What’s the real story on the SCV Real Estate Market?
Written by Jeff on January 16th, 2008Everywhere you look, the news only seems to get worse. CitiBank, Merrill Lynch and other Wall Street firms are being bailed out by foreign investors amid continuing fallout from the sub-prime mortgage crisis. Foreclosures are up all around the country, inflation is at a 17 year high, the Fed continues to ponder interest rate reductions and the word “recession” is getting tossed around in the presidential campaign. But the Santa Clarita real estate market appears to be weathering the storm quite well, going by several realtors and The Signal. Is it though?
On Sunday, The Signal editorialized that the “hysteria” had overtaken the debate and that the credit crunch and foreclosure crisis weren’t impacting Santa Clarita as much as other communities. The Editorialist wrote:
So are we to believe that the real estate sky is falling on the SCV? Of course not. People are still buying and selling property; those sales simply are not happening as quickly as they used to. In addition, because it is taking longer to sell and fewer buyers are in the market, prices have dropped to a level that seems much more realistic than when the market was red hot.
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Talk to any Realtor in town and you will hear the war stories. But homes are still selling, if more slowly, so we do not think it is really as bad as it has sounded, especially in the Santa Clarita Valley.
Local real estate bloggers echo the editorial. In response, one wrote:
According to me, they [The Signal] aren’t saying anything I really didn’t know, but to put their own credibility on the line, when they certainly don’t have to, was a breath of fresh air. In my humble opinion, and based on what I see, 2008 is the year to buy a home in Santa Clarita, if you haven’t already. Prices will come down more this year, but trust me, buyers are coming out of the wood works right now and they don’t want to hibernate for too much longer.
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Things are picking up. I can’t tell you how many offers I’ve written in just the last 2 weeks, and how many people have been emailing me, letting me know that they want to get approved for a loan, and start their house hunting project. A lot of the people calling and emailing me, are first time buyers too!
Finally, realtor/blogger Linda Slocum opined on the market in her otherwise factual accounting of 4th Quarter Santa Clarita market statistics. She said:
We all know that the Santa Clarita real estate market isn’t as active as it was in recent years, but homes are still moving even though they may not be selling as quickly or for the higher prices that we got used to seeing…it’s definitely still a buyer’s market out there.
Three different, well-informed sources say that though the SCV real estate market faces challenges, we’re not as bad off as we could be and buyers are realizing the advantage of this market. We’re told that homes are still selling and that the situation is great for buyers. We’re told to “calm down” and relax.
But are we getting the full picture? Real estate statistics, like any other statistics, are ripe for misinterpretation and even abuse. Only realtors have access to their computerized MLS system, so the public is left to read their interpretation of the statistics. I’m not saying that the three sources above are misinterpreting the statistics they source; rather I think there’s other factors we should consider if we want a complete picture of the market.
Take for instance the fact that Newhall Land, the region’s number one developer, has ceased construction of houses along the Santa Clara River in Canyon Country. Obviously the supply of housing on the SCV market is high, so demand for new homes currently is low. Newhall Land is a business and recognizes that it’s not profitable to build new homes in Santa Clarita right now. Who knows the SCV real estate market better than Newhall Land?
What’s more, anecdotal reports (equal in validity to realtor reports of phones ringing off the hook) say that there are unfinished houses all over Santa Clarita, especially in Canyon Country.
So if new homes aren’t selling and being built, what about the market for existing homes? Slocum reports that over 1,300 homes went on the market in the fourth quarter, with a big percentage of those homes either in escrow or sold during the period.
Left unanswered by all the sources above, however, is the reason why there’s a glut of homes on the market. For that, let’s look at Trulia.com, a popular “open” real estate search engine site that just recently incorporated foreclosures into its sales lists.
On Wednesday, January 16, I performed a search of all homes available for sale in the 91321, 91381, 91355, 91351 and other areas of Santa Clarita. I then filtered out “regular sales” from “foreclosures” and piped the results out to Excel. If Trulia’s figures are accurate, the foreclosure crisis has hit the SCV hard and homeowners here are having trouble making ends meet:
As you can see, almost 1 out of every 2 homes for sale in the SCV are due to foreclosures if Trulia’s numbers are to be believed. Canyon Country, Newhall, and Stevenson Ranch are surprisingly high, with Valencia and Castaic foreclosures a touch lower.
I’ll grant that these numbers are shockingly high and defy belief, and I’ll further admit that I’m not an expert in statistics or the minuatia of real estate stats. But Trulia has a fairly good reputation as an “outsider’s” source to real estate information and the chart above seems to explain the facts we do have from reputable sources.
