RE Bomb in Boise

Bruce Krasting's picture
RealtyTrac is out this morning with a year-end look at foreclosures. I think it is a terrible report.

There is the usual bad news from the worst hit areas.

-1 in 8 homes in Vegas was in foreclosure. How is it that the MSM has
convinced us that things have gotten better there? They have not.

-Cali and Arizona are looking at ten percent default rates. And this has been going on for a few years now.

-A substantial part of South Florida has one home in ten in default. In
Marco Island/Naples the rate is 6.5%. That blows my mind. I know this
area. It is deep pocket. At least it used to be.

-The real shocker to me was Provo Utah and Boise ID. The default rates
are up 100% from two years ago. This was not supposed to be happening
in places like this.

There is a nationwide problem of defaults. The people in Boise are
feeling the same pain as Stockton. Every time that a default happens it
devalues other properties. I have real estate interests around the
country and I can tell you that things are dead. There was a time when
a buyer would look at a home and ask, “How big is the lot?” Today the question is, “Does the bank have title and are they desperate to sell?”.

There is not going to be a recovery in housing until the defaults have
been stabilized at manageable levels. The broad economy is not going
anywhere either. There is no plan on the table to stop what is surely
coming. The government programs have delayed things by an average of
nine months. That means that most of the millions of government
sponsored ReFi’s from 2009 will blow up this year. We paid a bundle for
those ReFi’s. They cost us last year, we will pay again for them this
year. Little has been accomplished.

I know that there are many out there who will say, “Let price discovery rule!
You may be right. I don’t know anymore. We are paying a big price in
time and treasure with what we have been doing. However, the policy of,
Let the chips fall” scares me. It is like a giant sucking noise. It is far away but getting closer.


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nameman's picture

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Anonymous's picture

Letting the chips fall is the only SANE strategy. It's simply "all over but the crying", as my Grandpa used to say!

Like Denninger has reminded us for years, it doesnt matter HOW much money we throw at this, the prices of houses WILL return and need to return to market clearing levels, supported by actual fundamentals! We are wasting billions of dollars keeping it propped up for NOTHING?? To save a bunch of criminal banksters?

That statement at the time, didnt even begin to take into account all of the things happening now--
--Falling Wages
--18% Unemployment
--No organic demand for loans
--Banks not lending
--CRE Explosion waiting in the wings
--Rising energy costs
--Retiring and downsizing boomer population

Look out BELOW.

exportbank's picture

"Letting the chips fall" is the only way to resolve the RE problem. Prices got jacked by your barber buying 5-houses, by programs like "Flip this House" - by the vision of easy money..
It was all hot air blown up by packaging crap mortgages as AAA investments.
Letting prices drop back to 2000 levels is the only way your kids or grand-kids will ever be able to own a home.
The GIGANTIC debt bomb can't be fixed by more debt.
Fannie and Freddie will implode soon and then we'll be stuck with all that as well.

Anonymous's picture

The market is frozen. If it had crashed at the end of 07, we'd be seeing recovery by now. Prices would have adjusted to the reality of wages, and we would move on.

When history looks back on this episode, I think two of the things that will stand out are the freezing of the real estate market and the lack of evidence that a department of justice existed. These two things have put people on the sidelines long term, and now strengthen the whirlpool.

Gordon Freeman's picture

"The market is frozen":  quite right, it is stuck, and good!  

Been looking in the Denver/Boulder area for the past two years.  Buy/Rent ratios:

Denver: ~30        Boulder: ~40 (!)

Things are frozen, alright.  I call it the Tar Baby Market! ;-)

Anonymous's picture

This is not the end of failures and not the bottom of the housing market by far:

Commander Cody's picture

Not having read through the numerous comments to your post yet Bruce wherein a more eloquent answer may have been proferred, let me use a simple analogy to answer your question:

When you have an infected boil, do you let it fester until the infection spreads and causes more harm or do you lance it and get on with the healing process?  Infer your own answer.

Anonymous's picture

Are the trolls the infection?

RSDallas's picture

What about all the Sap's who were tricked into buying homes in these distressed areas to date.  See, this is one more reason why our Government and Fed should have allowed this debt to clear from the get go! 

I am shocked that the American people have not started pouring into the streets of Washington in protest of the position our Government has placed the citizens of our Nation in.  I really don't think the American people understand what it means when an asset (risk) is "government guaranteed".

