First published in The Mortgage Pages – June 19th 2009
- SF Bay Area Median House Price Jumps 12.3% — Mid-to-high end sellers begin to capitulate
- More transactions will reduce prices for the mid-to-high end price bands
- Mid-to-high end transactions increasing substantially as a pct of total, may put continued pressure on Case-Shiller
- CA May House Sales Anemic — only 2.9% m-o-m. Half of sales are foreclosure-related
- Organic sales languishing down 70% from peak levels
- Y-O-Y sales inflection point coming in July
- Mid-to-high end market cracking. Bid and Ask prices never wider
**We chose one of many weekly research reports and notes for this blog. For more information on our variety of absolutely unique research offerings please see the website.
It’s Groundhog Day — feels a lot like 2007 with respect to mid-to-high end housing. In 2007 sales slowed considerably in Q4 through Q1 2008 when all lenders pulled exotic loan programs at the exact same time. House prices were hovering near record highs and the market was immediately re-priced according to the much lower affordability offered by the new vintage loan programs. As sales picked up, prices fell catastrophically — down 55% from the peak mid 2007 within 18-months. The wash out from this fall will be felt for years through loan defaults and foreclosures due to the epidemic negative equity in created.
Here we sit again but this time with the mid-to-high end properties staring into the abyss. They have not fallen anywhere near what the low-end has mostly because high-end borrowers were given more exotic, high-leverage loan programs such as Pay Option ARMs, 5/1 interest only loans, and 100% HELOCs to live off of. Arguably they have more reserves and better jobs, which have kept them paying for the depreciating asset much longer than with Subprime borrowers. The Alt-A and Jumbo Prime borrowers simply have loans that afforded them more time. But that has all changed and defaults across this space are surging. Foreclosures are coming, but not before the market begins its slide that ultimately will take the mid-to-high end market down 50% to 70% from its peak 2007 levels.
May CA Home Sales Anemic
This morning, DataQuick’s CA May home sales report was released to show an anemic 2.9% m-o-m increase in total sales to 39,051. It was the weakest May m-o-m reading in years. A total of 19,950 were foreclosure resales and 19,091 were organic sales — me selling a home to you.
Organic sales gauge the true health of the housing market and are off 70% from peak levels. Since the beginning of 2009, CA has enjoyed double digit y-o-y comp sales increases but the gap is narrowing and an inflection point is coming in July unless sales can find a way to increase sharply going out of the busy season. I think many will be surprised when the media is reporting negative CA comp sales in July through year end.
Below is a chart of 2006 through 2009 CA house sales. Yes, 2009 (red) is above 2008 (yellow), but 2008 was one of the worst years ever…2006 (blue) was a good year. Total 2009 sales are not as strong as they should be with all of the stimuli being thrown at the housing market.
When overlaying new Notice-of-Defaults, which are averaging 45k over the past 6-months and foreclosures, which have been held artificially low for the past 6-months, it is obvious that supply is everywhere. And foreclosure-related supply typically only accounts for 35% to 40% of total supply — the bulk of housing supply is from organic sellers trying to sell in order to move and re-buy. With foreclosure-related and potential foreclosure-related supply alone still greater than total sales, a true market bottom is not near.
The chart below highlights the sales mix — foreclosure resales vs. organic sales (blue). Organic sales near an all-time low underscore the epidemic negative equity in the state and are a leading indicator for the mid-to-high end market. Remember, most have to sell a home in order to re-buy.
- SF Bay Area Median House Price Jumps 12.3% — Mid-to-high end sellers begin to capitulate
Additionally, this morning DataQuick put out a report on the Bay Area house sales showing a price surge of 12.3%. DataQuick attributes the spike to more Jumbo houses selling. This is the first definitive sign that the mid-to-high end housing market is going through its dramatic revaluation period. The takeaways are:
- Total Bay Area Sales at 7447 in May vs. 7139 in April — up 4.3%
- Median price rose 12.3% to $341k from $304k
- Median price down 33.9% from $517k in May 2008 and down 48.6% from July 2007 peak
- 25.5% of home sales were in Jumbo category
- 983 properties over $800k were sold — 13.2% of total. In April only 699 props over $800k sold or 9.8% of total
Until a few months ago, sales at the mid-to-high end were very low and foreclosures almost non-existent — sales are still much lower than new Notice-of-Defaults in the Jumbo price bands. Coming into this year, most mid-to-high end homes that did sell were the best of the best — those that could afford to buy, bought the house they wanted.