There’s one other thing to consider too. Neither the Signal nor the two realtors quoted above mentioned these or their own foreclosure statistics in their editorials and blog posts about the SCV real estate market. They mentioned sales data that supported the view that Santa Clarita’s market isn’t in that bad of shape. They answered the “what” and “how many” but didn’t tell us the “why” though they presumably have access to foreclosure stats.
Trulia’s numbers answer that to some extent. A large percentage of SCV homeowners are having trouble making their mortgage and that explains why there are so many homes available. What we didn’t know before was the extent to which homeowners are being foreclosed upon.
At the least, this paints a more ominous picture of the market here than industry insiders and The Signal (recepient of real estate ad buys) might care to admit. It says that many homeowners in the SCV are affected by maturing ARMs and have overextended themselves. It says that credit crunch part of the equation is affecting the SCV just like it’s affecting homeowners elsewhere. It says that there are scores of families and homeowners here in the SCV who can’t make ends meet who’s stories aren’t being told.
It doesn’t tell us how long this will last, but experts think the foreclosure problem is still only in its initial stages.
So the real story of the SCV real estate market isn’t that it’s a “buyer’s market” out there or that 2008 might be a great time for buyer’s; rather the real story is that the foreclosure rate in the SCV might be just as high as it is elsewhere and is impacting scores of Santa Clarita families.
I’m not advising panic, but the Signal’s official position of “calm down” is a bit patronizing in light of these statistics and the nationwide problems giants like CitiBank are facing. We’re connected to the rest of the nation and the world, and Trulia’s numbers prove just how much.
What do you think?
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16
PM
Super commentary, Jeff. I think we all know the real estate market is not doing well. This says it all about the beleaguered real estate industry: “…..CitiBank, Merrill Lynch and other Wall Street firms are being bailed out by foreign investors amid continuing fallout from the sub-prime mortgage crisis…..” All that “creative financing” that allowed unqualified people to buy homes they couldn’t actually afford has come home to roost. And pricing homes WAY above what they were worth priced a lot of people right out of the market - people who were looking to move up or scale down simply stayed put. But, historically speaking, the real estate industry always weathers the rough times and bounces back with gusto, and I think eventually we will see the market take off again.
16
PM
Pauline is right on… the real estate market will likely “bounce back with gusto” as it has in the past.
That said, Trulia is NOT an authority on real estate listings, since participation in Trulia is totally voluntary, and thus it does not include all homes for sale. They are not a participant in any MLS system, and thus only get listings if they are either uploaded manually to Trulia, or entered as part of a data share agreement with specific companies or web hosts.
We also don’t know where Trulia’s “foreclosure” numbers are coming from… are these true foreclosures, or just homes that have received an initial Notice of Default? Not all homeowners who receive a Notice of Default end up getting their homes sold on the courthouse steps as part of a foreclosure auction. Not even all homes who receive a Notice of Trustee Sale end up getting sold at auction. Thus the comparison of the total Trulia listings for Santa Clarita vs the supposed foreclosure listings for Santa Clarita is inaccurate at best.
As new Canyon Country developments… well… it’s Canyon Country and the market doesn’t tend to favor new construction in that area as much as in other areas, even when the market is hot.
Lennar (Newhall Land) has scaled down its production of new homes in its developments on the other side of town though, with some tracts being put on hold for the time being within the West Creek and West Hills developments. Not surprising, since the overall demand is down… they’re focusing on a few select tracts instead of overbuilding, which makes more sense than sitting on unsold inventory.
Also remember that many of the short sales (preforeclosures) are sellers hoping to get out of an existing home so they can move elsewhere within the SCV, and the banks won’t necessarily allow this to happen. In order for a short sale to be approved, the seller needs to show financial distress including a situation that was not present when the loan was originated, and they need be able to show that there’s no way they can continue to pay their mortgage (even if restructured in some cases). Many of the potential short sale homeowners I talk with are either wanting to move to another area in the SCV (possibly the wife wants a home in a new development) or they’ve just decided to take a break and rent a while. Without proof of hardship, the banks aren’t obligated to do anything to help these people out.
If you’re a buyer and want to take advantage of the lower interest rates and lower home prices, then go for it… it certainly beats paying rent. If you want to wait til the market hits bottom, the only way you’ll know it’s reached bottom is when it starts to go UP again!
Nobody that I know of has a Crystal Ball that can accurately forecast the local real estate market trends. Lacking that, all else is just educated (or uneducated, as the case may be) guesswork. Many of us do the best we can to present the most accurate data possible, but even the best data sources aren’t perfect.
