The rate at which homes are being brought onto the market doesn’t necessarily have to increase dramatically, if the rate at which they are being taken off the market falls.
If the selling season winds to an end, the incentives wind down, the supply of first time buyers and investors wanes; the buying will slow dramatically. The inventory will build.
Now add into that this shadow inventory, whatever size.
Seems plausible that inventory will build again, even without a “wave”.
Money Quote: “I plan to buy when I can get a place for 50 cents on the dollar”
Posted by granite on 08/17/09 at 04:59 AM
“During this stage many renters who would otherwise have purchased a home put off their purchase and save more money because they correctly see the decline in prices has momentum and prices should continue to drop further.”
As a former homeowner in the 90’s, I remember the despair of being underwater for years. That’s what keeps me from joining the recent frenzy of buying. There’s still way too much smugness.
The purchase date is ‘05, which makes a difference to me in determining what the price today should be. How long was it listed @ 660k? How long has it been on as a short-sale? What is the difference in impact to your credit score or future homeownership for a short-sale vs. foreclosure?
Unrelated - if someone defaults on an investment or vacation home, how often do they declare bankruptcy? Do the banks in an FC like that go after a defaulter’s other assets? Do the banks even care to find out that someone misrepresented the home as their primary residence in the mortgage app?
Posted by cara on 08/17/09 at 05:26 AM
You neglected to work into your story who is buying during the declining phases. I don’t think a picture of today’s market can be complete without acknowledging the large downpayments being made on the median property right now.
I know you expect that we will run out of such cash at some point soon.
I guess the joke now is how does a real estate investor buying in the downslide end up with $1 million, start with $3 million…
Posted by Geotpf on 08/17/09 at 06:08 AM
For prices to fall further, there needs to be more inventory available. A lot more. Until the mythical shadow inventory, whether bank owned or just in default, actually shows up for sale en masse, I can’t see prices falling much further.
The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society’’ and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities.
The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.
...
“People who were owners are going to be renting for a while,’’ said Margery Turner, vice president for research for The Urban Institute, a Washington think tank that studies social and economic policy.
“There is a housing stock that is sitting vacant. There is a real opportunity here’’ to use those homes as rental property and solve both problems, she said.
This conversion of housing stock from ownership to rental units is already happening. Based on data from the Census Bureau, there have been over 4.3 million units added to the rental inventory since Q4 2004, far more than the 1.1 million new units completed as ‘built for rent’ since 2004. (see The Surge in Rental Units)
And this conversion is ongoing. According to the Campbell Survey, 29 percent of all existing home properties in Q2 were purchased by investors - probably mostly for use as rentals.
In addition, many of the modification programs are really turning homeowners into renters (or “debtowners”). Most mods just capitalize missed payments and fees, and reduce interest rates for a few years. Many of these “homeowners” will still have negative equity when the interest rate increases again, and this could be viewed as Single Family Public Housing.
A summary of Second Quarter 2009 Negative Equity Data from First American CoreLogic shows that Nearly One-Third Of All Mortgages Are Underwater.
• More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30, 2009 according to newly released data from First American CoreLogic. As of June 2009, there were an additional 2.5 million mortgaged properties that were approaching negative equity. Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide.
• The aggregate property value for loans in a negative equity position was $3.4 trillion, which represents the total property value at risk of default. In California, the aggregate value of homes that are in negative equity was $969 billion, followed by Florida ($432 billion), New Jersey ($146 billion), Illinois ($146 billion) and Arizona ($140 billion). Los Angeles had over $310 billion in aggregate property value in a negative equity position, followed by New York ($183 billion), Miami ($152 billion), Washington, DC ($149 billion) and Chicago ($134 billion).
• The distribution of negative equity is heavily skewed to a small number of states as three states account for roughly half of all mortgage borrowers in a negative equity position. Nevada (66 percent) had the highest percentage with nearly two‐thirds of mortgage borrowers in a negative equity position. In Arizona (51 percent) and Florida (49 percent), half of all mortgage borrowers were in a negative equity position. Michigan (48 percent) and California (42 percent) round out the top five states.
There are some interesting tables and graphs in the article that inquiring minds are investigating. Here are some partial alphabetical lists.
Posted by Geotpf on 08/17/09 at 06:21 AM
Obviously, shadow inventory of some sort exists. If it’s mostly stuff only in default, it may never show up for sale (that is, if the existing owners mostly get loan mods).
Inventory, especially in low to mid priced areas, is at record lows. Inventory this low makes it really hard for prices to fall further.
Posted by NewportSkipper on 08/17/09 at 06:22 AM
Irvinerenter, you say 83 Vermillion was last sold in 2001, but Quail Hill didn’t exist then. And it looks like the going rate for 1,500 sf there is north of $500k.
“I’ve always said the American dream should be a home - not homeownership,” said Representative Barney Frank, chairman of the House Financial Services Committee and one of the earliest critics of the Bush administration’s push to put mortgages in the hands of low- and moderate-income people.
What a distortion of reality. Barney Frank was in the pocket of Fannie Mae and Freddie make and their biggest supporter for years. Now he plays on semantics in an unbelievable lie. He would have been better off keeping his mouth shut, but political hacks seldom if ever can.
Posted by tjwilliams on 08/17/09 at 06:26 AM
Couple of things. How could this have been purchased on 10/31/2001 if it was built in 2006?
