I figured August would be an interesting month on the NOD/NOS/TD front. July was within .5% of record NODs, a record by a longshot for both NOS s and TDs. But then we got "The Bailout". Would it affect the numbers in a meaningful way, or would it be business as usual?
NODs reached a record level of 559, up from 549 last month. It should be noted that my NOD figures are a gross number, and include HOA filings. The actual number of bank NOD filings are running about 22% below the the gross number based on Ticor’s figures. I expect Ticor’s net NOD numbers to be about where they have been for the last 4 months – stable at record levels. I don’t take any comfort at the large number of HOAs filing notices to get their liens into first position in case of future default.
NOS’s dropped to 396 from 481 last month, but still reached the second highest level ever recorded. Is this an indication that the banks are starting take a breath, and look at renegotiating mortgages, or at least their stance on delinquent properties?
TDs were up to 288 from July’s 280, another record. But given the record NOSs in July, this is a significantly lower number of properties going REO than recent statistics would predict. The banks are definitely taking a step back, and evaluating what The Bailout means (virtually nothing in the end, in my opinion) before executing the Trustee’s Deeds. I know of at least 3 Trustee’s Sales in my immediate neighborhood that were postponed this month as the banks re-evaluated their positions.
So what do I see in the tea leaves? The Bailout was supposed to stop foreclosures dead in their tracks. Although it looks like it has had an impact, record numbers of foreclosures continue, and all those REOs will hit the market in a matter of days to weeks. My personal opinion is that The Bailout is smoke and mirrors, and will not help out many homeowners avoid foreclosure, if the bill’s revised and stricter lending guidelines are followed. Water seeks it’s level, s(ewage) runs down hill. Over 40% of restructured sub-prime loans have proceeded (again) into foreclosure in Cali. We will probably see a few months of reducing NOS and TD numbers, but NODs rising so the owners can get in line for The Bailout’s October 1 start date. Then storm clouds rising in December. Damn, coal in the equity stocking again
Marla
“Over 40% of restructured subprime loans have proceeded (again) into foreclosure in Cali.”
It is not possible to make chicken soup out of chicken s*** no matter what the legislation intends.
BanteringBear
I agree that this “bailout” is just a bunch of BS. The jig is up on the whole house of cards, and it’s crumbling right in front of our very eyes. Try as they may, our fearless leaders are trying to dress an ugly amputation with a bandaid and are getting schooled in the process.
People don’t want to continue to pay on a house worth several hundred thousand less than is owed on the note. More and more are gonna walk. The banks never “banked” on these walkaways. Especially from the Alt-A and Prime crowd. Many banks are going down, and the whole financial system is at stake. In just the past 18 months, Merrill Lynch lost 25% of the money that they made in the last 36 years. That’s astronomical. Things are much uglier than most know, or want to admit.
PS Mike- Happened upon your craigslist ad for your property. Is anyone even looking at land right now?
GratefulD_420
Let me get this straight…
If the banks are holding back, then they are obviously waiting for the bailout.
So….. Both MikeZ & BB are saying that owners will walk and not take the deal?
Because, as I’ve voiced before it sounds very advantageous for the banks to take the deal at this point (everyone who says they won’t take a 15% hair cut at this point has got to be kidding!). Additionally I think that the math works to the advantage of the owner (as long as the appraisals are straight!) and they will take the deal if they can afford it.
So in summary the Subprime was going to default no matter what, however the Alt-A’s and prime’s will take the deal.
cash buyer
what are the specifics of the bailout?
GratefulD_420
Here are the specifics.
http://www.realtor.org/gapublic.nsf/pages/hr_3221_key_provisions
durhamdude
Slightly off topic but it may be that presales at the Montage have stalled. In the August 8th edition of the RGJ, there was an article that quoted Fernando Leal as saying “40 percent of the 370 units in the Montage condominiums have been sold”. (Well actually presales with a 10 percent deposit). While I may be mistaken, I believe that in order to get his final financing two years ago, Leal needed 40 percent of the units presold. If the recent quote is accurate and my memory is accurate, then the percentage of units presold has not increased that much over the past two years.
