Effective Demand

FHA significantly increases Monthly Mortgage Insurance Premium

2011-02-15T07:46:00.000-08:00

HUD is making a significant change to FHA monthly insurance premiums, they will be increasing by .25% across all products. The change is estimated to bring in another $3 billion to shore up the FHA. This will definitely put pressure on the lower end of the market. Combine this increase with the recent rate spike, it looks like the Spring selling season will disappoint.

Turns out giving underqualified buyers underpriced loans isn't a great way to stay solvent.

Short Sale & Foreclosure for Ventura County - January 2011

2011-02-13T07:56:00.000-08:00

Here are the sales for Ventura County January 2011. Based on me taking statistics a bit later than usual and adjusting for recent changes in the underlying data sources I think the Dataquick number will be around 540 for December. That would be the second worst showing for January since I've been keeping records. Some of that is due to Decembers stronger showing which was a pulling forward of demand due to the spike in interest rates.

I don't watch the broader market quite as close as I used to since buying a house but I still look at a narrow segment within Ventura County. My general sense is that the low end if falling away and the mid-market houses are just stagnating, with little inventory to chose from and intense competition for any "deals" that pop up. With rates knocking on 5.25% area that puts intense pressure on the market compared to just a month and a half ago where buyers could get a 4% mortgage rate.

"Keep Your Home California"

2011-02-13T07:04:00.000-08:00

More wasting of taxpayer funds:

Unemployment Mortgage Assistance Program (UMA) – Intended to assist homeowners who have experienced involuntary job loss. UMA will provide temporary financial assistance in the form of a mortgage payment subsidy of varying size and term to unemployed homeowners who wish to remain in their homes but are in imminent danger of foreclosure due to short-term financial problems. These funds can provide up to six months of benefits with a monthly benefit of up to $3,000 or 100% of the existing total monthly mortgage, whichever is less.
Mortgage Reinstatement Assistance Program (MRAP) – Intended to assist homeowners who have fallen behind on their mortgage payments due to a temporary change in a household circumstance. MRAP will provide limited financial assistance in the form of funds to reinstate mortgage loans that are in arrears in order to prevent potential foreclosures. These funds can provide benefits of up to $15,000 per household.
Principal Reduction Program (PRP) – Intended to assist homeowners at risk of default because of an economic hardship coupled with a severe decline in the home’s value. PRP will provide capital to reduce outstanding principal balances of qualifying borrowers with negative equity. Principal balances will be reduced in an effort to prevent avoidable foreclosures and promote sustainable homeownership. The principal reduction program will most likely be a prelude to loan modification. (Servicers that contribute through matching funds increase the benefit for homeowners).
Transition Assistance Program (TAP) – Intended to promote community stabilization by providing homeowners with relocation assistance when it is determined that they can no longer afford their home. TAP will be used in conjunction with a servicer-approved short sale or deed-in-lieu of foreclosure program in order to help homeowners transition into stable and affordable housing. Homeowners will be responsible to occupy and maintain the property until the home is sold or returned to the servicer as negotiated. Funds will be available on a one-time only basis.

The market is guaranteed to be stagnant for a long time.

http://www.keepyourhomecalifornia.com/

California Shadow Inventory Report - Q4 - 2010

2011-01-27T08:46:00.000-08:00

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.

As you can see with the above graph, there was a drawdown in REO inventory in Q4. The net drawdown is about ~2000 homes. Sales were ultra low but homes taken back by the bank were even lower. I am sure this is no coincidence. REO inventory sells very well and the robosigning issue slowing down trustee sales had to have an impact in Q4.

Rents..

2011-01-18T22:35:00.000-08:00

Rents appear to be bottoming in many areas. Here are a couple data points (all emphasis mine).

From Jon Lansner:

Rents in Southern California fell 0.2% for all of 2010, by math from the Bureau of Labor Statistics that is based on a survey of renters. It’s the first drop since 1995. And the previous drop was in 1941.

But renters should be aware that landlords appear to be regaining some pricing power. The local CPI shows that rents rose on a year over-year basis in the last four months of the year. December’s 1.1% jump vs. a year earlier was the largest annual rate of rent increases in 16 months.

From Calculated Risk (here and here):

Rent growth is mostly from reduction in concessions. Not as much top line growth.
• Almost all areas are showing improvement.
• Walt Smith, CEO Riverstone Residential (manages 162,000 units) said it is "Pedal to the metal" on rents
...
The overwhelming sense from participants is "YES" the apartment recovery is real. One data point - There are a record number of attendees this year.
The expectations are for a record low supply completed this year (as Tom Lawler and I have noted before). Some pickup in completions next year (2012), and then plenty of completions in 2013. The starts will probably pickup later this year, although I'll know more at a later session. The pickup in starts will help both GDP and employment growth this year.
The expectations are for strong rent growth over the next two years (around 5% per year) for large upper tier apartments. This will keep the vacancy rate from falling too much as owners trade off rent increases for occupancy.

When rents are falling the buying decisions becomes much less favorable. If rent vs own prices are in the ballpark and rents start increasing, obviously the purchasing decision becomes much easier. But in many areas renting vs owning is still much cheaper and so rental growth is something to watch but not something that will push you into needing to buy right away.

Ventura County December 2010 Home Sales

2011-01-18T22:24:00.000-08:00

Dataquick reported home sales for Ventura County for December 2010. Home sales came in at 761 down 15.1% YoY and up 27.4% MoM. The median sales price came in at $355,000 down 1.4% YoY and down 5.3% MoM. This is still more of the same, horrible sales and a stagnant market. Nothing is really changing much on the demand or supply side so it's just a grind.

Changes coming to the blog

2011-01-10T09:19:00.000-08:00

Now that I have bought I'll actually have more time for the blog. The bad news is some of the data I post comes from the MLS and I won't be continuing my membership as it is expensive and I have no real need to have MLS access anymore. This means the weekly inventory reports (which have been on hold since early December) and first of the month sales reports wont be published. I will attempt to find a replacement data source to create new data sets or continue the old ones.

Short Sale & Foreclosure for Ventura County - December 2010

2011-01-10T09:02:00.001-08:00

Here are the sales for Ventura County December 2010. Based on me taking statistics a bit later than usual and adjusting for recent changes in the underlying data sources I think the Dataquick number will be around 700 for December. While historically low sales, relative to the past few months that is a strong showing. There is a couple of different reasons I can see for the late surge. First the interest rate surge from 3.875% for a 30yr fixed to 4.750% would prompt those with locks to hurry up and close, this would also scare the sellers to take a slightly lower price now rather than a greater lower price later. Secondly it appears the banks were clearing some REO inventory at the end of the year with the strongest REO sales since October of 2009. The banks may have been worried about the interest rate surge or just trying to clear up the books and take some losses to offset some profits. If these theories are true neither of them suggest a durability or robustness to the market just a pull forward of demand.

Why did I buy now?

2011-01-04T23:10:00.000-08:00

Someone asked my motivation for buying right now. I clearly don't think this is the bottom in home prices. There clearly is a lot of distressed inventory on the sidelines yet to come on market. So why buy?

I promised myself a couple years into this (I started house hunting in late 2005) that I wouldn't try to time the ultimate bottom. I would just pick some parameters (area, age of home, square feet, etc) and when those parameters were met relative to a rent / debt service ratio and debt service amount I had selected that I would buy. Mortgage rates hitting 4% helped the debt service side of the equation and ultimately a seller accepted my offer during a slow time of year where most transactions that are being made are because of seller compromising on price.

There were personal financial factors that also led me into thinking that this wouldn't be a horrible spot to fix costs in time. Also knowing that I would be in this house for a long time helped sway the decision. I'm well aware that the mortgage interest deduction is on the firing line but I am betting that it's repeal will apply to loans above the conforming loan limit. That is if it gets passed at all. I've also planned on it being appealed completely but that would make the purchase decision less favorable over renting but not so much that I couldn't handle the difference.

My view of the economy has gotten much less bearish and in some ways bullish and that helps the purchase go/no go decision. We clearly have a lot of things to get through as a country but the fight now is really how much inflation are we going to have as opposed to an inflation/deflation argument in which taking on long term debt is a much dicier proposition. Growth is happening, and whether that growth is organic or only happening because of the Fed printing money is irrelevant. In the former scenario we are in a true recovery and in the latter scenario I don't see the Fed stopping printing if they think the recovery would falter.

I'm of course not thrilled with the price I paid for the house but the low mortgage rate takes the sting out a bit. Rates have spiked 75bps since I locked and that would mean the same house would be $200-300 more a month. That would be almost the same as getting the same house today for $50,000 cheaper (property tax drops so it isn't 100% the same).

