Auction reveals market's struggle for footing
By: CHRIS BAGLEY - Staff Writer | ∞
The first local foreclosures auction in several years left dozens of buyers clucking happily, but it also revealed a lot about the depth and speed of the real estate market's tumble, buyers and agents said.
A Texas-based auctioneer made a two-week run through California this month, starting in a packed ballroom at the Temecula Creek Inn Nov. 6 and continuing through last week with dates in the Central Valley.
For buyers who arrived at the auction here with cash or with lender approval, it was a field day. Several houses went for just half the price they fetched in their most recent sales in 2005 or 2006.
A couple of houses that generated suspiciously large cash kickbacks to buyers two years ago topped out at just 40 percent of their most recent sale prices. One Murrieta house whose last sale was recorded at $719,000 in March 2006 was seized by a lender in January and cleared the gavel at $305,000.
Hudson & Marshall, of Dallas, auctioned 74 houses on behalf of lenders who had been unable to sell them through typical listings. Several winning bidders who spoke with The Californian said they hadn't yet received final approval from the lenders that own the houses.
Carolyn Tidmus, a local real estate agent who had three listings on the block, said she suspects many of the sellers will end up rejecting the winning bids, which were typically $100,000 to $200,000 less than the amounts they had to write off as bad loans and significantly lower than she had expected.
"It was very depressing," Tidmus said.
A Hudson & Marshall executive estimated that sellers will approve 75 percent of the offers from the auction, compared to 90 percent in most of the auctions it runs.
The ballroom Nov. 6 was packed with more than 400 people, but some said they had come only for the spectacle or to gauge the market. Several houses drew bids from just three or four buyers.
That's not usually how it plays out, said Bill Nazur, a Corona real estate investor and the author of "Finding Foreclosures." Houses typically sell at auctions for about 5 to 10 percent less than what comparable houses bring on the open market. Subtract out the auctioneer's 5 percent fee and a buyer ends up saving little or nothing, Nazur said.
"It's great marketing," Nazur said. "It's a whole lot of flash, but not a lot of substance."
But the sheer numbers of people in attendance at recent auctions have been reassuring, Nazur said, because it shows a certain degree of interest among buyers, and particularly local buyers, even if some of them have held off on bidding.
Delores Conway, director of USC's Lusk Center for Real Estate, said the auctions also give would-be buyers a great chance to check out homes beforehand and then to get a sense of what others are willing to pay for them.
A small handful of recent auctions in Southern California have included properties in Southwest Riverside County, but the one earlier this month was the first to be held locally. Several real estate experts interviewed last week said it would be only a slight exaggeration to call it the tip of an iceberg.
At the end of last month, some 4,000 mortgages in Southwest County were in default, according to foreclosureradar.com, a database that covers California. Real estate experts say the vast majority of those houses will be seized by financial institutions, which are beginning to slash prices and turn to auction houses in an effort to convert real estate back into money, their core business. About 500 are due to be seized by the end of this month, according to the database.
Economists, investors and real estate agents blame the foreclosure wave on speculative buying, on a range of newfangled loans and on monthly payments that started off low but rose swiftly after a year or two. Many buyers moved in with no down payments, counting on rising prices to create the equity that would allow them to refinance into a safer loan after a couple of years.
But that market evaporated over the course of 2005. Prices, economists warned, had grown much faster than homeowners' incomes.
Lou Klein, who bought his Temecula home in 1995, was one of many who had sat pat in their own houses while watching the run-up from 2000 to 2005 with amazement.
"It just went crazy," Klein said. "I think it went a little too out of whack."
Klein left the auction here with two winning bids, including a $240,000 bid on an 1,800-square-foot house near Murrieta Glen Arbor Park. A woman bought the house in October 2005, borrowing for the entire $420,000 price.
The lender seized the house in July, listed it for a month at $345,000, and cut the price to $328,000 at the end of August before giving Hudson & Marshall a crack at it.
Klein said he plans to keep his house in Temecula and rent out both of the houses he scored at the auction, if indeed the owners sign off on the deals.
For several people, last week's auction was a chance to move downmarket. Nelson Sales and Lyn Cunningham, a local mortgage broker and real estate agent, were hoping to snag their client a house for $200,000 to $250,000. The client owed $550,000 on a house in Wildomar that probably wouldn't sell for more than $450,000, Sales said. The client had fallen behind on some of his bills, but hadn't defaulted on the mortgage, Sales said. He was hoping to convince the lender to accept less than the outstanding balance.