DD
Marla
DD,
I believe that when the Montage website first went up, it said that 50% of the units had been sold (and yes that just means a 10% downpayment). That figure was moved down to 40% a few months later and has been at 40% for well over a year now.
longerwalk
Walking away from mortgages will kill the owners’ credit (which I admit may already be shot), and will take them out of the real estate market for some years, provided they don’t become renters for life out of choice anyway.
Still, sometimes I do think it wise to check out how many/what % of home owners are still making good on their mortgages, to keep proper perspective. Statistics can be misleading despite best efforts.
Sully
I noticed for August the TD’s issued to properties connected to Countrywide seem to be in an accelerated pace. NOD filed in April are closing out in August.
BofA most likely brought in the hired guns to clean up the mess, which is a common sense approach.
So, if any banks are still harboring those delusions of a money saving bailout, they are getting themselves behind the curve.
Grand Wazoo
So how many people will walk away from the ten percent deposit and not close on their Montage condo? How many could get financing two years ago when they put the deposit down but can’t get it now? Should be interesting!
homepop
The percentage of mortgage holders who are making their payments has to be over 90%. At least, that was the range given by the cable business channels a few months ago.
Is Nevada a non-recourse state when it comes to walking away from a mortgage? I believe that CA is non-recourse, which I think means that the bank or mortgage holder cannot come after your other assets. Is that also true for NV (please excuse me if this was a past topic of discussion).
DonC
Just a couple of points about the bailout:
1. I thought that as a practical matter the bailout wouldn’t be in place until October at the earliest. So I don’t think we’d see very much effect until December or January of next year. It will take some time for the banks to figure out what this means for them, if anything.
2. The bailout was never expected to have a huge impact. I don’t know the exact figure but 10%-20% would be my impression.
The real bailout of course is the Fannie and Freddie legislation ….
GreenNV
$300 Billion is a really large number. It equates to about $1000 for ever US resident – homeowners, renters, kids. And it will come out of the taxes we all pay. If I were a renter, I’d be pretty bitter right now.
Some interesting points on the HOPE for Homeowners Program, the official title of the bailout (and HoHo in my lexicon) that will significantly impact how much of the 300B gets used. First, no investors – you must document that you are the owner occupant and have no other ownership interest in other residential property. Second, you need to fully document your income through tax returns and show a “reasonable ability” to make the mortgage payments, based on “traditional” lending standards. The exact figures are still being worked out, but just call it home price = 3X income – how many of our $300,000+ homes will qualify? Third, you must document that you have not intentional defaulted – you can’t have other assets that could have liquidated to pay the old mortgage (RV, boat, stock, IRA). Finally, the program is voluntary for the lenders and I think many will balk. All secondary liens must be expunged, maximum loan value is 90% of current market value, and there is a 3% PMI figure and standard closing costs to work into the equation. And you have to come clean on the super-primary liens – HOA, property taxes, sewer, etc.
Say you bought a $500,000 a couple years ago with a $400,000 first loan and a $100,000 second (or 20% down payment, it really doesn’t matter, both are wiped out). The house now appraises at $350,000, a reduction of 30% (in large part to the comps the banks are setting when unloading their own REOs). The bank could only offer a $297,500 new first loan (90% of appraised value less back-loaded closing costs and PMI) and only if the borrower could PROVE the ability to repay it, no other debts or property, cars paid for, kids don’t need braces, and a $100,000+ income. And this new mortgage would be to a party who has already shown financial ineptitude. I think the banks will opt out in most cases, and try their luck in the foreclosure market.
A really long way of agreeing with DonC on this applying to 10% of distressed properties at best. My understanding is that Fannie Mae can start buying these loans 1 October, so September should be a really stressful month for homeowners looking at refinancing under HoHo, with lenders who haven’t figured out their strategies and are woefully understaffed to deal with inquiries.
