Arizona Real Estate Notebook

The writer starts out painting a negative picture of this Los Angeles luxury condo project under construction that is being offered for sale.

Later on you find out its not so clear. A nearby project under construction actually sold at a good price so this developer may just want to lock in a profit right now and avoid the construction and market risk.

I wonder what, if anything, this portends for the Scottsdale, Tempe, Phoenix luxury condo market.

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San Diego County median home price in May 2007 was $385 per square foot.

Notice the variability is appreciation from one zip code to the next.

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First it was the new home builders last fall who said a turn around might occur in 2008 which was more than a year away.

Now it looks like 2008 is the earliest for San Diego home resales. I bet new home builders are wondering if 2008 will be down as well.

If it remains relatively slow, the air is let out slowly. We’ll probably see another 5, maybe 8 percent drop in the medium price of homes. If things come crashing down, meaning we actually go into recession, unemployment rates rise, there’s a lot of job losses in the San Diego area. We’re likely to see a 15 to 20 percent drop in home prices.

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Example: Zoslocki said Patterson forces developers to pay more than $96,000 in fees per home, plus extra costs if it is built inside a community facilities district.

He said fees per home are $57,659 in Modesto and $53,741 in Oakdale, and both cities charge more for homes in community facilities districts.

(Hmmm, If Arizona cities increased the fees builders have to pay, builders would have to raise their prices and that would strengthen the prices of resale homes in those outlying areas. Its so crazy, it might just work.)

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Some California real estate marketd still red hot. Others ice cold.

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Californians like to invest in areas with a fixed supply of homes because they’ve seen how prices have increased over the decades in the coastal areas of California.

However, with the super slow increases in employment in California, its advantage Arizona when it comes to employment growth and housing demand.

For investors, California has limited supply but Arizona has increasing demand.

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This economic report on California’s housing sector from UCLA was reported all over California and picked up nationally but this article from San Diego was the best one.

In California, the pace of new-home construction has declined by about half since the 2005 peak, and sales of all types of housing have fallen off by close to half. Foreclosures are spiking at levels approaching those of the recessionary 1990s, the forecast shows.

In contrast to past recessions, when waves of foreclosures were triggered by job losses, most recent foreclosures have been the result of families having overextended themselves. Many stretched to buy houses they could barely afford and chose to take out loans with rates that adjust upward after two or three years. The biggest wave of those rising house payments is due to take place in early 2008, the report shows.

It could be the middle of 2009 before the market turns the corner, according to the report.

Surprisingly, though, the housing slump has had minimal effect on the wider economy so far, he said. Job growth has slowed slightly in construction and real estate finance, but for the most part those housing-related industries have avoided widespread layoffs.

That is about to change, Ratcliff wrote in his report. And the job losses that are coming will hold down California’s overall job growth rate to less than 1 percent over the next year, he said.

“…The rest of 2007 and beginning of 2008 will be the period when real estate weakness finally spills over into the job market,” Ratcliff said.

FYI: These UCLA economists lean pessimistic but their analysis is plausible.

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Another good article on the outlook for San Diego.

Best quotes:

Leamer said housing markets tend to go up and down, but cycles are different for price than for sales volume. Typically, sales fall first and fast following booms, while prices decline later and drift down slowly.

“The volume cycle has already made a major adjustment,” he said. “We may not be on the bottom, but we aren’t far off the bottom.”

In April, San Diego County’s supply reached 10 months, Appleton-Young said… Appleton-Young said San Diego County’s supply reached a record 23 months in February 1992.

“You’re not having that cut-and-run mentality like you had in the 1990s in L.A. County when so many people lost their jobs that they had to get out,” Appleton-Young said.

During the 1990s, the end of the Cold War led to a significant scale-back of the military, and much of the impact was felt across Southern California. Several bases were closed and thousands of aerospace jobs axed, triggering a six-year-long recession worse than any other the region has had.

In response, home values in the Los Angeles area declined 27 percent, Leamer said.

From 1991 to 1996, the median price in San Diego County —- which was insulated from the base closures that hammered communities elsewhere —- fell 9 percent, according to the California Association of Realtors.

“In a normal market, people buy homes as places to live,” he said. “In abnormal times, people buy homes as investments.”

Economists and real estate analysts are in agreement that a correcting down cycle is under way. They disagree on how long it will last.

Lund, the broker, predicts 18 more months, while Appleton-Young’s crystal ball says 18 to 24 months.

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Here’s a real estate fraud story from San Diego.

The best quotes.

“Some of these people made well over a million dollars in a couple months time.”

It turned out, he said, the [real estate agent] had been involved in the purchase of 17 properties over a period of just a few months. All of the sales were suspicious, because the sales prices were significantly higher than the list prices, Lackner said. Ten of the properties later foreclosed, he said.

“If you look at some of these (mortgage fraud) cases, on one day alone, someone did the equivalent of robbing 10 or 20 banks in one day,” Lackner said.

Under an inflate-and-crash scheme, for example, an appraiser fraudulently declares the value of $500,000 property to be $600,000. Based on that appraisal, a lender agrees to a $600,000 loan.

