It feels like I’ve been writing about “shadow inventory” — homes
that are in foreclosure but haven’t hit the market yet —
forever. Yet no flood of foreclosures has yet inundated the
market, and as a matter of fact, inventory has been quite scarce
lately. Is there anything to this shadow inventory concept?
As Kelly Bennett documented in a recent blog
entry, the answer is yes. Kelly noted as of Tuesday, there
were 19,453 San Diego homes that were in foreclosure but that were not
yet listed for sale. That, my friends, is your shadow inventory.
For purely illustrative purposes, let’s try to understand what the
effect would be if all these homes in foreclosure were to suddenly hit
the market.
continue
reading at voiceofsandiego.org
So how much of this “shadow”
So how much of this “shadow” inventory is being held by bank “subsidiary” companies? I’ve seen several stories recently about banks ‘pushing’ bad RE loans to other entities owned by the banks. It supposedly lets them clean up their books and gives them an out to unload RE later if it gets worse. Gives them a boost if the prices start to creep back up.
Maybe most of this “shadow” inventory can be accounted for in this fashion?
Another question would be how
Another question would be how much of the contingent and short sale inventory is being counted twice. Kelly’s article says near the bottom that it is counting nods and nots, most short sales also have one of those and can only do one thing, close escrow as a short or default and hit the market, not both.
I hate to be a doubter but it’s now 2010, how many years have we been waiting for bigfoot and hearing supposed insider information about the tsuinami that is right around the corner. If it happened all at once, I’m not sure it would even be all that catastrophic, 10 months supply isn’t the end of the world.
Would a widespread principal
Would a widespread principal write-down by Fannie and Freddie even have an impact in SD? It seems that the low end has worked through a good percentage of it’s issues and the high end has a low percentage of GSE loans.
Not having to mark-to-market
Not having to mark-to-market has got to be pretty appealing to many lenders. Foreclosure and the ensuing sale would be a defacto market value realization. Why even issue an NOD? There’s more to this story.
The shadow inventory issue is
The shadow inventory issue is really complex. As most people have pointed we have been discussing shadow inventory and the emergence of the inventory tsunami for so many years it has achieved urban legend status. Lots of contradictions right? How many of us have seen those empty homes? We all have! Yet the inventory levels are pathetic and have been for quite awhile. Speculators, investors, and flippers are back in full force. Prices have bounced in certain areas by 10% and mores. Low end homes have made a strong run, even middle end places have run hard. Many present buyers are kicking themselves for not buying in 2008 when conditions were much better with regard to inventory and pricing was better.
Similarly the government/treasury/wall st conglomerate have twisted up accounting rules so much that if any of us applied this sort of accounting to our lives we would all be behind bars. TARP, PPIP, the GSEs, and a varied assortment of backroom deals have all served their purpose quite well. Not to generate a healthy market but moreover to prevent what should have been, a clean spanking of the old f’d up market.
As was pointed out above, I would not presume that all 19k+ homes that have been identified as “shadow” inventory will hit the market. Nowhere even close. Peel the onion a little more… how many of these homes are actually in a place where any of you want to buy? Also how many of us see the vacant homes we have posted about in the areas we want to live in? I don’t see many in Scripps or 4S or even PQ.
What I have come to grips with is that this government/wall st complex will not let inventory crater the market. They have the gold and they make the rules. Period. I believe that the only hopes for a substantial leg down shall be 100% driven by interest rates. It would not surprise me at all to see more radical steps taken to keep people in homes. 50 year mtgs, letting the homeowners rent out the homes, GSEs turned to landlords. Government subsidies of losses to investors. No the washout that needs to occur can and will only occur when our creditors have had enough.
That will happen someday. Rates will bring the market to reality that will bring pricing in line with where it should be. Whether that is affordable to people is orthogonal to where it ends up. This is, after all, San Diego.
SDR,
Agree 100% with both of
SDR,
Agree 100% with both of your posts.
They WILL “do more” for the housing market; whether it’s the right thing or not does not matter.
The principal write-downs will NOT be included as comps, even though that’s what they are.
I don’t expect we’ll see the elusive “bottom” for a good six years or so from now. Everything they’re doing now to “help” the market will end up prolonging the pain and will cause even greater losses down the road. All on the taxpayers’ dime.
CA renter wrote:Everything
[quote=CA renter]Everything they’re doing now to “help” the market will end up prolonging the pain and will cause even greater losses down the road.[/quote]
Greater losses for who? Are you predicting even w/ inflation, we’ll still see greater nominal losses when compare to scenario where housing price will come back to fundamental today?
peterb wrote:Not having to
[quote=peterb]Not having to mark-to-market has got to be pretty appealing to many lenders. Foreclosure and the ensuing sale would be a defacto market value realization. Why even issue an NOD? There’s more to this story.[/quote]
I am coming across many people who have been living in their homes and not paying and not receiving a NOD. Many are not bothering to even issue NODs. But still nothing is being done, besides letting people live for free and closing their eyes.
[quote=CA renter]I don’t expect we’ll see the elusive “bottom” for a good six years or so from now. Everything they’re doing now to “help” the market will end up prolonging the pain and will cause even greater losses down the road. All on the taxpayers’ dime.[/quote]
I agree w/you on this. Everything so far has just succeeded in procrastinating a real resolution and recovery. All the money used so far has managed to somewhat stablize it temporarily, IMO.
LesBaer45 wrote:So how much
[quote=LesBaer45]So how much of this “shadow” inventory is being held by bank “subsidiary” companies? I’ve seen several stories recently about banks ‘pushing’ bad RE loans to other entities owned by the banks. It supposedly lets them clean up their books and gives them an out to unload RE later if it gets worse. Gives them a boost if the prices start to creep back up.
Maybe most of this “shadow” inventory can be accounted for in this fashion?[/quote]
We set up a separate entity to insulate the Bank’s other assets and to avoid incurring liabilities (i.e., slip & fall, environmental contamination, etc.) associated with the foreclosed asset
The “real” shadow inventory is not in these holding entities, but on the bank books as simply non-performing assets, with occupants enjoying the amenity of almost free housing for over a year in some cases. How and whether the institution is documenting this is a whole other matter. That’s all I will say on the issue.
Banks purposely withholding
Banks purposely withholding inventory from the market makes sense for an individual bank who doesn’t want to recognize the loss yet. It seems reasonable to surmise that all this shadow inventory will help slow the rate of decent in housing prices or even temporarily flatten them while extending the time it takes for housing to reach a bottom. It took about 14 years for Japan’s housing market to reach equilibrium so about 7 years seems reasonable for the U.S. as the Fed will attempt more monetary inflation in the midst of asset deflation and deleveraging than Japan. That would dictate a bottom around 2012 to 2014.
I love the actress said to
I love the actress said to the bishop “extend and pretend” reference. That sums it up for me. No wonder we see so many ED ads on TV. The Ramsey comment about the timing of the release about the lifting of the cap is interesting, and ominous, but I’m struggling to make the connection between that and principal reductions. If there are principal reductions, what do the homes appraise for?
Qwerty that issue is
Qwerty that issue is conveniently sidestepped. It is tantamount to fraud. That is, all those receiving the rate/principal reductions will have no bearing on appraisals. It will be like two markets, the shadow subsidized market for the fbs and the market for new buyers. The new buyers get screwed because their appraisals and rates only are based on that market. While those receiving aid get that aid with no appraisals and none of the data is conveyed to the new buyer market. Talk about cryptic eh? It is not like this is “going” to happen. It is happening and has been happening for awhile now.
SD Realtor wrote:Qwerty that
[quote=SD Realtor]Qwerty that issue is conveniently sidestepped. It is tantamount to fraud. That is, all those receiving the rate/principal reductions will have no bearing on appraisals. It will be like two markets, the shadow subsidized market for the fbs and the market for new buyers. The new buyers get screwed because their appraisals and rates only are based on that market. While those receiving aid get that aid with no appraisals and none of the data is conveyed to the new buyer market. Talk about cryptic eh? It is not like this is “going” to happen. It is happening and has been happening for awhile now.[/quote]
Isn’t a principal write down effectively dropping the mortgage to market price?
I’ve been thinking about this a lot lately. I bought in SEH in 2009. I was looking at all sales on redfin the other day and it is shocking to see most of my neighbors still paying their mortgages when they paid about $200k more than today’s value.
If anyone deserves help, it is them. They just bought at the wrong time. I have no sympathy for flippers or idiots who bought beyond their means. If anyone should get relief it’s the hard working people who bought within their means at the worst possible time.
Don’t get me wrong, I’m not lobbying for them to get a write-down…I’m just saying if my taxpayer $$ are going somewhere, I’d rather it went to that group.
“I’m just saying if my
“I’m just saying if my taxpayer $$ are going somewhere, I’d rather it went to that group.”
