327 Whippoorwill Glen

3bd/2ba starter home sold for top dollar in Escondido.



The table above (click to expand) shows all sold or pending homes in last six months in the same community.

Note the model match that sold two weeks earlier for 5.6% less!

A few words from the client...

"Seth, I really appreciate everything you did to help us sell our house. I spoke with Teresa tonight after receiving your card and we both feel like you did everything and we just signed a few papers, from the comfort of our home in most cases.

I will recommend to anyone who will listen to use you as an agent next time they want to buy or sell a house.

Thank you so much for making this truly painless.

-Mike M."

752 Foxwood Drive

4bd/3ba mountain view in Oceanside.

A few words from the client...

"Working with Seth to find our first home has been wonderful. His professionalism and experience lent itself to our case, and was the sole reason our deal was completed. Our particular experience in finding a first home was not the smoothest with no fault to Seth, we know if he had not been our agent we would have given up long ago. His upbeat attitude and rediculous work ethic kept our spirits up while searching for the perfect home. His team of professionals worked through the holidays to accomplish a most difficult purchase in a very limited amount of time. Seth presided over every step in the process all the while keeping us informed. Our home had to be closed within two short weeks during the holidays for the fear of losing the deal. Seth and his team stepped up to the plate, put in extra hours and saw to it that everything got done as needed. When the time comes to sell our home and find a new one, we will only have one choice in an agent. We highly recommend Seth to anyone looking to buy a home."

-Kyle & Chinh H.

10 Reasons Why Real Estate Won't Bounce

1. At best, maybe 25% of all mortgages that have defaulted since the beginning of the subprime crisis has been dealt with via foreclosure and subsequent resale or short sale.

2. Since the record foreclosure statistics we saw two years ago... we have only had an increase in loan defaults, not a decrease. And yet closed sales do not reflect anything near this quantity. Heck, we don't even have the inventory of homes for sale because the banks have not yet foreclosed on them. Where are some folks are getting the idea that this has been resolved? The only resolution has been relaxation of mark-to-market accounting standards and sweeping the crap under the rug.

3. As of Tuesday, in my area, there are a combined 19,453 active foreclosures that haven't hit the market yet. That's more than twice as many homes that are currently on the market.

4. The homes in some stage of active foreclosure are only a small minority compared to the homes that have defaulted that are not yet in active foreclosure.

5. Prime loan defaults are just now starting to default. The rate is up almost 20 percent from the previous quarter and more than double a year ago... right on schedule and perfectly aligned with this chart, which opponents argue presents "very stale 2005 CSFB data".

6. The magnitude of the prime pool is approximately 3x that of subprime.

7. The payment shock on a 5% five year interest-only loan, that re-sets to a 5% 25 year principal-and-interest loan... is 40%. This means a dude with a $400k loan will watch their payment increase from $1,666/mo to $2,338/mo overnight. This means a dude with an $800k loan will watch their payment increase from $3,333/mo to $4,676.

8. All of these woes exist despite unprecedented stimulus and zero interest rate policy. Imagine what happens when rates rise!

9. Some folks who complain how stale this re-set chart is may benefit from a quick glance at their own mortgage repayment terms. They may be sick of looking at the chart, but it's the only one that seems to be telling the true picture these days.

10. For all the hoopla we heard about derivatives as potential weapons of mass destruction... not only has there not been a resolution, but as far as I can tell, it seems they're still writing them!

Our fearless leaders just voted to raise the limit on our countrywide credit card, so that other countries won't stop lending to us. Wouldn't it be great if we could all do this? Only problem is, at the rate we're spending, we can only float that sick new countrywide jetski for another 8 months or so. I guess we'll just raise the limit again when we need to bailout the next big bank.

Alternate Theory to Pending Sales Plunge

I love the book Freakonomics, by Steven Levitt and Stephen Dubner. I love the way it explores the questioning of questions, and the incentives that back them. And I was impressed by the way it compels readers to proactively uncover higher truths by unlocking the right combination of words that comprise the question.

A Freakonomics-inspired approach to framing questions, plus on-the-ground experience and anecdotal evidence, points to a different conclusion about the 16% plunge in pending home sales. Conventional wisdom views this plunge as a direct result of the coinciding period in which we collectively held our breath for the official announcement that the $8k tax credit would be extended to April... even though the equity market consensus expected a much smaller decrease.

Home shoppers are generally pretty confused about the whole tax credit thing. And since they do not recoup it anytime soon in the form of a lump sum, the benefit seems somewhat intangible. Most clients have even stopped asking about it.

I have another theory about why pending home sales decreased. But understanding the context fist requires some background.