Second, there is no way on earth this short sale goes through. They were underwater at $660,000 (obviously 100% financing) and they think the bank is going to accept $439,000? Crazy.
Yes, this should sell for more than the short-sale asking price. They are trying to attract attention with the low price. This property will likely get 20 bids over the ask and sit there for 5 months while the lender figures out whether it wants to sell or not.
Posted by NewportSkipper on 08/17/09 at 06:30 AM
If this property sells for the going rate that will be 16% off the peak.
Posted by Perspective on 08/17/09 at 08:15 AM
Barney Frank is one of those peculiar political creatures that enjoys a guaranteed Congressional district seat, but is so extremely left-of-center as to have no hope of any higher office. This provides him the freedom to do and say nearly anything he wants.
Jon Stewart (Daily Show) asked Frank some tough questions about Frank’s hypocrisy a few weeks ago, but Frank didn’t answer the questions. He just weaseled out with some incoherent evasive responses.
Posted by Loyal Follower on 08/17/09 at 08:37 AM
I question whether many of the defaults are just home owners setting up for a loan modification with no intention of actually letting their homes go into foreclosure.
An update on our situation: As a reminder, we received a foreclosure notice on the home we are renting. The PO said he was working on a loan mod and the FC notice was a misunderstanding. Nonetheless, we stopped payment on our August rent check. The PO recently called to say that they had cleared everything up with the bank and could they come by to pick up the rent check. We said sure, if you bring documentation that the NOD has been canceled. We haven’t heard from them again. We may show up at the courthouse this Tuesday to see for ourselves whether the auction takes place.
Great idea! Don’t rent the house out to qualified, responsible tenants. Go out of your way to rent to the same deadbeats who just jacked you out of a few tens of thou (in many cases much more) and probably lived rent free for 6 to 12 months already while waiting for the eviction notice from the bank.
This will give deadbeats the trifecta. They lied on their mortgage app, they defaulted on the loan, and now they can keep living there and stop paying rent after a month or two. That’s what I call gaming the system. And the only losers are the honest, prudent among us. Is this a great country of what?
(I apologise if this has been referenced already…haven’t had time to read all the previous posts)
Posted by Alan on 08/17/09 at 09:34 AM
Different market and circumstances (Florida), but some similarities also ...
From NYT: On the Map, Florida Wonders Which Way is UP
http://www.nytimes.com/2009/08/16/weekinreview/16cave.html?hpw
“It is a mess of immense volume: In the first six months of this year, 268,064 properties in Florida received a foreclosure filing, up nearly 42 percent from the first half of 2008, making it the second worst state in total foreclosures nationwide behind California. And for those convinced that recent, positive sales figures signal a brisk recovery, consider this: foreclosures outpaced sales of houses and condos in the same period (99,010) by a factor of nearly three.”
Will Irvine join this parade?
Posted by bigmoneysalsa on 08/17/09 at 09:45 AM
Geotpf, I think your approach to looking at where prices are headed is overly simplistic. Yes, if you look at a snapshot of the market right this second it’s plain that prices won’t be collapsing immediately. But are you really saying anything of consequence with that statement? We all know that things change. It’s completely possible to have a very tight market at one time, and then two or three years later - *POOF* - prices are 30-40% lower accross the board. There are numerous examples of this as I’m sure you know.
Let me use an analogy. IrvineRenter and other posters here who talk about shadow inventory, price to rent ratios, etc, etc are like weather forecasters. A good weather forecaster is not going to spend a lot of time telling you what the weather is like right now or will be like an hour from now because really, who the hell cares? People want to know what the weather will be like in a few days. If you want to acurately predict if it’s going to rain in the next few days, you can’t just go outside, look up at the sky and say “Well, there’s no rain clouds so I can’t see it raining anytime soon.” That’s not gonna work. If you want to make some kind of prediction that’s actually useful you have to look at data from weather satellites, barometer readings, and all that complicated stuff. Similarly with the housing market, if you care about what prices are going to do over a timespan longer than a few months (which any sensible person considering buying should) you really have to look at more than just a snapshot of the current inventory / sales ratio.
Posted by thrifty on 08/17/09 at 09:46 AM
Interesting how many stats cluster in the mid 40 million range:
- total mortgages: approx 47 million
- total medicare beneficiaries: approx 46 million
- total medically uninsured in U.S: approx 46 million
Posted by Property Owner on 08/17/09 at 10:25 AM
Based on what I see, Irvine is still in denial and is starting to move into fear (maybe).
With school starting up very soon, when are we oficially out of the ‘buying season’?
I have another neighbor that just popped his house on the market so I believe now I have 4 neighbors within our little double circle (figure 8) street that are on the market. We barely had anyone on the market during the beginning of the season, so is this normal or could it be ‘fear’ setting in?
Either way, the moving trucks are coming to my house this Friday to ship my behind out of Irvine and into storage. I got a killer price from the moving company so I am happy.
Posted by avobserver on 08/17/09 at 10:31 AM
glad to see this administration is finally showing signs of “capitulation” too ...
Posted by avobserver on 08/17/09 at 11:37 AM
As long as (1) short term supply is kept tight – thru accounting rule change, bank bailout, foreclosure moratoria, enforced loan mod, etc… and (2) short-term demand is manipulated to produce enough knife catchers – by squeezing savers and pulling demand forward (via Fed’s interest rate manipulation, first time buyer credit…), as for Irvine mid to high end market we will likely be stuck in “denial” stage (or perhaps early stage of “fear”) for quite some time.
