Central Valley Real Estate

If You're Gonna Be Angry, Be Angry At Everyone

I read a community editorial in our local paper, The Modesto Bee, on Jan. 23 that was very insightful. Rather than blame mortgage loan brokers for this whole mess (as I am sometimes prone to do), or blame loan brokers AND real estate agents (as many others do), the reality is that we all sowed the seeds of our own real estate implosion.

I would have just provided the link to the article, but some of my Bee links are requiring a username and password to see the article, and I think the author Dick Hagerty would want to be heard. I couldn't have said it better myself.

Who's to blame for subprime mortgage crisis? Everybody

by Dick Hagerty

The subprime crisis in the real estate market has been especially harsh in our Central Valley region. Many pundits have quickly jumped on the bandwagon, assigning blame to different players in the home building industry.

Having spent more than 30 years immersed in this industry, in this market, I have a special vantage point to assess just who and what might be to blame for our current sad state of affairs.

My conclusion: Everyone in the entire loop was greedy, and the blame spreads across the spectrum.

The land seller (generally a farmer) was greedy and ran land costs up, in some cases more than $500,000 per acre. That same land today would be hard-pressed to fetch $50,000.

The developer (that's me, folks) was greedy, and marked up the price of finished lots to incredible numbers -- which the greedy builder was more than willing to pay, much to his later regret.

Cities, counties and schools -- they all got greedy and jacked up development fees to levels that simply boggle the mind, given today's values.

Subcontractors and material suppliers got on the bandwagon and raised prices and profit margins to record proportions.

Real estate brokers and sales staffs aggressively oversold the promise of never-ending upward price spirals to buyers who often could not afford the homes being hyped.

The mortgage and money industry is especially culpable. Mortgage brokers pushed hard to sell inappropriate and misleading products that eventually would ratchet up to very high monthly charges.

And Wall Street, an industry that hates real estate because it sucks capital from the investment world, fell right into the trap and started marketing packages of loans as a new investment vehicle. They did this seemingly with blinders on, because due diligence in evaluating the underlying quality of the loans just flew out of the window. Blocks of mortgages became the new hot item on the stock exchanges, regardless of the integrity of the product.

All of the above has been noted and pilloried by the press and by other observers.

But I believe that equal blame lies in the lap of the buyers. Yes, I, too, agonize over the number of unfortunate homeowners who are losing their dwellings; it truly is a tragedy.

However, many of those same homeowners bought houses well beyond their means on the belief (or perhaps the hope) that prices would continue to skyrocket. When they did not, the buyers found themselves hopelessly buried.

Easy money terms in the adjustable rate mortgages made this game just too easy to enter, and in the meltdown, values simply vaporized before the buyers' eyes.

The sad reality is that a home is not an investment; it should be viewed as a place to live. Nor is it a piggy bank which may be regularly raided through creative refinancing, which provides easy cash for all the consumer desires of Mr. and Mrs. Homeowner.

Sad to say, we were all in this together, and to ascribe guilt and blame to any single player is not appropriate. In the end, greed prevailed, and we are all losers for it.

Hey, Bargain Hunters! Where Are You?

As the Briefing.com assessment of today's stock market performance explains, "There are volatile markets and then there are volatile markets.  Wednesday's session was the latter variety, which is to say it was truly volatile.  To wit, the swing in the S&P 500 between its low of the day, reached around 12:45 p.m. ET, and its high of the day, reached around 3:50 p.m. ET, was 69 points or 5.4%."

A 5.4% swing in just one day--not for one particular stock, but for the entire S&P 500--is just unimaginable. And yet, it just happened. Today.

Why did it happen? And what's it got to do with local real estate?

Peter Cardillo, chief market economist at Avalon Partners, explained today's stock market performance: "There does come a point and time when the market itself recognizes that it got out of hand, and that is when bargain-hunters can come in."

It's just a matter of time before our local real estate market also realizes that it is out of hand too, "and that is when the [real estate] bargain-hunters can come in."

A few cases in point:  this bank-owned Patterson home at 544 Peregrine Ave was built in 2001, has 5 bedrooms, 3 baths, 3-car garage, 4041 sq. ft, and was asking $250,000 before going into contract about a week ago. That's a $62/sq. ft. asking price! And in case you were wondering, it has a very nice (though dead) landscaped backyard, cherry/maple cabinets and granite counters.

