Thursday, July 12, 2007

Central Valley Leads Nation in Foreclosure Activity

From the Central Valley Business Times:

There was one foreclosure filing for every 315 households in California last month. That’s 2.2 times the national average. The state reported 38,801 foreclosure filings during the month, the most of any state for the sixth month in a row and more than three times the number reported in June 2006.

It’s worse in the Central Valley, which leads the nation in foreclosure activity, according to RealtyTrac’s figures. California cities reported six of the nation's top 10 metropolitan foreclosure rates in June, and the top four spots were occupied by California cities: Stockton, Merced, Modesto and Riverside-San Bernardino. All of the top four cities registered foreclosure rates that were more than five times the national average. Other California cities in the top 10 were Vallejo-Fairfield at No. 7 and Sacramento at No. 8.
From the SF Chronicle (hat tip Fanchew):
"The big variable driving the numbers is the much higher-than-anticipated rate of default of subprime loans," said Rick Sharga, vice president of RealtyTrac in Irvine. Subprime loans, which grew in popularity in the past two years, are loans to people with tarnished credit, as well as loans for 100 percent financing. "The excessive and lax lending practices of the past couple of years of the real estate boom are coming home to roost," Sharga said.
...
Sharga said foreclosure activity this year has accelerated much faster than RealtyTrac anticipated. While it originally forecast that the nation would see about 1.4 million to 1.5 million foreclosure notices in 2007, "Right now, if we run at a flat rate, it will be 1.8 million filings and 2 million isn't out of the question," he said.
...
While not all notices of default result in a foreclosure, Sharga said their rapid rise can still have a material effect on the real estate market. As the number of properties in such a situation increases, banks are more likely to allow the homes to be sold at a loss in a process called a short sale, or to be sold in a foreclosure auction, also at a lower value. That in turn will depress values of nearby homes.

"That has an insidious effect across the state," Sharga said. If one thinks of default notices as the canary in the coal mine, "The canary has wheezed and gasped and is probably being carried out right now," he said.
From voiceofsandiego.org:
A common boom-time rationalization was to maintain that a housing downturn was impossible in the absence of widespread unemployment.

Like all the best rationalizations, this one was formed around a grain of truth. Housing busts take place when large numbers of people are forced to sell their homes. And unemployment is often the culprit in such a situation, as it was in early-1990s San Diego.

The mistake was to assume that job losses were the only potential cause of forced selling. The currently sky-high foreclosure rate in the face of positive job growth demonstrates very clearly that they were not. This time, the forced selling has been the result of years of speculative risk-taking by both borrowers and lenders.

Considering that high-risk loans were still being granted in spades until fairly recently, and considering that such mortgages often take years before resetting into the realm of unaffordability, it seems reasonable to assume that the foreclosure rate will remain elevated for some time to come.

15 comments:

Lander said...

Sharga said foreclosure activity this year has accelerated much faster than RealtyTrac anticipated.

I think I need to add a "Surprised Experts" category tag.

Gwynster said...

LOL when ever I read a statement by sOM3XperT refecting their surprise at the reprecussions of loose credit and inflated appraisals, I hear Jim Neighbors as Gomer Pile saying "suprise, surprise, surprise".

I think if you make that category, it needs that soundbyte embedded in it somewhere.

seth said...

"There was one foreclosure filing for every 315 households in California last month"

These loans area really taking a toll. Housing has been so expensive in California that the only way people can afford to live here was to get those bad loans, and hope for the property to appreciate. This slump is going to take at least 8 months to shake out. I think the worst is yet to come.

rocklin renter said...

8 months?

I'd reckon the number is going to be closer to 8 YEARS (using history as a guide).

Diggin Deeper said...

Let's not get too carried away, here. We're seeing a drop in inventory of 356 homes this month. That's golden!...356 fewer homes to buy...356 sellers have given up trying to unload their typical Sacto boxes. Along with the surprize category, let's not forget to put the "I've given up" category tag as well.

Another piece of good news is that, nationwide, foreclosures dropped this month for first time in quite awhile...Ooops! reading a little further and it doesn't look so good for future months.

All we need now are few more head fakes and we'll all be out there signing contracts and living the dream...

Perfect Storm said...

