Friday, January 19, 2007

SL's Water Cooler - January 2007 (part 4)



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64 comments:

Anonymous said...

Speaking of renting. When the fb can't dump the house, he/she decides to rent the place until...

(From Craigs List)

$550000 Income Producer - 7 Bedroom 3 Bath

....current tenants do not know it is for sale so please do not disturb them.

Gotta love it. Every man for himself and screw everyone else.

Perfect Storm said...

Wachovia recently conducted an intensive strategic review of its mortgage business which has altered the company's approach to the origination of non-conforming loans. As a result, Wachovia has elected to close EquiBanc Mortgage - Wachovia's only business dedicated solely to non-conforming loans.

If you have any questions, please contact your Account Executive.


EquiBanc is taking a dirt nap. Another subprime eats dirt, and good ridance.

Anonymous said...

Anyone notice a bunch of houses going up for sale in the last couple weeks? Looks like the spring sitting season is getting off to a roaring start!

anon1137 said...

I've noticed several houses in central Sac that have been on the market for months, like more than 3 months with no or minimal price reductions, have recently gone pending. Seems like the sunny weather and post-holiday season have perked up some buyers.

jeff said...

...I'm still monitoring new homes in the Roseville and Lincoln areas. Seeing another $30K coming off the top for a local builder who already dropped pricing $100K. Once the rainy weather starts, we'll see bigger drops. So far they've lucked out with the sunny saturdays. Even though the BS ads you see on the weekends talking about prices not going lower, well, they're going lower! You'll see a small spike in new homes sales for the past month because some builders pulled out the stops on incentives to get buyers off the fence, but any further buyers have dried up for now.

Perfect Storm said...

It seems to me that a lot of housing bull realtors felt inventory would keep declining until April, however inventory is on the the up tick. How high will it go?

Inventory increasing, subprime decreasing and home builders dumping land. Nothing to see here move along people.

Max said...

FYI: Four-county inventory went up to 12,482 this week from 12,304. Not a huge rise, but definitely not a decrease.

We're still in the slow part of the year, but all signs point to record inventory and declining prices.

Cmyst said...

I was looking in the Bee's MLS listings, admittedly in a low price range: 250k to 300k, because that is what I can afford on a conventional mortgage. There were a lot of bank repo's comparatively speaking to what has been there in the past 5 years or so that I've browsed them. When you go up into the 300k to 400k range, there are many "owner's misfortune is your opportunity!" ads that lead me to believe these are pre-foreclosure.
And about renting: I rented an older house in a so-so area with my daughter a few years ago, which we loved, mostly for the yard and pool. When the owner decided to sell, they didn't tell us or give us a chance to buy the place. If they had, they could have saved themselves some trouble, because we would have bought it. This was around 2000-2001, the market was picking up but it was still reasonable.

anon1137 said...

If I was a homeowner who thought I might need to upgrade/upsize in the next five years, especially into a new home, I'd be thinking about putting my house on the market now. What's to lose? Prices are close to their all-time highs. If I don't get my price, I can wait, and if I do get my price, I go get a big new house with all the builder incentives and upgrades and plenty of garage space for all my SUVs.

I actually know people who think this way. When the economy is strong and interest rates are low, people spend.

The point I was trying to make is that we shouldn't expect a big drop in prices just because inventory goes up - sellers may only be testing the waters.

Anonymous said...

I don't think all the bank repo sellers will be testing any water.

Two homes just sold in Rocklin:

Milburn $336,000 sale, paid $335,000 in 2003.

Chatham $388,000 bank repo. Sold for $489,000 in 2005.

Sounds like there are some falling knives around the market. Whoever catches them, should have assets worth about $250,000 in 2008!

drwende said...

The sort of house I track sold for $400k in 2005, about $409k briefly in late 2005, and gets listed for around $345k today, to a stunning lack of interest from buyers.

That's a good bit off-peak, especially since a bank offered a defaulted one for $331 in the fall and it just didn't sell. I gather from the Zillow info on that one that the bank needs the $331 to break even, so it'll be interesting to see what happens to that house.

anon1137 said...

