You Are Paying the Banks to not Loan You Money

Jul 31st, 10 / by cdcrez / 0 Comments

For awhile now, I think since Lehman Bros. went kaput, the Federal Reserve has been paying interest to the member banks on the reserves the banks keep on deposit with the Fed.  The reserves that the banks keep on deposit with the Fed is money that the banks borrow from the Fed at an interest rate lower than the interest rate that the Fed pays the banks on their reserves.

When I tell people this, they look at me like I am lying or nutty or just don’t know what I am talking about.  I never get a response other than a look.

Well, here is the link to the Federal Reserve Bank of Atlanta explaining the accuracy and truth of my statement above and the rational for paying banks to borrow money and not loan it to you:

“Some Observations Regarding Interest on Reserves”

One of the livelier discussions following Federal Reserve Chairman Ben Bernanke’s testimony to Congress on monetary policy has revolved around the issue of the payment of interest on bank reserves. Here, for what it’s worth, are a few reactions to questions raised by that discussion:

Is interest paid on reserves (IOR) a free lunch?

Ken Houghton has the following objection:

“… in September of 2008, the Fed decides to pay interest on reserves—including Excess Reserves. The banks can now make 25 times what they pay in interest, risk-free, just by holding onto money. The Fed is, essentially, leaving $100 bills on the sidewalk.”

I’m not sure exactly where the “25 times” comes from, but it seems to me that the most obvious transaction would be to borrow in the overnight interbank lending market—the federal funds market—and then “lend” those funds to the Fed by placing them in the Fed’s deposit facility. The differential between the return on those options is a good deal lower than a multiple of 25.

Do you really think the Federal Reserve was created and functions for the benefit of the American public?  Will the Fed loan money to you at 0.17% interest and then pay you 0.25% interest to keep that money on deposit at the Fed?

If the rational to pay interest on the reserves sounds complex, convoluted, and ridiculous, it is because it is.  The real reason is to take money from you and give it to the member banks.

(Mom, the member banks are the largest banks in the US such as JP Morgan Chase, Goldman Sachs, Citibank, Wells Fargo, Bank of America, The Bank of New York, etc.)

The Economy

This Week in Coto (7/30/2010)

Jul 31st, 10 / by C Delroy Spuckler / 2 Comments

A successful flip: 7 Pictor into escrow, asking $899,900 with right at 2 weeks on the market.

Active Listings

Your active listings look like:

Price Range 7/23/2010 7/30/2010 Change
< $750k 10 11 1
$750k-$1mil 23 20 -3
$1mil-$1.25mil 17 18 1
$1.25mil-$1.5mil 2 2 0
$1.5mil-$2mil 19 21 2
$2mil-$3mil 17 16 -1
$3mil-$4mil 4 4 0
$4mil+ 17 18 1
Total 109 110 1

New listings for this week:

Date Address Tract Short? Sqft Current Price $ / Sqft Sellers Agent
7/24/2010 18 Havenhurst Weatherly FALSE 6100 $2,898,000.00 $475.08 Ken Bowen
7/25/2010 31661 Via Coyote Village FALSE 3769 $925,000.00 $245.42 Bobbi Mezger
7/29/2010 30932 Via Serenidad Woods FALSE 6800 $4,400,000.00 $647.06 Mariann Cordova
7/29/2010 9 Cherry Hills Greens FALSE 3427 $1,495,000.00 $436.24 Bobbi Mezger
7/30/2010 2 Seacliff Hillsboro FALSE 3327 $849,000.00 $255.18 Bobbi Mezger
7/30/2010 5 Augusta Masters FALSE 4978 $1,650,000.00 $331.46 Debra Kovacs

Escrow

Your current escrow looks like:

Price Range 7/23/2010 7/30/2010 Change
<$750k 13 11 -2
$750k-$1mil 18 21 3
$1mil-$1.25mil 5 4 -1
$1.25mil-$1.5mil 7 5 -2
$1.5mil-$2mil 2 3 1
$2mil-$3mil 1 1 0
$3mil-$4mil 0 0 0
$4mil+ 0 0 0
Total 47 45 -2
Short Sales 34 32

New homes into escrow this week:

