Foreclosure Crisis: Help is NOT on the Way

Some beleaguered California homeowners are in a world of financial pain. Daily news stories recount tales of job losses, missed mortgages payments, foreclosure notices, and families in crisis.

Falling real estate prices only exacerbate the problems: owners find themselves increasingly upside down, and increasingly unmotivated to hold on to their piece of the American dream.

In spite of the Obama Administration’s efforts to stem the housing crisis, the problem only seems to be snowballing, as prolonged job losses and falling prices increase the gravity of the problem. Radical solutions may be required to get this country on solid economic footing once again.

Two disturbing trends illustrate how the status quo is not working.

First, bankruptcies in Southern California have skyrocketed.

Second, the government’s efforts to modify loans for homeowners in distress – and to prevent future foreclosures – are proving ineffective.

The Los Angeles Times today reported on bankruptcy statistics: “Bankruptcies Surge in Southern California.”

Going legally broke has made a big comeback -- especially in the Los Angeles area -- despite a mid-decade revision to the U.S. Bankruptcy Code intended to curb filings.

The number of Southern Californians seeking bankruptcy protection nearly doubled in 2008 from 2007 in the U.S. Bankruptcy Court's seven-county California Central District, by far the biggest increase in the nation.

Bankruptcy is still booming. Personal filings from January through April, the most recent month available, rose 75% in the Central District compared with the year-earlier period.

Bankruptcy experts attribute the growth mainly to the mortgage meltdown, which hit the region's adventuresome borrowers particularly hard. Add soaring credit card debt and medical expenses, and people who never thought they'd see a bankruptcy courtroom are lining up with petitions in hand.

"It's real estate," said Encino bankruptcy attorney David S. Hagen, who conducts free seminars for homeowners organized by the nonprofit Neighborhood Legal Services.

"People got sold a bill of goods on some kind of nontraditional mortgage and thought they could change it when the worth of their house went up. But the worth went down and the payments went up," he said. "They start to live off of their credit cards."

With the bankruptcy goes the foreclosure. So, what is the government doing to help these homeowners in distress?

With much fanfare, the Obama Administration rolled out its Making Home Affordable Program to help homeowners unable to make payments by allowing them to refinance or to obtain loan modifications so they can stay in their homes.

Sounds great. But what are the results? According to a New York Times article “Paper Avalanche Buries Plan To Stem Foreclosures", the government gets a definitive ‘F’.

Ms. Montenegro, an intern at a local company that seeks loan modifications, dials Washington Mutual to check on the status of an application for a homeowner whose income has plummeted. Syrupy-voiced customer service representatives chide her for landing in the wrong department. She learns that the documents her company sent in have simply vanished — for the third time since November.

“I don’t know what happened,” says a customer service officer who identifies himself as Chris. “I don’t know if there was a glitch in the system, whether it was transferred from one call center to the other.”

Think of the documents as being part of a pile massing inside the bank, Chris suggests. “This pile is not going to be moved forward at any point in time.”

Ms. Montenegro and her colleagues suffer these sorts of excruciating exchanges all day long. It is a potent indication of the difficulties afflicting the $75 billion taxpayer-financed program created by the Obama administration in an effort to avoid foreclosure for as many as four million distressed homeowners.

Under the plan, the government offers mortgage companies $1,000 for each loan they agree to modify, then another $1,000 a year for up to three years.

Hanging in the balance is more than the fate of individual homeowners. The administration portrays its mortgage program as a crucial piece of its broader effort to restore vigor to the economy. If the effort fails, foreclosures will continue to surge and home prices will probably keep falling, sowing fresh losses in the financial system and threatening to crimp credit anew for businesses and households.

Yet in the four months since the Treasury Department announced the program, millions of new homeowners have slipped into delinquency and foreclosure.

The administration still does not know how many mortgages have been modified under the program. In a recent interview, Mr. Barr estimated the number at “over 50,000.”

Distressed homeowners are finding themselves doing battle with huge financial institutions which seem to be doing everything in their power to say “no” to loan modifications.

The tales of lost paperwork, uninformed customer service representatives, and a lack of accountability for the banks run rampant. Homeowners on the brink of foreclosure seem to be pushed to foreclosure as they unsuccessfully navigate the loan modification maze that was intended to help them.

The task of “Making Home Affordable” is challenging for several reasons.

First, the program is intended only for loans backed by Fannie Mae or Freddie Mac (although some banks have “extended” the modification option to loans not backed by these government agencies).

Second, the loan servicer the borrower negotiates with is often not the “investor” that holds the loan, i.e., this is not even a direct negotiation.

Third, the lender which made the loan (e.g., Washington Mutual or EMC) may no longer exist, and the borrower must negotiate with the new owner of these orphaned loans (e.g. Chase) who never even originated them.

Fourth, if there are first and second loans on the property, the borrower finds themselves caught between two parties that may have conflicting interest.

Fifth, some lenders are not even participating in the “Making Home Affordable” program – it is voluntary, not mandatory.

Sixth, the loan modification proposed to the borrower may be inadequate to keep them in their home and may not address a core issue – that the home is so seriously “underwater” that there’s little incentive for the homeowner to stay in the home.