I think these bank repo's/foreclosures/subprime-borrowers represent a small part of the market. I read that 20% of subprime loans are currently at risk of default. In other words, 80% of subprimes are meeting their payment obligations. That's not bad - if lenders can figure out a way to identify those 20% who would default, they can keep lending to the other 80% and keep making money. By the way, Wells Fargo Bank, one of the largest subprime lenders, posted the largest profits in the history of the company last quarter.

And remember, people who own a home currently see the market differently from buyers who currently don't own a home. These homeowner/buyers are also sellers, so market conditions affect both sides of their transaction. If prices soften, they don't get as much for their current home, but they also pay less for the one they're buying. I have three friends in this category who sold/bought in the Sac region during the last half of 2006. They could care less about the bubble.

Anonymous said...

The Center for Responsible Lending said it couldn't immediately determine the actual number of subprime loans taken during the first nine months of 2006 in the Sacramento region. But 2005 brought 26,800 subprime home loans to the region, according to another nonprofit subprime lending analyst, the San Francisco-based Community Reinvestment Coalition.

Now how many homes weer purchased in the Sacramento Region in 2005?

It sounds to me that at least half used subprime. Now it is my understanding the 20% rate is for foreclosures nationwide. Sacramento percentage will be higher since it is considered a bubble market. So subprime default Sacramento is 25%, that is probably low. So just from 2005 were looking at 5000 plus homes going into foreclosure. A-paper has deaults also, oh and lets not forget hard money lenders.

This market is falling apart and we have a long way to go.

Anonymous said...

The subprime foreclosures forecast by the Center for Responsible Lending is only for those loans originated in 2005 & 2006. If you read the report in detail, they state the subprimes from 2002-2004 will see 40% foreclose in the next 12 months. While the outstanding balance is not as high as '05-'06, the actual foreclosure will be equivalent to 30% of all subprimes. That is a lot of product. Foreclosed homes generate lowball offers, because they are abandoned, damaged, vacant homes which seriously drag down the market.

Get some popcorn and enjoy the show. This market is years from a bottom. After it reaches a bottom, it will stay there in a stabilized range for 3 to 4 more years, while inflation takes another 10% off the value.

Max said...

I think these bank repo's/foreclosures/subprime-borrowers represent a small part of the market. I read that 20% of subprime loans are currently at risk of default. In other words, 80% of subprimes are meeting their payment obligations.

Well, according to my calculations, 10% of all listings in Sac County right now are flippers in trouble. This is much bigger than one or two houses.

Sippn said...

One thing I noticed is that "Flippers in trouble" resembled this guy's web site who I heard on the radio today.

http://www.warrenadams.com/

Big listing of foreclosures.

So, several of the homes listed as a flipper in trouble are foreclure listings, being sold by the bank to cover a loan. Wouldn't see this during the escalation because it was easier to sell than wait for foreclosure.

Gee ...we all know we're not at the peak anymore, but how close to normal might we be.

Everybody just wants to compare it to the "full glass."


Anon 1137 - I think you have it right on.

Max - thanks for the vine

PerSt - thanks for the comments elsewhere.



There's a lot of activity out there now

JR said...

Sippin, What a great web site. It appears Warren Adams has 152 listings which all seem to be foreclosed REOs. He has 21 pending sales. Assuming he closes the average sale in 45 days, that means about 10 months of inventory. Very interesting. Can he sell them faster than the foreclosures rolls increase?

And the sale prices? All but 3 are under $310,000. In 2005, I can not remember seeing a house for less than $400,000. The market is still in a freefall for prices, and if you price right, you may be able to get a deal done in 10 months or so.

Foreclosures sure play havoc with the sale comps.

anon1137 said...

I assume we'll be getting another quarterly report on foreclosures from DQ soon, and maybe it will show that we're finally getting back up to the 15-y avg rate of foreclosures. For the Sac city market, the number of foreclosures has barely been moving during the last 5 months, or maybe they've been trending down a little.