We better all book our flights while we can, because we'll all end walking or saddling up our donkeys if we wait much longer.  OUCH! 

This is truly AMAZING!

Anonymous's picture

FWIW, Closed on a home in Central VA this week. Post-foreclosure, held by Citibank. Net cash to Citi was 55.1% of the note amount of previous owner/borrower, mid-2005 vintage. This is in a relatively stable market (not Northern VA), golf course community, etc. First home, looking forward to my $8k welfare check, and I thank Citi for their desperation.

mtguy's picture

Aren't you going to thank us for your $8k?

Anonymous's picture

I should have referred to the credit as a POS gimmick, or a farce, instead of simply "welfare" to make my feelings clear.

Seer's picture

It'll be "made up" alright, in taxes...

Jay's picture

Let price discovery rule. Let the chips fall.

Anonymous's picture

We keep looking for magic solutions. My grandpa refused amputation of his toxic foot until it was too late. Being at an advanced age he likely did not have long to live anyhow. Any good analogies here? Grandpa could only remember when he was able to climb mountains and shoot bears. The american public can only remember the good times and demand they continue. Maybe some arrogance here also? We are in denial and unwilling to give up the good life as we know it. Times have change. There are other countries out there that demand their share of the limited pie. You figure out where this will lead. The problem is our expectations that no politician can fix. If you believe in a second coming soon then you feel fine.

jmc8888's picture

The chips only fall if you CONTINUE THE MONETARY SYSTEM


The problem is few people REALIZE you can let ACTUAL PRICE DISCOVERY HAPPEN, but swtich over to a CREDIT SYSTEM, protect the banks (those worthy under the Glass/stegall standard...meaning things that are bets, get wiped away, but the real economy continues, and continues without the huge burden of debt currently elevating prices, or COGS, while incomes would remain the same.  (meaning more purchasing power)


But instead the Queen wants us to cut our budget like the Euro's under the Maastricht treaty to 3 percent. 


We can let the bets fail, and protect what counts.  After all we need to continue her system, according to her.


Too bad no one realizes or cares (not here ofc).  It's just the only way out alive.


It only sucks if we let things go down, and then decide to live by it.  We don't need to, because what's bringing us down is FRAUDULENT. 

Yardfarmer's picture

The catastrophic levels of home foreclosures and the subsequent downward spiral of price values of real estate rest upon unsound economic foundations. Unfortunately due to decades long endemic, systemic corruption of that economic foundation which is itself collapsing of its own insupportable rot, we have reached the point of no return.

Anonymous's picture

Don't forget ID and UT have developed into the hot vacation/retreat destination for those on the West Coast. Winter sports are abundant. It is the new Aspen, CO.

In this light, it is not unexpected to see these vaction homes going into default at such a high rate.

The Big Moosie's picture

The vacation retreat areas are located in the Sun Valley/Park City areas, which are not near Provo and Boise in location or (especially) culture.  These are two towns that had substantial real estate booms with few real businesses.  Now they crash back to reality. 

Gordon Freeman's picture

They are two places that are also full of Mormons, a population subgroup much given to scams, flim-flams, and get-rich-quick schemes.  Follow the money...

Mr Lennon Hendrix's picture

The pink elephant in Obama's living room.

Leo Kolivakis's picture

The pink elephant in Obama's living room is the pension crisis.

Rainman's picture

Right, Leo.........California State Teacher's Fund just announced they lost $ 42.6 billion.

Tip of the old iceberg. 

Anonymous's picture

As a realtor in So. Ca., the only thing keeping prices from dropping another 20% is the State/local Govt employees/teachers with great salaries, benefits, retirements and union protection. Stim 2 will fund these blessed employees.

Anonymous's picture

And dont forget the govt sponsored Fannie Freddie $417000 Conforming limit and $729,000 jumbo conforming limit(for those high level govt exec or teachers with PHDs). The Fed is buying over a TRILLION dollars worth of these mortgages which inflates the market. No one knows what the true value because we have artificially set interest rates by the FED and gvt insured purchased mortgages. When these corrupt practices end private lenders will have to lend their own money on their own terms. Rates will rise, down payments must be raised, underwriting standards tightened, all of which leads to lower home values.