Ollie, Ollie, Ox in Free! HoHo is political feel-good eye candy in an election year, but it won’t really help anyone but the politicians. Failed loans need to be allowed to fail. REOs will, and probably need, to set the market for a while until all the loser loans can be milked out of the system. You bet that the FDIC is going to have to intervene to salvage banks that when long on goofy real estate portfolios. We need to step up and take the hit (Diane doesn’t like me using terms like knee to the balls or sit on the fence post) and move on. This macro scale problem cannot be solved by treating it on the micro or meso level.
MikeZ
RE: “$300B … If I were a renter, I’d be pretty bitter right now.”
None of us blogging here will ever pay a dime of this year’s bailout, ditto for the $185B we just blew in June and July on the “stimulus package.”
Our kids and their kids and their kids’ kids will be the ones picking up the tab (oh, the mathematical wonders of reckless government borrowing!)
So, let’s rephrase that to : “If I had *kids*, I’d be pretty bitter right now.”
And since I don’t have any kids, let me take a moment to thank all you parents right now for your children’s future sacrifice.
JnJ
oil prices.. Timmbeeerr!!
bird calls are right as rain.
cash buyer
could this be true? http://reno.craigslist.org/reo/822826248.html
Grand Wazoo
OK cash buyer, two hours later this listing is flagged for removal and is unavailable.
You posted something similar a few weeks ago.
What is this content, exactly?
Sully
GW – It was “The Coming Crash in the Housing Market”, by John Talbott published in 2003.
GratefulD_420
O.k. bloggers…
R.I. along with others- thinks this blog is spent, all the points discussed… however he could never be more incorrect. Now is the time for this blog more than ever, at least for me. I need to buy a home. I think this market has two scenario’s to follow.
1.) The market will continue it’s downride for several years. The realtors and the home owners will continue to understimate the downside and always be behind the game. It will slide & slide, even below “true value.”
2.) The local Reno market will crash this Winter.
(a) We have record high inventory
(b) We have record # of unoccupied homes for sale
(c) We have record number of distressed sales
(d) Data supports continued # of distressed sales
Now from what I understand of the above… the banks are holding a certain amount trying for the “bailout”… however MikeZ & others feel that the “Bailout” is weak and won’t help. So if this is so.. come November or December on top of the above listed problems… the bank will have to unload another 600 to 800 homes?
If this is so… then the market will really crash.
Of course the easy thing is to say the bottom is years to come… but some times there is a crash. Can someone predict this Winter will be the crash?
MKchick
The banks don’t have to unload all 600 properties at one time. That hurts them more, as the increased supply in the short term drives down prices.
They can dribble them out to market. They can also delay foreclosing on properties. I’ve seen first-hand an empty house for at least 9 months, scorched earth in front, with nothing on the MLS or the Assessor’s website. I’m sure everyone else sees something similar in their neighborhood somewhere.
I can’t know for certain if this is what the banks are doing right now, but it would be the smartest thing.
If you want new construction, wait until at least October. The builders who actually built houses over the summer will all have some inventory from financing falling through or buyer spookout, and these houses will have drastic price reductions.
Sully
MKchick, are you expecting wages to increase by 20% in the near future?
How else is the current inventory going to move faster? If it doesn’t move faster the banks are losing money – which doesn’t sit well with them.
Yes, the banks have been holding back. But, as I mentioned above, Countrywide connected properties are moving thru the pipeline faster. For the past year, I noticed a 6-7 month NOD to TD timeframe. Now Countrywide is moving them at 4-5 months.
This is not holding back, its getting ahead of the curve – which is the best place to be. I think #2 is more likely to be the scenario.
Like lemmings off the cliff, as one bank starts to off load properties at breakneck speed, the others will follow. Thus, making smartens prediction for a Jan bottom pretty close.
BanteringBear
“Like lemmings off the cliff, as one bank starts to off load properties at breakneck speed, the others will follow. Thus, making smartens prediction for a Jan bottom pretty close.”
I disagree. This statement does not take into account the tsunami of future REO’s in the pipeline. One look at the mortgage reset chart offers a glimpse of what’s in store. We haven’t seen any capitulation in higher end properties.
