Three (of the sixteen) of their summary bullet points stood out:
- The market for home purchases can be divided into segments of 26% for damaged REO, 23% for move-in ready REO, 14% for short sales, and [only!] 36% for non-distressed properties. [REO means “real estate owned,” typically by a bank as a result of a foreclosure.]
- 43% of homebuyers are first-time homebuyers, 29% are current homeowners (relocation or retirement homes), and another 29% are investors.
- Only 31% of non-REO home sale listings are unforced or optional; other major reasons for listings include financial stress (including short sales), long distance relocation, and divorce or estate sales.
Think about that for a minute. Two-thirds of home sales are either foreclosures or banks taking a loss on the mortgage. Of the remaining 36%, only 10% are as a result of something we could call a normal selling process. And that is nationwide. There are lots of places where foreclosures are low. Reading this report anecdotally, there are large areas (California, Nevada, Arizona, Florida) where almost the only housing action is distressed or forced sales, that is, sales at a significant discount to original asking price.
Look at the chart below from Rick Sharga at RealtyTrac. Today we learned from them that foreclosures set a new monthly record of 360,149 properties that received a default or auction notice or were seized last month. One in 355 households got a filing, the highest monthly rate in RealtyTrac records. Many hard-hit areas have rates higher than 1 in 39 homes! Foreclosures are now running about six times higher than just four years ago.
And there is little relief in sight. There is typically about one foreclosure for every 6-10 jobs lost. It will be higher this cycle, as so many homebuyers are underwater on their mortgages and have little incentive to try and keep up payments while they are unemployed. Further, there are 500,000 REO-owned homes that are not on the market as of yet (what Sharga calls shadow inventory), and a wave of foreclosures will result from option ARMs and Alt-A loans resetting next year. Note: July’s record numbers are not in the chart below.
John Burns gives us the next graph, which is an estimate of foreclosures for the coming years. (www.realestateconsulting.com)
Notice that he estimates more foreclosures next year than this year, with very little relief until 2014! This does not bode well for housing prices, which are a big factor in consumer sentiment, which is a big factor in consumer spending.
It does mean that renters can find some very good deals, as there are now areas (like Phoenix) where it is cheaper to buy smaller homes than to rent. Remember the statistic above that first-time home buyers are 43% of the market and investors another 29%? Lower prices make housing more affordable, and with the government incentive programs for first-time buyers really working (for once), the lower end of the housing market may actually stabilize sooner than the overall market.
Bad news? Depends. Deals galore for a long time.
Replies
Great information, and speaking for myself, very interesting reading. Thank you very much for posting it.
I think Tim "Mooney" was asking a question about getting this type of information just the other day although his request was directed at a specific area.
I have noticed recently there seem to be more people selling rent to own or owner finance homes, and these seem to be from the category of damaged REO that has been improved to move in REO, some still requiring work to be completed.
It may be a good business opportunity to acquire damaged REO and get it ready to move into. It would be great to know what areas of the country would be better to do this, and I think that was the jist of Tim's question.
I follow the listings of HUD homes for sale on the governments website and recently noticed that all the HUD homes in North Carolina are gone. They still have listings for VA and USDA homes for sale but no HUD homes. I wonder what happened?
Here is a link, http://www.homesales.gov
Thats what I call a general report of home sales provided mostly by RTA. Theres several out there and they say about the same thing . Its a good report on the nation as a whole . There are however spots across the nation that have different balances but for the most part the report is the trend.
I always look at reports like this like I would coach a football game or play a poker hand . The out side defenders are turning plays inside so throw it over the middle . They back up and defend the middle then the plays to the out side are now open. No plan covers all the whole feild .
You are right that its good news for some and bad news for others . Somtimes if you dont crawl out on a limb you wont get any fruit . Then as the picking becomes intense the only reward is to work hard and climb. Then as the fruit is gone one might think of moving like most animals do or changing the way they eat like people do. Im changing the way Im gonna eat . The rental business has been under a lot of pressure since 911 and the insurance step up of demands . The oil crisis has ruled out cheap oil products such as carpet, pad , and roofing to name a few. pad is up simply becuase its made from remannts and the factories are producing less so the little supply means a higher price for carpet pad. Kinda like fuel. Weve felt the transportation industry for some time added to our building materials . We put a bounty on canada lumber which made it higher and we paid it because we still cant build with our own pine because they changed from long leaf to loblolly which grows faster but crooked. It goes on and on.
While all this has built it has effected the people like every one knows . I actually predicted this on this site . The man that argued with me is unemployed now. Rents are harder to get and price increases are almost impossible to demand even if you have the goods worth the tender they cant afford it . It leads in evictions and those increase damage by mad renters. Its costing more to maintain rentals with less money. Theres no tax breaks for rentals like other business.
I feel like its time to eat somwhere else . As the report mentioned the bulk of sales are distressed homes and forced sales and the number one buyer is the first time home buyer . That to me it means my small houses bought for rentals of around 1100 to 1250 sg ft are prime future sales . The goverment will loan 100 percent on the sale of one of them and in addtion send the buyer 8 thousand dollars of tax free money they can make the payments on this house for two years . Its time to let the goverment have my rentals . If you are thinking it isnt fair you are right . But in Rome you do as the Romans do. The people voted and this is part of the outcome .
