0 Housing in For Long Road to Recovery

From San Francisco Fed President John Williams: The Outlook for the Economy and Monetary Policy

Some excerpts on housing: 

One of the most important currents holding back recovery has been housing. The collapse of the housing market touched off the financial crisis and recession. In most recessions, housing construction falls sharply, but then leads the economy back when growth resumes. As you well know, that snapback hasn’t occurred this time. Before the crisis, residential investment as a share of the economy was at its highest level since the Korean War. Today, housing construction remains moribund and residential investment as a share of the economy has fallen to its lowest level since World War II.

On one level, that’s not surprising. We simply built too many—in fact, millions too many—houses during the boom and we are still feeling the effects of this overhang. Consider housing prices. From their peak in 2006 until early 2009, home prices nationwide fell by nearly a third. When you exclude distressed sales, prices appeared to bottom out in 2009 and early 2010. New housing starts also appeared to stabilize in 2009, after plummeting some 75 percent during the housing crash. ...

The $64,000 question is when will the housing market finally recover? One daunting challenge for such a recovery is the huge number of homes in foreclosure. Almost 7 million homes have entered into foreclosure since the first quarter of 2008 and some 2 million are still in the foreclosure process. In addition, there is a shadow inventory of homes currently owned by delinquent borrowers. When you add up unsold new houses left over from the boom, homes for sale by owners, foreclosed residences for sale by lenders, and the shadow inventory of houses at risk of distressed sale, you come up with a massive supply overhang.

Over time, more reasonable prices and an improving economy ought to bring buyers off the sidelines and set the stage for recovery. But high unemployment and anemic wage gains are leaving people worried about their income prospects and cautious about buying homes. Also, the dramatic plunge in home valuations since 2006 has made some first-time homebuyers wary about entering the market because of worries that prices might fall further.

These are key points: Usually housing is a key engine of recovery, but not this time because of the massive supply overhang. And looking forward: 

It’s only a matter of time before we work off the inventory overhang and construction picks up. How much time it takes will depend in part on what happens with foreclosed properties. If we begin making progress on working down the foreclosure inventory, then single-family housing starts could plausibly rise from their current level of about 400,000 per year to an average level of perhaps 1.1 million per year in three or four years, according to research at the San Francisco Fed.⁴ To put this in perspective, such an increase would boost real gross domestic product, or GDP, by at least 1 percent.

⁴ By contrast, if we can't work down the foreclosure inventory, then a return to normal construction levels could be delayed several more years. 

Detail: Housing in For Long Road to Recovery

0 Foreclosure Wave Continues to Grow

From Matt Padilla at the O.C. Register: Foreclosure wave gathers momentum

“To say there is a second wave implies the (current) wave has receded,” [Sam Khater, senior economist, First American CoreLogic] “I don’t see that the wave has receded.”

Click on graph for larger image in new window.

This graph is from Matt based on data from American CoreLogic.

Khater said ... federal and state efforts have mostly delayed foreclosures, preventing few. ... So to tune out the noise, just look at the 90-day rate. In Khater’s view it shows “one giant wave.”

90 day delinquency rate: "everything 3 months late or more. Likely includes most all Foreclosures in Process. The categories are not separate."

Foreclosure Rate is actual foreclosures in process: "Everything with NOD and Trustee's Sale filing."

REO Rate: "Everything foreclosed but still held by bank or servicer. This category is separate from other two."

Mr.Mortgage Summary:Expect to see more home inventory come on the market in the next two years. It takes 12-14 months after a payment is missed to actually get listed by a realtor for sale as an REO. With the unemployment rate at 10% give or take that is a lot of new folks entering the foreclosure line. This will pressuree prices in market that were the former bubble states.

reposted from Calculated Risk.

Detail: Foreclosure Wave Continues to Grow

0 Listen:Option ARM Time Bomb is Ticking

We have discussed these toxic loans over the last two years as the real wave that will wash over the country ultimately resulting in massive foreclosures in CA, NV, FL, WA, OR, AZ etc. These products were pushed like nothing else by WAMU, INDYMAC and Countrywide. Notice anything about that list of banks? All gone, taken over by other institutions. These loans blew up the banks. No one would merge with them without MASSIVE government support.

These loans are very toxic. They were used as an affordability product or a speculation tool. Various programs allowed for 10% down payments or equity in a property. Landlords would buy homes and rent them out only covering the negative amortization option ARM payment or maybe the interest only. These loans are all resetting over the next few years. They will reset to a fully amortized payment which are hundreds or thousands of dollars higher per month. I believe this is the real cancer sitting on the bank balance sheets. The impact on the middle to high end of the housing market will be dramatic that is why jumbo loans are only going to 75-80% loan to value in these markets. the industry risk managers believe these areas of the country have much more to fall in this segment of the housing market. Time will tell as they say.

Detail: Listen:Option ARM Time Bomb is Ticking

0 Mortgage Meltdown:The Next GIANT Wave

The foreclosures on the market now are from loans that began to go bad over a year ago. This is largely before the recession began. Now, think logically about the current financial situation of layoffs at Intel, Boeing, Starbucks, Macy's, Wal-Mart etc. The unemployment rate has almost doubled nationally in a year. These are not just folks making your morning drip or checking you out at Macy's. These were the $50k+ variety that drive the housing market. As of Dec 08, 9% of jumbo loans were at least 60 days late. I think this number can only go up over the next two years. The resets will start in full force this year and next. This is the latest chart from Credit Suisse:

If this all makes you sick to your stomach, I highly recommend a pint of:

Detail: Mortgage Meltdown:The Next GIANT Wave

0 One's misfortune is your gain.

This magazine arrived in the mailbox today and sums up my view of the various opportunities within markets that the upheaval and perfect storm present. Make no mistake about it this is the greatest financial crisis since the Great Depression. The wave of bank failures has just started. The FDIC just added about 150 new staff members that are experienced in dealing with insolvent banks. Terrible news is everywhere, but the best deals are always to be had when everyone is running around losing their mind.