Ditto, nor to banker/Wall. St. bonuses.
waiting for bottom
[quote=waiting for bottom]
Isn’t a principal write down effectively dropping the mortgage to market price?
I’ve been thinking about this a lot lately. I bought in SEH in 2009. I was looking at all sales on redfin the other day and it is shocking to see most of my neighbors still paying their mortgages when they paid about $200k more than today’s value.
If anyone deserves help, it is them. They just bought at the wrong time. I have no sympathy for flippers or idiots who bought beyond their means. If anyone should get relief it’s the hard working people who bought within their means at the worst possible time.
Don’t get me wrong, I’m not lobbying for them to get a write-down…I’m just saying if my taxpayer $$ are going somewhere, I’d rather it went to that group.[/quote]
These buyers really didn’t “buy at the wrong time.” They willingly chose to overpay for an asset. There is no reason on God’s green earth for anyone other than their lenders to take any losses on their behalf.
If the lenders were forced to take these losses, they might be more circumspect when making loans in the future. What we desperately need are much higher interest rates and much lower prices.
I agree there is no reason
I agree there is no reason for anyone other than the lenders to take the losses….but if taxpayer $$ are going somewhere, where else should it go?
You are very much overstating when you say they willingly overpaid for an asset. They willingly bought an asset, most of them oblivious to the bubble. It was just “life timing”.
I work with many very very smart people who bought houses when they moved here in 2006-2008. That’s what people do when they move…they buy a house. They’re not in it to make a bunch of money quick…or lose it.
Had I not read this blog (after researching a A LOT), I would have been one of them.
waiting for bottom wrote:I
[quote=waiting for bottom]I agree there is no reason for anyone other than the lenders to take the losses….but if taxpayer $$ are going somewhere, where else should it go?
You are very much overstating when you say they willingly overpaid for an asset. They willingly bought an asset, most of them oblivious to the bubble. It was just “life timing”.
I work with many very very smart people who bought houses when they moved here in 2006-2008. That’s what people do when they move…they buy a house. They’re not in it to make a bunch of money quick…or lose it.
Had I not read this blog (after researching a A LOT), I would have been one of them.[/quote]
Okay, I’ll grant you that people who were transplants might not have willingly overpaid.
One thing I’ve definitely noticed over these many years is that new residents provide fresh meat to the RE industry, as these new buyers have absolutely no historical context, nor have an appreciation for the tremendous volatility in the CA real estate market. In almost every case when a buyer is seen grossly overpaying for a house, it is almost always somebody from out-of-state. Realtors seem to prey upon these people.
———-
WFB wrote:
I work with many very very smart people who bought houses when they moved here in 2006-2008. That’s what people do when they move…they buy a house.
Just MHO, but if we were to move to another state, I would definitely rent before buying. It’s always wise to be aware of what you’re getting into **before** you take the leap. People don’t know if they’re going to like the new area, the job, being away from home, etc.; and they’re buying houses… The fact that so many people buy when they move shows how brainwashed we all are by the REIC.
October REO chart
I saw this
[img_assist|nid=12561|title=October REO chart|desc=|link=node|align=left|width=100|height=71]
I saw this on So Cal Bubble
“Any thoughts as to why over the last 1.5 years, 90 day lates have doubled while bank owned halved?”
I wanted to relay one little story. Being the skeptical and suspicious person I am, I can’t help but wonder how many other similar ones are out there.
In May of last year I made an offer on a short sale. From what I understand, there were anywhere from 3 to 5 other offers. No one’s offer was accepted. It went off the radar blip.
Any time I drove by the house, it seems the owner is still living there, despite the NOD. Not surprising much to me.
I thought little of it b/c I continued my search, as always. But then eventually, I see it’s scheduled for foreclosure beginning December. I do some more checking.
From what I was able to find out, it seems the owner was trying to bring current his payments, but the bank posted the foreclosure notice – – on the side door of his garage, which he never uses, so he had no idea it was scheduled for foreclosure. So from what I was told, the bank officially owns it and is trying to do cash for keys.
Drove by there today. The owner is still living there.
jpinpb, here are my anecdotal
jpinpb, here are my anecdotal example. There are two houses near me that I noticed not NODs. One was around last March/April and one was around October/November. Both are still current on the taxes and neither have list it on the MLS. They both are still living there as if nothing has happened. Could it possibly be that they’re missing payment to try and get a loan mod? I mean, why else would you still pay your taxes if you plan to walk?
Some people’s taxes are
Some people’s taxes are impounded and paid for by the lender.
jpinpb wrote:Some people’s
[quote=jpinpb]Some people’s taxes are impounded and paid for by the lender.[/quote]
So if they stopped paying for over 6 months, where did the lender get money to pay for the taxes?
From what I understand, the
From what I understand, the lenders pay and send the homeowner the bill. I’m thinking you have to be a year behind for the bank to not automatically pay the taxes.
Come to think about it, could explain why reinstatement amounts are so high. Might not all be penalties and interest. Tacking on the taxes.
waiting for bottom, I never
waiting for bottom, I never said that the write downs were not valued at the current market. I said that those buying homes will not have those reworked properties as appraisal data points. I believe it can even be argued that this could be a material fact. I feel like if there were distressed homeowners in my neighborhood or even my condo complex that I would like to be aware of that fact. To go further, those that did get reworked, how do we know those were marked at market value? The entire process seems so opaque that it just… smells bad you know?
Why shouldn’t people who are buying homes with good credit get the EXACT same terms and rates as those people getting reworked?
Like I said, it is two distinct markets. To me the disparities are getting worse and not better. I think it is a sheer fallacy that putting salve on malignacies resolves the problems. To me they should be cut out. I don’t fall into the to big to fail camp nor do I believe that homeowners who lose homes to foreclosures get tossed on the streets. On the homes we have purchased at trustee sale, I have been the one to meet the homeowner and let them know we own the house. In every case all of them found apartments. They all started over living within their means and I believe are better off for it. All of those homes were sold to new owners who in some cases bought for cash or very large downpayments.
No taxpayer support needed.
To me their is a much better way and we are steering as far from it as possible.
SDR – I get your point. All
SDR – I get your point. All I am saying is that if the principal is written down to current market, it’s not like recording it and counting as a comp would change the market. That’s why I don’t get your connection on “two markets”.
I’ll grant you it would solidify the market, but it wouldn’t change it.
SD Realtor wrote:waiting for
[quote=SD Realtor]waiting for bottom, I never said that the write downs were not valued at the current market. I said that those buying homes will not have those reworked properties as appraisal data points. I believe it can even be argued that this could be a material fact. I feel like if there were distressed homeowners in my neighborhood or even my condo complex that I would like to be aware of that fact. To go further, those that did get reworked, how do we know those were marked at market value? The entire process seems so opaque that it just… smells bad you know?
Why shouldn’t people who are buying homes with good credit get the EXACT same terms and rates as those people getting reworked?
Like I said, it is two distinct markets. To me the disparities are getting worse and not better. I think it is a sheer fallacy that putting salve on malignacies resolves the problems. To me they should be cut out. I don’t fall into the to big to fail camp nor do I believe that homeowners who lose homes to foreclosures get tossed on the streets. On the homes we have purchased at trustee sale, I have been the one to meet the homeowner and let them know we own the house. In every case all of them found apartments. They all started over living within their means and I believe are better off for it. All of those homes were sold to new owners who in some cases bought for cash or very large downpayments.
No taxpayer support needed.
To me their is a much better way and we are steering as far from it as possible.[/quote]
Amen, SDR.
You guys are in fantasy land
You guys are in fantasy land or your own utopia. No taxpayer support is needed, granted.
Fact is, we all know taxpayer support will happen.
I’ve come around to accept that and to decide which partie(s) are most deserving. For me, that is the group that legitimately bought with unfortunate timing.
I think there’s a good chance
I think there’s a good chance that principle write-downs would create a very strong dislocation of the RE market. If appraisers would be using sales as comps while true values were sliding down due to what is essentially an “in-house” devaluation. But again, the mortgage holder would now have a more accurate accounting of this devalued asset. Something I dont think many may want nor afford.
But lenders would probably understand this was taking place and become far more stringent with what kind of appraisals they’d accept in order to approve a purchase loan. And thus, the dislocation that locks-up the market.
Of course, the GSE’s could step in and just start buying all these over valued loans and the world would be all good again.
I guess I am not sure that
I guess I am not sure that taxpayer support is needed. Somehow we all made it through the previous market downturn with an RTC. The world did not turn upside down.
Also I believe that there are definitely two markets. Look we all know write downs occur correct? This site generally has a pretty high IQ quotient as a group yet NONE of us can come up with any hard numbers, hard amounts, hard statistics about reductions.