Over all the best out look for the short future is in distressed homes when looking at the residential building market for us . The way I see it ; It will continue for another 4 years. It was promised so I guess its gonna happen. Theres money to be made off the goverment expenitures for the next four years.
I hate to see this thread die, it has really got my curiosity going. I just read in an article about how the banks are trying to keep the market from being flooded by foreclosures.
http://www.housingpredictor.com/bankers.html
I think its probably smart on the banks part to delay or control how many are on the market at once, they lose less money that way. I just wonder if it won't have some negative effects in the future.
In another article a list of the 10 strongest US real estate markets is kid of a surprise. Seems to me I have seen quite a bit of difference with the different predictions of what will happen where.
http://www.msnbc.msn.com/id/32419955/ns/business-businessweekcom/
I disagree with them. They already have millions of homes on the books .
If you do the numbers it doesnt work to hold somthing that costs money and doesnt make any.
Lets say you have 5 rentals and you decide to sell them all at once . Lets say you owe 250,000.00 on them so your payment is 2500 per month. Lets say it takes 12 months for them to sell. Where are you going to get 30,000 dollars to pay for the wait ? By that time you need to tack more on the houses when they are comming DOWN.
Lets say you have 500 dollars worth of junk and move into an apartment and you cant keep it . You just cant part with it so you rent a storage . The storage to keep it is 40 dollars per month. How long can you keep it ? Youo cant even afford to build a storage building to keep it unless its at home and you use it like a lawn mower. But not the wifes junk she never ever touches in all the years its out there.
The goverment has already been playing the holding game for several years trying to hide this mess . Yes , we have been paying for it not the ones that made the decision. Its a little easiar for me to handle your money than it is mine . Holding longer just costs more money in losses.
...probably smart on the banks part to delay or control how many are on the market at once, they lose less money that way...
Yes, the banks get and understand the issue at hand. The main reason for the banks delay or slow progress is that modifications, foreclosures, short sales, etc. require banks to take write-downs and come clean about the true value of their assets. Thus preserving their "paper" assets with "paper" values.
Banks, to paraphrase Jack Nicholson in A Few Good Men, can’t handle the truth. That became evident in April when they successfully lobbied to end an accounting rule known as “mark-to-market.†Under that rule, lenders had to value their loan portfolios according to what they were worth at current market prices — not what they thought they should be worth, or what they once were worth, or what they might be worth in the future. Now banks are free to fictionalize their balance sheets in ways they think will help them, at least in the short term, will try to perpetually preserve their balance sheets, stock value, and most importantly, the CEO's job.
Negative effects on the future? Why do we have to worry about the future -- our kids will pay anyway...
Two interesting posts on opposite sides of the coin. I tend to lean more towards agreeing with your assessment than Tim's but Tim may be right and we could be wrong.
It may be that for one particular bank to hold the property and prolong the sale may save them money, but what if too many banks do that, and the systemic economy as a whole suffers? That may actually be worse?
It seems that Geithner and Bernanke are contradicting themselves, saying one thing in public and another in private. How else can one explain comments in public about getting credit to flow again but then allowing the rule the SEC made concerning mark to market, which is clearly enabling the delay tactic.
I smell a rat, and I think I will pay along with my children!
"it may be that for one particular bank to hold the property and prolong the sale may save them money"
Give me math that works on that . I cant get my pencil to do it .
Calculate a home thats been held for 3 years at a hundred grand . Ill be waiting to learn somthing here.
Tim
Well, aside from the fact that there are untold ways to work the tax angles or capitalization rules, selling in a hurry will just depress the market more. If a single bank owns 5 properties on a block, they'll probably do better selling them one or two at a time while keeping the others looking inhabited.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
Ok give me numbers .
So you guys are telling me I dont have to pay my mortgages and Ill save money by holding them with no one at home? Same difference . Tell me how I can shut up 15 rent houses and save money for a period of three years. Im really waiting to hear this one .
Never said it would work for you -- you're not a bank. And as the prior post indicated, it's not "real" money that's being saved in many cases so much as "funny money" -- money on the banks' balance sheets.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
Your not a bank. You didn't get 900 billion. You have to keep your houses rented. They can leave theirs empty because they have 900 billion.
"Your not a bank. You didn't get 900 billion. You have to keep your houses rented. They can leave theirs empty because they have 900 billion."
That sir is the best answer in the thread.
Tim
Apparently you havent built a spec house or done a flip.
Would you do a spec house or a flip on a block with 5 properties for sale for months?
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
"
Would you do a spec house or a flip on a block with 5 properties for sale for months?"
Absolutely! Id buy/steal them all if they would let me . Thats what I do. I take what they will let me "have". I never get to choose what I buy. I bid them all and someone drops the ball. But I still pay more than letting them sit for 3 years.
So I cant do it but a bank can do it cause its funny money.
Please explain because as far as I know the bank has to turn a profit for the people who have invested their money in that bank. Tell me how its any different . How do they operate at a loss? Because the numbers dont change requardless of who owns a non performing house .
