Mission Gardens Estates in Default

Adding to the real estate implosion in the North County, Mission Gardens Estates has defaulted on a $2,137,000 loan from Coast National Bank. The development, located in San Miguel, is owned by Gordon Marshall, who has been in the news before. From May 2006:

San Luis Obispo County has levied a $900,000 "mitigation fee" on a developer who graded the remains of a dormitory at Mission San Miguel while preparing to build a 59-unit housing project.

Developer Gordon Marshall bulldozed the site in 2003 in anticipation of developing the housing project. The earthwork, which extended beyond Marshall's property to the grounds of Mission San Miguel, damaged a site that was home to Salinan Indians during the late 18th and early 19th Centuries.

In a not-so-odd twist, Mission Garden Estates was originally financed by Estate Financial of Paso Robles, which is currently under investigation by the State of California and the FBI for their business practices. After reviewing many documents from the County Recorder's office, it appears from 2002 through 2004, Estate Financial has deeded interests to the individual investors on the project.

It is unclear to me the total amount borrowed against the property or the amount of construction that has been completed. If there are any readers with additional information, please post. I would suspect this property is financially underwater and individual investors will see significant losses.

Realtor-on-Realtor Crime

From the Tribune:

A former Arizona real estate agent is suspected in five armed robberies in San Luis Obispo County, including one of a real estate agent and another at a real estate office.

David Albertsen, 64, is suspected of robbing the agent during an open house in Atascadero on April 27, two days after he allegedly walked into a real estate office in Arroyo Grande and robbed an employee at gunpoint, according to police.

Insert jokes here ...

Central Coast Update ...

After all of the positive feedback they are getting over at Calculated Risk, I thought we might do a bit of updating as well. If you haven't checked out their blog, do so - now! Quite simply, the best economics and finance analysis and commentary you will find.

If you live out of the area or don't subscribe to the Tribune, here is what you missed this weekend from our local Dr. Jeckyl and Mr. Hyde newspaper:

Housing Pain Ripples Through Economy. Homeowners aren’t the only ones getting slammed by the mortgage crisis. It’s hitting furnishing stores, building suppliers and trade workers—roofers, landscapers, electricians and others — whose livelihoods depend on a healthy house.

Investment Losses Hard to Swallow . People such as Freddie Wright, Judith Baron and Nelia Raber say they thought their money was safe in the now-troubled Paso lender.

And over at the hard-hitting investigative blog, UncoveredSLO:

Hurst’s lending practices under scrutiny

Fraud lawsuit filed against Gearhart, Hurst

As for myself, I will be going on an extended sabbatical at the end of this month. I will continue to post articles that appear in other publications that are of local economic interest as well as sifting through mortage defaults looking for interesting patterns of financial insolvency.

Have a great summer!

Santa Maria: Half of Homes Sales are REO's

From KSBY television:

Half of homes up for sale in North Santa Barbara County are former foreclosures, according to the local Association of Realtors.

DataQuick, a research group, says it is a record quarter for default notices. In San Luis Obispo County, default notices compared to last year are up 112 percent. In Santa Barbara, it is up 141 percent.

There is also the standard NAR talking points:

According to Martha Beckman, President of the Association of Realtors, the average price of a North Santa Barbara County home is $375,000 to $400,000 dollars. Compare that to the price of $425,000 last year.

This because of the sheer number of homes - many foreclosure re-sales up for grabs. While prices may plummet a bit more, she suggests buying sooner rather than later.

"Right now, we are close to the bottom if we're not at the bottom, and you don't know you're at the bottom until it starts to come up again," Beckman said.

Beckman admits, business is starting to go up for local realtors, but it is not good news for everyone.

"I think the loans are the best right now. I think that the buys out there are the best. I don't think they can lose," Beckman added.

Don't worry, it's always a good time to buy in Santa Maria. I hope someone asks Ms. Beckman to put that "can't lose" clause in the contract.

Edna Hills Estates in Default

On April 11, 2008 a Notice of Default was filed by First Bank of San Luis Obispo on Jireh National, LLC.

Jireh National, LLC is owned by Central Coast developer Erich Schaefer of Erich Schaefer Custom Homes and is in the process of developing Edna Hills Estates at 575 Carpenter Canyon Rd. in Arroyo Grande.

Loan Amount: $3,937,500.00

It looks like the losses are starting to add up at our local banks.

The Myth of the Condo-Tel

We have all seen the ads - buy a condominium near the beach or other tourist spot, stay it in a few weeks out of the year and then rent it out as a hotel room when you are not there. The rental income pays for the mortgage and you can get rich as it appreciates through the sky!It's the biggest no-brainer in the history of mankind.

There have been a few of these these types of properties locally with the concentration along the coast in Grover and Pismo Beach. It's difficult to get specific data on how these investments are performing locally (although I personally know of one that has taken a 20% loss and never generated enough income to cover payments), but the Wall Street Journal has an extensive article today about how these properties are flopping across the country and some specific instructions from attorneys about how to get your money back if you don't like the deal.

"For many investors, the condo hotel may go down as the Pets.com of the real-estate bubble.

