Santa Barbara Real Estate Through 2013

This is an analysis of the Santa Barbara Real Estate market including Carpinteria/Summerland, Montecito, Hope Ranch, downtown Santa Barbara and Goleta through the month of December 2013.  For the Home Estate/PUD market the numbers of sales rose from the previous month to 100 in December rising from 81 in November and 91 in October. The Median Sales Price stayed about the same for the month however going to $986,000 in December from $990,000 in November but up from $942,999 in October.  The opened escrows fell in December to 68 from 85 in November and also down from the 79 we saw in October while the median list price on those escrows fell from $1,150,000 in November to $995,000 in December. There were 55 new listings that came on the market in December with a median list price of $1.05 million and an average list price of just about $2.83 million which left the overall inventory falling from about 300 units for sale in November to roughly 215 in December.

                Year over year sales are down slightly from 2012 but the median sales price is up to about $945,000 for approximately a 19% rise. The average sales price is also up going from about $1.35 million in 2012 to approximately $1.43 million in 2013 for a 5% rise while the numbers of escrows are down with about 1,300 in ’12 to roughly 1,230 in ‘13 with the median list price on those escrows up about 15% to approximately $970,000.

Looking at the Districts, Carpinteria/Summerland sales are up from 92 to 109 and the median sales price is up from $729,000 to $852,500. The numbers of escrows are also up from 89 to 106 with the median list price on those escrows rising from $805,000 last year to $861,900 this year. 

             For Montecito, sales are down going from 264 to 228 with the median sales price rising from $1.95 million to $2.4 million. Escrows are also down going from 272 to 235 but the median list price on those escrows is up from $2.186 million to $2.495 million. 

                East of State St sales are down going from 334 in ’12 to 317 in ‘13 but the median sales price is up from $860,000 to $988,500. The escrows went down from 332 to 322 with the median list price on those escrows rising from $895,000 last year to $1,025,000 this year. 

                West of State St sales are down from 281 to 278 but the median sales price is up from $707,500 to $875,000. The numbers of escrows are up with 284 in ’12 compared to 289 in ‘13 and the median list price on those escrows is up from $715,000 last year to $895,000 this year. 

                Hope Ranch sales are up from 30 to 32 and the median sales price is up from $2.115 million to $2.375 million. The numbers of escrows are down with 35 last year compared to 28 this year but the median list price on those escrows is up from $2.3 million in ’12 to $2.495 million in ‘13. 

                Goleta South sales are down with 127 last year and 116 this year but the median sales price is up from $640,000 to $750,500. The numbers of escrows are down from 143 to 101 with the median list price on those escrows rising from $669,000 to $719,000. 

                Goleta North sales are up with 207 in ’12 and 215 in ’13 with the median sales price rising from $620,555 to $792,000. The numbers of escrows are down from 205 to 203 with the median list price on those escrows going from $625,000 to $796,500.

For the Condo segment of the market, sales rose to 35 in December from about 30 in November and October. The median sales price fell however from $530,000 in November to roughly $475,000 in December while the numbers of escrows fell slightly from 34 in November to 33 in December with the median list price on those escrows dropping from $505,550 in November to about $475,000 in December.

There were about 30 new condo listings that came on the market for the month with a median list price of approximately $460,000 falling from $532,500 and an average list price of approximately $455,000 falling from about $532,000 in November while the overall inventory fell in December from about 110 units for sale in November to approximately 90 in December.

Looking at the Districts, Carpinteria/Summerland sales are up from 60 to 83 with the median sales price rising from $365,500 to $445,000. The numbers of escrows are also up from 65 last year to 78 this year and the median list price on those escrows is up from $395,000 to $449,900.

Montecito condo sales are down with 33 in ’12 and 30 in ‘13 but the median sales price is up from $1,100,000 to $1,170,000.The numbers of escrows are down with 33 in ’12 and 29 in ‘13 while the median list price on those escrows is up from $1,195,000 in ’12 to $1,245,000 in ‘13.

East of State St sales are down from 215 to 103 with the median sales price rising from $435,616 to $545,925. The numbers of escrows are also down going from 223 to 104 with the median list price on those escrows up from $447,000 last year to $570,000 this year.

West of State St sales are up from 98 to 112 with the median sales price rising from $402,500 to $542,500. The escrows went up from 94 to 115 with the median list price on those escrows going from $416,300 to $559,000.