Never have we seen free market mechanism in housing being distorted to such an extent that it has become almost impossible to estimate the length of this downturn. I was in disbelief when I first read about Japanese RE market declining for 15 years straight after their bubble burst back in early 90’s. But I am no longer surprised. If gov’t and the central bank deploy enough “policy tools” to tweak demand/supply they can in fact stretch the price correction process out for many years. IMO it is no longer unthinkable that we won’t see a market capitulation until 2014-15.
Posted by Sue in Irvine on 08/17/09 at 11:37 AM
Property owner…what’s happening with your home search? Still no luck so now you have to go rent somewhere?
Posted by Geotpf on 08/17/09 at 12:09 PM
This would be true if inventory was balanced now. But well priced REOs will sometimes attract twenty of offers (or more) within a week. If half that demand goes away, well priced REOs will still attract ten offers within a week. The practical difference in terms of number of houses sold, minimal, although there might be a slight difference in final sale price.
Posted by Geotpf on 08/17/09 at 12:19 PM
Actually, if Kerry or Kennedy ever leave their Senate seats, Frank is considered a near shoo-in to replace them. If Kerry had won the presidency in 2004, Frank would have ran for, and almost certainly won, his Senate seat. Kennedy is in very poor health right now. He might die or resign for health reasons at any time.
Posted by Property Owner on 08/17/09 at 12:50 PM
Hi Sue,
We have offers on two homes right now. Of course one is a short sale and the other is an REO.
Our Short sale offer has been accepted and we are in first position but it is now in the bank ‘pile’.
For the REO, the two offers (including mine) have been sent to the bank for review and I was told it can take up to 40 days to receive a response.
I did have an offer on a regular sale but the deal fell apart because the seller was not willing to negotiate the price at all. Their house is still for sale.
So until then, we are moving in with the in-laws. Kind of a strange feeling having to move back in with the wife’s parental units not because we financially have to, but because we can’t find the right house! At least they have a huge house and their second floor is all ours to use.
Now I need to hide from ‘e’ for talking about this stuff again on the blogs.
Posted by no_worries on 08/17/09 at 01:41 PM
If by “well priced” you mean 20% below comps, yes. There is and will continue to be a large demand for below comp, low end homes.
Are you inferring, then, that there is actually 20x the current demand “hidden” because of the competition of low supply (there can only be one sale for those 20 bids)?
Again, let me remind you that it is the selling season, there are massive incentives to buy ($8k/5%/FHA 3.5%) right now, all of which will eventually go away. Probably sooner than later.
Much of the demand you’re seeing is from people, first time buyers or investors, who think we’ve reached bottom. If its shown that we haven’t, the investors and first time buyers (that haven’t bought) will undoubtedly back off to wait again, don’t you think?
I just don’t buy that this “demand” continue indefinitely. It’s not a natural demand.
Posted by HydroCabron on 08/17/09 at 02:27 PM
“...no longer unthinkable that we won’t see a market capitulation until 2014-15.”
My thoughts lead in that direction.
The cultural attitudes about real estate as an investment run so deep that there is, as yet, no actual acknowledgement that prices have really dropped, even for low-end housing. The only people who have admitted that prices can drop are those who have been forced to walk away.
The easy-terms FHA stuff, complete with $8K tax incentive for first timers, will likely be extended. The government will not give up on this until forced to by some larger collapse.
Posted by tlc8386 on 08/17/09 at 02:28 PM
Take a look over in Nellie Gale there are two homes going into auction one was bought for 1.8 starting bid at 1.5—zillow has the fair price for the home listed at 2.6. It’s a 5k sq. foot home on a 15k sq. ft. lot. Anvil Circle—-
The house next door I once visited (in error) it was 3 million—never sold, took off market.
Another house up for auction is for 1.29 should go for one million—over priced. Lost Colt dr.
I also visited two homes in Laguna almost identical homes (same builder I pressume) one was for 1.3 and the other 1.9—-600k difference—is the 1.9 insane?? Oh but the RE said it has new items in home—(if anything it had less)
1323 dunning Drive and 1315 for those interested and the best thing next to 1323 a huge big unfinished home with no telling when it will have finance to finish building it.
These people are drinking koolaid big time.
Another one was 1.9 with a beauitful view in Laguna but NO upgrading had an old pool though—I told the RE agent they would be lucky to get 1.3.
So the kool-aid is still bubbling by the beach—big time.
With mid-term election coming up next year I am sure our policy makers will have even greater urge to “do something”, anything, to prop up falling price. Measures worse than FHA loans (the new subprime mortgage) and tax credit for first timer could be dished out left and right.
Posted by houseonlegs on 08/17/09 at 04:02 PM
The loan modification factor will start to vanish, the Federal Trade Commission, Dept of Justice and Attorney General have cracked down on the businesses operating as such, they have ceased most of them and are making it very difficult for even attorney’s to operate as offering loan mod services. Without these firms heavily advertising and promising results, less homeowners will have the sense to call their lenders and try to resolve themselves, the documentation requirements are quite lengthy and with unemployment at the rate it is, many will not qualify. I have seen cases where homeowners will get their NOD cancelled due to a loan mod and they will be right back in the same situation 6 months later, still unable to make payments. Loan modifications are a solution for very few and after lenders start to realize that payments are still not coming in, they will stop writing them. Again, we are just prolonging the inevitable.