In case you were wondering if you missed the boat, this second bank-owned home is just down the road in Newman at 682 Hagerman Peak Drive that was built in 2005, with 5 bedrooms, 3 baths, 3-car attached garage and 4117 sq. ft. asking $329,000. That's still less than $80/sq. ft., and that's just a starting asking price--it's only been listed for 14 days.

So bargain hunters, you need to wake up and realize this for what it is--complete and utter mayhem. If you agree that the market has gotten out of hand, you can now come in.

California Foreclosure Activity Continues to Increase

There's no sugar-coating it any more--the housing market is in dire straits. As a real estate agent, I really want to be as optimistic as possible. And yet, that's a disservice to those who need to know the reality of what's going on.

In fact, one of my favorite quotes that I have on my desk is from Jack Welch, the legendary CEO of General Electric. He says, "face reality as it is, not as you want it to be." Very relevant advice for current real estate conditions.

So with that in mind, I will no longer be withholding the bad news from the good. I will always be keeping an eye out for editorial bias and spin, but facts are facts and cannot be denied. Enjoy.

California foreclosure activity still rising

Pool of at-risk loans getting larger

Tuesday, January 22, 2008

Inman News

The number of mortgage default notices filed against California homeowners jumped last quarter to its highest level in more than 15 years, a real estate information service reported.

Lending institutions sent homeowners 81,550 default notices during the October-to-December period. That was up by 12.4 percent from 72,571 the previous quarter, and up 114.6 percent from 37,994 for fourth-quarter 2006, according to DataQuick Information Systems.

Last quarter's number of defaults was the highest in DataQuick's statistics, which go back to 1992.

"Foreclosure activity is closely tied to a decline in home values. With today's depreciation, an increasing number of homeowners find themselves owing more on a property than its market value, setting the stage for default if there is mortgage payment shock, a job loss or the owner needs to move," said Marshall Prentice, DataQuick's president.

The median price paid for a California home peaked at $484,000 last March and declined to $402,000 by the end of 2007, although DataQuick said much of that decline was caused by significant shifts in the types of homes that were sold.

Most of the loans that went into default last quarter were originated between August 2005 and October 2006. The median age was 22 months, up from 15 a year earlier, indicating that the pool of at-risk home loans is getting larger.

On primary mortgages statewide, homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $11,121 on a median $340,000 mortgage.

On lines of credit, homeowners were a median seven months behind on their payments. Borrowers owed a median $3,379 on a median $56,000 credit line. However, the amount of the credit line that was actually in use cannot be determined from public records.

Last quarter's default numbers were a record in 42 of the state's 58 counties. In Los Angeles County it was 63.5 percent of the first-quarter 1996 peak.

Notices of default are recorded at county recorders' offices and mark the first step of the formal foreclosure process.

On a loan-by-loan basis, mortgages were least likely to go into default in San Francisco, Marin, and San Mateo counties. The likelihood was highest in Merced, San Joaquin and Stanislaus counties.

Of the homeowners in default, an estimated 41 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe, according to DataQuick. A year ago it was about 71 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing, which makes "work-outs" difficult.

Trustee's deeds recorded, or the actual loss of a home to foreclosure, totaled 31,676 during the fourth quarter, the highest since DataQuick began tracking trustee's deeds in 1988. Last quarter's total rose 30.8 percent from 24,209 in the previous quarter, and jumped 421.2 percent from 6,078 in fourth quarter of 2006.

In the last real estate cycle, trustee's deeds peaked at 15,418 in third-quarter 1996. The all-time low was 637 in the second quarter of 2005.

There are 7.9 million houses and condos in the state, DataQuick reported.

Where To Start If You're Afraid To Lose Your Home

You're either behind on your mortgage already, or your rate (and payment) are about to jump significantly, or perhaps you're current on your mortgage but you owe more than it's worth and now you need to move. What do you do?

There are an over-abundance of people and companies who will try to tell you what you should do. But who can you trust?

The Homeownership Preservation Foundation (HOPE) is a non-profit organization funded by the financial services industry and Fannie Mae that operates a hotline to help homeowners understand the options available to them and how to work through them. Each HOPE counselor is HUD-approved and has a credit counseling certification. As a non-profit, the services are provided free of charge and without bias of any kind.