Two years ago, we had record foreclosures. Since then, loan defaults have only been increasing. Inventory of homes for sale has been decreasing, but the number of homes actually being sold have remained flat or decreasing. This means there are a whole bunch of homes out there, not (yet) on the market, with mortgages in default.

Now, I don't want to spend too much time in this article explaining why banks don't always automatically foreclose on homes that are in default. But I will address one good reason for this briefly for the benefit of folks who don't eat, sleep, and breathe this stuff like so many SA enthusiasts.

When a bank forecloses on a home, it triggers an accounting loss on their books, which over time impacts their share price negatively. Additionally, too many foreclosures at once floods the market, thereby putting more downward pressure on home prices, which undermines the value of the bank's portfolio, which consists, at least in part, of a whole bunch of homes that are in default, causing a vicious cycle.

If the value of a bank's portfolio drops too far, then the very solvency of the bank comes into question. Raising capital to satisfy reserve requirements in this type of environment becomes, in itself, a self fulfilling death spiral. Throw in the implicit government support to avoid political backlash of displacing folks from homes on Main Street and you get at least an idea of why there is a shadow inventory "out there".

One last thing, and then I'll get back on track. To put the scale of shadow inventory in perspective, I recently posted a SA article called, The Forthcoming Prime Mortgage Meltdown. In it I wrote, "I can’t seem to find any good statistics on shadow inventory, so until someone shows me something better, my front line experience will rule, which tells me to estimate that only about one quarter of the toxic inventory has even been dealt with by foreclosure and subsequent resale. Mark to market relaxation aided this. The government moratoriums aided this. And mainstream media aided the groupthink that the recovery cavalry is on the way. It is not."

While the article stimulated quite a bit of commentary, no one challenged the estimated statistic.

More background...

In my area in 2009, 71% of detached homes sold below $500k. 65% of detached homes actively listed for sale now are priced above $500k. What stands out to me is that most of the homes actively listed for sale that will realistically be sold are lower-end homes. In other words, the market is top-heavy.

Nearly all lower-end homeowners watched their values get crushed so significantly that they can no longer sell at break-even or better. This means, they either keep on living there, paying upside down mortgages... or they walk. Consequently, the overwhelming majority of listings that come up for sale are either bank owned (REO) or dependant upon bank approval for a short-sale.

For the better part of 2009 folks were scooping up REO's and steering way clear of short-sales, because 2008 proved that only about 15% of short-sales ever end up closing, and most of them get reincarnated as an REO anyway. The few short-sales that did actually close were nightmares from start to finish and the banks ended up nickel-and-diming every party along the way.

The tax credit did stimulate a media frenzy about anticipated demand, and in this sense it took away the negative stigma of buying real estate. Rates dropped around 50 basis points, which added some wind to the sails. Then something weird happened. Banks stopped foreclosing.

And there were no more REO's.

The few REO's that did come online attracted 20+ offers within days of going live. Buyers started to get disillusioned as their many offers kept getting rejected. Agents started to scramble to keep them motivated, and so they revisited short-sales as a final card left to play. If the REO's were going to the full cash investors, then there was no hurry anymore, so we might as well put offers on multiple short-sale listings.

The need to conveyor belt the offer writing process helped push a new technology called "e-Signature" into a critical mass of acceptance. And in this way, agents turned the tables on the banks "shotgunning" offers on multiple listings without even viewing them in person. Whereas up until now it was considered bad etiquette to make more than one offer at a time... agents realized the banks were treating the buyers like numbers so why not return the favor.

The large short-sale segment of the market that was previously getting the cold shoulder, suddenly got traction, and so "pending home sales" spiked, as measured by signed contracts on homes "going to escrow".

Now the MLS did introduce a new category of status called, "contingent", and these short-sale listings should have been labeled as such, while they sat in purgatory awaiting approval by some anonymous overworked bank manager. But it's hard to retrain thought patterns en masse... especially those of real estate agents... and so, many short-sale listings remain in "pending" status to this day.

So what would explain the Pending Home Sales Plunge?

On the other hand, many short-sales fell out of pending status... because that's what happens with most short-sales... namely they fall apart. Many buyers had offers on multiple properties, and when one got approved, they dropped the others. Many of them fell apart because the offer price was rejected by the bank manager. And many of them "fell out" because, believe it or not, some agents actually got with the program, labeling their "contingent" status listings correctly after all.

Anyway you look at it, pending home sales were never a good metric to use in the first place. And they are still not a good metric to use today. But it does serve as a great example of what happens when we look for technical data to paint a picture that contrasts with the fundamentals that underpin the truth. And I fear it's the first in a very long line of examples as the whole facade starts to crack.