"I don't want his home to be up there," Sales said, gesturing toward the podium, where only the numbers were intelligible amid the auctioneer's rapid-fire twangy patter.
Sales and Cunningham were outbid on all three houses they targeted, Sales said. The search continues this week, Sales said.
Al Rivera had recently sold his own house in Wildomar and is using the $130,000-plus in equity to make down payments on two or three less expensive houses. With new monthly mortgage payments of just $600, Rivera figured he can easily come out ahead as a landlord. Rivera walked away with a winning $131,000 bid on a three-bedroom house near the California Golf & Art Country Club in Sun City. It last sold for $290,000 in June 2004.
"I thought 131 (thousand dollars) was a good deal," Rivera said after the auction. "It's completely a buyer's market."
Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.
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Unless you buy true FSBO you get scammed wrote on Nov 18, 2007 10:14 PM:Use the free MLS listings and even craigslist. Everything else is a giant "Realtor" scamola, including the ridiculous auctions. They make it look like there are great deals just to generate buzz for the next auction. Reality is that those lowball houses did not actually sell.
Investor wrote on Nov 18, 2007 11:48 PM:My rule of thumb for the Temecula Valley is that most residential properties are worth about 10 times annual rent: take the monthly rent x 12 months x 10 and that's about how much a property is worth. If the tax rate is very low and there's no HOA you might be able to pay 12 times annual rent since your carrying costs are lower.
Owner / Taxpayer wrote on Nov 19, 2007 6:08 AM:This is crazy! BUT, it sends a strong message to the banks that foreclosed and now own the homes. Maybe their best decision is to work with the people struggling to pay the mortages rather then foreclose. The other crazy thing is that there are still so many real estate agents out there trying to charge 6% for their do nothing jobs! They got rich off all of these people that are now lossing their homes BUT they continue marching on because there is no way to hold them accountable! Do the world a favor and stop supporting realtors by not hiring them! They are worst then used car salesmen or even lawyers (who we all know are the lowest of the low). This industry needs to be held accountable for their actions and until they are they should go broke like so many of their clients!
rudolph wrote on Nov 19, 2007 8:49 AM:I wish the NC Times would report on the state of new housing developments in Lake Elsinore area. I seem to recall a golf course community of some 5,000 houses was to have been built around a golf course by the end of '06. It was a big part of the Magee election promise. How many of the houses are complete and occupied? The community demands an answer!
Bro Rufus wrote on Nov 19, 2007 9:43 AM:This is great! Will help bring down the cost of housing. And people who signed up for ARM loans? They got what they deserved! ... It was stupid to take such risks!
John E wrote on Nov 19, 2007 11:17 AM:Since the 1970s I have watched three waves in southern California home prices. The current downturn arrived belatedly, but it was inevitable. My main concern is the extent to which the entire country is overextended on credit. Whatever happened to the virtues of "thrift" and "fiscal responsibiliity"?
Optimist.... wrote on Nov 19, 2007 12:01 PM:the silver lining to the down real estate market is what experts call "reverse gentrification". Areas formerly priced too high for common folks are now within reach for some clients. Example: I just sold a very nice 2 bedroom/one bath condo in Del Mar to a younger couple with bad credit due to a unfortunate series of prison sentences and bankruptcies. Reverse gentrification is even more pronounced in the rental market. I rent houses and condos to undocumented workers in some of the most expensive markets in the county. I moved three such families into a nice house in an upscale Solana Beach neighborhood last month. Now the family members don't have so far to travel to their jobs in the area. I make a good living by taking advantage of the market downturns as well as when things are cokking. You have to be flexible to survive in today's realestate world.
To my do nothing job wrote on Nov 19, 2007 12:41 PM:I have family that work in Real Estate and they drive Mercedes Benz cars, live in houses twice the size of mine, take cruises every year and wear lots and lots of diamonds. While I work really hard at a job 40-60 hours a week and drive a Hyundai. The thing that ticks me off the most is that it is the greedy real estate people that got us into this situation in the first place. Arificially inflating home prices and encouraging buyers to take loans they can't afford. I have yet to meet a real estate agent that is more concerned with the economy and the people, but instead are just looking at what they need to make to buy thier next car, house or vacation.
