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Orange County “Bond Manager of the Decade” Sees Opportunity in Real Estate

16 April 2010, 6:16 pm

- Robert Larsen April 16, 2010

After making a killing by accurately predicting the real estate collapse,   Bill Gross, Money Manager at Pimco, now sees real estate an investment opportunity.

According to CNBC.com, Bill Gross told the TV channel this morning,

Both commercial and residential real estate are reaching a bottoming point and possibly even prepared to turn higher, said Gross, CIO of Pacific Investment Management Co., or PIMCO, the world’s largest bond fund. With stocks likely to return 5 to 6 percent and bonds 3 to 4 percent, he said, investors would be wise to start looking at real estate opportunities. “Ultimately the riskier assets will be the less the risky assets,” he said. “I wouldn’t suggest moving into those particular sectors at the moment but ultimately risk and reward go together.” Lower debt and better lending rates will make real estate attractive, he added.

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24% of new South Coast homes: short sales

10 March 2010, 7:36 pm

-Robert Larsen March 10, 2010

It is clear that this is the year of the short sale for the lower priced homes.

This short sale in San Juan Capistrano is $350,000 with 4 bedrooms and 2 baths.

More short sales hit the market every day, and many of them look like good deals.

But, there’s nothing short about a short sale. In fact, they are now complicating the real estate market in Orange County.

In his latest report, Altera Real Estate’s Steven Thomas said the following about short sales:

“There are 6,867 total pending sales in all of Orange County. Of those, 4,254 are short sales, 62%. Yet, only 27% of all closed residential resales in February were short sales. Most short sales are simply not closing. They are waiting on lender, or in many cases lenders, approval of the sale. Of the 4,254 pending short sales, only 757 have been pending for less than a month. 1,488 have been pending for over three months. The data does not even capture the short sales where a frustrated buyer walks away after waiting too long.”

How do things look in our neck of the woods?

Of the 122 homes to hit the market in Dana Point, San Clemente and San Juan Capistrano in the last two weeks, 24% of those homes for sale are short sales.

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Paperwork Reduced in Loan-Modification Program

29 January 2010, 12:19 pm

- Robert Larsen 1/28/2010

The Obama administration is trying to simplify the paperwork for people seeking lower home-mortgage payments in an effort to avert more foreclosures.

The Treasury outlined new guidelines Thursday aimed at streamlining requirements for mortgage relief under the administration’s Home Affordable Modification Program launched a year ago.

The guidelines specify that borrowers must provide three items to loan servicers, the companies that collect mortgage payments: a form requesting a loan modification, authorization for the servicer to seek tax information from the Internal Revenue Service and evidence of income, such as two recent pay stubs. Previously, some servicers have asked borrowers to fax in copies of their tax returns. Borrowers sometimes couldn’t find the needed tax forms or complained that servicers repeatedly lost material faxed to them.

The previous documentation requirements were “somewhat overwhelming” for some borrowers, says Morgan McCarty, head of mortgage servicing at Regions Financial Corp., a banking company based in Birmingham, Ala.

The Treasury also said that, effective June 1, servicers must collect the information before starting borrowers on three-month “trial” loan modifications, during which borrowers must show they can make the payments before being granted a permanent reduction in their loan costs. Many servicers have been starting trial modifications based on unverified information provided orally by the borrower, only to find later that the borrower wouldn’t or couldn’t provide documentation.

As of Dec. 31, about 900,000 borrowers had been given trial modifications but only 66,465 had been converted to a permanent fix. That largely reflects problems getting documentation. The Treasury acknowledged that some of those 900,000 borrowers won’t end up qualifying for a loan modification through the program.

As of Sept. 30, about 7.5 million households—about 14% of those with home loans—were behind on payments or in the process of foreclosure, according to data from the Mortgage Bankers Association, a trade group.

Many of those struggling borrowers owe far more to their lenders than the current value of their homes—a condition known as being “underwater”—and wonder whether it is worthwhile to keep paying. Micah Green, a partner at the law firm Patton Boggs in Washington who represents some large investors in mortgages, says the administration should revamp the program to put more stress on reducing principal owed by borrowers who can show that they would be able to stay current on a smaller, refinanced loan. In many cases, that would require the holders of both a first- and a second-lien loan to accept a write-down of the amount owed, a complicated process.

Treasury officials said Thursday they were looking at ways of helping underwater borrowers but haven’t found practical means of doing that on a large scale. “There are no simple solutions,” Herb Allison, an assistant Treasury secretary, said in a press briefing.

By JAMES R. HAGERTY at the WSJ

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California’s Home Inventory Continues to Shrink to 5-Year Low

22 January 2010, 4:16 pm

- Robert Larsen 1/22/2010

California’s inventory of unsold, previously owned homesTract Homes shrank to a five-year low in December, in another sign that the state may be coming out of its worst housing slump in decades.

The supply of unsold single-family homes dropped to 3.8 months from 5.6 months a year ago and 16.6 months in January 2008, when inventories were at a peak, according to estimates released Friday by the California Association of Realtors. The inventory levels are now at their lowest level since 2005, resulting in frenzied sales with multiple offers in some cities.