Date Address Tract Short? Sqft Current Price $ / Sqft Sellers Agent
7/24/2010 31962 Via Pavo Real Village TRUE 2800 $675,000.00 $241.07 Cathy Welch
7/26/2010 14 Brentwood Hillsboro TRUE 3351 $750,000.00 $223.81 Sheri Isaacs
7/26/2010 7 Pictor Courante FALSE 3300 $899,900.00 $272.70 Carole Geronsin
7/28/2010 6 Weather Ledge Oak Knoll TRUE 4800 $1,550,000.00 $322.92 Jane O’Reilly
7/28/2010 6 Willow Bend Oak Ridge FALSE 3188 $929,000.00 $291.41 Debra Kovacs
7/29/2010 6 Westchester Tanglewood FALSE 3170 $869,900.00 $274.42 Rick Cosenza
7/30/2010 8 Carnoustie Classics TRUE 3247 $849,000.00 $261.47 Debra Kovacs

Closed Sales

The last 4 weeks of closed sales looks like:

Price Range 7/9/2010 7/16/2010 7/23/2010 7/30/2010 Total
<$750k 1 1 0 0 2
$750k-$1mil 1 1 2 1 5
$1mil-$1.25mil 0 0 1 1 2
$1.25mil-$1.5mil 0 0 1 1 2
$1.5mil-$2mil 0 0 1 0 1
$2mil-$3mil 1 1 0 0 2
$3mil-$4mil 0 0 0 0 0
$4mil+ 0 0 0 0 0
Total 3 3 5 3 14
4 Week Total 28 24 19 14

Closed sales for the past 2 weeks:

Closed Sales Address Tract Sold $ / Sqft Talkdown Sellers Agent Buyers Agent
7/20/2010 31161 Via Consuelo Arbours $1,250,000.00 $336.93 -7% Kathi Kanan Janice Chafin
7/21/2010 13 Cherry Hills Greens $1,530,000.00 $332.61 -7% David O’Brien David O’Brien
7/21/2010 5 Pegasus Glenmere $935,000.00 $239.13 -4% Ryan Edwards Tracey Crawford
7/23/2010 31831 Via Coyote Village $840,000.00 $202.17 -2% Mike Ameel Anthony Ingoglia
7/23/2010 29 Flagstone Oak Knoll $1,417,000.00 $242.51 1% Kenneth Stewart Out of Area
7/26/2010 19 Windflower East Hill $1,175,000.00 $317.57 -2% Sandy Caporale Margo Murray
7/29/2010 12 Northampton Stonehedge $612,023.00 $256.40 -3% Auctioneer
7/29/2010 42 Vela Crooked Oak $845,000.00 $256.06 0% Jeff Lawson Cheryl Lattimore
7/26/2010 27 Hubbard Silver Creek $1,300,000.00 $325.00 -4% James Zakhar Bernie Ryerson
7/30/2010 18 Portmanoch Southern Hills $1,489,637.00 N/A N/A Auctioneer
7/30/2010 31902 Apuesto Way Los Ranchos Estates $799,813.00 N/A N/A Auctioneer

Price Changes

Date Address Tract Current Price Old Price Change
7/24/2010 28 Sunningdale Southern Hills $1,249,000.00 $1,349,000.00 -7%
7/24/2010 4 Flat Iron Oak View $1,198,500.00 $1,199,000.00 0%
7/27/2010 18 Orion Glenmere $1,039,995.00 $1,075,000.00 -3%
7/27/2010 6 Flagstone Oak Knoll $1,699,000.00 $1,799,000.00 -6%
7/28/2010 15 Seacliff Hillsboro $839,000.00 $844,000.00 -1%
7/28/2010 23762 Via Monte Forest $1,849,000.00 $1,899,000.00 -3%
7/29/2010 15 Pebble Beach Hillsboro $1,019,000.00 $1,029,000.00 -1%
7/29/2010 31752 Secoya Way Los Ranchos Estates $4,995,000.00 $5,995,000.00 -17%
7/30/2010 2 Shire Woods $1,999,000.00 $2,100,000.00 -5%
7/30/2010 30832 Via Vista Forest $3,295,000.00 $3,395,000.00 -3%
7/30/2010 49 Dartmouth Montecito $665,000.00 $649,000.00 2%

Comments

Total inventory remains constant, but product mix shifts slightly to the higher end with some new listings above $1.5mil and a large number of accepted offers below $1mil.  Inventory still has around 10% short sales.  New inventory came in above our $275/sqft average due to 4 of the 6 listings being $1.5mil+ properties, including our second Weatherly in as many weeks and another nice Stuck-worthy estate.  Bobbi Mezger appears to be pulling some overtime, landing 3 of the 6 listings.

