Notes on the High End

Submitted by Rich Toscano on May 9, 2008 - 6:19pm

Note #1: My pal Ramsey has developed what he calls a "Contagion Indicator" wherein he tracks the percentage of San Diego NOD, NOT, and REO homes with original loan amounts over $500,000. Here are the April numbers. (Please note that the phrasing on the following table has been clarified a bit from the original post to avoid confusion).

Ramsey's Contagion Indicator
NOD: 21.3% of NODs had loans over $500k
NOT: 21.9% of NOTs had loans over $500k
REO: 20.4% of REOs had loans over $500k

These numbers are a little higher than I would have expected given all the chatter about foreclosures being a low-tier-only phenomenon. It will be interesting to see how much this indicator changes in the months ahead.

Note #2: An informant in the RE business tells me that he has seen a very interesting change lately in the higher-end areas where he tends to do business. Properties in foreclosure have suddenly started turning into REOs on the market within a few weeks of the trustee sale. This is a sudden change from the delays of anywhere from 4 to 12 months he was seeing previously. Said informant believes that if the banks are starting to get their act together and getting REOs out on the market with little delay, that could cause the decline to pick up the pace in the higher-end areas.

Note #3: Jim the Realtor just put up a similarly themed article about how foreclosures are "Creeping up the Ladder."

(Unrelated) Note #4: Sorry, this is unrelated to the post topic, but a quick anti-bailout note: apparently there are real live humans manning the phones at the White House comment line. So feel free to give them a call at 202-456-1111 and let them know you oppose the bailout efforts.

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Submitted by skywalker on May 9, 2008 - 9:31pm.

ok now ..your posts have been a lot of hearsay and bs lately.

Submitted by Rich Toscano on May 9, 2008 - 11:46pm.

Please cite a single instance of "bs."

As for what you call "hearsay," anecdotal evidence from pros in the field can be valuable considering how the data lags and how details are often lost in the aggregate numbers. So I really don't know what your problem is. If you have information that contradicts the above, please provide it. Otherwise take your useless comments somewhere else.


Submitted by Taison on May 10, 2008 - 12:38am.

skywalker? You are mad because the sky is falling! We can all feel the doom is coming to the high end market.

Submitted by skywalker on May 10, 2008 - 9:26am.

"These numbers are a little higher than I would have expected" - this is nothing BUT BS. You are using your expectations as a scale. Sorry. These numbers can be considered high ..and can be considered low ..either way. What if the numbers are infact lower than what it would require to get me a 3k sq ft home in a good neighbourhood for 500K in near future.

Submitted by Mr. Drysdale on May 10, 2008 - 9:33am.

BS! ????

You're a complete idiot. Where is the ONE INSTANCE of BS on this site? Your blog name couldn't be any more appropriate. You're a skywalker alright because your head is in the clouds and your pie-in-the-sky expectations are crashing all around you.

Could you have been any more obvious about the devastation this crash is having on you personally?

The housing bubble blogs are THE ONLY ONES TELLING THE TRUTH!

You are so dogmatic about the "NAR belief system" that anything in opposition to it strikes you as BS or hearsay. Do you know what hearsay even means? Rich cites actual data and sources. What are you smoking?

Your response could be a symptom of far greater shortcomings in your ability to make proper judgments. You should engage in some serious self-analysis and introspection.

Submitted by Rich Toscano on May 10, 2008 - 10:12am.

"These numbers are a little higher than I would have expected" - this is nothing BUT BS.

Pretty weak response, not that I expected otherwise.

I didn't draw any conclusions from the % of over $500k homes in foreclosures -- I just stated the number and noted that the number was higher than I would have guessed. It is entirely impossible for such a statement -- a comparison of an actual number vs. what my guess for that number would have been -- to be "BS."

Your arguments seem pretty desperate. Again, I have no idea what your problem is or why you are lashing out the way you are. Maybe you should take a time out and go play with your Star Wars action figures.


Submitted by capeman on May 10, 2008 - 10:37am.

So Rich, the percentages above represent each as a part of 100% or all three combined to make >60% of all NOD/NOT/REOs in San Diego being loans over 500K?

I'm assuming the former but it is a bit confusing looking at it and you may want to make a second column of under 500K loan percentage. If the latter then that is insane and I need to short some more financials!

Submitted by Rich Toscano on May 10, 2008 - 10:49am.

21.3% of NODs have loans over $500k

21.9% of NOTs have loans over $500k


Submitted by skywalker on May 10, 2008 - 11:05am.

ok that is 1 in 5 homes. is that high?! considering housing is expensive anyway in socal

sandiegobanker1 - dont even get me started on bankers now. you didnt even get the point before u started screaming.

