New Year, New Laws

Photo by 4johnny5 via Creative Commons License

With the new year comes new laws

With all of the bickering amongst the California lawmakers it would seem a surprise that any laws were actually passed.  According to this LA Times article there were a total of, "760 bills signed by California Gov. Jerry Brown." 
Do you know what all of the laws are? If you are looking to the media for the answers you will likely fall short. While the LA Times reports a total of 760 bills, NBC reports,  "The legislature passed 750 new laws last year." So which is correct? A quick Google search of "new California laws for 2012" returns about 456,000,000 results as of this writing. None of the sites on the first page include anything from an official government agency.  The second page shows a link to a PDF from pharmacy.ca.gov.  It isn't until page 4 that another California Government site shows up.
Of the two links found within the first 4 pages, neither of them list all of the laws.  Instead they are sites that only list the laws that affect that agency.  If you want a complete list of Bills enacted during 2011, you can find them at http://www.leginfo.ca.gov/NewLaws.html.  Unless you have a legal degree, you may need someone to interpret them for you.
The new laws cover many areas from real estate, traffic, guns rights, bullying, and more.  Using Google you can find various articles that describe the some of the "most important" laws that affect you.  Here is our commentary on a few of the laws.<.p>

Shadow inventory estimated to take four or more years to clear

According to Standard & Poor's Ratings Services the volume of distressed homes continues to decline.  However, the pace at which the inventory is being processed through the foreclosure process is slowing down.  The shadow inventory is defined "outstanding properties whose borrowers are (or recently were) 90 days or more delinquent on their mortgage payments, properties currently or recently in foreclosure, or properties that are real estate owned (REO)."

At the end of fourth-quarter 2010, S&P estimated it will take 49 months, or more than four years, to clear the supply of distressed homes on the market in the U.S. as a whole. This is an 11 percent increase over the previous quarter and a 40 percent increase from fourth quarter 2009 for the average time to clear these properties in the U.S.

According to S&P, Los Angeles area has the largest inventory, but New York  will take the longest to clear.  

Lots more information and pretty graphs in the original article.

Fourth-Quarter Shadow Inventory Update: Drop In Liquidations, Stable Cure Rates Indicate Increased Foreclosure Timelines

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What Do Big Banks, Short Sales and Government Have In Common?

During the boom years, the big banks were pushing to be allowed to add real estate office to their portfolios. That would have given them control of the market from listing to foreclosure. Lucky for the consumer, this didn't happen. This article from Diana Olick at CNBC: Short Sale 'Fraud' Follow, gives you just a small look into what it might have been had they been allowed to become licensed real estate offices.

Big banks currently control a large portion of the RE market via short sales (which require their approval) and foreclosures. When they are not putting the screws to you via high credit card interest rates they "extort" money from you when you try to buy a home. "Pay us under the table or we won't let you sell your house." I wonder how they report this alleged under the table income on their balance sheets? Is there a line item for "Income - RESPA violations." I would say it is time for the bank regulators to perform an audit of some of these banks. HUD where are you? If a REALTOR® were to take part in any of this alleged fraud and violation of RESPA laws then they would lose their license and the ability to make a living in the real estate industry forever! RESPA applies to the lending world. However, if they refuse, then they lose a client, a transaction, and a paycheck.

If any bank is truly found guilty of this alleged practice, they need to lose their license to lend. They also need to pay penalties to help fund additional regulators to root out these types of abuses. Any Buyer or Seller that has fallen victim should be awarded direct compensation for such abuses.
Here is something to think about. If that house next to you sold for $100,000 plus an undisclosed $1000 under the table, then the true value of homes are not being represented. The true value of the home was $101,000. Doesn't sound like a lot. Every home in the area just lost $1000 in value due to such a sale. The State (if home is in California), just lost $10 in real estate taxes for the first year. Doesn't sound like much, but imagine that this alleged abuse has occurred for 1000 homes across California. That is $10,000 in taxable income per year that the State has lost plus the 2% annual increase.
I could continue with a rant about "I'm from the Government, I'm here to help you," but I will leave that to someone else.

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"Tree House" For Sale

If a picture is worth a 1000 words, then what does this one say?

Click image for larger view

We all know that a listing without any photos is less likely to be looked at by Buyers. You should always have at least 1 photo on your listings. The more photos you have on the listing the more likely it is that the Buyer will consider it. Your photos should also not hide the ugliness.

I know, you want to show the property in it's best light. I agree. However, you should also not intentionally hide issues. I have no idea what the status of the property in the photo is. I am not sure the listing agent does either. The above photo is the ONLY photo on the listing. I am not sure I would have chosen this as my primary and ONLY photo. What does the inside look like? If it looks like this on the outside perhaps the inside is so bad that it wasn't worth taking interior photos.

Here are the public comments in entirety!

SHORT SALE

What more could you possibly want to know about this property right? How about, WHY IS THE TREE RESTING ON THE HOUSE! I can just imagine the conversation that took place at that listing appointment.

And the agent remarks don't provide much more information. In fact, they just say to be sure and call before you visit. Why, so you can reserve me a hard hat or so that you can take down the caution tape in hopes I won't notice the white elephant. What Buyer would even consider visiting? Give me more information on the home. It doesn't mention that the roof has a tree resting on it. A fairly LARGE tree from the looks of it. I am sure it hasn't occurred to this listing agent or the owner why the property has been on the market longer than 200 days.

My advice to the lender reviewing offers for this home, if any have come forth. Take the first offer over $1 and call it a successful sale! You do not want to own this property!