Escrow drops slightly driven by some closings and some foreclosings.  7 homes accepted offers, with 6 being under $1mil.  The $275/sqft average holds steady again… some slightly over, and few short sales lower.  4 of 7 homes accepting offers this week are short sales and again roughly 70% of our accepted offers are short sales.

After a run on inventory in May, we’ve gone almost 2 months now with an offer on a home asking over $1.6mil sticking.  That market segment represents about half of Coto’s active inventory.   13 different homes in that price range had price reductions in July… typically I see a price reduction as an indication the seller wants to sell.

As predicted last week, closed sales continue to drop off and our 4 week average returns to 14.   With 13 equity sales in escrow that 14 number is probably roughly where we expect to stay for a while.  One thing noteworthy to point out, we finally may be seeing some short sales closing, with 4 shorts (of 11 total) closing in the last 3 weeks.  $$/sqft seems to be you either pay $330 or $250… not much inbetween the past 2 weeks.  Talkdown was the standard 3-7%.  3 homes went back to the bank this week.

On the price change front, most of the action is above $1mil, as the lower priced homes appear to be moving better.  A few decent sized (> 5%) price reductions, probably people trying to get the sale in before the summer buying period ends in a week or two here.

That last sentence is probably the best summary now… with end of August 30 days away and people getting ready for school, we would expect final closings for houses with kids.  I wouldn’t be surprised to see a few decent price cuts in the next week or two to clear out inventory.  If you see a can’t-miss deal out there, let us know.  Our Blue Light Special still exists.

See you next week.

Coto Market

Update to “This Week, 7/25/10, in Foreclosure Auctions

Jul 31st, 10 / by cdcrez / 6 Comments

26 Sawgrass

Address SaleDate Postponements Previous Auction Date Redefault Disposition amount
9 BRENTWOOD 8/26/10 5 7/26/10 no
22431 AVENA LN 9/15/10 3 7/26/10 no
23491 VIA ALONDRA 8/27/10 4 7/26/10 no
31861 VIA OSO 8/20/10 multiple 7/26/10 no
42 Vela Court 8/26/10 5 7/26/10 no
31572 VIA COYOTE 8/31/10 7 7/27/10 no
26 SAWGRASS 8/10/10 8 7/27/10 no
6 FAIR VLY 8/10/10 16 7/27/10 no
98 VIA CANDELARIA 8/11/10 23 7/28/10 yes
6 SEACLIFF 8/11/10 2 7/28/10 no
8 BRUMBY 7/28/10 7 6/28/10 no Cancelled 7/22/10
31361 Summerhill Court 8/30/10 3 7/28/10 no
31746 VIA PATITO 8/23/10 5 7/28/10 no
12 Northampton Place 7/29/10 7 7/6/10 no REO $612,023
18 Douglass Drive 8/31/10 2 7/29/10 no
47 LEXINGTON WAY 8/12/10 4 7/29/20 no
6 PERCHERON 8/19/10 5 7/29/10 no
31902 Apuesto Way 7/30/10 0 none 0 REO $799,813
10 TUCSON 8/13/10 3 7/30/10 yes
18 TORTOISE SHELL 8/13/10 7 7/30/10 yes
18 KNOTTY OAK CIR 8/13/10 5 7/30/10 yes
8 MACKENZIE LN 8/2/10 3 7/30/10 no
18 PORTMARNOCH CT 7/30/10 8 6/30/10 no REO $1,489,636
13 ALTIMIRA 8/27/10 2 7/30/10 no
This Week in Foreclosure Auctions

Hmm-m-m, Ever Thought Ya Wanna Build Your Own Home?