Posted by thrifty on 08/17/09 at 04:43 PM
Property Owner: for those who are not familiar with the short sale mechanism, what does it mean that your offer has been accepted and you are in first position in the bank pile?
Posted by tonyE on 08/17/09 at 05:13 PM
42 percent in California?
Isn’t that kind of high? Did 42% of the homeowners in California moved or refinance in the last six years?
Somehow those numbers seem way too high for me.
Posted by bigmoneysalsa on 08/17/09 at 05:18 PM
Cash out refis and HELOCs were everywhere. 42% is not at all surprising.
Posted by MalibuRenter on 08/17/09 at 05:41 PM
Wait two years. The total market value of all single family homes will be below their 2007 loan values. The only way it won’t go to negative equity for the whole state is if enough homes are sold as short sales or REOs. Still, the whole state might barely be in negative equity based on the loans currently outstanding in 2011, even including homes with no mortgages.
If you drive by, owner’s shiny new SUV is still in the driveway with dealer tags.
Posted by Property Owner on 08/17/09 at 07:18 PM
Well, when you make an offer on a short sale, you actually need two parties to accept your offer. One is the owner of the home and the other is the bank which holds the mortgage on the home.
It is usually easy and quick to get past the first step which is to get the homeowner to accept your offer. The majority of the time is spent waiting for the bank to accept the offer.
So, banks usually do their step in one of two ways.
1) Tell agent to collect a whole bunch of offers over time and then when they start to work on the property, they will pick the highest and strongest offer to accept.
2) Tell the agent to only submit one offer at a time to them whether is it the first received or the best (highest and strongest) in the current offers received.
We fell into scenario #2 so our offer has been accepted by the homeowner and the agent has submitted our offer for review by the bank. This puts us into the ‘first position’ of the offers submitted. Now the time it takes will be long (1 to 6+ months) for the bank to respond depending on how backlogged the bank is which puts us ‘in the pile’.
That is the cliff notes version.
Posted by thrifty on 08/17/09 at 07:36 PM
Property Owner:
That’s very helpful. It looks to me as if the only difference between method #1 and #2 is who holds the offers - the agent or the bank- until the bank decides to choose. Whether your first in line means nothing if the bank is “shopping your offer” to see if they can find a better one - in their own sweet time - after telling you yours is the best so far? right?
Do you include a clause giving you the right to withdraw the offer immediately at any time for any reason?
Posted by LC on 08/17/09 at 07:41 PM
When are you gonna do “Let It Bleed” by the Rolling Stones?
Posted by Property Owner on 08/17/09 at 07:56 PM
Yes. Pretty much if you are in scenario #1, you are always in total limbo until you get the green light. In #2 that can possibly happen as well if the agent gets a wonderful deal and tries to get the bank to accept the much higher offer. Either way, the bank can still come back and demand more money if they feel the property is worth more.
You always have the right to withdraw your offer. Just notify your agent.
Posted by Craig on 08/17/09 at 08:26 PM
The real shadow inventory is all the pent-up demand to sell, by homeowners who want out but don’t want to put their homes on the market now when they think prices are too low. When we actually reach the capitulation stage, there will be a lot more inventory coming online. Add to that the coming tsunami of Alt-A resets, and this summer will look like the biggest fool’s rally ever.
Posted by Never a Better Time on 08/18/09 at 12:56 PM
Need Knife Catchers. Bring money.
Posted by AVRenter on 08/18/09 at 03:01 PM
By my count a few days ago NellieG/MoultonR had 64 listings, eight of which were Short Sales (I didn’t check REO’s). I see 48 sales in the past year.
Avg/Med Listing is $1.9m/$1.5m.
Avg/Med 12-mo Sales $1.2m/$1.1m.
Avg/Med Listing $/sqft is $397/394.
Avg/Med 12-mo Sales $/sqft $325/306.
Top-2 highest List are $6.2m and $5.2m.
Top-2 highest Sold are $3.0m and $2.8m (from Sept and Oct 2008).
Older money and older purchases appear to be selling at rates tracking inflation. A sampling of the last 9 sales indicate homes last purchased in ‘00-‘04 went up between 1%-7% per year(avg 3.6%). Homes last purchased in ‘88 and ‘91 went up 6% and 10% per year. The one sale with a last purchase of ‘06 declined at -7% per year (25% total).
I live here and every time I go for a run on the horse trails I smile at the $1000/month I’m saving over owning. It’s a lovely place to live.
Posted by no_worries on 08/17/09 at 09:00 AM
The rate at which homes are being brought onto the market doesn’t necessarily have to increase dramatically, if the rate at which they are being taken off the market falls.
If the selling season winds to an end, the incentives wind down, the supply of first time buyers and investors wanes; the buying will slow dramatically. The inventory will build.
Now add into that this shadow inventory, whatever size.
Seems plausible that inventory will build again, even without a “wave”.
Posted by OCRefugee on 08/17/09 at 04:22 AM
Good article in LATimes today
http://www.latimes.com/business/la-fi-bubble-timers17-2009aug17,0,6997492.story
Money Quote: “I plan to buy when I can get a place for 50 cents on the dollar”
Posted by granite on 08/17/09 at 04:59 AM
“During this stage many renters who would otherwise have purchased a home put off their purchase and save more money because they correctly see the decline in prices has momentum and prices should continue to drop further.”
As a former homeowner in the 90’s, I remember the despair of being underwater for years. That’s what keeps me from joining the recent frenzy of buying. There’s still way too much smugness.