Max: I don't see the point about foreclosures and FITs. My understanding is that flippers are usually investors, often RE agents. I suspect that many of these folks made enough money in the run-up that they can cover their own losses from their last 1 or 2 flips. Besides, a foreclosure on their credit report might hamper their ability to game the market in the future. So what if these FITs lose their shirts? It's not like a family losing their biggest asset, it's just a greedy SOB with an investment loss to report to the IRS.

Sippn said...

JR - 152/21 is 7 months inventory - and his rate of listing and selling is increasing.

He was getting multiple offers.

Max said...

One thing I noticed is that "Flippers in trouble" resembled this guy's web site who I heard on the radio today.

Yeah, "Security Pacific R. E." is an REO real-estate company. Too bad they don't list the other 350 FITs that I do. :)

He has 21 pending sales. Assuming he closes the average sale in 45 days, that means about 10 months of inventory.

JR - 152/21 is 7 months inventory - and his rate of listing and selling is increasing.


I think JR was multiplying by 1.5 to account for a 45-day closing period. Either way, it should give you pause when an REO agent can't sell houses faster than they come onto his books.

Pretty soon this guy will be gone and replaced by auctions on the courthouse steps.

Max said...

Max: I don't see the point about foreclosures and FITs. My understanding is that flippers are usually investors, often RE agents. I suspect that many of these folks made enough money in the run-up that they can cover their own losses from their last 1 or 2 flips.

Sorry, I'm using the strict definition of an FIT, as someone who bought within the last two years who is selling now for less than what they paid. Unless you ask them, you have no way of knowing why someone is selling their house, or whether they are an investor or not.

I suspect (but cannot prove) that a lot of FITs are over-stretched HELOCers, or people with exotic financing paying the piper.

drwende said...

The Last Fool may have revealed him/herself (and it's not anyone I know): 3137 Midway Island Rd. in West Sacto. Sold 8/16/06 for $375,000, now listed on 1/19/07 for $405,000. It's only an 1,160 SF house, so they're asking $349/sf.

Meanwhile, neighbors trying to get $289/sf have houses languishing on the market, and the more aggressive sellers are aiming for $220/sf.

The listing says "motivated seller," but asking a price 50% higher than the going rate doesn't say "motivated" to me.

Note the large drop in $/sf from the peak. The reason regional medians on existing houses haven't dropped much is that few houses are selling, and only the most desirable ones that don't have rivals in cheaper new construction, not that overall prices are steady. Basically, the median price remains the same, but it's different houses that are actually selling.

JR said...

Sippin,

Max is correct on the months of inventory. If he closed is escrows in 45 days, then 21 pending sales implies he will close 14 this month. He has 152 listins, so he has 10.8 months of inventory. That assumes all his pending sales actually close.

It is a very interesting site. Thank you for posting about it.

patient renter said...

"anon1137 said...
I think these bank repo's/foreclosures/subprime-borrowers represent a small part of the market. I read that 20% of subprime loans are currently at risk of default."

You're speculating. They represent a very significant part of the market. Read the Center for Responsible Lending study published several weeks back.

patient renter said...

anon1137: "So what if these FITs lose their shirts?"

You're joking, right? The more people that lose their shirts, the more foreclosures and short sales. Inventory goes up. Banks take a loss, lending standards are tightened resulting in decreased affordability, and prices go down because of all these factors.

Sippn said...

Max - those listings are already bank owned properties (REO) - the sale on the courthouse steps already took place (or was offered).

I life ago, in the early '80s, during another housing "creative financing" crisis, 20% interest rate loans, I was a real estate agent sitting on REO properties. The reason they were hard to sell wasn't just the market....they were lousy homes....and the poor market exposed the facts.

Then I got a real job.

patient renter said...

Good reading for all, here's a big picture take on the housing bubble, from the Center for Economic and Policy Research.

http://www.cepr.net/index.php?option=com_content&task=view&id=315

Restless1 said...

OK first I want to say I really like the site. We've rented since we moved to SAC in 2004 because it seemed wiser than to jump into the crazy market at that time. Now it's the best time to buy in years. This renter isn't going to try to time the market bottom. The capitulation is at hand. It's time to buy -- waiting longer may turn out to be better financially, but there are other factors.

patient renter said...

