Monday, July 23, 2007

"This Time Will Be Different"

From Inman News (hat tip NJRER):

Speculation, rampant building, risky loans, overborrowing and escalating prices propelled the housing market to an unprecedented peak -- and are now counted among its greatest failings.

The "soft landing" that so many analysts and economists had predicted has given way to a record number of foreclosures, an implosion in the subprime lending market, an oversupply of housing, and home-price declines in many market areas. The dreamy days of the housing boom have received a cold slap of reality.

Real estate markets are historically cyclical -- that's nothing new. But in this case, the nation is in the midst of a downturn following a long-lasting and massive real estate run-up, and it remains to be seen whether this period will become known as one of the greatest real estate slumps in history.
...
Bill Lyons, founder and CEO for LEI Financial, a mortgage and real estate company based in San Diego, Calif., said he expects that prices must stabilize and the interest rates for short-term and adjustable loans must drop or there could be a "major blow up in early to mid-'08" in the real estate market. If one of the two does not happen there will be a blow up that will make the subprime blow up look like a firecracker compared to a scud missile," he said, as option-ARM loan sales peaked in mid-2005 and borrowers may find themselves upside down in the coming year.
From the Sacramento Business Journal:
At least one part of Sacramento's residential real estate market is hot: short sales. That's when a lender allows a house to be sold for less than what the owner owes. "I'm having to hire more people right now just to keep up with it," said Sterling Watkins, a broker and owner of Sterling Short Sales, a Folsom company that assists in arranging such deals.
...
In the first week of June, 177 properties in Sacramento County went back to their lenders, said Scott Thompson, a short sale specialist at Mortgage Resolution Services in Sacramento. Last summer it was more like 20 a week, he said, and the numbers are likely to get worse.

And, he said, most of the owners he works with have good credit scores, so it's not just a case of too many subprime loans. "The people who are going to start losing their homes are the people who nobody expected," he said.
...
Sacramento's real estate market has sagged before, and Thompson was there in the early '90s to see it. He predicts this time will be different.

"(Then) you could go to someone's house and show them that if they stopped paying $125 a month for their son's guitar lesson they could probably pay their mortgage. Today the gap is insurmountable," he said. "Most of the people we deal with are more than $1,000 away from making ends meet when their loan adjusts."

The big wave of mortgage resets isn't due until next year, Thompson said. "We are talking about big numbers going forward."
Also from the Business Journal:
In the market we have right now, there's not a lot of buyers out there, compared with inventory. When people put their homes for sale through an auction, that draws a tremendous amount of attention to that property.
...
Usually, when people think real estate auction, they think foreclosure, distress sale, something negative, but in actuality it's a great way to sell any property because it draws a tremendous amount of attention to it, and people compete for the opportunity to buy the property. It drives the price up, to have people competing to buy.

A lot of what I'm doing now is educating people to help them get over the stigma of "I don't want a sign in front of my house that says 'For Sale by Auction' and the neighbors thinking I'm having financial difficulty."

The writing is on the wall. The National Association of Realtors is predicting that one of every three homes sold will be sold by the auction method by the year 2010.

17 comments:

Patient Renter said...

"The National Association of Realtors is predicting that one of every three homes sold will be sold by the auction method by the year 2010."

Really? Does this eliminate 1/3rd of the need for the NAR then?

rocklin renter said...

PR - one can only hope! Maybe it will reduce the SC by 1/3 as well.

"are more than $1,000 away from making ends meet when their loan adjusts."

Yeesh....

No sympathy though. Their own damn fault for not checking what the payment would be given the worst case scenario.

Their loss is MY gain. Gonna be some go...err...great deals for the patient.

Sippn said...

Damn, that really puts a crimp on the Escalade payments...


PR - I'm thinking that auctioneers still have to be licensed to sell real estate, but NAR is a voluntary association.... Realtor(tm) vs licensed broker or licensed agent.

That was a pretty bold prediction by NAR

Diggin Deeper said...

Just follow the progression from the beginning. No problem at first, then it's shortlived, then the bottom's called (several months in a row), then inventory goes stratospheric, and on and on as we go deeper into this mess. W

While many on this blog have warned repeatedly about a crash landing, the media, academic puds, and even our own elected and appointed buffoons have coddled the masses into believing everything is just fine...Until it isn't.

Now we begin to see a break, panic among the rank and file, a run for the exit, and a distancing that is indicative of a market group in total disarray. These people are proving they knew nothing when the market turned, and they'll know even less when the market finds its way to an ugly bottom.

My bet's on the people on this blog that have waded through the cotton candy to get to what's really happening in real estate today. It's not pretty, and often we've heard the opposite from those that need this market to thrive. But the facts are becoming clearer by the day....

Stay out, don't buy, don't listen to those whose agenda depends on real estate. Wait patiently for a reward...real estate at a fair valuation based on balanced seller/buyer relationships. It's coming....but proven time and again not to arrive when the experts say so.

Gwynster said...

Well according to Housingtracker.net, we beat our record inventory from last year today with 18300 ish homes on the market.

I'm looking forward to the 7/30 BMIT numbers.

newtocal said...

Hello! I moved to the Sacramento area this summer and have been reading this blog for about the last six months. I want to thank you for all the great information as it swayed me to not buy a house and I am now a patient renter. Keep up the great work!

kurt said...