It does not sit well with me at all. I guess we agree to disagree on that one.
****************
Peter I am not sure that the dislocation you mentioned would occur. Remember an appraisal is a CONTINGENCY of sale, NOT a condition. Some of the homes we have flipped have indeed not appraised and the buyers had to come in with more cash.
Now I think that this would indeed negatively impact pricing but not to such an extent as to lock the market up.
A little transparency couldn’t hurt.
***************
Also agreed on the above statement about taxes.
JP I have never heard of a lender paying taxes. However for most mortgages your lender can put you into default if you miss paying your taxes since mortgages are subordinate to taxes.
SDR – I could be mistaken,
SDR – I could be mistaken, but when there’s impound by the lender, they pay the taxes for you and your mortgage payments to the lender include the tax payment. So when the tax bill is due, the lender would pay, no? And then collect the payment from the mortgage payments following.
I understand the taxes are every 6 months. So the first payment is made, and mortgage payments are made therafter that include the tax payments (impounded). Then the second tax payment is made and the following mortgage payments include the tax payment, no? I could very well be mistaken in the sequence and maybe the lender collects in advance of the payments.
Hi JP
When there is an
Hi JP
When there is an impound yes the taxes are paid out of the impound but if the impound acct does not get funded by the homeowner I doubt the lender will front the money to pay the taxes. Generally a lender will file a notice of default when taxes are not paid because the lender will want to foreclose and take possession of the home before it goes to sale by the sheriff at county auction.
I see what you are saying. It is an interesting question though. That is, what if someones payment total was 2k but they sent in a check for only 1500. Would the lender pay the property taxes first then file a default because the loan payment was insufficient or would the lender file a default because the tax payment was not made even though the loan payment was sufficient.
Hard to say.
Gary – Damn good post.
What SDR, jpnpb, and CAR
What SDR, jpnpb, and CAR said. We’re screwing up our financial and housing markets, transferring money from people who own less home to people who own more home, employing shady accounting, special deals on a grand scale, and all to make our lending system (the banks) work well?
It sure looks more like organized looting of the taxpayers’ pockets than a fair reform of the banking system, a system that let us down by creating the largest asset bubble in recorded human history and its aftermath.
I remain deeply skeptical of the lies, er, stories, we’re being told to justify what’s going on.
I have impound accounts, 2 of
I have impound accounts, 2 of ’em. The bank collects 1/12 of my annual taxes every month.I have never heard of a lender paying taxes for you if you did not first give them the money. In fact, not paying your taxes gives the lender the right to foreclose you even if you are not late on your mortgage. When the bank does foreclose you, the lender is responsible for any back taxes you owed.
Sorry you cant apply logic or
Sorry you cant apply logic or rationality to things and expect to be right because frequently that gets thrown out the window. I have seen plenty of houses where the homeowner is beyond a year late on payments and the lender pays the taxes. I have one right now that the owner has not made a payment in ove 18 months. Even if he had an impound account there can’t be a penny in it to pay his taxes. They just did last month. I dont know why they do it or under what circumstances but I can confirm that it happens at least sometimes.
sdrealtor wrote:Sorry you
[quote=sdrealtor]Sorry you cant apply logic or rationality to things and expect to be right because frequently that gets thrown out the window. I have seen plenty of houses where the homeowner is beyond a year late on payments and the lender pays the taxes. I have one right now that the owner has not made a payment in ove 18 months. Even if he had an impound account there can’t be a penny in it to pay his taxes. They just did last month. I dont know why they do it or under what circumstances but I can confirm that it happens at least sometimes.[/quote]
Thanks for the confirmation sdr. Can you also tell us if they paid it early or on time? For us who don’t have much inside data, I’m trying to string together as much info as possible to see which house is really in trouble (will be on the market sooner rather than later) and which are just trying to get a loan mod or which just neglected the 2nd/3rd/etc. I’ve seen one personally that had many many NODs by the 2nd (private loan) for the last 2-3 years. Yet, they’re still there and has never list it on the MLS.
BTW, when I was young and naive about RE, I heard about the tsunami and was getting ready for it. 2-3 years later, I’ve grown way too cynical to think it’ll come. I personally think it’s much more likely for them to trickle it out for many many years than to let it flood the market. I’ll believe it when I see it.
This shadow inventory is not
This shadow inventory is not exactly a secret- the market knows this and players have been playing accordingly imo. How many have held off buying waiting for the flood? How many have low-balled to protect themselves from future price declines due to possibility of rising inventory? Why would the banks not sell as many as they could while the gov. has made home ownership amenable with tax rebate and mortgage purchases? These are questions none of have answers for but as far as houses go I have decided in my limited experience that it is better to buy them when things have been looking bad for awhile than when they look like they are growing to the sky.
outtamojo wrote:This shadow
[quote=outtamojo]This shadow inventory is not exactly a secret- the market knows this and players have been playing accordingly imo. How many have held off buying waiting for the flood? How many have low-balled to protect themselves from future price declines due to possibility of rising inventory? Why would the banks not sell as many as they could while the gov. has made home ownership amenable with tax rebate and mortgage purchases? These are questions none of have answers for but as far as houses go I have decided in my limited experience that it is better to buy them when things have been looking bad for awhile than when they look like they are growing to the sky.[/quote]
I’m becoming more suspicious from what I’m seeing. Yes, there are NODs out there and they do continue. But now, for just as many NODs that do get filed, there’s an invisible number of NODs that should get filed that don’t. Property taxes are getting paid. It just seems like there’s an attempt to give the appearance that everything is improving.
The insights we normally look to which would give us an idea of what’s to come are being obliterated at every turn. I ask why? You say, basically, the distress is known and people act accordingly. Well, what if the signals become less obvious? To me, this all seems very ala’ ignore the man behind the curtain. Carry on. Nothing to see.
Real estate was the main driving engine behind out economy for a very long time. Take that out of the equation and what’s left? I have no doubt that the government will do whatever it takes to keep the wheels turning. But in light of everything they’ve done so far and the outcome to date, looks like we have a couple of flat tires.
Yeah, we do have a few flat
Yeah, we do have a few flat tires, maybe a balky engine too. The other half of what I’ve been saying is is better to buy now than when everything is perfect.
This solves it- the flood is
This solves it- the flood is coming in April http://market-ticker.denninger.net/archives/1811-HAFA-Foreclosure-Warning-Dead-Ahead!.html
“If you need to sell your house in the next year this is something you need to take into consideration. A flood of nearly 3/4 of a million houses appear poised to hit the market as short sales and “deed in lieu” sales beginning in April.”
: )
Outtamojo I will say that
Outtamojo I will say that come April or around that time frame there will be a significant change in the way short sales work that will be beneficial for the market.
CA renter wrote:
WFB wrote:
I
[quote=CA renter]
WFB wrote:
I work with many very very smart people who bought houses when they moved here in 2006-2008. That’s what people do when they move…they buy a house.
Just MHO, but if we were to move to another state, I would definitely rent before buying. It’s always wise to be aware of what you’re getting into **before** you take the leap. People don’t know if they’re going to like the new area, the job, being away from home, etc.; and they’re buying houses… The fact that so many people buy when they move shows how brainwashed we all are by the REIC.[/quote]
Brainwashed….or they have families that they don’t want to move multiple times…
Great post, Rich. And thanks
Great post, Rich. And thanks to Kelly for her research on the shadow inventory.
One more thing to consider are the (not insignificant?) number of people who stopped making payments but for some reason (conspiracy theories notwithstanding), they have yet to receive a NOD.
Well so much for the free
Well so much for the free market capitalist system.
If they reduce principal the game is over. Inflation will go rampant as everyone and their brother buys everything in sight because they know there are no consequences… oh wait its kinda already like that with squaters galore..
why won’t they get out of the way and let the free market work.. who cares if we go into chaos .. we will bring America back from the rubble .. we always have and always will. But when America turns its back on the free market system like it has.. no one knows who we are or what we stand for anymore.
I just wish i didnt have a brain a few years ago and bought. i would be living free. Just join the stupid masses you will always be safe.
jpinpb, I don’t have my taxes
jpinpb, I don’t have my taxes impounded so I can’t dispute your claim but outtamojo seems to have first hand experience. One other tidbit of info is this last round of taxes, one paid 10 days in advance and the other paid almost a month in advance. Does the bank pay taxes for you that early if you’re having it impounded? Also, you pay your first tax bill in escrow most of the time. If you impound, they start collecting 2nd tax $ on your first mortgage payment, which won’t be due for many months. I.E. if you buy in December, your April tax is paid in escrow and your follow December’s tax is being accrued from the December from the previous year. So, I think you have it backward with regards to impounding.