Hey DO NOTHING wrote on Nov 19, 2007 12:44 PM:Yeah, and how many ARMS did you sell to families that could barely afford their payments so you could get your commission? The rest of your excuses are just plain nonsense! Tell it to the people you SOLD houses to that are NOW either losing everything they worked for or have already lost it! The truth is, you and your used car salemen friends can do anything you please because nobody is holding you accountable to do right by your clients. It became way to easy for you and your friends to lie, cheat and steal to make those sales that never should have been allowed! SO close your pie hole used car guy and go try and sell your load of manure to someone who is more gulible then me!!!
What wrote on Nov 19, 2007 12:54 PM:To the 10:33 posting: Did taxpayer HIT a nerve? Me thinks you do protest to much! Could it be that there is way to much honesty in taxpayers comments then you want to admit? What I know is some of my employees came to me when they were getting ready to buy a house and asked me what I thought. I told them if they couldn't afford a fixed rate payment they would probably be in trouble somewhere down the road because interest rates always go back up. Oh by the way, they told me that it was the realtor, LIKE YOU, that was trying to push them into that adjustable mortage so they would buy the more expensive house! Now, one is struggling badly but 2 others are hanging in there because they didn't let the realtor (LIKE YOU) sell them a more expensive house then they could afford! As far as your 6% goes, everyone knows that you are going to push your own listings first in hope of getting that big pay off even if there are better deals out there. The smart buyer has done his homework before hand because these days you can't trust others to do what is right (MAYBE THAT INCLUDES YOU?)! So what say you?
Concerned-1 wrote on Nov 19, 2007 12:58 PM:I don't consider myself a pessimist but I'm aghast at the Optimist post at 12:01! You moved three families of undocumented (illegal) workers into one house? Thanks for destroying a neigborhood to make "a good living." You're doing so at others expense. You should be arrested.
To concerned 1 wrote on Nov 19, 2007 1:21 PM:haven't you heard of free enterprise? This is the USA where anyone can legally move anywhere. Perhaps you'd like to return to the days of racial segregation? I make my money honestly on an open and free market. God Bless America!
Concerned-1 wrote on Nov 19, 2007 2:04 PM:To post at 1:21. If you are Optimist and rent houses to illegals you are... Not to mention the degradation of a neighborhood by moving in three "families" into a single family dwelling. IMHO, you are part of the problem.
Concerned-1 wrote on Nov 19, 2007 2:07 PM:In the USA anyone can legally move anywhere...What? No. If you don't have a visa then you can't legally move anywhere. As far as you make money "honestly on an open market," the same can be said for drug dealers.
Optimist says.... wrote on Nov 19, 2007 2:53 PM:I don't think we've reached the point in the USA where we have to show our papers whenever the gestapo asks for them. Even in ritzy suburbs, the bill of rights applies to all. In the capitalist USA money talks. Its a free market and if you got the cash you can live anywhere you want to live.
Hey Optimist wrote on Nov 19, 2007 3:45 PM:You are full of it today aren't you? What a load of crapola you are trying to sell! Funny but still crapola!
Concerned one and the rest... wrote on Nov 19, 2007 3:57 PM:I think "Optimist" was either being sarcastic or trying to get a rise out of people. Read that post again; it's ridiculous. "...an unfortunate series of prison sentences and bankruptcies...". Come on people, think about it; don't be so gullible.
Hey Concerned one wrote on Nov 19, 2007 7:55 PM:Your kidding RIGHT?
Concerned 2 wrote on Nov 20, 2007 8:59 AM:"Carolyn Tidmus, a local real estate agent ... "It was very depressing," Tidmus said." See, this shows the bias of realtors to the seller side and high prices. What about affordability, what about sustainability? Lower prices are as good for future buyers and young families are they are bad for speculators, investors, and old second home owners. "But that market evaporated over the course of 2005. Prices, economists warned, had grown much faster than homeowners' incomes." What economists? Certainly none of the isutry "experts". Talk about revisionist history. The only people speaking truth to money were Shiller, Thornberg, and the grassroots blogger community.
gotta blame someone other than youself wrote on Nov 20, 2007 9:27 AM:of course its always the REALTORS fault not the people that say "get me in to a home no matter what" or the lender that brings the loan info to be reviewed and approved, no its always a realtor that is the devil! if you all are so smart then go take the test and get your realestate license and run your own business! bunch of sour grapes if you asked me!
