Wednesday, January 23, 2008

'You Guys Have Been Slammed'

UPDATE: Here are updated charts for DataQuick's 4th quarter data. Note: The red bars inserted on the left-hand side show the 1990s highs of foreclosures & notices of default.





From the Sacramento Bee:

"We're still climbing to a peak in foreclosure activity in California," said DataQuick analyst Andrew LePage. "We don't even have a sign of the peak."
...
Linda Caoili, a Re/Max Gold agent who works with homeowners struggling to prevent foreclosure, said the decline in prices makes some clients feel their home can't be saved. One Natomas-area client, who bought her home for $420,000, just watched an identical home across the street sell for $315,000 after foreclosure, Caoili said. This client, like others, is nearly ready to give up her home. "They're living on credit cards now. There's no equity left," she said. "I'm seeing people who have been able to hang on (but) are turning around and saying, 'Hey, why am I hanging on? I'm $150,000 upside down.' "
Foreclosures & NODs by County
2006 v. 2007 Chart

From the Modesto Bee:
Final 2007 foreclosure statistics are in and they're brutal. More than 8,000 homes in the Northern San Joaquin Valley were repossessed by lenders last year. That's nearly 10 times more than were lost in 2006...Foreclosures in Stanislaus, San Joaquin and Merced counties are among the highest in the nation. "You guys have been slammed," LePage said. "In some pockets of your region, it's about as bad as it gets."
From a Downey Financial press release:
At December 31, 2007, the allowance for credit losses was $349 million, comprised of $348 million for loan losses and $1 million for unfunded loan commitments which is reported within accounts payable and accrued liabilities. The increase to the allowance this quarter reflected further increases in delinquent loans and declines in the value of underlying home collateral due to the continued weakening and uncertainty relative to the housing market. This has been particularly true in certain geographic areas such as the greater Sacramento, Stockton, Modesto and Monterey areas of Northern California, the Inland Empire and San Diego County.
From the Modesto Bee:
The subprime crisis in the real estate market has been especially harsh in our Central Valley region. Many pundits have quickly jumped on the bandwagon, assigning blame to different players in the home building industry.

Having spent more than 30 years immersed in this industry, in this market, I have a special vantage point to assess just who and what might be to blame for our current sad state of affairs. My conclusion: Everyone in the entire loop was greedy, and the blame spreads across the spectrum. The land seller...the developer...cities, counties and schools...subcontractors and material suppliers...real estate brokers and sales staffs...the mortgage and money industry...and Wall Street.
...
All of the above has been noted and pilloried by the press and by other observers. But I believe that equal blame lies in the lap of the buyers...[H]omeowners bought houses well beyond their means on the belief (or perhaps the hope) that prices would continue to skyrocket. When they did not, the buyers found themselves hopelessly buried.
...
Sad to say, we were all in this together, and to ascribe guilt and blame to any single player is not appropriate. In the end, greed prevailed, and we are all losers for it.

25 comments:

smf said...

My conclusion: Everyone in the entire loop was greedy...

Cannot improve upon his conclusion. Absolutely everyone was guilty.

Patient Renter said...

Lander: Do you have any older comparison quotes from LePage that can make my day? I'm sick of seeing and hearing this guy... everything is always a surprise, everything is always as bad as it gets... that is until - SURPRISE - it gets worse! Who could have possibly seen this coming?!

PeonInChief said...

Don't you all remember? LePage used to be the real estate reporter for the Bee. He left just before the crash.

Perfect Storm said...

This client, like others, is nearly ready to give up her home. "They're living on credit cards now. There's no equity left," she said. "I'm seeing people who have been able to hang on (but) are turning around and saying, 'Hey, why am I hanging on? I'm $150,000 upside down.' "

Yes by all means walk away and curse your realtor and mortgage broker every step of the way.

Were right on track for a 50% decline by 2009.

sacramentia said...

comment from Mish's blog that I though was very interesting ..

"Here in India, our housing bubble seems to be far bigger.

I rent a house in Bangalore thats "worth" $800,000 for a princely monthly rent of $800."

Tyrone said...

My conclusion: Everyone in the entire loop was greedy...

Cannot improve upon his conclusion. Absolutely everyone was guilty.


Of they were all guilty. My whole blog is dedicated to the guilty. LOL

Lander said...