So the situation now is govt paid employees can qualify for govt purchased and priced mortgages. Makes perfect sense.

Rainman's picture

Hope you're right, Anon...... SoCal alone has 160,000 homes in shadow inventory already.  

Anonymous's picture

I am in SW Florida. My prediction when this disaster started was that fully half of all homes with a mortgage in my area would get foreclosed on over a 6-7 year period. I use my income to judge if a home is currently priced anywhere near reality. Back in 99/00 I could find all kinds of waterfront stuff for 2-3 times my annual income. Since then my income has increased quite a bit. Now the properties I am interested in are 7-10 times my income.

Okie. Dokie.

The bubble states are a special kind of screwed. The vacant land problem is every bit as big as the home problem. It is jut that the values are a little lower.

Heck,the rural area I'm from in Ohio has had a huge explosion in bank owned properties over the last year. As someone who got stuck with selling pre boom,transferring for work and renting all through the boom all I can do save until the homes I am interested in fall back to what I feel is fair value...

Gwynplaine's picture
Gwynplaine (not verified) Jan 28, 2010 12:19 PM

Which part of Ohio are you from?  I'm up here in NE Ohio and am currently thinking about buying a larger property in a more rural part of this region.  I always wanted more land, but is this a buying opportunity?  My suspicion is no - banks who hold title are still hopeful for price recovery and/or more bailouts.

I would be interested to know what others think.

Anonymous's picture

Last one out, please shut off the lights.

WaterWings's picture

This is why I have followed Leo's advice, to a limited extent. I have purchased tangible Chinese solars, in a very small quantity - just enought to keep my deep-cycle battery topped off so that my LEDs never go out.

ghostfaceinvestah's picture

Almost 8 million first lien mortgages nationwide are in default, according to MBA data, out of 55MM homes who have a mortgage.  Meanwhile the government puts us further and further into debt trying to keep the popped balloon inflated, exacerbating the problem as our deficit grows, while the Fed prints money, skyrocketing the prices on the food and energy products we need to survive.

A worsening housing and economic situation should not be a surprise to anyone, we have a lot further down to go, in house prices, and the economy.

"The combined percentage of loans in foreclosure or at least one payment past due was 14.41 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey."

Commander Cody's picture

And the people have not spoken?  I'd say that they are very loudly speaking and voting with their wallets.  Uh Congress?  You may want to wake up and listen.  Also, ignore what the Fed is saying and, better yet, get rid of 'em.  They are an impediment not a help at this point.

Handle with care's picture

This actually touches on what I think has been one of the greatest negative consequences of the Fed's recent actions, that hasn't really been discussed, the end of the markets as a method of price discovery.

The great advantage of free market capitalism is that resources are deployed more efficiently to maximise output.  The disadvantage is that you can't decide what that output is going to be.

Socialism's great advantage is that you can decide what the goals of the output should be, less inequality, favoring industry over banking, etc.  Basically, socialism allows a degree of public control over the shape of the economy at the expense of having a smaller economy.

What we have now is the worst of both worlds.  Because the government has decided that various markets can not be allowed to fall they have destroyed the price discovery mechanisms of these markets, stock markets, housing markets, gold, various commodities etc.  Without real pricing signals capital is not being allocated by the economy to produce the maximum economic output.

So we live in an economy that has the inefficiency of socialism but without the redeeming feature of socialism that social goals can be aimed for.

And these price discovery mechanisms are an important part of why the developed economies hold a lead over less developed economies and they took hundred of years to be developed, often through trial and error and chaos and calamity and the current people in charge have thrown that all away.  They destroyed the free market system in order to protect people who gambled from having to take their losses.


And the consequences of that are going to last longer and cost more even than the bailouts

Leo Kolivakis's picture

Great comment but one caveat: we never really had "free markets", only the appearance of free markets and a bunch of corporate welfare. Companies with deep pockets and political clout have always been bailed out.

baserunr's picture

This is true.  Under capitalism, you are free to expend your resources to either purchase or create the output you desire.  Under our current system, which is devolving toward fascism, you can't create anything TPTB don't allow, and you may not have enough resources to purchase anything, so you're reliant on TPTB.  Capitalism is the worst system there is, except for every other system.

ghostfaceinvestah's picture

Amen, great comment, though there is nothing new, the Fed by design misallocates capital by interfering in the natural process of determining the price of money.  A system where the price of money is centralling planned will collapse, it is a question of when, not if.