I think it would depend when
I think it would depend when they commence impound. An exmaple might be if one were to re-fi, would there be a requirement that an escrow collect the tax bill funds? Some people don’t start out w/impounds, but then later the lender could start impounding, for example, if one were later on taxes one time.
I hope this is not turning
I hope this is not turning into a thread jack. Taxes are brought current at closing as part of your pre paid items. They even collect a “cushion” for the impound account. When even that is not enough, they (the county)send you a supplemental tax bill you pay on your own.
Question: if we really are about to be flooded with 19K homes for sale, is this lender fronting tax payments question even relevant in the grand scheme of things?
outtamojo, that’s the whole
outtamojo, that’s the whole point. I’m not trying to debate whether the lender front the tax payment or not but rather, whether all 19k will hit the MLS. I have my doubts. That’s why I brought up the taxes. That’s my personal gage as to whether the person is really intending to walk or not. If you truly are intending to walk, why would you keep your taxes current. If it’s impounded and the lender is footing the bill, how many tax bill will they foot before it becomes a REO. Based on your experienced outtamojo, did the bank ever pay the tax bill early?
Sorry for the divergence on
Sorry for the divergence on the tax issue.
Back to the inventory and the NODs. Say every single one of them were intentional strategic NODs just to get a loan mod. Kelly Bennett’s last story on the success of loan modifications was not favorable. I have yet to read anywhere on any news story or any blog of a high percentage of successful loan mods. The contrary. The only thing I’ve seen is successful short sales after a considerable length of time. Oh, yeah. There’s the sprinkle of successful loan mod here and there, but nothing that catches the media’s attention claiming victory.
jpinpb wrote:I think it would
[quote=jpinpb]I think it would depend when they commence impound. An exmaple might be if one were to re-fi, would there be a requirement that an escrow collect the tax bill funds? Some people don’t start out w/impounds, but then later the lender could start impounding, for example, if one were later on taxes one time.[/quote]
I never refi before, so I can’t answer your question. Maybe someone who refi before can clarify for us. So, you think the bank would foot the tax bill and pay the city almost a month early, is that correct?
If they have the money, it’s
If they have the money, it’s possible. I don’t claim to know how it works. Just know on impounds the taxes can get paid. If the lender gets the money in advance, then the first tax bill will have been paid from the previous six months mortgage payments, right? The lender will have the funds for tax payments 6 months in advance. So one would have to be more than 6 months behind putting the lender in a position to not have the funds to pay taxes.
I’ve been following the NODs
I’ve been following the NODs and Trustee sales using a free foreclosure search for a few of the lower end zip codes the past few years (92114 and 91977). Nothing in the article was a surprise to me.
The total number of NODs plus REO plus Trustee Sales scheduled has consistently been around 2x the current MLS inventory. At first I thought this was a sign of an approaching inventory tsunami, but now I don’t.
I don’t view NODs and scheduled Trustee Sales as shadow inventory anymore. It doesn’t matter how many properties are in some stage of foreclosure as much as the rate they are actually going to trustee sale to become REOs or flips. With the increase in demand at the low end, I presume rate of MLS sales is currently greater than rate of Trustee sales. So demand is outstripping supply and low end prices are doing a moon shot (courtesy of the FHA) while available inventory gets crappier and crappier.
The rate of MLS sales vs rate of trustee sales is what is important in whether the shadow inventory grows or is worked off. I am starting to believe the current REO inventory in the works is not a negative for prices since the low end demand seems to be lapping up every available property.
Currently, high demand and low inventory are negatives for me as a buyer at the low end. It appears that the entire market is now flippers selling to FHA buyers. Without the tax credit and government loans I just don’t think there would be anyone to sell to. I don’t see the government easing up on lending so the question on the demand side is numbers of qualified and willing buyers and not access to money.
On the supply side the question is what happens with all the failed modifications and whether banks will increase the rate of new foreclosures. To me, the “shadow inventory” is all the properties that should have NODs filed by now but have not. The greater than 90 day delinquent rate certainly doesn’t jive with MLS inventory IMHO.
I am cynical that whatever the solution is for the banks with regard to delinquencies, I won’t likely benefit from it. I’m guessing the ruling class will get most of the properties under the table via vulture funds and processes not accessible by regular people. The “savings” won’t be passed along except in the form of lower rents as the vulture funds rent out properties and sit on them for the next bubble.
*Not trying to say anything
*Not trying to say anything with this. Just thought the content might be interesting to the folks on this thread.*
Jan. 4 (Bloomberg) — Homeowners with the best credit are the next big risk for the U.S. housing market.
An increase in mortgage defaults among prime borrowers in 2009 is likely to accelerate this year, slowing the real estate recovery even as Americans become more optimistic about the economy, said Robert Shiller and Karl Case, the economists who created the S&P/Case-Shiller Home Price Index.
“There will be continuing foreclosures, and not just subprime, it will be prime mortgages,” Shiller, a professor at Yale University, said in an interview. “This is creating a huge shadow inventory of homes that are still owned, but they’re going to be on the market in the next year or so.”
The number of prime mortgages overdue by at least 60 days more than doubled in the third quarter from a year earlier to 838,000, according to a Dec. 21 report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Unemployed homeowners struggling to pay their bills will default on their home loans and increase foreclosures, Shiller and Wellesley College’s Case said.
Employers have cut more than 7.2 million jobs in the last two years, the biggest employment loss since the Great Depression. Measured annually, the U.S. jobless rate probably will average 10 percent in 2010, according to the median estimates of economists surveyed by Bloomberg. That would be the highest rate in government records dating to 1948, after rising to a 26-year high of 9.3 percent last year.
Prime Foreclosures
“Unemployment is not respecting income boundaries,” said Case in an interview. “It’s affecting rich people, poor people and middle-income people and they all have mortgages.” The U.S. may begin to see some signs of a housing recovery this year, he said.
The foreclosure inventory of prime adjustable-rate loans rose to 10 percent in the third quarter, more than doubling from a year earlier, while prime fixed-rate loans more than doubled to 1.95 percent, said Jay Brinkmann, chief economist of the Mortgage Bankers Association in Washington. The surge in prime ARM foreclosures is coming at a time when rates are resetting lower, reducing monthly payments, he said.
“If you have a prime adjustable-rate mortgage resetting in 2010, you probably are going to see your rate go down,” Brinkmann said. “Still, prime ARMs are defaulting at a higher rate because these borrowers were the risk-takers who chose the initially lower payments so they could stretch to get into a house.”
Recovery Signs
While an increase in prime foreclosures will slow the housing recovery that began in September, it won’t be enough to knock it entirely off track, Case said. Home resales in November rose to the highest level in almost three years, the third consecutive monthly gain, and the supply of new homes for sale is at the lowest level in almost four decades.
“That’s taking some of the pressure off,” Case said. “Hopefully in 2010 we’ll see some recovery.”
Foreclosures are declining for the type of subprime mortgages that sparked the global financial meltdown in 2008. New foreclosure starts among subprime ARMs fell to 4.92 percent in the third quarter from 6.47 percent a year earlier after the bulk of loans were either modified by lenders or the properties repossessed and sold, according to the MBA.
“What makes the rising default rates on prime loans so insidious is these are not folks who took out some crazy new type of mortgage,” said Brad Hunter, chief economist at MetroStudy real estate research in West Palm Beach, Florida. “These are people who probably took out what would ordinarily be a responsible mortgage.”
Obama’s Challenges
The increase in unemployment and the lackluster housing market have been at the center of the worst economic contraction since the 1930s and remain a challenge for President Barack Obama as he enters his second year in office. While property resales have started to rise nationally, foreclosures and price declines continue, even after the government spent $230 billion in fiscal 2009 to support homeownership, according to a tally by the Congressional Budget Office in Washington.
Loan servicers offered lower monthly payments for 680,000 delinquent borrowers, 274,000 under the federal Home Affordable Modification Program and 406,000 under other plans, according to a Dec. 21 report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Borrowers defaulted again on 61 percent of loans modified more than 12 months earlier, the report said.
The economy probably will expand 3.5 percent in 2010 as it recovers from a 2.5 percent contraction in 2009, according to Dean Maki, the chief U.S. economist at Barclays Capital in New York. Maki, the most-accurate forecaster in a Bloomberg News survey, estimates the unemployment rate will average 9.6 percent in 2010.
Where are the Jobs?
An improvement in the jobless rate may do little to help the nation’s weakest housing markets, Brinkmann said. The rate fell to 10 percent from a 26-year high of 10.2 percent in October, the Bureau of Labor Statistics said in a Dec. 4 report.
“Even if the jobs start coming back, where are they coming back? If it’s in Texas or Oklahoma, it’s not helping people in California or Rhode Island,” Brinkmann said in an interview.
Michigan had the highest U.S. unemployment rate in November, at 14.7 percent, followed by Rhode Island at 12.7 percent, according to the Bureau of Labor Statistics. California, Nevada and South Carolina tied for third place, with a 12.3 percent jobless rate.