Hot Listing Alert 1.4.10

I bet this listing goes pending within the week and will end up closing for $100k above list price.

New Seeking Alpha Article

I am happy to report that my latest Seeking Alpha article submission was published this morning.

To view it, click here.

Seeking Alpha handpicks articles from the world's top market blogs, money managers, financial experts and investment newsletters - publishing approximately 175 articles daily. SA was named the Most Informative Website by Kiplinger's Magazine and has received Forbes' 'Best of the Web' Award.

It Ain't a DEFAULT if Golden Rule Applies

Morgan Stanley is walking away from five office buildings they bought two years ago at the height of the market for $6.5 billion (that's B... not M), which have since lost as much as 50% in value. The reason, says corporate spokeswoman, "This isn’t a default or foreclosure situation... we are going to give (their lender) the properties to get out of the loan obligation.”

So let me get this straight....

Even as Banks were getting rewarded will billions in bailouts for pumping up the industry I work in to feed my family... deliberately so that they could profit on both the way up... and especially on the way down by using trades that paid off with leverage when it collapsed... I myself have gone on record, actually branding consumers and homeowners as "punks" for strategically defaulting on loans that they realistically still have the means to continue paying.

And all the while banks have been spewing out rhetoric about how morally reprehensible it is to damage the fabric of our society by turning our backs on the contracts, which underpin our agreements.

So here we are, at the beginning of the most extreme financial crisis since the Great Depression. And with the direct impact of bailouts that came straight from taxpayers, Morgan Stanley, who was saved from collapse due to their own irresponsibility, ended up clocking banner results this year... and the average compensation and benefits they paid each employee for just the first three quarters of 2009... was roughly $175,000... per employee!

Now they "give (these) properties away to get out of the loan obligation"??

And they have the blatant audacity to say in the same breath that "this isn’t a default or foreclosure situation"!!!

Don't take my word for it. Read the objective story from Bloomberg.

For some subjective commentary, I recommend: Huffington Post and Calculated Risk.

In the part I like best, Calculated Risk writes:

"One of the greatest fears for lenders (and investors in mortgage backed securities) is that it will become socially acceptable for upside down middle class Americans to walk away from their homes.... I wonder if hearing about "rich" banks that are paying "large" bonuses walking away from commercial buildings also weakens the social pressure?"

Real Estate Market is Top Heavy

Active vs Sold Analysis Last 90 Days

The preceding chart suggests to me that there is not enough inventory that people want... and too much inventory that people don't want. If we were in a normal, free market, I would expect higher-end homes to come down in price, and lower end homes to come up in price to bridge the gap.

But as followers of this blog know, I believe we are not in a free market at all, but a very manipulated one, that is vulnerable to many factors that could lead to futher downward pressure across the board.

Meantime, while lower-end homes still present good buying opportunities, notwithstanding futher price corrections, they are becoming increasingly difficult to purchase. As the rate of loan defaults continue to increase, banks are playing with fire by holding onto the non-performing assets, rather than foreclosing and putting them on the market, while there is still demand.

I say "while" because once rates tick up, or incentives go away, or 5yr interest only loans re-set in mass, or deriviatives explode, or unemployment rises to a job near you, or companies run out of areas to cut costs to show profits, or the stock market crashes, or any or all of these events or more occurs... it will be too late for people to buy with confidence at a pace that will outrun significant price drops across the board.

12411 Pacific Avenue, Los Angeles

2bd/2ba loft living Santa Monica style.

A few words from the client...

"Seth is very knowledgeable and provides great customer service. He made our refinancing a breeze."

Brian G. and Le D.

Perfect Starter Home

Check out the virtual tour of this cool new listing.

Market Outlook, November 2009

The market has been very interesting to say the least. There is a big disconnect between the low and high-end markets... in fact, they're almost behaving oppositely.

On the lower-end of the pricing spectrum, we simply can't get enough inventory. The banks and government are working together to artificially limit supply, and this is driving up prices and volume. On the high-end, there is very little demand for the loans that underpin the transactions, so very few sales are being made.

I expect downward pressure on prices in both market segments... but an especially significant correction on the high-end as the 5-yr interest-only loans start to re-set. Yes, I mean more of a correction... like another 30%. This may actually benefit lower-end homeowners, as higher-end folks who are displaced still need a place to live. (Btw, I went on record predicting this 11 months ago.)

Meantime the low-end market will suffer from overall economic problems too (i.e. unemployment) especially when the high-end corrects. But here's the thing... the low-end values have already dropped by half in some areas. Even if they drop another 15%, which would be huge, the rates are almost unanimously predicted to climb within the next 3-12 months. If prices drops by $50k, while rates increase by 2%, then your monthly payment will actually increase.

