -- in neighborhoods of Burband and Pasadena, rents and vacancies reportedly are stable (although I continue to see multiple 'for lease' signs throughout the San Fernando and San Gabriel valley areas). From an L.A. Times story:

Apartment rents are falling across most of Southern California as unemployed tenants double up with friends or family and the affordability of foreclosed homes makes some renters into buyers, a new survey has found.

The average rent in Los Angeles County fell almost 4% in 2008 as apartment occupancy rates dropped and new units came online. The decline should continue this year as more renters lose their jobs, according to the annual USC Casden Forecast expected to be released by the university today...

To keep their units occupied, some landlords are lowering rents or offering concessions for signing a lease, such as a month of free rent or a reduced deposit, she said.

Rents should level out in 2010 as the economy recovers, the report said. The average one-bedroom apartment in Los Angeles rented for $1,397 a month at the end of last year.

Some markets are doing better than others for landlords. The Westside remains the priciest, while Pasadena and Burbank are stable with little change in occupancy or rents. Rents in Hollywood and central neighborhoods such as downtown Los Angeles are being weakened by new condominiums that are being leased rather than occupied by owners.

The San Fernando Valley should continue to see lower occupancy rates and rents in the near term because of layoffs in the area. Long Beach and the San Gabriel Valley are also more affordable than other neighborhoods, Conway said.

Orange County is generally stronger than the rest of the region, the report said, though rents came down 2% last year and should slip a little more in 2009. High home prices in the area and tight credit should keep the pool of renters large, however. The average one-bedroom unit there rented for $1,310 at the end of last year.

The Inland Empire suffered more from the recession. Rents there already have declined significantly since their peak in 2006 and will slip a little more before stabilizing in 2010, the report said. Average rent for a one-bedroom at the end of last year was $912 per month.

Click here for entire story.

"Shadow inventory" of foreclosures remain hidden from the market

One big topic lately in real estate circles has been the issue of bank-owned distressed properties, many of which they've kept off the market in order to keep housing prices from dropping even lower as well as to provide a more orderly clean-up process. Yet in a San Francisco Chronicle article, some experts think that the sheer number of these hidden foreclosures is certain to eventually make a bad situation even worse. So why are lenders keeping such assets hidden? From the article:

A vast "shadow inventory" of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say.

Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."...

Most observers say the recent fall-off in foreclosures came because California and many banks implemented foreclosure moratoriums in the fall, not because the problem has diminished...

So why aren't banks selling off their foreclosures?

Observers say several factors are at work.

-- The "pig in the python": Digesting all those foreclosures takes awhile. It's time-consuming to get a home vacant, clean and ready for sale. "The system is overwhelmed by the volume," Sharga said. "In a normal market, there are 160,000 (foreclosures for sale nationwide) over the course of a year. Right now, there are about 80,000 every month."

-- Accounting sleight-of-hand: Lenders could be deferring sales to put off having to acknowledge the actual extent of their loss. "With banks in the stress they're in, I don't think they're anxious to show losses in assets on their balance sheets," O'Toole said.

-- Slowing the free-fall: Banks might be strategically holding back some foreclosures so prices don't fall as fast...

Besides the shadow foreclosures, yet another wave of distressed properties is in the pipeline. These are homes with delinquent payments for which the banks appear to be prolonging the foreclosure process. Some of that could be because they're negotiating with homeowners about loan modifications or other ways to keep them in the home. But banks also could be deliberately foot-dragging for the same three reasons listed above.

Click here for entire article.

Interview with Steve Bergsman, author of "After the Fall"

Today I had the opportunity to interview author Steve Bergsman, who recently published a new book on real estate investing called 'After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade.' In order to make The Housing Chronicles Blog more multi-media, I have launched a new show on BlogTalkRadio called, fittingly enough, Patrick Duffy's Housing Chronicles. Clever, huh?

Steve is certainly no neophyte to either the fields of journalism or real estate, having written the books Maverick Real Estate Financing, Maverick Real Estate Investing and Passport to Exotic Real Estate. He is also a noted travel writer, with visits to 120 countries over a period of 20 years, and his work has been published in more than 100 publications around the world. I think his travels probably give him an interesting take on real estate here in the U.S., as I've found that travel to other countries is really the best education available.