Sales of previously owned homes rose 7.4 percent to a 6.54 million annual rate in November as buyers rushed to meet the original Nov. 30 deadline for a tax credit of up to $8,000 for first-time buyers, the National Association of Realtors said in a Dec. 22 report. Two months ago, Congress extended the credit to April and expanded it to include some move-up buyers.
Confidence Needed
Confidence is the key ingredient to a sustainable economic recovery, Shiller and Nobel Laureate George A. Akerlof said in their 2009 book “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism.” The book expands on a John Maynard Keynes macroeconomic theory by the same name that says emotion, rather than logic, drives consumer decisions that lead to economic change.
“I do see some signs of animal spirits, but it’s a mixture,” Shiller said last week of the housing market. In some areas of the U.S., such as California, home prices are going up at an “amazing” pace, he said. At the same time, “It would be entirely plausible that we would have a weak housing market for many years.”
U.S. consumer confidence improved in December for a second month as Americans became more optimistic about the economy, according to a Dec. 29 report by the Conference Board in New York. The index rose to 52.9 in December, in line with the median forecast of economists surveyed by Bloomberg News.
Federal Tax Credit
In the same month, the group’s measure of home-purchase plans dropped to a 27-year low, despite federal efforts to stimulate housing demand with the tax credit and a $1.25 trillion Federal Reserve program to lower home-loan rates by purchasing mortgage bonds. The index measuring intentions of buying a home in the next six months fell to 1.9 percent from 2.1 percent in the prior month.
“At the moment a lot of potential buyers are deciding to wait and see,” said MBA’s Brinkmann. “If they do have a job, they may have seen 20 percent of their company laid off and they’re wondering if they’re next.”
I’m not convinced the 19K is
I’m not convinced the 19K is all “shadow inventory.”
I say it isn’t real shadow inventory until the foreclosure is complete. Being “in the foreclosure process” isn’t good enough.
I’d be comfortable with some weighted average measure, where you take the count of homes in various stages of foreclosure, and multiply by a “probability of foreclosure” factor for each stage. This would give a better sense of the magnitude of actual homes that might someday be inventory. Even that would be “potential shadow inventory” and not actual shadow inventory.
I am surprised that nobody
I am surprised that nobody has compared the upcoming tsunami to production of new housing.
Its impact on the market is similar, isn’t it ?
Used houses from foreclosures are future inventory just like houses that are constructed.
Consider that from 1999 to 2005 new housing was produced at a rate of about 16,000 units per year in San Diego County.
In 2009 it was about 3000 units.
Are we not simply going to be replacing new housing production with recycled units ?
outtamojo – thanks for the
outtamojo – thanks for the link.
I’m not holding my breath for a massive surge in inventory of short sales. One thing is for sure, recovery in the stock market is way more quicker. I knew the real estate market would take longer, but w/all the obstacles – I mean help – it will be years, no doubt.
I’m starting to wonder about new buyers who got tempted by the 8k credit. Aren’t they required to be in the home 3 years? That’s a way of trapping you in a place. What if you have a job transfer or have to move for whatever reason. Do you have to give the government 8k back?
jpinpb wrote:…Do you have
[quote=jpinpb]…Do you have to give the government 8k back?[/quote]
Hey, jpnpb, no fair! Leave some room for Mr Geithner to come up with future new forgiveness schemes to subsidize homeowners. Give poor Tim some creative space.
patientrenter wrote:jpinpb
[quote=patientrenter][quote=jpinpb]…Do you have to give the government 8k back?[/quote]
Hey, jpnpb, no fair! Leave some room for Mr Geithner to come up with future new forgiveness schemes to subsidize homeowners. Give poor Tim some creative space.[/quote]
Yeah. I’m sure there will be more made up rules along the way. Though, if you think about all the people taking advantage of 8k, that would be a lot of money to be paid back to the government if people decide to walk or need to move. But more likely I could see future changes tailored to whatever circumstances present themselves.
I wonder if the bailout has
I wonder if the bailout has only paid for the first wave of loan recasts or if it will pre-pay the next one too? I guess we’ll find out if/when the banks ask for a second bailout.
Another wild card I contemplate is the media. Will they continue to hide the shadow inventory even into late ’10 or will they try to retain what is left of their credibility and expose it? Are they even aware of it? Of course if they expose the inventory then the public becomes aware of exactly how the bailout is screwing them. Choose credibility or let their god ( Obama ) fall. Hmmm…..
If the public does become aware of how the games works then I wonder if a second bailout is even possible. If not then cool. Combine interest rates with it and we have a perfect storm of buying (assuming the banksters have to sell to keep from going under). Oh yeah then there is the moral hazard.
For Pigg purposes we should be preaching “buy and don’t pay your mortgage”. We might as well speed this thing along since the powers that be are stalling. I’m getting impatient.
Well it’s pretty simple: more
Well it’s pretty simple: more shadow inventory = more potential properties coming to market = more downward pressure on values.
What I find telling is that holding a large number of homes off the market has not stopped values in most zip codes in SD County from declining pretty substantially, some massively. I would be interested to see a breakdown of shadow inventory by zip and see if it offers any explanation as to why certain zips have not (yet) declined in value substantially.
DaCounselor wrote:Well it’s
[quote=DaCounselor]Well it’s pretty simple: more shadow inventory = more potential properties coming to market = more downward pressure on values.
[/quote]
I agree that more properties coming on market puts downward pressure on price.
But, based on the numbers I posted above it seems to me that the number of recycled homes in shadow inventory is on the order of about what until recently was built in San Diego County over a 15-month period.
To some extent recycled homes could partly fill the role that new home constuction has in past recoveries. Sucks for the Corky McMillin types, I guess. But, the lenders can choose the same tactics that builders choose, and release their inventory in phases.
I’d like to see a quantitative treatment (other than my back-of-the envelope one) comparing potential inventory from shaodow to new home production (or lack thereof).
FormerSanDiegan
[quote=FormerSanDiegan][quote=DaCounselor]Well it’s pretty simple: more shadow inventory = more potential properties coming to market = more downward pressure on values.
[/quote]
I agree that more properties coming on market puts downward pressure on price.
But, based on the numbers I posted above it seems to me that the number of recycled homes in shadow inventory is on the order of about what until recently was built in San Diego County over a 15-month period.
To some extent recycled homes could partly fill the role that new home constuction has in past recoveries. Sucks for the Corky McMillin types, I guess. But, the lenders can choose the same tactics that builders choose, and release their inventory in phases.
I’d like to see a quantitative treatment (other than my back-of-the envelope one) comparing potential inventory from shaodow to new home production (or lack thereof).[/quote]
New inventory matters only with respect to new household formation. New households can be formed by new entrants (who are willing **and able**) to pay high prices, and by existing households who separate and form new households (kids moving out, parents divorcing, etc.). How many college kids and newly divorced parents can afford today’s prices? That leaves us with new entrants from other states and countries. Certainly, they are more inclined to overpay, but how large is this pool of buyers?
The opposite of this expansion is the contraction of households and residents who decide to go home to their native states and countries (likely if they want to live with friends or family and consolidate to save money).
We have to decide which is more likely right now: contraction or expansion of households. I’m betting on contraction.
CA renter wrote:
New
[quote=CA renter]
New inventory matters only with respect to new household formation. New households can be formed by new entrants (who are willing **and able**) to pay high prices, and by existing households who separate and form new households (kids moving out, parents divorcing, etc.). How many college kids and newly divorced parents can afford today’s prices? That leaves us with new entrants from other states and countries. Certainly, they are more inclined to overpay, but how large is this pool of buyers?
The opposite of this expansion is the contraction of households and residents who decide to go home to their native states and countries (likely if they want to live with friends or family and consolidate to save money).
We have to decide which is more likely right now: contraction or expansion of households. I’m betting on contraction.[/quote]
It depends on where you’re talking about. For those who graduated in 2003-2005, save for 5-7 years, I’m sure they can afford a house in many places of San Diego. Especially with today’s interest rate. They could be renters or they could be living at home with parents for the last 5-7 years while they save.
CA renter wrote:
New
[quote=CA renter]
New inventory matters only with respect to new household formation. New households can be formed by new entrants (who are willing **and able**) to pay high prices, and by existing households who separate and form new households (kids moving out, parents divorcing, etc.). How many college kids and newly divorced parents can afford today’s prices? That leaves us with new entrants from other states and countries. Certainly, they are more inclined to overpay, but how large is this pool of buyers?
The opposite of this expansion is the contraction of households and residents who decide to go home to their native states and countries (likely if they want to live with friends or family and consolidate to save money).