  Goleta South sales are up from 63 to 72 with the median sales price up from $305,000 to $445,000. The numbers of escrows are also up with 64 in ’12 and 77 in ‘13 with the median list price on those escrows up from $314,950 last year to $449,250 this year.

Goleta North sales are down from 63 to 56 with the median sales price up from $349,500 to $420,000. The escrows are down however from 70 to 56 with the median list price on those escrows going up from $355,950 to $422,500.

Through the end of December sales of single family homes is basically flat from ’12 while the median sales price for those homes is up about 19%. For condos, sales are down approximately 15% with the median sales price up about 27%. Of the single family homes that sold for the month roughly 25% of those sales were over the asking price and for condos that number was about 11%.  The average over asking price for homes that sold was about 5.2% and for condos that number was about 1.2%. Sales went up in December but escrows fell while the median sales price stayed stable at about $985,000.

At the end of 2012 sales and median sales prices were going up while at the end of 2013 sales are starting to cool and the dramatic increase we’ve seen in the median sales price is starting to moderate. For 2014 the real estate market is dependent on the inventory. If the listings start increasing then the market will continue to rise but if listings remain stagnant then sales will decrease but the median sales price will go up.

Gary Woods

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4 Keys Identified for a Full Housing Recovery

National Association of realtors

DAILY REAL ESTATE NEWS | FRIDAY, JANUARY 17, 2014

In order to have a fully recovered housing market and economic recovery, economists point to the need for four positive indicators: 

1. A healthy job market with low stable unemployment; 

2. Mortgage delinquencies that have returned to historical averages; 

3. Home prices consistent with an affordable mortgage payment–to–income ratio; and 

4. Home sales that are in the range of historical norms. 

So, is the housing market inching closer? 

Freddie Mac’s U.S. Economic and Housing Market Outlook for January takes a look at how the housing market is performing among these four indicators. Economists note that the unemployment rate -- while inching down -- still remains high at 6.7 percent. Meanwhile, mortgage delinquencies have fallen to 5.88 percent -- nearly half of their peak rate but still higher than the national average of about 2 percent, Freddie notes. 

Home prices still have some room to grow without outpacing income growth, economists say. 

“From 1999–2006, mortgage payments on a hypothetical 30-year fixed-rate mortgage would have increased by 50 percent more than income growth,” Freddie Mac notes in the report. “Currently, payment-to-income ratios are only 60 percent of the level we had in 1999, suggesting room for continued housing growth.” 

Finally, home sales have risen over the past two years but remain below levels from a nearly a decade ago. Home sales, historically, average a rate of about 6 percent of the housing stock every year. They dropped to 4 percent during the housing crisis. Economists are predicting a 5.7 percent pace in 2014. 

"As we start 2014, the housing recovery continues its steady pace,” Frank Nothaft, Freddie Mac’s chief economist. “House-price gains will likely moderate from last year's pace but rise about 5 percent in national indexes. Home sales, as well as other key indicators, continue to trend in the right direction, although in some markets we are seeing the sales recovery strengthen while many others remain weak."

Source: Freddie Mac and “Are We There Yet? Freddie Mac Says Recovery Has a Ways to Go,” Mortgage News Daily (Jan. 16, 2014)

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Housing Market Recovery Is Structurally Sound

by Ed Fuller on January 8, 2014 in Noozhawk.com

What a rebound! The past two years saw the median single-family home price in the Santa Barbara metro area increase by 39 percent.

Along with the stock market, many have been raising concerns that we have entered another housing “bubble.” But there are differences this time.  The biggest one is home mortgage qualifications. The housing boom years of 2004 through 2007 saw loans of as much as 110 percent of a property's value made to borrowers who had little or no income. In the years since the financial meltdown, not only have borrowers needed a down payment, but the amount of their income that can be used to service the mortgage and all their debt has been limited to 50 percent.

On top of this, borrowers have been required to document in detail every aspect of their financial situation. This has led many an industry expert to decry the difficulties of obtaining home financing, but it is this very difficulty that has put the increasing prices of housing on firm footing.

The new crop of owners really can afford their homes, come higher or lower prices. Since nearly every new mortgage has been fixed, and at historically low rates, increasing interest rates will not change the recent owner's payments.

Rapidly increasing adjustable rate mortgages were another contributing factor to the housing meltdown in the last recession. With the new year, a new breed of mortgage has been born, one with even tighter qualifications — the qualified mortgage. This new mortgage will allow only 43 percent of a buyer's income to go toward servicing all their monthly payments, including the new property.