Bring up another subject . Yer question you asked above .
If a house doesnt sell in 3 months somthing is out of kelter. We got real estate people here to back this up. Its a known fact . Either the house doesnt measure up to the price or the price is too high for market conditions otherwise, it will move.
I know this because they always sell in one day at auction if there is no reserve or the reserve is below market . Always . It might be 40 percent off market price it brings but repos arent cream puffs either . Ive seen very few really nice repos and I dont get them. They wont let me . Those houses bring 80 percent /above of market conditions . Good buy for a homeowner but niot to make money on. Ones I buy for 40 percent off I have 20 percent expense getting them back on line . I try to make 20 percent . Thats why I normaly do full remodels .
So you got to ask your self a question if your a banker . How do I get out of this? Doesnt matter if he or she is not gonna be there. But if they plan on staying around they better solve the puzzle or no bank will need their services. Im sure that a sale below lending is a bad thing and they dont want that so thats probably why. They arent saving or making money holding . Investors are all at the sales and they dont buy retail. A house has a 12 percent per year cost to hold on average. So you got a house that will bring 100 grand at auction? Next year its gotta bring 114,000, and you havent paid your creditors a dime . Remember no one can hold and lose for long . So now weve got a total loss of around 20 grand give or take depending on the rates. If you have somthing thats there to make money and its an aligator youre not gonna be in business very long doing deals like that . Take the money and reinvest it like walmart by turning the product. Look a little closer and be a little sharper so you dont make the same mistakes twice while the problem is small. Now its out of hand !
And by the way , if it worked we wouldnt be in this mess.
They are gonna have to let them go somtime and its gonna be at our price not theirs.
Edited 8/19/2009 8:36 pm by Mooney
> So I cant do it but a bank can do it cause its funny money.> Please explain because as far as I know the bank has to turn a profit for the people who have invested their money in that bank. Tell me how its any different . How do they operate at a loss? Because the numbers dont change requardless of who owns a non performing house . On the books of the bank it's an "asset". It has a value, and they add that value to the values of all the other things they own and publish that as the total assets of the bank. When they borrow money they borrow against those assets. When debts go bad they will say "But we're still OK because look at all these assets we have."So long as the bank doesn't sell the property they can value it at substantially more than it might actually sell for. This keeps their books balanced.> So you got a house that will bring 100 grand at auction? Next year its gotta bring 114,000, and you havent paid your creditors a dime .I would imagine that many banks (and other people) are gambling that the house that would only bring $100K at auction today WILL in fact bring $114K or better next year. Currently there simply are very few buyers, at any price. People are afraid for their jobs, and so not looking to buy a house. In another year (maybe), with the economy improved (maybe), there will be more people willing to buy (maybe), and that will drive prices up (maybe).
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
The term for what the banks are doing with these bum mortgages is "Extend and Pretend". They pretend that the loan is OK and just keep extending the date of any foreclosure action. If they were to actually foreclose and discover the real value of the loan at an auction sale, the magic spell would be broken, and maybe people would realize that the bank's assets don't cover their liabilities - IOW they are insolvent. The FDIC is required by law to close insolvent banks.No one wants to to that (the FDIC doesn't have enough $$ to cover the losses), so they play extend and pretend...
So long as the bank doesn't sell the property they can value it at substantially more than it might actually sell for. This keeps their books balanced
YOu are right. That is exactly what is going on. This entire mess was predicted many years ago. Every intelligeny human being knew that the fannies and freddies could not do what they were supposed to do: insure the loans. The east coast criminals greedily passed legislation that ramped up the rate of the housing bubble. They wanted that because it poured zillions into the tax coffers.
Years ago, I realized that if I was a working man, I really didn't want the prices of houses to increase in my neighborhood. All it did was increase my tax burden (property taxes). No matter how high the values of the houses went, I could only afford the same house that I could when I bought the one I was living in. So, if I can only afford that house, do I really want it worth one million dollars? Or, do I want it worth 10,000? Remember, when I sell it, I have to buy another and I will still only afford to buy one.
The thing is that ALL the banks have their thumb in this game to a degree.But it wasn't, in most areas, a governmental tax grab. Generally, governments (that employ property taxes) compute how much money they need and then divide by the total property valuation in the tax district to establish a rate. Thus, if property values rise uniformly, the tax base increases and the mill rate can be reduced (or at least not increased as much). Like manufacturers who like a little inflation because it lets them pay employees less, the governments didn't MIND the valuation bubble, since it helped head off tax protests, but it wasn't a windfall by any means.(Now, in some states the mill rate is established by legislation, and in those the tax guys made out like bandits (so to speak), but that wasn't the general rule.)The people who wanted housing prices to rise were the banks (more equity loans at high interest rates), retailers (more "disposable" income, with the home as an ATM), and of course the public at large, who believed this Ponzi scheme would go on forever.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
Don't neglect to look at the real picture regarding personal income tax. It takes a whole lot more personal income, and therefor taxes, to pay for the larger mortgages.