When prices fall in the future some may ask if I am pleased or displeased with my purchase. Financially, it would come down to what is going on with rents and interest rates. There are scenarios where I would still come out ahead by buying now. The numbers were close enough that if you erred on the side of inflation it looks like all the numbers work (I'm talking 1 to 2% not any rampant inflation scenario which makes taking on long term debt a trivial proposition).

Renting during the boom turned out to be a good decision. I don't expect that the buying decision will compare as clearly favorably that renting did during the boom/bust but I don't expect it to be a huge mistake either but it could be a small/medium mistake. Only time will tell.

If you have any other questions please post in the comments.

San Fernando Valley home sales report - November 2010

2011-01-04T22:47:00.001-08:00

San Fernando Valley Single Family Home sales for November 2010 came in at 470 which is down 11.65% MoM and down 19.24% YoY. This is the fourteenth straight month of YoY declines and the second worst November on record for Single Family Home sales. The median price for single family homes came in at $385,000 which is even MoM and down 2.53% YoY. The market is completed stagnated, the administration is keeping the motivated inventory generally off the market and there is no market clearing event so sales and buyers choices will continue to be horrible going forward. New pendings last month were at levels suggesting December will come in below November levels.

Condo sales came in at 178 which is up 5.95% MoM and down 11.31% YoY. Median price for condos came in at $210,000 which is down 4.54% MoM and down 6.66% YoY. Relative to SFH condos have been performing better but that is because there is more motivated condo supply than SFH. Sales are still horrible in historical context, just not as bad as SFH.

Based on November pendings (green line) the predictor (red line) suggest sales for December coming in lower than November.

Ventura County November 2010 Home Sales

2011-01-04T22:24:00.002-08:00

Dataquick reported home sales for Ventura County for November 2010. Home sales came in at 592 down 20.6% YoY and down 3.5% MoM. The median sales price came in at $375,000 up 2.7% YoY and up 5.6% MoM. Slowing sales and rising median is an indication of the low end falling away while the high end volume holds up a bit better. Volume is the better indicator for the health of the market and volume has been horrible. At the same time inventory is restricted and so we just have this stagnant slowly grinding lower market.

And we're back!

2011-01-04T22:24:00.001-08:00

Sorry for the delay. Posting will resume now. I'll attempt to catch up old posts.

Delay in postings..

2010-12-22T06:55:00.000-08:00

I bought a house and have been very busy the last month dealing with it. I will have the usual posts back soon.

Weekly Housing Inventory update for SFV & Ventura - 12/04/2010

2010-12-07T03:53:00.001-08:00

Here are the weekly inventory and pending counts for Ventura County and the San Fernando Valley. For the legend Single Family Homes is abbreviated SFH, Ventura County is abbreviated VC and San Fernando Valley is abbreviated SFV. For readers who might not know, REO are bank owned foreclosures and short sales are owners hoping to sell the home for less than what is owed on the mortgage balance.

Short Sale & Foreclosure for Ventura County - November 2010

2010-12-03T03:12:00.000-08:00

Here are the sales for Ventura County November 2010. Based on me taking statistics a bit later than usual and adjusting for recent changes in the underlying data sources I think the Dataquick number will be around 575 for November. This is very low sales level and is usually only seen around January/February.

Interest rates recently spiked from sub-4% to mid-4.5% plus.. that will pressure the market further in the coming spring season and could blow up some existing pendings as everyone (myself included!) expected QE2 to lower mortgage rates or at least keep them at 4%.

Stagnation in the market appears to still remain the new normal.

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

2010-12-03T03:07:00.000-08:00

Here is the sales breakdown for the San Fernando Valley for November 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 sales will ultimately be for November. But, it appears that sales should be lower in November than October.

San Fernando Valley home sales report - October 2010

2010-11-30T23:16:00.000-08:00

San Fernando Valley Single Family Home sales for October 2010 came in at 532 which is down 8.43% MoM and down 19.76% YoY. This is the thirteenth straight month of YoY declines and the second worst October on record for Single Family Home sales. The median price for single family homes came in at $385,000 which is down 2.53% MoM and up 1.28% YoY. The market is completed stagnated, the administration is keeping the motivated inventory generally off the market and there is no market clearing event so sales and buyers choices will continue to be horrible going forward. New pendings last month were at levels suggesting November will come in at October levels.

Condo sales came in at 168 which is down 13.40% MoM and down 26.31% YoY. Median price for condos came in at $220,000 which is even MoM and down 6.38% YoY. Relative to SFH condos have been performing better but that is because there is more motivated condo supply than SFH. Sales are still horrible in historical context, just not as bad as SFH.

Based on October pendings (green line) the predictor (red line) suggest sales for November coming in about even.

Ventura County October 2010 Home Sales

2010-11-17T08:48:00.000-08:00

Dataquick reported home sales for Ventura County for October 2010 today. Home sales came in at 619 down 29.6% YoY and down 9.2% MoM. The median sales price came in at $355,000 down 2.7% YoY and down 4.0% MoM. This was in line with the prediction I made at the beginning of the month for closed sales. Currently Novembers pace is running basically flat to slightly raised. These sales numbers are horrible and are only beaten historically by the sales numbers that were posted after the subprime and Alt-A market imploded and most of the lenders weren't geared up for FHA or Conventional back in the fall of 2007. Prices will continue falling with a sales pace as anemic as this. It is a post tax break sugar rush let down but the question becomes where the demand will come from? The best case scenario is everyone looking towards spring and hoping there is some level of pent up demand waiting for the first of the year to buy.

Short Sale & Foreclosure for Ventura County - October 2010

2010-11-03T22:42:00.000-07:00

Here are the sales for Ventura County October 2010. Based on me taking statistics a bit later than usual and adjusting for recent changes in the underlying data sources I think the Dataquick number will be around 600 for October. This is very low sales levels usually only seen around the winter months. Sellers keep cutting prices looking for buyers but its just a slow time of year (see Mortgage Purchase Applications Index for proof) so things don't look to be getting better anytime soon. Interest rates are set up to reach sub 4% levels and supply is muted and adjusting price slowly to the new reality. Stagnation appears to be the case still for the next few months (and probably beyond).

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

2010-11-03T22:39:00.000-07:00

Here is the sales breakdown for the San Fernando Valley for October 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 sales will ultimately be for October. But, it appears that sales should be at the same levels as August perhaps slightly weaker.

California Shadow Inventory Report - Q3 - 2010

2010-10-27T00:25:00.000-07:00

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.

As you can see with the above graph, there was no great accumulation of REO's during Q3 but the spread between the two lines was at its greatest point in 5 quarters. The accumulation is about ~8000 homes. If resales stay this low and foreclosures stay this high it could be a worrying trend but as prices fall sales will pick up to absorb the excess inventory. And of course the robosigning issue could put a damper on REO supply as well.

Recontrust trustee sales

2010-10-23T12:50:00.001-07:00

Every week I check the Recontrust page and record how many NTS and Trustee Sales are posted. You can see the latest foreclosure moratorium affecting trustee sales. The trustee sales number is the total amount of sales over the last 30 days from the date I recorded the number.

While this will mean less REO supply over the short term I don't think it will affect sales that match. Lenders have been limiting the amount of inventory they take in and they could "play catch up" if they chose to do so. I've also noted some evidence of more pre-approved short sales and short sales coming back on market after long delays which usually means the bank is responding more. This leads me to believe that the banks have shifted idle resources to work on short sales while the moratorium is in place.

San Fernando Valley home sales report - September 2010

2010-10-21T22:59:00.000-07:00

San Fernando Valley Single Family Home sales for September 2010 came in at 581 which is up 7.79% MoM and down 15.06% YoY. This is the twelfth straight month of YoY declines and the second worst September on record for Single Family Home sales. The median price for single family homes came in at $395,000 which is down 1.25% MoM and up 3.95% YoY. The market is completed stagnated, the administration is keeping the motivated inventory generally off the market and there is no market clearing event so sales and buyers choices will continue to be horrible going forward. New pendings last month were at levels suggesting October will come in at or below September levels.

Condo sales came in at 194 which is down 6.73% MoM and up 2.64% YoY. Median price for condos came in at $220,000 which is down 4.34% MoM and down 5.17 YoY. Relative to SFH condos have been performing better but that is because there is more motivated condo supply than SFH. Sales are still horrible in historical context, just not as bad as SFH.

Based on September pendings (green line) the predictor (red line) suggest sales for October coming in about even.

Ventura County September 2010 Home Sales

2010-10-19T21:41:00.001-07:00

Dataquick reported home sales for Ventura County for August 2010 today. Home sales came in at 682 down 13.0% YoY and down 5.1% MoM. The median sales price came in at $370,000 down 0.5% YoY and flat MoM. I noted in my early month estimate that my normal model predicted sales of 700-720 but due to changes in the underlying data used for estimates I thought closings would come in lower and that was what in fact happened. Currently October is running at 20% below September closings month to date so this horrible performance is continuing. To put these numbers in perspective the last time numbers were worse, 2007. Countrywide had just imploded and all that was left was FHA (which few were equipped to underwrite at a large scale) and the GSE's had a $417,000 limit. Additionally prices were much higher as were interest rates so the gap between buyers and sellers was much much wider. But right now we have a $729,000 loan limit, 4% mortgage rates and lower prices and sales are anemic. Prices are still too high.