This is significant because because the vast majority of loans purchased in the secondary market will be required to meet these new standards, putting any further increases in home prices on firmer ground.

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Small Lenders Hesitate Over New Rules

DAILY REAL ESTATE NEWS | MONDAY, JANUARY 13, 2014

New mortgage rules that took effect last week could further hamper small lenders’ ability to issue loans, The Wall Street Journal reports. 

Under the new rules, lenders must ensure that borrowers can pay back their loans. Loans that meet“qualified mortgage” standards will provide a safe harbor to lenders from future lawsuits, while loans issued outside of QM standards will carry more legal risk. 

The Consumer Financial Protection Bureau defines “qualified mortgages” as loans that meet the ability-to-repay rule and in which borrowers spend no more than 43 percent of their income on debt. Furthermore, fees and other charges may make up no more than 3 percent of the loan. 

Small lenders reportedly will tread cautiously in the new lending environment because they are worried about the legal risk of making loans that don’t meet new standards, according to The Wall Street Journal. 

“We’re going to be very conservative just to make sure that we’re in compliance and don’t get into trouble,” says Mark Walker, chief executive of Michigan Mutual Inc., a lender with 300 employees based in Port Huron, Mich. “There are going to be loans that we did in 2013 that we are not going to be able to do in 2014.”

Any lender who falls outside of the new rules may be unable to sell the loan to investors such as Fannie Mae and Freddie Mac. Large lenders—such as Wells Fargo and Bank of America—already have said they plan to continue issuing loans outside of CFPB’s Qualified Mortgage standards and will hold those loans on their own books. 

But smaller lenders will likely think twice. Non-bank lenders will be particularly cautious since they often don’t use their own investment portfolios to hold the loans on their books, The Wall Street Journal reports.

For example, Linda Sweet, president and CEO of Big Valley Federal Credit Union in Sacramento, Calif., says her credit union will mostly stop making mortgage loans in 2014. Her credit union made about 30 mortgage loans in 2013. 

“The burden of trying to comply with the regulation is just overwhelmingly costly for a small financial institution,” Sweet says. 

CFPB announced it is monitoring the new rule’s impact closely on loan availability to see if any tweaks need to be made. 

“I think we got the rule right,” says Peter Carroll, CFPB’s assistant director for mortgage markets. But he adds that “we don’t want to see credit get unduly cut for people, where there are responsible loans being made.”

Source: “Small Lenders Wary as Mortgage-Lending Rules Take Effect,” The Wall Street Journal (Jan. 10, 2014)

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New Ventura Ordinance re Private Sewer Lateral Inspections

The following is taken from the San Buenaventura Code of Ordinances, Chapter 22.250 titled Private Sewer Laterals.  Please see the City of Ventura website for more information.

Section 22.250.050

B. Inspection and report prior to sale of property. A property owner shall have the private sewer lateral inspected by a licensed plumber prior to and as a condition precedent to any sale of the property. An inspection report meeting the requirements of this chapter shall be prepared and submitted to the 

buyer, with a copy to the city, prior to any sale of the property. No inspection shall be required 

pursuant to this subsection if the owner can demonstrate that either i) an inspection was already 

completed within the preceding ten years or, ii) that the lateral was constructed within the last ten 

years. This subsection shall become effective on January 1, 2014. 

C. Inspection and report for common interest developments and commercial properties. In addition to 

the requirements of section 22.250.050.A. and B., the property owner or property owners of any 

common interest development or commercial property shall have the private sewer lateral inspected 

in accordance with the requirements of this chapter once every ten years beginning January 1 of the 

year following the adoption of this chapter. A copy of the inspection report shall be provided to the 

city within 30 days of the property owner's receipt of the report. 

D. Inspection and inspection report requirements. All inspections and inspection reports required by this chapter shall be completed in accordance with the following requirements: 

1. The inspection and inspection report shall be completed by a licensed plumber. 

2. The inspection shall include, at a minimum, a CCTV inspection of the private sewer lateral. 

3. The inspection and inspection report shall identify, as applicable, the severity and location of all 

of the following: 

(a) Displaced joints, open joints, root intrusion, substantial deterioration of the line, cracks, 

leaks, inflow or infiltration of extraneous water, sediment deposits or other conditions likely 

to cause or contribute to blockage of the private lateral or the public sewer. 

(b) Any connection by pipe or otherwise, that allows rainwater or groundwater to enter the 

private lateral or public sewer. 

(c) Any backwater device installed in the private sewer lateral and the condition of the 

backwater device. 