We have to decide which is more likely right now: contraction or expansion of households. I’m betting on contraction.[/quote]
I have no doubt that new household formation was suppressed in the County over the past two years. The Billion-dollar question going forward into 2010 and 2011 as the recycled inventory is released in phases into the market is … What will household formation be over the next couple of years ?
I have no idea. My crystal ball broke in late 2008.
I just wrote an offer for a
I just wrote an offer for a client in my market for a house in the mid 800’s. It is a nice house and priced to sell. There are 6 offers on it already. There will be one winner and at least 5 legitimate buyers chasing the next one. It is the first week in January when most people’s thoughts are on anything but buying a house. This is traditionally the slowest time of year. When the next one like it hits the market there could be 10 or even 20 buyers. I dont think prices are going up but I dont see them cratering now either. Too much demand and constricted inventory should prevent. Of course, take that for what its worth. I could be wrong.
A while back I said “welcome
A while back I said “welcome to flat part” and for the most part that’s what we’ve had and will continue to have. There will be some mild upticks in the overcorrected markets and some downticks in the stickier areas, but for the most part, it’s gonna be flatish. We are only a few months from when Roubini predicted the recession will end, about six months before employment numbers begin trending to the good. My worry for my remaining brothers and sisters in piggyland, what is your plan B? Low interest rates, foreclosures, short sales, high unemployment, historically fundamental income to housing price ratios and you still can’t afford a house? It might be time for to at least start thinking about a plan B. What if this is as good as it gets. We can complain about why and blame the government and banks, we can point to the pending tsuinami of inventory, but what if it doesn’t come, which would be historically accurate since it hasn’t yet and has less pressure now than before. I’ve said many times before that a map book might be the next eonomic data some of you should read next, because everyone looking at something not on the coast has already bought, at one time it read “Life, Liberty and the Pursuit of Property” the pursuit was changed to “Happiness” but never did it say a “house on the coast of the one of the richest states in one of the richest countries in the best climate of the world.” sdrealtor isn’t making things up about these buyers who qualify for 800k homes (in the worst economy of our lifetime), they outnumber the inventory and the shadow inventory and the pent up inventory, they are never going to be giving those houses away. 200k a year salary is the cost of admission to those areas, if you don’t make enough I suggest the many free map websites is a good place to start. I hate being negative, but the tsuinami fairy is as fatiguing as the obamafairy, make your own luck, these opportunities come every every decade or so.
If this is indeed the bottom
If this is indeed the bottom I am surprised how fast we got here. Prices were heading down so fast last year, then they abruptly bounced at the low end, much like the stock market. Of course, I am young and all my real estate learning has been done in the past few years so my predictive powers lack multiple real estate cycles experience.
The reason I didn’t buy in 2008 was largely because all the indicators seemed to be extremely against price appreciation from what I could see. With nothing but apparent headwinds for prices it didn’t seem to make sense to buy. Based on my thoughts guided by many on this board I thought I’d have a few to several years at the bottom to sort out the property I really wanted. I was unprepared for the level of bank/government collusion and intervention.
I do regret not buying last year because it is much more expensive this year where I am looking. I’m talking 25% more expensive (250k vs 200k). I am sometimes tempted to admit defeat in my search for a liveable home I have hope of paying off. I might never buy in San Diego, though I can “afford” it.
I reiterate my previous post above. I don’t consider any property in some phase of foreclosure as “shadow” inventory. The true shadow is the unknown number of properties that are delinquent yet no NOD has even been filed. Does anyone have recent California delinquency numbers? Aren’t delinquencies of all outstanding mortgages nationally somewhere around 10%? Wouldn’t that imply a larger percent in the larger bubble states? If you consider the percent increase in home “ownership” during the bubble years, then expect a regression to the mean, wouldn’ this mean about 1 in 10 houses nationally would have to be foreclosed?
I just can’t see this being the low for any tier of the market based on my simplistic reasoning. I know we are in unprecedented times but somehow the delinquencies have to be cured. Yes the government could buy all of the outstanding mortgages, and I wouldn’t put it past them. If this is a bottom, which I guess it could be, then it is an unnatural one and my plan B is to move from California when I can.
Whether this is the bottom or
Whether this is the bottom or not is less important as time goes on. The longer demand goes unmet the more new demand piles on top of it. The lower prices go the more people that can afford the homes you want. If you want to find the bottom it could indeed be years away. I dont see prices skyrocketing anytime soon either. The challenge has been and will continue to be finding a home you love in a location you are happy with at a price you can afford. When you can hit all three its time to consider taking the plunge because it aint gonna get easier to hit all three. What any of you do has no bearing on me, my welfare, my income or my happiness it only hits you in those places. I hope you all find what it is you seek.
My brother, who works for
My brother, who works for Oracle, is looking at new construction in Dublin,Ca. He lived in a 2 bedroom condo the last 10 years- got married, has daughter now, and is now looking for something with a yard. He really wanted to buy as far back as 2005 but stayed away due to what we now call “the bubble”.He and his wife are now number 17 on a waiting list of buyers and they have their eyes on a 800K home. He is, I suspect, one of many who as they waited for prices to come down, built up more and more … wherewithal : ) I can see on this board many others who haven’t bought yet for reasons of their own but want to- your downpayment cache is getting bigger too no?
Seeing a “recovery” or
Seeing a “recovery” or “bottom” is sort of like seeing jesus in fog on a window. If you squint and angle your head the right way you may be able to make out something that looks sort of like him. Still, “seeing” it requires complete and utter faith, more than anything else.
Lordy! Lordy! Preacher Bernake says we free at last! Hallelujah!
temeculaguy wrote:My worry
[quote=temeculaguy]My worry for my remaining brothers and sisters in piggyland, what is your plan B? Low interest rates, foreclosures, short sales, high unemployment, historically fundamental income to housing price ratios and you still can’t afford a house?[/quote]
The answer to this questions is no. Not in an area that I can park my car outside at night and feel certain that I will return to it in the morning unmolested. Not in an area that my son can attend school and actually learn something useful. Not in an area that isn’t a gazillion miles away from my source of employment.
With all the points that TG listed, you’d think that prices would have moved more but, they haven’t really. I’m not looking for a large house on the beach in Del Mar. I just want a small place that meets most of my requirements with a garage. I really would like to have my own garage.
I don’t know if this is the calm before the storm or we have reached bottom but, I do know that current circumstances don’t approach affordability for me. It’s possible that I’m being too conservative. I just can’t see relieving myself of my hard earned income so freely. I always wonder what people do when a “hiccup” occurs. What does one do when there’s a sudden emergency? Credit cards?
From the time that I have spent reading the posts on this site, for what I believe is approaching three years, I’m fairly certain that I am not alone in this line of thinking. It’s possible that our line of thinking is antequated but, there is something deep within that keeps me debt adverse.
temeculaguy wrote:My worry
[quote=temeculaguy]My worry for my remaining brothers and sisters in piggyland, what is your plan B? Low interest rates, foreclosures, short sales, high unemployment, historically fundamental income to housing price ratios and you still can’t afford a house? It might be time for to at least start thinking about a plan B. What if this is as good as it gets. We can complain about why and blame the government and banks, we can point to the pending tsuinami of inventory, but what if it doesn’t come, which would be historically accurate since it hasn’t yet and has less pressure now than before. I’ve said many times before that a map book might be the next eonomic data some of you should read next, because everyone looking at something not on the coast has already bought, at one time it read “Life, Liberty and the Pursuit of Property” the pursuit was changed to “Happiness” but never did it say a “house on the coast of the one of the richest states in one of the richest countries in the best climate of the world.” sdrealtor isn’t making things up about these buyers who qualify for 800k homes (in the worst economy of our lifetime), they outnumber the inventory and the shadow inventory and the pent up inventory, they are never going to be giving those houses away. 200k a year salary is the cost of admission to those areas, if you don’t make enough I suggest the many free map websites is a good place to start. I hate being negative, but the tsuinami fairy is as fatiguing as the obamafairy, make your own luck, these opportunities come every every decade or so.[/quote]
As to the “tsunami” pressure subsiding, I tend to disagree. Delinquencies and NODs are going **UP,** not down. If they ever make principal write-downs S.O.P., then the number of delinquencies will absolutely skyrocket.
If we were planning to buy with 20% or less down, we probably would have bought in 2008/2009, because interest rates were indeed very, very low (sucks to be a saver!). Our goal is to buy with as little debt as possible. For those who have a larger down payment/all cash, this low interest rate environment is deadly.
If it turns out that we can never buy a house for what we’re willing to pay, I’m totally willing to continue renting until we retire (Mr. CAR isn’t exactly on board with this idea just yet), then we’ll move to Detroit and buy a nice mansion for $10,000! 🙂 For us, the ideal situation will be to buy in a very high-rate environment.