Update July 3, 2009: HARP (Home Affordable Refinance Plan) has increased the loan-to-value limit from 105% to 125% for "underwater" homeowners who want to refinance a 1st loan.

In spite of the huge bailouts of the financial institutions, they seem entirely unmotivated to help the distressed homeowners who desperately need their assistance.

The bottom line is, foreclosures keep rising, prices keep falling and the Obama Administration seems to have helped the banks but not the homeowners. These financial institutions may be “too big to fail.” But homeowners – who are at the root of any recovery – are being allowed to fail, and are causing the housing crisis to grow worse.

So, what is the solution? How can we possibly get out of this quagmire? We believe that two measures are required.

First, the Federal government must define standards and practices for loan modifications and enforce them on financial institutions. They become mandatory and not voluntary; they must occur within a specified period of time; and they must address the financial need of the homeowner.

Second, the government must face the reality that the biggest problem of the loan modification puzzle that no one has addressed is that millions of homeowners are “underwater”. They have no equity in their homes, and they may not have any equity for years or perhaps decades.

Their best option becomes to walk away. Although it may be unpopular, one option proposed is that the government must find away of writing off the “underwater” portion of the loan and returning the homeowner, with a loan modification, to a point of at least neutral equity.

Tom Petruno of The Los Angeles Times ran a provocative article, “Mortgage Forgiveness May be Next”. Although this measure will be wildly unpopular, the proposal addresses the core problem of the current economic meltdown:

Government and private-lender attempts to stem the home foreclosure crisis so far have mostly focused on loan modifications or refinancing -- giving borrowers a temporary or permanent reduction in their monthly payments.

But some housing experts say the next wave of help will have to address the core problem for many homeowners: negative equity.

This camp believes that there is no alternative but outright forgiveness of a substantial chunk of mortgage debt for many people who are underwater in their homes and at risk of foreclosure.

If your mortgage is worth significantly more than your house, your incentive to walk away may rise even if your monthly payment goes down. The decision to walk becomes a matter of simple math: If you have no hope of having an equity stake in the home for years to come -- if ever -- trading your mortgage payment for a much cheaper rent payment may be an economic no-brainer.

For many taxpayers, this is a big pill to swallow – bailing out those borrowers who took the most risk – and maybe bought an SUV or paid for college tuitions as they refinanced up to 100% of the inflated value of a property.

It becomes another example of moral hazard, rewarding those who took the most risk, got themselves into trouble, and now get bailed out. These homeowners get the house – the SUV, the college tuition – and the obliteration of their negative equity.

Comments on the Los Angeles Times' LA Land Real Estate Blog are nearly uniform in their response: outrage. One writer, Raffi, commented:

Seriously, when did it become such a casual topic for the government to refund gamblers (er, homebuyers) losses? When did it become such a problem for housing to be affordable? What happened to pretending this is a free market economy? What is going on?

Is this America?????????

The argument goes, if the issue of “negative equity” is not addressed, homeowners who are not underwater will see the values of their equity continue to decline.

It’s clear the Obama Administration needs to go back to its economic toolkit and revisit its approach to the foreclosure crisis. Bankruptcies and foreclosures continue to mount. Banks are creating logjams for borrowers seeking loan workouts. Homes are seriously underwater in many parts of the country, and homeowners will continue to “walk” through short sales or foreclosures.

There are no easy solutions. But the legislators who were so quick to bail out the banks seem to have abandoned those most in need -- their constituents.

Is Hollywood Still in Hollywood? Yes, Movieland Jobs Are Here To Stay

On June 24, the ArcLight Cinemas on Sunset Boulevard hosted the Hollywood Economic Development Summit on “How Entertainment Continues to Drive Hollywood Development”.

With so much press about declining number of shooting days in Los Angeles and the downsizing of entertainment and media companies (recent news concerned layoffs at MySpace and MTV), the question is is Hollywood still in Hollywood or have the jobs moved elsewhere? Is Hollywood becoming a destination dining-retail-nightlife neighborhood that is devoid of its roots in the entertainment industry?

Looking at the numbers, the entertainment industry is very much alive in Hollywood. According to the Hollywood Chamber of Commerce, 12 of the top 20 employers in Hollywood are the entertainment industry, responsible for over 17,000 jobs.

1. Kaiser Permanente - Hospital - 5,000
2. Paramount Pictures - Motion Picture Studio - 5,000
3. Children's Hospital of Los Angeles - Hospital - 3,800
4. Sunset Gower /Sunset Bronson Studios - Motion Picture & TV Studio - 3,000
5. Universal Studios, Inc. - Motion Picture Studio - 2,500
6. CBS at TV City - Television & Radio - 2,300
7. Queen of Angels/Hollywood Presbyterian Hospital - 1,250
8. Los Angeles Community College - City College - 1,007
9. TV Guide - Television - 900
10. Nielsen Entertainment - Entertainment - 800
11. The Prospect Studios - Television Studios - 800
12. Raleigh Studios - Motion Picture/Post Prod. - 486
13. Time Warner Cable - Television-Digital Cable - 452
14. CSS Studios - Feature Film, TV, Post Prod. - 450
15. Capitol Records - Record Company - 435
16. Roosevelt Hotel - Hotel - 423
17. Renaissance Hollywood Hotel - Hotel - 400
18. The Original Farmers Market - Retail - 375
19. Home Depot - Retail - 310
20. Amoeba Music - Record, Tapes, Cds - 250

The remodeling of the Hollywood Palladium, the relocation of Live Nation’s headquarters to 6255 Sunset Boulevard, and the proposal to create a 115,000 sq ft campus for Emerson College at Gordon Street and Sunset Boulevard should also enhance the entertainment profile of Hollywood.