As for our system, it is Fascism, where resources are directed to the few at the expense of the many.

mtguy's picture

Let the crash begin.

What truly amazes me, as long as we're all discussing our "amazement" is how few of the scamming mortgage companies and brokers have been thrown in jail over this. And how many of these underwater properties where we pity the poor sucker who bought it were purchased with lies on the application -lies from the buyer, not the mortgage broker?

It seems that everybody pays the price except those that truly caused the problems and needless to say, I'm sick of it.

PM's -check

Guns- check

supplies -check

escape plan -check

Rusty_Shackleford's picture

Hey mtguy, that reminds me,


For all the insomniac Adult Swim DethKlok fans out there:



There are no fingerprints
Deep under water
Nothing to tie one to a crime
And if you seek vengeance
All you need are instruments of pain

You need your

Knives? Check.
Rope? Check.
Dagger? Check.
Chains? Check.
Locks? Check.
Laser Beams? Check.
Acid? Check.
Body Bag? Check.

Murmaider [x16]

But beware
For when you quench your bloodthirst
Others will seek vengeance on you
And they won't rest
Until you're dead

They'll have their

Shiv? Check.
Pipe? Check.
Hammer? Check.
Axe? Check.
Subject? Check.
Location? Check.
Desire? Check.
Vengeance? Check.

Hold your breath, swim and strain
The smell of death, can't escape
Blood will cloud and drift away
Attract the murders of Murmaids
It's so cold they all know

What you've done, you can't run
Vengeance is the law for thee
A thousand leagues below the sea
You've been tracked, you've been seen
Murdering the next of kin
Ate their hearts drank their blood

Washed your fins in blackened mud
Now you swim try to hide
Heart beats faster from inside
Thought it was a big charade
Your life was ended by Murmaids.

Murmaider [x16]

Swords? Check.
Saws? Check.
Clubs? Check.
Claws? Check.
Hatred? Check.
Anger? Check.
Mermaid? Check.
Murder? Check.


Your life was ended by mermaids.

(All lyrics by Nathan Explosion)

Anonymous's picture

We're not talking mafiosi, or drug cartels here. These people have no honor, no code. You get a mortgage broker, he'll roll on his bosses, who will in turn rat out the ratings agencies and hedge funds, and eventually the smoking gun will be laying right at Hank Paulson's feet, and many powerfully connect individuals would find themselves under oath. Obviously this could not be allowed to happen. No one is going to pull the threads that unravel the sweater, every one will just be paid out in NewBucks(tm) and keep quiet.

Leo Kolivakis's picture


Interesting comment. Read my latest on ZH:

Some brave souls are selectively venturing into distressed commercial RE.

Bruce Krasting's picture

I always read your stuff Leo. And yes I am sure there is money to be made in distress RE.

But that is the point. The hucksters from PE are going to be the ghouls who make a buck over this mess. What does that do for the big picture? Nothing. We have to make 100 people poor so one can become rich. That won't work for long


Leo Kolivakis's picture

Bruce, so true. This is why America needs a new industril revolution to secure jobs and rebuild the middle class.

Seer's picture

I repeatedly hear people make this statement as though it has merit over anything other than being some marketing/political/capture phrase.

The "middle class" was built on excess, excess that is not possible with declines in resources, increasing populations and hording of capital.

The US's foreign debt HAS to be repaid.  Telling our creditors "sorry, but we've got to remodel our house, your payment will have to wait" isn't going to fly.

Foreign deficits are the real killer.  Even back in 2005 (when this was published) things were looking really bad:

Anonymous's picture

Stability will be reached when the average home price in an area can be sustained by the average income in that area.

Sometimes the simplest things are the hardest to accept.

Anonymous's picture

It has always been this way. Housing prices track the cost of living over long periods of time. How could it be otherwise? There is no Fairy Godmother.

Gimp's picture

In Florida the average house price was about $130,000 for a 3/2 single family home (not including beach front) in 2001 by 2006 the same house was over $400,000, currently they are back to just below $200K. People who bought in 2006/7  paid top price and now are just walking away from their property, hence the high foreclosure rate in Florida.