Chicago Title Company has been tracking the Bank/Mortgagee Real Estate Owned properties (properties taken back in foreclosure) in the three marketing areas of north Santa Barbara County. The results quantify that real estate markets are localized. What is happening in the Lompoc Valley and Santa Maria Valley troubled real estate markets is not happening in the Santa Ynez Valley market.

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All real estate is local! “South County” real estate is doing very nicely thank you! With only 40 foreclosures total on the South Coast in the whole of 2007, there is no tipping point here to bring values down any further. (Those foreclosures have, for the most part, been purchased, not sitting unsold as is happening in other locales.) Indeed, only 2 local areas have had downturns in their median prices over the past 3-4 years: Carpinteria and Goleta, both down around 15%. Santa Barbara’s median price has remained steady for 3 years at $1,015,000-$1,050,000 and Montecito has enjoyed a “non-downturn” adding around10% to its median price each year for the past 4 years.
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REO stands for Real Estate Owned. It is a term banks use for property they have acquired through the foreclosure process. In California the foreclosure process takes about 4 months, and is usually initiated by the bank after a monthly payment or two is delinquent. When the foreclosure sale occurs, the opening bid is what is owed to the bank, which includes the original loan plus missed payments, late charges and penalties, foreclosure costs, taxes and more. The person who wants to buy the foreclosure property at this sale auction must have all cash (or cashier’s checks). The opening bid is often more than the current market value. Usually the property goes back to the bank and becomes an REO. Generally it is then listed on the open market and competes with other properties for sale.

Dr. Lawrence Yun, Chief Economist for the National Association of Realtors recently said that “Commenting on the National Housing Market is like discussing the National Temperature…like the weather, all real estate is local.” This couldn’t be truer than in Santa Barbara where both our climate and real estate market are different than most parts of the country.

The news media paints a very bleak picture of the housing market with headlines talking about slumping sales, decreasing values, and a rampant escalation of foreclosures. However, it is important to consider the source of these headlines. The majority of television news media is targeted to a national audience and therefore is summarizing countrywide housing trends. Even local newspapers are primarily printing articles from wire services which again tout national statistics. Other media sources focus on California, but don’t generally provide relevance to the Santa Barbara real estate market which is behaving very differently than most other communities across the state. Sometimes you will hear or read reports about Santa Barbara County which can still be misleading because they include statistics that lump together Southern Santa Barbara County (Carpinteria through Goleta) with North County (Lompoc and Santa Maria). Even these two neighboring communities are currently experiencing very different real estate markets.

Here’s my take on the recent headlines as to how they apply to the Southern Santa Barbara County real estate market:

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A great deal of media attention has been given to the sub prime loan market and rising foreclosures as a result of lenders making loans to marginal borrowers. Interestingly, only 9% of existing loans would be characterized as sub prime and many of those borrowers are not headed to foreclosure.

The areas currently hardest hit as a result of the sub prime loan fall out and resulting foreclosures are those that have experienced significant new construction and in many cases over building. These tend to be areas where prices are more affordable, land is available/inexpensive, and the political climate is pro-growth.

To illustrate why, picture a developer who built a tract of 300 homes in a community and sold them a few years back. You can imagine a billboard in front of the development that read “Why rent when you can own? With no money down and a teaser rate on your loan you can have payments similar to what you are paying now in rent!” These billboards certainly worked because first time buyers flooded to these developments to realize the dream of home ownership while taking part in the double digit appreciation we have been enjoying for many years. (more…)