The scale of building is vast – there is currently $1 billion in construction going on in Hollywood. The fact that the entertainment and ancillary businesses will remain in this central neighborhood should give Hollywood its movie-legs for decades to come. [Park Labrea News/Beverly Press]

$100 million in Commercial Assets Hit the Auction Block

First came the distress in the residential real estate market. Now comes the commercial property distress. But don't look for foreclosure notices taped to the fronts of office buildings -- these upside-down buildings are going to auction block.

On July 30, over $100 million in commercial assets will be be sold at auction at the Hyatt Regency Century Plaza, including REO properties, bank-ordered sales, developer close-outs and others.

This liquidation event should attract deep-pocketed investors, who can benefit from the deep discounts being offered: some properties will be sold at up to a 90% off the original loan balance [Globest.com]

How Will You Hold Title To a Property?

The manner in which title to a property is vested may be simple, such as “John Doe, a single man.” Or, it may complicated (in California, at least), such as “Jane Doe and Jane Smith, a married couple as to an undivided 2/3 interest and John Doe, Sr., a widower as to an undivided 1/3 interest, as tenants in common.” When you buy a property, you should know how the property will be held for legal purposes.

The manner in which homeowners hold title to their properties has significant legal ramifications. Consequently, it's not wise to leave this important decision to chance.

Escrow agents will ask how you would prefer the title to read. But often the question isn't posed until you near the close of the sale, and by then it may be too late to give any real thought to your options.

* Tenancy by the entirety. In most cases, this is the correct way for married couples to hold title. In fact, it is available only to married couples. [Each state may have different regulations. In California, this is known as community property.]

* Tenancy in common. Under this alternative, each person owns a set but not necessarily equal percentage. And there is no right of survivorship. Thus, the decedent's share vests with whoever is named in the will. And unless the deceased holds his share in trust, it goes through probate just like the rest of his estate.

* Joint tenancy with right of survivorship. This is similar to tenancy by the entirety, except that the property is not protected from the individual creditors of each owner. Another potential drawback is that regardless of what the deceased's will says, his share will pass to the joint tenant.

* Sole ownership. For the most part, a single, unmarried buyer will take title as the sole owner in his or her name alone. It is sometimes known as "ownership in severalty."

* Trusts. There are many types of trusts, but the revocable living trust is probably the most common and useful for holding title to real estate. You convey title to a trustee -- who can be anyone, including yourself -- who manages the property on your behalf. [Los Angeles Times]

Broker Buzz: 6 Forces “Making” the Los Angeles Real Estate Market

Yesterday, the Los Angeles Times published its first article in years that had positive news about the Southern California real estate market.

Entitled “Home prices edge up for the 1st time in nearly 2 years”, the article celebrated the fact that in May, home prices in the five-county Southern California region edged up from $247,000 to $249,000.

But what does this increase in median price really mean? That the housing market has finally hit bottom? That prices are going up? That homes of all types are selling? That the housing crisis is over? Most likely, none of these.

Don’t get me wrong -- the increase in median home price should be greeted with as much fanfare as the Lakers’ win over Orlando. Any upward movement in price is good news – and should be greeted as such.

As a Broker I’ve seen first-hand how difficult it is to operate in a declining market where sellers and buyers find themselves on opposite sides of a price chasm which widens with each day.

But to understand what’s happening in the Los Angeles area, we must dig beneath the surface. Let’s take a look at the numbers:

Southern California's median home price rose slightly in May for the first time in nearly two years.

The $249,000 median price in May was up less than 1% from April's $247,000 figure, and marked the fifth-straight month the median has held at roughly $250,000, according to San Diego-based MDA DataQuick.

Homes priced at $500,000 and above accounted for 17% of Southland home sales in May, up from 15% in April, DataQuick reported.

In May, foreclosed homes accounted for 50% of sales, down from 54% in April and a peak of 57% in February.

May's price was a 51% drop from that peak, and it was down 33% from the May 2008 median price of $370,000.

The median home price in May essentially matched April's figure in Los Angeles ($300,000), Riverside ($180,000) and San Bernardino ($137,000) counties.

In brief, Los Angeles County prices are flat. In the area, fewer sales are foreclosures, more sales are over $500,000. How can we draw meaningful conclusions about trends in the market from Downtown to the Beach? What characterizes this “market”?