Prices are sticky, and it’s taken 3 years to get to where we are today. The idea that the next several months will wipe out the rest of the phantom equity is far too optimistic, IMO. A more realistic scenario is for prices to continue their steady decline for the next few years at least.
CommercialLender
Sorry if this may have been addressed on this blog before, but since I hear so many of you wonder why banks are not wheeling and dealing….
There’s more to banks ‘holding back’ than you/we might all know. When banks, or generally lenders, originate loans they do so either as ‘held for investment’ or ‘for sale’. These carry very different meanings particularly as it relates to their balance sheets, and as it relates cash reserve requirements with loans held for investment carrying a greater burden. Here to date, we’ve seen many loans in both categories marked down to market value (a fuzzy at best datapoint). We’ve also seen many loans default with actual losses taken, if you’ll catch the difference between being marked down versus an actual loss taken.
Banks who saw this coming in 4Q last year thought this mess would last only a few months and therefore chose to mark down their portfolio or if they could, sell for nearly face value or move the loans from ‘for sale’ over to ‘held for investment’ until the market conditions improved, as long as they had cash for reserves. They thought this mess would last months not years.
A full year later and we’re worse, not better in just about all housing markets. The capital markets are worse not better too. Worse yet, many banks have already parked a lot of their liquidity in reserves for their de facto held for investment portfolios. Oh, and there are appreciably no buyers of the for-sale paper out there, certainly not at the prices they need to avoid further actual cash losses.
Thus the log jam. Vultures want to buy at cents on the dollar, but banks really can’t sell at those levels or the losses, either real or implied, will put them out of business. So, they are awaiting market conditions, which just about everyone on this blog suspects is years away from improvement.
BofA is smart to offload as much Countrywide garbage as soon as they can, because they are perhaps financially the most sound. However, smaller banks or those with heavier percentage concentrations of garbage loans literally can’t afford to follow suit. So, watch BofA go on a shopping spree of other banks after they digest CW??
Recall a few weeks ago Merrill sold one of its CDOs for 22 cents on the dollar? This effected everyone else’s balance sheet who carried CDOs marked at “market” which – surprise, surprise – were well in excess of 22 cents. Now, with this bailout, or with selling loans in bulk, there are bigger ramifications to the banks in offloading loans at ever lower prices than just bailing out Joe Taxpayer, which was probably Congress’ intention.
Sully
BB, I agree with you. But, I also think there will be a crash this winter. I expect prices to continue their downward trend for, perhaps, two more years.
Grateful and I are in the same boat. I have been looking for 18 months. Any price that is 50% lower or better than my sale price is a bottom to me. The balance only needs to earn 5% interest to cover taxes and maintance on a house. I’m not looking for an ArrowCreek with 260/mo HOA, not even looking in the areas with SOUTH in their area description.
Additionally, there is an annoying life span limit. If, I wait 10 years to buy, it will most likely be in a cemetery.
If I can get into a house for around 250K, that meets all my needs – then I’m way ahead of the game. That will not hold true for everyone.
Renting has proved to be of some value for the past year, but it is temporary. I prefer something more permanent.
As far as the banks go, if they have any brains at all working there, then they should see the coming tsunami and should be trying to clear out the logjam now in order to make room for the newer models. 🙂
cash buyer
thank you sully………….so true. we have cash, but like you, not willing to take the risk. diane like many others, is watching the depreciation of her house on a weekly basis. there are no signs of legitimate upticks, only realtor baloney and hype about the past turn around seasonal spring summer market. we have been looking for at least a year, and all the houses are still on the market, but at substantially reduced prices. still have the flyer from 3463 nambe drive at 1,395,000. at the time, the realtor assured us that he had to convince the owner to sell the house at so low a price. now with arrowcreek so tenuous, the risk on any house there is just too great. we really want to buy, however risk just too big now. overall, really bad for families, reno and our country.
