One Block looked at the financial health of a group of fairly upscale houses on Dancing Aspen in Damonte Ranch. Average purchase price was about $420,000 at the peak. I was pleasantly surprised that most of the loans were pretty good (5/25 or better), and at least 70% brought 10% or better to the closing table.
I just repeated the exercise on a decidedly below median neighborhood. Thought I would be able to get snarky about the ignorance of the first time buyer, suicide loans, predatory lenders, the whole shebang. Meet Ginkgo Court in Woodland Village Phase 13. 20 homes that sold new right at the peak in mid 2005 for an average of $280,000 when the median was hitting $335,000.
I’ve referred to Woodland Village as being the Sam’s Club version of Somersett in the past, but I actually admire them for for creating a livable, family oriented community for the entry level buyer. And bar none, Woodland does the best job of explaining upfront the buying process, what you get, what you don’t, and what you need to know of any developer I have run into.
70% of the buyers on this block brought at least 10% to the table. 65% of the first loans were at least 5/25. If anything, the naive first time entry-level buyers on Ginkgo brought greater down payments and have generally more conservative loans than the sophisticated move-up buyers on Dancing Aspen. Even so, one of these 20 homes is an REO today, and 2 more have NOD’s (one typical 80/20/out on a 2/28, one HELOC abuse, and one was the most heinous sub-prime reset I’ve ever seen).
So what’s my point? The below median homes like Ginkgo have been hammered with defaults and falling values despite the owners having pretty sound initial equity and decent loans. Woodland Village is actually holding up better that the train wrecks of Eagle Canyon and Sky Vista. The volume of sales in the below median sector is starting to stabilize that market. I can’t help but feel that above median neighborhoods like Dancing Aspen are going to follow Ginkgo down the the slippery slope, and are next in line for a bruising. Sure, there are some isolated deals, REOs and short sales happening in the upscale neighborboods, but nowhere as sweeping as what has happened in the entry level neighborhoods. The sales statistics above $300,000 have been pretty pathetic. Is the next trend the "move down" buyer?
Paul
Another interesting data set would be Fallen Leaf at Galena Condos. Most of the project sold in 05 -06 at 320k to 380K for the 2-bedroom units. Recently the developer has sold the few remaining units at 230k to 250k. Everyone who borrowed more than 70% has to be underwater at this point. There are several bank-owned units that will undoubtedly re-set the comps even lower when they are liquidated.
inclinejj
How many condos left at Fallen Leaf..I went by a couple months ago and about 30 where unsold..
Lots of units for Rent on Reno’s Craiglist
Reston
“Everyone who borrowed more than 70% has to be underwater at this point.” How many people who paid $350K put down $105,000? Perhaps none.
Probably 95% of the buyers who bought at Fallen Leaf are upside down. They just don’t know it yet.
This is why we are years, not months, away from the bottom. It may be 2012 before developments like Fallen Leaf finally bottom out.
Reno Ignoramus
“Is the next trend the ‘move down’ buyer?”
Somebody pointed out recently that about 55% of all sales now are REO. So, those sellers are banks who are not “moving” anywhere. I guess we must assume those former “owners” are now renters.
Of the remaining 45% of sellers, who are human beings and not corporations, how many are short sellers with no equity to move up or down? Put them in the renters category also.
Of the remaining human being sellers, who are not short sellers, how many have already taken out their equity in the form of a HELOC? Put them in the renters category also.
Recall that 70% of all sales now are under $300K. So even if you have a human being seller who is not selling short, and did not HELOC away all the equity already, how much dinero is coming out at the close of escrow after paying off the existing loan, seller’s costs and fees?
I think it’s pretty clear why the upper end of the market is dying on the vine. The “move up” buyer is becoming extinct.
Nomie
I have been reading this blog for quite a while. I appreciate the (usually) accurate insight and info presented here by the posters.
The comment by Reno Ignoramus is very insightful. It had not occured to me that only 45% of sellers now are real people and not impersonal corporations. So last month only about 150 sellers were real people and about 180 sellers were corporations.
Corporations are not going to be ‘moving up’ and so now about 55% of all sellers just disappear from the market. Interesting.
SkrapGuy
I think RI’s point is that more than 55% of sellers are ‘disappearing’ from the market. Surely of the human being sellers that now comprise 45% of the sellers, some percent of them have no equity in their peoperty and will net esentially nothing out of close of escrow. Now that lenders require a down payment, these sellers are also ‘disappearing’ from the market in the sense of being turn around move-up buyers.