1. The “market” is hyperlocal. Palmdale doesn’t have much to do with Beverly Hills, Glendale or Glendora. From the median sale price Southern California region, you can’t evaluate what’s happening in your neighborhood. Block by block, street by street, neighborhood by neighborhood, different market forces come into play. Although there are many high-end homeowners in distress, the Santa Monica home market isn’t influenced by the sub-prime crisis the way it may be in the Antelope Valley.

2. The “market” is active under $900,000. What’s selling in Los Angeles right now? Properties priced under $900,000. Why? Because buyers can finance them with a conforming loan (under $729,750 for a single family home in Los Angeles County). Loan terms are excellent: interest rates were up until recently at 50-year lows (below 5%), and with federally-backed FHA loans, buyers can put down as little as 3.5% – with FICO scores as low as 620. Furthermore, the federal government has sweetened the deal with a first-time buyer credit of $8,000 (federal) and a new construction credit of $10,000 (California).

3. The “market” is slow over $900,000. Consider the purchase of home with a jumbo loan (over $729,750). Downpayment requirements are typically 30% of the purchase price – with excellent credit. Interest rates have been in the high 6% range. And buyers must have documentable income. The unavailability of loans has had a huge impact on homes priced $900,000 and above. The trend seems to be reversing, with increased purchases on the high end. However, there is still a two- or three-year backlog of homes priced $2 million and above in Westside or Hollywood Hills neighborhoods.

4. The “market” is molded by macroeconomic trends. Homebuying is about jobs, wages, the stock market and consumer confidence. Unless individuals have disposable income and reserves to make a home purchase, they will continue to rent or will stay in their current home. Job losses, salary declines and the recent pummeling in the stock market are shaping the market in a big way.

5. The “market” is lumpy, inefficient and irrational. People often talk about the real estate market like the stock market. Both go up and go down, peak, decline and hit bottom. But you can’t sell a home with the push of a button. You can’t live in stock. Both areas are prone to speculation, but people don’t buy stock for emotional reasons the way they may buy a home.

6. You are “the market”. Your decision to buy or sell a home, your attitude about buying or selling a home, your conversations about buying or selling a home is “the market”. “The market” is the collective mind-meld of buyers and sellers making decisions about buying and selling.

You’re reading this blog about real estate – what are your attitudes about buying and selling today?

Venice Market Round-Up -- March - May 2009

What’s happened in the Venice home market in the past three months? This neighborhood continues to attract buyers and everything from bank-owned bungalows to canal palazzos are selling.

There were 23 home sales in Venice in the March – May 2009 period, with a median sale price of $1,105,000.

The highest priced sale between March and May 2009 was 428 Linnie Canal, which closed at its $2,499,000 asking price after 31 days on the market. This 3 bedroom, 3 bath home features 3,000 sq ft of living area on a 2,849 sq ft, and was built in 2003. Rehabbed homes on the canals are trading at about $833/sq ft.
Rehabbed homes on the walk streets are trading at about $760/sq ft. 853 Amoroso Place, a 3 bedroom, 3.5 bath 3,017 sq ft home built in 2008 on a 3,330 sq ft lot sold for $2,295,000, below its $2,795,000 asking price, after 151 days on the market.


Plenty of modest properties also sold during the period. 931 Nowita Place, a 2 bedroom, 1 bath, 816 sq ft bungalow on a 3,400 sq ft lot sold for $675,000, below its $849,000 asking price, after 55 days on the market.

Venice experienced such a dramatic run-up in median sale price over the past real estate cycle, from $247,000 in 1996 to $1,150,000 for 2007 and 2008. Where does the Venice market stand today?

In spite of the hard times, the Venice prices remain at lofty levels. In the first five months of the year, the Venice median sale price dropped to $1,102,000, 4% off its high. Venice homeowners can breathe a sigh of relief knowing that prices on their home turf are holding firm.

The "Burton Corridor" in Beverly Hills?

Two new residential developments are coming to Burton Way in Beverly Hills. One, an eight-story mixed use complex with apartments, is being greeted with open arms. The other, a 14-story condominium complex, is bringing dissent to the Hills of Beverly.

The mixed-use complex, to be constructed at the intersection of Burton Way and La Cienega / San Vicente Boulevards, is the brainchild of Rick Caruso, developer of the Grove and the Americana in Glendale.

Caruso's plans to build an eight-story mixed-use structure on his lot, with 88 apartments and a ground-floor Trader Joe's, have been widely praised by residents who welcome the project as a smart addition to the neighborhood.

The condo building, on the other hand, has been given a cool reception.

…A tiered, 14-story condominium project planned for just north of Burton Way, along 3rd Street between Wetherly and Almont drives, has met with opposition from neighbors, who criticize the building's height and say that it is out of character with its neighborhood.

The 95-unit Wetherly Drive condo project, as it is known, replaces 84 units in seven older apartment buildings.

Genton [developer] -- and others -- stressed that the height of the property was in keeping with other buildings in the area, including the nearby Four Seasons hotel.

What’s really being disputed is the future of Burton Way, a major artery of Beverly Hills. Should it be low-rise or high-rise? Beverly Hills isn’t Westwood or Century City. Is it really desirable to build up? But the city must grow denser, with residential living on major corridors of public transport. We can’t continue to fill the streets with more cars.