Sellers by and large have been unrealistic about their ask prices and remain that way. But over the past few months, transactions are finally occurring because of the more stable Jumbo financing, lower rates, tax benefits, short sale opportunities and massive supply to chose from. The National Assoc of Realtors recently cited high-end housing supply at 40-months nationally.
The chart below show the ask prices and where sales occurred for Danville, CA. For those not familiar with Danville, it is the city where the pilot who landed the plane in the Hudson is from. It is a SF bedroom community with average list prices still over $1.3 million but sales are going off in the mid $800k’s. The price point at which sales are occurring is the market and where values will gravitate as sales occur. This is a big problem.
Remember, volume precedes price. Mid-to-high end sellers remain unrealistic about the values of their properties — likely because so many owe so much more than the homes are worth. But those with equity that are ok with the past 20-years of price appreciation or who know that they can steal a home in another area are accepting offers this selling season far below list prices. Others are opting for short-sales to which the banks are warming up. With rates down and prices down finally, two years of pent up demand in the mid-to-high end market is manifesting in more transactions. This is having the effect of pushing up median prices.
The chart below shows how prices crumbled as sales volume increased in 2007/2008. In Jan/Feb 2008 values were only down 20% from the peak. As sales picked up and first timers and investors bought all the way down, values plummeted another 45%.
This is the exact dynamic we will see with the mid-to-high end market. Transactional volume will drop prices considerably but because of a relatively stable demand for low-priced foreclosure-related properties, the sales mix will have the effect of pushing up median and average house prices. However, because the Case-Shiller looks at pairs sales, as mid-to-high end transactions increase as a percentage of total sales it should have the effect of pushing down the index. Is anyone prepared for rising median and average prices and a plunge in the CS?
Bottom Line: Mortgage and housing news flow is about to get really interesting.
Ps — Something to keep an eye on…in every mid-to-high end area that I have studied there is an overwhelming number of once listed properties coming up for rent. The thought process is “lets rent for a year or two and sell when the market comes back”. We know that won’t happen — but what will happen is that the massive supply of mid-to-upper end rentals priced very reasonably relative to the cost to buy and own will pull prices down faster and further.
Best Regards,
Mark Hanson
Mark@MHanson.com
July 5th, 2009 at 9:44 am
“In all honesty ex_owner, I don’t care about “some places”, only MY PLACE.”
Wonton – I thought you were a renter.. or did you just buy?
July 5th, 2009 at 10:28 am
ex_owner, I’m a renter. When I said MY PLACE, I’m talking about the area that I’m interested in living. I want those particular areas to go down so I can pick up my dream home cheap:)) I don’t care much about any other area. The fact that some areas have gone down 80% doesn’t mean much to me.
July 5th, 2009 at 2:40 pm
Mark –
I knew you were in the east bay, but didn’t realize it was Danville!
My wife and I sold our house last year in Moraga and became renters in San Ramon, partly because of your blogging. We had been looking to buy something in westside Danville (established older area, for those unfamiliar), and decided to wait and watch. Well we’ve probably already ’saved’ some $300k, if not more, by cashing in our chips and sitting on the sidelines.
Now the wife is getting anxious to buy, and I keep telling her to wait a little longer, as I don’t think we’ve truly seen capitulation yet in Danville. Do you sense it is imminent, or not until next year?
July 5th, 2009 at 8:21 pm
Inflation isn’t as simple as printing more money. If it were, the Fed could control the economy and create inflation or deflation at will. And clearly, the Fed cannot do this. Our economy is just too big and complex.
Our economy is far more credit and debt based than it is money-based. I’ve read estimates that there is $60 trillion in derivatives alone, compared with about $10 T in money/cash. Even if the Fed were to print $1 T fresh bills, it would just be a drop in the bucket.
July 5th, 2009 at 11:22 pm
It’s a credit contraction in process as defaults rise. This means that most things purchased with high leverage are going to be coming down in price. The average American, this mean residential real estate.
Although most commodities are very sensative to the demand/supply pressures, their respective futures markets are subject to speculative trading via leverage. So we should see a lot of volitility in the CRB over the next few years.