PR- You're probably thinking of the other DataQuick guy John Karevoll. It's no wonder that Karevoll is constantly surprised, as most of his predictions have been way off.

alba said...

"They're living on credit cards now."


...the next meltdown just around the corner.

They all may guilty, but only a small handfull were smart enough, and powerful enough to architect and execute such a plan. And just because they were intelligent enough doesn't mean they got it right...but what an impact!

smf said...

Very, very few have been able to accumulate credit card debt that compares to house debt.

I would much rather owe $60K on cards that be upside down $300K on mortgage.

Whatever credit crisis may come next will still be dwarfed by the housing bubble.

Diggin Deeper said...

Existing home sales down again in December. Median home prices continue to drop as well. Ugly just got uglier.

I keep looking at cost to build vs prices that continue to fall. At some point, replacement values vs offered prices will be compelling. It one could buy at a 10-15% below replacement costs, and those costs continue to rise due to inflation pressures, it makes sense to me that it becomes a no lose situation. Any inventory replacement will have to be at cost plus a fair profit and will set comp prices for future sales.

I do believe we have a ways to go but there will come a point where it really won't matter whether you get a good deal or a great deal as you'll be setting up for future appreciation based on replacment costs alone.

Diggin Deeper said...

"...the next meltdown just around the corner."

If the consumer is really on the ropes, then there's not much that can be done to stimulate the economy. I would like to believe that credit card problems are in the hands of a few and can easily singled out. Unfortunately, when it became so easy for an entire country to "buy now and pay later", the lemming factor kicks in and way too many fell prey to the trap.

sacramentia said...

"It one could buy at a 10-15% below replacement costs, and those costs continue to rise due to inflation pressures, it makes sense to me that it becomes a no lose situation."

I agree this is a good strategy The only possible risks I see are:
- negative population growth long term.
- deflation.

sacramentia said...

Maybe the debtors just don't care.

I had a grandpa and an aunt live through the great depression. Both lost everything and ended up homeless, however came out with very different approaches to finance.

One of them saved and invested everything, had minimal debt, and built a small fortune that will he will pass along for his children to fight over. It is just painful for him to spend money.

The other took the exact opposite approach and as long as she could make the minimum payments, life was good. After all, and I quote "they'll just take all from you anyways"

In the end they lived about the same lifestyle ... I'm a saver but I often wonder if the joke is on me.

Diggin Deeper said...

I agree this is a good strategy The only possible risks I see are:
- negative population growth long term.
- deflation

Agree...With the Feds doing all they can to avoid deflation, inflation seems a given unless we enter into a depression rather than a typical (but likely long term) recession. Deflation would be a real disaster for the overall economy, but as we're seeing, there are asset classes (real estate, credit instruments,stocks) deflating right now. The Feds will combat it by reflating at all costs. I wouldn't be surprised to see the Fund funds rate drop below 2.5%.

The growth component is a wild card.

Great opportunities are coming and replacement cost to pricing formulas in an inflationary environment should give buyers a little peace of mind when the time's right.

Gold soaring over $900. Looks like the metal doesn't care what we get... ie deflation or inflation, it's basically responding the dollar's dwindling purchasing power.

Patient Renter said...

"Agree...With the Feds doing all they can to avoid deflation, inflation seems a given "

I don't know if you've read any of Mish's arguments for deflation. I think we all know the Fed would love to inflate as much as they can... they have no other choice really, but Mish argues for deflation.

"I wouldn't be surprised to see the Fund funds rate drop below 2.5%."

As for those who say deflation can't happen (many say this) we can always point to Japan. 0% rates, over a decade of deflation, etc. It can happen.

Patient Renter said...

As if I need something else to get pissed about...

I just heard that plans are underway to "temporarily" increase the GSE conforming loan limits, for California homes, to over 700k!

This is just so wrong... I can't even type about it. I'll break my keyboard.

sacramentia said...

I heard 725, then 625 on the new conforming limit from 2 different rumors...

Gwynster said...

625k but if the DTI ratios remain the same, raising the limit won't help with new purchases. The only way that 625k would effect new sales is if we see massive wage inflation. While the fed would love this, ain't gonna happen any time soon.

Sippn said...

