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Take It From Someone Who Called the Housing Crash (and its victims) in 2005, We Are About Midway Through the Downturn, If That Far
Bloomberg reports US Home Prices Fall Again:
Sept. 22 (Bloomberg) — U.S. home prices dropped 3.3 percent in July from a year earlier, the eighth consecutive decline, as foreclosed properties flooded the market.
Prices fell 0.5 percent from June, the
Federal Housing Finance Agency in Washington said in a report today.
Economists had projected prices to fall 0.2 percent from the previous
month, based on the average of 15 estimates in a Bloomberg survey. The
agency revised the previously reported May-to-June decline to 1.2
percent from 0.3 percent.
Foreclosures are boosting the supply of available properties and reducing prices, even as mortgage rates tumble to record lows. The time it would take to clear the market of homes for sale was 12.5 months
in July, the highest in more than a decade of data, according to the
National Association of Realtors. Banks seized a record 95,364
properties from delinquent borrowers in August, according to RealtyTrac
Inc., an Irvine, California-based seller of housing data.
This should be of no surprise to anyone that reads the BoomBust or
follows me regularly. I’ve been warning about the crash for over 5 years
now, and those who feel we are nearing a bottom need to take out their
spreadsheets and plug in some historical numbers.
Paying Subscribers are welcome to download the mortgage and credit
template that was used in the original US (Don’t) Stress (US) tests,
otherwise known as SCAP. We have taken the liberty to update the
template on a periodic basis for the government, since it appears they
are not forcing the banks to do so 
SCAP Assumptions Updated_09082010 Web Version.
This model shows a weakness in the Case Shiller method of following
prices in that the CS doesn’t include investment properties (usually the
first to go into foreclosure), new construction, and REOs. As a matter
of fact, Case Shiller actually looked slightly rosy as of late. The
following graphs were generated from SCAP Assumptions Updated_09082010 Web Version..
Notice how the federal numbers show falls where CS doesn’t. Signs on the street tell me the federal numbers are correct.
As a matter of fact, things are so bad that I believe banks will have
a perverse incentive to actually walk away. Now wouldn’t that be
something??? Next, we take a look into the home builder that makes more
money doing distressed investing than it does building and selling
homes.
Related content of interest:
- I
Told You Housing Was Going to Take a Downturn for the Worse. I’ll Tell
You Something Else, We Are in a Housing Depression! It’ll Get Worse
Until Market Forces Rule Over Government Bubble Blowing! - Anecdotal Evidence That Banks Are Hiding Depressed High End Real Estate
- As I Made Very Clear In March, US Housing Has a Way to Fall
- The Shortlist of the Shortlisted “Stocks to Short for 2010″: What We See as the Most Profitable Bear Postions for 2010
- Commercial
Real Estate Continues to Dropped into Foreclosure as the Landlords of
Said Properties Enjoy Skyrocketing Share Prices? Yep, Makes Plenty of
Sense - Recent Mortgage Loss and Credit Performance Commentary
- Australia: The Land Down Under(water in mortgage debt)
- Australia: The Land Down Under(water in mortgage debt), pt. Deux: Which Banks to Short?
- Aussi Bubble Video to Go With You Aussie Bubble Speculation?
»
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Wasn't the gov starting a program to turn over some of these houses to "community activists"?
These questions are what will make the future so interesting. I don't have all of the answers, but don't assume the norm of the past will be the norm of the future. For instance, many are assuming the bank will have title but if you were the bank, and you KNEW that there was absolutely NO recovery to be had in foreclosure, why you even bother to take title, along with all of the liabilities that will go along with it.
this is what I mean by perverse incentives. when it's cheaper to leave defaulters in a property and simply turn the other way, what does that portend for the future of the mortgage and housing markets in terms of pricing. I don't know, but I doubt very seriously that it will be a positive. can the municipalities force a lien holder to take over a property? I doubt so very seriously, but I am no lawyer and there is probably no precedence for this.
It is a reasonably rare case where someone who cannot pay the mortgage will leave the house but not get foreclosed upon. Staying gets you free rent. For some people who leave and don't actually get the bank to sign the foreclosure, there can be horrow stories. In other cases, local courts are deeming banks to have taken over the house even if the house has not been through foreclosure (almost like a common-law deed-in-lieu-of-foreclosure ruling).