July 6th, 2009 at 12:29 am
Martin, RE San Diego I’m also following closely and have a hard time understanding lack of inventory, etc. What I do understand is that the market is being manipulated & propped up and this cannot continue indefinitely.
As far as inflation/hyperinflation goes, anyone who believes this will occur in the near future should be leveraging themselves to the max and buying RE.
Martin, no need to sweat as there is absolutely no reason for prices to rise. No jobs, no economy, etc
July 6th, 2009 at 7:57 am
All this talk about “hyperinflation” is completely off the mark. Hyperinflation, by definition involves a wage-price spiral. The only modern day example is Zimbabwe where inflation is running 27,000% per year, and you can now buy a legitimate one hundred billion ($100,000,000,000.00) dollar bill on ebay for 4 bucks US.
Make no mistake, if true hyperinflation hits, we will see homes going for a billion dollars in the next 10 years. We will also see very high unemployment, possibly a war with china, and possibly a regime change by force.
I certainly dont think this will happen, but at the same time, please spare me the idea that in “hyperinflation” home prices will not rise dramatically. They most certainly will but again the chances of this happening in the USA is probably on the magnitude of 0-5%
July 6th, 2009 at 8:07 am
Redfin,
I’m a broker in Danville. WAIT!!!!!!!!!!!!!!!!!! Prices are going to crater in Danville in the next 6 months.
July 6th, 2009 at 10:02 am
I just can’t understand how anyone can be comfortable in telling other people to BUY, SELL or WAIT. We all can determine if we think the market will go up or down… but to tell others what to do is outrageous. This is the reason why Jim Cramer is well hated and people cheered when John Stewart kicked his ass. Not that Cramer’s a stupid man; but that he’s all about telling people what to do. And when he’s wrong, oh well… on to the next show. Well, as Stewart said, “It ain’t a fukken game”.
July 6th, 2009 at 11:25 am
“I certainly dont think this will happen, but at the same time, please spare me the idea that in “hyperinflation” home prices will not rise dramatically.”
Well said. Everyone seems to forget to that real estate is a necessity in that we all need to have a roof over our head. If we have hyperinflation rents will explode (thanks to the “wage” part of the wage price spiral) while mortgage payments remain the same for those who have fixed 30 year terms. Those who get ARM mortgages will be just as F***ed as renters.
I agree though, hyperinflation is very unlikely.
July 6th, 2009 at 11:34 am
Umm.. yeah… you forget to mention.. that during a hyperinflation.. there will be many new dollars replacing old dollars.. your mortgage will get adjusted acordingly TO THE NEW DOLLAR… or you actually think the BANKERS will take a pay off on the old balance with a devalued dollar (if you have any left after buying food).. I think NOT!
July 6th, 2009 at 11:36 am
The hyperinflation would have bigger impact on the economy than the deflation we’re going through right now… I too don’t think that will happen… best case scenario… back to the 70’s inflation… after we’re done with deflation…
July 6th, 2009 at 11:42 am
Hi Mark,
I think the nation is finding it difficult to recover from one of the deepest downturns of the housing market so far.The housing market scraped bottom. However, I think the situation would deteriorate even further since
* Massive Job losses
* There Is No Demand
* Since May, Mortgage Rates Have Gone Up
* Too Much Supply
* Option ARM – The Next Wave of Default
* Market Psychology
Read more http://www.housingnewslive.com/is-the-housing-market-recovering.php
July 6th, 2009 at 12:00 pm
Otis,
I think you’ve got it wrong… If one can’t buy, or keep payments up to date… there is always the rent option ! I know I went through it.. and many more have or will…
(RENT is to consider a necessity …in regards to a roof.. many live just fine in a rental..buying IS a gamble.. for quite a few years now.. it’s no longer a place to live.. !… however we’ll soon return to that notion..that is a place to raise a family in, it’s a roof over the head.. when we’re done DEFLATING!)
THIS CREDIT JAIL IS REALLY GETTING PACKED!!!!! CAN I GET AN EARLY RELEASE???…. Can the banks release their shadow???… Can loans flow again? I propose 1 year jail credit, for anyone that bought during the peak! and lose their investment (I mean home!) CAN WE DO THAT?? stop delaying FORECLOSURES..and encourage them! HAVE A QUICK BOTTOM.. AND START RECOVERY…. CAN WE DO THAT??? or we GOING TO DRAG THIS JAPAN STYLE??