(d) All corrective actions that must be taken to maintain, repair or replace the private sewer 

lateral and the estimated time and cost associated with such maintenance, repair or 

replacement. 

4. The inspection report shall contain either a printed image, DVD, or other suitable electronic 

recording of the CCTV inspection of the private sewer lateral in a format acceptable to the city. 

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IRS and CA Franchise Tax Board Clarify Mortgage Debt

California Association of Realtors

December 4, 2013

IRS and California Franchise Tax Board declare California distressed home sellers not liable for federal or state income tax on short sales

LOS ANGELES (Dec. 4) – The CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) announced today it received a letter from the California Franchise Tax Board (FTB), obtained by Board of Equalization (BOE) member George Runner, clarifying that California families who have lost their home in a short sale are not subject to state income tax liability on debt forgiveness “phantom income” they never received in a short sale.

Last month, in a letter to California Sen. Barbara Boxer, the Internal Revenue Service (IRS) recognized that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes.  Following the IRS’s clarification, C.A.R. sought a similar ruling by the California FTB.  Now with the FTB’s clarification, underwater home sellers also are assured that they are not subject to state income tax liability, rescuing tens of thousands of distressed home sellers from California tax liability for debt written off by lenders in short sales.

“We are pleased with the recent clarifications issued by the IRS and the California Franchise Tax Board, which protect distressed homeowners from debt relief income tax associated with a short sale in California,” said C.A.R. President Kevin Brown.  “We would like to thank Sen. Boxer and BOE member Runner for their leadership in obtaining this guidance from the IRS and FTB.  Distressed California homeowners can now avoid foreclosure or bankruptcy and can opt for a short sale instead, without incurring federal and state tax liability, even after the Mortgage Forgiveness Debt Relief Act of 2007 expires at the end of this year.”

Leading the way…® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States with 165,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

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Insight: A New Wave of U.S. Mortgage Trouble Threatens

by Peter Rudegeair, MSN Money

November 26, 2013

(Reuters) - U.S. borrowers are increasingly missing payments on home equity lines of credit they took out during the housing bubble, a trend that could deal another blow to the country's biggest banks.

The loans are a problem now because an increasing number are hitting their 10-year anniversary, at which point borrowers usually must start paying down the principal on the loans as well as the interest they had been paying all along.

More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding.

For a typical consumer, that shift can translate to their monthly payment more than tripling, a particular burden for the subprime borrowers that often took out these loans. And payments will rise further when the Federal Reserve starts to hike rates, because the loans usually carry floating interest rates.

The number of borrowers missing payments around the 10-year point can double in their eleventh year, data from consumer credit agency Equifax shows. When the loans go bad, banks can lose an eye-popping 90 cents on the dollar, because a home equity line of credit is usually the second mortgage a borrower has. If the bank forecloses, most of the proceeds of the sale pay off the main mortgage, leaving little for the home equity lender.

There are scenarios where everything works out fine. For example, if economic growth picks up, and home prices rise, borrowers may be able to refinance their main mortgage and their home equity lines of credit into a single new fixed-rate loan. Some borrowers would also be able to repay their loans by selling their homes into a strengthening market.

ONCE USED LIKE CREDIT CARDS

But some regulators, rating agencies, and analysts are alarmed. The U.S. Office of the Comptroller of the Currency, a regulator overseeing national banks, has been warning banks about the risk of home equity lines since the spring of 2012. It is pressing banks to quantify their risks and minimize them where possible.

At a conference last month in Washington, DC, Amy Crews Cutts, the chief economist at consumer credit agency Equifax, told mortgage bankers that an increase in tens of thousands of homeowners' monthly payments on these home equity lines is a pending "wave of disaster."

Banks marketed home equity lines of credit aggressively before the housing bubble burst, and consumers were all too happy to use these loans like a cheaper version of credit card debt, paying for vacations and cars.

The big banks, including Bank of America Corp, Wells Fargo & Co, Citigroup Inc, and JPMorgan Chase & Co have more than $10 billion of these home equity lines of credit on their books each, and in some cases much more than that.

How bad home equity lines of credit end up being for banks will hinge on the percentage of loans that default. Analysts struggle to forecast that number.

In the best case scenario, losses will edge higher from current levels, and will be entirely manageable. But the worst case scenario for some banks could be bad, eating deeply into their earnings and potentially cutting into their equity levels at a time when banks are under pressure to boost capital levels.

