Thursday, June 19, 2008

'Still Foreclosing On More Than We're Selling'

From the Sacramento Bee:

Since January, banks in the region have foreclosed on 10,224 homes, according to the Web site, based in Fair Oaks. At the same time only about half the number – 5,448 – of repossessed homes were sold, DataQuick reported. "The sales numbers are great, and if we can keep on that track we could have just a slight decline in value," said Scott Thompson, a partner in Mortgage Resolution Services in Carmichael. "But we're still foreclosing on more than we're selling, and that's the troubling part."
Absentee owners, typically investors seeking rental properties, accounted for an estimated 19 percent of all sales. At one point near the peak of the boom, investor share reached almost 27 percent.
Stats by county
Stats by zip [xls] via Home Front

From the Sacramento Bee:
...Mark Zandi, chief economist of the financial research firm Moody's, says the massive inventory of repossessed homes flooding the real estate market and pushing down home prices won't even peak before the end of 2009.
Q: The end of 2009? Will it really take that long for bank-owned inventory to peak?

A: Given the continuing surge in foreclosure starts, and the fact that the average amount of time a loan remains in the foreclosure process is about a year – and then that it takes about six months to be sold – that would strongly argue it will not be before the end of 2009 that the inventory of (bank-owned houses) peaks.
From the Modesto Bee:
While low-priced existing homes are selling well, new houses are hardly selling at all. Only 68 new homes sold during May throughout Stanislaus County, which was a drop of nearly 45 percent compared with 2007. Melo said his agents handle sales in Atwater's Meadow View subdivision, which hasn't sold a single home in 45 days. It has 17 finished houses sitting empty. "It's hard for the new home builders to compete with the prices on all those bank-owned houses," Melo said.


James said...

Given the continuing surge in foreclosure starts, and the fact that the average amount of time a loan remains in the foreclosure process is about a year – and then that it takes about six months to be sold – that would strongly argue it will not be before the end of 2009 that the inventory of (bank-owned houses) peaks."

With banks selling at 20% discounts to the current market, do you think there will be some sort of bounce at the end of 2009 when all bank selling is over. It seems they are artificially driving prices below market, and when the selling pressure eases, it becomes a sellers market again.

Deflationary Jane said...

Foreclosures don't create move up buyers. You need first time home buyers to start the property ladder again and even then, there aren't enough people to buy all the houses as it is. Speculators can buy up all the foreclousre inventory they want but who are they going to rent and sell to? either other? Better plan on holding a long time and be able to operate at a loss.

Ollop said...

Another thing to consider is that a fair amount of that bank owned inventory will go to homeowners (first time and otherwise) and not just specuvestors. With all that lower priced inventory moving, there may not be much demand for higher priced units so soon after the foreclosure peak.

Also, is it really a "discount to market" since it is the price things are selling at, i.e., the "current" market? Foreclosures/REO are moving through at lower prices, and thereby setting a new (lower) market value for homes. The more they mark it down, the more the bar gets lowered.

James said...

I must disagree. The homes will be purchased, it does not matter if they are first time buyers or investors. The market will dictate the price in the absence of buyers until it finds them (whoever they may be).

With strong motivated sellers, Banks, the prices will be pushed lower. When that selling pressure is gone at depressed values, prices will go up to rebalance supply and demand.
In college I worked a trading desk. It would take days sometimes to sell large block orders. The reason being, if you dump supply on a market at what ever price the market dictates, it causes a disruption. I learned this hard way. I once dropped a million shares of IBM at market--almost cost me my job. Caused a $2 price drop. Once the supply was gone the stock price recovered. While stocks react in much faster time, the basic principal still applies.

This is not a normal orderly sell off. We will not simply go down 50%, then hit a flat bottom for 5 years. It will be volatile.

Deflationary Jane said...

It's 1992 all over again. I think it's hilarious.

Jacob said...

Well if foreclosures peak in 09, that doesn't mean they are all gone, that just means that there will be less new foreclosures each month.

And if foreclosures peak at a much higher level than sales then it could take a long time to sell off the inventory.

Megan said...

Jane, have you ever owned a house, or have you been a life long renter? What did you do in 1992? Did you rant about the market for a decade only to see it run up in your face another time?

Sold in '05 said...