July 6th, 2009 at 1:35 pm
“Umm.. yeah… you forget to mention.. that during a hyperinflation.. there will be many new dollars replacing old dollars.. your mortgage will get adjusted acordingly TO THE NEW DOLLAR… or you actually think the BANKERS will take a pay off on the old balance with a devalued dollar (if you have any left after buying food).. I think NOT!”
Uhh – not exactly. You get a mortgage for 400K. Hyperinflation starts, you pay it back very very cheaply – end of story. That or you issue a writ of mandamus and get a deed free and clear (banker’s choice).
Either way, if there is hyperinflation, there will be wars, massive unemployment, and a select group of buyers (pre hyperinflation) who will do far better than the rest of us renters and we will be very very sorry we didnt buy now.
Is this going to cause me to buy now? Nope – hyperinflation is a real longshot. Im willing to accept the risk, but I understand fully well that if I am wrong, I am hosed.
July 6th, 2009 at 2:10 pm
ex_owner_now_renter
Don’t confuse real estate with the CPI.
The CPI does not include realestate or stocks, never has. Investments are not included on the upside so why should they be included on the downside?
I predict serious inflation in the things we need for every day survival like food, gas, medicine. Realestate and stocks may follow eventually but it will be the last to inflate.
July 6th, 2009 at 2:17 pm
No More Bubbles Says
You say gold would already be at 3k if there was going to be inflation?
Ever heard of naked shorting? Gold, silver, plat and palladium are the only items in the world that the SEC will turn a blind eye to when it comes to naked shorting.
If you have someone like Goldman Sachs (on behalf of the fed) selling unlimited amounts of paper gold (with no real gold to back it up) how long before the price declines?
You can’t sell unlimited amounts of something you don’t have, except in the precious metals markets, it is illegal everywhere including metals but they for some reason turn a blind eye.
Only an idiot would be unable to make money by selling unlimited amounts of gold and at the same time betting the price will go down. This is what is going on.
Their game will not work for ever.
July 6th, 2009 at 2:26 pm
One last post,
I find it interesting that I am the lone wolf here on inflation.
What is it that they say about the majority?
Of Course this board is just microscopic slice of the world out there but in keeping score you deflationists would be happy to know that CNBC is by far agreeing with you.
And to clarify again, Real Estate declines and stock declines are not deflation! Deflation is when food, gas, hair cuts, medical visits and utilities decline, and inflation is when those same items rise.
July 6th, 2009 at 3:51 pm
“Otis,
I think you’ve got it wrong… If one can’t buy, or keep payments up to date… there is always the rent option ! I know I went through it.. and many more have or will…
(RENT is to consider a necessity …in regards to a roof.. many live just fine in a rental..buying IS a gamble.. for quite a few years now.. it’s no longer a place to live.. !… however we’ll soon return to that notion..that is a place to raise a family in, it’s a roof over the head.. when we’re done DEFLATING!)”
Actually no, I have it quite right. Understand what we are talking about here, the academic exercise of HYPERinflation. IF that happens (assume 27,000% zimbabwean increases), your rent of $1,000 a month will quickly baloon to say $500,000 a month.
Now, in this case its likely bank loans are impossible, a home price may “only” be the equivalent of say 4-6 months rent. In this case the house rises from say $400,000 now to “only” 2 million dollars. In real terms, the owner gets hosed as his place did not rise nearly as much as inflation, but in an inflationary environment, he would be far better than the renter who is shelling out hundreds of thousands of dollars a month in a hyperinflationary environment.
Again, this is true ONLY if we have hyperinflation, which is highly highly unlikilely. Just understand if it does happen, us renters will be the clear losers in this mad max world of hyperinflation.
