Monday, November 27, 2006

'Double Whammy'

From the Modesto Bee:

Thousands expected to lose their homes in north valley

Foreclosures are soaring dramatically in the Northern San Joaquin Valley as homeowners struggle with rising mortgage rates, falling home prices and a stagnant real estate market. A higher percentage of Stanislaus County homeowners were in default on their mortgages last month — 0.47 percent — than in any other California county.
...
Many Merced County and San Joaquin County homeowners also are in trouble, with default rates over 0.35 percent. Merced had the third highest percentage of defaults in California. San Joaquin had the fourth highest. The three valley counties had more than 1,600 homes in default on mortgages in October. That's about eight times as many as in October 2005.
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There were 128 homes in Stanislaus, Merced and San Joaquin counties taken over by lenders during October. Compare that with October 2005, when 10 homes were lost to foreclosure in the three counties, according to records gathered by DataQuick Information Systems.
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The news gets worse:

A new analysis predicts 4,866 homeowners in Stanislaus, 7,591 in San Joaquin and 2,309 in Merced likely will lose homes to foreclosure because adjustable-rate mortgages will push their payments too high during the next five years. That's on top of foreclosures caused by traditional problems, such as lost jobs, divorce, illness and death.

"Virtually everyone agrees we're going to see foreclosures rise the next three or four years," said Christopher Cagan, director of research and analytics for First American Real Estate Solutions.

He recently published two studies on foreclosures, and his predictions for the Northern San Joaquin Valley aren't pretty. Cagan warns "the double whammy" of adjustable mortgage interest rates on homes with little or no equity will force borrowers into foreclosure. He said they won't be able to afford the higher monthly payments, won't be able to refinance with more-affordable loans and won't be able to sell their homes for enough to cover their loans.
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He calculated that about 19 percent of homes - that's nearly 1 in 5 - that were purchased or refinanced since 2004 in the Northern San Joaquin Valley are likely to be foreclosed during the next five years because of what he calls "mortgage reset and equity strain."
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He estimated lenders may lose $1.8 billion because of foreclosures in the Northern San Joaquin Valley during the next five years.

13 comments:

Lander said...

Also available here.

patient renter said...

"He calculated that about 19 percent of homes - that's nearly 1 in 5 - that were purchased or refinanced since 2004 in the Northern San Joaquin Valley are likely to be foreclosed during the next five years"

That is an amazingly large percentage. I wonder how other areas (sac) will fare.

rocklin renter said...

I think "thousands" should have the caveat that some of those are flippers in trouble.

Other than that, duh.

karl marx brothers said...

WOW that is a large amount of homes!
I think the regular readers of bubble blogs expected the eventual fallout, but to finally see it confirmed in the media . . !

Here we go on the down trip of the rollercoaster. hands & feet inside please. secure loose items.

Anonymous said...

Foreclosures in Sac have been creeping up, but since they've been near historic lows for awhile, this is no big news.

Re: the predictions for future foreclosure rates, we need to keep in mind that if long term interest rates continue to drop, more mortgage holders will be able to refi their way out of trouble (and vice versa if long rates go up). No one really knows where long term interest rates are headed because they are determined by investors and buyers of public debt. I think even Greenspan was baffled by the drop in bond rates a few years ago.

AnalysisGuy said...

I just released my report on Orange County
Daily Home Price Analysis

Anonymous said...

Every day my RealtyTrac.com foreclosure report shows 3-5 new properties going into pre-foreclosure- Every day.

El Dorado hills has 1-2 properties PER DAY showing up on the realty trac report.

Anonymous said...

Looking out 1-2 years, I think mortgage rates will be somewhat lower (can you spell "recession"?), but it remains to be seen whether they will drop enough, or fast enough, to help those facing significant mortgage resets.

Anonymous said...

If you've got negative equity, as many of these buyers do, it doesn't matter how low interest rates go. Even if interest rates drop to zero they still can't refi.

Max said...

No one really knows where long term interest rates are headed because they are determined by investors and buyers of public debt.

What a lot of people don't realize is that their variable APR is tied to the London Interbank Offered Rate (LIBOR), not the 1-year T bill or the FED rate. Often times a variable rate borrower is competing with the US government for investment dollars. Now who do you think is a better risk right now? :)

Merced Going Quickly said...

First, I was surprised that the Merced Sun-Star reported on the Housing Bubble. Actually, it was a Modesto Bee reporter that wrote the story. Nonetheless, I predict that Merced and Modesto will fare far worse than any location in the central valley. The affordability issue and the lack of jobs that can sustain the ARM resets in the coming year will devastate the local housing market. Today, at lunch, 4 out of the 6 people at the table refinanced and cashed out of their homes. As we discussed this article, the countenance of these individuals reflected the trouble they see ahead. They all admitted they shouldn’t have refinanced. Folks, these 4 people are professional, government employees that were blinded by easy credit the hype of the market. The housing market is going to get real bad, real quick.

paranoid renter said...

Max,

The thing with mortgage-backed securities (MBS) is that there appears to be some protection in the form of a government bailout. I don't fully understand the implications but it looks like the risk with MBS is almost equal to that of buying a treasury.

Anonymous said...

Merced, EXACTLY!!! (most bloggers forget about this part) Not only are the new home owners in big trouble but, so are the old homeowners that have refied and cashed out!!!
It's not going to be pretty!