Ok, so maybe I’d like to have Diana Olick’s job at CNBC and maybe I wouldn’t. Diana, for those who don’t know, is the real estate reporter for financial news channel CNBC. Diana’s role at CNBC has thrust her into the center of the real estate world and her blog, Realty Check, is a leading source for much of the news analysis on TV and the web. As such, Diana is an easy target for those “glass half full” folks like me.
Yesterday, in the face of surprisingly positive data, Diana was left scrambling to make sense of the data for her following… naturally being Diana, she took the glass half empty approach, which is her way. But who can blame her really? After all, she’s become quite famous since the market turned down and thus made a nice career for herself.
So on Wednesday, the S & P 500/Case-Shiller report showed declines everywhere, save for our coastal markets in California. Then yesterday both pending sales data and builder sales data, showed very positive improvements in the real estate market. Adding to the discussion was stock market maven Jim Cramer, who said the market is paying too much attention to Case-Shiller. Diana in her attempt to digest and decipher this information, wrote in her Realty Check blog, that the banks attempt to sell property at auction usually fails because the bank prices the home at the outstanding loan amount, which exceeds market value: “Since most foreclosed homes have substantial negative equity when they are auctioned, in the vast majority of cases, if there is a bid, it is too low to meet the minimum.” “Hogwash”, as my mom used to say. I emailed her that I want to see the actual numbers: how many homes sell at auction vs. fail to sell. We’ll see if she responds (she won’t…).
While it is true, that many auctions fail and fall into the portfolio inventory of the lenders, there are many that sell. This is where the savvy investors are buying all those homes that get fixed and flipped. I know several Realtors that have formed LLC’s with investors and contractors that are buying up properties at the auction, for cash, for this express purpose. What Diana fails to recognize or acknowledge, is that the vast majority of foreclosed properties have or had, two loans. All of the 100% financed homes were comprised of an 80% 1st trust deed and a 20% second. Since during the heyday in fact, every less than 20% down purchase included some form of HELOC (Home Equity Line Of Credit), there were always two loans. Few borrowers took PMI (private mortgage insurance) because it was cheaper, and deductible, to take a 2nd TD or HELOC. Thus, with the exception of those where the 1st TD alone exceeds the market value, many of the properties offered at auction are priced with just the 1st loan balance as a starting price – not the total debt, and predictably, sell on the courthouse steps.
To Diana’s credit, she concludes her blog with the statement, “…as always, the story of pricing will become ever more local.” This has been my mantra for months and why for our area at least, my glass is still have full.