HOPE is probably one of, if not the best place to start. The number is 1-888-995-HOPE. It is open 24/7 and has operators that speak English and Spanish. HOPE can also be found on the web at http://www.995hope.org

If you are looking for a local non-profit credit counseling agency, you can also check out http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm and search for local HUD-approved counseling agencies located throughout the country.

If you are in a pickle, do something about it. If you're not sure where to start, and want good quality, unbiased information, this is the best way for you to start.

Home Sales Limbo Rock: How Low Can You Go?

As the "limbo bar" of sales price continues to go lower, it seems fewer sellers are able to pass beneath it successfully and sell their homes. You've got to be a pretty flexible seller to be able to get under the limbo bar of today's prices.

All kidding aside, "how low can you go" seems to be the theme of the local market these days. For sellers, who are for the most part powerless to stop it, it is definitely NOT a fun game to play. But for buyers who realize it for what it is, this is a great buying opportunity--the likes of which we haven't seen for at least about 15 years and may not see for another 15 years.

It is ironic that buyers often don't see it this way. Rather, the common perception is: "because prices have and are going down,  I therefore don't want to buy." Why not?, I may ask. "Because I think prices will keep going down some more."

In the short term this is probably true. However, as another agent in my office were discussing today, the concern is that it never seems to be enough. It is precisely the same mistake that sellers made near the peak of the market. Rather than being grateful for the quick and massive rise in their home's value, sellers would say, "because prices have and are going up, I therefore won't sell my home. I want to hold onto it as long as I can, because every month it goes up more in value."

Again, in the short term that is true. However, the mistake we all see (now) that many sellers made is that it just wasn't enough. They were just a little too greedy. They postponed their sale longer and longer, thinking the home was going up more and more, and by the time they realized it had already peaked, it was--yep, you guessed it--too late. Then they held onto the peak price expectations, and were unsuccessful. Many of those sellers have still not been able to sell their home.

If you are thinking about buying a home sometime soon, don't make the same mistake that sellers made when the market was near the top. Just as those sellers should have taken the great prices they could get at the time and been happy with it, I hope you realize this opportunity for what it is.

Take the great prices you can get, and be happy with it. Don't do what the majority of buyers will inevitably do, which is to wait until it is clear the market has stabilized and improved and begun to rise in value again before deciding to make an offer. Worse, don't make the additional mistake of thinking you can lowball and ask for closing costs after the market starts to rebound. Then you'll keep getting "no" answers, and by the time you get it you'll be paying a lot more than you would have needed to (just like the sellers who are selling for much less than they would have gotten by not postponing their sale).

Bottom line: if you are buying for the right reasons (a home for your family to live in for at least 5 years or more), then realize this opportunity for what it is--a great opportunity--and find a great house for a great price, buy it, make it yours, and start earning equity as you make payments on your mortgage!

Take the opportunity and run with it!

What's It Like To Buy A "Short Sale?"

Below is a wonderful article written by Carolyn Said from the San Francisco Chronicle, published on August 12, 2007. It talks about what to expect when attempting to buy a "short sale." The two things that stuck out to me were: (1) expect it to take a long, long time; longer than you think, even when you think you're being patient, and (2) the bank is still looking for as reasonable of a price as possible. Don't expect a yes, especially a quick yes, if you are making a low-ball offer on a short sale.

After reading, please comment with your experiences with short sales. Are they worth dealing with, in your opinion?

Buying Homes Through Short Sales Can Lead To Long Waits

Carolyn Said, Chronicle Staff Writer
Sunday, August 12, 2007

Jamie Schmitt and Valerie Azinheira liked the two-bedroom house in San Francisco's Merced Heights. It was near a nice park where their 3-year-old son, Gabriel, could play. They made a no-contingency offer for the full $629,000 listing price on June 20.

Then they waited. And waited. And, well, waited some more.

It took a full five weeks to find out whether their offer was accepted. (It was.)

The offer "just fell into the abyss," said Schmitt, 38, a handyman/remodeler who also lends his expertise to several fix-it shows on the Home & Garden TV Network.

That's because the couple was buying in what's called a "short sale," in which a house sells for less than - or "short" of - what is owed on the mortgage. Almost unknown for the past two decades, short sales are making a comeback as a way out for cash-strapped homeowners who can't keep up on their mortgage payments.

Ordinarily the person selling a home gets to decide on offers. But in a short sale, the mortgage holder holds all the cards. Because that lender will be taking a loss, it may choose to turn down short-sale offers, and instead allow a property to go through foreclosure.