Look for more discussion when Councilman-elect Paul Koretz takes office. [Los Angeles Times]

Los Feliz Market Round-Up: May 2009

What does it take to sell a home in Los Feliz in May 2009? Bank-owned, probate or trust status, or a low price in the Atwater Village or the Franklin Hills.

Only seven homes sold in Los Feliz in May 2009 (median sale price $637,000), down from sixteen home sales in May 2008 (median sale price $899,000), eighteen home sales in May 2007 (median sale price $974,000) and 31 home sales in the distant days of May 2006 (median sale price $1,150,000).


The top sale: an REO. 3431 Amesbury Road, a 4 bedroom, 4 bath, 4,306 sq ft Mediterranean home on a 4,800 sq ft lot sold for $1,469,000.

The second highest sale: a trust sale. 2366 Hobart Boulevard, a 1971 Mission-style teardown on a 12,260 sq ft lot at the top of Los Feliz states sold for $1,000,000.
The fourth highest sale: a probate sale. 5867 Tuxedo Terrace, a 2 bedroom, 1 bath, 1,016 sq ft English storybook-style house on a 3,484 sq ft lot, sold for $637,000. This home was featured in November 1927 issue of Sunset Magazine (for those who don’t have it lying around.)

In the Franklin Hills, 3827 Fernwood Avenue sold for $595,000. Two sales in Atwater Village were for less than $500,000.

What conclusions can we draw from these sales?

First, motivated sellers are making the market. Banks, trustees and courts that are rubber-stamping sales and responding to low offers are finding interested and motivated buyers and are closing deals.

Second, homes financed with conforming loans (under $729,750 in Los Angeles County) are routinely selling. One Beverly Hills escrow officer told this writer that 90% of transactions in her office are financed by FHA (conforming) loans.

Third, the jumbo mortgage market, with high-interest rates, high downpayment requirements and stringent underwriting guidelines is strangling the high-end Los Angeles market. In Los Feliz during March – May 2009, four houses sold for over $2,000,000. Currently, there are 31 houses priced over $2 million – a 23 month supply.

The market shows signs of perking up – there are currently 27 homes in either back-up or pending status with a median list price of $798,000. Three of these sales are over $2 million. Some of the back-up and pending sales will inevitably will fall out of escrow and higher interest rates may curb sales, but current activity is looking better than during moribund May.

How to Predict 30-Year Fixed Mortgage Rates

Click on graph for larger image

The financial wizards at The Calculated Risk and Political Calculations have created an algorithm for calculating 30-year fixed mortgage interest rates based on the 10-Year Treasury Bill rate. The correlation is strong.

So you don’t have to dust off your calculus textbook, Political Calculations has provided a cool widget which is better than an 8-Ball for forecasting future interest rate trends.

In broad strokes, a rise in 10-year Treasury Bill rates portends increases in the 30-year mortgage rate.

A Weekly Survey of mortgage rates is published by Freddie Mac.

Historical data on the 10 Year-Treasury Note.

Sunset Strip - Hollywood Hills West Market Round-Up -- May 2009

Twenty-four homes sold in the Sunset Strip – Hollywood Hills West market during May 2009, with a median sale price of $950,000 and an average 70 days on market.

During the previous two months, the median sale price was $1,400,000 and the average days on market was 50.

Attributable to the usual forces – unavailable jumbo loans for cash-strapped high-end buyers – houses in this neighborhood are taking longer to sell and are selling at a lower price point.

1615 Rising Glen Road, a 4 bedroom, 4.5 bath 1958 redone masterpiece, sold for $5,250,000 after almost a year on the market. The original list price was $9,980,000.
8262 Woodshill Trail, an updated 1991 4 bedroom, 4.5 bath home with 4,126 sq ft of living area on a 5850 sq ft lot, sold for $2,750,000, $245,000 below the asking price, after 161 days on the market.


More than half the sales traded hands below the $1 million mark. 8466 Kirkwood Drive, a 2 bedroom, 1 bath cottage sold for $480,000, about $20,000 below its asking price, after 78 days on the market.

There is currently a nine month inventory of homes $1 million and over in the Sunset Strip Hollywood Hills West area, the lowest number months of inventory since July 2007.

Silver Lake - Echo Park Market Round-Up: May 2009

Fifteen single family homes closed in Silver Lake / Echo Park in May 2009 with a median sale price of $499,000. A third of these sales were REOs or short sales.

Sales activity and median price have fallen since May 2008 when 26 homes sold with a median sale price of $755,000. (Yes, that’s a big drop in median sale price – 34%.)

During May 2008, eight sales were over $1 million and the lowest priced sale was $349,000. In May 2009, there was one sale over $1 million and the lowest sale price was $186,000. The drop in median sale price should not be equated with a 34% drop in values. The properties now selling are dominated by REOs and short sales, which have a lower price point.

Because of these low prices, competition is intense. The median days on market is an astonishingly low sixteen. (Five months of inventory – 150 days – is considered a balanced market)

First-time buyers and investors are stepping in and closing deals. In the past eight months, the percentage of properties in Silver Lake / Echo Park in contract has doubled. Sales are brisk and the inventory is getting burned off quickly.