Right now rates are absurdly low (on amounts below $417k anyway)... around 4.625% with 1 point. The historic average is around 8%. It's only a matter of time before they spike. Most US citizens also benefit from an $8k tax credit if they close before July 2010, so this is a factor as well.

Bottom line: for low-end buyers with solid job outlook who can hold the property for 10+ years... I believe now is simply a great time to buy a home... if you can find one. 20% down payment is very helpful in this regard. For high-end buyers, time is on your side to wait, especially if you are putting down a lot of cash (which everyone is by necessity on the loan front). Unless you can afford to buy a high-end home just for the lifestyle, then stay out of the kitchen until things cool down from an investment perspective.

And that's the SethReport :)

A Few Words Are Worth A Thousand Pictures

I love getting testimonials from clients, but there is something particularly awesome about getting validation from peers too. This card came from the listing agent of a home that was sold to a buyer I represented.

Average Sales, Number of Transactions

Here are statistics for 'average sales price' and 'number of transactions' for the areas that include: Solana Beach, Cardiff By The Sea, & Encinitas [92075, 92007, 92024]...

Just a Thought...

Is it just me?


Alan Greenspan

Woody Allen

Voted 'Best Answer' on Trulia

Hey, cool... an answer I submitted to a question posted in a Trulia forum was voted "Best Answer".

I suppose if one posts enough answers it's not too hard to eventually get awarded "best"... after all, even a broken clock is right twice a day.

But what makes this honor special, is the question, which asks, "What makes you a Stellar agent?"

4424 Calle Mar De Armonia

5bd/3ba mountain/hill view with turnkey upgrades in Carmel Valley.

A few words from the client...

"Seth's attention to detail, strong negotiating skills and expertise in real estate as well as loan processing was critical in making my first-time home buying experience a successful one. He was truly a partner from beginning to end - he listened and created a plan based on my needs, provided excellent counsel when asked and walked me through every stage of the process. I am so happy to have worked with Seth as his leadership and no pressure approach was the perfect fit for me - I'm looking forward to building lots of good memories in my new home!"

-Navjot R.

Market Imbalance

Impossible SeeSaw
Originally uploaded by R_Thull

Check this out... to keep abreast of local sales trends, I activley monitor MLS inventory in the territory that includes: Solana Beach, Cardiff, and Encinitas.

This year 78% of sales in this territory closed below $1 million... while the current asking price for 63% of homes that are actively listed for sale are above $1 million.

I thought this was interesting, so I checked the stats for the entire San Diego MLS... 80% of sales closed below $500k... while the asking price of 58% of homes actively listed for sale are above $500k.

On 12/12/2008 I went on record in an article published on Seeking Alpha, called "Market Prices: The Great Chasm" calling for a significant "Prime market" correction. Here is an excerpt.

“Prime” homes will also decline in value. My call is 35%-40% off peak prices. Only this time, the real drivers of economic stimulus, the small business class, will cut back spending for real. And lay people off. And cash out investments. And sell assets below value.

Major banks who have just received unprecedented amounts of cash infusions to plug up cartoon-like, bullet-ridden lending ratios will have to address the fact that depreciation of portfolios to date only reflects subprime default-related losses.

Maybe I should have entitled this article, “Market Prices: Which Chasm is Greatest?"

It was the adjusting of prime loans from "interest/only" to "principal and interest" that I predicted would stress the system. These loans are starting to adjust now. Houston, stand by.

Falling Up: The New Business Model

I am happy to report that my latest Seeking Alpha article submission was published this morning.

To view it, click here.

Seeking Alpha handpicks articles from the world's top market blogs, money managers, financial experts and investment newsletters - publishing approximately 175 articles daily. SA was named the Most Informative Website by Kiplinger's Magazine and has received Forbes' 'Best of the Web' Award.

There's a Financial Elephant In The Room

When folks say "there's an elephant in the room", they are referring to an important and obvious topic, which everyone present is aware of, but which isn't discussed, as such discussion is considered to be uncomfortable.

Well in today's bankerment cirlcles there is a humungous, hungry, stinky elephant, and it looks very silly covered up by a blanket.

For a succinct overview of the problems that led to our banking crisis, and the reasons we are still in for very rough ride, you just have to watch this interview of Janet Tavakoli (a structured finance expert) by Max Keiser, a popular media broadcaster. They do a brilliant job of distilling the facts into laymen's terms.

