wright report q2 2010

8/8/2019 Wright Report Q2 2010

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Second Quarter, 2010

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Table of Contents

Table of Contents ............................................................................................................ 4

Overview: ....................................................................................................................... 5

New Homes:.................................................................................................................... 6

Foreclosure Numbers ...................................................................................................... 7

REO (Foreclosures): ........................................................................................................ 8

Banking: .......................................................................................................................... 9

Commercial Real Estate: ............................................................................................... 10

Single Family Residence: .............................................................................................. 11

Multi-Unit Investments (Duplex, Triplex, Fourplex): .................................................... 12

Zipcode Price Change Report: ....................................................................................... 14

Resources and Methodology .......................................................................................... 32


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Overview:The Winds of Change : Through an ever widening sea of economictroubles can be seen the lighthouse that offers guidance to the wearytraveler and a change of fortunes for those who follow its call. Yes,the difficulties are pervasive, but without them we would not havepossibly the most unique investing market & buying opportunityof our lifetime . Never before have we seen so much troublestorming on every side, and never before has the potential for returnsbeen so rich. Interest rates are at all time lows , inventoryabounds, prices are down 50% +, and buyers are hesitant! Whatmore can be desired than to buy at the bottom of the market and ridethe real estate wave of the century!

5,119 SFR (Single Family

Residences) sold during thesecond quarter of 2010 (Q2-10) with an average priceof $211,795 . That is up7.3% from the secondquarter 2009 (Q2-09) -$197,367- and 6% from thefirst quarter 2010 (Q1-10)which had an average priceof $199,677. The averageshome took 58 days to sellthough 34 % sold the first 14days on the market (17.7%in the first 7 days and 17%more the second 7 days).

The median price in Sacramento County in June 2010 was$194,000 , a drop of almost $198,750 (50.6 %) from the high inAugust 2005. This is, however, higher than March 2009 where themedian price hit a low of $167,000. During the same time the US hasexperienced much less of a decline with only a 25% drop in median

prices since the high in late 2005 to $183,700. Many economicprognosticators predict further price declines before the end of theyear as the job market continues to lose jobs and unemploymentremains at 9.5% nationwide, and 12+% in Sacramento locally.

One thing had a very dramatic affect on the real estate market inQ2-10: it was the Federal Tax Credit that ended in April 30, 2010.Not only did it cause price increases (6.6% rise from March to June


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2010) but most of the properties that sold up to June 30 fell underthat tax incentive program. It is expected to have the opposite effecton the market in Q3-10 as demand decreases and inventoriesrise .

Inventory is on the rise . The number of properties for sale on themarket at the end of Q2-2010 is 7,131; an 11.9% increase from 3months previous (6,373). Homes for sale by equity seller rose25.5% , and REO numbers grew 27.9% during the second quarter.This occurred for several reason: demand is decreasing due to end of the tax credit, school starting, continued unemployment, tougheconomic conditions, general hesitancy regarding the governmentsnext move, heightened lending underwriting and restrictions, andincrease in the number of foreclosures by banks and REO sales.

New Homes:

Following the end of the federal taxcredit in April estimates of new homessales for 2010 plummeted for theyear more than 30% in May (estimating300,000 units sold across the nation)only to rise in June 10% to 330,000.That is still an 80% drop below the1,470,000 homes sold at the high in2006. Obviously we will not know theactual number sold until 2011.

With 30,000 new homes selling in June

(97,000 in Q2-10) and 213,000 homescurrently in inventory there is 7.1months of housing stock. These aresome of the lowest numbers for newU.S. homes sales since 1970 . Currently the average price for a newhome is $242,900 and the median price is $213,400 .


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Foreclosure Numbers

1.65 million homes across the U.S. received some sort of foreclosure filing in the first of 2010. That is a 5% drop from thelast of 2009, and an 8% increase from the first of 2009. Itappears banks are getting more aggressive in taking properties back.

Looking back to2008 and 2009 itappears there wasa concerted efforton the part of banks to hold off foreclosure filingsand trustee salesin an effort tostem the freefall of prices. Bylimitinginventory they

reduced thenumber of distresses properties on the market and by reducing supply met thedemand that existed. Prices seem to have stabilized in 2009 andbanks appear to be more willing now to foreclose and liquidateinventory.