"Comps" drove the market up during the feeding frenzy and they will hold it down as inventory contracts. All of these foreclosure sales are setting up ever lower appraisals that will not allow the market to push up very quickly. So a year from now... if the economy has found a reason (or another bubble) to rebound... and the inventory has become tight... and the homebuilders don't start up their construction crews again... Sacramento might have stable prices. No way should we expect values to go up in the next year or two. Also, investors don't NEED houses, they WANT them and they WANT them at prices that offer good perceived value. That means that if prices try to rise, investor demand will slow and dampen any upward pressure.

This housing bubble is the ugly twin of the Tech Bubble so maybe by the time the Nasdaq hits 5000 again, we'll see some normal appreciation in Sacramento.

Wadin' In said...


It is unlikely there will be any bounce after 2009. Generally, there is an oversupply of houses. Hitting peak foreclosures does not change that fact. After the peak, there will still be 3 more years of foreclosures, just at declining rates.

It is possible, if you do your homework, to get good buys on houses in 2009 and rent them for cash flow returns. That is a long term hold investment strategy.

When prices peaked in 1990 in Sacramento, foreclosures peaked in 1995. Prices did not start to rise again until 1997-1998, and it was slow going. The bubble started building in 2002 and took 3 more years to run the course.

RMB said...


the gwynster has been around a long time and has been predicting this series of events for jsut as long. A little glee is her due. Gwyn hope you enjoy the midwest, spent ten years there myself and am now wondering why I moved back to CA. This market is playing out the way it was predicted, anyone who thinks it isn't go read the archive of Mish and the HBB. Next up to bat Alt-A and Option arms. This market decline is far from over (we haven't even had a major bank fold yet or a govt bailout to make the problem worse)-(if you don't know what I mean then go read about what is really going on) and the knife catchers buying now are going to get a real surprise....
Best of luck to you all, wait until late this to early next year for the deal to finally start showing up.

Diggin Deeper said...

Sacramento median prices at the $225K level against the national May '08 median price at $202K is interesting. Most of the rest of the country's RE rose but not nearly as fast as we did. They're not falling as fast either. The singlemost problem since the 70's has been that RE prices in California were too high. People couldn't move here for that reason alone. As homeowners, if you left you couldn't get back for the same reason.

I contend that there's a good chance that Sacramento will reach pricing parity with the national median before too long. This opens the door for a population that has been shut out for quite some time. A population that's shifted to other sunbelt states.

It wouldn't take but 10-15K buyers to make a big difference here. Since jobs continue to be an issue, retirees might fill in until the jobs picture improves. I know that high income taxes are a deterrent but there are offsets in states with no state income taxes that make up the difference.

Will the Rose Bowl Effect occur again in California? It could happen as we approach a pricing bottom.

Diggin Deeper said...


I agree with you about the next wave of foreclosuress. They will continue to pressure pricing downward. I also agree with James in that the market will act like a market should and pricing will stimulate activity regardless of whether there's more to come on the price side or not.

DJ...nothing better than a Midwest better people either, imho. I really hope you enjoy the lifestyle.

Deflationary Jane said...


I am really looking forward to St. Louis. The long timers here know we've been itching to get out of CA for quite a while. I'll still check in and see how everyone is doing, especially BT.

As to owning, Mr. Jane owned his house in Springfield back in his state house of reps days. He was lucky to get out of that house with anything. I bought a home with my ex in Woodlake, gorgeous place, and let him buy me out in the divorce.

My cousin bought in 1992 down south as a short term hold. The family told her she was too early. She did it anyway and finally sold it for what she paid plus transactions fees in 2001. Her brother teases her about it to this day. He's a Kellogg grad, we have great debates every thanksgiving.

I know it's drought time up here. We have plenty of water in STL and I wish I could send y'all some.

Buying Time said...

As for people moving back to the area, my dad, after an 8 year hiatus retiring in Mexico, is now trying to purchase in the Stockton area (they were living there prior to moving). If it becomes cheap enough...people will come (especially those who are retired and don't have to find work).

DJ - It won't be the same without you. Your spunk and smarts have always kept things interesting around here.

anon1137 said...

Megan, a recession is a great time to go back to school and get some skills so you can get a REAL job when the economy picks up again.

It was good while it lasted, right?

Deflationary Jane said...

Did anyone see this?

