Will House Prices Double Dip?

Banking and housing analyst Meredith Whitney has been very accurate with her past predictions. Now she is predicting a double dip in home prices. Is she right?

Irvine Home Address … 14 LACONIA Irvine, CA 92614

Resale Home Price …… $650,000

We get dressed up and we go out, baby, for the night

We come home early burning burning, burning in some fire fight

I’m sick and tired of you setting me up, yeah

Setting me up just to knock-a knock-a knock-a me down

I’m goin’ down…

Bruce Springsteen — I'm Going Down

Meredith Whitney Predicts Double Dip in Housing Market: Is She Right?

By Patricia Orsini Jun 23rd 2010

Could a double dip in the housing market be on the way? That's what influential banking analyst Meredith Whitney told CNBC's Squawk Box yesterday.

And while the news is not all gloom and doom, Whitney — one of Wall Street's best-known bears — sees what she calls some "scary" behaviors by consumers that will continue to keep home prices low and a full housing-market recovery far into the future.

Whitney — who rose to fame by predicting Citigroup's problems in 2007, long before others saw them coming — has been admittedly bearish for the past year as others looked for the good news in the economy. She cites several reasons for her continuing feeling that the housing market and the rest of the economy will not be trending up anytime soon, including the fact, she said, that the state and federal governments will be shedding close to 2 million jobs.

What's behind Whitney's prediction for housing?

Adding to her skepticism of a recovery, said Whitney, is that more and more, people are choosing to not pay their mortgages, which is something she would not have predicted a year ago.

"What has happened in the last year," she said, "has been the government and banks have provided a lot of mortgage modification programs, and a lot of consumers have been smart enough to say, 'I can get a better deal on a modification program if I wait two, three, six months. So I will pay the things I need to pay the most — my credit card bill, auto bill, even home equity.' And they've been not paying their mortgage."

This has created, she said, "a massive, rotting pool of assets on bank balance sheets that have provided the consumer excess cash."

The amend-pretend-extend policy has fostered moral hazard and caused more people to default, and as a result of their not making payments, they can spend money in the economy. Does this seem like sustainable economic growth to you?

That cash has allowed people to spend more freely in stores and restaurants, creating the feeling that the economy is, while not completely recovered, moving forward.

Just the opposite, said Whitney, who expects a double dip in housing to be inevitable. Those delinquent payers will soon have to answer for their actions, she said. In the second quarter, banks were becoming more aggressive about foreclosing on delinquent borrowers, she said. More houses on the market means still-low home prices.

"How can house prices grow?" she asked. "There's no other way to look at it, they are going down again."

It is difficult to argue with her conclusions. People are not working and the squatting stimulus can't go on forever; eventually, we have to pay for all this.

She wouldn't go so far as to commit to a double-dip recession, but a tough housing market has never been good for the economy. She concedes that news in credit card lending, and hiring in large corporations, has been good this past year. But she doesn't believe it's enough when so many people are still out of work.

Indeed, today a report on housing sales for May showed that sales of new homes sank 33 percent — the slowest sales pace since records were kept in 1963 — after tax-credits for homebuyers expired at the end of April.

While no one expected May's housing numbers to be great, the more optimistic watchers of home sales predict that sales will level out as the summer buying season takes hold. But Whitney points out some underlying problems in the U.S. economy that have yet to be reconciled, with a still-uncertain job market and continuing personal debt. Without buyer incentives, it could be another tough year for the housing market.

A double-dip recession? There's a chance, said Whitney. But a double-dip in the housing market? "No doubt," she said. What's most scary is that what she is telling us isn't anything we don't already know. The job losses, the mortgage defaults, the high personal debt are things we have been talking about for two years. It's how you read those signs. And Whitney's track record in reading those signs is pretty darn good.

Chronic Unemployment?

Lenders have been willing to work with people with equity in their homes rather than force a trustee sale. The result has been years of squatting for some delinquent borrowers.

  • Today's featured property was purchased for $408,500 on 2/22/2002. The owners used a $326,800 first mortgage and a $81,700 down payment.
  • On 3/9/2004 they refinanced with a $328,000 first mortgage and a $150,000 second mortgage.
  • On 2/8/2005 they refinanced with a $396,000 Option ARM with a 1% teaser rate. This refinance required them to pay off a significant portion of their second mortgage.
  • They have been squatting for at least 27 months.

