- Gridlock: CA Organic House Sales — No Increase in 18-months
In order to chew through supply and balance the market, homeowners must be able to sell and re-buy. Move-up/across/down homeowners have always carried the market in the past. Now the market is dominated by its weakest participants — the first timer and investor — who are at a point of maximum demand, as supply is about to hit hard once again.
- Examing the Foreclosure-Related Resale Market — At the Point of Maximum Demand
Despite consensus that house sales are surging, they remain very weak as highlighted in this segment and chart.
- Total Sales vs Foreclosure Supply – Heavily Imbalanced with Infinite Supply
It is the tale of two markets with one at a point of maximum demand and one languishing. This, while massive supply is about to come online.
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With proprietary default and foreclosure data only available to a select number of firms in the nation and decades of mortgage and real estate experience, we are able to provide high-level and granular broad-market and company-specific insights never before available – sometimes months ahead of public news and events. Looking ahead of the mortgage and housing market and into bank’s residential mortgage portfolio and balance sheet is now much easier.
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The CA housing purchase market is at a point of critical gridlock. And it’s not from too many buyers. It’s just the opposite — there are not enough of the right type of sellers that after sale, become the right type of buyers.
The organic move-up/across/down buyer is not an active participant in the market and has not been for 18-months. Coincidentally, 18-months ago marks the exact point at which lenders pulled the plug on all of the exotic first and second mortgage loan programs.
This is the tale of two housing markets; each vastly different with respect to its different players and fundamentals with one at a point of maximum demand and one languishing.
CA Organic House Sales Near All-Time Low — No Increase in 18-months
CA organic home sales are near all-time lows. They have not increases at all in the past 18-months and are down from peak levels between 60% and 75% in 2009.
The chart below depicts the total sales broken into ‘organic’ and ‘foreclosure-related’ sales. The blue portion represents Ma and Pa Organic selling a property either to re-buy a new property or to rent. The red portion are first-timers and investors slugging it out for a $200k foreclosure-related property.
Unless the organic group can sell and re-buy, the housing market will continue to be controlled by its historically weakest participants — the first timer and investor group. With financing tight, economic conditions questionable, and rents tumbling these groups can’t carry the market especially at the mid-to-upper end which will feel the most pain in 2009-2011.
Epidemic Negative-Equity – Average $201k on Each Foreclosure in April
Remember, the US was near a 70% homeownership rate entering this mess. It has fallen a few percent since, but by and large the homeownership rate left over from the bubble years is massive. As values plummeted equity was evaporated and negative-equity has become epidemic. Negative equity is so problematic in CA that the average negative equity for all foreclosures last month was $201k.
With respect to house sales, negative equity takes away the largest segment of the market…the organic move-up/across/down buyers.
Unless more homeowners are able to sell and take away a large enough down payment for the new vintage loan; rent their present residence for enough to cover the debt-service; and/or come up with a large enough down payment out of savings in addition to having the income to qualify for a new loan, the housing market will continue to be dominated by a bunch of speculators slugging it out for a $200k foreclosed property. Therefore, further price depreciation, interest rate decreases or the re-introduction of exotic financing will be needed to boost sales from here.
Examing the Foreclosure-Related Resale Market – The Supporting Factor but at a Point of Maximum Demand
Below shows where the action is — the foreclosure-related resale market. The green line represents total monthly foreclosure-related resales relative to actual foreclosures (blue) and Notices-of-Defaults (red), which are essentially foreclosures in the pipeline waiting to happen.
Over the past 8-months — due to govt and bank-specific foreclosure moratoria — demand for foreclosures was higher than supply supporting prices. But as foreclosures come through from the recent surge in NODs (red), the same supply imbalance seen from Jan 2007 through Oct 2008 will occur. That is of course unless first timers and investors step it up a notch, which is highly unlikely if they were unable to do so over the past year as prices and rates plummeted.
It is also important to note that the supply shown here is only foreclosure related supply, which accounts for only 35-40% of total supply. This underscores how lopsided the supply/demand fundamentals really are.