"We just don't know how close people are until they ultimately do hit delinquencies," said Darrin Benhart, the deputy comptroller for credit and market risk at the Office of the Comptroller of the Currency. Banks can get some idea from updated credit scores, but "it's difficult to ferret that risk out," he said.

What is happening with home equity lines of credit illustrates how the mortgage bubble that formed in the years before the financial crisis is still hurting banks, even seven years after it burst. By many measures the mortgage market has yet to recover: The federal government still backs nine out of every ten home loans, 4.6 million foreclosures have been completed, and borrowers with excellent credit scores are still being denied loans.

NO EASY WAY OUT

Banks have some options for reducing their losses. They can encourage borrowers to sign up for a workout program if they will not be able to make their payments. In some cases, they can change the terms of the lines of credit to allow borrowers to pay only interest on their loans for a longer period, or to take longer to repay principal.

A Bank of America spokesman said in a statement that the bank is reaching out to customers more than a year before they have to start repaying principal on their loans, to explain options for refinancing or modifying their loans.

But these measures will only help so much, said Crews Cutts.

"There's no easy out on this," she said.

Between the end of 2003 and the end of 2007, outstanding debt on banks' home equity lines of credit jumped by 77 percent, to $611.4 billion from $346.1 billion, according to FDIC data, and while not every loan requires borrowers to start repaying principal after ten years, most do. These loans were attractive to banks during the housing boom, in part because lenders thought they could rely on the collateral value of the home to keep rising.

"These are very profitable at the beginning. People will take out these lines and make the early payments that are due," said Anthony Sanders, a professor of real estate finance at George Mason University who used to be a mortgage bond analyst at Deutsche Bank.

But after 10 years, a consumer with a $30,000 home equity line of credit and an initial interest rate of 3.25 percent would see their required payment jumping to $293.16 from $81.25, analysts from Fitch Ratings calculate.

That's why the loans are starting to look problematic: For home equity lines of credit made in 2003, missed payments have already started jumping.

Borrowers are delinquent on about 5.6 percent of loans made in 2003 that have hit their 10-year mark, Equifax data show, a figure that the agency estimates could rise to around 6 percent this year. That's a big jump from 2012, when delinquencies for loans from 2003 were closer to 3 percent.

This scenario will be increasingly common in the coming years: in 2014, borrowers on $29 billion of these loans at the biggest banks will see their monthly payment jump, followed by $53 billion in 2015, $66 billion in 2016, and $73 billion in 2017.

The Federal Reserve could start raising rates as soon as July 2015, interest-rate futures markets show, which would also lift borrowers' monthly payments. The rising payments that consumers face "is the single largest risk that impacts the home equity book in Citi Holdings," Citigroup finance chief John Gerspach said on an October 16 conference call with analysts.

A high percentage of home equity lines of credit went to people with bad credit to begin with — over 16 percent of the home equity loans made in 2006, for example, went to people with credit scores below 659, seen by many banks as the dividing line between prime and subprime. In 2001, about 12 percent of home equity borrowers were subprime.

Banks are still getting hit by other mortgage problems too, most notably on the legal front. JPMorgan Chase & Co last week agreed to a $13 billion settlement with the U.S. government over charges it overstated the quality of home loans it sold to investors.

TIP OF THE ICEBERG

Banks have differing exposure, and disclose varying levels of information, making it difficult to figure which is most exposed. The majority of home equity lines of credit are held by the biggest banks, said the OCC's Benhart.

At Bank of America, around $8 billion in outstanding home equity balances will reset before 2015 and another $57 billion will reset afterwards but it is unclear which years will have the highest number of resets. JPMorgan Chase said in an October regulatory filing that $9 billion will reset before 2015 and after 2017 and another $22 billion will reset in the intervening years.

At Wells Fargo, $4.5 billion of home equity balances will reset in 2014 and another $25.9 billion will reset between 2015 and 2017. At Citigroup, $1.3 billion in home equity lines of credit will reset in 2014 and another $14.8 billion will reset between 2015 and 2017.

Bank of America said that 9 percent of its outstanding home equity lines of credit that have reset were not performing. That kind of a figure would likely be manageable for big banks. But if home equity delinquencies rise to subprime-mortgage-like levels, it could spell trouble.

In terms of loan losses, "What we've seen so far is the tip of the iceberg. It's relatively low in relation to what's coming," Equifax's Crews Cuts said.

(Reporting by Peter Rudegeair in New York; Editing by Daniel Wilchins, Martin Howell and Tim Dobbyn)

(c) Copyright Thomson Reuters 2013. 

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