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FRED
02-08-08, 01:05 PM
Housing Bust Ending? Hope Springs Eternal.

This article appeared December 2006.
Los Angeles - An Example of A Market Stabilizing (http://www.therealestatebloggers.com/2006/12/20/los-angeles-an-example-of-a-market-stabilizing/)
Dec. 20, 2006 (The Real Estate Bloggers)

"I think that the turn has occurred by another metric. The media is doing articles on how surprised they are that their prognostications of a total collapse were wrong. Now we are seeing a flurry of isn’t this amazing the market is holding up stories."
But the picture of Los Angeles below from Foreclosureradar.com a year later tells a different story.


Marker Color Codes:
Green: Pre-foreclosure
Blue: Auction Scheduled
Red: Bank Owned

http://www.itulip.com/images/LAforeclosures.jpg


January 2007: exactly 14,789 homes in LA County in pre-foreclosure, foreclosure, or returned to lender at foreclosure auction; approximately 1 out of 100 homes.




January 2008: exactly 36,795 or nearly 3 out of 100 homes are in the forclosure process.

Does that sound like "stabilizing" to you?

Andreuccio
02-08-08, 02:34 PM
Housing Bust Ending? Hope Springs Eternal.


This article appeared December 2006.
Los Angeles - An Example of A Market Stabilizing (http://www.therealestatebloggers.com/2006/12/20/los-angeles-an-example-of-a-market-stabilizing/)


Dec. 20, 2006 (The Real Estate Bloggers)



"I think that the turn has occurred by another metric. The media is doing articles on how surprised they are that their prognostications of a total collapse were wrong. Now we are seeing a flurry of isn’t this amazing the market is holding up stories."
But the picture of Los Angeles below from Foreclosureradar.com a year later tells a different story.






January 2007: exactly 14,789 homes in LA County in pre-foreclosure, foreclosure, or returned to lender at foreclosure auction; approximately 1 out of 100 homes.






January 2008: exactly 36,795 or nearly 3 out of 100 homes are in the forclosure process.

Does that sound like "stabilizing" to you?

Fred, I have a couple of questions about this.

1. First, I have a Mortgage Broker/Real Estate Agent friend here in LA. She says that although these properties are getting foreclosed on, they're not showing up on the market, and are thus not contributing as much as they otherwise might to lowering prices. Her theory is that the banks are holding the properties in hopes of selling them later for a higher price.

Of course, this is just anecdotal, but I wondered if you have any information and/or opinion about this.

2. My second question falls into the category of "this may be a really stupid question, but..."

I was reading a post earlier this morning (Can't remember who wrote it). It talked about all the foreclosures in the Florida area, and about driving to work past rows of unfinished houses, and how rental prices were very low and still lots of vacancies.

My question is, where do all these people who previously lived in these empty places go? With a product like iPods, or Kindles, or Ford Pintos, it's easy to see that overbuilt inventory just doesn't get bought. But everybody's got to live somewhere. The unfinished houses I understand, but what happened to the people who lived in the foreclosures and the vacant rentals? Did they all move back in with their parents? Are there mass migrations, either within the country or back to countries of origin? Are so many fewer people coming into the country that inventory is greater than demand?

Jim Nickerson
02-10-08, 03:12 PM
What follows seems to be a different opinion about the housing bubble outcome. I'm posting an exerpt from Prieur du Plessis posted at http://www.investmentpostcards.com/2008/02/10/words-from-the-investment-wise-for-the-week-that-was-feb-4-%e2%80%93-10-2008/

Rod Smyth (Wachovia Securities): Housing glimmers – the beginning of the end


“In 2006 we argued that the housing downturn was still ‘only at the end of the beginning’. We now believe the downturn has reached the beginning of the end. With both mortgage rates and home prices falling at the same time, housing affordability has turned upward – an essential prerequisite for a turnaround in the industry, in our opinion. Last week we wrote that mortgage holders were being presented with an opportunity to refinance as conforming fixed rate mortgages have followed Treasury yields to four-and-a-half year lows. We believe the Fed’s reluctance to cut rates aggressively in the second half of 2007 contributed to the decline in Treasury bond yields as investors raised the odds of recession. Thus, by accident or design, the Fed’s actions have led to a remedy for at least one major obstacle facing the economy: the upward payment shock or ARM (adjustable rate mortgage) resets.

“As mortgage holders refinance into fixed-rate mortgages from ARMs at these attractive levels, their disposable income becomes more stable which should help consumer confidence. ARM resets threaten to reduce consumption by almost half a percentage point a year. Refinancing helps mitigate this threat. Moreover, while probably too late for the subprime arena, we think mortgage refinancing lowers the risk of default and foreclosure in the rest of the housing market. Indeed, credit risk as measured by Credit Default Swaps – financial derivatives used to trade or hedge credit risk – has fallen in recent weeks (although it still remains at elevated levels).”
Source: Rod Smyth, Bill Ryder and Ken Liu, Wachovia Securities – The Week (http://www.wachoviasec.com/wachoviasec/WSICommentary/mktcomm.pdf), February 4, 2008.


The link at the bottom of the quote takes one to a pdf of two pages which is the entire article.

Prieur du Plessis' investmentpostcarts.com in the 3-4 weeks I've been reading it seems quite worthwhile in that he for sure reads and quotes some sources he finds important, and which I surely do not wish to take the time to seek out myself.