Even though Schmitt and Azinheira paid the full asking price on their home, the previous owner owed $685,000 on the mortgage - and had spent heavily on rehabbing the house. The owner originally listed the house for $720,000, but in the softening market, had to keep dropping the price to less than she owed.

Buying from a gargantuan financial institution means numerous roadblocks.

"It was like the seller wasn't even there," Schmitt said. "They were being pushed off to one side, and this big bank was coming in and being the seller."

Stuart Wilson, an agent with Paragon Real Estate Group, who represented the couple, said he finally galvanized a decision by telling the listing agent that his buyers had lost confidence the sale would close and planned to withdraw from the contract if they didn't get lender approval by July 25. "That did the trick," he said. "We got approval that day."

A prior buyer had grown impatient with the protracted wait and bailed.

Wilson agreed that it is frustrating dealing with lenders in short sales.

"The lenders (seem) not prepared to act in a timely, resolved and professional fashion on a short sale," he said. "They just don't get it that they have to get rid of this property, that every day they have it costs them more money. They are overloaded, overburdened, confused, unable to deal."

Schmitt and Azinheira have a month-to-month rental so they could wait for a decision. But for buyers who need to move quickly, such as people who just sold a home, a short sale would be more difficult.

Two increasingly common factors converge to create the circumstances for a short sale:

-- Homeowners have no equity or negative equity. Generally that's because they bought with 100 percent financing (or took out extra loans after buying) and the house is worth less than they paid for it.

-- The homeowner can't make the payments. These days that's probably because an adjustable-rate mortgage has reset at a higher rate, perhaps adding hundreds of dollars onto the monthly payment. In the first half of this year, lenders sent 14,426 notices of default to Bay Area homeowners for missing mortgage payments, according to DataQuick Information Services. An untold additional number may be scraping to make payments but eventually will fall behind.

For beleaguered homeowners, a short sale is better for their credit rating than going through a foreclosure. Still, they may end up owing extra taxes on the deal. In many cases, if you owe $600,000 on your mortgage and the lender allows a short sale for $500,000, the IRS expects you to pay taxes as if you "earned" the $100,000 forgiven on the loan. Legislation is pending in Congress that could change that rule.

For buyers, short sales may yield some bargains, albeit minor ones. Banks are not in the business of giving away money, so they want to be assured that short-sale properties are going for their true market value. Still, short-sale properties are priced to move. And they do have the advantage of weeding out competing buyers who don't have the stamina to go through the process.

For banks, short sales represent a way to cut their losses on a soured mortgage more quickly than going through the protracted foreclosure process. But that doesn't mean banks are enthusiastic about short sales - or even familiar with them.

"Eleven years ago when I got my license, we were in a market similar to now and short sales were more common," said Janice Spencer, a broker-owner of Windermere Signature Collection in Antioch. "Banks would preapprove them. Now it's been so long that we've had such a good market, banks are not set up to deal with them. The longer we're in this (soft) market, banks will realize they have to step up to the plate."

The listing agents for short-sale properties are required to disclose that the homes are being sold "subject to lender approval" or that they are a short sale. That information generally shows up only in parts of the MLS reserved for real estate agents, such as the "confidential remarks" section or the line for "special assessments and other disclosures," Spencer said. Less often, it may be in the "public remarks" section that consumers can view.

Spencer said about a third to a half of the homes for sale in her area of Antioch, Oakley, Brentwood, Discovery Bay, Pittsburg and Bay Point are short sales or foreclosures. She has represented buyers who made offers on short-sale properties only to walk away when they could not get a response from the lender.

Why are lenders reluctant to agree to short sales?

"Lenders and mortgage servicers consider (short sales) a necessary evil, but it obviously involves a loss for them," said Guy Cecala, publisher of Inside Mortgage Finance, a newsletter in Bethesda, Md.

The biggest stumbling block, Cecala said, is that two-thirds of all mortgages in the United States are owned by Wall Street investors. The banks that "service" loans - collecting the mortgage payments - cannot decide about short sales. That adds in a layer of complexity.

Banking giant Chase services $500 billion of home mortgages for other institutions. Chase spokesman Tom Kelly said Chase seeks approval from the investors who own a mortgage when a short sale is requested. It takes 45 to 60 days to get a decision, and each investor has separate rules about how it handles short sales, he said.

One key consideration is making sure a short-sale home is going for fair market value, as determined by an independent appraiser.

