There are nearly 1,000 distressed homes spread among some of Orange County’s most desired coastal neighborhoods of Newport Beach, Corona del Mar, Laguna Beach and eastside Costa Mesa.
But actual sales of distressed or foreclosed high-end coastal homes are few and far between, according to local brokers.
“Banks are not putting the (foreclosed) homes on the market as much as they could,” said Gary Legrand, president of Newport Beach-based Surterre Properties.
Trying to figure out what the lenders’ strategies are for dealing with more expensive homes in default on loans still is a guessing game, according to brokers that primarily deal in those properties.
Lenders appear to be hesitant to get the homes off their books for fear of flooding the market.
That, and continued economic distress in OC, appears to have increased the number of homes that at some point will need to be sold by the lenders.
As of October, there were 978 homes listed as lender-owned or in some process of foreclosure in eight of OC’s priciest zip codes, according to data from Coldwell Banker Previews International’s Newport Beach office.
That’s up from 525 distressed homes listed in March for the same high-priced neighborhoods in Newport Beach, eastside Costal Mesa, Corona del Mar and Laguna Beach.
About a quarter of the 106 homes sold in Newport Coast so far this year have been lender-owned, according to market data. The area has seen banks more willing to do deals to get more expensive properties off their books.
About two-thirds of the lender-owned sales in Newport Coast have been for more than $1 million so far this year. Eight sales have been for more than $2 million.
Mortgages
Banks and other lenders also are hesitant to fund mortgages for high-end home sales.
Upscale broker John McMonigle said he’s spending much of his time not just brokering home sales, but helping to arrange loans to get those deals completed.
“I’m spending much of my time trying to get financing for buyers,” said McMonigle, whose Newport Beach-based McMonigle Group is one of the country’s top-selling brokerages.
A lack of traditional bank funding is “having a major impact” on business this year, McMonigle said before a panel at last month’s University of California, Los Angeles, Anderson Forecast in Irvine.
Financing for pricier homes in many cases now is coming from private money. In some cases, hedge funds are providing the loans, he said.
Sureterre’s Legrand said his company’s clients still are getting loans from banks, but they’re full-documentation loans with much more stringent underwriting. Cash buyers make up about 30% of the company’s deals right now, he said.
Surterre in the past two weeks put two deals valued at more than $12 million in escrow.
“Deals are still getting done,” Legrand said.
At the higher end of the Orange County’s housing market, the most expensive homes—those that are more than $15 million—are still trading at a strong clip, according to McMonigle, who has an $87 million Newport Coast home on the market.
In many cases, those ultra high-end homes are selling at record per square foot prices. These sales are driven by “restless cash” among buyers who would prefer buying property rather than keeping their money in a bank that might be troubled, he said.
But homes in the $1.5 million to $12 million range are a different story. Sellers are struggling to get them sold, according to McMonigle.
“That’s the slowest price sector” among higher-end properties, he said.
Slightly more than 10% of Corona del Mar’s sales made from January to mid-September were for lender-owned properties, as sales skewed toward lower-priced homes, according to Coldwell Banker data.
Less than $1M
About half of those bank-owned sales were from lower-priced condominiums costing less than $1 million, whereas more than two-thirds of the 99 non-distressed Corona del Mar homes and condos sold during the same time went for more than $1 million.
In lower Newport Bay and Balboa Island, a similar trend was seen. Three of the 28 homes sold this year have been lender-owned. None were for homes costing more than $1 million. All three of those sales were for condos.
The other 25 homes sold in that area were all more than $1 million, with 16 of them costing more than $2 million, Coldwell Banker data shows.
In comparison, foreclosure sales—where a foreclosure had occurred at some point in the prior year—currently make up about 40% of all sales in all of Southern California, according to San Diego-based MDA DataQuick, a unit of Canada’s MacDonald, Dettwiler and Associates Ltd.
A few high-end areas in OC have distressed sales figures that are comparable to the region at large.
Of the higher-end coastal markets, Newport Beach and Newport Heights have the highest percentage of lender sold properties—32 of 76 homes, or 42% of sales through mid-September—according to Coldwell Banker’s data.
Those sales tended to be on the lower end of that neighborhood’s market. With the exception of one home in that area selling for nearly $1.75 million, those bank-owned sales have all been for homes $900,000 and less, according to brokerage data.
Construction
With banks carrying so much real estate-related debt, construction financing has slowed to a crawl in many areas that once were booming.
“There’s no construction financing” available to many potential builders, McMonigle said.
At Dana Point’s high-end Strand at Headlands project along the coast, the first batch of home construction at the 121-acre project began in earnest early this year. When the next round of construction will begin remains to be seen.
As of October, 33 lots have been sold at the Strand, raising more than $200 million at the development, one of the last coastal housing projects on the books for OC.
At the beginning of the year, there was construction under way on 16 of the 33 lots. No home construction has started since then, according to the developer’s figures.
The first homes at the Strand are expected to be completed this fall, and a 9,000-square-foot beach club will open in early 2010, according to Strand developer Sandford Edward.