Many buyers purchased the hotel rooms from developers hoping to get paid every time the room was rented. But condo hotels, which account for as much as 10% of all hotel rooms under construction and a much greater percentage in resort markets such as Orlando, Fla., and Las Vegas, are coming back to haunt many of the people who bought the units, the developers that constructed the buildings, and the operators hired to run the hotel. Some projects also are being brought to the attention of regulators by investors.

During the real-estate boom, many Americans scrambled to buy anything they could -- office condos, warehouse condos and high-rise residential condos, which are crowding the skyline of cities such as Miami. But condo hotels were one of the most dangerous investments of them all.

... a few buyers are talking to the SEC, alleging possible securities fraud, according to their attorneys. One issue could be whether developers sold these units as investments, which should have been registered with the SEC or other regulators. Rob Webb, a senior hospitality partner in the Cleveland office of law firm Baker & Hostetler LLP, which has represented condo-hotel developers in cases where buyers have tried to rescind their contracts. "All you have to do is find the developer's newspaper ads, and it could be a devastating blow.""

The folks over at C. Green Real Estate may want to take look at their ad copy on this Grover Beach money pit.

"Michael Trombley, a retired major-league pitcher who lives in Fort Myers, Fla., is one of several investors who have filed lawsuits alleging securities laws were violated in the sale of units in the Clearwater Cay Club in Clearwater, Fla.

"They were always trying to preach to people that the market is hot. This is a no-brainer. You'd better get in quick," said Mr. Trombley, 40 years old, who spent most of his career with the Minnesota Twins and Baltimore Orioles. In 2005, Mr. Trombley, along with five friends and family members, bought five units in the development for a total of about $2.2 million, according to his attorney, Bruce Barnes, taking out loans to finance the entire purchase price.

Mr. Trombley estimates the four units he holds are worth at best 40% of the original purchase price, he said. Carrying costs, meanwhile, are running about $14,000 a month."

That's 60% off in 3 years. Like James McBrain previously said - denying the housing bubble is like denying the law of gravity.

San Luis Trust Bank: Robbed!

From this week's Pacific Coast Business Times:

The Cameron Financial Group collapsed last month, joining the mounting ranks of California lenders undone by the subprime mortgage meltdown.

Doing business under the name 1st Choice Mortgage, the San Luis Obispo-based firm filed for Chapter 7 bankruptcy Feb. 19, declaring assets of $50,000 or less and more than $28 million in debts.

The list of companies demanding seven-figure claims reads like a who’s who of financial heavyweights bruised in the subprime crisis: Bear Stearns is owed $2.1 million, Countrywide Financial $2.7 million, Deutsche Bank $8.2 million, DLJ Mortgage Capital $2.4 million, Indymac Bank $2.6 million., Impac $2.4 million and Terwin Advisors $4.2 million.

The Cameron Financial Group collapse also pummeled at least one tri-county institution, San Luis Trust Bank, which is owed $1 million.

Since the average bank robber only gets away with less than $5,000, this is the equivalent of San Luis Trust being robbed over 200 times in the past few years by a single business - this somehow failed to make it into our local paper. I wonder what what the executives were paid over the past few years.

Also, let's not forget who was out raising capital for San Luis Trust Bank - none other than investment wiz Jeffrey Forrest.

Oh what tangled webs we weave ...

Hard Money in Paso Robles

We have seen hard money businesses fall apart before, but this scheme is just starting to unravel.

Thanks to Dan Blackburn at www.UncoveredSLO.com for the report the Tribune should have done.

A number of San Luis Obispo County investment firms have allegedly participated in schemes that may have already cost local investors more than $500 million, setting the stage for a colossal fiscal collapse unrivaled in this state’s history.

“It’s like Enron for Paso Robles,” said David Farmer, an attorney with Farmer and Ready, a San Luis Obispo law corporation representing clients who believe they have been defrauded. “Those who claim this has to do with the downturn in the market need to take a cold shower.”

And just like Enron, alot of folks put all of their eggs in one basket

January 2008 Numbers

From DataQuick:

Total sales in SLO County: 134
Decline in median price: -16.8% from 2007

Santa Maria had 59 sales (most of which were bank repossessions) and the median tumbled 23% to $320,000.

If case you missed it, KSBY reported on the local housing bust. Here are the links:
Part I
Part II

"Realtor Pat Haley has been selling real estate for 29 years.

"I listed one last Friday that the people bought in January 2007, they paid $415,000 for the house. I listed it for $239,000," said Haley. She says this is the fourth-biggest slump she's seen."

Nice 42% haircut.

"Santa Maria ... Realtors say foreclosures and short sales make up 90 percent of the sales under $350,000."

Take a drive through Santa Maria - thoroughly depressing.

Central Coast Update

I'm sorry for the delay in posts - I've been out of town on business. For those not keeping up with stories from the local media, here are some of the latest:

From New Times, Real Property Lenders seems to be in a bit of trouble.