"We want to make sure the person isn't selling to someone they know" in a sweetheart deal, Kelly said. "We are protecting the investor who owns the loans."

Jay Brinkmann, vice president of research and economics at the Mortgage Bankers Association in Washington, echoed that concern.

"You have to watch to make sure (the seller) isn't cutting their brother-in-law a deal," he said.

Brinkmann said another consideration for lenders is how far along a house is in the multi-month foreclosure process.

Foreclosures cost banks easily $30,000 to $40,000, including the missed mortgage payments, fix-up costs for neglected property, legal and filing fees, and various carrying costs, he said.

"If the bank has already incurred most of the expenses and is ready to foreclose anyway, it will say, 'We're not going to save anything here (with a short sale),' " Brinkmann said.

Terry Baldwin, a Realtor with Zip Realty specializing in the East Bay, has represented the buyer in five different short-sale deals. He said he's seen it take as long as 16 weeks to get an answer from the bank.

Baldwin advises his clients in short sales not to expect that a lowball offer will get results.

"As a buyer, I think you can get a fair price going with the asking price," he said. "Bankers do not really want to have the property; they want to have a fair price." In fact, he said there is less room for negotiation in a short sale, because the seller is "a person in another state with paperwork 1 foot thick."

Systems engineer Scott Werntz, 39, is house hunting now in Antioch and Brentwood, working with Baldwin. He would be happy if a short sale or foreclosure meant that he got a better deal.

Werntz said he's seen prices fall dramatically since he started looking in January.

"There are so many (houses for sale), and it's slowed so much, that I think I'm safe purchasing something now," he said. "While I feel bad for the people who are losing their houses, I also have to look out for No. 1 and do what I have to do to find a place for myself and my son."

Glossary

-- Short sale. In real estate, a property being sold for less than ("short of") what is owed on the mortgage. Sometimes called "preforeclosure" sales in ads. While it is marketed by the homeowner, ultimately the decision on selling is up to the mortgage holder (or holders).

-- Foreclosure property. Often called "bank-owned" or "REO" (which stands for "real estate owned"), this refers to a property that has been repossessed by a bank through foreclosure.

E-mail Carolyn Said at csaid@sfchronicle.com.

Mortgage Companies, go away! Come again some other day!

Let the collapse of the mortgage market continue...

The big national news was for American Home Mortgage Investment Corp., which was recently reported to be the country's 10th largest mortgage lender, filed for bankruptcy protection on Monday, August 6. Ninety percent of the company's 7,000 employees found out all at once that their jobs had vanished.

The closure happened as American Home Mortgage's lenders no longer trusted its existing loan portfolio as sufficient collateral for credit lines to make new loans.

That was the national news. That doesn't affect you or I though, right?

Wrong. I have a home seller whose home is pending sale, and we are (were) scheduled to close escrow tomorrow, Aug. 8. The buyer's loan was being funded by Aegis Wholesale Mortgage, another large lender out of Houston with a local office in Modesto. The buyer's loan documents were scheduled to arrive from Aegis on Friday of last week. They didn't. On Monday morning, her loan officer called Aegis to follow up, and he found out that Aegis was not doing any new loans, nor funding loans currently in its pipeline.

When I called Aegis' local Modesto office branch this morning to verify, I was told that the entire company had folded, and that today is their last day. The company had 1,500 employees, with 14 in the local Modesto branch. An article at MarketWatch.com reported that Aegis was the 13th largest subprime lender nationwide.

The MarketWatch.com article also reported that National City Mortgage, which is the 13th largest mortgage originator nationwide of all types, also made the decision yesterday that "in response to market conditions, NHE has suspended approvals of new home equity loans and lines of credit" and that "the company continues to closely monitor the market and take the appropriate steps to respond to changing conditions."

That's what Aegis said on Monday, before they decided this morning that their "appropriate steps" included closing the entire company all at once.

If you know someone that worked at the Aegis office here in Modesto, please offer them your condolences. And hopefully the buyer in my transaction can get a new loan from a company that won't fold right in the middle of her loan processing.

Modesto Area Real Estate Auctions

From The Modesto Bee comes this article:

Also, see the website that has been created for the property I'll be selling to the highest bidder this coming Saturday, July 21, www.BuyMyHouseAtAuction.com.