Future Buyer
We are also waiting till at the absolute earliest next September 2009. Prices will only decrease or at the very least stay the same-which is not likely. The high end market still has quite a ways to drop, as they are the longest hold outs. There is a meeting at ArrowCreek on Wednesday night at 6:30 pm with the new board of directors and is open to the public and anyone interested in buying in Arrowcreek. I cannot attend but would be curious to what the news will be. Arrowcreek has seen quite a price reduction, but can you imagine if the golf course goes into foreclosure?!!
Future Buyer
Cash Buyer–3432 Nambe is listed on Foreclosurepointe.com–I don’t know anything about that house, but I would guess the banks will be selling it soon for a really good deal if you are interested in the Nambe area…Of course it makes sense to wait and see what happens with ArrowCreek anyway.
cash buyer
the arrowcreek shortfall makes you wonder if the other golf communities have hidden financial issues. in addition, advertising like this demonstrates the real financial situation in reno today.
http://reno.craigslist.org/reo/822838777.html
MKchick
Sully, where do you get that I think wages have to increase 20%, and what do wages have to do with minimizing a bank’s loss on foreclosed properties on their books?
Totally hypothetically speaking here: say you are a bank has 100 properties with at least 30% price decline and more than a year of supply currently in the market. Why would you foist those 100 properties on the market all at once and risk an additional 10% decline on all 100 properties? You shoot yourself in the foot, because increasing supply and lowered demand means the price will come down and the loss becomes bigger.
I don’t see how forcing a bottom just to get the poison off your books by flooding the market works, because then the next wave of poison hurts even more because you moved the bar lower when you could have slowly dribbled the existing poison out over time to minimize loss.
Yes, I agree there will be more price declines by December. But I think the banks are going to slowly unwind their horrible portfolios vs. dumping the market unless they are forced to. According to Guy’s last post, distressed sales haven’t even reached 50% of the total sales yet.
I don’t pick dates for the bottom because I feel it will take a few years to unwind and I don’t see a flattening out in pricing until 2015 at the minimum. There are too many factors still out there that can put downward pressure on the market, like potentially way higher mortgage interest rates (banks have to make up the loss somewhere).
This is just me and how I look at things: quality issues and fed up with 15 years of renting aside, I would rather pay a slightly higher price now at lower rates than if I bought 2 years from now at a lower price but higher interest. Call me stupid and naive for doing so, but y’all are wanting to buy all cash, but some of us still need traditional financing.
BanteringBear
“I would rather pay a slightly higher price now at lower rates than if I bought 2 years from now at a lower price but higher interest. Call me stupid and naive for doing so, but y’all are wanting to buy all cash, but some of us still need traditional financing.”
OK, I’ll go ahead and say it, your statement is incredibly naive. Ignoring the manic housing bubble, house prices in any given area reflect local incomes. Like yourself MKchick, most people need a mortgage loan to purchase a house. What this means is, as interest rates go up, house prices must go down so wages can afford them based on the rates available. It is much better to purchase a home with a low base price and a higher interest rate because you can always refinance the rate, thus lowering the payments, but you cannot lower the principle. When you purchase at a high price with a low rate, you won’t have that opportunity. Also, the tax benefits are greater with the higher rate.
I know it’s taking a while, but local wages will, once again, dictate local house prices. All of the talk of wealthy retirees, rich equity locusts, etc. carrying the market was a load of BS sold to people by the industry.
MKchick
BB, come on… I’m more bearish than you… and I hope I don’t come off as sounding obnoxious, but why would you refi if the rate the lender is quoting you is higher than what you are currently paying? For me personally, it doesn’t make sense for me to refi my rate for at least five years. My crystal ball is broken and my Magic8Ball is wrong half the time. 🙂
Historically speaking, rates are still low right now, but they rose quite a bit since the beginning of the year, and I don’t see a catalyst on the horizon for rates to come down in the long term. Conventional mortgages are even more expensive than they were a year ago because of all these additional fees passed on to borrowers. Do you agree?
Reality is that the credit markets are pretty much at a halt, which is what CL said. Lenders are starting to cut HELOCs off. And I don’t think we’ve seen the proverbial brown stuff hit the fan yet when it comes to the banks.