Total Sales – Weaker Than Most Think
When adding foreclosure-related and organic sales together, total sales are very weak at approx 38k in April (green line below). Together, there were a total of 55k new Notice-of-Defaults and foreclosures in April. When backing out foreclosure-related resales, organic sales are down an average of 70% in 2009 from the robust markets of the bubble years.
When including all of the organic MLS listed supply (60% to 65% of total supply), with the foreclosure-related supply (60% to 65% of total sales demand), CA has an infinite amount of supply.
Ultimately, this will not only continue to put pressure on the low end that recently has shown signs of stabilization, but also decimate the mid-to-upper end, which not shown any signs of coming back to life with respect to sales over the past two years.
Bottom Line
There are not enough buyers.
**For more information in our default/foreclosure related research including real-time mortgage default, foreclosure and loss tracking across large-named publicly traded companies please email me at the address below. Looking ahead of the housing and mortgage market and into bank’s residential mortgage portfolios and balance sheets is now much clearer.
Best Regards,
Mark Hanson
Mark@TheFieldCheckGroup.com
Analysis by Mark Hanson, Field Check Group Real Estate & Finance
Data provided by ForeclosureRadar.com
May 26th, 2009 at 9:16 pm
First time buyer at 450K?? NOW THAT’S FUNNY!
investor at 450k? and trying to flip it for 550K (to who?) ..even funier? or renting at a loss???
Just out of curiosity..what were those homes at the peak? 1 million? .. maybe I see 450 K being a good deal..
PUT DOWN THE PIPE!.. the bottom is 2012.. you all know it.. (no pr, no help to ex-owners, more job losses, more resets..) TIME MY FRIENDs!
May 26th, 2009 at 10:03 pm
“First time buyer at 450K?? NOW THAT’S FUNNY!”
Why is that funny?
May 26th, 2009 at 10:34 pm
450K is funny because that kind of change will buy you a “real” mansion in most US cities, but only a “starter” in CA. (for now) Chances are that buyer will not be able to rent out a 450k home and cover the note. Therefore it’s funny that someone would assume that downside risk for their first house, unless they are just plain rich.
May 26th, 2009 at 10:36 pm
It’s funny to see ..that people STILL don’t learn… we’ve got the biggest lesson upon us… but here there are more people like you, thinking you’re getting a deal .. so afordable… and let me guess.. you also make 150K on one salary, right?? Just like the rest of first time buyers snatching up 450K properties?
May 26th, 2009 at 10:46 pm
I enjoy the fact that there are so many stupid 450K knife catchers, since one day that crowd of dummies will run out, and the “inventory” they eventually provide will already be painted and landscaped, etc.
May 26th, 2009 at 11:49 pm
hey max . ive been investing in real estate for over twenty years . ive made alot of money at it .i myself and many other investers i know at this very moment are holding off .yes i may purchase a house or two for long term or maybe even flip if its the right price !!!!!! but flipping for the most part is out the picture .without mentioning names , some invester friends of mine made some bad choices and are now sitting on close to hundred homes that they cannot sale because of depreciation . they too had the same theory you had . yes they mannaged to sale a few of them ! but most fell out of escrow two or three times ,the buyers lost their job last minute, second and third , yes third !!!! appraisals etc only to find they have all lost value ! they cant even get these things rented out !i cant count how many times they have told me that as soon as one is occupied they have to start the eviction process because they lost their job ! open your eyes my friend . look at the big picture ! to much risk at this time ! and do not let yourself believe that these prices will not go any lower in places like moreno valley ! they will and they have !! just go back to 1993-1997 . i was purchasing homes for $45000 – $60000.those same homes now are going for around $85-$120,000. and we are not even close to the bottom of this housing crash not to mention this economy !!!!!
May 27th, 2009 at 12:31 am
People like Max McDermot nauseate me….it disgusts me that investors like him and his buddies are going out their and buying up stuff they frankly do not deserve to have. Disgusting.