I'll soon be writing up a review of his latest book for Inman News, but for now I wanted to share today's interview, which I'll feature again once the review is published. You can listen to the podcast below:

About that Pulte-Centex deal...

Like many other people working in the building industry, I was fairly surprised at today's announcement that Pulte Homes was buying Centex. So what do other analysts think, how did the market react, and what are the concerns?

First, from a story at BigBuilderOnline.com:

After taking in the potential implications of the announcement, overall, analysts said they think Centex needs the deal. "We view this deal as a necessary and positive step for CTX given its 56% leverage, $1.2 billion of debt maturities over the next three years, and our expectation for weak cash flow," said JMP Securities vice president Hector Calderon...

Pulte needed the deal as much as Centex, said Stephen East, analyst with Pali Capital. "They had too much in the Del Webb brand, and they are long on land," East said. "Getting with Centex helps them in land, gets them into the entry-level market, and gets them better volumes... . Overall, it is a good fit culturally and geographically."

The price of the deal was good for both, said East. "Centex saved face by getting one times book and Pulte did okay because they didn't pay over book."...

Will the deal trigger more big players to rush to the altar? Most analysts say no. But Patrick Duffy, principal at MetroIntelligence Real Estate Advisors, said there may be upcoming pressure by stockholders for other builders to put out the feelers...

And what about the debt load? Also from Big Builder magazine staff:

The proposed merger of Centex Corp. (NYSE:CTX) into Pulte Homes Inc.(NYSE:PHM) will create not only the nation's largest builder but the largest home building debt load, estimated at roughly $6.2 billion.

The combined entity would have a 61% ratio of debt to total capital, actually an upgrade for Centex, which at yearend 2008 was at 69.3%, but a step down for Pulte, which was at 52.8%.

The three major credit ratings agencies reacted swiftly to news of the proposed deal. Fitch was the most bullish, Standard & Poor's less so. Moody's warned of a possible downgrade. Both Pulte and Centex debt were previously rated as junk and remained so after the ratings updates...

Joseph A. Snider, a VP and senior credit officer with Moody's, said the notice of review did not necessarily mean another downgrade. But he said the agency's concern centers around one big issue: land.

"When one home builder buys another home builder, they're essentially just buying the land," said Snider. "Pulte already has a ton of land. Too much land."

Even in light of the slightly positive news that has emanated from the housing market in recent weeks, Snider sees the deal as "somewhat risky. We've taken note of these [positive] numbers. We hope those glimmers of hope are confirmed. But it's way too premature to say that we've reached the bottom."

I would certainly agree with that sentiment.

However, the deal will surely bring both companies a huge boost in market share -- something which was already a fait accompli for large builders coming out of this downturn.

From a BuilderOnline.com story:

As Pulte and Centex executives sell their pending merger to shareholders and others, they have noted that the combined entity will have a top-3 spot in 25 of the 50 largest housing markets in the country.

But that only hints at the factors--and potential influence of a combined Pulte/Centex in metros around the country--involved in this inherently local aspect of this national housing story, where the deck of players in numerous markets is about to be reshuffled, thanks to this pending merger...

According to an analysis of BUILDER's annual Local Leaders report, the new Pulte will exert a major influence in a number of additional housing markets across the board, from perennial powerhouses such as Atlanta and Phoenix to mid-packers such as Charlotte and Raleigh, N.C., which experienced neither the major boom nor the major bust of recent years...

Many former Top-10 builders in these major markets have filed for Chapter 11 bankruptcy or even liquidated, leaving them weak, if not nonexistent, competition for Pulte. For example, two of the top 10 builders in Las Vegas according to last year's Local Leaders were Kimball Hill Homes, which announced in December it would stop operating, and the Woodside Group, which earlier this year proposed turning itself over to its creditors.

And some of these markets are seriously hurting. Las Vegas, Phoenix, and Riverside-San Bernardino have been experiencing record levels of foreclosures, which have dramatically impacted new-home demand and pricing. When these markets rebound, Pulte may be well-positioned for their recovery, but until then, these market-share gains also represent greater exposure to the housing downturn.