July 6th, 2009 at 10:33 pm
Forgive me for being a bit confused here, but why would inflation or hyperinflation be a problem for renters? What possible benefit would landlords have by renting properties for more than what can actually be paid by renters? They would face massive vacancies and lose money each month on thier empty rentals. I understand that a home is worth what someone is willing to pay for it AND able to borrow (in most cases). But rent prices are based on what someone can actually afford since rent is paid for with cash each month. If rents can be sustained at say $10,000 a month, then it must mean that the renters are bringing in ~ $40,000 a month. Correct me if I am wrong here, but rent prices are set at a proportion to what renters actually take home. Therefore, the proportion of income which is used to pay the rent should remain approximately the same, whether the economy faces inflation, deflation, or doesn’t change at all. If what I am saying is correct, then where is the danger for renters in the future, regardless of changes to the economy?
July 7th, 2009 at 6:01 am
“Forgive me for being a bit confused here, but why would inflation or hyperinflation be a problem for renters? What possible benefit would landlords have by renting properties for more than what can actually be paid by renters? They would face massive vacancies and lose money each month on thier empty rentals.”
THe key to a true case of hyperinflation is a “wage-price spiral” meaning that as cost rise, wages rise, causing costs to rise again, causing wages to rise again, etc. etc. In each case the one feeds off the other, pushing each other higher. Its very rare, but it happens. (Zimbabwe, Weimar Republic, Turkey, etc.)
So to answer your question, the rent will be 10K a month because yes, those 75% who are employed are likely making 40K a month or much more (gotta pay for that $100 loaf of bread).
Contrast that with the owner who bought pre-hyperinflation and pays 4K a month to service his debt – month after month for 30 years. If he too stays employed, hes now making 40K a month as well. Hes very poor (as are most people as costs outstrip wage gains), but at least he knows his debt payments are fixed forever, versus the renter who faces forever spiraling rent increases.
Again, not saying this will happen, or even that its likely. But if it does, renters are far more screwed than owners.
July 7th, 2009 at 6:06 am
BTW – the flip side is deflation. If there is deflation, the owner is screwed because his payments stay fixed while his wages get smaller and smaller as the economy deflates and his (and all employers) are under pricing pressures cutting salaries (as is the case right now).
By contrast, the renter has diminishing wages too, but as you note, his rent is commensurate with his income, meaning it falls based on what he is willing to pay. In this case, the renter wins, the owner is hosed.
July 7th, 2009 at 10:51 am
Goood lord, why did I have to pick today to stay home from work? Ohhh mannn, I cant’ escape that guy Michael Jackson. He’s on every freakin channel.
You know folks, you don’t matter… you could be a great father, mother, sister, brother, friend, doctor, engineer, teacher,brave soldier fighting for our country… it doesn’t matter, you don’t matter. BUT if you’re a great singer, dancer, athelete, actor… then you’re god. You can be a freaken perverted killer, and you’re still a hero. That is why this country is headed to hell, I tell ya.
Sorry to be off topic.
July 7th, 2009 at 4:05 pm
You guys won’t believe how many realtors we’ve gone through that simply won’t help or do their job for very long.
Any demand put on them will make them run. They simply do not want to deal with foreclosures, searching, hunting, etc.
All they want is someone to quickly make an offer and buy….
Pathetic.
July 7th, 2009 at 5:08 pm
If you take away the boom years sales (boom sales) and calculate as normal sales, would that put sales more inline with historical numbers.
I know 4 people now who have not paid their mortgage in over 6-8 months after the banks were not willing to work with them.
Why would banks hold on to property that is still falling in value. Is it because of the moratoriums or could they have a plan.
I would think once the mid to high end really start to move this would push mid to low, lower. I see more bigger homes asking less and competing with what was thought to be mid. But, the median could rise just like it did when prices in OC were actually coming down.
I would really like to know why the banks are holding this inventory if they are not really trying to do workouts.
July 7th, 2009 at 7:08 pm
Noz, I’ve gone through 4 realtors already so I know what you’re saying. More over, what is up with realtors in T-shirts and jean or just in casuals? Sometime I see a group of people walking through a house and it’s hard to figure out which one is a realtor.
July 8th, 2009 at 9:57 am
From what Mr. Mortgage and many others have been saying, we’re looking at absolute carnage in real estate for the next 5 or more years. The unemployment numbers alone should be enough to cause serious concern with the economy. Add to that the Option ARM resets, commercial real estate collapse, foreclosure shadow inventory, etc. and we have a real mess in the making.
What’s shocking to me is that most people think everything is fine. You go to the mall and people are happily shopping away. If you watch the TV news, they mention bad unemployment numbers, but don’t go beyond that. Does anybody else have the same reaction?