May 27th, 2009 at 5:53 am
Noz — guys like Max are paramount to fixing the housing market. Until these props are taken from those who can’t afford and sold to those who can the housing crisis will be with us. But I absolutely could not disagree more with his view of the recovery. From my seat I see a continued deterioration of the low end, a collapse of the mid-to-high end and a sloshing around the bottom for a decade at least.
Unless about $3 trillion is thrown at national principal balance reductions of 1st and 2nd liens, there will be no way for American’s to earn their way out of this. Homeowners have to de-lever too — most can’t even pay off their $3k credit card and pay minimum payments let alone their $500k neg-am, 150%, balloon mortgage or mortgage-mod.
May 27th, 2009 at 6:07 am
$201K average loss on foreclosure sale during moritorium and with a hidden inventory of 80K homes in CA? What happens when the banks start selling off these properties? No FASB rule changes will paper over these losses. I still think a US superagency will be created to take possession of these homes at “fair prices” and then rent or resell them at “fair prices” – otherwise all the big banks will need one way TARP bailouts of unbelievable magnitude
May 27th, 2009 at 7:41 am
Ex Renter – That is not like H4H. They had very little princple balance reductions in H4H. Furthermore, if your DTI is greater than 40%-45% were going to have to subsidize a principle write down of 40%+ with some of the people. Those people should have never owned a home! Tax dollars should not be used to fix an indiv. with DTI of 70%, so they can afford a home. Plus H4H did not have appreciation sharing arrangment. Depending on the appreciation sharing I might be open for higher DTI threshold.
Mr. M – 3T whether it be a subset of homeowners over extended, or 3T of all of us picking up the tab, isn’t it still debt service that is going to have to be paid. That’s going to reduce future growth either way. I would suggest that the people in trouble by and large have the least ability to fuel long term growth in the economy. The indiv. with 60% DTI and 15K in cc debt they can’t afford on a 30K income, is not the growth engine of this country. Nationalizing the debt of these people is going to require taxes to be raised on the productive members of society. Which is going to cause a portion of those people to move or resturcture their income in such a way that they pay less in taxes. These are the people we cannot afford to lose. We need their risk taking, we need their desire to achieve a return on their money. CA is a glimpse into what the future holds for the Federal Gov’t. Look at what the emigration has been for business and the wealthy. We are not attracting what we used to, and they want to raise taxes on these people/Co. Look around the country, which states are doing the best, is it those with huge entitlements and high taxes? NO! CA going to be left with state workers and low skilled labor. I can’t wait for the two of them to look at one another, and ask themselves who is going to pay for me! It will be the great come upence!
May 27th, 2009 at 8:22 am
@ex_owner_now_renter
I understand your bitterness about “knife catching” yourself, but yes I can afford a 450K home with 20% down. Diamond Bar is desirable for it’s school not it’s scenic landscape. It’s about being in a city that provides your children the best education for me. That is why Diamond Bar is so desirable. Yes, I agree unemployement, inflation, housing crisis, etc. are all indicators that the housing prices will continue to decline. But I’m not greedy, the last bubble started in 2004. The home I bidded on is selling at 2003 prices. To me that is good enough as the bottom.
@Wonton
Good luck with your home search.
May 27th, 2009 at 8:37 am
moral_hazard and ex-owner, although I agree that prices will fall, and frankly, I’m hoping that it will fall, I don’t see anything funny about a $450,000 starter home. You are mistaken about today’s first time homebuyers; they are not just people in their 20s starting out. In fact, maybe of them are in their 30s and 40s. They may not make $150,000 a year, but they have a nice chunk of cash for a down payment.
I do agree that $450,000 will buy you a mansion elsewhere in the country. But older people do not have the kind of mobility as the younger ones.
May 27th, 2009 at 9:29 am
Let’s not reduce our principles, but perhaps reduce the principal on loans.
It’s means It is and Its shows ownership.
You didn’t bidded on a home, you bid on a home, even in the past.
And really, why the vitriol directed at current home buyers?
Be smart, not smug.
peace
May 27th, 2009 at 9:38 am
Arnold, to put it kindly… what the hell did you just say? Where ever you go, there you are.