Pulte Homes to buy Centex

Although many pundits had thought this would be the year that would begin the consolidation of home building companies, they also probably thought it would start small, with large builders picking up smaller, private ones. But in a $1.3 billion transaction, two giants -- Pulte and Centex -- have announced a merger that would create by far the industry's largest home builder, with annual revenues double that of the current leader, D.R. Horton. From an AP story:

Pulte Homes Inc. is buying Centex Corp. for $1.3 billion in stock in a deal that will create the nation's largest homebuilder -- by far -- and could spark further consolidation in an industry that is suffering the worst real estate recession in a generation.

The transaction, which also includes $1.8 billion of debt, will combine Pulte's strength in active-adult and retirement housing with Centex's hefty market share of first-time homebuyers.

The acquisition also will give Pulte large tracts of land in Texas and the Carolinas, two of the most resilient real estate markets, and a presence in 29 states and Washington, D.C.

But Wall Street analysts are concerned about the risk of taking on so much land in other areas where home prices are still plummeting, including Sacramento and Riverside, Calif., and Cape Coral, Fla.

The new company, which will keep the Pulte name and headquarters in Bloomfield Hills, Mich., will have cash reserves totaling $3.4 billion and pay off $1 billion in debt by the end of the year...

Pulte and Centex contend that the deal will help them capitalize on what the executives see as the beginning of a recovery in the housing market.

On Wednesday, new data showed loan applications to purchase a home rose 11 percent last week. And new home sales climbed almost 5 percent from January to February, providing some hope that the sales may have reached a bottom...

But the deal also is being driven by fierce market forces. Homebuilders are struggling to find their footing as credit remains tight and potential customers remain leery of buying a home in the face of rising unemployment. The industry has attempted to stem the bleeding by slashing new construction and prices to unload existing inventory.

Street gang added mortgage fraud to its roster of activities

According to a post at the L.A. Now blog of the L.A. Times, 24 members of a street gang have been indicted for mortgage fraud in San Diego. From the post:

Two dozen people have been charged with racketeering in a fraudulent mortgage scheme allegedly run by a street gang member, according to an indictment unsealed in San Diego federal court today.

The group allegedly profited from loans arranged for amounts in excess of the price of the housing, among other tactics. The homes quickly went into foreclosure, according to the indictment.

The alleged mastermind was Darnell Bell, 38, a member of the Lincoln Park street gang long known to law enforcement for violence and drug sales. Bell, already serving a jail sentence for distribution of cocaine, was arraigned in federal court today on a racketeering indictment.

From 2005 to 2008, the scheme involved the sale of 220 homes and mortgages worth more than $100 million issued by 70 lenders, U.S. Atty. Karen Hewitt said at a news conference.

Keith Slotter, FBI special agent in charge of the San Diego office, said the case showed that street-gang members had gone "from dealing dope on the street ... to delving into this much more sophisticated crime."...

Bell used his status as a gang member to recruit phony buyers and to "maintain discipline" among the co-conspirators, the indictment said. FBI and IRS agents today arrested Bell's 23 co-conspirators, Hewitt said.

The 24 are charged with racketeering, which could lead to much tougher sentences than other real estate fraud cases. "That's never been done before in a real estate fraud case," Slotter said.

The homes were mostly in the cities of Spring Valley and La Mesa and the San Diego neighborhood of Encanto. According to the indictment, Bell and others would look for properties that had been on the market for months.

Among the co-defendants are people in the real estate, title insurance, appraisal and notary public businesses.

I've been saying for months now that one way to prevent future mortgage fraud is to see a constant stream of perp walks for TV cameras. Just an idea!

Economist floats idea of a credit 'mulligan' for foreclosures

On Monday, I spent time at the Spring REOMAC Conference in Palm Desert, CA. REOMAC is a non-profit trade group for those people involved in bank-owned and other distressed properties. During his time on an afternoon panel, economist Christopher Thornberg, who is also a business partner of mine, brought up the idea of a credit 'mulligan' (which in golf circles allows a player to take another shot after making a mistake) for people facing foreclosure. The idea is that if people don't have to worry about a foreclosure on their record for seven years, they could leave the homes they could no longer afford and then perhaps buy a scaled-down version sooner rather than later.