In Northern California’s Santa Clara County, where inventory has dropped to 50 days from 243 a year ago, Amanda Garcia said she and her 62-year-old father Luis Garcia finally gave up a nine-month search for a home last month, after they kept losing out on homes priced in the highly competitive sub-$500,000 market.

“It’s more like an auction nowadays,” said Ms. Garcia, 26, a medical coordinator from Milpitas, Calif. “They shouldn’t call it a house sale.”

California’s housing market is closely watched because it is the nation’s biggest and helps fuel both the state’s economy and the national building industry. With California still weighed down by economic problems, including a 12.4% unemployment rate, higher than the 10% rate nationwide, economists are looking at bellwethers like housing to determine when California will rebound.

Of course, any long-term revival in housing will depend on California’s ability to shake off its high unemployment and the continuing threat of more foreclosures. Some housing experts cautioned that inventories may be artificially low because many would-be sellers are waiting for the economy to improve before putting their homes on the market.

“I’m convinced that once the general public believes prices have bottomed out and are coming up, more people will put their homes on the market,” said Andrew LePage, an analyst at MDA DataQuick, a housing-data provider in La Jolla, Calif. “And that will probably coincide with the economy and job market improving.”

Rising ChartAlthough most home prices remain well below their pre-bust highs of three years ago, California’s overall housing market has shown signs of stabilizing since early last year. The median price of an existing, single-family home rose 8.4% from a year ago to $306,820, marking the second consecutive year-over-year increase and the 10th straight month-over-month jump, according to estimates by the state Realtors’ association.

Sales rose at a slower year-over-year rate of 1.7%, compared with double-digit gains in recent months. Sales have been powered, in part, by a federal tax credit of $8,000 for first-time buyers, which Congress extended until the end of April.

Some brokers attributed the sales slowdown to lean inventories. “Right now, we need more listings,” said Lianne Pinkston, a Coldwell Banker broker in Morgan Hill, Calif., south of San Jose. “I have an all-cash investor, and they’ve wanted to buy a duplex or four-plex, and they’ve been making all-cash offers for over the asking price, and they’re still not getting anything.”

The current inventory rate is running well under California’s historical average since the 1980s of about an eight-month supply of existing homes on the market. That’s partly because a once huge supply of foreclosures in the state has dwindled. In November, foreclosed properties accounted for 40% of all single-family sales, new and used, in California, compared with 58% in January, according to the most recent estimates by Zillow.com, a market tracker.

In general, California’s coastal markets performed better than inland markets. In Orange County, for example, Zillow estimates foreclosures dropped by more than one half to 20.6% of all single-family sales in November from 43.5% in January. In inland Merced County, foreclosures were also down, but to 69.9% of sales from 83.4% in January, according to Zillow.

The return to the kind of bidding wars that marked the state’s boom years in some coastal cities hasn’t been welcomed by home buyers. In Orange County, graphics designer Scott Butler put in one of 37 offers on a three-bedroom, two-bath home listed for $350,000 in early September. Mr. Butler bid full price for the home in Mission Viejo, Calif., and offered to put 20% down, but the winning bid went over $430,000, said his agent, Michael Caruso.

Mr. Butler, 39, who has since given up his search, said he was outbid on more than 20 other homes since early 2009. “It’s very discouraging,” he said.

Written by Jim Carlton at the Wall Street Journal

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Home Builder’s Constructions Forecast

19 January 2010, 8:44 pm

Home Builders Expect Construction Recovery

Housing construction is expected to rebound this year from the severely depressed 2009 level, but the market remains fragile as foreclosures continue to rise.

Builders are likely to start construction on 610,000 single-family homes this year, up 38% from last year, according to David Crowe, chief economist for the National Association of Home Builders, which is meeting this week for its annual convention. That forecast assumes that the total number of U.S. jobs will start growing again in the second quarter. Housing starts would remain far below the 2005 peak of 1.7 million.

Mr. Crowe cautioned that the housing market remains tenuous, partly because foreclosures are still increasing, job growth this year is likely to be tepid, and builders are having trouble getting credit.

The convention drew more than 50,000 builders, suppliers and other participants, down from more than 60,000 last year and 140,000 in 2007, a spokeswoman for the home builders said. Many suppliers were touting energy-efficient products rather than glitzy décor. “The builders here are the survivors,” Mr. Crowe said.

Less than three miles from the convention, around 60 people perched on folding chairs in a parking lot to bid on foreclosed homes, a daily feature of the Las Vegas market. About 60% of Las Vegas home sales in December were foreclosed properties, according to the Greater Las Vegas Association of Realtors.

Many builders are focusing on low-cost homes to compete with foreclosures. In Las Vegas, the typical new house from KB Home is priced in a range of about $150,000 to $170,000. Four years ago, typical new homes in Las Vegas were in a range of $400,000 to $550,000.

Frank Nothaft, chief economist at the government-backed mortgage investor Freddie Mac, said the percentage of people who are behind on their mortgage payments probably won’t peak until the second half. As of Sept. 30, about 14% of American home-mortgage borrowers were at least 30 days behind on payments or in foreclosure, according to the Mortgage Bankers Association.