Submitted by Rich Toscano on May 10, 2008 - 11:05am.

So skywalker you are saying that you can't make "statistical sense" of the fact that (for example) 21.3% of NOD's have loans over $500k unless I also tell you that 78.7% of NOD's don't have loans over $500k?

I just want to make sure that's what you are saying.

No offense intended to capeman, who politely pointed out that I could have explained the stat more clearly. That's how the grownups do it, skywalker... you might want to make a note.


Submitted by Rich Toscano on May 10, 2008 - 11:12am.

update: I see you went back and edited your post (thus bouncing it below my reply) to take out the part about your not being able to make statistical sense of something due to your lack of basic subtraction skills... I guess even you realized how ridiculous a statement it was. Luckily I have your original post in an open browser window... here it is for all to enjoy:

as capeman suggests (much much much mildly) " you may want to make a second column of under 500K loan percentage " is exactly what is required to make any statistical sense of what you say here. otherwise your %'s doesnt make any sense period.

As to your updated version: good job figuring out that 20% is the same as 1 in 5... your math skills are coming along. Unfortunately the reading comprehension skills are lacking as I very clearly pointed out that I expected a lower number due to the fact that foreclosures have largely been a low-end phenomenon so far.

Submitted by Mr. Drysdale on May 10, 2008 - 11:30am.

LOL - Skywalker, you got caught red-handed.

Hey Skywalker aka Mr. Star-Wars, Sci-Fi guy. Do your powers allow you to go back in time and change other things too, or just going back to revise your postings to make it appear you actually said something different?

I know I sound a little mean, but hey I'm a banker and I don't have a heart ; )

Your first mistake was prematurely spouting off the way you did with no evidence for the point you were trying to make.

Submitted by skywalker on May 10, 2008 - 11:44am.

i removed the post bcoz i saw ur reply to capeman. i have nothing to hide and u can continue being a high school kid. dont diverge into judging my math skills. explain how 1 in 5 homes in the expensive housing market is high according to your guess???

Submitted by capeman on May 10, 2008 - 11:51am.

No offense intended to capeman, who politely pointed out that I could have explained the stat more clearly. That's how the grownups do it, skywalker... you might want to make a note.


None taken.  My day job involves creating sound data and displaying it for people outside of my expertise.  The best way is to show the data plain as day so one quick glance over it and people know exactly what you're argument is.  That way you don't have to explain it over and over.

Thanks for the clarification and that data is still amazing.  Is Ramsey doing a monthly update on this?  That's some good stuff to go along with the monthly Case-Schiller and Local Default postings.   

Submitted by JWM in SD on May 10, 2008 - 11:55am.

Oh boy, this is pretty funny. Quite honestly, we should all expect more ad hominem attacks like this from failed mortgage brokers, realtors, and FBs(that could include all three actually) as the high end of the market begins to fall along with the rest. It's plankton theory work of course. Wait until the second wave of resets and recasts hit and you will see a lot more whining from the the so called "immune" group.

So which one class are you in Skywalker? Realtor, Mortgage Broker or just plain old underwater FB? Maybe you're an "Investor" right?

The High End is going to fall and you can't do anything about it.

Submitted by Rich Toscano on May 10, 2008 - 12:55pm.

explain how 1 in 5 homes in the expensive housing market is high according to your guess???

This is how it always ends up with these haters... they keep coming back to trying to argue against a statement I never actually made, and no matter how many times I clarify it they are unwilling or unable to understand this.

So I'll just clarify for the third and last time: I didn't say the number was high in any absolute terms, I said the number was higher than I would have expected given that foreclosures have showed up overwhelmingly in lower cost subprime properties as opposed to higher end properties (or so I thought).

It just doesn't seem that complicated to me. But now I'm bored of explaining it to you over and over so I'm just going to let you puzzle it out on your own from here.

Capeman: yes, the idea is to see if and how this number changes over the months ahead. I agree that it could be a helpful data point once we get a little history going.


Submitted by ucodegen on May 10, 2008 - 1:44pm.

I see you went back and edited your post (thus bouncing it below my reply)

On the blogging software that is being run on the site; if you reply directly to a post, it prevents going back and editing that post.. kind of locks it down..

Submitted by ucodegen on May 10, 2008 - 2:06pm.


Do you have numbers for NOD/NOT/REOs in 'categories'?
ie: 100/200, 200/300, 300/400, 400/500, 500/600.. etc?

It would be interesting to see if the median is actually shifting right across the categories, in particular the changes around conforming loan limits. What might also be interesting is LTV vs these changes. Some of these defaults may be people who could pay but walked.