May 27th, 2009 at 9:40 am
I don’t see the Alt-A/prime underwater owners de-levering in anywhere near the same proportion as the sub primers, either by foreclosure or PRs.
I think it’s time for people to bite it and gear up for a flat economy for many many years. Over 40% of high earner wealth is going to be faithfully remitted to the banks at the expense of consumer spending.
Lucky for the lenders, they’ll be made whole from both ends – PPIP and those who continue to stay current on an underwater mortgage.
This is the biggest scam on the middle class in the history of the world.
May 27th, 2009 at 10:03 am
I think Arnold’s English lessons are refreshing in this day and age of poor grammar and writing.
I can’t speak for others, but the vitriol I spew is directed at the chumps and “investors” that are tripping over themselves to buy still-overpriced houses are creating a price floor of some kind. They are dragging out the return to sanity in the housing market. The always-up psychology is busted and will be for a while so if everybody would wise up, cross their arms, and hold out for a better deal the banks would be screwed even faster and housing’s true value would be discovered. I’m in no hurry myself, I will wait until 2012, and continue to mock those that won’t.
May 27th, 2009 at 10:11 am
Americans are always looking for the next “big thing” that “everybody’s doing”. Once the act of walking away (which is despicable IMO) becomes fashionable and no longer stigmatized (already there), I think the infamously irresponsible Americans will jump on the walk-away bandwagon in droves.
May 27th, 2009 at 11:59 am
Moral Hazard, how do you really feel about people who walk away?
Are you happy with them…
“I enjoy the fact that there are so many stupid 450K knife catchers, since one day that crowd of dummies will run out, and the “inventory” they eventually provide will already be painted and landscaped, etc.”
Are you agreeing with them…
“…if everybody would wise up, cross their arms, and hold out for a better deal the banks would be screwed even faster and housing’s true value would be discovered.”
Or do you despise them?
“…the act of walking away (which is despicable IMO)”
I know that not all of these comments were directed at walkers but the mentality applies whether people made their mistakes in the past and are walking now, or if they are making their mistakes today and walking tomorrow.
May 27th, 2009 at 12:01 pm
Max, you didn’t happen to buy any property in Dowisetrepla did you?
May 27th, 2009 at 12:36 pm
There is nothing immoral about walking away from an underwater mortgage.
May 27th, 2009 at 1:11 pm
Ronald Reagan said, “Trust but verify.” This is how lenders should have viewed their risk position in mortgages. A good credit score can establish trust, but if you want to verify that the mortgage will be paid back you have to have severe consequences in place if the mortgage does not get paid. Unfortunately for the lenders, in a lot of cases the consequences of paying are greater than the consequences of walking away.
May 27th, 2009 at 1:34 pm
And conversely, there must be consequences for lenders who invent and market defective mortgage products, especially when the propagation of those products have put otherwise responsible people in financial peril.
I think the non-recourse aspect addresses this nicely.
May 27th, 2009 at 2:00 pm
I get a kick out of how people always refer to this past bubble as being a result of a Fed that kept rates too low, then go on to justify how things are stabilizing and are on the verge of turning.
**********************NEWS FLASH**********************
THE FED IS CURRENTLY KEEPING RATES TOO LOW. WHATEVER THE HOUSING MARKET IS WHEN THE FED STOPS SPENDING HUNDREDS OF BILLIONS TO MANIPULATE RATES (in a few months to a year)…….Housing will crash AGAIN!
Then, in 2015 as housing plunges another 30% people will write about how the housing market is crashing because the Fed kept rates too low way back in 2009-2010. They will write that as the FED spends trillions manipulating 30 year mortgages down to 2% to save us from the bad deeds done back in 2009.
And the cycle continues until those who lend us their money put their foot down.
May 27th, 2009 at 2:25 pm
“especially when the propagation of those products have put otherwise responsible people in financial peril.”