From a purely macro-economic perspective, credit mulligans could provide greater efficiency in allowing the market to find appropriate prices for distressed properties, force banks to recognize the losses on their books, and help clean up the national balance sheet so we could return to a more normalized housing market. But of course there's the overhang of moral hazard: if people think they're going to get a free pass on bad decisions, won't that prompt them to continue such financial irresponsibility in the future? Although the danger of that could be addressed by instituting specific eligiblity standards based on when a home was bought, it's hard to imagine the average citizen agreeing to such a plan even if it would help solve the issue of rising foreclosures.

It certainly doesn't help that the REOMAC crowd is already viewed as a group of vultures descending on hapless victims of sub-prime and Option ARM loans, as revealed in this article on Monday from the New York Times:

The conference this year is centered on the “R.E.O. tsunami,” referring not to any natural disaster but to the one caused by the flood of as many as 700,000 bank properties now on the market nationwide.

There were just 100,000 in 2006.The tsunami has leveled off a bit in recent months, because of foreclosure moratoriums imposed by major banks and the Obama administration. But the real estate agents here were told not to worry — the flood will continue for several more years, and probably has not peaked yet...

“What we have seen so far is just a hint of what is coming down the pike in the next three years,” Marty Higgins, a San Francisco real estate broker who specializes in apartment buildings, said as he stepped off his golf cart, smoking a cigar...

Educational seminars take place on Monday and Tuesday, where the convention-goers can learn about how a giant wave of foreclosed commercial properties is expected to come in behind the flood of bank-owned homes.

They will also learn how to deal with challenges associated with handling vacant properties, like pools the color of pea soup (the color they turn as algae takes over a pool that has not been maintained), as well as what to do when they find a vacant home with abandoned pets...

Sherry Waite, who serves an affluent community in southern California near San Diego, is eagerly awaiting the foreclosure of some of her neighborhood’s high-priced homes.

“Three dozen R.E.O. listings between $1.8 and $8 million,” she said, a pomegranate martini in her hand, as she cited what she soon hopes to be handling. “Hello! Those are big numbers.”

Sherry was at my table during lunch on Monday when someone else at the table showed her the Times article on his Blackberry. "It's true," she told the table. "I do drink those types of martinis!"

Signs of life in the hardest-hit housing markets

Over the last year, it's been so hard to find the kernels of good news regarding the housing market and economics, but recently more positive stories have been emerging, including a cover story entitled "Signs of Life" for the 4/13/09 edition of BusinessWeek. Even the bear-est of the housing bears, Christopher Thornberg, is sounding encouraging. So is this simply an alternative universe or the start of an actual rebound? From the story:

Frenetic buying in a few depressed areas doesn't mean the national bust is over—far from it. But it does herald the start of a new phase in the boom-and-bust recovery cycle. Economists might call it equilibrium: Prices have fallen so much in some areas that shoppers are getting interested again, improving the balance between buyers and sellers. That doesn't mean prices will surge anytime soon. But heavy buying should at least begin to put a floor under prices. "Are we at the bottom?" asks Christopher Thornberg, an economist with Beacon Economics. "We are getting close."

If Thornberg is right, one might expect other markets to begin the bottoming out process in the coming months. Just as California, Florida, and Las Vegas led the nation into the housing bust, those areas could provide the template for a national recovery. "One of the big problems we have across the nation is a lack of confidence," says Adam York, an economist with Wachovia (WFC) in Charlotte, N.C. "As these former bubble markets bounce off the bottom in terms of sales, it could give some hope to [other markets] that the declines are going to end."

Plenty of caveats are in order, because there are peculiar bear-market factors at work. The fact that inventories are falling precipitously in California—to just 6.5 months' supply from 15.3 months a year earlier—would seem to augur well. Historically, "prices respond very dramatically to inventory," says William C. Wheaton, director of research at the Massachusetts Institute of Technology's Center for Real Estate.

But inventories are falling fastest in markets where speculators and first-time buyers are driving the action. Those parties don't have to put their own homes on the market to make a deal. It remains vexingly difficult for home-owners who have bought in the past five or so years to sell one property and buy another.