IR is not alone.
http://www.marketwatch.com/story/no-light-at-end-of-california-real-estate-tunnel-2009-08-17
Posted by winstongator on 08/17/09 at 05:22 AM
The purchase date is ‘05, which makes a difference to me in determining what the price today should be. How long was it listed @ 660k? How long has it been on as a short-sale? What is the difference in impact to your credit score or future homeownership for a short-sale vs. foreclosure?
Unrelated - if someone defaults on an investment or vacation home, how often do they declare bankruptcy? Do the banks in an FC like that go after a defaulter’s other assets? Do the banks even care to find out that someone misrepresented the home as their primary residence in the mortgage app?
Posted by cara on 08/17/09 at 05:26 AM
You neglected to work into your story who is buying during the declining phases. I don’t think a picture of today’s market can be complete without acknowledging the large downpayments being made on the median property right now.
I know you expect that we will run out of such cash at some point soon.
I guess the joke now is how does a real estate investor buying in the downslide end up with $1 million, start with $3 million…
Posted by Geotpf on 08/17/09 at 06:08 AM
For prices to fall further, there needs to be more inventory available. A lot more. Until the mythical shadow inventory, whether bank owned or just in default, actually shows up for sale en masse, I can’t see prices falling much further.
Posted by IrvineRenter on 08/17/09 at 06:12 AM
I agree with everything you wrote—except the word “mythical.”
Posted by IrvineRenter on 08/17/09 at 06:14 AM
The Rentership Society
From the Boston Globe: President shifts focus to renting, not owning
The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society’’ and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities.
The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.
...
“People who were owners are going to be renting for a while,’’ said Margery Turner, vice president for research for The Urban Institute, a Washington think tank that studies social and economic policy.
“There is a housing stock that is sitting vacant. There is a real opportunity here’’ to use those homes as rental property and solve both problems, she said.
This conversion of housing stock from ownership to rental units is already happening. Based on data from the Census Bureau, there have been over 4.3 million units added to the rental inventory since Q4 2004, far more than the 1.1 million new units completed as ‘built for rent’ since 2004. (see The Surge in Rental Units)
And this conversion is ongoing. According to the Campbell Survey, 29 percent of all existing home properties in Q2 were purchased by investors - probably mostly for use as rentals.
In addition, many of the modification programs are really turning homeowners into renters (or “debtowners”). Most mods just capitalize missed payments and fees, and reduce interest rates for a few years. Many of these “homeowners” will still have negative equity when the interest rate increases again, and this could be viewed as Single Family Public Housing.
The Rentership Society.
Posted by IrvineRenter on 08/17/09 at 06:19 AM
Brace for a Wave of Foreclosures, the Dam is About to Break
A summary of Second Quarter 2009 Negative Equity Data from First American CoreLogic shows that Nearly One-Third Of All Mortgages Are Underwater.
• More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30, 2009 according to newly released data from First American CoreLogic. As of June 2009, there were an additional 2.5 million mortgaged properties that were approaching negative equity. Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide.
• The aggregate property value for loans in a negative equity position was $3.4 trillion, which represents the total property value at risk of default. In California, the aggregate value of homes that are in negative equity was $969 billion, followed by Florida ($432 billion), New Jersey ($146 billion), Illinois ($146 billion) and Arizona ($140 billion). Los Angeles had over $310 billion in aggregate property value in a negative equity position, followed by New York ($183 billion), Miami ($152 billion), Washington, DC ($149 billion) and Chicago ($134 billion).
• The distribution of negative equity is heavily skewed to a small number of states as three states account for roughly half of all mortgage borrowers in a negative equity position. Nevada (66 percent) had the highest percentage with nearly two‐thirds of mortgage borrowers in a negative equity position. In Arizona (51 percent) and Florida (49 percent), half of all mortgage borrowers were in a negative equity position. Michigan (48 percent) and California (42 percent) round out the top five states.
There are some interesting tables and graphs in the article that inquiring minds are investigating. Here are some partial alphabetical lists.
Posted by Geotpf on 08/17/09 at 06:21 AM
Obviously, shadow inventory of some sort exists. If it’s mostly stuff only in default, it may never show up for sale (that is, if the existing owners mostly get loan mods).
Inventory, especially in low to mid priced areas, is at record lows. Inventory this low makes it really hard for prices to fall further.
Posted by NewportSkipper on 08/17/09 at 06:22 AM
Irvinerenter, you say 83 Vermillion was last sold in 2001, but Quail Hill didn’t exist then. And it looks like the going rate for 1,500 sf there is north of $500k.
Posted by IrvineRenter on 08/17/09 at 06:23 AM
From Mish:
Collapse Of The “Ownership Society”
Barney Frank The Hypocrite
“I’ve always said the American dream should be a home - not homeownership,” said Representative Barney Frank, chairman of the House Financial Services Committee and one of the earliest critics of the Bush administration’s push to put mortgages in the hands of low- and moderate-income people.
What a distortion of reality. Barney Frank was in the pocket of Fannie Mae and Freddie make and their biggest supporter for years. Now he plays on semantics in an unbelievable lie. He would have been better off keeping his mouth shut, but political hacks seldom if ever can.
Posted by tjwilliams on 08/17/09 at 06:26 AM
Couple of things. How could this have been purchased on 10/31/2001 if it was built in 2006?
Second, there is no way on earth this short sale goes through. They were underwater at $660,000 (obviously 100% financing) and they think the bank is going to accept $439,000? Crazy.