July 8th, 2009 at 10:37 am
“California accounts for an outsized share of mortgage loan defaults. A stunning 135,431 homeowners in the state were hit with notices of default in the first quarter, an increase of 11% from the earlier peak in the second quarter of 2008, according to real estate information service MDA DataQuick. Foreclosure sales in the state have been moderating after averaging a high of 26,500 a month last summer.”
“But just recently, said the 37-year real estate veteran, there’s been a surge of requests for so-called broker price opinions, or appraisals that lenders often ask brokers to provide just before they put a foreclosed property on the market.”
This article is hilarious…apparently the Messiah Barry O’s plan has already “approved” 240,000 “borrowers” (I bet that number includes every person in a household individually…probably including the family pets) for help. Doesn’t mean they’ve actually been helped, just approved:
“The Obama administration is racing to avert as many foreclosures as possible. So far, more than 240,000 distressed borrowers have been approved on a trial basis under the Home Affordable Modification Program, in which their loans are being reworked so monthly payments are targeted at 31% of their gross income, said Seth Wheeler, a senior advisor to Treasury Secretary Timothy F. Geithner.
Wheeler said the program’s goal was to prevent as many as 4 million borrowers from losing their houses over the next 3 1/2 years. And in August, Treasury officials hope to bolster those efforts with guidelines that could encourage banks to allow more borrowers to sell their properties in a short sale, in which the lender averts a foreclosure by accepting less than the balance of the mortgage.”
July 8th, 2009 at 10:54 pm
ok can anyone help me out here ! i have a friend ( real estate agent) who says that real estate market has turned and going forward now! he’s been saying this since 05 when housing started to collapse while i was say the oposite ! he’s been blinded from the start ! well now in some areas of socal , moreno valley area in particular ,the cheap homes are getting multiple offers . i continue to tell him this isnt over yet and it looks to be a false bottom and not be fooled ! so today he responds with this {Hi guys,
just to let you know i made 14 offers for one couple and they havent won an offer yet. They even went $30,000 over on one of the offers !!! } this is his way of telling me im wrong ! we had a heated discussion about the market recently! he said i was to negative and i dont know what im talking about !that prices will not fall anymore and things will improve from here on out ! does anyone here have a good idea or way i can respond back to him regarding multiple offers and price increase just temporary and wont last ! im not very good at writing this type of info out in a short but firm way ! any help would be appreciated ! thankyou
July 9th, 2009 at 8:17 am
Mee,
The market didn’t start colapsing in 2005 and he’s a keeper! Tell him, you won’t smoke it, cause it’s no legal yet!
July 9th, 2009 at 9:11 am
mee, assuming that you read field check group’s website…I would say that you need a new realtor…#1 rule…DON’T TRUST ANYONE!
July 9th, 2009 at 10:07 am
Mee, your realtor was correct. You should have bought in 2005 and sold back to ex-owner in late 2006. You can do that today, buy now and sell back to ex_owner for a huge profit in 2012 when he’s let out of jail.
July 9th, 2009 at 10:13 am
MEE – why try and covince him otherwise. If he hasnt been dissuaded by the carnage from 2005-2009 he never will. Moreover, he is eventually going to be right – even if its not 2009, or 2010, but maybe 2012. At that point, if you are saying the same, thing, you will be wrong, and he will say “see I told you so”!
Bottom line, get different friends…
July 9th, 2009 at 11:23 am
Wonton…you’re still on the side line..advising people?… I thought you can’t understand why so many people tell others what to do?? (buy/sell/hold)…and look at you…joining it… put your money where your pipe ( I mean mouth ) is!
I want you to experience some gain (in foreclosures around you) afer you buy!
You’re so easily MANIPULATED! now go back and watch some more MJ!
July 9th, 2009 at 11:30 am
ISP,
While I aggree wih you, you forgot some numbers…
even if its not 2009, or 2010, 2012, 2014, 2017 but maybe 2021
July 9th, 2009 at 12:48 pm
Geeze ex_owner, I would never advise people to buy or sell; especially trading or flipping homes. In my post to MEE, it’s obvious that I was only kidding around, trying to bust your balls.
I am still on the side line and believe me, I am not easily manipulated. If I were, I would have bought much much much sooner.