There you go again Benzy, blaming banks for the decisions of those poor borrowers. I don’t have any problems with people walking away. Heck, if my home is worth half of my mortgage, I’d walk too. But lets not blame banks for putting “otherwise responsible people in financial peril”.
You’re a borrower making $4,000 a month and I’m a lender. MAYBE I will guide and manipulate the application to qualify you!! But the bottom line is, your monthly payment will start at $3000 a month and in a couple years, it will be $5000 a month. Now, are you so stupid as to not understand you can’t afford such a plan? Do you need a degree in finance for this? Are you so weak as to believe my BS just because I have on an expensive suite and tie? Of course NOT!! You’re damn smart and just as manipulative as I am. You will accept my offer, thinking…”ok, I will have to work lots of overtime to even afford the early payments. A couple years from now when the loan will reset, but no worries, because my house will be worth a couple hundred thousand dollars more and I will refinance and pocket some money… blah blah blah”.
You’ve placed your bet, now live with it. Because god knows, had the market continued to move up, you would be singing and bragging about how wonderful your decision was.
May 27th, 2009 at 2:58 pm
You’re straw manning again, Wonton. The people you describe have already been flushed out. I am speaking of those the alt-a and prime borrowers.
I believe that if a bank has the balls to market a pay option arm, then they should have the balls to pay the consequences when borrowers default in masses.
I also believe that if one thinks the onus is on the borrower to regulate a financial system that can bring the entire world to it’s knees, then that person deserves to pay for the fallout.
Enjoy paying your part, Wonton. It’s much appreciated
May 27th, 2009 at 4:00 pm
I think you guys are both wrong. Just because someone is in foreclosure doesn’t mean they were a gambler and it doesn’t mean that the banks screwed them. I was a prime borrower. $140k household income, 750 credit scores, just looking for a nice (not luxurious) home for my wife and kids. But I didn’t overextend myself on the house I bought and I didn’t have to have everything go just right for it to be a long term deal. The pros and cons between staying and walking just became too great. The only reason I felt obligated at all to stay in the house was because we had great neighbors. But when a couple of them lost jobs and the values in our hood dropped by over 60% (yes 60%!) there was nothing left to keep us there. It became a choice between us and the bank. We chose us. I don’t fault the banks for my situation at all. We knew what we were getting into and we knew the risks. We bought anyways. Looking back, I can see our mistakes with 20/20 vision and will be much better off in the future because of what I have learned. But the bank didn’t screw me and I didn’t buy with the intent of turning a quick $100k in a year or two, I can do that by going to work instead. Things just didn’t work out. We will move on, a bit wiser, a bit more cautious, and a lot more focused on the future than the present. I think a lot more people in foreclosure today are in a similar situation to me, not a greedy flipper or a poor bank-tricked victim.
May 27th, 2009 at 4:37 pm
Great article Mark. Can you tell if these banks will start releasing more of these homes? From what I can gather, the longer the banks slow the pain of releasing too much inventory at once. The longer the recovery.
I am seeing in my own neighborhood homes just sitting there for over a year and nothing being done to them. Including the basic maintenance? They wind up getting vandalized, and increases crime in the neighborhood.
So glad your back Mark, been following you for over 2 years now.
May 27th, 2009 at 4:48 pm
Partyboy: Ok, my stance(s) may seem contradictory, but it’s like this: I despise the individuals who sign a contract and then decide it’s not convenient for them to fulfill it. However, I do intend to enjoy the resulting market distress that arises from that very same irresponsible attitude. So someone could say it’s a love/hate thing but I don’t think so because the difference is: I may never choose (or be forced to) to coexist with those people I “despise”, but I may very well coexist in “their house” someday. So to me it’s two separate things.
May 27th, 2009 at 4:51 pm
IOW: Hate the Sinner, love the Sin.
May 27th, 2009 at 5:13 pm
I think banks are waiting for Geithner’s PPIP, i.e. the Trillion dollar Taxpayer fleecing, to be over with before dumping the surely-vandalized properties they’ve got on the market. Unbelievably, the Banks have now petitioned the Gov’t to be able to place bids on their very OWN “toxic”, I mean “legacy” assets! The FDIC at least had the guts to say no to that brilliant idea. (there will be a work-around to be sure) If the banks are in as great shape as the MSM and “the One” want us to believe they are, why aren’t they canceling the grand PPIP theft?