In June 313,841 US properties experienced foreclosure filings. Thiscounts more than 16 months of filings over 300,000 and it will notlikely be the last month to do so. In California alone 340,740 homes

received some foreclosure filing during the first half of 2010. Add thisto the nearly 7,000,000+ mortgages across the U.S. that are 30 daysor more delinquent, and the fact that Fannie Mae and Freddie Macended the first quarter 2010 owning some 164,000 houses .


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REO (Foreclosures):

All of 2009 saw a reduction in foreclosure activity for SacramentoCounty, and the numbers still have not come up significantly. In June 1,524 NODs (Notice of Default) were filed in Sacramento County,down 43.4% from June 2009. 1,888 NOTs (Notice of Trustee sales)were filed in June more than 12% higher than June 2009.Foreclosures, however, fell 38.2% to 722 in June from a year before.The average number of days it takes for a property to be foreclosed onin Sacramento County is 235 days (June 2010).

On July 27, 2010 there were 6,652 properties owned by banks inSacramento County. 450 of which are bank branch offices. Listed onMetrolist MLS there were 1,675 active on the market and 1,152pending sales, leaving 3,375 properties owned by banks that are noton the market. This is known as shadow inventory . It would takeapproximately 5.3 months at the current sales pace to liquidate theseproperties. This is significantly less than the national estimate of 3years foreclosure inventory.

Around the nation some 269,952 homes were foreclosed on in Q2-10:a 38% increase from April to June 2009. At that pace the number of foreclosures could break 1,000,000 before year end. Nevada,Arizona & Florida have the highest % of foreclosure rates for thenumber of households, while California received the highest total # of foreclosure filings (340,740 from January to June).

Additionally, 75% (154) of the 206 U.S. metropolitan areas with


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200,000 or more population posted increases in foreclosureactivity from 1 year ago. However, 19 of the 20 most hard hit areasdecreased in foreclosure filings in the first of this year compared tothe last of 2009. It appears that the most hard hit areas are

improving (if it can be called that) while the rest of the nation maynot yet have hit the bottom . If this is correct it could mean that thenation as a whole is not yet prepped for recovery and will probablycontinue to decline.

Sacramento, although down nearly 7% in number of foreclosurefilings when compared to 2009, still ranks 13 th across the nation byhaving 3.19% of properties with a foreclosure filing, or 1 in every 31homes - Realtytrac - www.realtytrac.com .

Banking:

Between 2006 and 2007 Fannie Mae and Freddie Mac bought 227Billion (227,000,000,000) in bonds backed by subprime loans andAlt A mortgages. Q1-10 they required lenders to buy back 3.2Billion , and it seems they are preparing for as much as 30 billion tobe sold back to the banks that originated the loans. This adversely

affects housing markets in an interesting way: originating banks beginhedging their risk from potential buy backs by tightening underwritingrequirements. This exacerbates the problem by making it moredifficult for borrowers to get loans, which further reduces demand,raises inventory, and puts downward pressure on sale prices.Additionally the amount of return non-performing mortgage ownersreceive on their investments is reduced and the companies andindividuals who purchased these investments lose substantial sums atsale. The result is a perpetuating downward spiral.

From January to the end of July 2010 more than 100 banks havefailed , and 700+ more are designat ed as problem banks by theFDIC. 300 banks are expected to fail before the crisis has ended.This will overburden the FDIC with debt, which could lead to another

unlimited taxpayer bailout.

Bank of America, Citigroup, Wells Fargo, & Chase reported profits of 13.5 Billion dollars for Q1-2010, which seems to indicate that the
http://www.realtytrac.com/http://www.realtytrac.com/http://www.realtytrac.com/http://www.realtytrac.com/


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large financial bailout pulled the largest banking institutions away fromthe brink of dissolution. Part of this profit, however, can be accountedto smoke and mirrors accounting practices that provide the perceptionof stability. Unfortunately, the foreclosure environment appears to be

getting worse nationwide.

