Tuesday, May 26, 2009

Repo Flood or Trickle?

From the Sacramento Bee:

More than 20,000 troubled homes are growing into a massive "phantom" inventory that could potentially be unloaded onto an already fragile housing market.
[ForeclosureRadar's Sean] O'Toole
, for one, believes big banks may continue to foreclose more slowly, and will "dribble out" their accumulated repo properties in hopes of a market change. "I talk to them," he said. "It's like, 'If we don't foreclose, we see the market heat up again. You get a certain number of people who believe it's a bottom and the prices come back. Then we don't need to foreclose. These people can sell and get out from under them and we end up OK.' " Dribbling them out slowly would keep prices stable, he said. But it also would prolong the housing correction.
Field Check's [Mark] Hanson doesn't buy O'Toole's theory, even as they work off the same data. He predicts a flood of cheap repo inventory on the market this summer. "The government and bank-specific moratoriums and modification initiatives have held back the massive wave of foreclosures," he said, "kicking the can down the road. But there is only so high the floodwaters can build before breaking the dam."

Yet even a torrent of repo inventory on the market won't pull median prices – now at $160,000 for existing Sacramento County homes – any lower, he said. That's because more higher-priced homes are in the foreclosure process and will tug the median upward in coming months. "It does not mean the market is getting better," he said.


patient renter said...

"If we don't foreclose, we see the market heat up again. You get a certain number of people who believe it's a bottom and the prices come back. Then we don't need to foreclose."

If anyone ever wanted confirmation that the banks are still somewhere out in fantasyland, THERE YOU HAVE IT! Wow.

The banks are still basing their operations on false expectations. It's like nothing has changed. They've chosen a slow, painful death, and they deserve it.

Giacomo said...

Thanks. It's just more confirmation that our family probably be able to stay in our (high-end) rental house for many months to come. Yes, our landlord is serious trouble -- way upside-down, option-pay, neg-am. ARM -- but he's only just now thinking about defaulting. I can't picture the lender being in a hurry to take this place, much less put in on the market (40%+ distressed in my zip).

Just the same, I don't believe schemes to modulate price declines will be successful. Government and banks can't control all aspects of the market, and sooner or later some unforeseen factor (maybe unemployment pushing more houses onto the market?) will precipitate the next big drop.

Husmanen said...

Would be nice if we had a bank insider on this blog. But come to think of it, I haven't seen anyone proclaiming to be on the inside on any of the blogs that I monitor (approx 8).

Not that bank/financial institute employees don't monitor this and other sites, just haven't see anyone 'come out' and proclaim they know what is going on and have proof.

It is hard to believe that bank personnel, at all levels, are so good at keeping the things hush hush. Lots of conjecture and few hard facts, e.g. banks are backlogged, waiting for gov't money, waiting for price stabilization.

Even Hanson and O'toole, in the reference articles, use the words 'believe' and 'theory.

Jacob said...

I think banks are just swamped.

I just noticed that one of my ssaved seraches at ziprealy is now almost all foreclosures or short sales.

This is for:
Roseville / Rocklin
2000+ ft2
3 bet 2 bath, single family home

There are 53 homes and 48 are distressed, 90%. So out of all of these only 5 are regular sales. Crazy.

I have noticed more and more foreclosures poping up but never stopped to see the actual percentage.

Anyone thinking we are anywhere near a bottom is nuts.

The market has more REO than it can handle, Banks have more in the pipeline than they can handle and even more pending. And we still have more foreclosures on the way.

And as prices decline there is a new seqment of owners that are underwater and a percentage of those will walk adding to the decine.

The market can rally on all the bs news it wants but reality will set in one of these days.

Cow_tipping said...

I dont think high end homes are going to raise the median price all that much ... why ...
In a depressed market, there aint no such thing as high end. Market is depressend cos no one wants a house ... high end or big, or Mcmansion is just more of what no one wants. You want 1 lb of bull shit or a whole mountain of it ?

Deflationary Jane said...

We went walking around the outside streets of one of the lakes in the nearly finished development a few streets over last night. We counted the dead lawns and broken windows. Every street had at least one with most having 3. About half the time they show up on the tax rolls but few have made it on the NOD expressway.

Our landlord said that when he looked there in in 03, BA folks were buying 4 and 5 at a time as investments houses. The builder had no restrictions on rentals (not that that helped much in places that did) so he moved on a bought in a small (less then 10 homes) development.

Who in the world thought Sacramento would ever support 500 to 800k cash flowing rentals? I think these were a catch and release exercise for them. In the meantime, how many of these were purchased with heloc money flowing out of the BA?

As Bobbie says "a hard rain is gonna fall".

Giacomo said...

2000+ ft2
3 bet 2 bath, single family home"

okay, Jacob, but with search parameters like that, aren't you kinda ASKING to see distressed properties? If I run a similarly narrow search in my zip, my results will be less than 5% of the total listings.

Jacob said...

True, but my point is that it wasn't always like that. I have been using similar searches since 04. This past year there have been more and more REOs and now this search has been completely overtaken.

BTW back in 04 there was never anything in this range it seemed. Then slowly homes started popping up. Then more and more, now they have been replaced with REOs almost exclusivily.

So whether the banks are holding homes back on purpose, or because they are swamped doesn't really matter. Since the market is dominated by REOs anyway.