John Burns Real Estate Consulting, an Irvine, Calif., firm that advises home builders, said sales of new homes and visits from potential buyers have picked up in recent weeks after a lull in last year’s final quarter.

Many builders are starting the year with low inventories of completed homes, the firm said. That should spur building in the months ahead as builders seek to have houses ready for people who want to make purchases before the April 30 deadline to qualify for a tax credit for home purchases.

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PIMCO, Gross: Rates won’t spike in 2010

15 January 2010, 1:48 pm

Bill Gross, the Pimco bond guru and “manager of the decade,” thinks interest rates will be relatively flat in 2010.

Gross, who runs Pimco’s Total Return Fund from Newport Beach, tells me …

  • “Short rates — Fed Funds — on hold for all of 2010″
  • “Intermediate and long rates dependent on what happens in March. If the Fed stops buying $1.5 trillion of mortgages and Treasuries.”
  • “If they do (stop) then the 10 year (now at 3.75%) could go to 4.0%. If they don’t stop, then 3.5%.
  • “So not much of a range. Inflation will be coming down and that will help.”
  • And, ominously, he ended: “But we have a helluva deficit to pay for.”

Earlier this week, Morningstar awarded Gross their “Fixed-Income Manager of the Decade” award stating …

  • Pimco Total Return investors are $47 billion wealthier for the decade, highest among all fund managers. (Morningstar’s wealth creation figure is the aggregate return made on dollars invested in the fund in the decade.)
  • “Gross has stayed ahead of the competition throughout the decade by making the right calls at the right times. For example, despite the mess that mortgages created in the market, bonds backed by mortgages have been one of the fund’s largest sources of excess return.”
  • “Gross is one of the best investors of our era. Many investors eagerly await the insights in his monthly investment outlook. And in 2009, investors poured more than $50 billion into Pimco Total Return.”

With the winter season coming to an end, so goes the unclear future of the housing market. The most unpredictable moment of the last 3 years is nearing an end. During the third quarter of 2009, analysts were unsure which way the real estate market would turn. It had been experiencing unprecedented strength the entire year but pessimists had a valid point when they attributed it all to a seasonal strength. Going into the winter season, potential homebuyer’s were nervous that the strength would die and the price spiral would begin once again. Due to low interest rates and price cuts, the winter season has remained strong and activity is not far off from its’  September highs.

While not there yet, we are just around the corner from the next seasonal trend, which is strength and activity. The spring and summer will once again bring about more activity, and further stabilize the housing bottom. Interest rates will continue to support the housing market through 2010.

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Has Housing Reach a Bottom?

28 December 2009, 12:53 pm

Dramatic 2011 housing rebound eyed

December 28th, 2009, 6:00 am posted by Jon Lansner

Homebuilder consultant Mark Boud of Real Estate Economics …

Eyeball: Did Orange County housing have a bottom in 2009 — full or partial?

Mark: We formed a price floor around June 2009 and have since seen improvements. We actually formed a floor in sales volume back in January 2008, and have since seen improvements. Prices always lag sales volume — both up and down — by as much as 2 years. Some are forecasting a “double dip” or “W” recession where housing prices continue to deteriorate — partly due to a deluge of distressed inventory to be unleashed on the market. I don’t buy it. At current levels of undervaluation, distressed inventory is being absorbed faster than it is being introduced, and this trend will continue in Orange County and throughout California. 2010 won’t feel like a dramatic improvement in either price or sales volume, but small, incremental economic and market improvements will continue through next year, with more dramatic improvements forecast for 2011.

Eyeball: Driving forces in local housing — good or bad — in 2010?

Mark: Unfortunately, the main driving force won’t be job growth until the latter part of 2010. The main driver in housing sales during 2010 will be under valuation. Home prices remain grossly undervalued relative to incomes when the present mortage cost-to-income relationship is compared to long-term trends. Undervaluation will be increasingly realized as we move closer to economic growth. Sidelined buyers will re-enter the market in larger numbers to take advantage of distressed housing, low priced resales, and reduced priced new homes.

Eyeball: Predict 2010 gain in DataQuick’s OC median home-sale price …

Mark: We predict a 2.1% positive change in the median price of housing in Orange County during 2010; our forecast for 2011 is +4.0%; and we forecast an +8.0% change by 2014.

Eyeball: A year from now, what surprise might we be talking about?

Mark: The new home market may rebound more dramatically than the overall housing market. For example, new homes being offered on the Irvine Ranch may absorb and appreciate faster than anyone anticipates – partly due to the lack of competitive new home inventory and partly due to a faster-than-anticipated drop in distressed housing inventory. As early as January, there may be a bit of a new home ‘frenzy’ on the Irvine Ranch.

Eyeball: Thinking back over this decade, list “lessons learned” from the roller coaster ride?

Mark: Most of the problems we face now are because we deregulated the mortgage market during this decade. By reducing our mortgage standards, we allowed non-traditional buyers — speculators, investors and unqualified buyers — to enter the market en masse, and encouraged the housing market to transition to an investment market. We’re paying a deep price for such foolishness.

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