Hot Listing Alert

Hey, I posted this on 10/4... predicting it would go pending within a week. It went pending the next day! I guess I do know my shizzle.

Bet this listing goes pending within a week:

4 Transaction Types I Do Not Execute

• Short Sale Listings- Click to see why. In addition to this link, which describes why I direct buyers to look at short-sales only as a last resort... I suspect, down the road, the folks who "successfully sell short" may look to place blame elsewhere if and when they find out they may still be on the hook for tax consequences and credit problems.
  


• Loan Modifications- Click to see why.
  


• Hard Money Loans- Click to see why. Also, while this could technically be a helpful tool for some specific scenarios, in my experience, the only deals the lenders make are the ones where the scale is tipped way in their favor... away from the borrower, who has everything to lose... and often does.
  


• Reverse Mortgages- Click to see why.

Pool Chef

In case anyone was wondering... after 14 months, this is what a scrunched up raisin blooms into:

Daddy? What happens to an iPhone when you dunk it in Sully's bowl?

How I Roll

I received an email today from an old friend. We worked together at a mortgage bank. She became a loan officer at a large bank... and I became an self-promoting blogger.

She has a mortgage client who is unhappy with their real estate agent, and she wanted to know if it would be ok to present my name and one other as a referral. She diplomatically explained why she is presenting more than just one name... that the client had requested several options.

I replied back straight away without thinking too much about it... and it really struck me, after the fact, how much my reply lies at the very core of my business offering... and then I wished for way to shamelessly self promote it... echemm:

Loan Modification Attorneys Under Investigation

Looks like the California Bar is starting to get with the program as far as loan modification shenanigans are concerned. Followers of this blog may recall my strong disatisfaction with the way most mods are being rolled out to date. You can click here for a quick review:

• Loan Modifications are Good... Right?
• Loan Modifications: Helping Hand or Moral Hazard?
• Critique of the U.S. Mortgage Plan

Meantime...

heheh

Creating Value With e-Signatures

I am excited to roll out a great new tool, called DocuSign, which enables you to add signatures electronically instead of the old fashioned way.

I started using it yesterday, and no joke... by the end of the day, I helped two sets of clients take action on deals that may have otherwise fizzled if they had to meet in person. Both of my “guinea pigs” nearly fell off their chair when they finished marking signatures… and they each replied with comments like, "far better than before" and "love it!"

Until now you had to either...

2540 Chestnut Avenue

4bd/2ba panoramic view in Carlsbad.

Sarah and Mike with big smiles to mark the end of a very consolidated escrow!

"Best Value" Picks for Cardiff by the Sea

If you frequent our Cardiff Town Centre courtyard to pick up groceries, change out dry cleaning, or get a coffee fix, then odds are you’ve also noticed well into evening hours, the tall guy behind our illuminated windows, slouched over his desk, pecking incessantly at the computer.

Over the years, many folks have chimed in to a running joke, chirping as they swing by, “dude, are you like, the hardest working realtor in Cardiff?”

Exactly what this tall guy does, remains somewhat of a mystery… but speculation ranges from:

• Writing offers?

• Browsing cookie recipes to schmooze walk-ins at the next open house?
  
  
• Avoiding chaos during bath hour at his family’s quickly growing household… while his glaring (but beautiful) wife suspiciously eyes these same fishbowl windows from up the hill?

One thing’s for sure, his bad posture certainly reflects many hours scanning the MLS for deals that reflect uncommon value. And your effort as a loyal window-checker-in-er, is about to pay off, because now… without further ado… we present Seth's picks for:

“Best Value for the Buck" in Cardiff by the Sea

14030 Condesa Drive

4bd/2ba ocean view cottage in Del Mar.

A few words from the client...

“Seth was fantastic in helping us find a house and settle in Del Mar. We knew from the moment we talked to him that he really knows what he is talking about and he understood exactly what our requirements were without wasting our time. We appreciated how he knew the right questions to ask, with the intension of safeguarding us, and at the same time he was absolutely transparent and honest about the pros and cons of every house.

After the house was selected, he made sure that all the necessary paperwork was done and signed by both parties in time and because of him, we have moved in exactly on the date we wanted. It’s been a really smooth process and my family and I were really happy to relax with the confidence that our needs and requirements were being looked at.

Apart from his professional experience and competence, he is also a very friendly guy with whom you can talk very easily.

Having said that, I have no hesitation in recommending Seth if you are thinking in moving to California. You can be sure you will be well taken care of.”

-Francisco & Ines d.C.

In The News: Pacific Coast Homes

Here is an article Coast News recently published about our Pacific Coast Homes 10-year Anniversary:

Coast News Article