May 27th, 2009 at 7:02 pm
Benzy “There is nothing immoral about walking away from an underwater mortgage.” – Not immoral, just irresponsible? What shade of gray do you prefer?
May 27th, 2009 at 7:44 pm
David The Renter? How long did it take you to save 90K? so you can buy at the 2003 price right before the bubble? (didn’t home go up since 1996..through 2003+.. that would be 7 year of appreciation.. hmm!.. you’re smart!)
I’m happy you’re able to aford it, good for you… and that you’re looking for a good school..maybe necessary (and I take it for your kids..and not you, correct?)
Are you still going to be to afford it in 3 years when it’s valued at 150K-200K?
I’m not bitter.. my friend.. I’m sharing my bad luck, and bad choice in thinking when I purchased in 2006.. with you, others.. so it doesn’t get repeat it.. but hey.. everyone is entitled to a mistake.. GO FOR IT!
May 27th, 2009 at 7:54 pm
Partyboy, my situation is mutual!
When it’s all over.. we’re going to return to COMMON SENSE.. afordability of a home on one’s income (not two!)
..david..wanna buy a tullip?
May 27th, 2009 at 8:00 pm
Benzi..Benzi..Benzi.. “I don’t see the Alt-A/prime underwater owners de-levering in anywhere near the same proportion as the sub primers, either by foreclosure or PRs.”
THEN STOP ASKING FOR PRs, you and the rest of prime folks.. SUCK IT UP.. and TIME WILL TELL IF you’re right… my bet.. they’ll walk.. you’ll walk!
May 27th, 2009 at 8:03 pm
APARENTLY EVERYONE (BANKS/GOV) KNOWS YOU “ALT A/PRIME” PEOPLE WON’T WALK.. so stop begging for a PR! You can’t have it both ways!! YOU LOOSE THE HOUSE OR PAY! (the good news.. yes they are some ..either way you’ll learn something.. !!)
May 27th, 2009 at 9:39 pm
“The people you describe have already been flushed out”
No Benzy, many of those people I described are still around. They’re hanging on for dear life; and many are begging for a bailout.
Partyboy, I feel for people like you and I wish you the best. I wouldn’t put you in the same class as the ones I described. You said it yourself, “I don’t fault the banks for my situation at all. We knew what we were getting into and we knew the risks. We bought anyways”. That’s exactly what I’m saying and respect you for saying it.
May 27th, 2009 at 9:50 pm
Again, ex-owner. I don’t need, nor do I want a principal reduction. My DTI is in the low 20’s, fully amortized.
I only want to be able to negotiate with my lender without the government whispering in each of our ears, telling us both that they’ve got our backs. If we can’t come to a solution, then fine – I’ll fix up the house really nice for “Moral Hazard” before I walk.
Or I’ll stay. But, I’d like to reduce the infinite conflicts of interest that seem to be a part of home ownership these days. It’s just a house, after all.
May 27th, 2009 at 9:56 pm
Reply to Comment 52
@ex_owner_now_renter
The school preference is for my children, not me.
I am aware that prices may or will go below what I pay for, but I’m willing to take the plunge.
My rationale was always if a decent home that I like is selling at 2003 levels, I will be content with that purchase without any regrets.
I appreciate your experience and take it as a genuine warning to others who may not have been through that situation.
Like I’ve said to others, If you can afford a home going by traditional standards of 30% of income to cover mortgage and 20% down then you go buy that home and keep the economy going.
There is never any guarantee that you will keep your job or prevention of a catstrophic event bringing you down financially or an accident disabling you. Shit happens.
But life is short.
Live it and enjoy.