'And, yes, there are people like Derek Phelps, 42, a 13-year resident of Folsom's American River Canyon North neighborhood. He's an unrepentant water hog.

"That's the way of the Western world. We consume. We're consumers," says Phelps, lounging in a neighborhood Starbucks on Blue Ravine Road Thursday afternoon. "I won't be concerned until I turn on that tap and just get a trickle and then get nothing.

"I use a lot of water for my yard. It's a large yard. And showers. That's where I use most of my water, standing there and letting it rain on me and turning it as hot as it'll go and draining it dry. I'm thinking I need a tankless heater so I can have unlimited hot water."

That let-it-flow attitude is illustrative of a cultural and aesthetic shift in town, says Renee Luchini, a resident for 27 years.

"This is not a very eco-friendly town," she says. "I've seen an influx of new people that's changed the atmosphere. It used to be a rural community. Now, it's full of Hummers and Suburbans, if you get my drift. I don't know what you can do to change it."'

That's why we call the foothills the OC of Sacramento. It's not a compliment.

Some more SacBee fun-
'Home Front: Happy endings for owners in distress'

Moving the family into an 5 yr interest only was not what I'd call doing them a favor.
National mortgage-fraud crackdown nets five from Sacramento

Looks like the investigations have picked up some speed. I wonder where Paladin is these days.

Diggin Deeper said...

"Moving the family into an 5 yr interest only was not what I'd call doing them a favor."

Nope...but it was doing the bank a favor. What do banks have to lose on a deal like that?

Water...the most taken-for-granted resource in the world...

Deflationary Jane said...

From Rueters:
"California's rate rose 0.6 percentage point to 6.8 percent."

Weren't we just at 5.0 a month or two ago? I'd swear someone saying prices wouldn't go down anymore because the jobs market was so strong, I just can't remember who.

Patient Renter said...

James said:

It seems they [banks] are artificially driving prices below market

Artificial how?

If something becomes a forclosure, it was doomed from the start, most likely by an owner who was never going to be capable of meeting their payment obligations long term. The only thing artificial is how prices were driven UP by people who couldn't really afford their homes. Those people losing their homes and prices going down as a result is a return to normalcy. What's happening now isn't artificial, it's the end result of something that was artificial.

when the selling pressure eases, it becomes a sellers market again

If by sellers market you mean housing re-assumes it's traditional rate of appreciation (matching inflation), sure. The factors that drove above average appreciation likely won't exist again in our lifetimes.

DD said:

I contend that there's a good chance that Sacramento will reach pricing parity with the national median before too long. This opens the door

I appreciate what you're saying, but again, prices across the country will drop as well. I suppose we might look like an attractive prospect for a while, but I don't imagine that will last for too long.

David said...

I'm glad I'm not the only one who thinks Eldorado Hills and the like are the O.C. of the north. I moved out of the San Diego and to my horror found a bunch of the same idiots up here to.
I grew up on the East Coast, were it rains all year, and we had water restrictions. Why is it that in CA were it only rains a fraction as much we can't figure out that we can't just leave the hose running all the time?

James said...

"This housing bubble is the ugly twin of the Tech Bubble so maybe by the time the Nasdaq hits 5000 again, we'll see some normal appreciation in Sacramento."

Sold in 05. I never said anything about racing up to peak levels. I just think we will find a bottom in late 09 then settle into a slow modest growth rate thereafter. Remember back in 2003 when the NDX was close to 1000, most headlines were "NASDAQ 500." Well, it found a bottom in the midst of hopelessness and then began a 5 year rally off the lows. It didn't crumble then flat line for half a decade.

As far as the banks aggravating drop in prices; they are by accepting ridiculous offers. This is going to bring us to a much quicker bottom. Again, like the NDX, we found a bottom in less than 3 years. The selling was accelerated by overleveraged investors on margin all trying to head for the exits.
A rapidly declining or rising market will always overshoot to the up or down side.

James said...

A Poll

How many of the purchases do you think are being done by people who are home owners looking to walk away from their upside down mortgage?

Diggin Deeper said...


Wasn't the outmigration data you provided based on 2006 backward?

If so, that would fall right into the RE boom or bubble period we had in Sacramento.

A key question develops... how important were RE prices in our loss of population over the period studied?

smf said...