Jul 30th, 10 / by cdcrez / 6 Comments

31902 Apuesto

There it is, a big ‘ol piece of dirt just waiting for someone to turn their dreams into 2×4’s and stucco.  If Bank of American does not like owning homes, it certainly isn’t gonna like owning a vacant lot.  At least the bank does not have to keep the lawn watered, but how much liability might be associated with a non-fenced vacant lot?

Anywhooz, 31902 Apuesto Way, the featured property of our post, “Peakage Buying, (and Minor Land Baron Stuff), – 31902 Aouesto Way“, went back to the bank today with an opening bid of $799,813; with no postponements. 

Ya think the CZ Master Association would let me put a double wide up there?  Ya know, one of those nice ones.  Or howz ’bout subdividing the 5.7 acres into 5 one acre lots and one 0.7 acre lot, and selling each new lot with a double wide included for $250,000 a piece?

But seriously folks, if no one bought 5.7 acres for $799,813, does that mean that Rancho property is now worth less than $141,000 per acre?  From the aerial photo it looks like at least one acre and possibly 2 acres of the lot at 31902 Apuesto Way is buildable.

Coto Market, Sold at Foreclosure Auction

Anyone See It?

Jul 30th, 10 / by C Delroy Spuckler / 3 Comments

I love open houses.  I don’t get as much time as I used to, to drive around and check things out every Saturday/Sunday.  I find it interesting to see what people did to their house, and in addition to see what people think their home is worth.  Numerous things I’ve got in my current house are a direct reflection of things I’ve seen at other open houses.

The above picture intrigues me.  Its of a new listing for 30932 Via Serenidad, which came on the market asking $4.4mil.  Why does it intrigue me?  First off, until a few years ago I would have never realized I needed a chandelier in my bathroom.  This picture should hopefully explain how a properly done chandelier definitely make a nice touch, nay, a must have.  Next, its got a fairly large TV.  Again, until recently this was just a luxury item.  Now its more common.

This house kicks it up to 11 though.  It adds a chaise lounge.   Now while the lounge cannot watch the TV, it still makes perfect sense to me.  I’m guessing those bottles on the towel rack are not adult beverages.  But if I were to move in…

More importantly, the thing I notice on this house… you look at the above $2mil market in Coto and there are alot of homes which, quite honestly, have a price which is not in touch with reality.  You go above $3mil and above $4mil and you see more of this.  I know, because there are few sales, its very hard to figure out what these homes are worth.   You also have few buyers, so the homes are expected to sit on the market for a while.  Many of the higher priced homes in Coto are older and need some TLC.  But this house I look at, and at least on the MLS pictures you start to see that this home appears to be very well thought out.  The detail (as far as I can tell on MLS) is there.  The yard looks nice, the house looks nice, its decorated very well.  It has a chaise lounge in the bathroom.

While $4.4mil is more than I can ever fathom, given some of the other prices in Coto, it doesn’t seem like it might be that out of touch.   Granted, from a spec standpoint its competing with homes like 6 Fresian and 8 Hunter… homes which appear very nice and are priced significantly less… but I’m not sure that comparison is apples to apples.

30932 Via Serenidad had an open house yesterday from 4pm-6pm.  Unfortunately, I pulled into Coto at 6pm and missed it.  Did anyone check it out?  If so, any comments?

Just For Fun

Update: Sometimes we’re boring

Jul 30th, 10 / by C Delroy Spuckler / 0 Comments

Foreclosure Radar shows that 18 Portmarnoch, our property featured in the boringly titled post “18 Portmarnoch” went back to the bank this morning with a winning/opening bid of $1,489,637.  The new owner appears to be Wells Fargo Home Mortgage.

Sold at Foreclosure Auction

Thank You, Barry and Thank You Framers of the Constitution

Jul 30th, 10 / by cdcrez / 2 Comments

Forget the cliches about how lucky we are to live in a country where we have freedom of speech.  Forget cliches, I am just ____ grateful.  Barry Ritholtz is one smart guy and has much data from which to glean his analysis, but about a fourth of the time I think his conclusions are wrong, just plain wrong.  Not today.