Multiple offer scenarios are common. Unlike yesteryear, when there were bidding wars at the million dollar mark – now it gets competitive at $200K.
The most expensive sale was 2327 Hidalgo Avenue, which sold for $1,015,000 ($70,000 over asking price), after sixteen days on the market. This 1957 home has 3 bedrooms, 3 baths, walls of glass, and faces the Silver Lake Reservoir.

1339 Angelus Avenue, a short sale, sold for $650,000 after 196 days on the market. Reward goes to those who are patient: this 1,700 sq ft Spanish house on a 6,250 sq ft lot sold for $916,000 in February 2007. Buy in 2009 -- avoid a year negotiating with the bank -- and get 30% off!!!

30-Year Fixed Rate Punctures 5% Mark

The average contract interest rate for 30-year fixed-rate mortgages increased to 5.25 percent from 4.81 percent, with points decreasing to 1.02 from 1.28 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The 44 basis point increase in the 30-year rate was the largest since a 48 basis point increase in October 2008. [Mortgage Bankers Association]

This news sends a frisson down the spine of any buyer, seller, broker or loan maker. Much of the recent burst in residential sales activity was due to interest rates that were at 50-year lows around 4.75%. No more. The Obama administration may step in purchase mortgage-backed securities with the intent to drive down interest rates, just as they did a few months ago. But does Washington have the reserves to do so? If interest rates don't float down, look for further declines in prices.

Concerto: Pitch-Perfect Debut at 9th & Figueroa in Downtown LA

Presto! Concerto, the big, bold, new residential tower and loft complex at 9th Street and Figueroa in Downtown Los Angeles is open for business. Concerto has debuted in challenging times in the competitive neighborhood near Staples Center. High-end rival The Ritz Carlton residences is two blocks west and spanking-new-and-“green” EVO is two blocks south. How does Concerto stand up? Magnificamente.

Updated 8/9/09 -- the 77-unit Lofts building at 9th Street and Flower Street is having a one-day sales event on August 29, 2009. Studios start at $219,000 (738 - 782 sq ft). One bedrooms start at $279,000 (959 - 973 sq ft). Two bedrooms start at $449,000 (1,325 - 1,689 sq ft).

Updated 9/25/09 -- The Loft one-day sale event was a great success. All the units sold and there were hundreds of buyers disappointed that they couldn't take advantage of the advertised, low prices. (Turns out the prices were tweaked during the event and discounts were not all that deep.) A couple of new wrinkles in the picture: Concerto's funder Corus Bank was taken over by the FDIC and Sonny Astani declared Chapter 11 bankruptcy leaving the fate of the entire project uncertain. Next step will be a bankruptcy judge's ruling on how the loans, contracts and assets will be settled.

Sonny Astani’s ambitious project was initially greeted with skepticism (including from this writer). The scale of the project is enormous – a former parking lot occupying half a city block transformed into three residential structures, a one acre pool and common area, and street-level retail, with over 1,000 parking. Working against the developer are the residential real estate market and Downtown LA market which are in a fugue state. Several times Astani had gone to near-heroic ends to save this project when his financing fell through. Would he actually make it?

So far, so good. By offering what consumers demand today – quality and value – he should recoup his investment and hopefully make some returns. The design, layouts, finishes, and views are excellent. Concerto offers “something for everyone”: low-rise open-plan units in the Lofts, apartment-style units in the Tower, and floorplans of varying square footage.

The developer’s smartest move is pricing the units to sell. Prices start in the high $300,000s in the Lofts and low $400,000s in the Towers – not bad for new construction (and proposed LEED Certification) and a front row seat to LA Live.

Concerto is still under construction. The Lofts (low building, in foreground) will be completed within a few months. The Tower (illuminated, on left) will be completed a few months later. A third tower (illuminated, on right) exists only in plan. The footprint is excavated, but years may pass before the building breaks ground. The buildings all share a parking garage and a single common area.

Manhattanites may be accustomed to property shopping in a hardhat, but it’s still an unusual experience for Angelenos. Don your safety vest, goggles, white screw-top hat and ride the construction elevator to a Tower corner unit.

It doesn’t take much imagination to appreciate the views. All windows are double-paned. Even as the city roars below the units are quiet inside. Ceiling height is a minimum of 10’4” in the Tower and 9’ in the Lofts.

Facing west, you can a bird’s eye view of the Pantry Café, a Downtown institution serving 65 cent pancakes since 1924.

A one acre common area with a pool, cabanas, barbecue pits, walkways and Tai Chi garden separates the Tower (seen above, with reflecting glass) from the Lofts. The Lofts are on part with the Tower in terms of design, materials or construction quality. Some units face the common area like this 5th floor Loft unit.

Other Loft units face Flower and have open views of the cityscape. There are garage entrances to the complex on both Figueroa and Flower.

In both the Tower and the Lofts, appliances and cabinets are high-end and European. Kitchens and baths have stone countertops and ceramic tiles. Washer/dryers are included with the units. Many Loft units come with a partial curtain wall that slides to separate the bedroom from the living area.

