March 6, 2014

A Drive For Higher And Higher Profits

The Mercury News reports from California. “Imagine paying $1 million or more for a home — and then destroying it. That’s what’s happening in some upscale Bay Area communities as homeowners and wealthy buyers have no interest in upgrading aging houses but instead want to start from scratch and build all-new custom homes. Investors are responsible for some of the scrapped lots. Mark Wong, an agent with Alain Pinel Realtors in Saratoga, said a Cupertino tear-down that costs $1.2 million can be replaced with a 3,500-square-foot custom home for about $1.9 million, he said. ‘Eventually, they can sell it for $2.5 million to $2.6 million and make $500,000 to $600,000 profit in 6 months or less. Not a bad return, and they will repeat this flip process over and over again.’”

The Associated Press. “More than 2.3 million adult children are living with their parents in California, a 63 percent increase since the Great Recession began seven years ago and a phenomenon straining budgets and pushing some families to the brink of poverty. Researchers from UCLA and the Oakland-based Insight Center for Community Economic Development say job losses, home foreclosures and divorces are among the factors driving hundreds of thousands of adults to return to their childhood homes. In many cases, those homes are headed by parents who are approaching or in retirement and are living on fixed incomes themselves.”

“‘There were 433,000 older adults, age 65 and over, who housed approximately 589,000 of those adult children,’ the researchers said in the report released by the UCLA Center for Health Policy Research. Those figures were generated from federal census statistics, said the report’s lead author, Steven P. Wallace.”

“They estimated that an older couple living with one adult child would need about $54,000 a year to live in San Francisco. In Southern California’s Orange County, the cost would be about $52,000, and in San Diego County it would be $48,691. In less expensive areas like San Bernardino and Riverside counties, it would still be about $35,000.”

“Wallace said California residents shouldn’t expect adult children will move out any time soon. ‘Right now the economy isn’t generating jobs fast enough to soak up a lot of the people who have either lost their jobs or are coming into the job market,’ he said. ‘The near future looks like the numbers are likely to remain stable or grow.’”

The Signal. “Following a statewide trend, sales of existing Santa Clarita homes slowed in January, according to numbers released by the Southland Regional Association of Realtors. ‘Investors played a big part of our market last year, but in mostly short sale opportunities. As we saw a decrease in short sales, the return on investment has decreased,’ said Cherrie Brown of HomeSmart.”

“While home sales in the Santa Clarita Valley were the slowest since 2008, median prices were just $27,000 shy of the prices recorded when the market crashed that year. ‘We are still riding the 16-22 percent increase in prices that we observed between February 2012 and October 2013,’ said Connor MacIvor with Remax. ‘Buyers that did not or were not able to buy in 2012 and 2013 are not too excited about the increase in prices and many have been ‘priced out’ as a result in the current market.’”

The Press Enterprise. “Investors bowed out of the Inland Southern California and national homebuying scene in January in bigger numbers. According to RealtyTrac, California’s percentages of institutional investors fell to 2.1 percent from 7 percent in January 2013. Real estate transactions in January across the Inland region of Riverside and San Bernardino counties had a big hand in driving those numbers down: The pool of buyers who were institutional investors fell in January to 1.4 percent from 11 percent in December.”

“RealtyTrac VP Daren Blomquist said the January sales numbers offer early evidence that large institutional investors backed by private equity are starting to wind down purchases of homes to rent. ‘Median prices are too high in the Inland Empire, and inventory is scarce,’ Blomquist said. Another reason for the sizeable percentage drop was the 62 percent decline in foreclosure activity in 2013, Blomquist said, in part because of the hiatus in take-backs as lenders reacted to the new Homeowner Bill of Rights.”

“‘We expect to see a rebound in foreclosure activity from those artificially low levels,’ Blomquist said.”

“This headline definitely caught my eye: ‘The Boomerang Veers Off Course.’ It appeared in a March 4 newsletter by Irvine-based John Burns Real Estate Consulting, as Sean Fergus makes the point that of the 5.3 million households that lost a home to a foreclosure or short sale from 2007 to 2013, many are regrouping to become homeowners again.”

“But with FHA loan limits falling $144,650 in the Inland region to $355,350 this year, he predicted that renters hoping to become a boomerang buyer in 2014 and beyond could be disappointed. FHA-backed loans are common in the boomerang buy-pool, he says. Many in the industry agree the limit that was lowered from $500,000 could keep that boomerang moving in a straight line across Inland Southern California for some time.”

“Organizations led by the California Reinvestment Coalition say the frothy homebuying activity has dredged up new concerns. The coalition is afraid that private equity, federal agency-led bulk sales of foreclosed homes and distressed mortgages and all-cash investor purchases are squeezing out first-time buyers, displacing tenants of multi-family housing units and causing neighborhoods to undergo dramatic change.”

“Kevin Stein, associate director with the coalition, called on federal regulators to take action to get ahead of this problem. ‘There are some eerie parallels between what’s happening now and the mortgage meltdown,’ he said in a statement. ‘In both cases, the overarching similarity is a drive for higher and higher profits.’”

The Desert Sun. “The short supply of houses and condos for sale in the Coachella Valley, a squeeze that was typical over the past year, gained breathing room in January, two new housing reports show. Inventory increased to 2,948 single-family homes and 1,289 condos for sale in January. The swell is an uptick from 2,690 homes and 1,269 condos in December, according to a report from the California Desert Association of Realtors. Last year, the supply across the desert had hit a low point of 1,950 homes and 866 condos in July.”

“The median price of total homes and condos dipped 4.6 percent to $260,000 in January. But that figure is still a 17.6 percent spike from a year ago in January 2013, according to DataQuick. Total sales across the valley sank to 761 in January, down 12.8 percent from December and 4 percent from January 2013.”

“Clark Hallren, a HK Lane luxury real estate agent, said many $1 million-and-up property sales were improving but not robust. Depending on the neighborhood, luxury homes could sit for 90 days or up to six months, he said. Some luxury buyers may make decisions based on a property’s value to a financial portfolio, as opposed to it being a primary residence.”

“As home price appreciation slows, more people may put their homes on the market to take advantage of more equity, Hallren added. ‘Looking year over year, listings are up a bit, because people may believe the strong increases we’ve had over the last year aren’t likely to continue,’ Hallren said.”

Bits Bucket for March 6, 2014

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