Yeah, but mortgage interest is untaxed. In terms of income tax, it's better for the government if you spend your money on big screen TVs and crotch rockets.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
I understand that mortage interest is untaxed, but you still have to earn the taxed money to send in the montly payment. The governement would rather you have a 3k monthly mortgage payment than a 300 per month note.
Its a huge viscous cycle and they have a vested interest in escallating prices even at the demise of the system overall....which they always thought they can fix by rolling the presses.
It's criminal what they are doing to this great country.
True, the mortgage PRINCIPLE is taxed, but that's (much) less than half the payment for most borrowers these days. And the buyer gets a gains tax break on the other end when he sells.Like I said, the tax guys would much rather you spend the money on big screen TVs.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
For some good laughs, watch this Youtube video:http://www.youtube.com/watch?v=2I0QN-FYkpwThe "experts" in 2006, 2007, and even 2008, go out of their way to dismiss the looming problems in real estate and the banks. My favorite is when the guest experts are asked for stock picks in the Fall of '07 and they tell people to go out and buy stock in Lehman Brothers and Merrill Lynch!
Very interesting piece there.
I read a book back then explaining the situation we were heading into. Every time I mentioned it, I was called Chicken Little. They couldn't understand why the housing was going to bust because their house had just went up 50k in the last month LOL!
Are we all so gullible that we think that it will always continue to go up?
Everything that the book predicted came through and I don't think we have seen the worst of it yet. We won't reach an equilbrium until the prices fall a lot farther than where they are at right now. We can't have a society where some people earn $8 per hour and average house are 500k. It just doesn't make sense.
Yeah, it certainly never made sense to me that prices were going up as fast and as high as they were, especially in California. You knew something was going to break, it just wasn't obvious what would go first.As it turned out, everything went at once.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
"
Yeah, it certainly never made sense to me that prices were going up as fast and as high as they were, especially in California. You knew something was going to break, it just wasn't obvious what would go first.
As it turned out, everything went at once."
I agree . I always thought that with out proof. Some of these places were do a reality check. My main vision of this was Florida. They said no one could touch their money.
But of course, the size of the average house has to come down as well -- people were buying places far larger than they needed or could justify, simply because they could (or thought they could).
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
Their on a bad gamble unless you can explain how the economy will be better .
Most economists believe the economy will be better in a year (and lots of evidence supports that presumption). How much better is the bigger question.But of course, a lot of it is the old "throwing good money after bad" thing. You hold onto the house for a little while "waiting for the market to recover", then you lower the price to what you could have gotten 3 months ago and wait another 3 months. Wash, rinse, repeat. The relative youngsters making the decisions don't have any frame of reference for this scenario and can't bring themselves to cut their losses.And, as stated, the longer this goes on, the more "cutting your losses" will PRODUCE a loss on the balance sheet (and possibly place the bank in danger of Fed takeover), and the more motivation there is to "ride it out".
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
What in your mind are marked points it will a better economy?
Mainly the various "indicators" taken together. The unsold house backlog is being worked down, the rate of unemployment, while high and still climbing, isn't getting worse at the rate it was, factory orders are stable or up a hair, etc.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
I think the unsold housing backlog is increasing tremendously (see the first post in this thread for statistics),
The rate of unemployment continues to increase but not at the level it was increasing a few months ago (just because its not getting worse now as fast as it was getting worse 3 months ago doesn't mean its getting better),
factory orders are up because of cash for clunkers, a temporary blip we will all pay for later.
I too would like to know where you get your information about the economy getting better, even if you only half believe the statistics quoted in the first post of this thread we are in deep do do.
> I think the unsold housing backlog is increasing tremendouslyWell, I was just going by the figures I've read or heard on the radio.I agree that we're a ways from a full recovery, but the indicators I've been looking at (and that the stock market has been looking at) suggest that, if we haven't "turned the corner" yet, at least we're near the bottom.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
Again I point to the first post in this thread for the figures on unsold housing increasing, I hope those numbers are wrong and I would like to know if you can direct us to a specific source contradicting those numbers.
Just yesterday I was reading news on computer at MSNBC. In the same group were current stories about mortgage rates "plunging" (new story from yesterday) and rates rising (old story from 4-5 days ago).
I looked up the mortgage rates and they have changed less than .5 in over a month!
The news media is making a mountain out of every little molehill, its tough to know what to believe.
I don't recall the precise figures, but the backlog has come down from about 18 months worth a year ago to 8-9 months now, or numbers of that magnitude.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
"I don't recall the precise figures, but the backlog has come down from about 18 months worth a year ago to 8-9 months now, or numbers of that magnitude."Here in zip 81507 we have two years of RE listings and for properties that need jumbo loans, it's more like three years worth. Compare that to late '06 when the average house sold in less than three months. residential spec construction has stopped, and platted subdivisions are turning into weed fields because the builders went bust. If the banks actually started foreclosing on all their nonperforming loans, it would be a RE blood bath like no one has ever seen.I saw the same thing in the recession of '89-'91 but then we didn't have the huge overhang in unsold inventory, both residential and commercial. Back then, buyers still had to put 20% down and the LTV and income standards wouldn't allow McDonalds workers to get jumbo loans.
