The lack of supply on the MLS is becoming a serious problem. Buyers are getting burnt out and frustrated because they are unable to make a deal. Bidding is so aggressive — and so foolish — that 50% of deals fall out of escrow due to either a low appraisal or the borrower’s inability to obtain financing. The demand is still tepid by historical standards, but the supply is so constricted that lenders have considerable leeway to increase their foreclosure liquidations and still enjoy rising house prices. Perhaps as a response to current market conditions, lenders increased the number of properties they bought at auction and that they allowed to go to third parties by more than 10% over June’s numbers.
Before we make too much of the new numbers, Sean O’toole reminds us these numbers are volatile:
“While we are as curious as anyone to see the direction foreclosures are headed each month, it is important to keep things in context,” stated Sean O’Toole, Founder & CEO of ForeclosureRadar. “It is not unusual to see the number of Foreclosure Filings or Foreclosure Sales go up or down 10 percent or more each month. Whether it’s due to the length of the month, holidays, or internal delays at a lender, trustee, or posting company, it is completely normal to see fluctuations. What’s important is the bigger picture. This is the primary reason why we have made trend charts freely available. So take a minute and click the links below to view all the foreclosure stats and trends for each state we cover. Then drill down to any county, city or ZIP code – seeing the big picture is that easy.”
Lenders held steady to the rates at which they are filing notices. Perhaps they believe they have arrived at a new equilibruim that allows them to dispose of REO without crashing prices.
The consistent but slow liquidation of REO is ongoing.
Very soon lenders will reach a point where inventory is only what is held in their processing pipeline — a pipeline that continues to grow as they continue to increase the amount of time they hold their properties.
The trends in Orange County were much the same. Foreclosures were up overall, but sales to third parties actually declined.
The increase in filings was more pronounced as well.
Santa Clara and Alameda Counties
Though the raw numbers were still small, the increase in Santa Clara County is remarkable.
Alameda County saw a similar increase.
Connection between foreclosure and MLS inventory
Lenders are the housing market. Through direct sale of foreclosures and indirect approval of short sales, they control most of the housing market. Perhaps as prices move higher more discretionary sellers will come to market as they emerge from the depths of their debts, but until then, lenders control the supply of housing available on the MLS. One thing that jumps out from these numbers is the dramatic decline in properties that are going back to the bank on a year-over-year basis. Each chart shows that lenders simply stopped foreclosing in February which makes for fewer REO. The removal of this REO is responsible for the lack of available housing now.
It’s also remarkable that a cartel of lenders has been so successful at limiting inventory. Cartels are inherently unstable as each member has incentive to cheat to take advantage of higher prices. Perhaps the resolve of some of the members may weaken as prices rise, and they will bring more properties to the market to hasten their liquidations. Right now, they are surprisingly successful at managing their dispositions. After holding it together for over five years now, I begin to wonder if they might pull it off and avoid a Las Vegas like crash in our fragile coastal California markets. So far, they have.
Lost in Wonderland
Whenever I come across a really, really large HELOC abuse property, I Google the name of the former owner. I have found restauranteurs, lottery winners, and other not-so-famous former owners who just blew the money. Today’s featured property used to be owned by a person who shares the name with a founder of Wonderland Bakery. Perhaps it’s just a coincidence, or perhaps she overextended herself to start a business for her daughter and lost her house. Apparently, the bakery business isn’t doing well enough to pay off the $4,162,000 debt she racked up on the property.
- This property was purchased on 8/9/1996 for $985,000. The owner used a $765,000 first mortgage and a $220,000 down payment.
- On 5/14/1999 she opened a $100,000 HELOC.
- On 2/6/2002, long before she founded the bakery, she refinanced he first mortgage for $1,106,000. The Corona Del Mar lifestyle can get expensive.
- On 6/6/2002 she obtained a $250,000 HELOC.
- Then on 4/21/2005 she refinanced with a $2,421,875 Option ARM and obtained a $678,125 HELOC. That’s nearly $2,000,000 in mortgage equity withdrawal in one pop. Wonderland Bakery opened in the fall of 2005. Coincidence?
- She wasn’t done borrowing. On 10/24/2006 she refinanced with a $3,300,000 first mortgage.
- On 5/2/2007 she obtained a $862,000 HELOC. Both of the last two loans from WAMU.
- Total mortgage debt was $4,162,000. Total mortgage equity withdrawal was $3,397,000.
That’s a lot of dough.
We're sorry, but we couldn't find MLS # U12003186 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
Proprietary OC Housing News home purchase analysis
$2,855,000 …….. Asking Price
$985,000 ………. Purchase Price
8/9/1996 ………. Purchase Date
$1,870,000 ………. Gross Gain (Loss)
($78,800) ………… Commissions and Costs at 8%
$1,791,200 ………. Net Gain (Loss)
189.8% ………. Gross Percent Change
181.8% ………. Net Percent Change
6.5% ………… Annual Appreciation
Cost of Home Ownership
$2,855,000 …….. Asking Price
$571,000 ………… 20% Down Conventional
4.14% …………. Mortgage Interest Rate
30 ……………… Number of Years
$2,284,000 …….. Mortgage
$552,673 ………. Income Requirement
$11,089 ………… Monthly Mortgage Payment
$2,474 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$714 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
$14,277 ………. Monthly Cash Outlays
($1,659) ………. Tax Savings
($3,210) ………. Equity Hidden in Payment
$837 ………….. Lost Income to Down Payment
$734 ………….. Maintenance and Replacement Reserves
$10,980 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$30,050 ………… Furnishing and Move In at 1% + $1,500
$30,050 ………… Closing Costs at 1% + $1,500
$22,840 ………… Interest Points
$571,000 ………… Down Payment
$653,940 ………. Total Cash Costs
$168,300 ………. Emergency Cash Reserves
$822,240 ………. Total Savings Needed
The property above is available for sale on the MLS.Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
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