Credit blow up in 08? Auctions in '10? Botton in '12? Maybe. But one thing's for sure, and once you've seen a couple of real estate cycles you'd know this to be true: This won't end until we've all stop talking about it. RE won't hit bottom until virtually nobody cares about real estate anymore. All the enthusiasm has to be beaten out of the market-- and we are nowhere near that point. Even most bloggers can't wait til '08 or '09 or whenever when prices come down and they'll get a chance to buy a fairly priced home. It's a foolish belief. The bottom won't happen until even that enthusiasm is gone. My advice? Wait until nobody listens to NAR press release. Wait until real estate is no longer being talked about. Wait until all these RE blogs die out because of a complete lack of interest. Then wait another couple of years. There's your bootom! I guarantee you won't read about it on this or any other blog...

Cmyst said...

Welcome to Sacto, Newtocal.
Things will eventually get back to reasonable here.

Cmyst said...

I dunno, Kurt. We might actually all still be here, albeit posting much less frequently.
1) Blogs weren't really around during the last bubble burst. Since they are catering to our own needs and they are driven by our content, they might have an impact that can't be predicted.
2) Most of us really do want to buy a house, and we're not going to lose interest. We may get a little down, but if everyone actually gives up then no homes will ever sell again.
3) Online communities can be amazingly cohesive once they form a core group. This sounds embarassingly juvenile, but I really enjoy MMORPGs. There are "boards" -- which are like blogs, only with more profanity and poorer spelling -- associated with every online game I've played. In some cases, the "boards" are more of a game than the game is. I once quit a game after playing it for 2 years; the developers messed it up so completely that it was really just not fun anymore. But I still read and commented on the "boards" for months afterwards. And to this day, I still get occasional emails from people that used to play that game.
(Hey! It's like bowling leagues, only without the smelly shoes!)

Gwynster said...

"(Hey! It's like bowling leagues, only without the smelly shoes!)"

So true. I have friends at 3DO, Sigil, and Sony still. All from school days. Those groups are incredibly cohesive and the developer community is very incestuous.

I know there are people who have been posting on ben's blog for years. They still read but post rarely.

Tyrone said...

Just because the statistics say things are going to get much, much worse, doesn't mean they will. Go see Purva Brown (Realtor) and she'll explain it.
http://sacramentorealestategal.blogspot.com/

Ummmmm... yeah, right.

Diggin Deeper said...

It's time to buy when all see real estate as the worst, most toxic invesment on the planet. When no one wants to touch it will be the time I jump in.

We're not even close to that point yet as industry experts are just now beginning to capitulate about how bad it's becoming, and how bad it will get.

Call it the realization phase of a bear market.

We've lost 100 plus subprime lenders, and nearly 1 million homes to foreclosure nationwide. There's high probability these foreclosure numbers will rise dramatically YOY in '08 as an additional $700B mortgages reset. Wall Street is beginning to realize that if you can't fairly value subprime bonds created by Merlin the Magician, and no one will buy them at any cost, THERE IS NO VALUE to them.

Imho, people supposedly in the know, are finally realizing that this market is not coming back anytime soon and are pleading for rate cuts or price stabilization in order to prevent the bottom from falling out. Helicopter Ben is finally realizing that real estate is cutting deeper into the economy than he had predicted earlier in the year. His credibility is going the way of Lereah, Snaith, and others.

The only group that has not come to grips with this realization are the resistant sellers. You can credit local realtors for this anomoly. It can only last for so long before they either pull the signs or drop prices low enough to entice a wary buyer.

There are no other options...

rocklin renter said...
This comment has been removed by the author.
rocklin renter said...

Countrywide's CEO just came out and said there is no possiblity of a turnaround until at least 2009.

I think he is optimistic.

http://tinyurl.com/2bml3v

smf said...

"Imho, people supposedly in the know, are finally realizing that this market is not coming back anytime soon and are pleading for rate cuts or price stabilization in order to prevent the bottom from falling out."

As Darth Vader said in the end, 'there's no stopping that now'.

There's very few people out there that can afford a $1000+ rise in their mortgage payment, and even if they go into a standard 30 yr loan, their payment (regardless of the interest rate) is probably still too high.

Let's all recall that a standard mortgage payment is about $1000/month per every $100K borrowed. And taxes run about $100/month per each $100K as well.

Diggin Deeper said...

J P Morgan predicts that by the end of 2008, approximately $230 Billion subprime note holders will be unable to refinance their debt and will be caught by rising resets. That's just under half of the $500 B in subprime loans that will reset next year.

Bernanke stated last week he fears $100 Billion will fallout and fail. He was pretty tame about subprime up until now. Bet that number goes up from here.

To be safe, let's just average the two and say its around $165 Billion potentially fail. And that's just the poor mortgagee that bought into this high wire act and have to walk away from their homes. As they fail, they take an entire leveraged community of "saavy investors" with them. Kind of like getting a "twofer".

Is the stock market finally coming to its senses and getting whacked because these risks aren't fully accounted for?

Gwynster said...

Holy Down Market Batman!

It's a scary day out there

No housing recovery til 2009: Countrywide

"We haven't seen this type of home price depreciation since the Great Depression" -CFC's Mozillo.

Countrywide's Net Declines 33 Percent on Home Equity

"Loans held by prime borrowers entered foreclosure at a record pace in the first quarter"

And somewhere else I saw that Alt A defaults are surpassing subprime and that the new foreclosure stats were a record in CA - ouch.

On the funny side: The ZipRealty agent really really wants to talk to me >; )