"State regulators are investigating a Paso Robles-based "hard money" lending firm in the wake of a spate of complaints by investors who allege that they haven't received promised interest payments and stand to lose millions of dollars. The investors include dozens of senior citizens, as well as the North County Humane Society."

Also from New Times and the Tribune, 20% off condos aren't selling very well at Cal Poly.

"Starting in late 2006, we saw some buyers, who had put up $1,000 deposits, withdrawing their offers,” Reinhart said. He believes the buyers were reluctant to move forward when the prices in the real estate market were declining."

From the Tribune, Mission Community Bank receives (? needs) $6M in additional funding.

"The Carpenter Fund will own about 25 percent of Mission Community Bank when it completes its purchase of about a third of a million shares of Mission Community’s stock for $18 a share, Robinson said. "

Conforming Loan Limits

One of the strategies of the economic stimulus package is to raise the conforming loan limits that Freddie and Fannie can purchase and then resell (with their untested, but implicit government guarantee).

Soon-to-be-out-of-work mortgage broker Matt Colonell had this to say in today's Tribune:

“Local analysts say San Luis Obispo County residents with homes in the $600,000 to $900,000 range — and those looking to buy or refinance them—could see benefits. That bracket represents more than 500 houses now for sale in the county, said Matt Colonell, mortgage broker in San Luis Obispo.”

“‘Because the proposed change would make their houses more affordable to buyers, their houses might sell more quickly and for a higher price,’ he said. ‘(It’s money) for real estate agents, title companies, mortgage lenders, home improvement contractors and hardware stores.’”

Unfortunately, Mr. Colonell doesn't remember why he had to sell all of those 100% LTV, stated income loans over the last few years or the possibility of unintended consequences.

Let's say you have your eye on one of those $800K gems in Knollwood. In order to be considered by the GSE lenders, you will need $160K in cash for a down payment, a FICO > 680 and FULLY DOCUMENTED income of about $16,000 per month. Hmmmm ... I really can't think of anyone who I know that is shopping for a house that meets those qualifications. As a matter of fact, meeting these qualifications would put you in the top 1% of wage earners in the county.

Everyone assumes that because these formerly jumbo loans would now become conforming, that their interest rate would be lower - not so fast. From Reuters:

Increasing the eligible loans to $729,750 from $417,000 would change the characteristics of mortgage-backed securities, leading traders to exact a premium for increased interest-rate risk.

This means higher interest rates - not lower. Be careful what you wish for.

The Great Stimulus Package of 1929

Knife Catches: Beware!

For a painful tale of woe, let's head back to Centex's Knollwood at Callendar Grove and look at someone who is bleeding from catching a falling knife.

On December 28, 2007 - less than one month ago - some decided to pay $920,000 ($272/sqft) for a lovely home on 580 Raptor, just three doors down from the distressed property at 530 Raptor and across the street from another Knollwood home for sale. 580 Raptor had been on the market for over 6 months with multiple price reductions.

As we know from a previous thread, there are multiple home in this neighborhood listed for under $260/sqft AND THEY ARE NOT SELLING.

In a best case scenario, the folks at 580 Raptor have lost over 6% or $55,000 of their home's value IN LESS THAN A MONTH!

That's over 25% of their down payment (if they put 20% down) - gone - in only 24 days.

These are real examples with real people losing real money. How could their real estate agent not have known what the neighborhood listing comps were and the situation of their mortgages? After all, I seem to have the information without access to the blessed MLS. There is no excuse for incompetence, but as they say, a fool and their money are soon parted.

Don't catch a falling knife.

Is Commercial Real Estate Next?

Historically, decreases in residential real estate investment is shortly followed by decreases in commercial real estate investment - as evidenced here.

Contrary to popular belief, its not different here.

At the peak of the bubble in October 2005, a group of investors paid $6,000,000 for a large undeveloped (land only) parcel in the heart of Pismo Beach, just a block from the pier at 150 Hinds Ave.

Yesterday, a Notice of Default was filed on the loan secured by the property.

We have documented good fundamental evidence why homes prices will decline by 50-60% from their peak in real terms in next few years, but how much will commercial RE fall?

Based upon my professional knowledge of South County commercial RE, I am seeing many properties sell for about 150% of what cash flow from rents would predict. That means, I expect decline of 25-30% from the peak for commercial RE in the next 2-3 years.

Each week, there is another story of a business closing and no tenant lined up to take its place (and make rent payments).

Losing Money on the Mesa

During the Bubble run-up, there were many misconceptions and expectations. For instance, folks in SLO County never felt their real estate could possibly depreciate as much as the Central Valley and if there ever was a price decline, it would only hit the "poor" areas like Oceano and Grover Beach - high-end homes would be spared.

These assumptions are all proving to be false.

Let's take a look at Knollwood. Situated between Arroyo Grande and Nipomo, Knollwood is divided into two phases about 3 miles apart - Black Lake and Callendar Grove. All of the homes were built by Centex between 2003-2006 and are anywhere from 2700 to 3400 sqft. and all are on about 1 acre lots. Except for the lack of sidewalks, Centex construction with all of the faux upgrades, and poor maintenance of the common areas, not a bad place to live.