FRED
02-10-08, 03:53 PM
What follows seems to be a different opinion about the housing bubble outcome. I'm posting an exerpt from Prieur du Plessis posted at http://www.investmentpostcards.com/2008/02/10/words-from-the-investment-wise-for-the-week-that-was-feb-4-%e2%80%93-10-2008/

Rod Smyth (Wachovia Securities): Housing glimmers – the beginning of the end


The link at the bottom of the quote takes one to a pdf of two pages which is the entire article.

Prieur du Plessis' investmentpostcarts.com in the 3-4 weeks I've been reading it seems quite worthwhile in that he for sure reads and quotes some sources he finds important, and which I surely do not wish to take the time to seek out myself.

Ground zero of the housing bust is CA. As we mentioned in our Jan. 2005 analysis, housing prices are correlated to unemployment...


http://www.itulip.com/BLShousingpricesvsemployment.jpg

...not interest rates (see Understanding Recent Trends in Home Ownership (pdf) (http://www.itulip.com/Select/2007.08.01.Shiller.pdf), Shiller, Aug. 2007).

Even the most narrow measure of unemployment U-1 is already 6% in CA.


http://www.itulip.com/images/unemployCA.gif


No surprise , then, that CA home prices are starting to implode (http://www.nctimes.com/articles/2008/01/30/news/top_stories/1_02_991_29_08.txt).

Wachovia and others will continue to underestimate the extent and duration of the housing downturn as they have for the past several years.

jk
02-10-08, 04:03 PM
the wachovia report ends with:


... improving affordability is an initial, if not sufficient, condition for a housing recovery, in our view.
i agree that lower mortgage rates and possibility of refinancing into an affordable fixed rate mortgage helps cushion housing's fall. however, improving "affordability" doesn't help with several problems: the tightened lending standards now extant, the number of "owners" who are upside-down on their mortgages, and the changed psychology of the housing market.

1. lending standards- if joe homeowner wants to refinance he now needs to show documentation of his income and, more onerous, come up with a 20% down payment or equivalent in equity. [he may also have to pay penalties for getting out of his arm.] in essence, he's "buying" the house from himself but with a more traditional form of financing.

2. upside-down owners - if his mortgage is greater than the current value of the house, then to refinance he must come up with enough money to pay down the required borrowing to 80% of its current market value. and by the way, why would he do this over sending the bank some jingle mail? otherwise, in essence, he's "buying" the house from himself for a lot more than its current market value.

3. changed psychology - as ej pointed out in his big piece on the housing bubble, the end of the downswing in prices will be marked by a market psychology precisely the reverse of the psychology at the top. at the top people believe that real estate only goes up, and just past the top there is a sellers' strike as sellers can't believe that they can't get their asking prices. at the bottom, people will believe that real estate is destined to keep going down, and there will be a buyers' strike as buyers can't believe that they have to pay the much-reduced asking prices that will exist at that time.

so yes, affordability improving is nice. it is, as mr. smyth and his compatriots say, a necessary condition for a housing recovery.
but it is far from sufficient.

Verrocchio
02-10-08, 06:14 PM
1. lending standards- if joe homeowner wants to refinance he now needs to show documentation of his income and, more onerous, come up with a 20% down payment or equivalent in equity. [he may also have to pay penalties for getting out of his arm.] in essence, he's "buying" the house from himself but with a more traditional form of financing.

Only a few years ago, you couldn't get a mortgage loan without a substantial down payment, an income that met the lender's guidelines, and income verification. Lenders haven't had to be concerned about any of these in the days between then and now, but unless they can cook up another version of the derivatives scheme, they'll want to ensure the creditworthiness of their borrowers again. jk pointed out in another thread today that the traditional ratio was 2.8:1 (mortgage:income). The 2007 median income in San Diego was an estimated $48,000 (http://en.wikipedia.org/wiki/San_Diego,_California), and an affordable house for this median family shouldn't cost more than $135,000, if this guideline is followed. The median home price in SD was reported in February 2007 as $472,000 (http://www.sdhc.net/giaboutus2.shtml), so it seems that they will need to fall considerably further before they stabilize.

hoodoo
02-11-08, 01:20 AM
Hi,

My observation is similar. There are enormous efforts to keep things "looking good" which are starting to run a bit thin. There are many empty homes in my neighborhood (southern Orange County) that have been that way since the last "owners" or tenants left. While there have been modest efforts at keeping them tidy with mowed and watered lawns, there are more homes with overgrown shrubbery and significant signs of vacancy than last year. These homes are not on the MLS, there is no for sale sign, and they don't show up on Foreclosure Radar....yet.

I've also noticed that several tracts where construction was probably completed in early '06 that seem to have what appears to be staging to make selected cul-de-sacs look lived in. I've looked closely and know of many homes that are absolutely empty but have garbage cans put out every week, cars parked in the drives, kids toys occasionally left out - All in what I can only think is an effort to hide the rot. I've watched this are intensively for several months - it's a bit surreal.

To your second question, I think there are many things going on.. I've read estimates that perhaps 15-20% of homes being held during the peak of the bubble were held by speculators with no intention of ever making them a residence. In mega-bubble areas like Las Vegas and Florida I wouldn't be surprised that if that figure was closer to 30%. Again, in my area I've talked with some folks that have completely bailed - two families we know of are doing this. These are mid to late 30 somethings that are moving back in with Mom and Dad in another state. One guy I met, lost his home to foreclosure and moved in with his girlfriend and her roommates. One guy I work with is seriously considering walking away from his mortgage and moving to a low cost area of living where he has a job offer. All anecdotal for sure, but it's coming from a suburb where the average income is reported to be >$100k.

Hoo