Just yesterday I was reading news on computer at MSNBC. In the same group were current stories about mortgage rates "plunging" (new story from yesterday) and rates rising (old story from 4-5 days ago).
I looked up the mortgage rates and they have changed less than .5 in over a month!
The news media is making a mountain out of every little molehill, its tough to know what to believe.
You are making a huge mistake when you mention "news media" and MSNBC in the same breath. I don't know if they ever qualified as being "news media" but I know for sure they are nothing more than a campaign program for Obama. They remind me of the old Tass agency that spred it's propaganda for the old Soviet crowd. Bagdad Bob would be another good comparison.
> You are making a huge mistake when you mention "news media" and MSNBC in the same breath. I don't know if they ever qualified as being "news media" but I know for sure they are nothing more than a campaign program for Obama. They remind me of the old Tass agency that spred it's propaganda for the old Soviet crowd. Bagdad Bob would be another good comparison.
That was sort of my point, specifically I was referring to the website and reading what was posted, not watching their broadcasts, which I think has many sources, newsweek and washington post for example.
It seems that in this day and age of more information the quality of the information itself has gone down considerably.
http://money.cnn.com/2009/08/21/real_estate/home_sales_rise_in_July/index.htm?postversion=2009082110Existing homes selling fast - record fast
The volume of home re-sales has been on the upswing for four consecutive months.
By Les Christie, CNNMoney.com staff writer
Last Updated: August 21, 2009: 2:22 PM ETNEW YORK (CNNMoney.com) -- Sales of existing homes rose in July for the fourth consecutive month, lending support to economists who argue a recovery is near.Sales of previously owned single-family homes were up 7.2% compared with June and 5% from July 2008, The National Association of Realtors (NAR) reported Friday. The monthly gain was the largest on record for existing-home sales, which NAR has tracked since 1999."The housing market has decisively turned for the better," said Lawrence Yun, NAR's chief economist. "A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales."July home sales hit an annualized rate of 5.24 million proprieties, marking the first breach of the 5 million annualized rate mark since last September, when they hit 5.1 million. Since then, they have stayed in a very narrow range, bouncing between between January's low of 4.49 million and October's high of 4.94 million.The July performance far exceeded expectations: A consensus of real estate experts had forecast sales of 5 million.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
Thank you sir, that is what I was asking for.
It is interestinh how the article was so possitive. Maybe too possitive because they seem to left out the point that the home values are still dropping. At least around here.
another damaging thing is property tax reduction. they only use the 1st 3 months of the years to adjust your values. Here they were around $340K, now thay are $272k to 300K . The county does adjust it for you, but not even close to the actual value. This must be done by every home owner with an application and possibly an appeal to the origional request. Lat year they reduce ours and we appealed it and eventually had them reduce it another $75k and that is as low as they would go, even though it should have been reduces at least $30k more...
I was told by a friend that when a bank takes over the home, they report to the county through change of ownership which is the loan amount, not the actual value. The counties are going to use these figures to in determining the houses tax able value. we have seen home record for $450k and in March, then reduce down to $320 in April.
The hardest thing for any politician or bureaucrat to do is to actually cut their budget. I predict all kinds of doublespeak and accounting trickery as local and state governments try to keep their property tax receipts from declining in the face of these falling home prices. The idiot pols where I live are angry because we voted down a $94M "Public Safety" building they put on last Fall's ballot. They couldn't understand why voters were against a tax increase -- I guess they missed the newspaper headlines on the economy at the time!
OK I will do my best to explain what I think the banks are doing by waiting to sell property they have repossessed.
They have already foreclosed and have not received mortgage payments for over 6 months, the bank is owed $200,000 and if they sell now for $100,000 they lock in a loss of $100,000, not to mention having recorded on their books the profit they would have made if the loan kept performing.
Rather than sell the property now and lock in the loss they hope that if they can hold on to it long enough property values will come back up and they will eventually be able to sell at a profit.
Even if there are carrying costs of say $50,000 for 4 years, if they can sell property for more than $150,000 4 years from now they will have lost less.
Now let me state that I do not know this, I am just guessing that is what banks are trying to do. This is my best estimate with round numbers of what the banks are attempting. I wish I knew exactly what was going on, I hope to learn more from this thread.
Youre close but off on time . These houses have been sitting three years.
It wasnt 6 months ago. A house that sits that long[3 years] is a loss under any standards.
If you ever built a spec house or did a flip you would know how much money a house eats non performing . Builders break even if they go much over 6 months and some builders go broke over this very issue . Most builders are at a loss between 9 mos and a year in our current economy. You have to build cheap and sell cheap to move the chips around . Most arent willing to do that.
I push these numbers all the time . Its what I do for a living . Its my job to know what to buy next or build . It hasnt been time to build in a couple years now.
Ill say one thing in their favor although I dont have any thing nice to say. The houses will be in demand because new ones arent replacing them right now over the country. The need will grow greater causing the demand at some point as it always happens . The goverment/ banks are messing up right now . They are offering the up to 8,000 dollar rebate and they arent turning the houses loose. They could sell first time home owner houses right now . Mini mansions, no way.