Short Sale & Foreclosure for Ventura County - September 2010

2010-10-01T08:36:00.001-07:00

Here are the sales for Ventura County September 2010. We are at levels which suggest flat to down sales from August but there is one caveat. The underlying data source has been undergoing some changes and I don't know how that will effect these numbers (there is more of a possibility of double counting now). So there is a possibility the numbers could come in a bit weaker than my call of 700-720 for the Dataquick Ventura sales number but I wouldn't think it would be dramatically lower (nothing lower than 650). I just don't have enough data at this point to know how the changes will effect my normal guesstimate.

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

2010-09-30T23:27:00.000-07:00

Here is the sales breakdown for the San Fernando Valley for September 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 sales will ultimately be for September. But, it appears that sales should be at the same levels as August perhaps slightly weaker.

San Fernando Valley home sales report - August 2010

2010-09-22T22:53:00.000-07:00

San Fernando Valley Single Family Home sales for August 2010 came in at 539 which is down 8.49% MoM and down 19.55% YoY. This is the eleventh straight month of YoY declines and the WORST August on record for Single Family Home sales. The median price for single family homes came in at $400,000 which is up 0.25% MoM and down 2.83% YoY. Residential inventory is up YoY and growing. The market is completed stagnated, the administration is keeping the motivated inventory generally off the market and there is no market clearing event so sales and buyers choices will continue to be horrible going forward. New pendings last month were at levels suggesting September will come in at August levels.

Condo sales came in at 208 which is down 3.70% MoM and down 9.56% YoY. Median price for condos came in at $230,000 which is down 4.54% MoM and eevn YoY. The only strength in the market is in the condo space and I think that is due more to the amount of motivated supply (whole condo projects going defunct). Condo pendings aren't strong going forward and are at levels suggesting that September sales will look very much like August.

Based on August pendings (green line) the predictor (red line) suggest stagnant sales for September.

Ventura County August 2010 Home Sales

2010-09-14T21:49:00.000-07:00

Dataquick reported home sales for Ventura County for August 2010 today. Home sales came in at 719 down 9.7% YoY and down 4.0% MoM. The median sales price came in at $370,000 down 1.5% YoY and flat MoM. Volume was lower from what I predicted at the beginning of the month. The anemic volume continues and looking forward to the weekly inventory pending and contingents it doesn't look like the malaise will end anytime soon. Prices will continue under pressure as a result.

Short Sale & Foreclosure for Ventura County - August 2010

2010-09-02T02:44:00.000-07:00

Here are the sales for Ventura County August 2010. Sales are still very low, with late reporters I expect the official Dataquick numbers will be down YoY at around 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. Watching the weekly inventory reports for Ventura County you can see supply building but contingents and pendings have stopped falling rapidly due to continued price cuts by sellers. If Dataquick sales do come in around 750 that would be the worst August since in at least a decade (the period for which I have data).

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

2010-09-02T02:29:00.000-07:00

Here is the sales breakdown for the San Fernando Valley for August 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 sales will ultimately be for August. But, it appears that sales should be at "weakest August on record" levels. I doubt you will hear that spin in the local association press release.

San Fernando Valley home sales report - July 2010

2010-08-21T23:06:00.000-07:00

San Fernando Valley Single Family Home sales for July 2010 came in at 589 which is down 9.24% MoM and down 20.94% YoY. This is the tenth straight month of YoY declines and the WORST July on record for Single Family Home sales. The median price for single family homes came in at $399,000 which is up 3.64% MoM and down 0.25% YoY. Residential inventory is officially up YoY but inventory is still light. The market is completed stagnated, the administration is keeping the motivated inventory generally off the market and there is no market clearing event so sales and buyers choices will continue to be horrible going forward. New pendings last month were at levels suggesting August will come in at or slightly below July which would make for the worst August on record.

Condo sales came in at 216 which is down 17.56% MoM and up 6.40% YoY. Median price for condos came in at $220,000 which is down 4.34% MoM and down 3.50% YoY. The only strength in the market is in the condo space and I think that is due more to the amount of motivated supply (whole condo projects going defunct). Condo pendings aren't strong going forward and are at levels suggesting that August sales will look very much like July.

Based on July pendings (green line) the predictor (red line) suggest slightly lower sales for August.

I predict the NAR will be going hat in hand to Congress for another tax credit soon (probably after the elections). With sales this bad they will try to get another handout.

Ventura County July 2010 Home Sales

2010-08-17T23:33:00.000-07:00

Dataquick reported home sales for Ventura County for July 2010 today. Home sales came in at 749 down 10.5% YoY and down 15.8% MoM. The median sales price came in at $370,000 down 5.20% YoY and 3.6% MoM. Volume was in range from what I predicted at the beginning of the month. This amounts to the worst July since back for when I have records as far as sales volume. Right now August is looking weaker but with closings weighted towards the end of the month anything can happen. I highly doubt we'd see even July level volume in August though. If you follow the weekly inventory reports for Ventura County you can see the contingents have fallen but then leveled out as sellers respond with price cuts. It looks like a long slow slog from here on out.

Ventura County Loan To Value Chart - January through June 2010

2010-08-05T19:00:00.000-07:00

Note: The above chart can be clicked on and enlarged.

I haven't posted the loan to value charts in awhile. This one is for the period between January 2010 and June 2010.

The chart is simply purchase price on the left with loan to value ratio across the bottom. The different color coding indicates the type of loan (Conventional, FHA, Private Party or VA).

You can really see various underwriting guidelines come into play. That arching blue line going from top left sloping down right is the effect of the conforming loan limit on the conventional market. The solid line at 80% LTV is the effect of traditional underwriting guidelines with no Mortgage insurance. At 75% LTV that line usually indicates 2nd home purchases and the like. The blue line at 90% LTV most likely shows conventional loans with mortgage insurance. Then there is of course the absolutely massive wall of FHA financed properties.

I think the high LTV FHA high balance FHA loans are extremely risky. These are people who can't save and have high consumption. Their prospect for higher income is low but lower income is high and it isn't like they have shown a propensity for saving for a rainy day. Also FHA loans are underwritten to extremely high DTI ratios (as high as 47% front and 57% back end).

California Shadow Inventory Report - Q2 - 2010

2010-08-04T20:33:00.001-07:00

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.

As you can see with the above graph, there was no great accumulation of REO's during Q2.

Short Sale & Foreclosure for Ventura County - July 2010

2010-08-02T08:17:00.000-07:00

Here are the sales for Ventura County for July 2010. Sales are still very low, with late reporters I expect the official Dataquick numbers will be down 10-15% at around 730 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. Watching the weekly inventory reports for Ventura County you can see supply building but contingents and pendings have stopped falling rapidly due to continued price cuts by sellers. The current level of demand is still extremely low reminiscent of January/February demand levels but when the sellers get the price right the homes fly off the market.

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

2010-08-02T08:09:00.000-07:00

Here is the sales breakdown for the San Fernando Valley for July 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 sales will ultimately be for July. It appears that sales should be down 10-15% YoY when all the late reporters are counted. These sales levels are extremely weak historically.

Weekly inventory charts are back up

2010-07-30T22:31:00.000-07:00

A week and a half ago google broke their charting widgets. They just got them running again today and I republished last weeks results. Please let me know if you are experiencing any issues with the weekly inventory charts.

San Fernando Valley home sales report - June 2010

2010-07-27T23:44:00.000-07:00

San Fernando Valley Single Family Home sales for June 2010 came in at 649 which is down 4.42% MoM and down 16.26% YoY. This is the ninth straight month of YoY declines and the WORST June on record. The median price for single family homes came in at $385,000 which is even MoM and up 2.67% YoY. Residential inventory is officialy up YoY. New pendings last month dropped below June 2008 (which was worse than 2009) levels.

Condo sales came in at 262 which is up 23.00% MoM and up 11.01% YoY. Median price for condos came in at $230,000 which is down 1.29% MoM and up 1.77% YoY. This was the best month for condo sales since July 2007. Clearly the larger condo supply and tax credit deadline had people choosing condos over SFH in a desperate attempt to get the tax credit. The only strength in the market is in the condo space and I think that is due more to the amount of motivated supply (whole condo projects going defunct). Condo pendings aren't strong going forward but they are doing much better than SFH.