Depending on the model and "upgrades", Centex would have sold you one of these McMasions for $700-$850K and some resales in 2006 were just over $1 million with a peak $/sqft of about $335.

Now for the bad news. Prices are definitely down and here is an example:

930 Raptor 93420 (3180 sqft)
- bought in Nov. 2005 for $931,000 and financed $840,000 with a 2/28 ARM
- ARM reset in Nov. 2007 and Notice of Default filed this week.
- currently listed for $839,000 (and has been on the market for a few months) with no takers at $264/sqft.
- with 2 years of property taxes ($19,000), broker fees ($55,000), and capital losses (at least $92,000), the total loss of this American Dream is $166,000 or 182% of the invested capital in just over 2 years.
- this is the best-case scenario because he is facing some competition from

This house on Black Canyon Drive (3180 sqft)
- cuurently listed for $819,000 or $257/sqft

This house in the Black Lake phase (3436 sqft)
- currently listed for $889,900 or $259/sqft

This house on the same street (3376 sqft)
-currently listed for $899,000 or $266/sqft

If Mr.Raptor would lower his price to $795,000 ($250/sqft) it would probably sell to someone who thinks they are getting a great deal.

Unfortunately though, rents in these neighborhoods average about $2800/month, which if my calculations are right, none of these homes should be worth more than $420,000.

So, the nominal prices have fallen from $335/sqft to about $250/sqft or 25% in just a couple of short years. Unless you bought at the very beginning, you are underwater. These are real losses happening to real people, and as I have pointed out, there is still a ways to go.

2008: The Year of the Recession

Despite the musings of our very own Mayor Dave, I think many of us can agree 2008 will be very painful financially for many of the residents on the Central Coast.

The decline in housing and consumer price inflation are actually much worse than what is reported in the mainstream media. I think most folks know this to be true, but are still hoping that somehow, someway the economy will continue to prosper.

Unfortunately, that is not the case. All (relatively) free-market economies go through a boom and bust periods which are more a product of psychology than economic reality. This bust has been a long time coming and I am afraid that many are not prepared.

Aside from declining home prices, there are many signs in the past month that we may already be in a recession. Increased number of crimes and bank robberies? Successful, long-time businesses closing? Poor retail sales during the holidays? Or Christmas party cancellations?

Gretchen LeMiere, owner of In Good Taste Catering in San Luis Obispo, said she will cater 20 parties this holiday season, down from 45 last year. She blames it on uncertainty about the economy and a slow housing market. “We don’t have any parties for real estate companies at all,” she said.

Cut your spending , save your money, and spend time with your loved ones because 2008 is going to be a wild ride.

November Update - SLO County

First, in order to control spam, I have had to enable the silly text-entry feature in order to post comments. It's not what I wanted, but it is necessary.

Second, things have been VERY busy for me professionally and with my family, so I haven't been able to post as much as I like - I will try to be a better blogger.

Third, the November DQ numbers for SLO County are out and it seems that some of the new home sales incentives are keeping the market somewhat afloat (and making it real difficult for those individual home sellers).

For November, there were 172 sales which is very similar to the October numbers. What is more interesting is the County median which is now down to $465,000 which is more than 20% off the $600,000+ high back in 2005.

Chances are, if you bought a house in the past 2 years, and put 20% or less down, all of your equity is gone. All you are left with is a alligator to feed and the pride of ownership.

Don't wory though, Mayor Dave Romero says that SLO is recession-proof. Time will tell.

The Bush/Paulson Pseudo-Bailout

If your are reading this blog, then you have probably looked at some of the details of the "Bailout" plan.

In my opinion, this is the biggest bit of non-news I have seen in awhile.

Let's see ... if you have a subprime FICO and took out an ARM since January 1st, 2005 and are current on your payments and actually live in the house ... you may qualify.

Good luck. This plan helps very few on the Central Coast.

For a few things about the plan, check out Calculated Risk.

What do you think?

October Sales - SLO County

As expected, sales continue to shrink. According to DataQuick, there were 166 sales in SLO County last month - down from 197 in October. I don't have concrete numbers from 2006, but it appears to be about 15-20% less than last year at this time.

If you see a Realtor(R) or title agent, give them a hug - but be sure to hold on to your wallet.

Will we get to less than 100 sales by December or January?

Another One Bites the Dust

Grand Estate Furniture on Branch St. in Arroyo Grande is selling all of its inventory and going out of business - another fallout from the bursting housing bubble.

I have actually bought several items from this business over the past few years and was always happy with their customer service - a huge improvement over Levitz that formerly occupied that space.

Some friends who were close to the owners say that their lease was for 40K sqft at $1/sqft/month. $40,000 per month is alot of fixed overhead - even with a high margin item like furniture. Unfortunately, when they moved from their smaller showroom on Grand, they bit off more than they could chew.

But don't worry folks, Paulson and Bernanke say its contained.

Local Bagholders Lose Millions

According to the Tribune, many SLO County locals are bagholders in the subprime mortgage mess.