Tim
I think that your statements depict what is going on around here. This is where the government has stepped it to assist.
In our heighborhood, before the crash, a single floorplan was sell between $425k-$510K. As of now, the only homes that are selling are forclosures. That same floor plan is selling for $272K. Others for $300K. This is before the banks pay the costs of fixing/maintaining/selling/taxes. I have this same floor plan. I paid $440k and we put $90k down.. So we owe around $345K, whick is almost $100k over value when you consider sales costs
This is after Obama has set the HAM project(Home afforability Mortgage), which doesn't seem to be helping around here. I believe mainly because it still a volunteer program and the banks are still trying to figure how to implement it. Of course they don't want to lose their "profits" but isn't that what their bailout was for?
I personally think that it is just a ruse to get federal money, delay the forclosures to hopefully see the market increase. The consequences is that the forclusres are still happening and the economy is falling(jobs) faster than the homes. So, instead of helping people out which would help the housing values and reduce the inventory, the delays are going to dump more properties on the market as time goes by.
Even the Obama plan is a delay to helping. The HAM program is only a five years program. They are lowewering the interest rates(not values) to help these people out but after five years, they don't seem to lower the loan amounts closer to current values. The rates start to go back up and so does the payment that people can't afford. This only means that five years from now, the market is going to be flooded with foreclosures and they will be houses valued at the market peak(three years ago). If I remeber, the Obama plan was for people that were only 5% under value. Wheer is that the case in the country? Surely not Calif or Florida
This is where the problem is, five years from, if these homeowners try to sell their homes, they will still be upside down and not able to sell. I, along others can't see where the market will come close to the owed values. Even the real estate agents are fearing this.
If these people were ready to walk now and got a temporary bail out(which few are), what makets the banks/ government think that they wont later?. Hopefully,( in a warped way) Obama will still be president then, so he will be the one having to explain where his polices went wrong.
Now, if the gov't had waited to pay those bailout funds to the banks until after the the property were helped out, then I think we would have seen a lessor market crash. Instead they got what they wanted and are playing pi$$ on every one else
Ive got a lot of mixed feelings after reading your post.
First thing , how much money do people make there that can make payments on a 1/2 million dollar house ?
Why has the value fallen that much?
What do you feel you deserve ?
We are running about 10 percent off here but the jobs are good enough to make it go. Which apparently are a bunch of lousy jobs. We work cheap and live cheap. Makes me wonder if we owe you for your problem. Sorry , I put it out there like it is . We are able to sell our repos because other people qaulify for those loans and that makes it chug along so I guess what IM trying to say is we are dealing with ours.. I dont want to start a hate debate but its a clear question after analizing your post.
Mebbe you could explain why I shouldnt have those mixed feelings. I dunno. Just tryin to grasp it .
What I see and hear are alot of various reasons. Most of the people in this area are white collar and most are dual income. Many are working in the IT fields such as Intel.
As for the price, many of the homes in this area were purchased from people either selling out of San franciso or the people from the Bay area that were trying to cash in on the rising market. The price kept going higher and higher, better than the stock market
(BTW, for new home construction back 3-5 years ago, this area was one of the affordable new home tracts).
Many others that bought into this area could afford to make the payment, but the construction industry to a huge hit and many, many are out of work. this you can tell buy the # of door fliers we get, licenced and unlicensed.
The biggest contribution is due to the lending industry. The sub prime mortgages, the variable loans and just plain deception from lenders and brokers did make people feel that they could pay cheaper for a awhile and then sell and move up the property ladder. Even some real estate agents fed into the frenzy.
Others were hoping to cash out on other properties and pay off their loans. When the market crashed, they got bit...we did.
The point I was trying to make was that the mortgage industry was crying for their loses and the gov't bailed them out. What didn't happen is they didn't pass these bail outs to the end user. This is where I have the issue.
In some ways, it is no different than the gov't paying for illegal healthcare, rebuilding cites/are desimated by hurricanes, tornados, and earthquakes. Many people want some of the pie and if the gov't gives it to some, they should be giving it to others.
My wife and I are to the point that if she lost her job, she would probably have to take a 50% cut in pay just to find another. Plus, it would take months to find one and the probably necessary that we would need to relocate. At that point we are sunk, like amny other that are already there. If we did move, we would not have enough liquid assets to afford a new home even at these prices and the rental market in this area is extremely low.
Two years ago, or less, people could buty another hoem and walk for the first. it was "legal". At least they banks have closed that loophole. These people put a huge dent in the market recently, and even in the late 80's and 90's
Our investments are tied up in real estate and none of them are worth anything at this time and it will probably take another 10 years to get back to some form of profitabilty.
Another thing that is killing the property values are that the people that are losing their homes are stripping the homes down to the studs. the banks are selling them as-is and it is reflected on all other property values. they won't even spend the money towater the lawns.