In many cases, local courts are penalizing owners or banks for non-payment and delinquency in terms of upkeep. While an out-of-state investor buying through an LLP may not offer much chance of recourse, banks do if they want to keep doing business in that state. It would be much easier to buy it, pay what's needed, and sell it for the back-taxes.
Can it really be the case that there's absolutely no recovery to be had in foreclosure?
I mean whether the bank lets a property be taken for taxes or sells it cheap, they've lost the mortgage amount. If a bank holds a total of $900,000 in mortgage and HELOC on a house now worth about $400,000 and lets it go for taxes, they have to put that $900,000 loss on the books. But if they sell they get $400,000 of it back. How can it be better for the bank to let it be taken for taxes?
If you want to argue that the bank doesn't want to sell this house for just $400,000 because it will crater the value of the other overpriced homes the bank is dying to unload, I understand that.
Am I missing something?
Oh, and nice appearance there, Reggie. Pretty smooth in speaking and you stayed low key. Good job.
Thanks. This is the dilemma. I think many banks are in bad shape. Very bad shape. I don't care of their share prices rocketed 150% in 2009, thier (off)balance assets didn't! They are in trouble and it is being hidden through a concerted effort of government and complacent investors. If I am right, and those banks that lent a million dollars to investors (real story, numbers are close) for a contiguous block of dilapidated house in Baltimore back in 2005 is in trouble, for nearly every house withing a quarter mile of those properties is either abandoned or should be. There is no way they will be able to sell many of those properties, at any price for no one who can afford to pay wants to live in a quasi-ghost town, and worse.
So, what does the bank do that owns the loan? If they foreclose they have carrying costs and still no promise (and potentially no possibility) of sale for years. What woud YOU do if you were the bank? I know I would simply swallow the losses that i have versus trying to compound them. Having a lien on a property entitles you to make a claim for the title upon default, but I don't believe it demands you to do so - though I am no lawyer.
These situations and dilemmas will become more common place as property values continue to fall and distressed inventory continues build into weak employment and a sluggish economy.
Just wait until the government stops artificially suppressing mortgage rates... then the real fun will begin!
In some cases, banksters win with a foreclosure or short sale (thanks FDIC):
http://www.youtube.com/watch?v=ssl5yb7FewA
Other times the banksters will just tear new homes down:
http://www.youtube.com/watch?v=ZsgOaCZ2Lag
first off, if its in foreclosure, heloc is worth zero, no? So its only the main mortgage that gets what's left over after foreclosure.
There are already pockets of hosuing market in US where banks are walking away. Say in Cleveland. If someone owes $150k on a house that is worth 70k, if you figure in foreclosure costs, cost to maintain property, property tax, realtors cut to sell etc, it starts to become worthless the bank.
There are former homeowners who have left houses that bank/mortgage holder said they were foreclosing on, but then at very end of process, they don't bother to actually foreclose. The the person who left house is suddenly on the hook for back taxes, maintenance bills from city/association, liens etc..
I too would like to know
Wouldn't the municipality, who "owns" the properties after the bank defaulted on taxes, need to hire R.E. repo people? That costs money they don't have... the madness continues and you get the 4th ward of New Orleans...
Residential RE is in a strange limbo state where low interest rates make it easy to sell houses at prices below $200K, and this in turn is pulling prices down for sellers with newer, more expensive homes where there is currently a 30 month inventory. Almost nothing is selling in jumbo-loan land because of the 20% down payment requirements.
Higher interest rates will kill even the low-end sales, so we are looking at a future bloodbath. I wouldn't be surprised if the Feds step in to directly buy and/or demolish properties to try and clear the excess inventory.
Hey Regg, this housing stuff is an easy call now.
What is your take on inflation or deflation ?
Dollar up and gold down the next time things get ugly or dollar down gold up ?
real economic inflation is already here and it's arround +-12% if you use the 2000 index models in Europe. So the US won't be far behind that number to.
All the rest is smoke and mirrors.
yep...price inflation in the things we need the prices to go down, and price deflation in the things we need to go up.... I think a lot of this discussion about deflation/inflation and the debate with Mish & others is mostly definitional-- in the strict sense of how many Austrians define inflation--an increase in money & credit, they are of course correct-on net credit is declining. Thats why I like to clarify by saying "price inflation" (real inflation--what effects us and really matters--the prices we pay for stuff) because the reality is that a lot of the prices I see are increasing or at best staying flat, bottom line is that the standard of living is declining for most Americans....
Love your avatar. Doomo is da duuude.
Yeah, I agree. Housing will not recover (price stability) for a long while.