Deflationary Jane said...

Maybe but if you have a 3/2 2000sqft place that will only sell once it hits 200k to 350k (which is a freakishly large band of availablity), doesn't that kinda tell you where the market is, distressd or not?

For me, anything over $90 sqft is overpriced unless its incredibly special. But I've moved off existing homes, too many idiots chasing the same carrot. I'm looking at acreage.

Jacob said...

Yea I have several searches setup, even some above what I want price wise so I can see what is coming down the line. Just noticed recently that this search was pretty much worthless.

$100 / ft2 would be an ideal tarket for me. But it has to have a decent sized lot. None of those lots where you can stretch out your hands and touch the house and the fence at the same time lol.

Lincoln has hit that price target, but the mello roos and hoas kill it for me.

I would love to have .5 to 2 acres. We'll see, I am trying to be patient and wait for this mess to clear.

Giacomo said...

The place we're renting now has over 2 acres, and quiet neighbors besides. I dig it.

To my mind, now very biased, life in a SFH on 1/5 acre in a sea of similar houses does not look much different from apartment life.

Diggin Deeper said...

I like the acreage idea as well. Looked at a farmstyle home on 15 acres of rolling hills and a pond, in the Red Bluff area...2700 sq ft 4br 3ba home with a 4 car garage...property was a foreclosure priced at $232,000. Knew the owners when they tried to sell it for $750K...they were delusional at that level...and the bank can't get it to move even at the current price...

My wife wanted to make an offer and I resisted...We'd use 1/4 of the house and have to heat and cool the rest...didn't make much sense...Great home for parties but not too practical for two people.

Plus if I'm buying acreage, I want something that's useable and not just a lawn to waste a Saturday on...

RV6Flyer said...

"I haven't seen anyone proclaiming to be on the inside on any of the blogs that I monitor"

Would you risk losing your job in the financial industry? Bank employees are being fired for the smallest infractions (an under-the-radar approach to layoffs).

Inside the banks very little information is being leaked to the rank and file and middle management. Everyone I talk to is in the dark and just funbling around waiting for guidance.

sacramentia said...

I have 3/4 acre and I really like it except in the spring when I have to weed it. The space puts a really nice distance between the houses. I call it waving distance. You can wave and say whatever you want to your neighbors because they can't hear you.

Jeff said...

It's obviously a trickle right now. I've almost stopped looking. It's gotta be building up. *awaits the tsunami of foreclosures.

paranoid renter said...

Elliot's Terra Vista in Roseville has their smallest home listed at 500K last year. At that time they said there's no way they'll budge on price. Just yesterday, I saw that is was listed at $460K (~1800 sq ft).

However, the interesting thing is that there really is very little inventory in the 95661 area. So maybe their price is justified? What do folks here think?

The shadow inventory is scary. Sounds like the govt has given the banks TARP and told them to hold on to inventory. This bust may last a decade or more with several cycles of TARP money to keep the trickle under control.

paranoid renter said...


The link to the Sacbee article is broken. The correct link is:

Diggin Deeper said...

Count on Tarp 2 plus sequels if they force the banks to hold back enough foreclosure $'s...There's only so much time before bank insolvency is a result of not being able to service the debt on present inventory.

If they play this game we'll see another round of quantitative easing just to keep the banks liquid...

word verification "angsts"

husmanen said...

PR... Elliot had similar pricing in Folsom. When I went by the sales office a few weeks ago they said they are not building anymore and are waiting for prices to go back up.

That will be a long time, as many of their homes that sold since 2005 will/are headed into foreclosure. Their new prices were about 30% more than the same home that is about 2 years old being sold by a bank or short sale.

Seems like they don't really get it.

paranoid renter said...


I think they "get it", but they'd rather wait for a sucker with "too much money/emotion and too little reason" to bite their bait.

It usually takes me at most 72 hours to talk myself out of buying a home even when the urge is very strong. A post/response like yours always helps. :-)

Giacomo said...

"...they'd rather wait for a sucker with "too much money/emotion and too little reason..."

I think that's a prevailing thinking with the higher-end sellers in my community. They're not priced to market, they're priced for a hoped-for clueless deep-pockets buyer. For many of them, I suspect it's a Hail-Mary pass before they move in the direction of default or hard bargaining with the lender.

norcaljeff said...

My inbox is flooding, not trickling, with a ton of properties coming on the market. They are mainly less than 3 years old.

norcaljeff said...

Elliot's Terra Vista in Roseville has their smallest home listed at 500K last year. At that time they said there's no way they'll budge on price. Just yesterday, I saw that is was listed at $460K (~1800 sq ft).

Elliot's been dreaming for a long time about pricing. They bought land around here for less than a grand an acre so they'll let that stuff rot before they sell it to anyone at a discount. They are stubborn as they come. Could make a profit with land costs so low and all the immigrant labor they've exploited, but no, they'll sit on it forever. Now was is anything out there worth $300/sq.

Deflationary Jane said...

Same here Jeff. The bigger news is the trustee sales. Notices are 130% of last year and 225% from this winter.

Those moratoriums sure helped /snark

patient renter said...

"Those moratoriums sure helped /snark"

The moratoriums are a good metaphor for keynesian stimulus and deficit spending.

Deflationary Jane said...

Actually, it's worse then I remembered. See the June watercooler for details.