The Bailout appears to have allowed the banking industry to go from 3Billion in reserves to over 1 Trillion ( 1,000,000,000,0000 ) in a shortamount of time. Ironically, some of that money was for the expresspurpose of perpetuating lending on homes across the country.Unfortunately, this has not benefited the average consumer as lendingguidelines continue to make it more difficult to get a loan. In standardutilitarian fashion large banks, still concerned with their own survival,have managed to pass their troubles along to their customers. Thusthe very processes that help the banks stay afloat also prolong anddeepen the recession for the average consumer .

Commercial Real Estate:

Restructuring of commercial loans in Q1-2010 was 23.9 Billion (threetime higher than Q1-2009) and nearly 45% of those loans weredelinquent 30 days or more. It actually seems logical thatcommercial banks continue with extend and pretend tactics. It is a

great idea for banks to adjust their guidelines to match the needs of their most troubled clients which allows the bank to maximize theirreturn on invested capital.

Commercial loans are typically local, where the parties involved canget close and personal. Decision makers and owners can talk on thephone, and if you default it is funds deposited by people in yourcommunity that is at stake. Ultimately, it seems better solutions arebeing reached that meet both the struggling owner and the bank, andlosses are mitigated in a more effective way .


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Single Family Residence:

5,120 detached SFR homes sold in Q2-10. A pro-forma analysis of these homes found 24.6% could provide positive cash flow whenrented. (See Methodology at the end of the report.) The averageprice of these cash flow properties is $101,866 . The average ageof these positively cash flowing properties is 1964. The averagednumber of days on the market is 58, with an average size of 1,186square feet, costing on average $88 per square foot . That issubstantially cheaper than you can build.

REO inventory rose 27% from the endof the Q1 to the end of Q2. Despite thisthe number of sales and sold price of REO

stayed almost exactly identical from Marchto June. Compared with June 2009, soldprice rose 7% to $177,083 and thenumber of REO sales dropped 31% from931 (June 2009) to 639 (June 2010).

Short Sales sold for an average of $208,105 ; 13% higher than Q1-10, but only 3% higher than Q2-09.The real shift is the rise in the number of Short Sales sold. June saw478 short sales close: a 20% rise from March (397) and a 74%

increase from one year ago (274).

Condo : The average sales price for the 400 condos sold during Q2-10is $118,189. REOs account for 43% of these sales, with an averagesales price of $82,785. Short Sales accounted for 20% of sales, andaveraged $106,081. Equity sales averaged $179,832. Pro-Formaanalysis of Q2-10 sold condos estimates that 39.3% could providepositive cash flow if rented.

Half-Plexes : Pro-Forma analysis of half-plex sales shows that 57.7%could cash flow when rented for market rents. 104 properties soldwith an average price of $120,732 . REOs accounted for 56 of these104 sales and averaged $104,534. Short Sales, accounted for 23% of total sales and averaged $115,073 purchase price. Equity salesaccount for the other 23% of sales and averaged $164,189.

Most foreclosures occur inthe most affordable

neighborhoods. 40% of foreclosure filings occur in

the 25% most affordableneighborhoods across the

country.


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Multi-Unit Investments (Duplex, Triplex, Fourplex):

Of the 190 properties sold in the first quarter, 47% were REOs, 30%equity sales, and 23% were short sales. Of these sales 78% areDuplexes , 6% Triplexes, and 16% Four-plexes. Our pro-formaanalysis estimates that 82.6% of these 2-4 unit properties couldproduce positive monthly cash flow when rented at market rents.

DUPLEX:During the Q2-10 the average duplex sales price is $176,563 , or$88,282 per unit . That is a 14% increase in the average pricefrom Q2-09 ($154,715), but a 12.5% drop from the $201,876 averageprice Q2-08.

Pro-Forma evaluation of second quarter sales estimate that 78.4% of sold Duplexes have positive cash flow if rented at market rents.(See Methodology on last page.) Equity Sales account for 33% of all sold during Q2-10. REOs account for 44% of sales , and ShortSales represent 23% of sales.


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TRI-PLEXES:The second quarter 2010 saw 11 triplexes sold, just like the firstquarter, but the average sale price dropped 17.3% from the$242,000 in Q1-10 to $200,127 in Q2-10. Because of the location of

many of the triplexes there is large variation in price dependant uponthe area, and the condition of the property. Pro-forma analysis showsthat 81.8% of those sold projected positive cash flow .