Deals abound:

Goldman Sachs Sold $500m worth of Chrysler Debt at 0.63 on the dollar. Remember the US government bailed out Chrysler in the 80's and made billions on the loan. Maybe this hedge fund will do the same on this loan. Time will tell.

A home builder sold improved land for 15 cents on the dollar (of builder's total costs).

Client's are buying foreclosed homes at 60% of what they sold for in 06 and in some markets 05.

These deals are done quickly. Just like the good old half-yearly at Nordstrom or the blue light special at K-Mart. You have to know the sky isn't falling, have the cash or financing in place and pull the trigger. These deals won't last.

I hear news from realtors across the country of multiple offers on homes in great areas that are priced right. Remember their is no such thing as a national market for housing. In Santa Monica, CA for example you can have a 2m home and six blocks over you have 500k fixers. Real estate is local and often block by block. The smart money is looking at this as the best of times. Sure prices in all markets can go lower but how many people have bought the bottom of any market? It is better to be a little early to the show than to be late and have missed it all together. Welcome to the FIRE SALE SHOW. Where cash is king.

Detail: One's misfortune is your gain.

0 GOV:Worst is yet to come in housing and foreclosures.

From today's Lifeline Meeting In Washington.


Remember for every distressed seller there is an ecstatic buyer that is getting a bargain.

Detail: GOV:Worst is yet to come in housing and foreclosures.

0 Foreclosure Business Booming

I couldn't make this up if I tried:
We won't debate the ethics or morals of the situation. But, many people could have avoided doing business with this company had they been proactive by refinancing before they were underwater or selling at the market price instead of chasing the market down, never getting an offer and falling behind with an adjustable loan. We live in an age of complex risk and not paying attention to your mortgage can lead to financial ruin.
That's just wrong on so many levels . .

Detail: Foreclosure Business Booming

0 Don't cry over all the foreclosures.

That’s been my take for quite some time. MBA announced a report today on 3rd quarter loan performance. I found some very telling information in the report.
…foreclosure actions were started on approximately 384,000 loans, but of those foreclosures, 63 percent were cases where the borrower did not live in the home, the borrower did not respond to repeated attempts by the lender to contact them, or where the borrower failed to perform on a repayment plan or loan modification that was already in place.

They broke the data down further in the report. Approximately a third of that number is made up of investment properties. The others are empty homes. The report leaves open that it’s possible that these homes were owner occupied, and now abandoned. When is the last time you heard of someone just abandoning their home before closure proceedings were initiated? A few maybe, but my bet is that the bulk of these abandoned homes were never occupied in the first place. They were investor homes secured through occupancy fraud.

The biggest problem with just about any study that tries to quantify our market situation is that it either tries to explain how sub-prime lenders over extended themselves, or how fraud is rampant, but I never found anyone who tries to show how both of these factors work together.

Detail: Don't cry over all the foreclosures.

0 Hundreds of billions lost. Your gain?

The End is Near! The sky is falling! George Bush said things are great so it must be true. Ben Bernanke isn’t sure whether things are great so keeps lowering interest rates and crushing the dollar in the process. Your friendly banker knows things are not great. Your above average Foreclosure/Short Sale Investor is buying foreclosure properties at prices that are phenomenally low and feels like this foreclosure craze is the start of something big.

Who is right? Maybe all of them and maybe none but I tend to side with the foreclosure investor. Not since the Great Depression has the housing market seen this many foreclosures and taken a hit like it is currently undergoing.

Great fortunes were made in the Great Depressions and greater fortunes were lost. The goal here is to be one of the winners not one of the losers. Buy when the blood is in the streets is an old Wall St saying that is very true is today's real estate deflationary blood bath.

Foreclosure investing is a skill that is quickly coming into its own as a legacy-building vehicle. By this I mean if you properly plan your strategies now you can be building wealth that will endure into the future. Opportunities like this only come about once in a lifetime. Being in a position to capitalize on it will make you on of the “lucky ones” that comes out of this downturn with a big smile on your face and a lot of friends dying to get some of your tips.

Detail: Hundreds of billions lost. Your gain?

0 Property Speculators first to default.

The Mortgage Bankers Association (MBA) has released a report showing that as many as 1 in 5 mortgages currently in default in California belongs to borrowers who are not living in the homes with the defaulted loans. The default rates for investor loans were even worse in Nevada, Arizona and Florida, where one-quarter to one-third of all defaulted mortgages as of the end of June were related to investor loans, according to the report. The MBA defines "defaulted mortgages" as those that are 90 days or more past due or in foreclosure. The rapid rise in default rates has led some members of Congress to call for urgent action to aid borrowers who are threatened with the loss of their homes. But the MBA report suggests that some of these borrowers do not deserve to be helped. Many of the vacant foreclosed homes popping up throughout the U.S. these days were bought by speculators who planned to "flip" their investments for a quick profit but got trapped with the market took a sudden down-turn. "Defaults are on the rise in most parts of the country, but it should be recognized that it is not always the case of a homeowner losing his or her home but is often the case of an investor gambling on a continued increase in home values and losing that gamble," said Doug Duncan, the MBA's chief economist. Many of these investors have "simply walked away from the mortgages," Duncan said.

This is the moral hazard regulators and bankers speak of. People don't want to bail out property speculators that are a large part of the foreclosure problem in the previously hot markets.

Detail: Property Speculators first to default.