The seller agrees to the higher sale price and agrees to give $100,000 cash back to the buyer at close of escrow. Then, when the lender pays the money to the seller, he or she keeps the $500,000 and gives the $100,000 difference back to the buyer and the money is split between the buyer and those who cooked up the deal, Lackner said.

Typically, Lackner said, a buyer will purchase between three and six properties at once. So, the damage to his credit is the same with four foreclosures as it is with one, he said.

California had more than one-third of the nation’s suspicious loan activity at federally insured lenders.

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This fraud isn’t in the same league as the one below but look at the names involved, Realogy and Prudential!

The suit, filed on Wednesday in the central district of California, seeks to recover ‘illegitimate profits’ generated by ’sham’ joint ventures formerly operated by Realogy Corp., Prudential California Realty and Property I.D. Corp.

Under California law, home sellers or their real estate agents are required to provide a statement of hazards, such as flooding, fires, or earthquake fault lines, usually in the settlement process for a property sale, according to the government.

The suit alleges that over the past ten years, Property I.D., which provides hazard reports, formed a number of joint venture ’sham’ companies with real estate brokers.

The suit alleges the companies were created for the sole purpose of referring business to Property I.D. and that brokers who made referrals received kickbacks through the ’sham’ companies.

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According to the National Association of Realtors the median home price in the United States fell 0.8% from a year earlier but in the bubble bloggers favorite state, California, the median price of a single-family home was actually up 6.2 percent from a year ago. Go figure.

This is the worst bubble burst ever.

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Montecastro and Stonewood Consulting are accused of engaging in a scheme by which they used inflated appraisals to obtain mortgages larger than the selling prices of the properties their clients purchased.

Stonewood took the difference between the actual sale price and the mortgage amount as compensation in addition to regular sales commissions, the complaint said.

The department said an audit of 10 properties conducted as part of its investigation showed the accused collected $969,158 in extra compensation as a result of inflated appraisals.

Yep. That guy should go to jail… for a long time.

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The San Diego real estate market sounds surprisingly strong for a weak market.

Tim Sullivan, the San Diego-based consulting firm’s founder, said that with some holders of subprime mortgages defaulting on loans that are resetting at higher rates, the bulk of foreclosures are likely to occur in the next six months and into 2008 before trailing off.

I’ll go along with that for Arizona too.

But Sullivan’s associate, Peter Dennehy, said only about 4.6 percent of sales involve foreclosures, far less than in the recessionary 1990s and a trend he called “something to watch” but still “manageable.”

I wonder what it was in the early 1990’s in California.

And Jack L. Haynes, executive vice president of Countrywide Home Loans, said lenders are moving to deal with borrowers facing disaster. He did not offer any specifics, but his company and some other lenders have moved to work out new repayment schedules to avoid foreclosure.

Anybody got any “work out” stories?

Prices, which had peaked at $517,500 in November 2005 and lately dropped to as low as $472,000 in January, have recovered somewhat to stand at a median $490,000. But they remain 10 percent or more below where they stood a year ago in many neighborhoods.

That’s a surprisingly small decline considering that San Diego was the West Coast poster child for the real estate boom.

His advice for how to attract buyers: “Stage” the units to look like nicely appointed resale homes; landscape the front yards rather than offer expensive incentives or upgrades

That guy’s as smart as I am. I like him.

Sullivan’s expert on Imperial Valley, Adam McAvee, said that market is “struggling” from affordability and commuting issues to the point where the typical new subdivision is only selling 1.3 homes per month.

1.3 homes per month! They probably look fondly on Queen Creek, Maricopa and Surprise, Arizona.

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Home auctioneers are back in action - Los Angeles Times

A sign of the distressed real estate market and growing volume of foreclosures, the auction of 92 homes, condominiums and apartment buildings in Los Angeles, Orange and Ventura counties was the kind of event not seen in the Southland for more than a decade. In fact, the company that staged the auction — Real Estate Disposition Corp. of Irvine — came out of hibernation to do it, said its chairman, Rob Friedman.

The winning bidders had to tack on a 5% commission to the purchase price. The discounts were 10% to 20%, according to the article. Given the 5% fee and the inherent risk in buying at auctions, you would really need a 20% to 30% discount from the market value.

“The market is not nearly as bad as it was back in the ’90s,” Friedman said. “We’re having a correction. It’s not going to be a major league correction…. People are getting a discount today, but probably not a huge discount.”

In fact, many of the investors walked without buying because the prices were too steep.

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Inside Bay Area - Police arrest five in real estate scheme worth millions

Prosecutors said Amy Schloemann, 30, and Karim Akil, 40, also known as Scott Kinney, were arrested at their Hiddenbrooke Mortgage office in Vallejo on Wednesday in connection with a 73-count felony complaint filed in Alameda County Superior Court.

The District Attorney’s Office said the couple took at least $3,579,000 from sub-prime lending companies New Century Mortgage and Right-Away Mortgage as well as Union Bank of California, local real estate brokers and individual citizens between April 2005 and August 2006.

I bet those sub-prime lenders are going to become very aggressive in pursuing fraud.

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