July 9th, 2009 at 6:18 pm
MEE thats amazing ! i had someone recently tell me the same thing from the same area! if he hasnt figured it out by now he never will ! and like is said above eventually he will get it right ! and thats what he’s probably banking on . dont waist your time with this guy ! if anything refer him to this site ! and just maybe , he’ll get it !
July 9th, 2009 at 10:28 pm
Mee,
What is your price range and where are you looking?
Sub 400K housing in middle class neighborhoods are moving as that is where first time buyers and investors are looking.
If you are looking 700-1M, I think there is some activity and largely dictated by is there a good deal in a good neighborhood.
In the 1M+ range there is little movement, again unless there is a screaming deal (ie. one of the bank’s shadow inventory homes is released, a seller desperate for a short sale, etc.)
I think what you will hear next is that the number of foreclosures in June is down over May and down year over year. That’s entirely possible. If you look at the multiple subprime/Alt-A/Option Arm charts, we are in a lull right now. Combine this with foreclosure moratoriums and banks taking the bury the head in the sand approach and there isn’t much action.
Another interesting thing is loan mods. Its amazing that anyone is encouraging a bank to just eat it. If it starts happening in significant amounts, everyone will be telling banks just eat it. Yet when push comes to shove, banks aren’t willing to foreclose. Hopefully cash flow is going to get the better of the banks at the Alt A reset time. But back to loan mods. Buyer buys a home for 500 in 2005 and puts down 20% with a 400K mortgage. Price drop of 30% puts the house at 350K. Bank eats 50K? Does anyone realize that is still a 100% financed home? 125% for Fannie Mae–outrageous, especially when that home likely has more room to fall.
Regarding cost of foreclosure, hopefully the banks are going to wise up. The cost to foreclose a 300K house and a 1.2M house are approximately the same. Fees are set, the trustee doesn’t take a percentage cut. So I can see why it doesn’t make sense to spend 80K to foreclose a 300K house. But if you can take that 80K and foreclose on a 1.2M house–why not. There’s a lot more bang for the buck so to speak.
One final note–there is demand for over 1 million. The issue is that the expectation of what you get for a million is more in line with 2000 levels when a million got you a 4000 square foot house in a nice neighborhood versus 2006 levels when a million got you a 800 square foot bungalow that was kind of run down. The longer the banks hold it, the less they are going to get. Sell now, take the money and run.
July 10th, 2009 at 10:42 am
“Buyer buys a home for 500 in 2005 and puts down 20% with a 400K mortgage. Price drop of 30% puts the house at 350K. Bank eats 50K? Does anyone realize that is still a 100% financed home?”
If that’s a 30 year fixed it makes little sense for the bank to eat it with PR.
But if there’s a recast in 2010, and despite the likely temporary rate drop the borrower is squeamish and entertaining walking, perhaps a mod in the form of converting the ARM to a fixed is a reasonable approach to avoid foreclosure.
If the borrower approaches the bank and the bank flat out rejects a mod, then perhaps it’s time for that borrower to “free up” the home for the “droves” of qualified buyers sitting on the sidelines [translated, foreclose and send the home into the shadows].
July 10th, 2009 at 8:11 pm
Benzy,
While I understand loan mods take a variety of forms (interest rate deductions, extended terms, etc.), most bloggers I have studied seem to say that the interest rate modifications to the extent they can be done, have been done. Extended terms saves only a few hundred a month, and the other “modifications” are just to extend Option Arm type loans. Most blogs imply the only way to save the crisis is a principle reduction.
However, to your point if it is an ARM about to Recast it would help. Again, however, my point is that if the lender takes it in the chin and refies at 100% or worse yet 125% loan to value, what happens if the property takes another 20% hit. The owner is under or close to under already. We have all just delayed the inevitable.
I go back to my original premise. Bang for the buck. There is a market and an economic justification for lenders to initiate the foreclosure process on pricier homes, but lenders seem to be foregoing that in lieu of keeping the loans on their books despite 0 cash flow or even negative cash flow (ie. this 1M house is only going to be worth 800K a year from now so their inaction effectively cost them 200K in value)
July 12th, 2009 at 8:01 am
Danville Broker –
Is there something specific you are basing your ‘6 month’ forecast on? I need something tangible to share with the wife…
July 12th, 2009 at 10:55 pm
redfin,
hello, are you kidding? How about unemployment? The state of California going under? Use your brain. You’ve waited this long, do you really think prices are going to bounce back up? What’s six months? Nothing.