Concerto is an outstanding addition to Downtown LA and in time will become a favored residence. The project’s only faults stem from the fact that the buildings – and the full project – are not completed. Buyers must wrestle with a few risks. What happens if the units don’t sell or go down in price before I close? What if the second Tower isn’t built, do my homeowner’s dues go up because the common area is supported by only two buildings? In these uncertain times, a completed development is different from a project under construction. Completion of construction in the not-too-distant future will help immeasurably in galvanizing buyer interest.

It is premature to judge the building’s prospects: Concerto’s doors opened only a few weeks ago. If interest rates remain low and the economy doesn’t take another unexpected turn, Concerto’s prospects could be bright. Curtain up, let the show begin.

Sold by Keller Williams Realty Los Feliz

100% Financing Back In Style thanks to FHA Loans

Did you think that 100% financing had gone the way of the ranch house? Think again. Thanks to the US government, buyers with as little as 3.5% downpayment (and/or low credit scores) can purchase a single family home, condo, or 2 – 4 unit property with an FHA loan.

The Obama administration has now sweetened the deal by allowing the $8,000 first-time buyer credit to be applied to downpayment or closing costs.

Starting soon, first-time home buyers nationwide will be able to turn their $8,000 federal tax credits into cash for use at closing if they use Federal Housing Administration mortgage financing.

But in its final guidelines issued May 29, the Department of Housing and Urban Development clarified that buyers obtaining FHA loans through private lenders would have to invest at least some of their own funds -- whether from personal savings or gifts from relatives -- in the form of a minimum 3.5% down payment.

You’ll be able to use the $8,000 tax credit for settlement fees, escrow charges, higher down payments or to "buy down" your interest rate to cut monthly payments.

To start, you'll need to qualify as a first-time buyer under the generous definition permitted by Congress -- that is, you cannot have owned a principal residence during the previous three years, and your household gross income cannot exceed $95,000 for single taxpayers or $170,000 for married couples filing jointly. [Los Angeles Times]

FHA loans have stringent underwriting requirements, so not everyone is going to qualify. FHA loan fees are higher than commercial loan fees – buyers pay 1.75% of the 1st loan principal to obtain the loan. On top of this FHA fee, there may be lender “discount” points. Mortgage insurance is required if the loan-to-value ratio is less than 78%. Monthly mortgage insurance for FHA loans is $45.80 per $100,000 of loan and is required for a minimum of five years.

In spite of these additional fees, FHA loans are outstanding deals for borrowers with low FICO scores or low downpayment. Interest rates are competitive, and if they go down homeowners can do a “streamline” refinance with lower fees than with a commercial lender.

Roll in the $8,000 first-time buyer credit that can be applied at closing – and many people who considered homeownership out of reach may find themselves with a new set of keys. These government-backed "no equity" loans may lead to a new round of foreclosures, but in high-priced Los Angeles County, they may also turn a new generation of renters into homeowners.

LA County Homes Priced 6% Below Norm

West Hollywood Foreclosure

Home prices in Los Angeles County have fallen so far that the measure of home affordability is now below historic norms.

The forecasting firm IHS Global Insight reported this week that Los Angeles County home prices are now 6% undervalued. Its calculations are based on home prices, interest rates, area incomes, population density, and historic premiums and discounts in given markets.

In Los Angeles County, 42% of homes sold in the first quarter were affordable to a median-income family, up from a recent low of 2% in the first quarter of 2006.

That is news to celebrate. Finally, the average home price in Los Angeles County is in line with the average salary. But wait, this rosy statistic doesn’t mean that prices have finished their fall. We are not living in average times and the average income has changed from yesteryear, in part, thanks to legislators in Sacramento.

California's inability to solve its budget woes is "so awful that it could create problems for business formation, which makes me really wonder about the prospects of job growth going forward [said Richard Green, director of USC's Lusk Center.]"

California's unemployment rate was 11% in April ... the fifth-highest rate in the nation.

What’s the bugaboo: jobs. High unemployment and a decline in wages have crimped the average household’s ability to make a home purchase. Buyers’ lack of job security and their inability to qualify for loans could cause the affordability index to tumble further.

Foreclosures will continue to exert their force on the market, further driving up affordability. Most foreclosures are formerly overleveraged, formerly over-priced home that eventually become affordable homes.

In the first quarter, 135,431 mortgage defaults -- the first stage in the foreclosure process -- were recorded in California…Foreclosed properties are typically sold at deep discounts by lenders who need to get the properties off their books, dragging all prices down.

Interest rates are the other storm cloud on the horizon. In the past two weeks 30-year fixed rates have risen from their 50-year lows below 4.75% to 5.25% or higher. Higher interest rates immediately dampen the market.

Two steps forward, one step back. At long last, prices don’t seem so high and buying opportunities abound. Hurrah! But the recession has sidelined many Buyers which may result in further price declines. Psshaw! See you at the bottom. [Los Angeles Times]

BlogPulse: Fear, Panic, Bears and Bulls

Thanks to our friends at Nielsen Blogpulse we're able to scan the blogosphere and see what percentage of blog posts mention a particular word or phrase. This x-ray of the collective conscious reveals some interesting trends.