I believe we’ve been in a falling interest rate/rising asset price environment for the past few decades, and that this trend is about to reverse. The Fed is fighting it with all its might, but it is the underlying trend sans govt/Fed interference. All the while, we in the U.S. have increased our debt, and moved away from the “lifelong career” model with employer-paid healthcare and defined-benefit pension plans. IMHO, this does not bode well for asset prices — especially housing — going forward. Add to that, one of the largest and wealthiest generations in the U.S. is going to shift into selling mode to fund their retirements, and the potential downward pressure on asset prices becomes rather daunting.
——————–
A note from PIMCO:
Today we will publicly announce another important step that is part of our efforts to ensure that the firm continues to evolve and meet your investment needs in the future. Specifically—and after a multi-year process of internal assessment, consultation with outside experts, and interviews of many teams—PIMCO will announce the hiring of a highly experienced and successful equity team.
Anne Gudefin and Chuck Lahr are joining us as global equity portfolio managers. They come to us after a highly successful tenure at the Mutual Series of Franklin Templeton where they were the co-portfolio managers for the Franklin Mutual Global Discovery Fund. Anne will begin in early January 2010, and she will be based in our London office. Chuck begins today and he will be based in our New York office.
Why is PIMCO expanding into active equity management at this time? For three main reasons:
First, and foremost, because we recognize that your needs, as our clients, are also evolving. We have heard you emphasize investment solutions as well as products; and we have already worked closely with several of you in designing multi-asset class approaches that are supplemented by appropriate and cost-effective risk management.
Second, we believe that PIMCO’s time-tested investment process can, and will, strongly supplement bottom-up equity management expertise, especially at a time of great fluidity in the global economy and in the capital structures of companies.
Third, in Anne and Chuck, we have found great experienced complements to the PIMCO investment philosophy and process.
Our firm has continuously evolved throughout our history, drawing strength from a proven investment process and the depth and breadth of our resources. PIMCO’s entry into active equity management is another example of this evolution. And consistent with what has served our clients well in the past, this evolution will be measured and disciplined. And, critically, it is aimed at providing you with the best investment management services in the world.
http://www.pimco.com/LeftNav/Viewpoints/2009/PIMCO+Expands+Investment+Solutions+Names+Equity+Managers+and+Head+of+New+Investment+Initiatives+Dec.htm
—————–
This move by PIMCO is very telling, IMHO. I believe they also see some potentially significant changes that will not be beneficial to the bond market.
Based on everything I’ve studied and considered, I think we are at an inflection point in a **macro** cycle. I believe we’re going to see a reversal of the multi-decade trend in interest rates and asset prices.
I could be very wrong, but am willing to take that risk.
In the meantime, we are still making offers all the time, just as we’ve done over these many years; however, we will not engage in bidding wars, nor will we pay more for something than we think it’s worth. Win or lose, it’s a calculated bet, and one we’re willing to make.
CA renter wrote:In the
[quote=CA renter]In the meantime, we are still making offers all the time, just as we’ve done over these many years; however, we will not engage in bidding wars, nor will we pay more for something than we think it’s worth. Win or lose, it’s a calculated bet, and one we’re willing to make.[/quote]
No, that’s all win.
WILLING and ABLE to pay is the key. I’m am avid blog reader and I haven’t come across any data that would indicate that US incomes are going to be increasing in the near future. In fact, the contrary is more likely. Add to that the increased burden of energy costs, healthcare, and let’s face it taxes have to rise. In conjunction with life’s hiccups it doesn’t seem like much will be left over.
I just don’t see how a large mortgage commitment makes sense. I say reduce the commitments and live as worry free as possible.
P.S.
I’m still pissed that I have to pay for the poor decisions of the Entitled Masses. So should you.
creechrr wrote:
P.S.
I’m
[quote=creechrr]
P.S.
I’m still pissed that I have to pay for the poor decisions of the Entitled Masses. So should you.[/quote]
Interestingly, asset bubbles are not a new socio-psychological phenomena. They have been going on for hundreds of years and are very well understood. You need essentially three things. Access to money, propaganda and suckers. They don’t work without all three.
Since this bubble was global, you can’t really pin this on “American entitlement” as much as you would like. Sure plenty of entitled idiots out there but we also lost 7-8 million jobs over the past 12 months, which was the driver of the lions share of foreclosures in that time period. Looks like a lot of collateral damage to me.
Also, the stereo typical “subprime” types have been flushed from the system for a while now.
What is interesting is how all the countries that partook in this reacted the same way. Which was to socialize the institutional losses. Essentially, paying the gambling debts of the banks. So you can’t even really blame it on american politics.
What we have had in the US is a de facto nationalization of MBS portfolios through the GSEs. They are being stuffed like a turkey with rotten stuffing behind everybody’s back. They have been the biggest buyers of this debt over the past few quarters. While banks celebrate their repayment of Tarp and collect big bonuses.
What is even more interesting is the amount of losses we are talking. The US has pledged 14 trillion, with total risk up to 24 trillion to buy the bad banker gambles. The whole mortgage market is only like 12 trillion? How does that work? Why are governmental pledges double value of the whole market? Really, I’d like to know.
A few days ago, Iceland voted “NO” to pay off institutional losses aka bad banker gambles in a Rosa Parks move. This did not come until after many protests to even get to be able to vote on it.
So, It seems that complaining about the “entitled masses” is a bit of a victim mentality when Iceland clearly shows that does not have to be the case. And really, a misplaced victim mentality at that, scared to look at who the real culprits are. Just a hint, they are the ones shifting trillions onto the public ledger behind everybody’s back. But then again, Iceland isn’t sitting around stewing about their financially inept neighbors.
So, It looks like Americans are content sitting at the back of the bus and complaining about the other people on the bus, rather than taking an honest look at the situation. But that’s just me.
Yeah, you lost me after the
Yeah, you lost me after the first paragraph. I’m not sure what you’re trying to get across.
I’m not sure I agree with the collateral damage statement. Good personal financial management takes into account job loss. Which would entail not over extending, saving for potential unforseen life events. None of that includes buying as much house as you can afford on paper at that moment in time.
Yes, governments around the world have seen fit to screw their citizens. The wealth of many nations are actively being redistributed.
I also find it hard to place all the blame at the feet of the banks and the politicians they employ. At some point personal responsibilty has to be more than a fleeting notion. We are removing personal responsibility from the equation all together. Without that what we call civilization is hopelessly doomed. Thank goodness the Mayan calendar ends in less than 3 years.
I assume the Rosa Parks comment is in reference to political activism.
So, why shouldn’t I be upset about this? What exactly are you suggesting?
You have to spell this stuff out for me in simple terms for me. Not the sharpest knife in the drawer. Butter knives put me to shame.
Arraya,
Aren’t Fannie and
Arraya,
Aren’t Fannie and Freddie supposed to buy the GSEs? I mean, aren’t they functioning how they were supposed to? Or are you saying, yes, but not to this degree?
lindismith
[quote=lindismith]Arraya,
Aren’t Fannie and Freddie supposed to buy the GSEs? I mean, aren’t they functioning how they were supposed to? Or are you saying, yes, but not to this degree?[/quote]
Fannie/Freddie are GSEs. They have been buying hundreds of billions of MBS(mortgage backed securities) from the big banks per zero hedge and others. There used to be a private market for them unit it collapsed in 2007. Like they would sell them to German pension funds or something like that, for example.
Since the market seized up the Fed and GSEs have been primary buyers. Basically, it’s like Ford making a defective car and not being about to sell it and then the .gov buying them all up and not making them fix the root problem. So Wall Streets main customer is the USG for their “financial” products
Functioning like they are supposed to? Er, eh. Well they are providing capital for the mortgage market. Actually the government backstops about 80-90% of all new mortgages as opposed to a much, much lower percentage before.
One of their primary functions is to make housing affordable. However, they are now used to keep housing elevated. So in that respect a resounding NO. Because w/o them housing would plummet.
They are now being used as a dumping ground for transferring the banks losses to the public, which will be in the trillions before done. All while keeping home prices elevated.
My point’s were:
Asset
My point’s were:
Asset bubbles are well understood. Why is it that our economic emperors forget this and encourage them? Then deny them and claim stupid after the fact. Are they well trained liars or blithering idiots? Can we really claim anger at “entitled masses” with leaders like this? Really, we should expect it, IMO. I think we all feel entitled to have good leaders rather than holding them accountable.
It was 10 of millions of people world wide. So it’s hard to go blaming the 10s of millions without looking at the root cause.
What percentage of the people that were foreclosed on or given a loan mod were that stereotypical irresponsible FB that could not afford their mortgage as opposed to collateral damage? Do we even know if it is a high enough percentage to make claims that it is the “entitled masses”?