17
AM
Jeff, kudos for doing some real digging for information. Would that our local press were that interested in finding out the truth. It is indeed difficult when the keepers of the information use it in a way that promotes what is beneficial to themselves. Look where that has gotten us.
This real estate bubble is of a magnitude never before seen. The loans given out were of a type never given out to average borrowers in the past, and they were given out in incredible quantities. They were then packaged and sold in such away as to endanger the entire economy. Taken a look at stock market lately? Did you see the fear in Bernanke’s eyes as he testified this morning? There is very good reason for that fear.
Of course the realtors will tell you that “now is a great time to buy” and that buying “beats paying rent.” But realtors say those things because if people don’t buy they are in deep doo doo. In this market (even with the 20% reduction we’ve seen in the median price locally) the average joe can in no way afford the average house. The only way people have managed to buy at all is to do so with no money down, interest only, adjustable rate loans. Now that those are no longer available and values have gone down, the market is tanking. And it will get worse before it gets better. The option ARMS have not begun to adjust in massive numbers just yet, and already the government is talking about bailing out PRIME borrowers because those loans are going south as well.
By any measurement you care to take we know for sure that: foreclosures are way up; loan defaults are way up; property tax defaults are way up; home sales are way down; and home values are down. There is no reason to believe that the market will soon come back with gusto; in fact there are plenty of reasons to believe it won’t. The average American owes more money than ever before; inflation is way up; credit card defaults are way up; car loan defaults are up; unemployment is up and Christmas sales were down. Recession? We will be lucky not to sink into depression.
Now is a great time to rent and save your money. Much better to pay less money out each month and not be tied to a depreciating asset than to be paying through the nose and watching your equity disappear every month.
18
PM
Hi there.
I work for a contractor whose company went from 50 million/year in revene to 100 million/year within a four year period. Nearlyl all that business was from single family residence homebuilders - fueled by the hot housing market.
We’re back to 50 mil and falling. Our clients have reduced their staff almost entirely, they are selling off their projects, and hunkering down for a one-to-two year period of survival.
My company is in the midst of layoffs. We will drop our staff by 50% in the next 2 months. We are working fast and hard to diversify our range of services and keep ourselves afloat.
Jeff is right in saying that the piece written by The Signal on Sunday was a bit patronizing. Folks who are out of work, facing mortgages they cannot pay (ARM or not) and a job market swarmed with people with similar skill sets - these folks can’t afford to wait for things to get better.
I don’t know if the numbers above are accurate, but the giant bubble has popped in a big way. The ripples of that pop may not effect everyone, but it is being felt by some in our community. Respecting fellow Santa Clarita families entering, or in the midst of, tough times, means acknowledging their pain. Perhaps The Signal should take less time to console the happy, wealthy status quo of SCV (those who can afford to look hawkishly at this downturn as an opportunity) - and more time making public what happens when unscrupulous lenders take advantage of families in search of the American home-owning dream.
20
AM
This whole foreclosure situation is NOT just the result of “unscrupulous lenders take advantage of families in search of the American home-owning dream”. Statistics from the Feds show that the number of homeowners who are in trouble with their initial mortgages (as in the ones used to buy the house, not refi’s) are really quite low compared to the overall foreclosure numbers.
What we’re seeing a lot in the SCV are people using cash-out refi’s as well as 3rd and 4th mortgages to finance lifestyles that they cannot afford. The homeowners asked for more money, and the banks gave it to them.
For example, there’s a home listed $1mm+ in Valencia that is now “lender owned”, which had FOUR mortgages on it before it went into foreclosure. There’s another Valencia couple with a home worth $900k-ish who did a major cash-out refi (over $350k) to support their extravagant lifestyle and the wife’s gambling habit that recently foreclosed. Yes, there were some inflated appraisals in this refi boom, and even some fraudulent appraisals (like using a non-similar development for comps).
Foreclosure statistics for Los Angeles County for the 4th quarter of 2007 show that the average single family loan amount for homes that went to auction on the courthouse steps during that 3-month timeframe was only $397,279 for the 6,068 trustee sales reported. Santa Clarita’s numbers don’t factor heavily into this, since they’re relatively low compared to other LA County areas (see for more details on this).
Lenders did their best to accomodate the consumer demand for money, and the borrowers willingly signed on the bottom line. It’s easy to blame the lenders for this entire mess, but they didn’t arm-twist borrowers into signing loan documents. The borrowers were seduced into “easy money” and “new homes”, yes, but they also had the obligation to understand what their loan payments would be. Borrowers were willingly lying on their loan applications about their stated income so they could either get into their “dream homes” or get the maximum cash-out refi’s, and not taking into account that their paychecks would not cover their loan payments plus their Starbucks habits.