On top of that, government incentives of up to $8,000 in tax credits for first-time buyers and low mortgage rates engineered by the Federal Reserve are luring shoppers who otherwise would be sitting out. If the government were to take away the punch bowl, markets that seem to be bottoming could well turn down again..

Click here for full story.

"Dr. Doom" Roubini sees some light at the end of the tunnel

Dr. Nouriel Roubini, long a housing bear, actually may be seeing some glimmer of hope for the economy and a rebound. From his column at Forbes.com:

As I have argued before, the risk of an L-shaped near-depression will be significantly reduced if aggressive policy actions were undertaken. That risk of near-depression is now lower than it was three months ago--but not gone altogether--as policy makers in the U.S. and globally have finally gotten religion and taken out all their policy bazookas, missiles, rockets and artillery and started to use them...

These policies will not restore positive growth in advanced economies until next year, but will reduce the rate of economic contraction to a more moderate pace by the end of 2009. Thus, as I noted earlier, the rate of the advanced economies' economic contraction will slow down from the peak contraction of this year's first quarter (-6%) to a more modest contraction in the fourth quarter (-2%) and a very weak positive growth (0% to 1% in U.S., Europe and Japan) in 2010 with still sharply rising unemployment rates peaking at 10% in these advanced economies...

So the road ahead is still very, very bumpy. The worst for the degree of economic contraction may be behind us by the second or third quarter of this year, but there will not be any robust and sustained recovery as the damage of the financial and real excesses of the last few years will have lasting effects on actual and potential growth for the U.S. and global economies. And the burden of trillions of dollars of additional fiscal deficits and debts in advanced and emerging economies will be a drag on actual and potential growth for years to come.

But if aggressive policy actions are accelerated after the G-20 meeting in London, one can expect a slow and painful process of mending the U.S. and global economy that will still take a long time. That will, however, allow us to see the light at the end of the tunnel some time next year, first for the real economies, next for financial markets and finally for the financial system and its wounded institutions.

Does that mean he's ready to pop open the champagne?

Zillow suggests that Case-Shiller numbers mis-state the market

For those homeowners who think Zillow's "Zesimate" is not an accurate barometer of their home's value, the company's VP of Data and Analytics, Stan Humphries, argues that their regional stats are better than Case-Shiller's because by including both market-rate homes and foreclosures, Case-Shiller both understates the pricing decline among foreclosed homes yet over-states the decline for homes not in distress. From his blog (hat tip: L.A. Land):

According to Standard & Poor’s, the Case-Shiller Index is “designed to measure increases or decreases in the market value of residential real estate.” It’s important to note, however, that “market value” according to Case-Shiller includes all arms-length sales of homes, even those of foreclosed homes.

It’s really an indicator of the change in prices of homes regardless of the circumstances under which they are sold. What won’t surprise many people, however, is that there’s actually a very large difference in prices between foreclosure and non-foreclosure homes...

Unfortunately, in combining both foreclosures and non-foreclosures into a single metric, you’re not really getting a good insight into either market. In the current climate, you’re underestimating the decline in value of foreclosed homes and overestimating the decline in value of non-foreclosure homes.

More importantly, from a consumer perspective, homeowners probably infer that home price indexes are a general indication of the real estate appreciation that they might realize if they were to sell their own home...

For homeowners thinking in this way, Case-Shiller is not a good measure for them to use because the assumptions used to interpret the data do not match the assumptions used to create the data...

Click here for entire post, which includes graphs and tables to make the point in greater detail.

Declines in the Case-Shiller Index not uniform

Up until recently, the declines in the S&P/Case-Shiller Index have disproportionately hit the lowest third of the pricing tier (the index subdivides home sales into low, mid, and high-level tiers that are customized for each metro area they study).

In the Los Angeles (Southern California) region, that's meant that the declines in the entry-level category (priced under $309,184) reached 51% between the peak in 2006 and January of 2009. That compares to declines of 39% for the mid-level tier (priced from $309,184 to $470,182) and 29% for the highest tier (priced over $470,182). The decline for all homes during the same time period was 39%.

