Wednesday, April 28, 2010

San Fernando Valley home sales report - March 2010

San Fernando Valley Single Family Home sales for March 2010 came in at 594 which is up 29.69% MoM and down 7.19% YoY. This is the sixth straight month of YoY declines and the second worst March sales on record. The median price for single family homes came in at $400,000 which is up 6.67% MoM and up 15.61% YoY. The supply constrained market is hurting sales in the SFV. Supply is still down YoY but that looks to change by mid-year if the trend of low sales and rising inventory holds.

Condo sales came in at 211 which is up 11.05% MoM and up 1.93% YoY. Median price for condos came in at $214,000 which is down 5.72% MoM and up 7.00% YoY. Condos are faring much better than SFH because there is more supply due to all the new condo construction during the boom and it appears some buyers are choosing to buy a condo when they can't find what they want in a detached home. Sales are still extrememly low historically, just not as bad as SFH.

The red line was my attempt to create a predictor for sales but it hasn't been working out so well since May of this last year. IMHO, it appears that some pendings are being double counted, instead of falling out and going BOM (which would reduce my predictor), they are just switching buyers and updating the pending date which gets them counted in the current months pendings again. This is supposition on my part since I don't know how SRAR constructs their numbers but nothing much else makes sense. But the predictor is saying sales will rise slightly for April.

Monday, April 26, 2010

Max FHA Debt to Income ratios.

I was going back through some old posts and I realized I never shared my FHA findings after seeing articles like this last year where very marginal buyers were getting very high DTI loans. It turns out with automated underwriting you can get a max front end ratio of 46.99% and a back end ratio of 56.99%. It is amazing the debt load the FHA will allow for its borrowers and it is no wonder why FHA will need to be bailed out sometime in the not so distance future.

One may ask why they have determined the maximum affordable payment for HAMP mods is 31% (front end) on one hand but on the other FHA allows up to 47%. The FHA says it requires "compensating factors" (a few months worth of savings or things like a higher than minimum down payment) to get those DTI ratios but some of the compensating factors appear that they can easily be gamed.

Thursday, April 22, 2010

Half a percent down FHA in California

How about this loan program:
99.5% FHA Program
Regular 96.5% FHA first
3% Second for Down Payment
Only SFR and FHA Approved Condos, No multiunit
Ratios up to 43%
Income Limits vary per County. In LA $74,520, in RI & SB $77,400, in OC
No First Time Homebuyer Requirement
Gifts OK

This is a downpayment assistance grant (yes, some are still legal) from National Homebuyers Fund.

"Ratios up to 43%" means either the Total or back end ratio maxes at 43% of debt to income. If it is Total ratio then conceivably someone with no debt could get a housing payment of 43% of total income.

"Gifts OK" means someone can give the borrower the funds and they can come to the table with none of their own money.

There are income limits, they can be found here.

By the way, the underwriting, like the above terms is considered "conservative" for FHA. This is why the loan end is doing so well, they are giving out very risky loans to very marginal borrowers for very little down. I'll post a little bit more on FHA later on.

Why it happened and Why it wont be fixed

Normally I like to just focus solely on housing but I thought this article regarding Raghuram Rajan synopsis of the credit bubble and our political blind spots was especially good.

On the causes:
The first Rajan fault line lies in the U.S. As incomes at the top soared, politicians responded to middle-class angst about stagnant wages and insecurity over jobs and health insurance. Since they couldn't easily raise incomes—Mr. Rajan is in the camp that sees better education as the only cure and that takes time—politicians of both parties gave constituents more to spend by fostering an explosion of credit, especially for housing.
Since politicians can't make companies pay more and have been horrible about fixing what ails our educational system they take the short term easy road and try to allow cheap and easy credit to replace their (and our) failings. We have made it where anyone who gets into college can get a loan and anyone who wants a house can get a house. But taking on a bunch of debt isn't the solution to stagnant and declining incomes. But you can't get voted in on telling the constituency to work harder and learn more.

A third Rajan fault line spread the crisis. The U.S. approach to recession-fighting—unemployment insurance and the like—and its social safety net are geared for fast, quick recoveries of the past, not for jobless recoveries now the norm. That puts pressure on Washington to do something: tax cuts, spending increases and very low interest rates. This leads big finance to assume, consciously or unconsciously, that the government will keep the money flowing and will step in if catastrophe occurs.

Compounded by hubris, envy, greed, short-sighted compensation schemes and follow-the-herd habits, these expectations that the government will save us all leads big finance to borrow cheaply and take ever bigger risks. No democratic government can let ordinary folk suffer when the harshness of the market brings the party to an end, as it inevitable does. Big finance exploits what Mr. Rajan calls this "government
decency" and bets accordingly.