"waiting longer may turn out to be better financially, but there are other factors."

If being better off financially isn't important, what was the point in waiting to buy at all?

Perfect Storm said...

Good for you. If you feel it is time to buy then buy. I hope you have 20% down and are using a fixed rate fully amortizing loan. If your using an interest only, you might as well be renting.

Good luck, hey maybe your right and the market will not decrease any further. Make sure you get good neighbors, because if you have lousy ones and the market decreases further then you will be stuck in your house.

Anways good luck.

Get a good home inspection. Its always lousy to have to spend thousands of dollars on missed items that need repair, and check if you have HOA fees, oh yeah put away money for property tax, because they come around pretty fast.

Ok good luck.

Sippn said...

OMG

I think Perfect Storm has officially declared "the Bottom"

or at lease close enough.

Good Advice

paranoid renter said...

Patient,

That's a great article. I have a lot of respect for Dean Baker because he practices what he preaches. He started talking about the bubble way before everyone else started beating the drums. CEPR was one of the first sites that I found discussing the housing bubble back when I was thinking of buying a house which was early 2004. At the time, I read that Dean Baker had sold his house and was renting (in the DC area). That was the thing that really got me thinking and I eventually backed out. Since then the home that I was planning to buy has appreciated almost 30% - it was even costlier back in the middle of 2005, but even now it's about 25-30% higher than what I was getting it at. I don't really have regrets though, because I've been renting for much less during that time (about 1/2.5 times the cost of [mortgage + property tax + mello roos + estimated repairs], but then there's the tax break so it's probably somewhere between 1.5-2 times my current rent, but then there's also lost interest on the 20% down payment).

Prices would have to fall 25-30% from today's for me to think it was a wise decision to back out.

Restless1 said...

Thank you Perfect Storm. Fortunately I've got the 20% down and 30 year loan thing going on, because I benefited from a 2004 home sale while the bubble was still building. But I do plan to "low ball 'em". I just like owning more than renting, kind of like Dorothy and Kansas.

Perfect Storm said...

No Sippin,

I think the market is far from the bottom and I have enough popcorn to see me through for a few years yet.

Perfect Storm said...

But if a person can afford a house and does mind it decreasing in value so be it. However, if somebody cannot afford a home and has to use a liar loan to obtain financing then I think they are fools.

Max said...

Max - those listings are already bank owned properties (REO) - the sale on the courthouse steps already took place (or was offered).

Obviously not at a low enough price, otherwise they wouldn't be listed at all.

Here's a question: A lender forecloses and takes possession, but instead of a fire sale, decides to hold the property indefinitely while they try to sell with agent. As the former owner, how does that play with the IRS in terms of debt forgiveness? Theoretically, you won't know how much debt was "forgiven" until the place sells...

Marc Brinitzer said...

I agree that inventories in Sacramento have not yet hit bottom. Resale agents are telling their clients to get their homes on the market quickly after the new year on order to beat everyone else to the punch;, just making the problem worse.

Also, the builders are trying to reduce the market's expectations for huge concessions by confining the advertised concessions to standing inventory and doing the "while they last" thing. Bu the discounts are there for the asking.

The public builders in particular continue to build at a higher clip then they should, each thinking themselves smarter than the next and hoping to grab market share as the competition chokes.

This will last a while longer I'm afraid. That said, it isn't necessarily a bad time to buy if you can find your perfect home and plan to actually live in it awhile. You'll overcome the market cycles.

I bought at the peak of the 1989 market in Folsom, and my house dropped in value for a few years. I wasn't going anywhere though, and
my house is worth a whole lot more now than what I paid.

Most people--even first time buyers until very recently--got greedy and focused only on the short-term return.

I know real estate is a traditional path to building wealth. But that generally happens slowly.

Sippn said...

Paranoid...


Read the WSJ article on Dean Baker and wife - on the surface looked reasonable then I thought... he's paying almost 2x in rent what his mortgate payments were, lost his deductions, lost his ownership, living in a rental, why? to make a measly 5% on his cash?