Dozens of local investors — clients of Jeffrey Forrest of WealthWise LLC in San Luis Obispo—have lost millions of dollars in a equity fund valued at more than $46 million that was wiped out in August...

Forrest explained in e-mails and letters during the summer and fall of 2005 that the principal would be used as collateral for a complex trading strategy. He estimated a monthly rate of return of 3 percent. Forrest labeled APEX a “rare” opportunity.

One retired couple in Los Osos mortgaged their home in the amount of $506,000 and invested $300,000 in APEX. The claim alleges that the husband suffered a nervous breakdown as a result of the losses.

Another woman, a San Luis Obispo retired nurse, mortgaged a condo she owns and borrowed money against a life insurance policy. She has “been forced to return to nursing,” according to the claim.

Another couple in Arroyo Grande borrowed money against their rental units to invest in APEX.

Let's see ... a guy offers an investment return of 36% per year but states that it is as safe as a money market account? Can you say RED FLAG? Ask any Econ 101 student at Cal Poly if this is possible and they will tell you "no way". Un-freaking-believable.

I can just picture the conversation ... "Honey, let's "extract the equity" out of our home like the ads say we should do and invest it in this "money market" account that returns 3% per month. Except, this perfectly safe account is really made up of 100% financed mortgages from people in Riverside with FICO's of 620. Then leverage that fund 10-1 through options contracts and - presto - we'll get rich!"

It seems there is no limit to greed and stupidity.

September Sales Numbers

From DQ News:

Total sales for SLO County for September: 197.

That is about 21% less than the previous month. I don't have the 2006 number, but this can't be good news for the Realtors(R).

County median price down 8.3% to $495K.

I wonder how many of these sales are foreclosures?

Forbes Hates Realtors (R)

We can probably agree that mortgage brokers will be relegated to "scum of the Earth" category when this is all over ... but what about the role of Realtors?

Forbes Magazine wants answers ...

"To hear real estate agents tell it, they are indispensable guides through the hazardous home-buying terrain.

How is it, then, that millions of borrowers took on toxic subprime mortgages that could cost them their homes? Why did their agents not warn them off? While much criticism has been leveled at subprime lenders and mortgage brokers, real estate agents have yet to receive their fair share of the blame for the subprime mess, says Shanna Smith, president of the National Fair Housing Alliance. "I think the greed factor works with agents as well as loan originators," she recently noted."

Hat Tip:HousingPanic

Santa Maria Foreclosures

Keith Carls from KCOY is reporting that foreclosures are starting to take their toll in Santa Maria.

"Meantime, foreclosures in Santa Barbara County as a whole are up more than 700 percent over last year, the vast majority in the Santa Maria area.

In September of last year, there were a total of ten foreclosures, eight of which were in the Santa Maria area.

Compare that to September 2007, in the Santa Maria area, which includes Orcutt, Guadalupe and Cuyama, it accounts for more than two thirds of foreclosures for the month.

Nearly half of all the homes on the market in the Santa Maria area are foreclosure sales, providing opportunities to the right buyer."

Yeah, an opportunity to commit financial suicide. Take a drive through some of the neighborhoods - lots of brown lawns and for-sale signs.

So Cal Sales Bite the Dust

DataQuick is reporting that sales in Southern California are at their lowest in 20 years.

"A total of 12,455 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in September. That was down 29.9 percent from 17,755 for the previous month, and down 48.5 percent from 24,195 for September last year, according to DataQuick Information Systems.

Last month's sales were the slowest for any month in DataQuick's statistics, which go back to 1988. The previous low was in February 1995 when 12,459 homes sold. The September sales average is 25,258."

The numbers for SLO County should be out in a week - I'm predicting 175 sales for September.

Politics 2008

I really dislike politicians. Most of them represent what is the worst of our society. But because men and women have died defending the right to vote, I believe we all have the responsibility to do our own research on the candidates and the issues - and get out to vote in every single election.

After doing my due diligence over the past few weeks, I have decided to support a Republican dark horse, Ron Paul for President of the United States.

I urge you all to check out his platform and see if this is what you want for America.

www.RonPaul2008.com

(now back to the housing bubble)

Credit Bubble Primer

There has been alot of speculation as to what exactly was the cause of the housing bubble. Many economists and bubbleheads (including myself) now agree housing price inflation was not the disease, just the symptom.

The true problem was easy credit fueled by low interest rates, undisciplined consumers, and a dollar that was losing value faster than the government was reporting - which is still the case.

If you are new to the concept of the credit bubble, I suggest this article from The Motley Fool. It's well worth the time.

Trouble Ahead: A Banker's Perspective

Local Market Observations ...

As someone outside of the Real Estate industry looking in, I often wonder just how bad it is getting in local real estate offices. I know it's not good - I get the sense many workers are just waiting for things to suddenly turn around. It might - in 2010.

I am trying to figure out which local broker will go out of business first. My only source of information is the listings the office has and my subjective observation of the days on the market (there really is no objective way to measure this since the MLS statistics can be so easily manipulated).

After some deliberation, I am voting for Wilson/Sotheby's. Why?