Based on pendings (the top green line) we should see a lower closed sale for July but considering how muted June was I think we very well could see even lower sales as back on market properties stay on market instead of being sold again.

Ventura County June 2010 Home Sales

2010-07-15T06:19:00.000-07:00

Dataquick reported home sales for Ventura County for June 2010 today. Home sales came in at 890 up 5.5% YoY. The median sales price came in at $384,000 up 5.20% YoY. Volume was stronger than I predicted at the beginning of the month, late reporters as a percentage of sales was much greater than normal. The possibility of the tax credit running out really caused quite a rush in closings. Rising median is due to mix shift due to the low end running out of inventory the most plus some seasonal strength in the mid-level houses as those sellers have been cutting price to compete for buyers. As far as sales volume this was the high water mark for the year, the question is just how far we fall from here.

Short Sale & Foreclosure for Ventura County - June 2010

2010-07-05T10:34:00.000-07:00

Here are the sales for Ventura County for June 2010. Sales are still very low, with late reporters I expect the official Dataquick numbers will be about even at around 840 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. If you watch the weekly inventory report you can see the market weakening even in the face of sub-5% rates, contingents and pendings falling, sales stagnant. All this with massive incentives and choked off supply.. it is clearly a vain attempt to keep the market propped up. I fully expect more housing incentives to hit the market they will just have to wait until after the November elections.

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

2010-07-05T10:31:00.000-07:00

Here is the sales breakdown for the San Fernando Valley for June 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 sales will ultimately be for May. It appears that sales should be even YoY when all the late reporters are counted. These sales levels are extremely weak historically and just an indication of this highly engineered market. With the end of the tax credit it appears it is going out with a whimper not a bang, it looks like the SFV will be down slightly YoY when the late reporters check in.

San Fernando Valley home sales report - May 2010

2010-06-21T23:35:00.000-07:00

Note: I know that the weekly inventory reports are broken. Google broke their chart widgets and are working on restoring them.

San Fernando Valley Single Family Home sales for May 2010 came in at 679 which is up 5.43% MoM and down 4.10% YoY. This is the eighth straight month of YoY declines and the third worst May sales on record. The median price for single family homes came in at $385,000 which is down 1.58% MoM and up 10.00% 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 213 which is down 1.84% MoM and down 5.75% YoY. Median price for condos came in at $233,000 which is down 6.80% MoM and up 25.94% YoY. Condos are faring 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 extremely low historically, just not as bad as SFH.

The line that is most interesting in this graph is the top green line. This denotes pending sales booked in May. Notice the large (20.9%) decrease during prime buying season. The red line is predicting a sales increase for June but May's predicted increase was muted. June will be tepid and July may be cliff diving. There is evidence of a very weak May home shopping season in the national news as well. It looks like things could start to get interesting again.

Ventura County May 2010 Home Sales

2010-06-15T20:12:00.000-07:00

Dataquick reported home sales for Ventura County for May 2010 today. Home sales came in at 815 up a paltry 2.3% YoY. The median sales price came in at $380,000 up 7.00% YoY. This report was exactly in line with the prediction I made at the beginning of the month. Rising median is due to mix shift due to the low end running out of inventory the most plus some seasonal strength in the mid-level houses as those sellers have been cutting price to compete for buyers. Considering the Federal tax credit expiration and the ability to double dip and get the California credit too this is a surprisingly weak report.

There is a very strong possibility June will be weaker than people are thinking, current conventional wisdom is that June sales will be still be up YoY. We shall know with quite a bit of clarity in 2 weeks if that is true but it is looking very doubtful at this point.

Short Sale & Foreclosure for Ventura County - May 2010

2010-06-03T09:02:00.000-07:00

Here are the sales for Ventura County for May 2010. Sales are still very low, with late reporters I expect the official Dataquick numbers will be up slightly YoY at around 810 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. If you watch the weekly inventory report you can see the market weakening even in the face of sub-5% rates, contingents and pendings falling, sales stagnant. All this with massive incentives and choked off supply.. it is clearly a vain attempt to keep the market propped up. I fully expect more housing incentives to hit the market they will just have to wait until after the November elections.

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

2010-06-03T08:57:00.000-07:00

Here is the sales breakdown for the San Fernando Valley for May 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 sales will ultimately be for May. It appears that sales should be even YoY when all the late reporters are counted. These sales levels are extremely weak historically and just an indication of this highly engineered market. With the end of the tax credit it appears it is going out with a whimper not a bang.

San Fernando Valley home sales report - April 2010

2010-05-20T23:22:00.000-07:00

San Fernando Valley Single Family Home sales for April 2010 came in at 644 which is up 8.42% MoM and down 6.80% YoY. This is the seventh straight month of YoY declines and the third worst April sales on record. The median price for single family homes came in at $379,000 which is down 5.25% MoM and up 6.76% 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 217 which is up 2.84% MoM and up 3.33% YoY. Median price for condos came in at $250,000 which is up 16.82% MoM and up 12.20% 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 extremely 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 significantly for May.

Ventura County April 2010 Home Sales

2010-05-18T20:55:00.000-07:00

Dataquick reported home sales for Ventura County for April 2010 today. Home sales came in at 789 up 9.0% YoY. April has averaged 1,159 over the years so as you can see this April is significantly below average. The median sales price came in at $382,000 up 12.40% YoY. This report was exactly in line with the prediction I made at the beginning of the month. Rising median is due to mix shift due to the low end running out of inventory the most plus some seasonal strength in the mid-level houses as those sellers have been cutting price to compete for buyers. I've noticed a lot of price cutting by sellers the last few weeks and the weekly report for contingents and pendings is looking awfully light. There was a big rush right at the end of April for closed sales that registered late, I think Dataquick will pick those up in the May numbers because they go off of recorded deeds. We will see a historically weak but stronger than the year before May and June but July is starting to look pretty weak based on the data I am seeing.

Freddie Mac homepage addresses strategic default

2010-05-13T23:41:00.000-07:00

Going to the Freddie Mac homepage there is a link to this article:

A Perspective on Strategic Defaults
May 3, 2010 – As the mortgage industry works through a large volume of loan delinquencies, a new and growing concern has emerged: strategic defaults. In other words, borrowers who have the financial means to make monthly mortgage payments, but choose not to do so and, instead, purposely default on their loan.

Strategic defaults come from a variety of homebuyers: from real estate investors who sought to profit from rising house prices during the housing boom, to individual families who simply sought shelter. But these homebuyers have certain things in common: their properties reside in regions where house prices have declined considerably, and the amount still owed on the mortgage is far greater than the present value of the house.

Some in this situation believe they will be forever chained to a large debt owed when they sell the house. And so, even though they have the ability to keep paying the monthly bill, they have decided to walk away from the property without paying off the loan. An intentional foreclosure, if you will.

In essence, these borrowers are weighing the costs and benefits of a strategic default, and coming to a conclusion. Now, the costs can be considerable. Once a mortgage goes into default, a borrower's credit rating is severely tarnished, making it more expensive, if not impossible, to qualify for any new form of credit. In certain states, a borrower's personal assets can be subject to a deficiency judgment. And anything that involves a credit review, such as obtaining auto insurance or getting a new job, can be complicated. These detriments can be in effect for several years. The benefit: the borrower avoids paying for the lost equity in the house.

Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn't make it good social policy. That's because strategic defaults affect many other families and communities. And these costs – or as they are known in economic jargon, externalities – are not factored into the individual borrower's calculations.

Let's start with the neighbors. When strategic defaults occur, homes go into foreclosure and sit vacant for some period of time. We know from experience that foreclosures and vacancies drive down the property values of everyone else in the neighborhood. Thus, strategic defaulters, in effect, deplete the personal wealth of their neighbors. Get a critical mass of strategic defaults, and broader communities and regions become affected. Indeed, Economy.com, the analytic firm, recently said that more strategic defaults could tip a fragile housing market back into one of further price declines. Even more families harmed.

But that's not all. Should strategic defaults become more common, mortgage guarantors and investors, including Freddie Mac, would need to factor this risk more prominently into their credit policies and prices. The likely impact on future homebuyers: the cost of a mortgage will go up and credit terms will be less flexible. Thus, the impact of strategic defaulters on still more families might be more expensive mortgages and loans that are more difficult to obtain. The strategic defaulter does not usually consider these costs.

Do borrowers considering strategic defaults have other options? They do. For those who have not suffered any disruption in income and have a longer time horizon, simply continuing to pay the bills might be best. Over time, recovering house prices and declining mortgage balances likely will close some, if not all, of the equity gap. According to the Federal Reserve, while the housing bust wiped out $8 trillion in home equity, $1 trillion came back in 2009. The point here: time might be your best ally.

Another alternative: if Freddie Mac owns the loan, a family might be able to refinance up to 125 percent of the current property value. In other words, if a family's home equity has been completely wiped out and the mortgage balance is as much as 25 percent more than the home is worth, we can help.

