Wednesday, December 06, 2006

Worse than it Appears

From the New York Times:

The truth is that the official numbers on house prices — the last refuge of soothing information about the real estate market on the coasts — are deeply misleading. Depending on which set you look at, you’ll see that prices have either continued to rise, albeit modestly, or have fallen slightly over the last year. But the statistics have a number of flaws, perhaps the biggest being that they are based only on homes that have actually sold. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept.

In reality, homes across much of Florida, California and the Northeast are worth a lot less than they were a year ago...In the Boston area, prices have fallen about 10 to 15 percent since the middle of 2005, estimated Chobee Hoy, who owns a real estate brokerage firm in Brookline...The market in northern Virginia is similar: prices are down 10 to 15 percent, according to an analysis by Mr. Lawler, a former Fannie Mae executive who’s based there...Prices also appear to be down in Sacramento and San Diego.

The broadest government measure of house prices is calculated by the Office of Federal Housing Enterprise Oversight, the agency that oversees Fannie Mae and Freddie Mac...But it has three big weaknesses that end up making it much less useful than it could be...Right now, all these flaws seem to be making house values look much stronger than they really are.
...
For homeowners, the lesson is not to take any of these statistics too personally. The long housing boom has caused a lot of Americans to think of housing much as they think of stocks — as an investment whose value can be tracked almost in real time. But there is no equivalent of the Standard & Poor 500 Index for real estate. Just because the government's measure shows a 10 percent increase in your area's home prices doesn't mean that your house is 10 percent more valuable than it was a year ago. It might, in truth, be less valuable than it was a year ago.

15 comments:

Lander said...

Thanks to a reader for posting the link.

sippn said...

Good catch, I've been reading this also. Yes the good stuff is still selling, helping keep the median prices up until the crap starts discounting.

If you saw this @ Calculated Risk Blog, you also saw that mortgage originations are up?

Anonymous said...

The truth is that the official numbers on house prices — the last refuge of soothing information about the real estate market on the coasts — are deeply misleading.

Do you think!

We are headed for 50% decline by 2009. Ownit mortgage just shut their doors. Soon sub-prime loan officers will hanging out on street corners holding up card board signs will loan for food.

Max said...
This comment has been removed by the author.
Max said...

Looks like Ownit had 700 employees, including an office in Roseville.

Here's the link to the story:

Subprime lender Ownit Mortgage shuts down

Max said...

Repost to correct bad link.

Ownit mortgage just shut their doors.

I keep waiting for Vitek to bite the dust. A ton of these so-called "local" mortgage brokers can't afford to buy back their failed MBS loans. Watch for more stories like this in the near future.

sippn said...

Since the subject is changing..

Max, I don't think Vitek is run like this..."Some wonder if the company's demise hinged on its practice of hiring jocks and stunning but inexperienced young loan officers and managing them loosely. Still others questioned whether Greenlaw's litigious and financially draining divorce and his romance with another woman distracted him...(failed Seattle Loan company)"

Vitek has good solid connections with top still producing real estate agents.

I do expect failure of many of the recent start ups staffed with 22 year old google-mapping loan agents who have no credibility with an underwriter.

Max said...

Max, I don't think Vitek is run like this...

I agree with that. There aren't too many mortgage brokerages who have kegs of beer in their staff meetings. :) (You guys think I'm joking. Read the article!)

It all depends on their sub-prime exposure is. A lot of these companies have turned to these marginal products in the last two years because nobody could qualify for a normal loan.

The rapid expansion of sub-prime lending is the reason the housing bubble expanded so far since 2004.

Anonymous said...

Were just at the beginning of this scenario. All of sub-prime is going down for the count.

"Soon sub-prime loan officers will hanging out on street corners holding up card board signs will loan for food".

There is so much truth to that comment. Other situiation begging for job as a car stero salesman. Oh I mean salesperson.

Anonymous said...

Better late than never? It took the Federal Reserve five weeks to ask Bank of America to retract or justify its September 8 demand that basic fair lending information be withheld. Then BofA took a full two weeks to answer the Fed’s questions. Finally the following disclosures:

“Bank of America indirectly owns 24.9% of the voting common equity of Ownit... In August 2005, Bank of America, N.A. transferred the Ownit residential mortgage loan portfolio purchased during March 2005 to Asset Backed Funding Corporation (‘ABFC’). ABFC is an affiliate of Bank of America Corporation that is a limited purpose corporation that securitizes residential mortgage loans... ABFC securitized these Ownit loans, along with similar loans from another loan originator, in its approximately $1.2 billion ABFC Asset-Backed Certificates, Series 2005-HE2 transaction. Banc of America Securities LLC served as the underwriter in that transaction.... In two separate transactions on March 9 and March 14, 2005 Bank of America N.A. purchased Ownit residential mortgage loans in an aggregate amount of approximately $265 million. These loans were held for the account of Bank of America, N.A. until they became part of the August 2005 securitization described at Item 2.b above. These loans were purchased in a competitive, arms-length process at fair market terms” -- followed by more than half a page blacked out.

Bank of America’s attempt to hide its argument may be understandable -- it is simply not credible that BofA bought “in an arms-length process” subprime loans from a subprime lender of which it owns 24.9% (to fall just below 25%). Similarly, Bank of America still blacks-out its answer about servicing for subprime lenders, and the terms of its dealings with the subprime lenders it now publicly admits it does business with, including: Ameriquest Mortgage Corporation (including “whole loan trading”); Option One, Centex, New Century, Saxon, Metris (the subprime card lender HSBC is trying to acquire), Delta Financial, First Franklin, WMC (subprime lender now owned by GE), Fremont Investment & Loan (rogue subprime lender which claimed it would only give its HMDA data if one signed a confidentiality agreement), Capital One, CIT, WFS -- and Ownit, regarding which BofA blacks-out the column labeled “ABS/MBS Underwriting,” after elsewhere publicly admitting it performs those functions for Ownit’s loans. For shame...

Anonymous said...

The above post re:BofA's Ownit affiliation indicates that a massive collapse of the US economy is imminent. I believe that the recent 10K filing by Fannie Mae (2 years late- if any private company failed to file 10k on time- the CEO or SOMEBODY would be going to jail..) is further evidence of that imminent collapse.

I just hope they don't start a bigger wag-dog war to cover their tracks...

Anonymous said...

Ownit affiliation indicates that a massive collapse of the US economy is imminent.

The government will refinance sub-prime.

Yeah right. Conressional hearings and prison time.

Anonymous said...

Has anyone done the math? (ie; say 1/2 the subprimes default, and the US must refi say 1-2 trillion!)Would the US government be able to add another 2-3 trillion to the 46 trillion debt?

I dunno man, seems unlikely...

Anonymous said...

We need another WAR to clean up this mess...

Has Commander Cuckoobananas thought of that yet?

Maybe we could invade Belgium?

Anonymous said...

Just talked to a friend who's husband just got laid off from his KB Homes job, without his upcoming bonus.....how sad... they could of at least given him his bonus before letting him go...and to top it off it is the Holidays....