Posted by IrvineRenter on 08/17/09 at 06:27 AM
The dates were in error, but I fixed them.
Yes, this should sell for more than the short-sale asking price. They are trying to attract attention with the low price. This property will likely get 20 bids over the ask and sit there for 5 months while the lender figures out whether it wants to sell or not.
Posted by NewportSkipper on 08/17/09 at 06:30 AM
If this property sells for the going rate that will be 16% off the peak.
Posted by Perspective on 08/17/09 at 08:15 AM
Barney Frank is one of those peculiar political creatures that enjoys a guaranteed Congressional district seat, but is so extremely left-of-center as to have no hope of any higher office. This provides him the freedom to do and say nearly anything he wants.
Jon Stewart (Daily Show) asked Frank some tough questions about Frank’s hypocrisy a few weeks ago, but Frank didn’t answer the questions. He just weaseled out with some incoherent evasive responses.
Posted by Loyal Follower on 08/17/09 at 08:37 AM
I question whether many of the defaults are just home owners setting up for a loan modification with no intention of actually letting their homes go into foreclosure.
An update on our situation: As a reminder, we received a foreclosure notice on the home we are renting. The PO said he was working on a loan mod and the FC notice was a misunderstanding. Nonetheless, we stopped payment on our August rent check. The PO recently called to say that they had cleared everything up with the bank and could they come by to pick up the rent check. We said sure, if you bring documentation that the NOD has been canceled. We haven’t heard from them again. We may show up at the courthouse this Tuesday to see for ourselves whether the auction takes place.
Posted by cosmo kramerp on 08/17/09 at 08:57 AM
Gov’t insanity knows no bounds.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/08/16/REPE196HO0.DTL&type=realestate
Great idea! Don’t rent the house out to qualified, responsible tenants. Go out of your way to rent to the same deadbeats who just jacked you out of a few tens of thou (in many cases much more) and probably lived rent free for 6 to 12 months already while waiting for the eviction notice from the bank.
This will give deadbeats the trifecta. They lied on their mortgage app, they defaulted on the loan, and now they can keep living there and stop paying rent after a month or two. That’s what I call gaming the system. And the only losers are the honest, prudent among us. Is this a great country of what?
(I apologise if this has been referenced already…haven’t had time to read all the previous posts)
Posted by Alan on 08/17/09 at 09:34 AM
Different market and circumstances (Florida), but some similarities also ...
From NYT: On the Map, Florida Wonders Which Way is UP
http://www.nytimes.com/2009/08/16/weekinreview/16cave.html?hpw
“It is a mess of immense volume: In the first six months of this year, 268,064 properties in Florida received a foreclosure filing, up nearly 42 percent from the first half of 2008, making it the second worst state in total foreclosures nationwide behind California. And for those convinced that recent, positive sales figures signal a brisk recovery, consider this: foreclosures outpaced sales of houses and condos in the same period (99,010) by a factor of nearly three.”
Will Irvine join this parade?
Posted by bigmoneysalsa on 08/17/09 at 09:45 AM
Geotpf, I think your approach to looking at where prices are headed is overly simplistic. Yes, if you look at a snapshot of the market right this second it’s plain that prices won’t be collapsing immediately. But are you really saying anything of consequence with that statement? We all know that things change. It’s completely possible to have a very tight market at one time, and then two or three years later - *POOF* - prices are 30-40% lower accross the board. There are numerous examples of this as I’m sure you know.
Let me use an analogy. IrvineRenter and other posters here who talk about shadow inventory, price to rent ratios, etc, etc are like weather forecasters. A good weather forecaster is not going to spend a lot of time telling you what the weather is like right now or will be like an hour from now because really, who the hell cares? People want to know what the weather will be like in a few days. If you want to acurately predict if it’s going to rain in the next few days, you can’t just go outside, look up at the sky and say “Well, there’s no rain clouds so I can’t see it raining anytime soon.” That’s not gonna work. If you want to make some kind of prediction that’s actually useful you have to look at data from weather satellites, barometer readings, and all that complicated stuff. Similarly with the housing market, if you care about what prices are going to do over a timespan longer than a few months (which any sensible person considering buying should) you really have to look at more than just a snapshot of the current inventory / sales ratio.
Posted by thrifty on 08/17/09 at 09:46 AM
Interesting how many stats cluster in the mid 40 million range:
- total mortgages: approx 47 million
- total medicare beneficiaries: approx 46 million
- total medically uninsured in U.S: approx 46 million
Posted by Property Owner on 08/17/09 at 10:25 AM
Based on what I see, Irvine is still in denial and is starting to move into fear (maybe).
With school starting up very soon, when are we oficially out of the ‘buying season’?
I have another neighbor that just popped his house on the market so I believe now I have 4 neighbors within our little double circle (figure 8) street that are on the market. We barely had anyone on the market during the beginning of the season, so is this normal or could it be ‘fear’ setting in?
Either way, the moving trucks are coming to my house this Friday to ship my behind out of Irvine and into storage. I got a killer price from the moving company so I am happy.
Posted by avobserver on 08/17/09 at 10:31 AM
glad to see this administration is finally showing signs of “capitulation” too ...