An DC is still appreciating in some areas, likely his old one.

He could have stayed there until 65, reversed mortgaged into retirement.

Dumb move.

patient renter said...

Sippn: Can you find a link to the article you mentioned? I can't find it.

patient renter said...

Since I've been hearing a lot of people call the "bottom" lately, here's some historical info again:

http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

Cycles last 11 years generally, and this, of course, was the mother of all cycles. We've got a LONG way to go before we hit bottom.

Sippn said...

Link to article:

http://biz.yahoo.com/weekend/rentgloat_1.html

Also the guy in Stanford had he bought when he moved there would be sitting pretty also....instead, priced out of market forever without any tax free gain.

Couldn't link yet to NYT - but the cycles vary, causes vary, lots of discussion on Calculated Risk. The US has only had a self contained economy under its own control for 50-100 years. In 20 years, we might not be able to control our own costs of money (interest). The influences change with every cycle. Thats why there is so much disagreement.

patient renter said...

"Mr. Baker concedes that he could have made an even bigger profit on the condo had he held it for another year or so but says it's impossible to time the market perfectly. While some economists argue that the housing slump is nearly over, Mr. Baker insists, "We're just at the beginning of it."

Thanks for the link. I actually had read that article before but wasn't sure if you were referring to something else. Baker simply suffered from being so early to recognize the bubble, and selling well before the beak.

"Couldn't link yet to NYT - but the cycles vary, causes vary, lots of discussion on Calculated Risk."

True, but the duration of the runup is almost always less than or equal to the duration of the letdown period, which would mean we still have a long way to go. The distinctive feature of this cycle was the loose lending standards and credit, which wasn't a factor in the previous few cycles. When this starts to come apart, a drop could occur more quickly, but these things have barely begun to play themselves out. All other factors aside, there is no way we're anywhere near the bottom when 11% (1 trillion) of the nation's mortgages are set to adjust (mostly upwards) this year. End of story. You can bet there will also be a similarly large number next year, etc. Once all of this plays out, then we can start talking about a bottom. Until then, it's just laughable.

Sippn said...

"there is no way we're anywhere near the bottom when 11% (1 trillion) of the nation's mortgages are set to adjust (mostly upwards) this year. "

How soon we forget when federal funds rates were 1% in 2002-2003. My mortgage then, fully adjusted out was 3.25% or less. The Fed moving this to 5% did help slow this puppy down some.

"loose lending standards and credit"

remember 20% interest rates in 80-81? and not just 2nd mortgages, but 3rds, 4ths, 5ths to 120%.

Anonymous said...

Hey Sippin,

Most ARM's are tied to LIBOR not Fed Funds.

patient renter said...

"How soon we forget when federal funds rates were 1% in 2002-2003. My mortgage then, fully adjusted out was 3.25% or less. The Fed moving this to 5% did help slow this puppy down some."

Regardless, the majority of these 1 trillion in loans adjusting this year will be going up.

"remember 20% interest rates in 80-81? and not just 2nd mortgages, but 3rds, 4ths, 5ths to 120%."

Regardless of whether the interest rate was 20% or 2% in the 80s or whether the owner took out 1 or 5 loans, lenders would not give out loans to people who were not fully capable of paying them back, which is completely different from the situation that we have now where almost anyone can get a loan for almost anything. Could Casey Serin have bought 5 or 6 houses in 80-81 with no money? No.

Restless1 said...

Certain areas will hit bottom sooner and begin to recover. My guess is that some of the more desirable "close-in" neighborhoods such as Carmichael may bottom this year. Barring a recession, convince me I'm crazy.
Overbuilt new areas with tons of owners holding kooky mortgage instruments could well be in a free fall for an extended period. Bottom could be in 2-5 years. Slow recovery, then next boom hits around 2015. That's my 75% subjective crystal ball.

patient renter said...

Restless1:

There's no basis for your claim that Carmichael and other desirable (such a realtor term) areas may bottom out soon, unless you're willing to provide some good basis. Last I checked, the entire Sacramento area inflated similarly during the bubble.