More recently, however, it looks like home prices in the upper two tiers are beginning to finally capitulate. Over the last six months in Los Angeles, the index shows declines of 11% in the middle and upper tiers versus 17% for the lowest one, and between December of 2008 and January of 2009, the declines for all tiers ranged from 2% to 3%. In other words, the declines are starting to mirror each other through all pricing categories.

To me this makes perfect sense. In the beginning stages of this downturn, it was the sub-prime borrowers who were put in homes they couldn't afford, and, in general, they would have purchased entry-level homes. But as the recession hit, business owners and executives also starting seeing smaller bonuses, which meant that the priciest homes (especially those priced over $1 million) started seeing declines. For months, the one category which was often defying the market more than the other two tiers was the mid-level one.

But without sufficient equity to trade up from entry-level homes and a greater interest among investors for entry-level foreclosures, the reason mid-level homes were holding firmer was because their owners have more resources. But with unemployment now hitting 8.5% nationally (the highest since 1983), the mid-level tier is getting hit with larger economic pressures, and I'd expect to see some greater corrections throughout 2009 and into 2010.

S&P/Case-Shiller Index
January 2009
Los Angeles	Low Tier	Middle Tier	High Tier	All Sales
12-month	37%	24%	18%	26%
Peak	51%	39%	29%	39%
Nov-Jan.	7%	5%	4%	5%
Dec-Jan	3%	2%	2%	3%
July-Jan	17%	11%	11%	14%
San Diego
12-month	29%	20%	21%	25%
Peak	50%	39%	32%	41%
Nov-Jan.	5%	3%	5%	5%
Dec-Jan	3%	1%	3%	3%
July-Jan	14%	10%	15%	14%
San Francisco
12-month	39%	25%	18%	32%
Peak	58%	39%	25%	43%
Nov-Jan.	8%	5%	7%	8%
Dec-Jan	5%	3%	4%	4%
July-Jan	20%	13%	15%	21%

In San Diego -- which is often seen as a bellwether for California because it entered the housing recession earlier than other parts of the state -- the correction is already being felt in the high tier, so I'd expect to see prices in the middle tier start to capitulate more this year.

In San Francisco, although its housing downturn was later than San Diego's, it seems to be making up for lost time, with declines over the last two months ranging from 3% to 5% among the three tiers.

Although two months do not a trend make, it will be very telling to see what continues to happen with this index in the months ahead.

The case for letting basic economics stabilize the housing market

I've often said that there are two ways to look at the housing market: as an individual investor and in the aggregate. These days, that means that although you may despair at seeing your paper equity evaporate as home prices decline, that's actually good for the housing market. It's also what Douglas C. Neff and Gerd-Ulf Krueger recently opined for the L.A. Times:

Although no one likes foreclosures, they are serving a number of valuable purposes, which are barely cited by the media or politicians. They are establishing a sustainable and affordable pricing floor, albeit low, in many markets. And before we label the prices as unduly low, we should note that they are returning pricing to the 2000-2002 pre-bubble levels. Foreclosures are also letting some borrowers out of very bad contracts, which often committed them to crushing monthly payments on loans unsupportable in the post-bubble pricing market... So what does the government need to fix at this point, when the market has almost completed its pricing adjustment work?...We have a simple suggestion: Congress or the states could pass laws that protect mortgage security servicers from lawsuits, giving them the freedom to negotiate new terms with the borrowers if that's what both parties want...

The fact is that some very important things tend to get done by tens of thousands of individuals who are already dealing with a huge range of individual situations: repricing housing, investing in the future and clearing the decks for an eventual recovery. It's called Economics 101 at work, and it's setting the stage for stabilization of housing in California.
Of course one trend whose impact remains to be seen is the huge crush of investors of foreclosed homes who plan to sell once prices start to rebound. Will that result in a second stage of pricing declines and more foreclosures? This is a topic I tend to discuss for an overview of the state housing market that will accompany the April report from the State of California Controller's Office. I will link to this report from the blog once it is published online.

Are home-buying perks working?