May 28th, 2009 at 7:23 am
@Moral Hazard,
I appreciate your answer and I think your sentiments are shared by many. I disagree with your contension that people sign a contract and then walk if it’s not convienient to pay. It’s not a matter of convienience, it’s a matter of inflicting long-term fiancial damage by continuing to pay much more money for the house than it would be to rent. In my case the difference is $2000 a month. On top of that, the home I “own” (not quite foreclosed yet) is worth ~60% of what the purchase price was. To be quite honest, it is quite inconvienient to walk away because we have kids who have friends in the neighborhood and a level of comfort which is being uprooted because of the move. It’s an easy decision from a financial standpoint, but that does not mean that it is an easy thing to do.
May 28th, 2009 at 8:00 am
Aw c’mon Partyboy, don’t go and put a human face on the problem, it’s going to take the abrasive edge off my comments. I think it’s classy though that you humor my comment-grenades without lobbing them back. You sound like a nice enough, and I can certainly understand the penciled-out reasoning for walking away, but I will always disagree with the idea of looking at a single-family-house like a business. Someone wants a place to live in, they can afford the price, they sign the contract, they move in, they make the payments for x years. The house is theirs. That’s the whole story. That’s it. What happens to the external market should be inconsequential, the agreement has been made. I’m not familiar with a “by the way” clause in the contract. But I can easily swallow all that disdain because the result is so awesome. So please, do walk, and encourage your neighbors to do so as well. It will make housing cheaper and hopefully it will bring down the big banks, replacing them with new, better managed ones.
May 28th, 2009 at 8:01 am
Partyboy… I must be reading different things..
“the values in our hood dropped by over 60% (yes 60%!) ”
versus
“(not quite foreclosed yet) is worth ~60% of what the purchase price was”
Which one is it? down 60%, or down 40%? Did you put down a payment?
And while I feel your pain, I went through it.. you’re right.. not easy.. nighmares.. bad for the family.. leaving good neighboors.. etc
..you my friend as head of household.. have to make a decision! Your situation is not that bad.. with 140K.. you can still make the payment right?
- comfort, stay with neighboors, don’t move
OR
- explain the move, teach your kids.. and do what you’re not ok with it.. “I disagree with your contension that people sign a contract and then walk if it’s not convienient to pay.” ISN’T THAT WHAT YOU’LL DO?
Appears to me .. you haven’t learned anything yet! What do you want, as you’re making 140K.. you’re not ok with walking, but you’re ok with begging? and you’re not ok with paying the mortgage… well it’s $2000 more..
May 28th, 2009 at 8:06 am
double standard!
May 28th, 2009 at 9:05 am
“I only want to be able to negotiate with my lender without the government whispering in each of our ears, telling us both that they’ve got our backs. If we can’t come to a solution, then fine – I’ll fix up the house really nice for “Moral Hazard” before I walk.”
I agree with Benzy on this.
The banks look at us as a number, a figure in their stats, and to borrow a phrase from moralharzard, they don’t put a human face to the problem. So they will treat, talk, negotiate with you, and will do whatever they think will benefit them financially. You should be able to do the same thing. If walking away is best for you, then do it. I don’t have a problem with that. I wouldn’t advise others to do the same though. Everyone is different with various factors to consider.
May 28th, 2009 at 9:27 am
@ ex_owner,
My mistake on the 60% of value comment. Purchase price in our hood was ~$500k and now selling for $200k. So 60% OFF not 60% OF. My bad.
First of all, I have made a decision. I am not on the fence about what to do. I was just stating that the housing has not officially been taken back yet. As a matter of fact, we started the lease on our rental May 1 and have been moving to the new house slowly all month. The new house is only a mile or so away from the current one. We are moving all of the big stuff tomorrow. The sale date for the house is set for June 12.