The so-called move up buyer, if perhaps not yet extinct, is on the endangered species list.
John Newell
I am not intending to be alarmist (well, not completely), but the data strongly suggest that REOs will continue to be a major factor in the market well into the foreseeable future. We will be at the mid point of May tomorrow, and May NODs are already at 301. In comparison, April NODs were only at 257 by mid-month (on the way to 513 total NODs for April). Sure, filings could taper off, but that is not what I have seen in past months. And despite hope that the banks/servicers were finally getting serious about loss mitigation, the May TDs are already at 88.
Now, over the past year, it appears that total TDs filed are roughly 35% of total NODs filed. If May NOD filings continue at the current rate, we will have 600+ NODs, which then would be translate to 200+ TDs six months from now, if all things stay the same. Yes, Congress and the banks are promising relief before the summer carnage, but even if Congress manages to pass a relief act that does not make the situation worse, and even if servicers decide that loss mitigation is more than just a buzz word, it seems likely we will be seeing 100+ TDs per month well into 2009. How can the Reno market continue to absorb these numbers when there are fewer and fewer qualified real buyers? If anyone believes it can, I would love to see the numbers that support such an assessment.
John Newell
We (or perhaps just I) need an edit function.
“which them would be translate to 200+ TDs six months from now if all things stay the same,” should read, “which then would translate to 200+ TDs six months from now, if all things stay the same.”
Reno Ignoramus
Well, John, that’s why a major real estate office in Reno has established an REO division as I posted about on the other thread. As I said there, I make no prediction about how many REO properties we may see on the market heading into 2009, but it looks to be in the thousands.
I agree with you that the combination of ever increasing REO properties and decreasing qualified buyers does not look promising for the market. Where are the buyers going to come from, especially for the higher priced properties?
Please just don’t tell me Rich Chinese and/or Rich Middle Eastern buyers. We are way past the time for realtor spinjive.
GreenNV
Thanks for stealing my numbers for Friday’s post, John Newell! Remember that at least 10% of NODs are duplicates – 2nd loans, HOAs, tax seizures. The percentages of PROPERTIES going TD is higher than the gross number would indicate. Are you getting the feeling that NOSs and TDs are slowing up a bit, even with the escalating NOD numbers?
Just want to clarify a couple points from previous posts. Per Guy’s figures, only 10% of LISTINGS are REOs, and about 15% are short sales. So there are a few more living “sellers” out there than IR’s figures, for what it’s worth. Though his commentary is no less poignant for this, and I agree with him. 55% of CLOSED RESALES in March were REOs, not listings. About 10% of the listings are creating 55% of the sales. That is really scary if you are a realtor in the upper end market these days.
I’ve found a great program for at least spell checking entries onto blogs or any other online postings. It is http://www.iespell.com/download.php. It sits on my toolbar, and basically allows me to spell check anything that I am entering into a field. A must have for any Oracle!
GreenNV
Sorry, even being a demi-Diane, I can’t edit a comment. The link didn’t work. Just try http://www.iespell.com and search for free download.
John Newell
Sorry, Mike. I didn’t mean to steal your numbers.
I am not sure what to make of the NOS and TD numbers. The feedback I am getting is that banks/servicers are more willing to find alternatives to foreclosure, but we seem to be on pace to equal April’s TD numbers in May.
Reno Ignoramus
Hi Green,
I intentionally limited my comment to actual closed sales. I think it significant that of actual closed sales last month, 55% of the sellers were banks. So, take 55% of sellers out of the pool of potential “move up” or “move down” buyers. The banks are not “moving” anywhere.
Also, as I think we all know by now, just because somebody is taking up space on the MLS does not make them a seller. You, among others, have eloquently described the delusional nature of many many “I don’t really have to sell” pseudo-sellers. Many of these deluded will never sell their house. So I didn’t count them as sellers for the purposes of my post. A seller is a person who has actually closed escrow. As thus defined, 55% of them are not human beings who are going to be “moving up or down”. If another 15% of sellers were human beings selling short, they are not going to be moving up or down either. So, I suggest that about 70% of all entities, human or otherwise, who are selling these days are effectively out of market as new buyers.
To quote you: “that’s really scary if you are a realtor (or seller) in the upper end market these days.”
RoyalFlush
Newsflash….This just in….
Two homeowners on Dancing Aspen just made their mortgage payment – on time!