Tax incentives. Free upgrades. Low mortgage rates. So what perks and incentives are working in today's marketplace -- one in which pending sales rose promisingly in February? Lennar Corp. is reporting that it now has to allocate an average of $50,500 per home, and has also rolled out a 'payment protection program' for recent homebuyers who become unemployed. Not to be outdone, the Calif. Association of Realtors has announced its own payment protection program for buyers who buy a home by the end of the 2009, use a Realtor, are under 70 and not self-employed. From a story in the San Francisco Chronicle:

CAR's offer is essentially like insurance for people who get laid off. It applies to first-time home buyers who open escrow starting today and close before Dec. 31. They must use a California Realtor in the transaction, not be self-employed and be younger than 70. If qualifying people are downsized, they may receive up to $1,500 a month for up to six months to help make mortgage payments...

"Prices have fallen in parts of this state to where they're beginning to make sense again," said Christopher Thornberg, principal of Beacon Economics in Los Angeles. "You're starting to see people move into the market. I know everybody will claim their particular incentive did the trick, but I would argue that price declines trump all."...

Some new-home builders are offering their own buy-downs of interest rates. Miami's Lennar Corp., which has developments in San Francisco and the East Bay, is offering a 30-year fixed 3.625 percent rate on select homes to buyers who meet certain credit and down payment requirements. (Similar to CAR, it also is offering to make mortgage payments for six months for laid-off buyers.) Hovnanian Enterprises recently offered a 3.99 percent rate that met "underwhelming" interest, it told the Wall Street Journal...

In quarterly results released this week, Lennar said it is giving buyers an average sales incentive of $50,500 per home, compared with $48,000 per home in the first quarter last year. The average sales price has fallen from $278,000 to $244,000...

Home sellers "continue to fight buyer psychology," said Patrick Duffy, a principal with Metro Intelligence Real Estate Advisers in Los Angeles. "No matter how low they go, people still worry that prices will continue to decline. They have to make them comfortable that the deal is so good they don't have to worry."

My interview with Jon Lansner of the OC Register now online

On Monday I was interviewed by Jon Lansner with the Orange County Register, who runs the "Lansner on Real Estate" blog and has recently added BlogTalkRadio.com podcasts to his site.

We mostly discussed what builders are doing today to cope with the housing market, the fact that cheaper will land will eventually lead to more affordable new housing, and when we can expect a rebound to a more normalized market.

You can listen to that interview here.

Banks now also walking away from properties

Remember how controversial it was when companies like "YouWalkAway" offered distressed homeowners expertise on how to simply walk away from their homes? Now it appears that lenders are doing the same, leaving semi-foreclosed homeowners and cities to pick up the mess.

So does that mean bail-out money is being used to increase neighborhood decay? From a New York Times story:

City officials and housing advocates (in South Bend, Indiana) and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure...

Experts suggest the bank walkaways are most visible in states where foreclosures are processed through the courts and therefore tend to be more transparent. Other states, like Indiana and New York, have court-mandated foreclosures, but roughly half of the states allow foreclosures to proceed without court intervention, making it difficult to accurately count the number of bank walkaways in recent months.

The soft housing market and the vandalism that often occurs when a house sits empty are the two main factors influencing the mortgage holders’ decisions to walk away, said Larry Rothenberg, a lawyer for Weltman, Weinberg & Reis, one of the larger creditors’ rights firms in the country.

“Oftentimes when the foreclosure starts out, it’s a viable property,” Mr. Rothenberg said, “but by the time it gets to a sheriff’s sale, it might not have enough value to justify further expense. We’ve always had cases where property was vandalized or lost value, but they were rare compared to these times.”...

The problem seems most acute at the bottom of the market — houses that were inexpensive to begin with — and with investment properties, where investors and banks want speedy closure by writing off bad loans as losses. Banks and investors typically lose 40 percent to 50 percent of their investment on every foreclosure...

In South Bend, boarded-up houses for whom no one has stepped forward are dotting the landscape, adding a fresh layer of blight to communities that were already scarred from the area’s industrial decline. The city is hoping to create a new type of legal mediation process that would bring together the homeowners and the mortgage holders to settle their disputes while allowing the owners to remain in the home — considered crucial to any stabilization effort...

And then, hopefully, some form of responsibility will return from someone.