Recording Date: 03/09/2010

Document Type: Notice of Sale .

Foreclosure Record

Recording Date: 01/05/2009

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 12/09/2008

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 08/25/2008

Document Type: Notice of Default

Foreclosure Record

Recording Date: 07/01/2008

Document Type: Notice of Default

The balance of the first mortgage plus late fees stands at $502,000. The bank is content to allow this owner to squat since they are consuming their own equity to do so. Since banks are trying to withhold inventory anyway, I expect they will allow this owner to stay there until their equity is fully consumed before they foreclose.

Irvine Home Address … 14 LACONIA Irvine, CA 92614

Resale Home Price … $650,000

Home Purchase Price … $408,500

Home Purchase Date …. 2/22/2002

Net Gain (Loss) ………. $202,500

Percent Change ………. 49.6%

Annual Appreciation … 5.3%

Cost of Ownership


$650,000 ………. Asking Price

$130,000 ………. 20% Down Conventional

4.80% …………… Mortgage Interest Rate

$520,000 ………. 30-Year Mortgage

$131,541 ………. Income Requirement

$2,728 ………. Monthly Mortgage Payment

$563 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$54 ………. Homeowners Insurance

$50 ………. Homeowners Association Fees


$3,396 ………. Monthly Cash Outlays

-$463 ………. Tax Savings (% of Interest and Property Tax)

-$648 ………. Equity Hidden in Payment

$238 ………. Lost Income to Down Payment (net of taxes)

$81 ………. Maintenance and Replacement Reserves


$2,605 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$6,500 ………. Furnishing and Move In @1%

$6,500 ………. Closing Costs @1%

$5,200 ………… Interest Points @1% of Loan

$130,000 ………. Down Payment


$148,200 ………. Total Cash Costs

$39,900 ………… Emergency Cash Reserves


$188,100 ………. Total Savings Needed

Property Details for 14 LACONIA Irvine, CA 92614


Beds: 3

Baths: 3 baths

Home size: 1,800 sq ft

($361 / sq ft)

Lot Size: 3,083 sq ft

Year Built: 1988

Days on Market: 93

Listing Updated: 40323

MLS Number: S609561

Property Type: Single Family, Residential

Community: Westpark

Tract: Othr


According to the listing agent, this listing may be a pre-foreclosure or short sale.

3 Bedroom and 3 Bathroom Home located in San Carlo Park. Hardwood Flooring and Berber carpet.

In preparation from my vacation, I created posts through July 6th. These are a combination of news stories and property profiles without my commentary. I plan to resume posting with my commentary on July 7. I will return with a renewed energy for this fun and creative endeavor. Until then, I will be off the grid enjoying life on a Northwoods lake.

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

29 thoughts on “Will House Prices Double Dip?

  1. winstongator

    Enjoy the vacation!

    I don’t think the bank will let them consume all their equity, but a large percentage. The borrower is playing chicken though. If the bank has given them that much time, the bank could foreclose and book a profit if the market price is really $650k. For short-term issues, I’d like to see banks not foreclose on those with equity; however, 27 months is not a short-term issue.

    The double dip will only happen in areas where it is still more expensive to buy than rent. In my area of NC, you still end up saving a fair amount by buying. It’s also a region of the country without a huge amount of in/out migration, so I would imagine buyers are thinking longer term. I contrast that to where I grew up in FL where there was significant mostly in-migration, with out-migration happening when people head to college.

  2. IrvineCitizen

    I’m not sure I understand the squatting for 27 months. Each time there is a recission or another NOD means that they made some kind of payment or arrangement to restart the foreclosure clock.

    To my knowledge the only way you go from Trustee Sale to recission is by becoming current and then you miss two payments and the whole process restarts.

    Can anybody shed any light on this?

    1. awgee

      Actually, the number of recissions that are a result of a mortgage becoming current are very few to none. Almost all recessions are the result of a loan modification.

      1. IrvineCitizen

        Thank you for your insight. It makes perfect sense. You’ll see a recission and then 6 months later another NOD and then the inevitable NOS.

        So Irvine Renter’s squatting numbers would be correct.

  3. Stop All Short Sales

    You can get a newbie agent to list you home as a short sale.