Restless1 said...

Patient renter:

But isn't it true that some areas (ie Lincoln, Natomas) are deflating faster than others (ie Land Park)? I guess I'm suggesting differential deflation, even if all areas bubbled over about the same. I'm thinking there may be data out there to support this theory.

Sippn said...

Restless1, yes your gut feel is correct, it will just take time to support the argument. My day job is calling.

patient renter said...

"But isn't it true that some areas (ie Lincoln, Natomas) are deflating faster than others (ie Land Park)?"

It is definately true that different areas are dropping (or not) at different paces (such as El Dorado County), but at least according to the fundamentals they are all ridiculously inflated and are due for drops. Think of it this way, an area that was desirable during the runup could have only been that much more inflated, for its desirability. Therefore saying its downturn won't last as long because it's desirable doesn't make sense.

JR said...

Max, the income gain from debt forgiven is not based on the sale price the bank gets. It is based on the tax basis of the borrower who lost the property. If he paid $200,000 for a house, got 100% financning, accrued 5% in neg am over 2-years, then he must declare ordinary inocome on the increase in debt foregiven (plus interest payments he missed).

Remember, a FB does not get a $250,000 exclusion on "gain of foregiven debt". He does not even get long term capital gains treatment. He gets ordinary income.

If the borrower put 20% down, does a deed-in-lieu, with no accrued interest, no problem.

If the FB refi'e and pulled $200,000 cash out, then he has a huge tax gain in the year of sale and he is doubly FB'd.

paranoid renter said...

Prices are going up according to housing tracker. :-(

patient renter said...

"Prices are going up according to housing tracker."

It's up from a week ago but down from 2 weeks ago. This sort of week by week median data is based on so few sales that you might consider it noise (statistically). More important to pay attention to is size adjusted (price per square foot) data, or year over year data.

jeff said...

Anyone interested in tracking new housing prices by development? I see the Irvine Housing Blog is starting to track prices per plan plus incentives. I'm not a programmer but I would be willing to do the leg work and pick up flyers, datasheets, etc from the local housing developments if someone would put the data to code. I'd probably start in So. Placer Co....

Sippn said...

Patient Renter

LIBOR was very close to Fed Funds, my sweet deal was linked to LIBOR but it too has jumped 4-5% since 2003 ..... if the Fed started dropping these back down, it would help...everybody

drwende said...

Today's Wall Street Journal says banks are dealing with the imminent wave of foreclosures by offering free refinances and by allowing ultra-strapped owners to "pay off" their loans with a short sale.

That *should* hold foreclosure rates down and sales rates up, but it would still depress selling prices.

patient renter said...

"if the Fed started dropping these back down, it would help...everybody"

I think if the Fed started dropping rates (allowing people to refinance who would otherwise be screwed) they'd merely be prolonging the bubble, which is a bad thing for everyone in the long run.

patient renter said...

http://www.paladinreports.com/

Paladin's site is up although the fraud report submission form isn't finished yet.

jeff said...

CA defaults highest in 8 years!
http://tinyurl.com/28n77y

Anonymous said...

Lennar blackmailing it's subcontractors http://www.ocregister.com/ocregister/homepage/abox/article_1553367.php

Anonymous said...

Existing home sales plumment to lowest level in 17 years!
http://www.breitbart.com/news/2007/01/25/D8MSCVBO0.html

Anonymous said...

THE WEST IS THE BEST When you hear the national commentator talking about a soft landing for housing, they are talking about everyone except the west. Check out these numbers from the US Census Bureau. The west, read California, is bombing the national numbers. "-27%" WOW, even after they slashed the hell out of prices to move inventory before year closeout. Its starting to get interesting ! http://www.census.gov/const/newressales.pdf

anon1137 said...

Who cares about sales numbers? I care about prices - I want them to go down, but they aren't going down. This is from the same report:

median price Dec 2005: $240, 900
median price Dec 2006: $245,300
change: + 1.8%

patient renter said...

Anon:

What are the size adjusted (median price per square foot) numbers?