Wednesday, July 02, 2008

Manhattan Beach-Beach Cities: Foreclosures... What's Happening in the South Bay

Hermosa Beach Walk street homes

Gas prices are through the roof, the value of the dollar has dropped significantly over the last few years, the credit markets are still in distress as banks and other financial institutions continue to point fingers while trying to cover their tracks, the housing market is in serious trouble in a number of communities and the stock market just doesn't have a clue. No question as a nation we are in some serious economic trouble.

Since I started this blog I've written a number of posts... 475 to be precise. Since 2005 I've noted two items in many of these posts... interest rates can go up and we will have our share of short sales and foreclosures. California has some of the most expensive real estate in the nation. The affordability level of housing in California, especially in LA County and Orange County is one of the lowest in the nation.

California real estate markets are cyclical.. they run in 7-10 year cycles. Most people who take the long view on real estate do well. Those who get caught in the "flipping" mentality don't. Economic pressures outside of our control.. wars, recessions, commodity prices, stock market crashes can and will affect the housing market because they affect our everyday lives.

In the South Bay a decline is sales from historically record numbers is touted as the end of the world. However as bad as our numbers seem, they are a whole lot better then other communities in Los Angeles County, the State of California or the entire country for that matter. It doesn't mean we won't see our share of housing related problems. We are certainly seeing a number of short sales and foreclosures in the South Bay. Fortunately the beach Cities are still not seeing large numbers of REO's(real estate owned by banks). Fortunately it seems that coastal areas always seem to do a bit better then other communities.

Two foreclosure properties recently hit the market.. one in Manhattan Beach and the other in Hermosa Beach. The one in Manhattan Beach is a 2 bedroom townhome on 12th St that is listed at $575,000. The one in Hermosa is on Longfellow and is listed at $1,049,900. Prices on both seem to be good. One of my clients made an offer on Longfellow in Hermosa... although not full price. The lender countered at full price. The one in Manhattan Beach seems to be a good price and should wind up with a number of offers as it is a great entry level townhome.

After my clients made their offer on Longfellow I was curious about what was happening in the Beach Cities REO market. I contacted Southland Title who gave me information on foreclosures that have been recorded in the Beach Cities of Manhattan Beach, Hermosa Beach, Redondo and El Segundo in the last year. While the information seems accurate as of June 2008, there may be updates later which will change these numbers slightly. The title company figures are for all properties.. not just homes and townhomes/condos.

I also checked Real List tax service on our MLS for NOD's(Notice of Default) and for Notice of Trustee Sale. Historically fewer then 10% of all NOD's reach foreclosure but I think the numbers will now be closer to 50%. A Notice of Trustee sale is more serious. This is usually issued after the lender has gone through all legal requirements and is ready to take back the property. I don't know how many of these actually go to sale but would guess it's about 70% in the current market. Often these are issued while a property is in escrow. The lenders issue them just in case the escrow falls apart and they want to go forward with a sale. The numbers are for 2007 to June 2008 but I didn't break them out by year. I did however break out the REO figures from 2007 and to the current date June 2008.

Here's how it stacks up:
NOD's and Trustee Sale Notices: Beach Cities: 2007/2008

REO's : Beach Cities 2007-June 2008

Oh.... and just in case you think these numbers are disastrous.. you might want to check out the top 25 Foreclosure Zip Codes in Los Angeles County. You can find information about any county in California. While the numbers are not as up to date as those from the Title company.. they are fairly close. You can check out the Beach Cities Zip Codes there as well. The total number of foreclosures for all the Beach Cities in 2007 was 31. so far this year there are 33. If that number triples to 99 by the end of the year we will still be well below other areas of the County and the State.

Los Angeles County: Top 25 REO Zip Codes as of June 2008:


Anonymous said...

It does appear the stress is beginning to hit the south bay. I agree that the coastal communities will weather the storm the better than other areas of the city and state. The real question is how big the storm is....are we going through a strong tropical storm or cat 5 hurricane?

Here is what the informed people in the South Bay, nice areas of Pasadena, coastal OC etc, are monitoring

"Data on Subprime and Alt-A"

The Alt-A option arm reset wave is coming. It is hitting against a backdrop of a worsening economy. How this impacts the highly affluent south bay?....I haven't a clue but we are going to find out probably by this time next year.

Kaye Thomas said...

Anonymous 9:43,
There are two views on Alt-A resets..
One is that everyone who has one of these loans will be in foreclosure as soon as they re-set..

The other is that as many of these loans are tied to cost of funds which is on the low side... the interest rates will be lower then anticipated and in fact not be much of a factor at all.

Truly I don't know either.. and you are right we will know for sure by next year.

Anonymous said...

Hi Kaye,

Thanks for the response. My thinking is that this will hit the move up buyer into the South Bay more than the South Bay itself. We will see. The early prognosis is not good. LEH is already seeing some stress very similar to Subprime

"The rate of option ARM delinquencies is already spiking"

"According to a recent analysis by Lehman Brothers, option ARMs that originated in 2006 performed about as well as fixed-rate Alt-A debt for the first 12 months. But by the time they were 2 years old, about 2.1% of performing loans were going 60-days delinquent each month. Compare that to a 1.2% of current loans going delinquent with other Alt-A loans. The rate of increase in delinquencies is even beginning to approach that of subprime, which is about 2.5%.

“It’s a better quality borrower but the rate of increase in delinquency is looking closer to subprime than Alt-A,” said Akhil Mago, the head mortgage credit strategist for Lehman Brothers, said."

Kaye Thomas said...

Anonymous 11:42,
I'm sure there will be problems with option ARMS.. these loans should never have been given to anyone for the asking.

Option ARMS can be good for a certain group of consumer.. those with good financial backing who have a special need for the product.

Unfortunately like stated income this is another product that was given too freely to people who didn't understand the concept and had no business getting this loan.

Negative amortizing loans are not for people with limited financial resources on a fixed income. I can count on one hand the number of consumers who know how to use these loans to their advantage.. the rest get into trouble within two years.

This is not the first go-around with these loans.. we saw them in the late 80's and 90's... you can call them anything you want but what they are is a negative amortizing loan.

I've written a number of posts about the dangers of these loans and have talked to clients 'till I'm hoarse about what can happen with these loans.. sadly not everyone listens.