4-PLEXES:Four-plexes, on the other hand, are far more common and 30 sold inquarter 2 of 2010. The average sale price dropped 14.6% from$215,117 in Q1-10 to $183,706 in Q2-10 . REOs account for 47% of Q2 sales, with an average sale price of $164,962. The average

marketing time dropped this quarter to 55 days from 67 days in Q1.


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Zipcode Data:

Zip$ from

peak % 1 mo

Qtr

1 Yr

Zip$ from

peak % 1 mo

Qtr

1 Yr

95605 ($175,000) -58% -26% -8% 21% 95819 ($62,500) -14% 8% 1% -2%

95608 ($208,550) -46% 1% -16% -6% 95820 ($195,900) -66% 4% 5% 25%

95610 ($180,500) -48% 2% -3% -3% 95821 ($170,000) -49% -8% 13% -21%

95621 ($187,500) -54% -3% -7% -3% 95822 ($185,000) -59% 4% 3% 31%

95624 ($196,450) -44% 8% 7% 10% 95823 ($204,250) -62% -8% -3% 5%

95626 ($187,500) -61% -29% -5% 26% 95824 ($178,400) -66% -6% -6% 19%

95628 ($251,000) -51% -21% -3% 0 % 95825 ($40,500) -11% 55% 54% 41%

95630 ($177,500) -32% 3% -4% -2% 95826 ($181,075) -50% 2% 4% 0%

95632 ($234,000) -59% -8% -9% -6% 95827 ($175,500) -52% -3% 0% 1%

95655 ($184,500) -48% 2% -3% 0% 95828 ($200,000) -57% 0% 9% 10%

95660 ($179,000) -60% 8% 8% 9% 95829 ($195,000) -46% 9% 6% 20%

95662 ($160,300) -43% 5% 5% -16% 95831 ($172,500) -36% -5% -6% 6%

95670 ($252,500) -61% -14% -8% -19% 95832 ($159,487) -53% 11% 17% -13%

95673($240,500) -65% -8% -11% -12%

95833($10,000) -56% 6% 4% 3%

95683 ($306,000) -49% -3% 11% 10% 95834 ($195,755) -46% -1% 18% 8%

95691 ($182,500) -41% 9% 2% 10% 95835 ($255,000) -53% 4% -6% 4%

95693 ($511,701) -56% 30% 5% 8% 95838 ($202,500) -65% -11% 12% 7%

95758 ($302,000) -59% -2% 0% 0% 95841 ($202,500) -58% -9% -13% -3%

95815 ($174,000) -66% 18% 19% 37% 95842 ($190,750) -57% 9% 1% 7%

95816 $9,000 2% 13% 13% 9% 95843 ($211,400) -53% -6% -3% 3%

95817 ($145,000) -53% 32% 42% 27%95864

($134,500) -26% 9% 33% 11%

95818 ($80,500) -17% 10% 5% 4%


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Zipcode vs. Regional Trends

This next section contains information on the status and change over time of individual zip codes inSacramento County.

The Graph shows the median price of zip codes within Sacramento County. The charting begins inFebruary 1997 up to the present (July 2010). Each zip code is compared to the Sacramento Countiesmedian price for the same period of time, and geographically neighboring zip codes are also shown on thesame graph. All values are median prices for the zip codes identified. Each graph is a graphicalrepresentation of the rise and fall of the sales price within each zip code and Sacramento county, and theyprovide perspective on the volatility of the residential real estate market. The graphing of similar areasallows for comparison between zip codes, which provides a degree of perspective on the zip code and themarket as a whole. The prices graphically rendered are every month since February.


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ADDITIONAL RESOURCES MetrolistMLS.com - to search for properties. www.metrolistmls.com

NorthState Building Industry Association (BIA) www.northstatebia.org

Rental Housing Association (RHA) www.rha.org

Sacramento Association of Realtors (SAR) www.sacrealtor.org

Serving Real Estate Investors in the Sacramento area since 2000.

Check out our BLOG and additional STATISTICS on the web at:

www.WrightRealEstate.US

For FREE Information and Consulting Services contact us:

Office: 916.726.8308 [email protected]

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