The rout in the financial markets has led to much speculation about which direction the stock market is heading. Between mid-December and mid-February, the bull and the bear market were on equal footing, duking it out for supremacy.

Then the stock market plummeted, culminating in a multi-year low on March 6. On that day, triple the number of posts bemoaned the bear market than swooned for the bull market. About three months later, the S & P 500 is up 38% off its lows and the bears are in lock-step with the bulls again.

Did you know that people are 30% less fearful than they were six months ago? In December, 10 in 1,000 posts mentioned fear. Now, fear has eased and only 7 in 1,000 posts mention the f-word. There was a solar flare-like burst of fear around Christmas and New Years (Home for the Holidays?), but for the past five months fear has trended downward.

Panic has followed a similar trajectory to fear: a worrisome winter gradually gave way to a less panic-addled spring. Panic, like fear, spiked around the Holidays, but afterwards it began a slow hiatus. The world instantly hit the panic button around May 1 with the specter of the H1N1 pandemic. But like that wave of infection, panic fizzled into hibernation. At least for now.

With their job losses, home losses, investment losses, and losses in real estate equity, much of America has been put through the economic wringer. Seemingly overnight, wealth and security have evaporated and it will take a long time for people to recover from the pain.

But we are resilient. There has been plenty of bad news in all forms. Through it all, attitudes have remained remarkably stable. By a six-to-one margin, unchallenged, optimism trounces pessimism.

West Hollywood Market Round-Up -- May 2009

Single Family. Sales activity picked up last month – seven houses closed in the West Hollywood area in May 2009. The median sale price was $760,000, down significantly from the usual $1 - $1.2 million in 2008.

Only two sales broke the $1 million mark – and those two were barely over that amount.

554 Westbourne Drive in the “West Hollywood West” single-family neighborhood sold for $1,015,000 ($20,000 above asking) after only 5 days on the market. This 2 bedroom, 2 bath 1925 Spanish home has 1,380 sq ft of living area on a 3,889 sq ft lot.

On the east side of West Hollywood, 731 N Alta Vista Boulevard, a newly remodeled Spanish home with 3 bedrooms, 1.75 bath, 1,433 sq ft of living area on a 7,546 sq ft lot sold for $1,014,000 after only seven days on the market.

There are currently fourteen homes in contract in West Hollywood, and sales should continue at the current rate (or accelerate) within the next few months.

Condo. The condo market has also picked up. 26 condos sold in West Hollywood in May 2009, up from an average of 15 condos per month in the two previous months. The median sale price was $502,000 – down from $510,000 in March and April.

The three highest sales were at 718 N Croft Avenue -- $900,000, $890,000 and $840,000. Again, condo prices topped out at around $900,000. That doesn’t bode well for the scores of units priced above this level that are currently on the market.

There were also bargains to be had. A top floor, 1 bedroom, 1 bath, 855 sq ft rear unit at 1203 N Sweeter Avenue sold for a sweet $329,000 – close to the cost of renting (on a good day.)

Los Angeles Home Market: Lower Prices, More Sales

With all the recent hype about the market turning, we thought we’d check in with a stretch of “middle” Los Angeles to see what’s happening with the single family market there. Are rumors of bidding wars true or is it just bluster to cast wind into the sagging sails of SoCal real estate?

The news is not all bad. Sales are declining, but a lot less than a year ago. Prices are still coming down. The high end of the market is suffering, but buyers are out in force on the low end.

These charts look at the MLS areas Sunset Strip / Hollywood Hills West, West Hollywood, Beverly Center / Miracle Mile, and Hancock Park / Wilshire. The area covers the Hills and the Flats, and stretches between Doheny and Western, Mulholland and Wilshire.

The 12-month moving average of sales has been trending down to roughly 600 sales a year from 912 sales seventeen months ago. This is a reduction of over one-third in sales activity. The rate of decline has been slowing and the curve is flattening out and appears to be heading for a bottom within the next 6 – 12 months. When sales activity hits a bottom, prices also tend to hit a bottom.

The median sale price is down in this area. Not a big surprise. The decline has been from approximately $1.35 million in January 2008 to $1.12 million in May 2009, a 17% decline in seventeen months – or a neat average of 1% a month.

What are the causes of the median sale price decline? The usual suspects: high-interest rate jumbo mortgages (over $729,750 in LA County); high downpayment requirements and difficult underwriting guidelines for jumbo mortgages; job losses; and sales of short sale and foreclosed properties creating a drag on the market.

When looking more closely at sales activity, we learn there are two markets and the break-point between them is at about $1.2 million. Properties under $1.2 million are selling, while properties over $1.2 million are sitting.

Up until March of this year, the entire market was bad. Fewer than 10% of properties were under contract (and often significantly less). In the past two months, sales under $1.2 million have skyrocketed. In May, over 21% of properties priced $1.2 million and under were in contract, triple the percentage of three months earlier. There is a sales boomlet going on.

Interest rates have crept up in the past week, and boomlets can easily become derailed. But there are signs that, day by day, things are getting a little less worse.