July 14th, 2009 at 9:41 am
LOL, Redfin, I’m with you on that one. If she’s anything like mine, you can give her all the tangible and credible evidence in the world, and she still won’t understand or want to hear it. It’s like she’s in denial: “Where are the price drops? Where are the price drops?” All around you…don’t bother looking in the weekend Real Estate section of the LA Times, those asking prices are pure nonsense and there’s a reason you see the same properties week after week going on two years now on many of them.
There should be more than enough information in this article alone, as well as the Deutche Bank analysis that was linked to in one of the earliest comments, to enlighten anyone.
July 15th, 2009 at 5:07 am
John, Thanks for DB shadow info. According to them there are about 1MM distressed props and banks actually own almost half, 450K and in CA major markets there are 300K homes and the banks own maybe 150K and these are about 3X the MLS listings there? And there seem to be substantial squatters where homeowners are staying in their homes without paying – although that might be urban legend.
It just makes me wonder how long the banks can delay dumping enormous numbers of homes. If he Geithner pub/private plan goes thru the fast money with only token amount of skin in the game could really accelerate the liquidation process
July 15th, 2009 at 10:26 am
Hey mee, regarding your NAR Koolaid chugging friend:
{Hi guys, just to let you know i made 14 offers for one couple and they havent won an offer yet. They even went $30,000 over on one of the offers !!! }
Yeah, those “bottomed” homes are getting multiple offers, but how many of them will actually close and change hands? Unless it’s all cash wheeling and dealing in the 909/Moreno Valley/Inland Empire etc., then the banks are going to be going over those properties with a fine toothed comb. I’ve heard many a tale about a deal being all set, but the bank won’t fund because the property appraisal/BPO/valuation comes in far below the agreed upon selling price.
July 16th, 2009 at 10:08 am
Uncle Sam to the rescue to buy foreclosed homes at “fair” prices and collect a “fair” rent, public housing for everyone! Hawaii foreclosures up over 400% last month. Even the -25% mods aren’t enough. What about all the investment properties? Those foreclosures will further crater FL,NV and SC, don’t know the mix of primary residences in CA and AZ, assume it’s mostly primary.
WASHINGTON, July 16 (Reuters) – The Obama administration is looking at ways for homeowners who have defaulted on their mortgages to remain in their homes as renters, senior administration officials said on Thursday.
U.S. Treasury assistant secretary Herbert Allison told the Senate Banking Committee that the idea was one of several options under consideration for homeowners whose mortgages can’t be made affordable through modification.
“It’s certainly an idea we are thinking about,” Allison said.
William Apgar, senior mortgage finance adviser for the Department of Housing and Urban Development, said the administration was exploring a “wide range of options along these lines.” However, he said a key obstacle is that homeowners who have gone through the anguish of delinquency and foreclosure often don’t want to stay in the property as renters. (Reporting by David Lawder; Writing by David Lawder and Tim Ahmann; Editing by James Dalgleish)
July 17th, 2009 at 6:15 am
The banks sitting on their shadow inventory of foreclosed homes must have been “tipped” that the US was planning to come in and buy them at a “fair” price.
interesting excerpt…only 51 principal reductions!
Lawmakers expressed frustration with the lack of traction the administration has gotten from its mortgage modification efforts, saying they fell short of what was needed to counteract the millions of foreclosures in the pipeline.
Allison said the program needed to get on track to accomplish 3 million to 4 million loan modifications by the end of 2012, or about 20,000 per week.
Another program in which lenders accept principal reductions to refinance homeowners into government-guaranteed mortgages has stalled, with only 51 loans refinanced.
July 17th, 2009 at 7:49 am
Does anybody know if there are state by state data on non-primary residences – which presumably wouldn’t be helped by Uncle Sam program to buy foreclosures and then rent them? I also imagine non-primary residences would be the first to be jettisoned to foreclosure.
April 12th, 2010 at 11:51 pm
Justin Bieber could well be my favorite! He is very adorable!
July 21st, 2010 at 7:57 pm
xoxo I completely am in love with Justin Bieber!