Industry's Shadows Continue to Shrink （Shadow Inventory)

11/23/2011

That ominous shadow inventory of repossessed and soon-to-be repossessed homes is getting smaller.

Standard and Poor’s (S&P) has released its third-quarter shadow inventory update, which shows both the volume of distressed assets and the amount of time it’d take to liquidate these properties is contracting.

S&P says the volume of distressed residential mortgages included in its shadow inventory estimate remained “extremely high” at $384 billion in the third quarter, but it has declined in each quarter since mid-2010. S&P’s third-quarter evaluation is down from $405 billion at the end of the previous quarter.

“We believe this points to a continued drop in the amount of time it will take to clear this ‘shadow inventory’ over the next year assuming national liquidation rates do not decline abruptly,” the analysts at S&P said in their report.

Regional default and liquidation rates varied widely in the third quarter of 2011, but overall improvements prompted S&P to lower its projection of the number of months to clear the supply of distressed homes on the market and coming down the pipeline.

The agency now estimates that it will take 45 months to work through the national shadow inventory. This assessment is seven months below S&P’s peak estimate of 52 months in March 2011, but is three months longer than the agency’s estimate a year ago.

S&P calculates shadow inventory as the number of properties for which borrowers are 90 days or more delinquent on their mortgage payments, properties in foreclosure, and properties that are REO. The agency also includes 70 percent of the loans that “cured” from being 90 days delinquent within the past 12 months because these loans carry a higher risk of redefault.

S&P’s analysis of the shadow inventory uses only non-agency (non-GSE) data, but the company’s analysts say they believe the months-to-clear is similarly high for the market as a whole.

Housing Affordability Hovers Near Record Levels

Daily Real Estate News | Monday, November 21, 2011


Ultra-low interest rates mixed with stabilizing home prices continued to push housing affordability in the third quarter near its highest levels in more than two decades, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index.

For the third quarter, 72.9 percent of all homes sold were affordable to families earning the national median income of $64,200, according to the index. This marks the 11th consecutive quarter that the affordability measure was above 70 percent; prior to this it rarely was above 60 percent.

read more on ......

$2.9M of 31 Units apartment Homes in Sacramento

Just by driving 1.5 hours east of San Francisco, you can find income producing properties which provides 50% more than in the bay area. Here is one example. In Sacramento, a well maintained and newer style 31 units apartment building produces cash flow 50% higher than what you can get in bay area.

Sacramento is the capital city of California and the 6th largest city in CA. Government contributes 30% of the local economy. Education and Healthcare contributes 12% for the 2nd most important job providing industry. 

This $2.9M deal below will generate around $180,000 per year NET to you. (versus $120K a year in bay area.) It's only around $109 / square foot versus $200 to $400 /sqft in bay area. While you are waiting for the housing recovery in CA, by investing in Sacramento, you can get $40K more per year. In 5 years, it's a nice $200K extra. 

Please contact me if you like to have more details. 

Cheers,

Josh Chen

Freddie Mac will pay extra to get rid of its winter inventory

On 11/16/2011

Freddie Mac's Winter REO Sales Promo Pays Extra to Selling Agents

Freddie Mac has announced the launch of a nationwide winter sales promotion to move its inventory of foreclosed homes and put them back into the hands of responsible homeowners purchasing a primary residence.

HomeSteps, the GSE’s REO sales division, will pay selling agents a $1,000 bonus for offers received on Freddie Mac-owned homes in select locations.
Initial offers must be received between November 15, 2011 and January 31, 2012 with escrow closed on or before March 15, 2012. The offer is valid only on HomeSteps homes sold to owner-occupant buyers.

Buy properties between November and February

11/14/2011, DSNews.com reported that 

LPS: Prices Are 28.3% Below Peak in Mid-2006

National home prices have been on the decline since June 2006 with a few bursts of increases, which Lender Processing Services (LPS) attributes to seasonal trends. Overall, prices have declined 28.3 percent since their peak in June 2006, according to LPS’ new home price index.


Some Highlights:

* From July 2007 to December 2009, prices declined an average of 13.8 percent annually.
* After December 2009, prices began to decline at a slower pace, posting an annual decline of 3.6 percent.
* ............. a series of increases during the spring of this year; a pattern that has occurred each year since 2009,” but declines starting July, August, ....
* Higher-priced homes – those above $321,000 – declined by 0.72 percent, while homes below $103,000 declined 1 percent in August.
* Among the MSAs with the greatest declines during the month of August, most were in California or Arizona.

Based on the data above, should a value investor pick up good properties after fall and before spring? 

1 yr old, 8 units condo in Marin County, San Francisco Bay Area

It's very rare to see this kind of the new builds in San Francisco bay area. See the summary below. The builder finished the project in Aug 2010 but couldn't sell the units before it was taken back by the bank. 

The estimated value could be $2.5M to $2.8M but might be bought for $2M+. At the market peak around 2007, it could worth around $3.8M.

Now, you can get rental income with 100% occupancy while wait for market to come back. 

If you or your fellow investors may be interested in this deal or this kind of deals, please let me know so I can provide more details or similar opportunities in the future.

Thanks, 

Josh Chen

Good Shepherd Value Investment and Asset Management

Foreclosure Timeline Lengthened by 140 Days Over Past Year: LPS

from DSNews on 11/1/2011

Homes that were foreclosed on in September 2011 had been delinquent for an average of 624 days. That’s up from 484 days in September of last year, just before the processing issues surfaced.

That 624-day foreclosure timeline is the national average. LPSsays timelines in judicial states continue to extend at a greater rate. The time from last payment made to foreclosure sale in judicial states is 761 days, which is six months longer than in non-judicial states.

Looking at the national foreclosure population, LPS says almost 40 percent of loans in foreclosure have not made a payment in two years, and 72 percent have not made a payment in a year or more.

In summary, it will be a while before foreclosure inventory issue can be reduced. 2 to 5 years??

Short Sales Offer Significant Discounts

From DSNews  on Oct 31, 2011

Short sales are growing throughout the nation as distressed homeowners and servicers continue to seek alternatives to foreclosure and home buyers increasingly opt for the significant discounts that come with short sales.

With 9,145 completed short sales, the Los Angeles area had more short sale transactions than any other metropolitan statistical area (MSA) in the second quarter of this year, according to a recent blog post from RealtyTrac.

These short sales came with an average discount of 32 percent and at an average price of $350,237.

Phoenix ranked second in number of short sales for the second quarter with 8,434 short sales, which came with an average discount of 27 percent and an average price of $133,793.

According to the RealtyTrac blog post, the metros with the highest numbers of short sales in the second quarter were:

1. Los Angeles
2. Phoenix
3. Cape Coral – Fort Myers, Florida
4. Oxnard – Thousand Oaks – Ventura, California
5. Reno – Sparks, Nevada
6. San Francisco 
7. San Jose
8. Portland 
9. Atlanta
10. Milwaukee

Short sale savings averaged more than 30 percent in Cape Coral – Fort Myers, Florida; San Francisco; San Jose; and Milwaukee.

Reno – Sparks, Nevada, experienced a 50 percent rise in short sales from the first quarter to the second quarter of the year, while San Francisco saw a 47 percent rise in short sales.

Atlanta and Milwaukee also saw significant increases in short sales over the quarter – 21 percent and 20 percent respectively.