And you can’t ignore the bubble; you agreed with me earlier: it takes time for the market to depreciate to a more sane level. I don’t agree with people saying the bottom is in a few months in this market; I’m saying it is more like a few years. This is a LOT of mess to unwind.
Sully, and correct me if I’m wrong in making this assumption, but I read your comments as if you think there is going to be some sort of specific time by the end of the year that the banks say “the heck with it,” issue all the NODs they can to as many troubled borrowers as possible, and then dump all their distressed properties on the market so you can stop renting.
I disagreed with you and said it wouldn’t make financial sense for the banks to do that. I hypothesized that the banks are delaying, cherry picking, and dribbling out their foreclosures so they can manage their losses because there is another huge wave of defaults coming in the next year. They can’t prematurely shoot themselves in the foot like that by flooding the market when the secondary market dried up so significantly. CommercialLender spelled out the technical explanation.
I still don’t understand where the wages came into this discussion of how banks are unloading their properties; the affordable houses for 2x median wage in Reno are under $200k. Houses in that price range are the majority of what is selling and inventory down to 11 months. It is getting there.
However, I’m in your boat with you. But the thought of renting for another 5 years on top of the 15 years I’ve already been a renter, waiting for a recovery that may not happen, frustrating myself with trying to bottom-fish while interest rates starting to climb… no. Life is too short, but I don’t recommend to anyone else to do what we are doing right now.
Sully
MKchick, wages came into the discussion because that was the only way I could see a major buying spree happening that would clear up the REO’s.
For the banks to be cherry picking their sales, in order to control their loses sounds like an oxymoron.
Banks are in the money business, not the property management business. In a nutshell, they make money by selling money.
By holding on to distressed properties, they have taxes, HOA fees and probably some maintance fees to pay out. So, by losing money on top of losing money just doesn’t sound like a money making idea to me.
Correct me if I’m wrong, but a business is in business to make money. 🙂
BanteringBear
MKchick-
You must have misinterpreted my post, or perhaps I wasn’t clear. You can always refinance to a lower rate if one exists, in turn lowering monthly payments, but you will never be able to renegotiate the purchase price or principle. It’s that simple. I’m not insinuating you don’t understand this, just not sure where I went wrong earlier.
I never said anything about refinancing from a lower rate to a higher rate.
Future Buyer
I believe another point BB was trying to make is that with higher interest rates, the market will get even LESS qualified buyers than are currently out there, which will continue to drop demand for housing people can’t afford, which will increase supply, compound the current problem, and drop prices even further. Wow that was a long sentence!! Which is why the Feds are shying away from raising rates, even though they would love to control inflation.
GratefulD_420
Commercial Lender // MKchick-
I don’t really think the banks have a choice if they can take the loss or not. As you said mortgages are either ‘held for investment’ or ‘for sale’. However when they default now they are on the balance as a fixed asset with fixed losses. Banks can only leverage their assests so much in order to invest and make money. They are not in the business of holding large amounts of fixed assets with fixed negative costs. They will have to unload or fold.
Isn’t this exactly what happened in Sacramento? The banks released all the Foreclosures, they took their 35% price cut and now have inventory somewhat under control?
I have seen some banks try to rent their Foreclosures… now that could be a strategy to stretch things out for some. As long as it’s an earning asset.
MKchick
They don’t have a choice to take the loss.
They do have a choice on how big that loss is, and when to put that loss on the books.
Anyway, it is merely a theory behind the no NOD or NOS, no bank owner on assessor’s site after looking up the address, scorched earth, empty for more than a year houses I see around town. I’ll stop debating it because I have zero facts to back it up except my own eyes. Maybe someone with more insight can enlighten the situation.
Mortgage interest rates are determined by the lenders, not the gov’t. The spread between the 10 yr note and avg conventional rate is increasing. I don’t think 9% interest rates are that far off, but that is my opinion.