What about families who need to move? We can help here, too. Freddie Mac has an array of solutions that help certain borrowers avoid the cost and stigma of foreclosure, such as short sales and deeds in lieu of foreclosure. And we continue to work on additional solutions that address would-be strategic defaulters while minimizing the impact on neighbors.

In the end, borrowers considering a strategic default should recognize the damaging impact their actions can have on others. While a personal financial strategy might argue for a strategic default, entire communities and future homebuyers can be harmed as a result. And that is why our broader social and policy interests will be best served by discouraging strategic defaults.

----------------------------------------

They sound desperate..

The wastefulness of the California home buyer tax credit coming to light

2010-05-13T22:36:00.000-07:00

From this article:

Funding for the credit could be used up within three weeks, said Michael Tessaro, a Realtor with East Bay brokerage J. Rockcliff Realtors and a director with the California Association of Realtors.
...
The overlap window in May and June to take advantage of both the state and federal tax credit prompted many buyers to delay closing escrow until May so they also could apply for the state credit, Tessaro said.

Three clients decided to delay closing escrow on homes until this week so they could get both credits, said Faramarz Moeen-Ziai, a mortgage banker with the San Ramon-based Bank of Commerce Mortgage.

Even with very generous NAR assumptions of 18% of purchases being stimulated by the incentive the cost per sale will be ~$54,000. As you can see above the number of people were buying anyways and just lengthen the escrow of the house they were already purchasing to double dip on tax credits. It'd be really interesting if somebody commissioned a study and interviewed a sample of people who received the credit and see if they said that they wouldn't have purchased a home without the California credit. I am betting the number of people who claim this is true is much less than 18%.

I've spoken on the wastefulness of the tax credit before. Here and here (make sure you read the comments). Some excerpts:

It (the tax credit) only works if new demand is created not if it just goes to pay off existing demand. The size of the market is so huge relative to the tax credit that it literally a drop of water on a hot plate.. instantly boiled away in a flash of steam.

I think history will show the above bolded statement to be exactly correct.

The tax incentive will apply to 20,000 homes (200 million divided by 10,000 dollar). The CAR prediction for home sales for 2010 is 527,000 or 43,916 homes a month average. First time homebuyers are 47% of the market. So the tax incentive would go to slightly less than one months worth of first time home buyers (43,916 * .47 = 20,640). If I wanted to get the tax credit it would be extremely difficult to time a purchase and get. Escrows are lasting anywhere between 30-60 days if it's a relatively clean sale.. You have a 30 day window in which to close and (MAYBE!) get the credit. One lost piece of paperwork, one appraisal coming in low and needing re-ording, one thing wrong and you don't get the credit. If everything goes right you still aren't assured to get the credit since the money is limited and it is first come first served. There is a very long lag in the home purchase process, making the tax credit a crap shoot for purchasers.

What people are doing is that people who were buying anyways then just extended their escrow to close as soon as they were eligible for the credit. Anyone buying recently thinking they will get the credit is a fool.

The State could literally create more jobs by buying $200 million of new homes and then burning them to the ground. That plan would be MORE EFFICIENT than the one currently on the table, that is how bad this plan is.

I never went laid out the math in a discrete post but have put all the constituent parts on the blog and have no doubt the above is true.

This was truely a $200 million boondoggle that anyone with any bit of understanding of the market could see coming.

One last summary quote and a proposed alternative for creating demand in a less wasteful fashion if you just have $200 million burning a hole in your pocket from the previous posts:

The measure would largely just give money to people who were buying homes anyways. It would pull forward demand instead of create it.If the Governor just has to spend $200 million on housing, it would be much better used either funding the state housing agencies (CALHFA) for loans or making the credit much smaller ($1,000 - $2,000) or limit it to new homes like the previous credit to be less wasteful. I respect the very difficult choices that need to be made right now but this is really an easy one as far as economic benefit.

Strategic defaulters talking...

2010-05-04T22:32:00.000-07:00

There is always a bunch of great threads going on over at loansafe.org. The tactics for delaying foreclosure, stalling short sales and just overall lengthening out the process so they live rent free.

I was enjoying this thread tonight. The protagonist in question has three non-recourse CalHFA loans and has decided to strategically default (they can still pay but see no reason to do so) and is trying to keep the process going as long as possible. When the bank calls he asked for a loan mod packet and when they call back he asks if he got his loan mod paperwork... which he hasn't sent. He also is apparently agreeable to a short sale even though he has no plans to actually cooperate for a short sale.

This persons experience isn't unique as other people are jumping into the thread with their CalHFA default experiences. The forum in question is filled with strategic default threads.

The kid glove approach by servicers (forced upon them by the administration) has help spawn this activity. It makes even more sense to strategically default the longer the timeline is for foreclosure. People have figured this out en masse and the people not smart enough to figure it out for themselves are just a click away from figuring it out.

The gaming of the system is massive and the losses are going to borne by the honest taxpayers who pay their rent or mortgage and their taxes. The reason the servicers took a hard line on borrowers over mods and forbearance is to reduce the loss severity and prevent gaming of the system. But Uncle Sugar knows better and is making it much worse in the belief they will keep home prices high. I think at the end of it all we will have the massive losses distributed to the taxpayers and lower home prices after years of market stagnation. But the politicians keep telling us this is better. Apparently they don't use google and open their eyes to what is going on.

Updated Reconstrust foreclosure charts

2010-05-01T22:10:00.000-07:00

Here is an updated chart showing Recontrust NTS and houses taken back by the bank or sold to a third party. We are seeing a leveling out of REOs and NTS, keeping an eye out for spikes or drops will let us see if the liquidation wave grows or wanes.

Short Sale & Foreclosure for Ventura County - April 2010

2010-05-01T22:03:00.000-07:00

Here are the sales for Ventura County for April 2010. Sales are still very low, with late reporters I expect the official Dataquick numbers will be down slightly YoY at around 775 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.

The increase in short sale percentages was interesting as this was the first month of HAFA. But I didn't see a corresponding increase in short sales in the SFV so at this time I will just keep any eye out to see if its a trend or an anomaly.

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

2010-05-01T21:59:00.000-07:00

Here is the sales breakdown for the San Fernando Valley for April 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 will ultimately be for April. 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.

San Fernando Valley home sales report - March 2010

2010-04-28T09:12:00.000-07:00

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.

Max FHA Debt to Income ratios.

2010-04-26T19:37:00.000-07:00

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.

Half a percent down FHA in California

2010-04-22T23:04:00.000-07:00

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
$103,320.
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

2010-04-22T21:08:00.000-07:00

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.

California Shadow Inventory Report - Q1 - 2010

2010-04-21T20:06:00.000-07:00

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.

Updated Reconstrust / BofA foreclosure charts

2010-04-14T08:58:00.000-07:00

NTS:

REO:

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

2010-04-14T00:24:00.000-07:00

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.

Ventura County Trustee sales for March 2010

2010-04-02T08:17:00.001-07:00

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

2010-04-02T08:14:00.000-07:00

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

2010-04-02T08:09:00.000-07:00

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

2010-04-02T08:04:00.000-07:00

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.

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

2010-04-01T09:00:00.000-07:00

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

2010-04-01T08:29:00.000-07:00

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.

On that BofA increasing foreclosures rumor...

2010-03-31T22:51:00.000-07:00

In case you haven't heard, Irvine Housing Blog said they were are at a conference on Friday when the "OREO Managing Executive for West Region" of BofA said they would be increasing the number of foreclosures a month from 7,500 to 45,000 (this wasn't just for California).

One of the data points pointing to this statement coming to fruition can be seen in my tracking of data from Recontrust the trustee that was acquired during the Countrywide deal. They handle many of the old Countrywide (now BofA) loans.

Here are the Notice of Trustee Sales:

Here are the foreclosures made on a rolling 30 day basis:

As you can see these numbers do seem to be spiking. We shall see if this trend continues.

Picking winners and losers...

2010-03-29T23:22:00.001-07:00

From an interview with Barry Ritholtz on NPR (emphasis mine):

SIEGEL: But what's the risk of providing some kind of mortgage relief, whether it's a suspension of full monthly payments, or whether it's a reduction in the principal for somebody whose house plummeted in value and who is also unemployed and really will have a very hard time making the payments regardless?

Mr. RITHOLTZ: From a broad perspective, again, you're keeping them in a house that they can't afford, and they'd be much better off going to a place that leaves them a little spare change in their pocket, as opposed to just draining everything they have to make those payments.

Secondly, if these banks have their balance sheets just festooned with bad loans, we're not allowing them or not forcing them to do what they're supposed to do, which is take the write-down, get it off their books, free up some capital and move forward as a healthy lending institution.