Submitted by ocrenter on May 10, 2008 - 2:30pm.

all of the back and forth aside.

it is definately a plus to have this 21% figure to work with. the question is can we get historic numbers and if not would Ramsey be nice enough to start tracking that figure for us?

Submitted by jpinpb on May 10, 2008 - 2:46pm.

Rich, your post was very clear and quite understandable. From the way some people were talking, the high end was immune and wouldn't be affected. They had some kind of ray shield and were untouchable. I was thinking it was going to be like 1 in 100 homes were hurting. One in 5 homes is surprising.

I was recently checking defaults and foreclosures along the coast since January and it seems like every other day there was one popping up and made me think there's much more trouble w/the higher end than people wanted to admit. It's as if they would have to declare defeat if the high end is affected. As if that was the last bastion of hope or something.

Submitted by SD Realtor on May 10, 2008 - 3:32pm.

I thought the post was pretty concise. Skywalker I think what you are requesting is much more empirical/physical evidence right? Just throwing out a % of NODs/NOTs/REOs based on being +/- 500k doesn't seem to be a strong indicator of foreclosures creeping up the ladder so to speak? Correct me if I am wrong...

In some sense I do agree with that presumption however I think the only method to qualify the theory is to pick a few zip codes and start tracking distress in them. I have made an attempt, albeit not a great one, at trying to track distress in Carmel Valley and 4S Ranch. Indeed even though the attempt is not great it does show increases in these two areas, moreso in 4S then in CV but time should take care of that. I will attempt to get it updated as well in the next few days.

It really is not unrealistic to presume that we will see more distress in well to do places over the next few years. It would be much more unnatural if we did not and that to me could only happen through subsidy of some sorts be it government intervention or lenders allowing massive rewrites, or some massive income infusion into salaries. It really is not a matter of if but when.

SD Realtor

Submitted by capeman on May 10, 2008 - 5:56pm.

I'd put some good money down on the 1 in 5 argument being very compelling if you get historical data on foreclosures over 500k inflation adjusted. Since currently NOD/NOT/REOs are way above all historical peaks in San Diego and the current pricing has been way beyond fundamentals, you would almost certainly see the 20% being way above historical data in nominal dollars.

If someone has this data and can plot it, it would likely put this little argument to rest real quick.

Submitted by skywalker on May 10, 2008 - 8:02pm.

ok.. i m looking to buy a single family detached home and considering the "desirable" (atleast for me considering commute to work, good schools, safe and relatively newer neighbourhoods) Scripps Ranch, Rancho Bernardo (East/West) & Carmel Valley. From what I find, every home fitting my needs is at least 550K. For me, out of the 20% homes that received NOT/NOD, how many (in %) actually fall in the areas I am looking at?? For me, any home that receives an NOD/NOT that fits my criteria is definitely above 500K. So that means the areas I am looking at ..that is a 100% for me. Does that mean I will get a 2.5K-3K sq ft single family detached home within my max budget of 550K anytime soon? Well I have waited more than 3 yrs now. For me ...all these 20% kinda statistics doesnt mean a thing. I am not buying the entire san diego market. Only SDR's posts make real sense. Who the hell looses construction & finance jobs ..and by how much % employment has dropped ..hasnt made any difference. Still waiting ...

Submitted by Mr. Drysdale on May 10, 2008 - 8:16pm.

Be patient. The evidence is overwhelming that prices will crash much further. If you need more reassurance, spend more timing reading all the empirical and anecdotal evidence on more housing bubble blogs.

I'm telling you emphatically, that this downturn will not bottom out for several years.

If you wait, you WILL BE REWARDED!

And don't worry about the bailout talk. Even if it passes, it will only prompt more people to take advantage of it or walk away from their homes, both of which will exacerbate the decline in property values.

Remember, whenever government tries to fix a problem, they make it worse. Patience is the key

Submitted by covidwithlime on May 11, 2008 - 1:19am.

Young skywalker, use your reading force. How long have you been on this site? If you have been here awhile, or at least read the older threads, you'll notice that high end have been falling quite slowly in relative to the low ends. Houses in area like Mira Mesa have lost on average 150-200k, while the areas you're looking in only lost about $100k (minus 4S). So, if you must only buy in the area you stated, then guess what? You'll have to wait longer. If you don't want to wait any longer, then guess what? Widen your search area. PQ is being hit much harder than the area you've listed, but still not as hard as Mira Mesa.

These statistic is a glimmer of hope that things might be starting to spread to the more desirable areas. Only time will tell. Rich never stated that you'll get a 2500-3000 sq-ft house for $550k. I also highly doubt a 2500-3000 sq-ft house in CV will ever drop down to that level, but that just me. Obviously you're not buying the entire San Diego, but no one will be doing the research for you either. You can easily do your own research of the areas you want with the vast amount of info on the net. Stop whining when others research doesn't fit your question.