Going once... Going twice... Gone

By J.N. Sbranti

Real estate auctions are multiplying in the Northern San Joaquin Valley as anxious homeowners seek new ways to unload their houses quickly.

At least four companies will auction Stanislaus County homes during the next month or so, including more than 60 homes that will go on the block Thursday night.

Some of the auctioneers are big, national companies; others are local real estate agents trying something new.

Modesto homeowners Todd and Penny Rowell certainly are ready for something new. That's why they're auctioning off their 2309 Rosetti Court house Saturday in a process that includes telephone bids.

"Our house has been on the market for a year, and traditional methods have not worked," said Todd Rowell, who moved his family to Spokane, Wash., in 2006. "We have had a signed contract with multiple buyers who later either were unable to get financing or got cold feet about the market. This has been very frustrating."

So the Rowells and their agent, Aaron Lewis of Prudential California Realty, decided to try an auction.

"We are sick of the whole selling process and are ready to move on," said Rowell, noting that he and his wife are ready to "let the market determine the value of our home."

Bidding on their four-bedroom home will start at $178,500, which the Rowells figure is about half what it is really worth.

If buyers don't agree, the Rowells have left themselves an out: They don't have to agree to accept the highest bid.

"The bid is not legally binding on either the buyer or the seller," explained Lewis. He said the Rowells aren't revealing their bottom price, but "the money they are willing to accept is wellbelow the market value."

Having an undisclosed "reserve price" is not unusual.

The 60-plus homes being auctioned beginning at 7 p.m. Thursday at Modesto Centre Plaza by Hudson & Marshall will have no minimum bid, but the property owners don't have to accept any of the bids.

'Absolute auctions' draw crowds

That's not the case with the Turlock property being sold at 11 a.m. Aug. 3 by Pacific Auction Exchange. The land at 16714 Bradbury Road, which includes two homes, will be sold in an "absolute auction" for whatever bidders are willing to pay.

"Absolute auctions attract more people than (reserve bid) auctions," said Casey Stonebarger of ASAP Real Estate Sales in Denair, which is a franchise of Pacific Auction Exchange.

Stonebarger said about 160 people showed up in February for the auction of an Oakdale home, which ultimately sold for $385,000. That price included a 10 percent buyer's premium, which Pacific Auction Exchange collects to cover its costs.

The Hudson & Marshall action will have a 5 percent buyer's premium, which will be added to each high bid.

There won't be any buyer's premium for the Rowell home.

Williams & Williams, which auctions about 1,000 homes a month nationwide, doesn't charge a buyer's premium either. It plans to auction about 15 homes Aug. 23 in five Northern San Joaquin Valley locations.

That includes three Modesto homes, which are on Elmwood Avenue, Mount Vernon Drive and James Street.

In one Williams & Williams auction last month in Modesto, a three-bedroom duplex on South Madison Street sold for $95,000. The company sold a threebedroom home on Cadillac Drive in Modesto for $210,000 in April.

Its founder and chairman, Tommy Williams, said real estate auctions are gaining popularity throughout the country.

"Buyers are beginning to realize it's an easy way to do business," said Williams, noting how transparent auction transactions are. "It feels fair and equit-able and like you're not being taken advantage of."

Williams said sellers accept the high bids at 85 percent to 90 percent of his auctions. That's because sellers realize they're "getting a fair deal dictated by the reality of the marketplace."

There was $16 billion worth of residential real estate sold in 2006 in the United States, according to the National Auctioneers Association. Williams, who is that association's incoming president, has no doubt this year's sales will be significantly higher.

"I think you're seeing the tip of the iceberg," Williams predicted. He said foreclosed houses that have been repossessed by banks, then sold at auctions, are driving much of the increase.

All of the Hudson & Marshall sales Thursday will be bank-owned properties.

Foreclosure auctions not same

So were the 47 homes auctioned June 25 in Modesto by the Real Estate Disposition Corp. The final sale prices for those homes haven't been disclosed by the company.

Such auctions are far different from the foreclosure auctions conducted on the courthouse steps at noon virtually every weekday.

Courthouse auctions are legal proceedings in which foreclosed homes are sold to the highest bidder without guarantees. Courthouse bidders typically have no opportunity to inspect the property or confirm whether it has other outstanding debt, and they can't obtain title insurance.

The vast majority of the homes sold in courthouse auctions go to the lender who was owed the unpaid mortgages. Many times, the bad debt was more than the home's current value.