SIEGEL: There's another party to this I want you to address, and that is homeowners who are not underwater, indeed who may have paid off their mortgage or never had a mortgage, for that matter. If the banks, indeed, do clear of all the bad mortgage loans from their books, and we foreclose on everything that's to be foreclosed on, everyone's real estate values would go down as a result, wouldn't they, and therefore homeowners have a stake in seeing that not happen?

Mr. RITHOLTZ: Yes, that's true. But remember, a lot of the value that we've seen, the quote-unquote "price gains in homes," were completely artificial. So by propping up home prices, you're punishing everybody who is waiting to buy a house. Anybody who's been saving, you're forcing them out of the housing market because you're artificially maintaining this house price. And I say this as someone, we own a home, we have a vacation property. It's not in my interest to see home prices come down. But for the rest of the economy, it's in our interest to see prices normalize, and that hasn't happened yet.

The government is picking winners.. they are first and foremost the banks... and secondly the people who strategically default and don't get foreclosed on because the government has massively interfered with that process. I'm sure many strategic defaulters will win twice... first not paying and then.. eventually getting a heavily modified mortgage and resuming paying. Renters, taxpayers and savers get the shaft (pretty much in that order). Lucky for me I am all three!

A fair overview of strategic default

2010-03-29T23:15:00.000-07:00

I thought this article was a pretty fair conversation of strategic default. I think it is notable because in general most articles are biased against strategic default or any of the other options on the table. While I don't think this article is particularly earth shattering I am heartened to see at least a fair conversation as to the alternatives being represented.

Rewarding bad behavior...

2010-03-29T00:26:00.000-07:00

From "Report shows strategic defaults increasing" (emphasis added):

Even more interesting are other charts that demonstrate borrowers…
…are intentionally defaulting to take advantage of the [HAMP] modification program. Or at least to take advantage of extra time living in the house rent free, courtesy of the modification program.
...
Amherst concludes:
Borrowers respond to their economic incentives. This has always been the case, be it for refinancing or for defaulting on mortgages that are deeply underwater. Over the past year, however, property values have been largely steady, but the environment has become much more kind to borrowers. There have been foreclosure moratoriums, the emergence of the HAMP modification effort, and the attendant increases of time spent in the delinquency/foreclosure pipeline, as well as a stretching out of the liquidation process in judicial states. As a result, borrowers can stay in their home rent free for a much longer period than was previously the case. However, few of these benefits apply to investor properties. Thus, when we look at the difference pre- and post-HAMP in the behavior of owner-occupied borrowers versus that of non-owner occupants—we find a dramatic difference in performance. Owner-occupied borrowers behave far worse than their non-owner occupied counterparts.

Reward bad behavior and it turns out you get more of it. Who knew? The governments goal of keeping housing prices high to minimize losses to the banks is in fact causing more losses. You now have a stagnant market and borrowers deciding to do what is in their best economic interest, namely live rent free and pocket the money until they get kicked out. I was in a house today that the owner had a NOD filed for over a year before getting sold, they then stayed in the house for 6 more months after the trustee sale. With an average NOD filing taking 5 months that means these people potentially lived rent free for two years. If the lenders hands are basically tied from foreclosing, and thanks to all the government interference they are, then it is the best move of the borrower live rent free for as long as possible. I also wouldn't be surprised if they get cash-for-keys at the very end. You'll find out very quickly who wants and is economically able to keep their home if you made it easier to foreclose instead of harder. Instead all the roadblocks to foreclosure have incentivized strategic default.

San Fernando Valley home sales report - February 2010

2010-03-28T16:58:00.000-07:00

San Fernando Valley Single Family Home sales for February 2010 came in at 458 which is down 7.29% MoM and down 4.58% YoY. The median price for single family homes came in at $375,000 which is down 1.32% MoM and up 10.33% YoY. The supply constrained market is hurting sales in the SFV. Based on what I am seeing in the weekly inventory reports that doesn't appear to be changing anytime soon.

Condo sales came in at 190 which is down 6.86% MoM and up 17.28% YoY. Median price for condos came in at $227,000 which is up 5.58% MoM and up 8.09% 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.

Ventura County February 2010 Home Sales

2010-03-17T20:50:00.000-07:00

Dataquick reported home sales for Ventura County for February 2010 today. Home sales came in at 580 up 6.4% YoY. The median sales price came in at $350,000 up 7.0% YoY. This report was exactly in line with the prediction I made at the beginning of the month. Slowing YoY sales due to constricted inventory, the second worst monthly sales on record. The market is in an artificial state, low sales and high prices because that is exactly the stated goal of the various government agencies. This month I added in the YoY change graph, as the year progresses I think we will see a shallow decline in solds as the low inventory state has shown no sign of abating. Median YoY changes are highly dependent on mix shift (especially in this small of a market) so I don't have much of a prediction there.

Principal Reduction plan coming to Fannie/Freddie soon?

2010-03-10T08:49:00.000-08:00

From the Huffington Post:

A senior Treasury official told HuffPost on Monday that the department was heading towards more writing down of principal as part of its mortgage modification efforts, and that an announcement was to be expected in the next few weeks. But a Treasury spokesman e-mailed to say that Treasury was "NOT poised to roll out a major principal write-down program."

Anyone want to bet against Fannie/Freddie rolling out a principal reduction program and the Treasury backing them in the next few months? The above quote makes complete sense when taken in that context. That way the Treasury doesn't get blamed for supporting "moral hazard" but is still putting the taxpayer on the hook for bailing out homeowners. Treasury can say that Fannie/Freddie made the decision and Treasury merely is doing everything it can to keep Fannie/Freddie afloat to keep mortgage funding going.

Ventura County Trustee sales for February 2010

2010-03-08T06:28:00.000-08:00

Ventura County Trustee Sales for February 2010 came in at 253. This is essentially flat to the previous months on a foreclosure per day basis. The market continues in its static state with no change apparent on the horizon.

Trustee Sales for Los Angeles County February 2010

2010-03-08T06:25:00.000-08:00

Los Angeles County Trustee sales came in at 2515 for February 2010. Flat to slightly lower on a foreclosure per day basis.

Orange County Trustee sales for February 2010

2010-03-08T06:23:00.000-08:00

Orange County trustee sales for February 2010 came in at 670. As always I am impressed with the number of third party sales in the OC.

San Diego Trustee Sales February 2010

2010-03-08T06:20:00.000-08:00

San Diego trustee sales for February 2010 came in at 1090, Basically flat on a foreclosure per day basis to the previous months.

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

2010-03-02T23:43:00.000-08:00

Here is the sales breakdown for the San Fernando Valley for February 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 February . 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 - February 2010

2010-03-02T23:35:00.000-08:00

Here are the sales for Ventura County for Febuary 2010. Sales are still very low, with late reporters I expect the official Dataquick numbers will be up a bit YoY at around 580-600 sales (still very low historically). 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. Short sales and foreclosures are around half the market but the shift has been ongoing for some time from predominately foreclosures to an even split of short sales and REO.

San Fernando Valley home sales report - January 2010

2010-02-24T08:47:00.000-08:00

San Fernando Valley Single Family Home sales for January 2010 came in at 494 which is down 22.45% MoM and down 4.63% YoY. The median price for single family homes came in at $380,000 which is down 5.00% MoM and up 8.57% YoY. The supply constrained market is hurting sales in the SFV. Based on what I am seeing in the weekly inventory reports that doesn't appear to be changing anytime soon.

Condo sales came in at 204 which is down 13.55% MoM and up 22.90% YoY. Median price for condos came in at $215,000 which is down 10.41% MoM and up 13.15% 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.

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. Anyways the predictor is predicting sales flat for February.

Ventura County January 2010 Home Sales

2010-02-17T08:14:00.000-08:00

Dataquick reported home sales for Ventura County for January 2010 today. Home sales came in at 530 down 8.3% YoY. The median sales price came in at $360,000 up 7.5% YoY. This report was exactly in line with the prediction I made at the beginning of the month. Slowing YoY sales due to constricted inventory, the second worst monthly sales on record. The market is in an artificial state, low sales and high prices because that is exactly the stated goal of the various government agencies. It is amazing to think that their goal is to keep housing unaffordable but that is exactly what is happening.

Just to add to the insanity, I have a bid in on another house. The price isn't great but the house meets every one of our other criteria and I've only seen one other houses since 2005 that has done that even close to our price range.

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

2010-02-04T23:03:00.001-08:00

Here is the sales breakdown for the San Fernando Valley for January 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 January. It appears that sales should be higher YoY when all the late reporters are counted but not significantly strong. These sales levels are extremely weak historically and just an indication of this highly engineered market.

Short Sale & Foreclosure for Ventura County - January 2010

2010-02-04T22:56:00.000-08:00

Here are the sales for Ventura County for January 2010. Sales are still very low, with late reporters I expect the official Dataquick numbers will be down a bit YoY at around 550 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.