In the end, they are hurting themselves. Just look at craigslist and see how many people are selling the HVAC's because they are "up-grading" or it was "taken out of a remodel" they are taking the cheap $100 fiberglas tubs,fixtures, cabinets, appliances. Some even the copper. These people are so hateful and spiteful that they are vandalizing the home with holes in the walls, and grafitti. This is just the home owners, not including the vandals
As for you question, why should you should have "feelings" for these people? Well, in some ways you shouldn't. Some people just had a base of real bad luck. I read some where that 50% of recent bankruptcies are due to medical. I would imagine that they own house too(because the poor get free health care). I think that most of these cases are people with honorable intentions. It is the ones that are not honorable that are hurting everyone else. Thes dishonorable people are home owners, real estate agents, appraisers, banks, Even the Politicians and the media haven't help much either.(disclaimer: NOT ALL)
A simple divorce right now forces a home into foreclosure(bankruptcy too). Neither spouse can afford it on their own and they can't sell it either. the banks want their money and they will lein your income to pay back debt. Also, they will not take one person off the note. why should they? they have two people to collect from.
Whether because of the housing market, insurance, health care, or natural disastor. It all effects everyone else.
This was what I just read minutes before responding to you:
http://www.msnbc.msn.com/id/32479139/ns/business-reinventing_america
More than 13 percent of homeowners with a mortgage are either behind on their payments or in foreclosure, the Mortgage Bankers Association said Thursday. As of June, more than 4 percent of all borrowers were in foreclosure and about 9 percent had missed at least one payment. A separate report found that more than 272,000 borrowers were at some stage of foreclosure in July, up 8 percent from June and 55 percent from July 2007, according to RealtyTrac, which maintains a national database of foreclosure filings.
Click for related content
Record number of Americans in mortgage woesInteractive: Foreclosure rescue scamsMortgage modifications move at snail's pace
The continuing rise in foreclosures delays any meaningful recovery in the U.S. economy, in part because housing typically leads the economy out of recession. Although there have been recent signs of life in home construction and housing sales, they have been weak and from extremely depressed levels. Every new foreclosed home increases the unsold inventory on the market and cuts into demand for new construction.
Foreclosed homes sold in distressed sales or auctions also push nearby home prices lower. Unless the pace of foreclosures can be slowed or stopped, millions more homeowners who are current on their loans will be forced "under water" — owing more than their house is worth. Those homeowners become new candidates for default. One recent research report from Deutsche Bank estimates that roughly half of all U.S. homeowners will be under water by 2011.
This why I think you should consider having "feelings"
I always appreciate your perspective
-Brian
The bad debts have to be recognized and flushed out of the system before we can see any meaningful economic growth. By meaningful, I'm talking about real workers making things that can be sold, not some silly government spending program that robs Peter to pay Paul.Hundreds of banks, including some big ones, will have to recognize the true, discounted value of the bad paper they hold, and they must be shut down. This crazy game they're playing trying to hide or paper over the bad debts has got to stop. Yes it will be painful, but the alternative is just frikkin' insane.Did you know that the U.S. Treasury is now selling bonds at the equivalent rate of $4 trillion a year? That's over 25% of GDP! Those are numbers even a banana republic dictator would be ashamed of, but we Americans sit here and accept them because we think the people in charge, Geithner, Bernanke, and Obama know what they're doing.LOL -- man is this going to end badly...
Another factor is the ARMs. This was long recognized as a train wreck coming (when the ARMs would start resetting), but no one did anything about it. Bad thing is that the ARM resets started hitting about the same time as several other factors, so you had a "perfect storm" of sorts.
As I stood before the gates I realized that I never want to be as certain about anything as were the people who built this place. --Rabbi Sheila Peltz, on her visit to Auschwitz
That was an exellent and detailed answer and I apreciate your time to write it.
I dont study that far down the trail so to speak. Your post was interresting and informative to me because like I said we dont have that problem exactly.
I deal with some aspects of it .
First thing the divorces here are the same medicine . If they are smart and since they both own the paper they rent it sharing the load of responsebility. Seldom a judge awards the house anymore to one party if it cant be paid for and a man cant give up his house and kids and pay for both. We dont make enough money here. The good light on it is that the smaller homes will rent for enough to make payments unless tey were really stupid which I find amazing how many are just that or I might should say ignorant .
Ill tell this just for kicks . I got my step son a repo but the daughter wouldnt listen. She bought a brand new track house for full retail right through an agent . She is supposed to be the smatest kid we have and this surprized me .
I bought my son a house on the court house steps in a cash sale for 22,000 as is . That took 5 grand to make it sharp. He got a loan for 29,0000 and covered closing .
She bought a new house a little bigger . She would not even let me see it before she bought it . She didnt want the sermon and I dont blame her. Her lot is a 1/4 acre so a 100 dollar lawn mower is all she needs . Anyway, her husband got offered a better job and he had to turn it down within the company because he cant sell his house . They paid 117,000 and a realator gave them a price off comparibles of 90,000 if they wanted to sell it . They still owe 117,000 for it after 3 years.
I tried to help my niece as well. She wouldnt listen either . She lost hers after a divovce and went bankrupt. Close to the same deal as my daughter.
I offered to sell another niece a house for a good deal and she didnt listen either.