Posted by avobserver on 08/17/09 at 11:37 AM
As long as (1) short term supply is kept tight – thru accounting rule change, bank bailout, foreclosure moratoria, enforced loan mod, etc… and (2) short-term demand is manipulated to produce enough knife catchers – by squeezing savers and pulling demand forward (via Fed’s interest rate manipulation, first time buyer credit…), as for Irvine mid to high end market we will likely be stuck in “denial” stage (or perhaps early stage of “fear”) for quite some time.
Never have we seen free market mechanism in housing being distorted to such an extent that it has become almost impossible to estimate the length of this downturn. I was in disbelief when I first read about Japanese RE market declining for 15 years straight after their bubble burst back in early 90’s. But I am no longer surprised. If gov’t and the central bank deploy enough “policy tools” to tweak demand/supply they can in fact stretch the price correction process out for many years. IMO it is no longer unthinkable that we won’t see a market capitulation until 2014-15.
Posted by Sue in Irvine on 08/17/09 at 11:37 AM
Property owner…what’s happening with your home search? Still no luck so now you have to go rent somewhere?
Posted by Geotpf on 08/17/09 at 12:09 PM
This would be true if inventory was balanced now. But well priced REOs will sometimes attract twenty of offers (or more) within a week. If half that demand goes away, well priced REOs will still attract ten offers within a week. The practical difference in terms of number of houses sold, minimal, although there might be a slight difference in final sale price.
Posted by Geotpf on 08/17/09 at 12:19 PM
Actually, if Kerry or Kennedy ever leave their Senate seats, Frank is considered a near shoo-in to replace them. If Kerry had won the presidency in 2004, Frank would have ran for, and almost certainly won, his Senate seat. Kennedy is in very poor health right now. He might die or resign for health reasons at any time.
Posted by Property Owner on 08/17/09 at 12:50 PM
Hi Sue,
We have offers on two homes right now. Of course one is a short sale and the other is an REO.
Our Short sale offer has been accepted and we are in first position but it is now in the bank ‘pile’.
For the REO, the two offers (including mine) have been sent to the bank for review and I was told it can take up to 40 days to receive a response.
I did have an offer on a regular sale but the deal fell apart because the seller was not willing to negotiate the price at all. Their house is still for sale.
So until then, we are moving in with the in-laws. Kind of a strange feeling having to move back in with the wife’s parental units not because we financially have to, but because we can’t find the right house! At least they have a huge house and their second floor is all ours to use.
Now I need to hide from ‘e’ for talking about this stuff again on the blogs.
Posted by no_worries on 08/17/09 at 01:41 PM
If by “well priced” you mean 20% below comps, yes. There is and will continue to be a large demand for below comp, low end homes.
Are you inferring, then, that there is actually 20x the current demand “hidden” because of the competition of low supply (there can only be one sale for those 20 bids)?
Again, let me remind you that it is the selling season, there are massive incentives to buy ($8k/5%/FHA 3.5%) right now, all of which will eventually go away. Probably sooner than later.
Much of the demand you’re seeing is from people, first time buyers or investors, who think we’ve reached bottom. If its shown that we haven’t, the investors and first time buyers (that haven’t bought) will undoubtedly back off to wait again, don’t you think?
I just don’t buy that this “demand” continue indefinitely. It’s not a natural demand.
Posted by HydroCabron on 08/17/09 at 02:27 PM
“...no longer unthinkable that we won’t see a market capitulation until 2014-15.”
My thoughts lead in that direction.
The cultural attitudes about real estate as an investment run so deep that there is, as yet, no actual acknowledgement that prices have really dropped, even for low-end housing. The only people who have admitted that prices can drop are those who have been forced to walk away.
The easy-terms FHA stuff, complete with $8K tax incentive for first timers, will likely be extended. The government will not give up on this until forced to by some larger collapse.
Posted by tlc8386 on 08/17/09 at 02:28 PM
Take a look over in Nellie Gale there are two homes going into auction one was bought for 1.8 starting bid at 1.5—zillow has the fair price for the home listed at 2.6. It’s a 5k sq. foot home on a 15k sq. ft. lot. Anvil Circle—-
The house next door I once visited (in error) it was 3 million—never sold, took off market.
Another house up for auction is for 1.29 should go for one million—over priced. Lost Colt dr.
I also visited two homes in Laguna almost identical homes (same builder I pressume) one was for 1.3 and the other 1.9—-600k difference—is the 1.9 insane?? Oh but the RE said it has new items in home—(if anything it had less)
1323 dunning Drive and 1315 for those interested and the best thing next to 1323 a huge big unfinished home with no telling when it will have finance to finish building it.
These people are drinking koolaid big time.
Another one was 1.9 with a beauitful view in Laguna but NO upgrading had an old pool though—I told the RE agent they would be lucky to get 1.3.
So the kool-aid is still bubbling by the beach—big time.
Everytime I look I tell myself keep renting—!!!!
Posted by tlc8386 on 08/17/09 at 03:44 PM
another one under water
http://www.redfin.com/CA/Irvine/31-Hathaway-92620/home/5951170
Posted by tlc8386 on 08/17/09 at 03:47 PM
some of these homes are really beautiful but HOA over $400 is really too much—
http://www.redfin.com/CA/Newport-Coast/Undisclosed-address-92657/home/5928518
what kind of income do these homes really need???
and is it really here any more??
Posted by avobserver on 08/17/09 at 03:51 PM
With mid-term election coming up next year I am sure our policy makers will have even greater urge to “do something”, anything, to prop up falling price. Measures worse than FHA loans (the new subprime mortgage) and tax credit for first timer could be dished out left and right.