Hey gotta blame wrote on Nov 20, 2007 11:40 AM:What are you kidding! Me a realator, I don't want to be considered as low as a lawyer! It's just like you guys to not want to take responsibility for your actions! You make your money then you are gone, no consequences for any of you, RIGHT! No, not right, if you are going to be in that business, you should be held accountable! PERIOD!!!
Renter. wrote on Nov 20, 2007 1:52 PM:I recently had a real estate agent representing the seller show up at my door (literally just show up, no appointment) with a lender in tow asking if I wanted to buy the house I was living in. She was mad when I made an offer through my own agent. Rightfully so? I think not. The sellers agent represents the seller, the buyers agent represents the buyer. And why should I even attempt to trust an agent I've never met, from outside the area, that shows up with a lender ready to quote me? What do you call that? Door to door real estate? Give me a break! The market is taking a huge dump and the agents, while partially to blame can only bear part of the blame. Lenders, sellers, and buyers alike were all hoping to get rich quick at the high point of the market - they all wanted thier piece of the pie. But some of them got caught in the downturn. Now nobody wants any of that pie. I've no doubt my offer was considered a lowball, but the last thing I am going to do is what so many did not long ago and jump on what many consider to be the bottom of the market - the buyers market in agent speak. This market is nowhere near the bottom and there is still going to be a price to pay for reckless "investors" that purchase in today's market - a falling market. And what of them? Should the taxpayers bail them out too? After all fair is fair right? If I buy a house today because I am sick of moving and dealing with landlords foreclosing (poor me right?), and then I lose $100k over the next year - who is going to pay my loss off for me?
Renter. wrote on Nov 20, 2007 2:00 PM:I recently had a real estate agent representing the seller show up at my door (literally just show up, no appointment) with a lender in tow asking if I wanted to buy the house I was living in. She was mad when I made an offer through my own agent. Rightfully so? I think not. The sellers agent represents the seller, the buyers agent represents the buyer. And why should I even attempt to trust an agent I've never met, from outside the area, that shows up with a lender ready to quote me? What do you call that? Door to door real estate? Give me a break! The market is taking a huge dump and the agents, while partially to blame can only bear part of the blame. Lenders, sellers, and buyers alike were all hoping to get rich quick at the high point of the market - they all wanted thier piece of the pie. But some of them got caught in the downturn. Now nobody wants any of that pie. I've no doubt my offer was considered a lowball, but the last thing I am going to do is what so many did not long ago and jump on what many consider to be the bottom of the market - the buyers market in agent speak. This market is nowhere near the bottom and there is still going to be a price to pay for reckless "investors" that purchase in today's market - a falling market. And what of them? Should the taxpayers bail them out too? After all fair is fair right? If I buy a house today because I am sick of moving and dealing with landlords foreclosing (poor me right?), and then I lose $100k over the next year - who is going to pay my loss off for me?
Renter. wrote on Nov 20, 2007 2:06 PM:I recently had a real estate agent representing the seller show up at my door (literally just show up, no appointment) with a lender in tow asking if I wanted to buy the house I was living in. She was mad when I made an offer through my own agent. Rightfully so? I think not. The sellers agent represents the seller, the buyers agent represents the buyer. And why should I even attempt to trust an agent I've never met, from outside the area, that shows up with a lender ready to quote me? What do you call that? Door to door real estate? Give me a break! The market is taking a huge dump and the agents, while partially to blame can only bear part of the blame. Lenders, sellers, and buyers alike were all hoping to get rich quick at the high point of the market - they all wanted thier piece of the pie. But some of them got caught in the downturn. Now nobody wants any of that pie. I've no doubt my offer was considered a lowball, but the last thing I am going to do is what so many did not long ago and jump on what many consider to be the bottom of the market - the buyers market in agent speak. This market is nowhere near the bottom and there is still going to be a price to pay for reckless "investors" that purchase in today's market - a falling market. And what of them? Should the taxpayers bail them out too? After all fair is fair right? If I buy a house today because I am sick of moving and dealing with landlords foreclosing (poor me right?), and then I lose $100k over the next year - who is going to pay my loss off for me?
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