Submitted by worm on May 11, 2008 - 5:08am.

I only have Pacific Beach/Mission Beach stats since June 2007.

Preforeclosures June thru December average about 40 Notices and 25 foreclsoure notices on San Diego Lookup.

Since April 8 Preforclosure are about 78 and Forclsure notices are still about 25.

Is the downtrend hitting the beach area. Sort of.

For the city of San Diego. Only have total stats since early December. The preforeclosure had been about 2100. the past few weeks 3300. Foreclosure notices 540 and now 1400.

Submitted by Bugs on May 11, 2008 - 9:59am.

Does that mean I will get a 2.5K-3K sq ft single family detached home within my max budget of 550K anytime soon? Well I have waited more than 3 yrs now. For me ...all these 20% kinda statistics doesnt mean a thing. I am not buying the entire san diego market. Only SDR's posts make real sense. Who the hell looses construction & finance jobs ..and by how much % employment has dropped ..hasnt made any difference. Still waiting ...

Whether you realize it or not, this is a variation of the argument the RE bulls have used to discredit the bears for the last 5 years.

It won't happen because it hasn't happened yet.

At first they applied it to the entire market. Then as the corrections started setting in on the low end they changed their position to mean that the "good" areas were somehow disconnected from the rest of the market and were immune to these corrections. That argument has been getting weaker and weaker as the trend climbs the ladder and further discredits it.

The last time we went through a price correction was between 1990-1996. If you do the math that adds up to 6 years. The level of distortion of the peak of 2005 was about 3 times higher than that of the peak of 1990.

Whether you're using an arbitrary length of time (like 6 years) or one based on percentages, we haven't even reached the halfway mark on this downcycle. There have already been some declines in the areas that you're referring to and most indications are that the upper end of the market is still at the early stages of their decline. They have been lagging the bottom end by 18 months, meaning they have yet to enter the "freefall" phase that the bottom end is in right now.

Ignore the RE Industry shills who are yammering about the bottom being near. They've been wrong about the sustaintability of these obscene prices since the very beginning and their "soft landing" theory got discredited a long time ago. Their intended targets are the sheeple who watch the TV ads and who do what they're told. If you were one of those types of people you wouldn't be here.

BTW, typical pricing for 2,500-3,000 SqFt homes in the 92131 zip area ranged from about $260,000 - $400,000 in 1996, which was the bottom of the last cycle. As of early 2001 the typical pricing for these same homes was a bit more spread out, at $400,000 - $600,000. We are talking about homes built prior to 1996, not the new homes. These homes peaked in 2006 at about $750,000 - $850,000 and have already backed down a touch.

Obviously the new homes are going to sell for a little bit more.

The primacy of the long term trend line is in the process of demonstrating itself once again on the bottom end. If you think that the upper end is somehow isolated from the markets below it then you're mistaken - it's all connected. It's turn is coming.

Submitted by capeman on May 11, 2008 - 10:04am.

Skywalker- this post and the 20% are only new data that will help to see how badly this downturn will get. You have to take the combination of jobs, interest rates, Case-schiller numbers, NOD/NOT/REOs and use them all to better time what, when and where you will buy. Seeing >20% of the high end in default isn't decision-making data but if a trend emerges and that get's upwards of some critical number then the top of the house of cards is falling and will make this much worse.

I've been waiting for more than 5 years now to buy and first and foremost if the Case-Schiller doesn't break trend and level out for some time then it is insane to buy. You'll likely watch all of your equity disappear very quickly. I am using all of the tools presented on this site and my own tools for making my decision to take the plunge and the tools say not for a while.

Submitted by skywalker on May 11, 2008 - 11:15am.

I understand. What if I shoot for an REO? (btw, i lost twice already on them in 4s)These r priced lower than from sellers directly. Do I continue ?

Submitted by Mr. Drysdale on May 11, 2008 - 11:25am.

Put buying something in the next 12 months out of your mind completely. If you don't, you'll find a reason (an invalid one) to support your need/desire to believe the market has bottomed.

You have to remove your own emotion from the equation. I fight it all the time. I've been waiting six years, but am totally convinced it won't be time to buy till late 2009 at the earliest and possibly 1-2 years later. Remember, the more the government does to try and prevent a massive decline, the worse it will get and the longer it will take, the latter part I forgot to mention in my last post.

Look around and ask yourself after really researching the matter. Is there more evidence that things of an economic nature will get worse or better? That should tell you all you need to know.

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