Posted by houseonlegs on 08/17/09 at 04:02 PM
The loan modification factor will start to vanish, the Federal Trade Commission, Dept of Justice and Attorney General have cracked down on the businesses operating as such, they have ceased most of them and are making it very difficult for even attorney’s to operate as offering loan mod services. Without these firms heavily advertising and promising results, less homeowners will have the sense to call their lenders and try to resolve themselves, the documentation requirements are quite lengthy and with unemployment at the rate it is, many will not qualify. I have seen cases where homeowners will get their NOD cancelled due to a loan mod and they will be right back in the same situation 6 months later, still unable to make payments. Loan modifications are a solution for very few and after lenders start to realize that payments are still not coming in, they will stop writing them. Again, we are just prolonging the inevitable.
Posted by thrifty on 08/17/09 at 04:43 PM
Property Owner: for those who are not familiar with the short sale mechanism, what does it mean that your offer has been accepted and you are in first position in the bank pile?
Posted by tonyE on 08/17/09 at 05:13 PM
42 percent in California?
Isn’t that kind of high? Did 42% of the homeowners in California moved or refinance in the last six years?
Somehow those numbers seem way too high for me.
Posted by bigmoneysalsa on 08/17/09 at 05:18 PM
Cash out refis and HELOCs were everywhere. 42% is not at all surprising.
Posted by MalibuRenter on 08/17/09 at 05:41 PM
Wait two years. The total market value of all single family homes will be below their 2007 loan values. The only way it won’t go to negative equity for the whole state is if enough homes are sold as short sales or REOs. Still, the whole state might barely be in negative equity based on the loans currently outstanding in 2011, even including homes with no mortgages.
Posted by grabasnorkel on 08/17/09 at 06:23 PM
HELOC abuse, Costa Mesa style.
http://www.redfin.com/CA/Costa-Mesa/3043-Country-Club-Dr-92626/home/3694561
If you drive by, owner’s shiny new SUV is still in the driveway with dealer tags.
Posted by Property Owner on 08/17/09 at 07:18 PM
Well, when you make an offer on a short sale, you actually need two parties to accept your offer. One is the owner of the home and the other is the bank which holds the mortgage on the home.
It is usually easy and quick to get past the first step which is to get the homeowner to accept your offer. The majority of the time is spent waiting for the bank to accept the offer.
So, banks usually do their step in one of two ways.
1) Tell agent to collect a whole bunch of offers over time and then when they start to work on the property, they will pick the highest and strongest offer to accept.
2) Tell the agent to only submit one offer at a time to them whether is it the first received or the best (highest and strongest) in the current offers received.
We fell into scenario #2 so our offer has been accepted by the homeowner and the agent has submitted our offer for review by the bank. This puts us into the ‘first position’ of the offers submitted. Now the time it takes will be long (1 to 6+ months) for the bank to respond depending on how backlogged the bank is which puts us ‘in the pile’.
That is the cliff notes version.
Posted by thrifty on 08/17/09 at 07:36 PM
Property Owner:
That’s very helpful. It looks to me as if the only difference between method #1 and #2 is who holds the offers - the agent or the bank- until the bank decides to choose. Whether your first in line means nothing if the bank is “shopping your offer” to see if they can find a better one - in their own sweet time - after telling you yours is the best so far? right?
Do you include a clause giving you the right to withdraw the offer immediately at any time for any reason?
Posted by LC on 08/17/09 at 07:41 PM
When are you gonna do “Let It Bleed” by the Rolling Stones?
Posted by Property Owner on 08/17/09 at 07:56 PM
Yes. Pretty much if you are in scenario #1, you are always in total limbo until you get the green light. In #2 that can possibly happen as well if the agent gets a wonderful deal and tries to get the bank to accept the much higher offer. Either way, the bank can still come back and demand more money if they feel the property is worth more.
You always have the right to withdraw your offer. Just notify your agent.
Posted by Craig on 08/17/09 at 08:26 PM
The real shadow inventory is all the pent-up demand to sell, by homeowners who want out but don’t want to put their homes on the market now when they think prices are too low. When we actually reach the capitulation stage, there will be a lot more inventory coming online. Add to that the coming tsunami of Alt-A resets, and this summer will look like the biggest fool’s rally ever.
Posted by Never a Better Time on 08/18/09 at 12:56 PM
Need Knife Catchers. Bring money.
Posted by AVRenter on 08/18/09 at 03:01 PM
By my count a few days ago NellieG/MoultonR had 64 listings, eight of which were Short Sales (I didn’t check REO’s). I see 48 sales in the past year.
Avg/Med Listing is $1.9m/$1.5m.
Avg/Med 12-mo Sales $1.2m/$1.1m.
Avg/Med Listing $/sqft is $397/394.
Avg/Med 12-mo Sales $/sqft $325/306.
Top-2 highest List are $6.2m and $5.2m.
Top-2 highest Sold are $3.0m and $2.8m (from Sept and Oct 2008).
Older money and older purchases appear to be selling at rates tracking inflation. A sampling of the last 9 sales indicate homes last purchased in ‘00-‘04 went up between 1%-7% per year(avg 3.6%). Homes last purchased in ‘88 and ‘91 went up 6% and 10% per year. The one sale with a last purchase of ‘06 declined at -7% per year (25% total).
I live here and every time I go for a run on the horse trails I smile at the $1000/month I’m saving over owning. It’s a lovely place to live.