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The Recession Is Over

From the WSJ:

The latest to weigh in on the debate is Christopher Rupkey, the New York-based chief financial economist at Bank of Tokyo-Mitsubishi UFJ. In a note this morning, he says a V-shaped recovery — in which the economy not only recovers but rebounds strongly — is “maybe not as far-fetched as you think”.

...

As for claiming the recession may have already ended, he points to a series that in the past has proven a remarkably good indicator of business cycle troughs: weekly claims for unemployment benefits. That series peaked in the week of March 28 when a seasonally adjusted 674,000 new claims were filed; it has since retreated though it remains historically high. If that peak holds, it means the recession likely ended in April or May, he said.

I agree that using the numbers for unemployment are a good leading indicator, but it is only one of the measures. The only thing that I would caution those using it as an indicator would be how the numbers are playing out. Why are the numbers going down? The same reason they shot up so quickly. Unemployment benefits were extended, so many of the unemployed that were not "on the books" because they had exhausted their benefits were suddenly back on the books. Now benefits are starting to expire and those long unemployed are beginning to drop "off the books" again, not because they found work. So while the numbers show unemployment improving, it may be a bit of a false hope and some noise in the data.

What I am watching is job growth, not unemployment shrinking. When the employed can go to work and not fear a pink slip then the recession will be over. I think many are at the point where they have cut the fat so much that they can't cut much more. Those with benefits that have been less than motivated to find a job are going to start looking aggressively. Once the State and Federal Governments figure out how to cut some fat we will be ready to begin building again.

I am in the camp that thinks the recession may be over or soon will be. The thing about recessions is that they aren't officially recognized to begin or end until it has already occurred. They are like the housing market in this respect. If you are waiting for housing prices to "turn around" before you buy, then you have already missed the "sweet spot" that you have been waiting for.

As for a "V" recovery, I just don't see that happening. I think this December will see better numbers than 2008, but only slightly. However, I think that will be the stimulus that consumer confidence needs to begin the upswing. So look for slow to no growth from here to October. In November and December it will begin to pickup as the other side of the "U" recovery begins. By summer 2010 we will definitely be on the upswing, but hopefully with a more moderate angle than the mid 2000's.

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Inferred Housing Cycles

I was sifting through the data that I have on the local real estate market here in the Inland Empire and I started to wonder when the homes that were on the market were built. So I put together some graphs. It turns out that the homes that are on the market were most commonly (the mode for you statisticians) built in 2005.

This first graph shows the number of listings on 7/30/2008 by the year built. I kept the vertical axis set to 120 so that it was easier to compare the graphs.

Click image for larger view

My data does not indicate anything in particular. However, it does appear that the year that the homes that are on the market were built tend to have peaks and valleys. For example, a sample of data taken on March 30, 2009 with a 30 day window indicates that there is a peak of homes built in 1979, then a relative steady pace from 1985-1989 with a drop in 1987, then a rise again until we peak at 2005.

Keep in mind that all of the years shown are for homes that were on the market during the sample period. So this data does not represent any correlation with the number of homes built during a given year. It represents a sample of listings with a change in status within 30 days of the sample period.

This second graph show the number of listings by year built on 6/29/2009.Click image for larger view

Why would there be such a pattern of peaks and valleys. I sampled the data set for several different months. I went as far back as July 30, 2008. The actual data is a little different, but the peaks and valleys are roughly the same.

So the data begs the question. Why are homes built in 1987 less likely to be listed than homes built in 1988? Why are so many homes that are built in 2005 on the market?

I suspect, but can't seem to find anything to correlate the data, that it may be related to historical housing booms and busts. It is my theory that during the peak of the housing boom that the quality of construction may decline because builders are under pressure to complete projects at an ever increasing pace to keep up with demand. As the boom turns to bust, they are free to spend "quality time" building a structure.

One theory that I also considered was related to financing of the homes. Homes that were purchased in 2005 may be financed with Adjustable Rate Mortgages that are beginning to reset. However, this does not explain the peaks and valleys for the older homes. All of the data represents current listings, not the number of homes listed in that year.

Another theory may be purely related to the number homes built during a particular year. If lots of homes were built during 1986, but not so many in 1987, then it stands to reason that an equal percentage of each year will result in a higher count during boom years and a smaller number during less that active years. Lots of homes were built in 2005. During the period of 2006-2009 less homes were built. So perhaps the data is just a reflection of the building cycle?

Take a look at the two graphs. What is your theory on what the data means?

Note: The data for these graphs were all in the 92336 area code. If a larger geographical area is sampled, then the data may be more uniform.

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Inland Empire Sales 1 in 5

The Inland Empire continues to have strong sales numbers, relatively speaking. According to report from MDA DataQuick, and estimated 39,051 homes and condos were sold in California during the month of May. During the same period, MDA DataQuick reports that 7,548 homes were sold in the Riverside and San Bernardino Counties. Also known as the Inland Empire.

That is about 19% of all homes, or 1 in 5, sold statewide were sold in the Inland Empire. So homes in the Inland Empire are definitely moving. With a median price of $137,000 in San Bernardino County its no wonder homes are selling. First time buyers and investors see that real estate in the Inland Empire is the place to buy. Prices are down and you can find great deals.

For those investors that didn't buy during the boom, this is the time when they are buying some of the best deals. in 3-5 years these homes will have provided decent cash flow from a renter and can be resold for a reasonable profit. If held onto for 10 years, you can expect to make more than $100,000 in profit between monthly rents and an eventual resale without trying very hard. Multiply that by 10 homes and you are averaging $100,000/year income. Most people would consider that a good income.

A quick glance at active listing in San Bernardino County that have been listed in just the last 7 days with 3 or more bedrooms and 2 or more baths gives us 354 listings. Here is just a sample of some of the low price leaders.

Click image for a larger version

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