    The trick is to overprice the short sale and be uncooperative with legitimately priced offers and you are good as gold with the lender. They don’t think it is overpriced (if you have seen the banks appraisal on short sales, you know what I’m talking about)

    So keep the yard looking decent and keep it listed, and you are good for a very long time. The NOD will stick, but they won’t go for a NOS.

    Yes, it is another scam, but it works and is why I want to abolish short sales.

  4. newbie

    IrvineRenter et al.,
    For the second who’s not being paid, do they need to file a NOD to keep their claim alive and avoid the statute of limitations on the debt?

    For the squatters who haven’t paid in 2 or more years, is the second lossing their claim or how do they kept their interest alive? e.g., file suit without claiming the house.

    Jobless Recession = Another round for the banksters on the backs of the taxpayers.

    1. newbie

      Jobless Recovery = Another round for the banksters on the backs of the taxpayers.

    2. awgee

      2nd mortgages are usually scheduled to be paid over a time of 10 years, 20 years, or 30 years. What statute of limitations?

    3. Jim

      The second TD’s are dead and they know it. I have yet to see one that will even spend the legal fee’s to file anything to protect. (This is for the typical 100% financing 80/20 and similar loans)

  5. Mark

    I’ve heard that on many short sales the seller who must first approve offers (bank has ultimate approval of course) are also throwing in other “conditions to accept” like “you agree to help me by making a contribution to my 2nd mortgage or HELOC” etc. – Asking buyers to help dig them out of their problems.

    I guess it could be acceptable under the right conditions, but I’ve notice short sales in my area very attractively priced initially (baited), but when you peel the onion and discuss with the seller’s agent the seller is expecting the buyer to not only take on an as-is purchase and the ridiculously long SS process, but also help them with closing costs and paying off chunks of the 2nd mortgage. I don’t know how common or even legal this is. Seems to happen more with sellers that have declared bankruptcy.

    The response by buyers right now (sans meaningful tax credits) is, “I’m waiting. Maybe we’ll talk after the foreclosure”.

    IR, have a nice vacation.

    1. Alan

      That seems so crazy to me! If I was in that kind of financial trouble that I was going to lose my house, I’d be reducing every expenditure possible and saving every dollar I could for geting goig again. I don’t know how I’ve gotten so far away from the American mainstream. I suppose if you’re sure any money you have will just go to the bank, then may as well spend it on things that can’t be seized. Still, an unimaginable situation.

      IR, enjoy your vacation! Just stay away from London for now.

      1. Mark

        Agree with Alan’s comment.

        Is it possible that human DNA is starting to change so that our natural instincts of self-preservation become degraded?
        Dinning out, flying to Vegas and shop-to-you-drop at the Gap and Structure all rather illogical choices when facing financial distress. But we’re Americans want instant gratification and, if times are rough, a method of easy escape to Pretend Land. Yeah, just like those weird daydreams Happy Gilmore had before sinking the put.

        They’ll wish they hadn’t done any of this once the bank hands over all of these non-performing debts to the local Barracuda Collections, Inc. That’s when the fun really begins for these “escape artists”.

  6. MikeInIrvine

    In addition to being easy on the eyes Meredith Whitney is among the few ‘big time’ analysts to call the administration’s efforts at artificially supporting the market place for what it actually is. Short term and not effective.

    Get ready for another dip.

  7. Will

    It will be interesting to see if there is any pick-up in sales in the next month or so. Interest rates are at the lowest they’ve been since 1971! That was before the big inflation surge of 1973-1974, If interest rates this low do not kick start the market, nothing will! This is what I don’t understand – the Fed is out of bullets to jump start the economy. You can’t go lower on interest rates…

  8. thrifty

    Is there any doubt in anybody’s mind (rely on your instincts) that we are not going to have a second significant drop in housing prices?

  9. oc bear

    Has Ben Bernanke run out of out of bullets? If not he will stop the double dip with another trillion dollar MBS. He’s not worried about re-election.

  10. jb

    Wouldn’t it be interesting if these “squatters” had rented the house out and had collected $70K+ in income during the foreclosure process?

  11. Nanci

    I know someone who moved back home with mother and is renting out his house and not paying the mortgage.

  12. jb

    Yes, that can happen in this environment. Isn’t it fraudulent to collect rent and not pay the mtg? If it isn’t, then it’s easy money for a lot of people, since the banks can’t be landlords.

Comments are closed.