We should not have to pay for bad banker gambles, obviously. Whether somebody gets foreclosed on or not should not affect us. Because of the “collective punishment” they are administering we feel the need to blame the irresponsible. When in all reality it is probably only a tiny fraction of the people who fit the title “entitled mass”. Thus blame should be put on those who set up the conditions and who allowed the bailouts. When you say entitled masses it makes it seem like the banks were victimized by house keepers holding a gun to their head and making them invent the no doc loan. When, as we all know, are the ones getting the money, tacitly encouraging and allowing the behavior.
As far as I am concerned, besides a few principle reduction mortgage mods, which really also benefits the banks more. There are not citizens getting bailed out, just banks.
So there maybe millions of people feeling entitled but they ain’t getting nothing. So why all the blame?
Iceland did something about it. They did not sit around playing the victim of the “entitled masses”. The took action and acknowledged the root cause and fixed it.
Really, I was just ranting at people blaming other people rather than leadership which, IMO, is where the vast majority of the blame lay. Not really you directly;) Obviously, with a well-known condition that plays out over and over again for centuries, I would think that the “experts” that get paid the big bucks, should at least know how to spot and stop them instead of profiting on them. I know , I know they just can’t help themselves. Poor souls.
Sure this raises questions about what role personal responsibility plays. However, isn’t part of that, being somebody that makes sure the proper steps are taken for it not to happen again.
Iceland did the responsible thing, America did not. They held the people accountable who set up the conditions. So really, we all seem like “entitled masses” to me and should not pass the responsibility buck down the road to people that are obviously not going to fix the problem. In fact, it looks like they are doing everything in their power to make it happen again.
I guess I’m saying that we are all responsible, whether we like it or not. We are all the “entitled masses” in one way or another. The ones who did not partake in financial foolishness feel entitled to good leadership, Which just ain’t there.
End rant
Arraya wrote:…
Iceland did
[quote=Arraya]…
Iceland did the responsible thing, America did not. They held the people accountable who set up the conditions….
I guess I’m saying that we are all responsible, whether we like it or not. We are all the “entitled masses” in one way or another. The ones who did not partake in financial foolishness feel entitled to good leadership, Which just ain’t there.
End rant[/quote]
Iceland just voted not to repaying British depositors in Icelandic banks. The Icelandic people enjoyed years of prosperity from the money deposited in those banks by British depositors. Icelandic people allowed their banks to grow way too big and take on way too much risk. I wouldn’t call them responsible.
I do not think we are all equally responsible. Those who agreed to pay astronomical sums for homes, when they didn’t have the money, were clearly responsible for much damaging behavior. Those professionals who fed richly off the bubble flow of money into housing were clearly responsible to an even higher degree. Those who managed the economy, in Treasury, the Fed, and Congress, were responsible to the highest degree.
Will accountability follow the level of responsibility? I doubt it. Just ask Barney Frank or Lloyd Blankfein, for example. But we have every right to hold the feet of people like this to the fire, the people who are most responsible for this mess. And there are some people with a lot of the responsibility. There should be no general absolution here.
Let me know when the lynch
Let me know when the lynch mob forms in D.C. and Lower Manhattan.
I am not fond of Bernanke but
I am not fond of Bernanke but I am absolutely scared of the lynch mob.
DaCounselor wrote:Well it’s
[quote=DaCounselor]Well it’s pretty simple: more shadow inventory = more potential properties coming to market = more downward pressure on values.
What I find telling is that holding a large number of homes off the market has not stopped values in most zip codes in SD County from declining pretty substantially, some massively. I would be interested to see a breakdown of shadow inventory by zip and see if it offers any explanation as to why certain zips have not (yet) declined in value substantially.[/quote]
It is rather telling that holding inventory down AND low rates AND tax incentive AND bailouts, yet still prices declining.
jpinpb wrote:
It is rather
[quote=jpinpb]
It is rather telling that holding inventory down AND low rates AND tax incentive AND bailouts, yet still prices declining.[/quote]
Huh ?
Prices were NOT still declining across the board in San Diego in 2009.
Low inventories, low rates and relatively low prices did impact the price in San Diego to the upside in 2009.
Since we are discussing the impact of future inventory on price we should at least get on the same page regarding the facts.
Prices declined in San Diego through early 2009. Inventory peaked at nearly 20,000 homes in 2007. Once inventory dropped below about 13000 or so in early 2009 (and months inventory fell back into the “normal” range), prices flattened and/or recovered substantially in many parts of San Diego.
jpinpb wrote:DaCounselor
[quote=jpinpb][quote=DaCounselor]Well it’s pretty simple: more shadow inventory = more potential properties coming to market = more downward pressure on values.
What I find telling is that holding a large number of homes off the market has not stopped values in most zip codes in SD County from declining pretty substantially, some massively. I would be interested to see a breakdown of shadow inventory by zip and see if it offers any explanation as to why certain zips have not (yet) declined in value substantially.[/quote]
It is rather telling that holding inventory down AND low rates AND tax incentive AND bailouts, yet still prices declining.[/quote]
Agreed! In all the zips that I watch/track closely (south coastal), prices on 85% of the inventory listed are constantly being reduced or they sit and then taken off the market.
I don’t care what reports come out or what “experts” say, from what I see with my own eyes, prices in these areas have NOT bottomed, and inventory continues to grow.
I am still seeing more and more properties whether they are “shadow” or not, being listed, only to exhibit the same behavior…
Reading through this entire
Reading through this entire post for the first time, I’m reminded of the same feeling in the pit of my stomach when we were in the midst of the price run-up a few years ago.
Disbelief that it can continue, despair that it will, anxiety that I will never, ever own a home (that isn’t on top of the freeway or that requires a guard dog and bars on the windows,) and the feeling that somehow, no matter what I do, the American Dream is beyond my grasp.
It feels like 2005 all over again.
Yuck.
The only bright side is banks keep failing, jobs are not to be had, cash buyers can only buy so many rehab projects before they are out of cash, and people do need to move in the spring. So, I am anticipating more inventory, and a slight decrease in prices as a result.
What’s the rule of thumb? 3-4% a quarter?
lindismith wrote:
Disbelief
[quote=lindismith]
Disbelief that it can continue, despair that it will, anxiety that I will never, ever own a home (that isn’t on top of the freeway or that requires a guard dog and bars on the windows,) and the feeling that somehow, no matter what I do, the American Dream is beyond my grasp.
[/quote]
These feelings I don’t experience.
I don’t see it as an all or nothing situation. There’s just as much bad being tide to a house/mortgage as their is good.
For instance, I may have the opportunity to work overseas in the near future. All I have to do is pack and go. No concerns about what to do with the house.
If I’m never I home owner so be it. That doesn’t bother me at all. After all, it’s just shelter for my family and our stuff.
What does piss me off, is the fact that I have to pay for the poor decisions of others. My son will have to pay for the poor selfish decisions of others. If he should have any children, they’ll have to pay for this mess too.
We all should be pissed about that.
If interest rates creep up
If interest rates creep up what will the banks have to do to keep their shadow inventory looking good on paper? Or is that already covered with shady appraisal methods?
creechrr wrote:
These
[quote=creechrr]
These feelings I don’t experience.
I don’t see it as an all or nothing situation. There’s just as much bad being tide to a house/mortgage as their is good.
For instance, I may have the opportunity to work overseas in the near future. All I have to do is pack and go. No concerns about what to do with the house.
If I’m never I home owner so be it. That doesn’t bother me at all. After all, it’s just shelter for my family and our stuff.
What does piss me off, is the fact that I have to pay for the poor decisions of others. My son will have to pay for the poor selfish decisions of others. If he should have any children, they’ll have to pay for this mess too.
We all should be pissed about that.[/quote]
You’ve expressed **exactly** how I feel.
creechrr – in the same exact
creechrr – in the same exact situation as you. Good income and still no luck.
lindismith — same gut feeling, but not feeling any optimism.
Rich Toscano wrote:
It feels
[quote=Rich Toscano]
It feels like I’ve been writing about “shadow inventory” — homes
that are in foreclosure but haven’t hit the market yet —
forever. Yet no flood of foreclosures has yet inundated the
market, and as a matter of fact, inventory has been quite scarce
lately. Is there anything to this shadow inventory concept?
[/quote]
had an interesting RE conversation a few days ago and thought I’d ask if anyone has heard this…
basically from what I gathered stuff like RE “shadow inventory” was placed into something called “special purpose entities” (SPEs)
the magnitude of toxic stuff which is “off balance sheet” at the national level is unknown because its traded kinda like overnight commercial paper
since SPEs are traded and not “held” for very long, the property is not recorded at county recorders office level (thus RE turns into “shadow inventory”)???
bottom line there are still lots of unknown risks (knock on effects) from “shadow inventory,” derivatives, swaps, etc…