Thank you Barry for having the guts to consistently write about what you observe and thank you framers of the Constitution for making sure we can shout.  In “Hank Paulson: Blame it on the FHA/GSEs“, Barry takes on Paulson’s abdication of responsibility.

Hank Paulson, the criminally inept Treasury Secretary who shoveled trillions of taxpayer dollars to insolvent banks, and facilitated the grand theft of some near $20 billion dollars from AIG to Goldman Sachs (where he was previously CEO), is now trying to rewrite history.

In today’s Washington Post piece, Paulson ignores facts and rewrites history, fabricating the causes of the economic collapse:

Paulson oversaw the greatest transfer of wealth in the history of mankind — from taxpayers to insolvent banks and their bondholders. His commentary is thinly veiled attempt to rewrite what actually occurred, and to shift his own sad role from conductor of the theft, to hapless victim of long standing government policy.

If this exercise wasn’t such a transparent attempt at self-exoneration, it would be amusing, Instead, it is merely pathetic.

Paulson has written a book and I beg you not to purchase it.  He should not be rewarded for his ‘criminally inept’ behavior.

Just For Fun

Foreclosures Up

Jul 30th, 10 / by cdcrez / 0 Comments

From Reuters, “Foreclosures Up in 75% of Top U.S. Metro Areas“:

 July 29 (Reuters) – Foreclosures rose in three of every four large U.S. metro areas in this year’s first half, likely ruling out sustained home price gains until 2013, real estate data company RealtyTrac said on Thursday.

Unemployment was the main culprit driving foreclosure actions on more than 1.6 million properties, the company said.

“We’re not going to see meaningful, sustainable home price appreciation while we’re seeing 75 percent of the markets have increases in foreclosures,” RealtyTrac senior vice president Rick Sharga said in an interview.

“We’re not going to see real price appreciation probably until 2013,” Sharga said. “We don’t see a double dip in housing, but we think it’s going to be a long painful recovery for the next three years.”

Curiously to me, it seems that no matter what the data, no one interviewed ever says that real estate prices will decline.  Even in 2007 and 2008, those confronted with the foreclosure numbers would say that the market will slow down, or prices may not go up as quickly or the market is stabilizing, but never do they say that prices will go down.  I said it then, and I will say it now.  Prices will continue to fall.

The Economy

Update: JASR And It Is Still Sad

Jul 29th, 10 / by C Delroy Spuckler / 1 Comment

12 Northampton

Per Foreclosureradar our featured property in JASR and It Is Still Sad went back to the bank today with no takers at $612,023.  The new owner appears to be Wachovia Mortgage in case anyone is interested in contacting them.

At the time it was showing as Backup Offers Accepted with an asking price of $629,950.  I always find MLS histories of foreclosures interesting.  Here’s what Redfin shows:

  • March 6, 2009 Listed (price ???)
  • March 9, 2009 Delisted
  • April 14, 2009 Listed @ $530,000
  • April 17, 2009 Delisted
  • October 8, 2009 Relisted @ $530,000
  • Oct 10, 2009 Delisted
  • February 6, 2010, Listed @ $674,500
  • February 9, 2010 Price Changed to $624,500
  • February 13, 2010 Delisted
  • April 12, 2010 Relisted
  • June 17 2010 Relisted
  • June 17, 2010 Price Changed $639,950
  • June 23,2010 Relisted
  • June 30, 2010 Price Changed $632, 500
  • July 1, 2010 Delisted
  • July 1, 2010 Relisted
  • July 1, 2010 Price Changed $629,960
Sold at Foreclosure Auction

Opening Bid – 12 Northampton

Jul 29th, 10 / by cdcrez / 2 Comments

12 Northampton

An opening bid of $612,023 has been posted for 12 Northampton.  The auction is scheduled to take place today at 12:00 pm at 700 Civic Center Drive in Santa Ana.  12 Northampton has been listed for sale as a short sale and the status is presently showing as “Backup Offers Accepted“.  Will 12 Northampton actually go to auction?  I dunno.  And another thing I dunno and wonder about is why do the lenders bother to calculate and post an opening bid if they are going to postpone the auction date?

Coto Market, Opening bid, This Week in Foreclosure Auctions