It’s not just the lenders who created this mess - the borrowers have to take some responsibility as well. Especially those borrowers who used their home equity to finance their extravagant lifestyles, only to walk away from their homes leaving the lenders holding the bag.
Think about it: If a homeowner walks away from a $350k second cash-out refi mortgage as above, all they have to “repay” is the income tax bite on that money. I can assure you that that homeowner was laughing all the way to the bank!
If you want to find someone to blame for all this, then look to the media. The overspending was fueled by advertising for “easy money” to use for vacations, boats, cars and other extravagances, and the media willingly accepted the lending industry’s advertising dollars to make this happen. There were plenty of articles in our “trusted” media sources about getting access to this “easy money” as well. We also saw more luxury cars than ever being introduced for the “average Joe” during this time frame, as evidenced by the explosion of Hummers and Mercedes on the road, many of which were financed by cash-out refi’s that are now going south.
“Unscrupulous lenders take advantage of families in search of the American home-owning dream?” Yes, maybe to some extent, but that’s not the whole story.
20
PM
There is plenty of blame to go around on this issue. Let’s not forget the lack of government regulation and oversight which allowed lenders to make these kind of loans. Fraud was rampant, and no one cared because values were increasing so quickly that it didn’t matter. The house could always be sold for more than was owed.
But I doubt very much that the couple walking away from their million dollar house is going to live happily ever after. Scraping together the income taxes on $350,000 worth of forgiven debt is no mean trick when you’ve got a gambling problem and ruined credit. And they won’t find it all that easy to rent. It costs more to get into a rental than many people were putting down to get into houses during the last few years.
There are lots of small fish who made a killing, and others who just got lucky with their timing, or who took advantage of easy credit to live high on the hog for awhile. But let’s follow the real money here. Look at Angelo Mozillo, CEO of Countrywide. He’s gonna walk away with millions in the buyout deal with B of A. And that’s on top of the bundle he made selling off his shares right before the sh*t hit the fan with the subprime mess. Likewise, there was a lot of insider selling in homebuilder stocks while in public the homebuilder heads were still proclaiming there was no bubble.
The big lenders all put off writing down their losses in 2007. You know why? Because they didn’t want to miss out on their bonuses. So foreclosures were allowed to sit and writedowns were delayed so financial fatcats could take their ski vacations and buy i-phones for their kids.
At the end of the day, the taxpayers will pay through the nose for all this nonsense and the corporate schemers will walk away richer than ever. It’s the American way.
20
PM
To dig a bit further, the reason there was so little government oversight is that corporations control our politics. Big corporate money buys our politicians (how else can they be elected under the current system? - on every level - and their lobbyists write to so-called “regulations” of their industry (the fox guarding the hen house syndrome) We are headed toward a big recession (depression??) because of their unbridled power. Only Teddy Roosevelt/FDR-like efforts to reign in corporate power will save us economically, socially and environmentally. We must make real systemic changes, not half measures, to avert disaster. This housing crisis is just the tip of the iceberg. We must look at these problems holistically, not piecemeal, in order to restore balance. Big business has hijacked our system. We need to put the corporate beast back into the cage like FDR and Teddy did.
20
PM
“But are we getting the full picture? Real estate statistics, like any other statistics, are ripe for misinterpretation and even abuse.”
Gee, ya think? Ms. Slocum’s statistic-laden interpretation of the matter is a little difficult to believe. Are we to understand that the majority of folks in trouble were greedily borrowing money to pay off gambling debt and buy expensive cars? REALLY?
Seems unlikely. A far more believable story is that low-to-middle income families found themselves priced outside the market. They had a healthy desire to live in a home of their own, and with traditional loans could not swing the payments. So they gambled: betting on a hot market/rising equity and low interest rates that would allow them to refinance before the tick-tock of their 2 year ARM struck midnight.
Let’s face it, most of those that took this gamble early in the game are doing just fine thanks to quickly built equity. This isn’t true for those who bought into the market at its peak, who cannot sell and do not have the money to refinance - these people are stuck. When the clock strikes 12, the game is up.
And, unlike the realtors and lenders who ushered these families into homes they could not afford (and have happily cashed their commission checks), these families will suffer a devasting blow to their credit, their future financial stability, and a great deal of pride.
Blaming the media for this is an easy out for those looking to shift blame to a faceless, generalized force - instead of directly onto those who deserve it. Shame, shame.
Question for Ms. Slocum: who gets the harsher sentence: the drug user - or the profit hungry predator who sold the addict their drugs?
21
AM
“Look for someone to blame…” There is no one to blame except the greedy homeowners!