The mistake was to assume that job losses were the only potential cause of forced selling. The currently sky-high foreclosure rate in the face of positive job growth demonstrates very clearly that they were not. This time, the forced selling has been the result of years of speculative risk-taking by both borrowers and
lenders.

Don't worry job losses will be next. Keep drinking the Kool-Aid, "OH YEAH."

lexi said...

Rocklin Renter:
"8 months?

I'd reckon the number is going to be closer to 8 YEARS (using history as a guide)."

I could see 8 years. Two more
years to the bottom and 6 years of
slight appreciation and then rising more aggressively after 8. That makes sense real estate
runs in 10 year cycles so that would be 10 years from 05.

Sittin' Out This One said...

RR, I remember in early 2007, someone posted no there would be no real appreciation in Sacramento again until after 2015. Some perma-bull became incredulous and jumped all over the anonymous poster, wanting to know who was feeding that garbage to the masses.

It turned out the poster was quoting the Dec issue of Business Week, which said the historical guide for housing busts showed it often took 10 years to run the cycle. So Rocklin Renter, you just might be right on target.

One thing to remember, when we get to the bottom it is probably going to be long, low, and wide. Everyone will have given up on real estate. It will just be shelter again. And if it costs about the same as renting, then, and only then, there will be some long term upside.

Until that time, we have a lot of FB's to guide up the creek, as their paddle floats down.

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

Diggin Deeper said...
Running a bit under the radar are the rating services downgrading upwards of $17 Billion in mortgage backed securities. Fitch, Moody's, and Standard & Poors now on record that investment grade bonds layered with subprime mortgage paper could be in trouble.

The significance? Some of the big pension funds holding this "suspect" paper may be forced to sell. In many cases their platforms won't allow them to hold anything but investment grade. Let's hope its an orderly selloff.

While most of the news earlier in the year centered on the subprime mortgage holder and mortgage originators, now we begin to see the fallout of investors holding these "blow up bonds" masked as investment grade paper. If the rating services are worried about $17B to begin with, I can only imagine how big this number could grow if the truth be known. For as we've seen throughout this downturn, the media keeps trying to sweep the problem under the rug, until it becomes to big to lie about.

Patient Renter said...

"It turned out the poster was quoting the Dec issue of Business Week, which said the historical guide for housing busts showed it often took 10 years to run the cycle."

Around 10-11 years for a cycle, although as we know, this cycle was many times greater than any previous one. Does that mean it will last longer? Who knows. I don't see a bottom any sooner than halfway through the cycle, from the peak.. so... 2010 at the earliest is my prediction. Of course I hope it's sooner so I can buy a house and get on with life.

rocklin renter said...

Yes my guesstimate was based on the slumps of the past.

Most recently, the 90's slump was long, low, and wide as mentioned above. This slump differs though, because the run up was taller and steeper, leading me to believe that the run down with be longer and lower than that one.

In fact, here is a link to a graph of the home price index for the 1980 to 2006 (data from Shiller).
http://rocklinrenter.blogspot.com/

Interesting stuff.

cole said...

2012 is the date one of the more respected figures cited....

year to two ago someone here or there published excerpts from Soros' book whic accurately delineated and predicted this mess...what does he think now?

Fanchew said...

The numbers don't look so good for builders and sellers. In today's Sacbee article, sales of new Sacramento-area houses, condominiums and townhouses fell in April, May and June to their lowest levels in 18 months while prices have reverted back to 2004 averages. The article pinpoints exactly why those houses aren't selling: prices are still too high and smart buyers can wait even though the economy's good. As a fence-sitter myself, the predictin of a 2009 or 2010 bottom fits my plans exactly. I'm grinning from ear to ear on this news.

smf said...

But the problem for some of this paper and all these 'investments' is that no one really knows the relevant numbers to figure out where the market really is.

For example:

How many second or flipper homes were purchased by someone claiming it would be an owner-occupied home?

Ditto for condos.

The same could go for deposits on future houses.

How many of the future owners would have to sell their current home to move into their new house? Are they expecting a certain amount of $$ to be able to afford the contract price for their new house?

How about this number:

How many owners refi'd and HELOCed themselves into future trouble? Even the ones with great credit?

There are too many unanswered questions out there to determine the actual amount of trouble we are in.