1.They seem to have the most high-priced alligators from amateur specuvestors who bought their lots and built their houses at the top. They can't lower their prices or they would be upside down and since many are 100% financed they will go into default. That equals lots of marketing expenses with $0 revenue.
2. Higher borrowing costs for jumbo mortgages. Once again the folks at this office seem to be focused on the high end market, which is drying up real fast (hmmm ... not everyone is buying with cash). Once again - high costs with little revenue.
3. Their listings have very few price reductions. Once again, this could reflect the sellers financial situation/leverage on the property. However, if you want to move properties and generate commissions - get the price as low as possible. Unless you have ...
4. Invested in local properties as well. Word on the street is that the owners of the agency have a few "investments" themselves. Talk about bleeding from both ends.

The agencies that will survive this mess are the ones that stop taking their marching orders from the NAR/CAR, refuse to take clients that are trying to get top dollar from the properties, and cut their costs tremendously.

Remember its not location, location, location anymore.

Annoying Tag Lines

Every Saturday morning I wake up, get a cup of coffee, and get the Tribune off of my front porch (yes, I am a 7 day subscriber - that gives me the right to complain when I want).

I skip the sports and the local section and head straight for the real estate. I must admit it is pretty dull lately - mostly the same ads over the past six months. There are exceptions - Centex's Broad St. Project is now offering $50K discounts (how does that make you feel if you purchased in June?).

But what I find most entertaining are the marketing tag lines that Realtors(R) put in bold from their listings.

Here are my top five of the week:

5. Honey, stop the car! - does that really work?
4. Whitewater views! - we live by the ocean, not a river.
3. Cathedral ceilings - how you been in a cathedral lately?
2. Snooze ... you lose! - more like, snooze ... you win.
1. Location, location, location! - how about price, price, price?

One that use to drive me crazy was "Better than New" - after seeing some of the new construction - that might actually be truthful.

Thanks to Patrick Howe for a little love this week over at the New Times.

August Sales in the Toilet!

New numbers published online from DataQuick today.

Total sales in SLO County:251!

That is about 17% fewer than the previous month and about 50 less than what the Tribune reported last week. I'm really not sure why there is such a difference. If you think that 251 is low, just wait for the rest of the year - Helicopter Ben can make all of the rate cuts he wants - its just pushing on a string.

Of note (and I know this is meaningless), the median YOY for Nipomo fell 37.6% from $842,500 to $526,000. I guess some of that stated-income, jumbo funny-money has dried up in the South County.

I still can't believe there are 251 knife catchers.

Be sure to pick up a copy of the New Times tomorrow. I think they are joining the bubble bandwagon!

R.I.P.: 21st Century Mortgage

If you didn't see this coming in April, you must be blind.

KSBY-TV reports on the closure of 21st Century Mortgage and how one "victim" lost $300K.

Here are the Facts:

• 19-year-old Michaelangelo Mora was killed in action on May 14, 2004.
• His family received $300,000 from a life insurance policy.
• They invested that money with a local mortgage company.
• Today, that mortgage company officially closed its doors and now, the Mora's and hundreds of other clients are demanding answers.

Sad story - and I'm sure there are more to come. However, why would you invest ALL of the money with one hard money lender? I suppose life is about the choices we make.

Thanks to the anonymous reader for the tip.

UPDATE - You can find more details on this story in The Tribune.

SLO County Sales Update

Well, The Tribune publised numbers last week that stated sales are on up on the Central Coast.

Guess what - they're not.

According to the July report from DataQuick, sales are DOWN 9% from last July and 20%from this (2007) June.

I can't fathom what the numbers will be for August or September.

Also, I'm glad I can rely on my hometown newspaper for accurate reporting.

SLO Inventory Update

Inventory is best expressed in months, not in raw numbers - so here are the latest from SLO County and the local MLS as per the Tribune:

San Luis Obispo: 4.4
Los Osos: 8.7
AG/Pismo/Grover: 10.0
Morro Bay: 11.3
Paso Robles: 13.3
Atascadero: 13.4
Cayucos: 15.9

As you might expect, SLO Proper is the holiest of holies in SLO County - it has the highest rents (due to Cal Poly) and strict growth restrictions (due to NIMBYs). But, it's NOT different there - valuations are still about 2 to 2.5 times the NPV of cash flows - it will just be the last to fall.

If anyone has sales and inventory data for Santa Maria - PLEASE email me! I'll bet they have over 20 months of inventory.

A couple of good reads about the Fed's actions last week - an essay on corporate whining and another on why the Fed's discount rate cut doesn't matter.

Enjoy.

The Bust is Over!

I'm so happy that the housing bust is over - I was beginning to worry that it was going to spread to the mainstream economy.

Housing Sales Up in SLO County

Back to reality:
1. Countrywide Financial is basically insolvent
2. No more 100% financing
3. Jumbo rates at 8% (and you need to be prime to even get that rate)
4. Foreclosures exploding in outlying areas (Bakersfield, Paso Robles, Nipomo, Santa Maria)
5. Stocks off 10% in the past 3 weeks
6. Bank won't take loans from mortgage brokers
7. Poor prospects for any new high-paying jobs
8. Inflation is still high

Can you say "Dead Cat Bounce"?