Ive tried to show where rentals will make a carpenters retirement just off the work he does and the tools he hauls around anyway. In the years Ive been here , not one has acted. I cant tell you why. Mebbe its constant weekends of work after they make their living during the week . I just dont know .
My wife ran a manufactoring plant and lost her job two years ago. Shes moving to find work and Im staying here to manage our properties. So I know what getting bit by it means as well.
Edit ; I need to price the house of the boy to make that story complete . His house is worth Ill say 65 to 70 grand right now . Also she got a much nicer house even after the 5 grand in the boys house .
Edited 8/20/2009 11:27 pm by Mooney
Who pushed through the mark to market reg?
Interesting. As brokers, we wondered why houses were just disappearing off the market. Even houses where we've been dealing with the lender, sometimes they just stop returning messages. It's happened twice now. Can't get anyone to return a message, even for an offer.Other homes have gone straight into foreclosure, but then they disappear into a kind of limbo and are not offered back on the market.
Tim you posted-
"I feel like its time to eat somwhere else . As the report mentioned the bulk of sales are distressed homes and forced sales and the number one buyer is the first time home buyer . That to me it means my small houses bought for rentals of around 1100 to 1250 sg ft are prime future sales . The goverment will loan 100 percent on the sale of one of them and in addtion send the buyer 8 thousand dollars of tax free money they can make the payments on this house for two years . Its time to let the goverment have my rentals . If you are thinking it isnt fair you are right . But in Rome you do as the Romans do. The people voted and this is part of the outcome ."
It never occured to me that what you suggest in the above paragraph is not fair, it sounds to me like good business sense. Please explain how it might not be fair to sell your rental homes?
I would love to be able right now to buy damaged REO and repair it and sell it as move in ready.
I know I can do the work, what I don't know is if I will be able to finance this venture, and if when I am done with the repairs they will sell for a profit. I like to work and all but I like to eat too. If I knew for certian I had buyers and financing waiting I would be working now instead of on the computer.
DW runs our rural town real estate business.
Not only do the figures presented seem about right, but they leave out another factor.
In our town of 4,500+- the homes that have sold which are theoretically normal sales have almost all sold at drastic price reductions OR they are languishing on the market.
The closest to normal home sale in our town this year was a 3bd, 2ba, brick with various niceties. Original listing was $114,500. Sold after 16 months for $90. That's the best we can do for a "normal" sale? I'm sayin, nothing's normal.
Several people have passed on a 2br, 1ba, little house that's an REO languishing on the market at $10k. I also decided not to buy it. I'm waiting.
Nicer rural homes in our area have done a little better, mostly due to retirement purchases. They've only lost 10-20% of their previous theoretical value.
If gas prices were to jump up considerably, I expect there would be some fantastic buys on rural Colorado homes.
The closest to normal home sale in our town this year was a 3bd, 2ba, brick with various niceties. Original listing was $114,500. Sold after 16 months for $90. That's the best we can do for a "normal" sale? I'm sayin, nothing's normal.
I think you're beginning to understand the "New" normal. There's a new sheriff in town and also a new normal. The new sheriff is and has been exposing his agenda and the laws and costs of unintended/intended consequences are emerging. Before your eyes is the birth of the new normal. It's an evolution kind of thing...
I constantly hear, as I am sure everyone does as well, about the value of homes last week, last year, in 2003, whatever...and must be reminded that our capitalistic economy determines the value...that is, what is someone willing to pay or exchange for your property or your services today - compared to the (perceived) value and demand for such. Ratcheer (as my Daddy would say - Right here) there just aint no demand... unless your a convicted dog killer with a wildcat speciality (Oops, did I say that?...I do believe in redemption...never mind).
We're seein' this in a similar light.
Nice to see you come out of hiding, what with your lurking around and all! John Mauldin has indeed been around a long time, and sends out a lot of research. You don't mention anything in your profile because you havent filled OUT your profile. So I don't know what you do for a living. I manage money for a living, and have a finish carpentry practice on the side. (Although, right now, it's less on the side and more in the middle!!)
Home ownership is a tough thing to get a handle on, especially when trying to interpret the potential fallout. There are several things to keep in mind in this whole mess:
1) Home ownership has been a fairly steady 65% +/- for quite a while in this country. Following a reinforcement of the CRA 1977 in 1999, that chunk of the pie began to rise and many who really could not afford to buy homes....did, sort of. And now they cannot make payments. Thus the large % you quote (2/3);
2) Banks were assured that the US government would back the loans through FNMA and Freddie Mack;
3) When the music stopped, there were too many loans for the government to insure ALL of them without printing money. So the collapse began and has been collapsing for 14-16 months now.
4) The bottom of the housing market may or may NOT be here, but the good news is that much of the debt is known about and has been factored in by the regulators. Anecdotally, homes in many parts of the country ARE moving, and that means the spread in pricing has contracted. That's a very good thing.
Do we have more to go? probably, but in many locations, the recovery has begun. However, in the worst 5 states, CA NV, Georgia, and 2 others I can't remember! there is probably more time before inventory has reached its natural bottom.
Good article and thanks for posting.
In other words, free-market capitalism is the best path to prosperity.