I thought this part of the article was great. Our political & monetary system is geared to fight the last war. Even at this late of the bubble popping stage the politicians haven't correctly identified the cause and effects which means the solutions they are working on won't work. The capital system has adjusted to the blind spots just fine. There comes a point where very hard decision will have to be made and it will effect wealthy and poor alike. The politicians would like to put the burden on the top 1% or top 10% but the structural issues have gone on far too long for the burden to be borne by anyone but the whole of society.

Wednesday, April 21, 2010

California Shadow Inventory Report - Q1 - 2010

There was a point in time where various housing bloggers were talking about "shadow inventory" as houses taken back by the bank and purposely kept off the market. According to these bloggers this horde was supposed to be released en masse and flood the market. It was a great, sexy story and I never saw any making much effort to prove or disprove if it was actually happening. Since trustee sales are a matter of public record I went and matched up all trustee's deeds that never made it to the MLS and it turned out to be a trivial sum when you accounted for turnaround time for eviction, trashout, bpo's, and all the other stuff that happens before the houses hit the market. This data was not well received by those bloggers espousing that version of the shadow inventory opinion but they have since changed their tone to the "other" version of shadow inventory. The other housing bloggers talk about "shadow inventory" in the terms of number of delinquent borrowers... this is a very very large number. But in terms of houses foreclosed but not on the market, it is very small. In short, If there is going to be a tsunami that floods the market it will be trivial to see coming before it hits.

This is a simple graph to show the accumulation (or lack thereof) of REO inventory. When the blue line is above the green line REO inventory could be accumulating. I say "could be" because the green line is merely the number of homes sold during the quarter that were foreclosed in the past 12 months, so investors trustee flips would be captured in the data as well. I think the blue line will elevate somewhat but the two lines will stay pretty close as it makes little sense to foreclose and not market the home.

I am very doubtful of the tsunami theory simply because the government has said it is not what they wish to happen and they have gone to great lengths for it not to happen. What we will have instead is stagnation in the market for a very very long time. I have been assured by people much smarter than I that this is "better". It very well could be better for some but it is worse for others and this choosing of who wins and who loses is fine if you win and a kick in the nuts if you lose. One can guess which side I am on.

Wednesday, April 14, 2010

Updated Reconstrust / BofA foreclosure charts



Here is an updated chart showing Recontrust NTS and houses taken back by the bank or sold to a third party. As you can see foreclosure sales are spiking, we shall see how long this lasts.

Ventura County March 2010 Home Sales

Dataquick reported home sales for Ventura County for March 2010 today. Home sales came in at 739 down 4.8% YoY. The median sales price came in at $375,000 up 15.0% YoY. This report was exactly in line with the prediction I made at the beginning of the month. Slowing sales as low inventory continues to restrict sales. Rising median is due to mix shift due to the low end running out of inventory the most plus some season strength in the mid-level houses as those sellers have been cutting price to compete for buyers. I think the people rushing to buy before the April 30th tax credit deadline getting similiar "deals" like the cash-for-clunkers buyers rushing to buy before that expired got... overpaying for limited inventory. We will see a bump in sales over the next few months related to the tax expiration, though it is an open question whether they can even beat the previous years weak numbers, and then slowing YoY moving through the rest of the year.

Friday, April 2, 2010

Ventura County Trustee sales for March 2010

Ventura County Trustee Sales for March 2010 came in at 284. This is the best showing since October 2009 but not significantly higher than previous months and not too much can be read into any one data point.

Trustee Sales for Los Angeles County March 2010

Los Angeles County Trustee sales came in at 3182 for March 2010. The most foreclosures since October 2009.

Orange County Trustee sales for March 2010

Orange County trustee sales for March 2010 came in at 820. As always I am impressed with the number of third party sales in the OC.

San Diego Trustee Sales March 2010

San Diego trustee sales for March 2010 came in at 1326, Slightly increased on a foreclosure per day basis to the previous months. This was the biggest month of REO's since October 2009.

Thursday, April 1, 2010

Short Sale & Foreclosures for the San Fernando Valley - March 2010

Here is the sales breakdown for the San Fernando Valley for march 2010. The SFV has a lot more late reporters as a percentage of sales and so it is a bit tougher to discern right now just how weak or strong sales will ultimately be for March. It appears that sales should be lower YoY when all the late reporters are counted. These sales levels are extremely weak historically and just an indication of this highly engineered market. Stagnation continues to be the word of the day.

Short Sale & Foreclosure for Ventura County - March 2010

Here are the sales for Ventura County for March 2010. Sales are still very low, with late reporters I expect the official Dataquick numbers will be down slightly YoY at around 740-750 sales. This continued stagnation in the market is the same boring story, less supply due to government intervention trying to keep prices high at all costs. I don't see any signs of the ice melting yet just more of the same with a bit of seasonal inventory coming on market. The stuff in the affordable ranges gets gobbled up quickly, the overpriced stuff just sits. We should see a small sales bump, at best slight YoY gains, going into June after that the sales should taper off unless something breaks the logjam.