Bits Bucket for Financial Oddities!

The Alan Little thread is overflowing with insightful comments, but has gotten a bit off topic.

If you have local observations of interesting transactions (a la Mr. BMW), poor home construction, flippers in trouble, or local mortgage brokers closing their doors - consider this your thread.

On a side note, I sincerely hope this blog is helpful and educational to those in need of real estate or financial education about the current market conditions on the Central Coast. This past week's implosion of the bond market was historic - but most people won't know about it - the Tribune buried the story on page B7 today.

SLO County Foreclosures Skyrocket

For followers of the housing bubble and readers of this blog - the news of the meteoric rise in foreclosures is not new. However, being covered on the front page of the Local section of the Tribune is:

"Foreclosure activity is at its highest level in a dozen years in San Luis Obispo County, the result of flat or falling home prices, slow sales activity and creative financing used during the housing market boom.

Meanwhile, 149 trustee’s deeds –– the final step in the foreclosure process –– were recorded from January to July, compared to 19 in the same period last year. In 2006, 64 trustee’s deeds were recorded.

“It’s rough out there. I haven’t seen it this bad since 1995,” said Don Vaughn, the owner of All American Foreclosure Service, “The bottom line is that people have bought homes that they couldn't afford,” Vaughn said."

Wow - real quotes from someone other than a real estate broker.Maybe the Tribune is getting the message? Only time will tell.

Diablo Canyon Employment Leak

Outside of Cal Poly, PG&E may be the most important employer on the Central Coast. They provide our community with something may employers can't - high paying jobs. The jobs at the Diablo Canyon nuclear power plant are sought after and not given up easily.

So when the Tribune reports that PG&E is downsizing, you better believe there will be an impact on the local economy.

"Diablo Canyon nuclear power plant will shed possibly hundreds of workers in the next two to three years as Pacific Gas and Electric Co. brings the facility in line with industry staffing levels.

Diablo Canyon has more than 1,400 employees, compared with about 1,000 at other large, two-reactor plants nationwide. "

So there may be 400 high-paying jobs vanishing on the Central Coast - but don't worry folks, the experts tell us we are at the bottom of this economic cycle.

21st Century Meltdown

"Your investment is secured by California real estate ... you know how valuable that is."

That is the tag line used by 21st Century Mortgage in Paso Robles to convince customers to invest in hard money loans. Unfortunately, many borrowers may be finding out that with higher returns, come higher risks.

The implosion of Alan Little Custom Homes has been well documented in this blog here. Many individuals who financed some of these projects with 21st Century are estimating they may only get 50 cents on the dollar for their efforts.

Well, Alan Little wasn't the only local developer funded by 21st Century having financial troubles. Three NOD's were filed last week by 21st Century against Golden Oak Design & Construction on various North County properties:

2270 Del Sol, Paso Robles, $700K
2290 Del Sol, Paso Robles, $1.09M
8465 San Gabriel, Atascadero, $1.08M

Any readers invested in these projects? Anyone work for 21st Century? I'm sure it is interesting.

Builders Struggling on the Central Coast

The Tribune had two articles today on the local housing market. The first article was about Centex leaving the coast due to the poor economic environment.

"The Central Coast is the only market in California where the nation’s fourth largest builder is pulling out. Staffing levels have been cut from a high of about 85 last summer to 42 now. “Our plan was to close about 300 homes in fiscal 2006 (which ended in March for Centex).We closed 175 homes last year,” Bowley said. “It was a dramatic change in what was planned, and we were overstaffed.” Staffing is expected to drop to about 20 employees locally by fall 2008; Centex anticipates being out of the market by spring 2009. "

Yep ... out by 2009. That will be when we find out exactly how well-built their homes are.

The second article expounds on how you can get such a great deal on new homes because of price cuts and incentives.

"They’ve been doing it by offering extras such as Sub-Zero appliances or long-term financing with interest rates of less than 5 percent. In some cases, builders will help sell a buyer’s current home as a way to get the purchaser into a new one. While those sweeteners have worked to a point, some builders have followed up with more drastic price reductions— as much as $100,000 in certain neighborhoods."

No mention in the article about paying property tax or financing appliances for 30 years. Also, no mention of how home owners feel that bought a year ago (and are now in the hole $100,000+) or why prices won't be down $100,000 this time next year.

Central Coast Fireworks

Just in time for Independece Day, I have looked at some of the recent foreclosure numbers from RealtyTrac. As you might expect ... they are not very pretty (for homeowners).

In San Luis Obispo County, the are 224 REO's up 46% over the past 3 months.
In Santa Maria, there are 254 REO's, up 66% since April 1st.
The city of Santa Maria now makes up 59% of all REO's in Santa Barbara County.

But remember, all of this sub-prime mess is contained, so no need to worry.

Fortunately, you won't find these numbers in the Tribune - just the same lazy business reporting.