I don’t really understand what you are asking/stating in the rest of your post. I will try to respond though…it seems as though you think that since our household income is okay that we should try to stick it out. There are other factors at play here. In short, we had a home in Phoenix which was in escrow (we were selling) when we bought in CA. We closed on the purchase and then the sale in Phoenix fell out of escrow. The sale would have been slightly above the break even point for us. That house stayed on the market for 10 months before we were able to sell at a $60k loss. That was a brutal year. The ten months of double payments (two houses) took our savings down to nothing and racked up a bit of debt. We could have walked from that house but didn’t and we regret it to this day. The people who say that “it’s the right thing to do” are living in a theoretical state and not in reality. What really sucks is that I wanted to make sure that our credit score was maintained so that we could refi the loan on the current home if need be. Well with the LTV at 250%, refinancing is not really an option. So my decision to walk is not really based on convienience, but is based on experience and realizing the real world cost of trying to do the right thing and maintain spotless credit.
Anyways, I am okay with walking and I am certainly not begging for anything (”you’re not ok with walking, but you’re ok with begging?”). And the $2000 a month savings is a big deal. It is going directly into a savings account and will help us save over $100k by Jan 2012. That’s the goal. I think that if we decide to get back in the market at that time we will be able to. And if not, I’m fine with that too.
May 28th, 2009 at 9:36 am
@ Moral Hazard,
“I’m not familiar with a “by the way” clause in the contract.”
Obviously we look at this very differently. What you are saying definately has merit, but what a mortgage contract boils down to is an “If-Then” contract. If you make all of the payments, then you own the house. If you fail to make the payments, then we take the house back. There is much more verbage but that is the crux of the agreement. The fact that a purchase money loan is non-recourse (in CA at least) solidifies what I am saying. I hope that you are able to take advantage of the homes being lost to foreclosure and I hope that maybe I will be able to do the same after service my time in credit jail.
May 28th, 2009 at 9:56 am
@ Wonton,
Totally agree with you about Benzy’s quote. It is spot on. I appreciate the sentiment but don’t feel bad for me. I had the option to wait and I didn’t. In hindsight, I should have. I don’t appreciate getting chastized by some people for doing what I feel I have to do but everyone is entitled to their opinion. I have a much greater obligation to my family and the security of our financial future than I do to the bank. It’s not an ideal situation by any means. I would like to be in a position where fulfilling the mortgage obligation and stabilizing our financial future were both feasible. It just didn’t work out that way.
May 28th, 2009 at 10:08 am
partyboy, I know you said “don’t” but I do feel bad for you anyway. It’s like investing in the stock market, you’re losing big on one stock, so you sell and buy another one, and lose some more. Sometimes everything seems to just go wrong.
“I have a much greater obligation to my family and the security of our financial future than I do to the bank.”
Right on, I respect the above statement.
May 28th, 2009 at 10:59 am
Partyboy, you are right on the money. We are in the exact same situation here in Phoenix, and after waiting and crunching the numbers and looking at every possible option, for the sake of our children and our long term financial survival – we’ve decided to walk. Your earlier post sums it up exactly – we knew what we were getting into, we could afford the house, we love our neighbors, but we paid 340k and it’s now worth 190k – and still dropping. We’ll do our time in credit purgatory, save like crazy, and start again in a few years. My only moral obligation is my family – not to the bank. They have no moral obligation to us – so why we to them? Good luck and best wishes…you are not alone.
May 28th, 2009 at 4:17 pm
Partyboy, you’re right about the if-then contract, but everyone knows that after a foreclosure the bank almost never can recover the difference between the resale price and the outstanding loan principal. The difference is “eaten” by the banks. Seeing that you were a well qualified, up-and-up apparently-low-risk prime borrower, the bank put its good faith into your good faith and lent you a massive amount of cold hard cash. From a purely Sunday School perspective, the amount of loss that the bank has to now “eat” is tantamount to theft. Yes I said it. Not being mean, just calling it what it is. But thank you for going through with it. The bankers may not be deserving of the hit coming from you, but it serves them well for all the sub-prime shenanigans they did that has subsequently been papered-over by the the Taxpayer.
PS Alright Amie! walk! walk! walk! It’s in all the rage now, everyone’s doing it, even Kris Allen! Do it! Encourage your friends as well, all at once! do it! (And do it quick enough so that not even the treasury will have the ability to bail the bankers out in time.)
March 27th, 2010 at 6:08 am
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