Those lenders then must resell the repossessed homes, and increasingly they are turning to auctions to do that.

Lender-owned homes sold at auction by private real estate companies typically come with title insurance and provide bidders the chance to do inspections.

1st Tier v. 2nd Tier Communities

In answer to a question I received from a blog subscriber about the differences between certain communities in the Central Valley:

As the market got hotter and hotter, more and more builders began to build in what I call “second-tier” communities. To me, a second-tier community is one where people decide to buy primarily because the homes are less expensive compared to first-tier communities. For example, people began buying in Patterson/Newman primarily because it was significantly less expensive than Tracy. Same goes for the Lathrop area as well. Of course, I am generalizing, but that was the main thrust for much of those second-tier communities. Please understand, I’m not saying they aren’t great places to live and raise a family—I’m just saying that a majority of people tend to prefer the first-tier communities if they could afford it. The trend is even more pronounced when going south into Merced county—people generally were buying homes in those areas because they were less-expensive compared to pricier communities nearby.

For example (when the market was hot), a person commutes to the Bay Area and would like to live in Tracy. Problem is, Tracy is too expensive for them to get the home they want. But then they drive a little further and see much larger homes in Patterson for a much lower price, and they buy them instead. Here’s today’s problem with second-tier communities: now that person looking for a home in Tracy CAN afford it in Tracy. Therefore, there is no reason for that type of buyer to go further out to Patterson in order to afford it. That means that top-tier communities like Tracy will recover better and more quickly than second-tier communities, because now they’ll just buy where they really wanted to, which for many is Tracy in this example. Does that make sense?

The other reason second-tier communities are tougher right now is because new-home builders are encountering that very same problem, which means they’ve had more “standing inventory” (finished homes with no buyers) to get rid of. The more standing inventory there is in a community, the bigger the price dive. By the time builders get finished dumping their inventory homes, a new price floor has been established, and everyone wants to buy their home at those types of prices.

So places like Patterson have taken a big hit (as you have obviously seen). Oakdale is still a top-tier community according to buyer preference, but everyone with an existing home is struggling to compete against all the homebuilder discounts and their standing inventory and large-scale projects that they are continuing to work through out in the Bridle Ridge area. It’s just been, and continues to be, overbuilt in that area.

In general, many areas have given up the gains they’ve had in the last 18-24 months, just like you have seen.

The Effectiveness of Newspaper Advertising

I went to a seminar about blogging recently and picked up a great tip: some of the best content for a blog post is buried in your email outbox. With that in mind, I am posting a email exchange I recently had with someone regarding the value of newspaper advertising for home listings.

Question: What kind of newspaper advertising should I expect from you?

My response:
As it relates to newspaper advertising, your home would run on a rotating schedule automatically in the Modesto Bee and the Turlock Journal, wherein a text ad appears in each paper's weekend real estate section every third weekend on average. In addition, a $135 photo insertion is purchased for your home when it was first listed (according to our services commitment). In all honesty, I can't remember the last time I had a phone call from a newspaper ad.

You see, newspaper advertising is becoming increasingly ineffective year after year, as people migrate to the internet for all things real estate. It has been shown that the #1 audience of real estate sections of the paper are sellers. Not surprisingly, the #2 audience are real estate agents. It's kind of like the story of the emperor's new clothes, if you know what I mean. 81% of buyers begin their home search online. More telling is this quotation taken from The National Association of Realtors 2006 Survey of Home Buyers and Sellers:

"When asked where they first learned about the home purchased, 36 percent of buyers identified a real estate agent; 24 percent the Internet; 15 percent from yard signs; 8 percent from a friend, neighbor or relative; 8 percent home builders; 5 percent a print or newspaper ad; 3 percent directly from the seller; and 1 percent a home book or magazine."

In other words, you are almost as likely to know the person yourself as you are to find your buyer via the newspaper. In short, it’s a big expense that experience and statistics show just doesn't work. And that survey is nationwide; in California, where adoption of technology is higher than many states the numbers are likely to be even more disproportionate. In fact, I'd go so far to say that even the 5% nationwide average are those who probably just don't have internet access, since it's about the same percentage, though I could be wrong. That’s why other than the 2-week photo ad in the paper in the beginning we don’t really advertise in the paper. Because it doesn’t work. Still, you do have the rotating print ad.

Readers, what do you think? Is newspaper advertising effective or worth the expense?