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On a side note, if you are looking for an entertaining bubble thread, check out the Alan Little thread on this blog. Some people are getting pretty upset - which likely means there is some serious money being lost.

Housing Bubble Intervention

Sorry folks - the wife says I need to take some time off from the bubble. Right now I am hiding in a closet, typing in the dark.

Seriously though, it has been an interesting month: higher interest rates, higher inventory, crappy sales, longer DOM's, foreclosures out the wazoo.

Last week, Alan Little made the news. No mention of this blog even though we broke the story a couple of months ago. Oh well.

Keep the home fires burning - I'll be back soon.

Tales of Optional Permits

It seems each week we learn of new reasons why it's NOT really different here.

In case you missed it, this weeks lesson comes courtesy of the Tribune.

"A prominent North County developer owes the city of Atascadero at least $400,000 in building fees in what officials say are serious violations of local building and planning codes.

Responding to a complaint from a local citizen earlier this month, officials found developer Kelly Gearhart allowed residents to move into at least 42 of the homes in his DeAnza Senior Cottage community before officials had inspected the structures and issued a certificate of occupancy.

If those conditions are not met, City Attorney Patrick Enright wrote in a letter sent May 25, Gearhart will be fined $20,300 plus $21,000 for each additional day. "

Just so you know - the homes were later inspected and found to be safe - for now. I don't think that I would want to purchase anything from a builder who thinks the inspection process is optional.

Hopefully, these residents won't have to face the issues that have plagued the buyers of homes built by RW Hertel.

Inventory: Cooked

Well, either I am poor at searching on Realtor.com or we have had an explosion of inventory in the past week.

Here are the stats today, May 24, 2007. If you take the 93401 ZIP code (San Luis Obispo) and search for SFR's and condos in a 30 mile radio and then exclude anything that is outside of the county, you get ... 2373 properties for sale!

If you then combine that with the revised DataQuick sales figures for the county in April - 224 - you now get a whopping 10.6 months of inventory.

That didn't take long.

But don't worry ... it's different here.

Inventory: The Other White Meat

Realtors and jounalists will easily report sales figures and median home prices, but the most important statistic the rarely is reported is inventory. This is likely due to the fact that it is difficult to determine exactly how many properties are on the market.

We rely on the proprietary MLS which is owned by Realtors, but the MLS is only part of the story. Very few FSBO properties or home being sold by builders (which is significant I might add) are listed on the MLS.

So, how much inventory is there in San Luis Obispo County? Well, according to Realtor.com, there are 1242 SFR's and condos for sale in the county. Based upon what I see in the Tribune, anywhere from 5-15% of available homes are either FSBO or builder properties being sold without an agent. So, with that information we can estimate that there are about 1366 properties currently for sale.

If you devide that number by the 245 sales in April, you get about 5.6 months of inventory - which by current California standards is pretty low. Sacremento and San Diego have well over 12 months of inventory.

However, Realtors and economists agree that 6 months of inventory is the magical tipping point where significant price reductions begin to occur. We'll see how long we take to reach that number (hint: not very).

REO Update

The Bear has been in hibernation - but I have woken up just in time to check the latest stats from Realty Trac.

The REO Bandwagon keeps rolling along. Since April 1, 2007:

SLO County REO's up 20% to 184
Santa Maria REO's up 39% to 213
Santa Barbara County up 31% to 381

As we predicted, the city of Santa Maria is the pace horse for the Central Coast housing collapse. It now makes up 56% of all bank-owned properties in SB County. There are over 500 defaulted mortgages in city limits. I spoke with a Santa Maria Realtor and he says that every times he gets a new listing, it seems like a "foreclosure is listed next door".

Trust me, Santa Maria will be the coastal Merced.

Combine this with the inventory accumulation this spring (thanks arroyogrande) and a perfect storm is brewing in the horizon. There are no signs of slowing.

As for Alan Little Custom Homes - it seems no one can contact them - all efforts from our office have failed. Any tips would be appreciated.

The locals are still waiting for the Spring Bounce. We will keep you posted.

Real Estate "Experts" Speak

In today's SLO Tribune you will find another puff piece. With the exception of Lenny Jones, who is at least attempting to be objective, it seems all of the other "professionals" are drinking the Kool-Aid.

Hmmmm. Let's ask a bunch of commissioned sales people what they think about the product they sell and not hold them accountable for any of their responses.

Any facts or figures? Nope. Any interviews from actual people with homes on the market? Nope. Any quotes from people who tried to sell a house prior to foreclosure? Nope. Any other business or economic credentials other than being a Realtor(R)? No way. Anyone worried about skyrocketing foreclosures in Santa Maria and Grover Beach? Nope - it's different here.

They all predict a "stabilizing" market for summer 2007 and it will be a "good time to buy".

I can't wait until next week when the Tribune prints a guide on HD TV's with all of the quotes coming from sales people at Circuit City and Best Buy.

Lazy reporting at best.

Everyone Wants to Live Here!

... not really.

The population of San Luis Obispo County grew at a blistering rate of nearly 1% in the past 12 months. So, for an area of about 250,000 people, tha