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

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

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

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

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

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

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

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

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

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...

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

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

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

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

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.

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

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

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

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

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

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

Updated Reconstrust / BofA foreclosure charts

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

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

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

Trustee Sales for Los Angeles County March 2010

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

Orange County Trustee sales for March 2010

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

San Diego Trustee Sales March 2010

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

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

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

Short Sale & Foreclosure for Ventura County - March 2010

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