Wednesday, August 09, 2006

The 'Perfect Storm'

From the Fresno Bee:

Hundreds more homeowners in the central San Joaquin Valley are in danger of losing their homes to foreclosure this year because their houses are not gaining value fast enough, a real estate tracking company says. And some in the industry say the numbers could increase as more buyers -- especially those who purchased homes in the past year -- default on variable interest rate and interest-only loans.

The number of default notices sent by lenders in April, May and June climbed 55.7% in Fresno County over the same period last year, according to Dataquick Information Systems. Similar increases were recorded elsewhere in the Valley: 60% in the four Valley counties surveyed by Dataquick -- Tulare, Madera, Fresno and Merced.

"There has been a dramatic increase," said Bill Pfeif, a real estate agent in Fresno whom lenders use to sell distressed properties. Lenders did not contact him in the robust market of 2002 through 2005. That changed in 2006; Pfeif has seven lender-approved listings and expects more. He said rising interest rates combined with an abundance of homes for sale, liberal lending policies and stagnant prices have created a "perfect storm" for foreclosures. "The table was absolutely set," he said. "There is absolutely no way it couldn't have happened..."

Pfeif said the numbers are likely to grow because many buyers used high-risk adjustable-rate or no-down-payment loans to finance their purchases. Higher rates have driven the costs of those mortgages up. "If you have a reasonable amount of income and are financially set, it is not a big deal, but if not, that variable thing will kill you," he said...

The situation is more dire in other parts of California, where home prices are higher and where values have tumbled. Statewide, default notices climbed 67.2% over the last year. In Placer and Sacramento counties, where median-home prices in June fell 6.2% and 1.3%, respectively, from last year, the number of default notices more than doubled. The number also doubled in Riverside County and nearly doubled in San Diego County. "It was a really great party, and this is the hangover," Pfeif said.

From CNNMoney:

As signs mount of a slowing real estate market, the "vultures" are beginning to circle. But home prices may still have to fall further to create the bargains they crave...Jonas Lee, a co-founder of Redbrick Partners, makes his living by buying residential properties at the right price. Lee hasn't noticed any wholesale bargain hunting yet, though he says the general slowdown in markets nationally should create buying opportunities for vultures. Lee says that there could be some bargains soon in some once bubbly markets, such as South Florida. Another market that Lee identifies as ripe for a fall is the condo segment in the District of Columbia and its upscale suburbs. And he's eyeing California's Central Valley cities, including Bakersfield, Stockton and Modesto.


Anonymous said...

The listings link for Placer County seems to take us to the wrong place. Can you fix that?

Anonymous said...

When the resets are in full swing and peaking, the fallout will present some interesting opportunites. Funny money loans really became popular in 2003/2004 and have carried forward to the present market. Add to that the sub prime market that made it possible for every financial deadbeat to own a home, and you have a recipe for a real estate meltdown.
The real estate euphoria of '04 and '05 will likely be replaced by an equal angst reaction in '07 and '08.
Those saavy enough to wait will be handed a gift of being able to pick and choose the property they want at prices they can afford. Unfortunately it will be at the expense of the poor people who got sucked in to Alan Greenspan's debacle of cheap leveraged debt, negative savings rates, and a dollar that's fallen 40% in less than 10 years. Couple the mortgage resets with high inflation (less daily food and energy cost of course) and there's no way to avoid the wave of defaults that are sure to occur. The current Fed Chairman (Bernanke) has his hands tied. Damned if he raises rates to cool inflation and prop up the dollar, damned if he doesn't because and cheaper dollar with less purchasing power allows inflation to runaway like it did in the 70's. Either way those on the mortgage edge are in for some tough times. Keep your powder dry until resets filter out of the equation, iventories stabilize, and rates begin to come down again.

Gwynster said...

Did anyone see the new IDX numbers?

James from the Sacramento Housing Bubble is back. We have a new record of 17,957 homes on the market. This breaks the population adjusted old record of 17,917.

Great to be James back!

Happy Renter said...

Ocrenter hasn't posted the record yet and I'm assuming your using his figure of 17,900 in 1993 as the current record. They both do a great job but lets not mix data for different sources. We are close though, really close.:)

Gwynster said...

Good point on mixing data sets.

I want the price of land here in Davis to drop along with the home prices. I'm dying to build my own place since the older homes will always stay out of my price range and I have no faith in newer construction.

I've been looking at Prefab homes (Dwell, MKD) and I can't wait for these newer green homes to catch on.

Lander said...

The listings link for Placer County seems to take us to the wrong place.

As far as I can tell, there is no direct address to link to. Click on the link, then click on the "document resources link" on the left side. (Note the address does not change between these two pages.) Then scroll down to the bottom and you'll see MLS statistics.

If you know of a way to directly link, please let me know.