If you think I get bored typing the same thing month after month since last January or so you'd be right!

Ventura County Trustee sales for January 2010

2010-02-03T22:57:00.000-08:00

Trustee sales for January 2010 in Ventura County came in at 271. With the Treasury announcing the HAMP foreclosure freeze I am surprised sales were even this "good". So far the market is still in a static state. The HAMP guidance given last week gives me a bit of hope that the impasse might be broken but it is an election year and people have shown an unending capacity for doing anything to prolong the crisis instead of dealing with reality.

Trustee Sales for Los Angeles County January 2010

2010-02-03T22:50:00.000-08:00

Los Angeles County Trustee sales came in at 3069 for January 2010. Essentially flat compared to the last quarter of 2009.

Orange County Trustee sales for January 2010

2010-02-03T22:47:00.000-08:00

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

San Diego Trustee Sales January 2010

2010-02-03T22:38:00.000-08:00

San Diego trustee sales for January 2010 came in at 1285, Basically flat relative to the last quarter of 2009.

HAMP changes.

2010-01-31T00:29:00.000-08:00

The HAMP insanity continues. Back in July of last year the administration took servicers to task for not offering enough trial modifications. The servicers said it was because they asked for a minor amount of paperwork from the borrower first since it made no sense to start a trial mod if there was zero hope of the borrower getting a modification. The administration, wanting to hit their announced trial mod number, said that wasn't good enough and that anyone calling for a HAMP mod should immediately be put in a trial mod. This had the effect of the administration hitting their announced modification number. Then it turns out very few of the trial mods were turning into full modifications. Turns out many of the borrowers wouldn't qualify for a full modification and many months were lost and the losses built up. So what does the administration do? It now has brilliantly directed that servicers shouldn't put any borrower in a trial mod without getting some basic paperwork from them first.

One of the good news that came out of the latest directive is a bit of sense of dealing with reality. The directive stated that trial mods that missed payment or missed the majority of the paperwork should be kicked out and go into "foreclosure alternative" (short sale / deed in lieu) phase. That is good news in that the stagnant market might be getting some more supply on the market. The sooner we get to dealing with the facts on the ground instead of dreaming up pie in the sky magic bullets the sooner we will be done with this mess.

You can read all the HAMP changes coming here.

Note: Although this post sounds vaguely optimistic, I fully realize that the administration is working on another modification proposal and that we will be going back to fantasy land soon enough.

On the FHA guidelines changes

2010-01-31T00:18:00.000-08:00

Recently the FHA changed their underwriting guidelines. They have increased the up front mortgage insurance premium from 1.75% to 2.25% of the loan, required FICO's under 580 to have 10% down and capped the maximum seller contributions at 3%.

Considering the losses that FHA is facing these are extremely mild changes and will be negligibly felt by the market. The FHA is even looking to soften the blow by getting authorization to increase the monthly premium to a rumored 75bps up from 55bps and then decreasing the up front premium back down to 1.75%.

The lending industry breathed a big sigh of relief that the changes were so minor. The taxpayers on the other hand get to pay for the losses.

I got a loan modification, now what?

2010-01-26T23:30:00.000-08:00

Note: The thread title is deceptive, I didn't get a loan modification. That would be especially difficult since I rent. I thought it apropos based on the NPR article I read today.

NPR hits the nail on the head about a homeowner who successfully got a loan modification. The question now becomes... Now what?

Salter needed to lower his $2,300 monthly payment because he lost his job as a human resources executive — and with it, 40 percent of his family's income.

It took a year, but his lender, Chase, offered to extend the mortgage from 30 to 40 years and lower the interest rate from 6.8 to 2 percent. That would cut his payment roughly in half, which makes Salter's initial reaction to the offer seem bizarre.

"I call it extortion," Salter said. "Government-backed extortion. I mean, who in their right mind would accept this? No one would. No one should."

The mortgage modification solves a short-term problem: It allows Salter to stay in his home. But it doesn't address a long-term issue. Salter's mortgage is about $300,000. Today, his home is worth $125,000. He's underwater.

To prevent fraud and to gain on any upside in housing lenders will defer principal to the end of the loan. The balance isn't due until the end of the loan. This borrower got $107,000 deferred. He is just now realizing he is renting the home from the bank. He always was. I just wonder how many loan mod success stories will come to the same realization.

The "Black Box" and loan modification

2010-01-26T22:57:00.000-08:00

MSNBC had an article today on the "flaws" in HAMP modifications. I think it misses the mark almost entirely about the real purpose of the program and also misses much of the publicly available information about HAMP.

First on the "Black Box" of the Net Present Value calculation:

Under HAMP guidelines, lenders can deny a loan modification if the “net present value” of the new loan is less than the return they would get from not offering a new loan and going through In other words, the official guidelines allow mortgage servicers to base their decision entirely on whether the outcome is in the best interest of the lender or investor, not the homeowner.
Because the Treasury has kept the formula a secret, homeowners who have been rejected for modification can't check the lender’s math to correct possible mistakes about the borrower's income, home value, credit score or other critical pieces of
data.

Just for clarity, the servicer does a calculation and says is the present value of cash flows of the modified mortgage worth more now than foreclosing on the borrower. If the cash flows are worth more now, don't foreclose. The guidelines for the formula itself are on the HAMP servicers site here and here. What is of more interest is the inputs to the formula than the formula itself. If you are negative about price appreciation then it is harder to do loan modification, differences in geography and loss severity will affect the ability to get a modification as well. Also what the return on investment an investor thinks they can get will affect the ease of modification. The servicer is a FIDUCIARY of the investor, not the homeowner. It must have the best interest of the investor at heart. The homeowner doesn't have the right to check the servicers math, they can pay or not pay, that's their choice.

The servicers are in between a rock and a hard place. If they want to stay in the servicing business they better listen to their investors but the regulators can make their life hell if the don't listen to them. Add in a new directive coming from the Treasury every week changing the HAMP guidelines and it is no wonder the servicers are paralyzed. We now have the the Tresury telling the servicers not to foreclose in almost all cases while awaiting further HAMP guideline changes. The state of paralysis of the market will reach even more staggering levels. The servicers are being asked to underwrite loans after the loans have been made and if the decision comes out to basically "not make the loan" the Treasury says "then you must be doing it wrong, go back and try again".

The loan modification process is easily defrauded. Borrowers are benefitted for reduced cash flows, if you have an extended family and were using money from them living at home to pay your mortgage... just say now that money isn't available and ask for a modification based on your salary (this is just one example, there are many others, especially for self employed or people getting paid under the table). The lender can't tell who is pulling a fast one and who is in need of true help. We are maximizing the loss to the banking system instead of minimizing it. Foreclosing on people gives them a real choice to make. They can step up and pay or lose the house. In areas with a large amount of supply the NPV test leans towards modification, with less supply on the market the investor can liquidate for less loss severity so the NPV test leans to foreclosing.

We have had several incredible programs available for rate and term refinances of underwater homes, that should be sufficient to save the ones that can and should be saved. Standard forebearance options should be available for the temporary hardship issues. All the rest should be given the option of paying or going. It really isn't much more complicated than that. Loan modifications aren't a magic bullet for stemming losses, There are no magic bullets. The industry has known and tried modifications before and has seen their flaws.

San Fernando Valley home sales report - December 2009

2010-01-25T02:02:00.000-08:00

San Fernando Valley Single Family Home sales for December 2009 came in at 637 which is up 9.45% MoM and down 7.81% YoY. The median price for single family homes came in at $400,000 which is up 1.27% MoM and up 13.31% YoY. The supply constrained market is hurting sales in the SFV. I don't see any near term catalyst to drive sales higher, just a long slow slog while we get to wait and guess what the government is going to next to "fix" housing.

Condo sales came in at 236 which is up 17.41% MoM and up 2.16% YoY. Median price for condos came in at $240,000 which is up 6.67% MoM and up 6.67% YoY. Condos are faring a bit better than SFH because there is more supply and it appears some buyers are choosing to buy a condo when they can't find what they want in a detached home.

Ventura County December 2009 Home Sales

2010-01-19T20:03:00.000-08:00

Dataquick reported home sales for Ventura County for December 2009 today. Home sales came in at 896 up 2.3% YoY. The median sales price came in at $360,000 up 6.5% YoY. This report was a bit surprising to me because all of the data up through January 3rd (last time I looked) showed sales coming in down 10% YoY. The number of late reporters this year was much higher than normal by at least triple. Also the number of sales that aren't seen through my data sources were higher than average so my formula for predicting sales under predicted by much more than I have seen. This was the strongest December in the last 3 years but still a very weak sales volume. To put it in context if you look at the top chart you will notice this December doesn't even match the ultra-slow January/February sales volume for most years this past decade.