The DQ analyst, former Bee reporter, failed to figure out that 1997 was actually a good year in real estate. . . they should go back a little further - 2-3 decades should be reasonable.

Cycles are a little longer than shown.

DQ - Are they journalists, analysts or just looking for product sales? Agreed the situation is bad, but come on!

alba said...

Do away with Fannie and Freddie altogether! Put the former and current board and CEOs in jail. Giving them more room to work is disasterous and plain wrong. Many loans will be back in play in CA. With "free money," who wouldn't re-fi? If you have equity, spend it! Delay, delay, delay. Reminds me of that crook, Tom Delay.

How many folks have credit cards versus homes (not exclusive either)? Unsecured debt versus (weakly)secured debt....much more risk and consequential, especially if the debt is cc leveraged in secondary markets.

HappyinSF said...

RE Update:
But this time is different from the 90's. Back then you had base closures. The economy is doing fine, unemployment is low. Prices will not decline, they will just level off and remain flat for a few years.

Right Sippn? I seem to recall this time last year you were talking about all the sales activity and how you were expecting things to really start picking up.. How's that working out for you?

Bwahahaha

HappyinSF said...

Here's a fun "Sippn Moment", I might have to make this a regular feature:

"Anonymous Sippn said...

Patient Renter....Grasshopper...

"These kind of typical realtor statements confuse me. Is it a better time to buy something when prices or dropping or after they have finished dropping?"

Of course it would be best to buy at the bottom - if the home you want is available.

When is/was the bottom?

If any of us really knew the answer, we'ed be out on the yacht, ignoring this conversation.

When it happens, it won't hit you with airbags, we'll have to look at the autopsy 3 months later.

Purchase - depends on where you might shop.

Lincoln - I think builder prices were already at bottom.... see profit write downs by national builders. If you're handy, look for a foreclosure, but remember, they're already picked thru by professionals 1st, then amature flippers, then on the resale market.

The flatlands (WS, EG, Natomas), maybe a little more opportunity there.

Eastern Sac County, closer in doesn't look like its going down because buyers with income are still doing what they want there - living.

My opinion will vary from others!

Sunday, January 21, 2007 8:29:00 PM"


Hahaha,, Yeah, Elk Grove totally had maybe a little wiggle room left..hahaha

paranoid renter said...

>>>>>
Cannot improve upon his conclusion. Absolutely everyone was guilty.
>>>>>>

I was greedy for not buying and lived in fear of being priced out!

Patient Renter said...

"When is/was the bottom? If any of us really knew the answer, we'ed be out on the yacht, ignoring this conversation."

A special image just for the non-believers:

http://img299.imageshack.us/img299/3255/shillerke4.png

Housing bottoms are WIDE! :)

Diggin Deeper said...

"I don't know if you've read any of Mish's arguments for deflation. I think we all know the Fed would love to inflate as much as they can... they have no other choice really, but Mish argues for deflation"

PR, I do enjoy Shedlock's commentary and for the most part agree with his assessments. But not all asset classes are deflating. Actually I'm beginning to believe we can have both. We can drop the Fed Funds rate to 1% but if rates do not attract treasury bond investors, or we lose AAA status on those instruments, the only way the market can attract more capital is to raise the interest rates on those bonds. When credit contracts, when risk premiums rise, rates should follow risk regardless of what the Fed thinks those rates should be. In the end the market always wins.

On a separate subject regarding monoline bond insurers.

From Agora Financial's 5 Minute Forecast yesterday:

Should the credit ratings of insurers like Ambac and MBIA be knocked from their AAA thrones, banks worldwide would need to raise over $143 billion, analysts at Barclays estimated today. If the ratings community were to cut the debt ratings of Ambac and MBIA by one level, it would cost the banking community about $22 billion, Barclay’s estimated. Four levels, from AAA to A, would multiply that expense sixfold.

Could this be the next shoe to drop as alba noted earlier in the week? The article further states that Fitch has dropped MBIA's rating to AA. The Moody's, Standard and Poor's, and Fitch's are under extreme pressure to evaluate monoline bond insurer's for their abilities to perform. If they fudge the ratings if further undermines world confidence in our financial system. Not good!

Will prices continue to fall with the added pressure of the next foreclosure wave or will they finally find their bottom and begin a long grind? At some point the numbers work, in some cases today they work. It's getting interesting.