If we are going to use the NASDAQ bubble as an example, let us recall that now, even after 8 years since the POP!, we are still 50% below peak value.

At the same time, stocks move way quicker than homes. I can't sell my home in one day.

Still, I see very few people addressing a major, major problem. Besides the excessive home prices, there is still more housing out there than people available to occupy them.

And now we know that population figures were overestimated, since governments used the assumption that most houses being sold were owner-occupied.

This problem will be with us for a while.

Prices are still too high.

(And I bought my first house in 94, and recently 'moved-up' to a bigger home)

alba said...

It will always be more expensive to live in CA, no matter how low, or comparative housing becomes. You don't know how much until you move away, and really get it when you move back, if you can.

Get a job Megan!

Diggin Deeper said...


Ok, fair statement...

Why has it always been that way?

James said...

Would you rather live in Fresno or Carmel? The US is like this too. Nebraska sucks. California is nice.
People pay more to live nice nice areas.

Diggin Deeper said...

"(And I bought my first house in 94, and recently 'moved-up' to a bigger home)" are a poster child for this market! :>) You went with your convictions, have a timeline that allows you to take on pricing risks, and you actually sold your home in order to do this... That takes some cajones. I'd bet less than 5% of all buyers and sellers out there fall into that category...Again well done.

I'll bet you expect to make a fair profit on the new home at some point....?

Deflationary Jane said...

Carmel is nice, however, the central valley is not Carmel. In fact, Sacramento bares an uncanny resemblance to most of the midwest.

smf said...

DD -

As I keep mentioning to people, our current home is very long term. It may be about 20 years before we would even consider moving again.

Part of our logic was this:

Since we expected to lose equity on our prior house, we'd rather lose that equity in the new house.

Since driving requirements are much less on the new house, we are saving time and $$ while there. This could be a substantial amount over the time we would wait for the bottom.

And since the house came with a heated and fenced pool, the kids get to spend their energy and some of the recreation requirements are taken care of that way.

Plus we underpriced when we sold.

James said...

"Carmel is nice, however, the central valley is not Carmel."

That is exactly my point. Carmel is more desirable, for reasons I do not know..really can't stand the people down there.
California is more desirable than the midwest, thus higher cost of Sac sure does look like the midwest; especially when driving in from the Yolo Causeway. It's true roots of a central valley farm town show through. Kinda like St. Louis or Omaha.
The only thing I can say makes Sac more desirable is its proximity to mountains and ocean. I love the fact that in about an hour and half I can either be at my cabin out in the middle of nowhere at 7400 feet just off the Pacific Crest Trail, or I can be having lunch at the Slanted Door in the Ferry Building watching the sail boats in the bay.
Sacramento is coming into its own.

I can't wait to see downtown in 10-15 years.

Deflationary Jane said...

Sacramento desirablity is all based on driving to the real desireable location? Does anyone else find that as ironic as me?

My point was that any premium in pricing for Sacramento RE over the midwest is a waste.

If you want an area like Sacramento, then great. I used to like it myself before the late 90s invasion. But why pay a premium over midwest prices when the jobs pay just about the same out of the state?

I'm a native and still don't get it. We're getting raises for doing the same jobs. Actually I'll probably have less duties.

alba said...

I don't know why school lunches are more, and why school buses charge; and why electricity is so expensive; and why water bills are higher; state taxes; property taxes and premiums on top; or why insurance is more. Gasoline! The smallest of things are also more expensive. We pay for more for less, and we love it, darn it! Whether you're in a relatively conservative area, like Doolittle country, it's still different than being in a conservative state like Arizona. Culture in California is just different; not better, just different. My wife and I had to move back. The housing situation couldn't have occurred at a better time for us.

Does anybody know what the criteria is for a "First-Time" Home Buyer? Sounds like a silly question, but is it?

James said...

"But why pay a premium over midwest prices when the jobs pay just about the same out of the state?"

Not in my business. The bank pays about 25% less in the St. Paul Minneapolis market and up to 40% less in WY, MT, MO, ect. Sacramento market get the same pricing as SF believe it or not.

I don't know what you do for a living, so can't comment on jobs. This is just from my very limited perspective.

James said...

"Does anybody know what the criteria is for a "First-Time" Home Buyer? Sounds like a silly question, but is it?"

Three years

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