I still believe we will have a weak spring due to constricted supply caused by HAMP and higher mortgage rates. We shall see how things unfold this coming year.

ForeclosureRadar: More trustee sale cancellations than trustee sales

2010-01-13T01:10:00.001-08:00

The ForeclosureRadar December 2009 foreclosure report is out:

Foreclosure activity dropped dramatically in December, especially when looked at on a daily average basis. For example while Notices of Default dropped 17.5 percent in aggregate, they actually dropped 32.5 percent on a daily average basis due to the fact that December had 22 days on which documents were recorded, versus 18 in November.

“The dramatic drop in foreclosure activity may have been a Christmas gift to homeowners,” says Sean O’Toole, Founder and CEO of ForeclosureRadar.com, “however, given rising mortgage delinquencies it is becoming increasingly clear that foreclosure activity no longer fully represents market realities”.

Less supply, less sales, paralyzed market for 2010 if something doesn't give.

The walking away meme.

2010-01-11T20:51:00.000-08:00

Since the New York Times did an article on walking away from a mortgage a bunch of people are commenting that walking away will become mainstream. I've always wanted walking away to be talked about for its pros and cons, a rational discussion of all the facets regarding the option. Many people think the moral obligation trumps all others. Others think it is a pure business decision and if X is greater than Y you walk away.

On the moral decision I thought this post framed it best as to why just because you bought a home doesn't mean you are obligated to destroy yourself financially:

The loss was something that lenders could have anticipated at least as easily as borrowers. The reality is that ordinary people are lousy at figuring out the ins and outs of real estate transactions. Relying on the one act rule to get out of a mortgage is not to abuse the system--it is to use the system in precisely the way it was intended to be used. The reason that the one act rule exists is that lenders and developers have through the years shown a great deal of ability to maneuver unsophisticated buyers into crummy real estate deals. The reason that the one act rule exists is to put the risk of these deals on the lender, not the buyer. The purpose is to discourage bad underwriting, dishonest marketing, and unjustified price inflation by making it very, very hard for a lender to get back the money if they lent more on a mortgage than a house was worth. The system is designed to let people walk away. California has a system that puts a higher premium on keeping people out of debt slavery than avoiding bank losses.

There are many variables to the issue and the layers involved are enormous and extremely individual to each borrower. Some people have reputational risk. Others need access to credit so their credit scores are very important. Some have recourse mortgages. Some can ride out the loss. Some are completely emotionally tied to the home for one reason or another. Others would never be able to recover financially from the one bad decision of buying a home during a bubble.

I don't think walking away has become mainstream yet. I think most of the borrowers are sticking it out and trying to make ends meet and don't even know how to rationally weigh all the issues at hand. I think if many did the math would dictate they walk. Instead I think many will just keep paying until the money runs out or they need to move due to normal life events.

The good ole days...

2010-01-11T19:44:00.000-08:00

From Broker's Outpost a forum for mortgage brokers regarding a recently closed refinance:

I just closed this week on a RENTAL property- NO APPRAISAL, STATED INCOME SELF EMPLOYED, STATED ASSET, 105% LTV (based on automated value). Original loan HAD Mortgage Insurance even! The customers did not have a great credit score, but as you may know the TOTAL adjustments are capped at 1.75%.

It was like 2005 all over again.

In case you are wondering how this is possible, Here is Freddie Mac's data regarding the program in question called "Relief Refinance Mortgages".

Both the Same Servicer and Open Access options under the Relief Refinance Mortgage offering allow LTV ratios up to 125 percent, unlimited TLTV/HTLTV ratios, and relief from standard mortgage insurance requirements to provide qualified borrowers with expanded refinancing opportunities.

They figure they are backing the loan anyways so they might be able to improve their book by refinancing people at todays lower rates. As far as the bubble era no underwriting, I think drinkers call it "Hair of the dog that bit you".

Trustee sales cancellation spiking, sales falling

2010-01-11T08:29:00.000-08:00

Just a quick note, no spiffy chart or anything. In watching the Ventura County trustee sales I've noticed cancellations have been spiking and last weeks post-holiday moratorium trustee sales were lower than normal relative to the number of homes offered (by about 20-25%). The administrations haranguing of the servicers over the lack of HAMP mods is probably to blame.

What this means for the upcoming season is that inventory will be lighter and thus sales will be even more constrained. We will probably be seeing year over year sales fall through the first half of the year at least unless trustee sales pick up within the next 45 days. Then with rates going up by June due to stopping of MBS purchases by the Fed we will get constrained sales because buyers will have less purchasing power. It is shaping up to be pretty grim prospects for the year for sales volume.

New details emerge for the California tax credit..

2010-01-07T09:12:00.001-08:00

Jon Lansner over at the OC Register points out the new tax credit will be for First Time Home Buyers only. Does this change the math much on the wastefulness of this program?

First off, Does the market need stimulating? We must have massive supply of homes just sitting on the market needing to be sold.. Right? Well looking at the facts shows otherwise. From the latest CAR report here is California's months supply of inventory. Remember 6 months is considered a balanced market. Anything under 6 months is a sellers market.

4 months! This is not a market that needs stimulating. There is a tremendous amount of supply not on the market because the government is keeping it off the market. Until that supply reaches the market the market will be supply constrained and not in need of stimulating. It is completely the wrong time for the stimulus.

Now lets see how wasteful the stimulus is, here is the percentage of first time home buyers from last year:

The real question is how many new first time home buyers would buy with the stimulus. We can roughly estimate that by the national tax credit. From the NAR press release:

NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit.

So about 18% of sales were stimulated, some will argue they were just pulled forward instead of new sales created but we will leave that aside. That means each additional new sale costs taxpayers $54,340! Awfully expensive way of "stimulating" sales. The CBIA estimates that $16,000 is taken in for every new home sale purchased and that 3 new jobs are created per home. We can see that the number of new homes that will be purchased during the time frame will be about 3,000 but the number of new homes that wouldn't have been purchased anyways is only about 550. We can also see that the stimulus is a money loser not a money maker like the CBIA suggests :

Snow noted that because building a new home generates some $16,000 in state tax revenues alone, a new tax credit would more than pay for itself.

If anyone has trouble with the way I have come up with the numbers please email on the right hand side, I'm a bit rushed this morning and don't have time to lay it all out in the post. The numbers all come from industry sources and are contained in todays and yesterdays post on this topic.

The really important points to remember is that the market doesn't need stimulating and that the tax credit is an extremely expensive way of stimulating sales.

Why Arnold's proposed tax credit is extremely wasteful..

2010-01-06T20:02:00.000-08:00

“Third, to stimulate other construction jobs, you will receive a proposal for homebuyer tax credits of up to $10,000 for the purchase of new or existing homes.” (Gov. Arnold Schwarzenegger, State of the State Speech, 1/6/10)

The new proposed tax credit is for $10,000 for a purchase of a new or existing home. $200 million is going to be set aside for this purpose. This means that 20,000 buyers would be getting the credit. To put this in context there is going to about 540,000 sales this year, or average 45,000 sales a month. Less than one half of one month sales would get the credit. It would literally be a free for all to try and rush to get the credit. I could see many people wanting and expecting to get the credit not get it because it would run out instantly. Now this would fit in fine with the governments goal to encourage sales but if you bought a home expecting (or NEEDING) to get the credit and didn't get it.. that is a very bad thing. Also it would move sales forward into a very small slice of time and I could see many escrows being cancelled once the credit runs out.

For its main point of stimulating construction jobs it would fail miserably. By far the most jobs are created through new home construction. New home sales averaged 3,000 homes a month in 2008. So a half of month of sales would mean 1,500 new homes would be purchased. It would imperceptible in the jobs data to see the "improvement" caused by these sales. This would be a $200 million boondoggle, an extremely expensive way of gaining very few jobs in a cash strapped state. I hope the Governor realizes that and saves the money for education or medical. I believe the Governor had his brokers license (he saved the "loop hole" for four year degree people to get a brokers license last year) at one time and so would naturally be pro-housing.. but this is a very poorly designed measure.

The measure would largely just give money to people who were buying homes anyways. It would pull forward demand instead of create it.

If the Governor just has to spend $200 million on housing, it would be much better used either funding the state housing agencies (CALHFA) for loans or making the credit much smaller ($1,000 - $2,000) or limit it to new homes like the previous credit to be less wasteful. I respect the very difficult choices that need to be made right now but this is really an easy one as far as economic benefit.

Here is the statistics showing the stimulus would be far too small relative to the size of the market.

Here is the new homes data.

San Diego Trustee Sales December 2009

2010-01-04T23:11:00.000-08:00

San Diego trustee sales for December 2009 came in at 1039. The drop from the previous month is mainly due to the fewer sales scheduled during the last half of the month.