The major issue I have with someone (no offense BB) saying “you can always refi to a lower rate” is in a lot of cases, refi makes little fiancial sense. Or it only makes sense in certain situations. Whichever way you want to look at it. 🙂
This is how I figured my stuff out, and you can tell me where I went wrong (seriously — if I have this backwards or incorrect, please help, as it is past my bedtime and my brain might be a little fuzzy or bankrate’s amort table thing is off):
Say I can afford max $2,000 to spend on monthly P&I. The house I’m looking at already took a 25% haircut on the price.
I can buy the house now with $275,000 loan amount at 6.5%, which is $350,747 total paid in interest with a $1,738 monthly payment. I add $250 to my payment each month, which cuts 8 years off the mortage, and changes the total interest paid to $234,065 — a difference of $116,682.
Or I can wait for the price of the house to come down another $25,000, but that price haircut comes at the cost of a higher interest rate of 9% (and of course, renting the whole time waiting for the price to come down).
That would be a $250,000 loan amount at 9% interest, $474,160 total paid in interest with a $2,011 monthly payment. I’m slightly over my $2000 payment limit, and can’t add in that extra every month. No paying off mortgage 8 years early, and paying a whopping additional $240,095 in interest.
All over trying to save $25,000 on principal.
Obviously, there is a lot of things that can happen in 30 years: rates might not increase that much or decline where I could refi — but I’d have to wait at least 5 years to do so for it to be worth it… maybe the house gets a bigger haircut in price and today’s rate stays the same, property taxes go up, who knows? It depends on the individual’s risk tolerance and opinion of where rates and housing prices are going to go.
But to think interest rates are going to stay where they are until the bottom is hit… I’m not convinced.
If rates don’t go up as I expect, then I’m in a house with the characteristics I like in a neighborhood I enjoy living in, my family is happy, it will get paid off before I expect to retire, and I can definitely afford it to boot.
What is so wrong with that? Are all the people who bought so far this year after significant price declines stupid for doing so?
GratefulD_420
Here is a great article with Northern Trust with Case Shiller data on Price to Median and Price to Rent.
http://finance.yahoo.com/tech-ticker/article/52640/House-Prices-Still-Too-High-Despite-Collapse?tickers=fre,fnm
I’m thinking since things are becoming clearer to the banks they will cut and run. This is all they can do. It’s just a matter of understnding how efficiently and quickly they can do it. They have already lost several more % of their defunct loan values by being slow. The data says that unless they want to wait 5+ yrs for returning market the faster they dump and lock in the loss the better.
This is my point… if they are getting NOD’s in line better than ever, as Mike was originally pointing out… then they will unload them and a steep drop will accompany. We will be nowhere close to the “bottom” where things are going to start appreciating again (because of all the continued Alt-A faults) however we could see a dramatic fall in prices that makes things affordable, people buying, still high inventory, and 5 to 10% of true market bottom…. which we can all look back in 2015 and decide on when that actually occurred.
This is why I am extremely interested in the banks actions. Timing the major fall they have all tried to avoid… but in the end they have added to a possible market crash by fighting the price fall. Only making an easy landing more improbable in our local Reno market.
BanteringBear
MKchick-
You’re missing my point. Let’s call the house in your example 666 Stucco Drive. Let’s pretend it is the median priced home for the median income buyer. Assuming it is the nicest home they can afford, which is often the case, the $1738 is the max that their income supports. As rates go up, the price of the house will HAVE to go down, because otherwise they, and every other median income buyer, cannot afford it. The house wouldn’t sell otherwise.
Some try to argue that, as rates go up, people will only afford a lesser house. This is NOT the case. If it were, then that would leave the middle and high end houses with ZERO buyers as rates went up. Housing prices, contrary to the madness of the past 7 years, are dictated by those pesky things called incomes. With most people needing financing, mortgage rates have a large effect on home prices, as people need to demonstrate to lender that they can pay the monthly.
During the bubble, people stretched to purchase houses they could never dream of affording, which is evident with all of the foreclosures. Many of the homes people purchased during this mania were actually of lower quality than what their incomes should have afforded. An example would be a couple that I know in North Seattle. The husband is a project manager with Microsoft. He makes close to $200k per year. They bought, at the market peak, a rundown 1400 square foot turn of the century home in a decent neighborhood for around $700k. After sinking a boatload of money into it, they’ve got more than $900k invested. While I’m not sure they know it, they’ve already lost their shirt. Why? They are in the top 5% income bracket, but that house is in a working class neighborhood of Seattle. His income should have put them on Mercer Island, or in another fine area. But, as was the case with every income bracket, he was priced out of what he should have been able to afford. So he bought in a cheaper neighborhood. Big mistake.
CommercialLender
Great discussion, all.
If the banks sell, they take CASH losses (immediate). They can sell only until they run out of cash, which is very close in a lot of cases. If they hold, they pretend to adequately market the portfolio to market (a lagging metric at best, fraught with number-fudging). The first strategy leads to firing the upper managment and possibly disolving the bank, which looks pretty bad on their resumes. The second strategy however gives the CEO, et.al. job security for a few more months and buys them time to stick their head in the sand hoping for the credit market storm to blow over.
So, until the Board or the Govt or outside vulture investors tells the mgmt “Thou Shalt Offload”, don’t count on the mgmt to voluntarily do so in a meaningful way. Some will, but don’t count on it.
As for the house buy decision. If you plan to live there 10+ years, then buy for the peace of mind you desire. You can’t time the markets reliably forever. If you don’t plan to live there for the long haul, then wait a bit more. MKChick, you’ve already waited 15 yrs, what’s another 18 months? No one in their right mind thinks values are going up in 18 months. You are sitting on cash presumably in the best time in the last 20 years, so focus on a good buy versus good financing.
Finally, recall the proverbial car buying process. The oily salesman will sell the less sophisticated buyers the car they can’t afford. Why? Because he plays with the financing to get your “payments” low. If the purchase decision is that contingent on the financing offered, then by all means you are buying too much (and I’m a lender, no less!). This is EXACTLY why we are in this credit and housing mess; because car-salesmen types in both industries oversold their wares en masse all over this great land.
Good luck, though, MKChick.
Sully
CL – since you’re in the business, do you think the FDIC has or will have any influence in this REO matter.
Will or can they force a bank to clear up the logjam, or will they wait for the “rubicon” and just go into takeover mode?
It seems they have been reluctant to set guide lines. But, now I see they are planning to increase premiums to cover the expected losses from failing banks.
What would be your opinion regarding the FDIC and distressed properties.
CommercialLender
My expertise is deminimus with the FDIC, so I can’t answer some of your questions directly. Perhaps someone reading this works for the FDIC?
However I know they are sniffing around some banks I’ve done business with and as a result or partially as a result, I’m seeing fewer banks offering commercial loans and the ones that are are doing so at tighter underwriting standards.
(Commercial lending is quite hard hit right at the moment, mostly as a result of fear and other credit factors in single family. Commercial defaults are something like 60 bps, still extremely low. But we are caught up in the same financial models/structures of valuation and securitization that the single family markets were based on, so it is the case the baby is being thrown out with the bathwater.)
That said, look at what happened to IndyMac. FDIC came in to IndyMac and apparently put a temporary moratorium on rate-resets until they figure out what they have on their books. But afterward, expect they’ll either sell the portfolios off at pennies or start dumping properties on the market.
Again, I’m not in single family, so my comments are educated opinions.
Doug B. Cooper
Surfs up for the next wave… totally narley dude!
http://www.housingwire.com/2008/09/02/fitch-warns-on-option-arms-high-defaults-await/?ref=patrick.net
Doug B. Cooper
GNARLEY!! LOL.. Surfers just can’t spell.
DonC
MKchick – at some point a house is a home. It’s not really an investment. If you have found a house you like in a neighborhood you’re happy with at a price you can afford, by all means go for it. Get on with your life and enjoy it!
BB – the point that rising interest rates drive housing prices downward is accepted, which is why the Fed wants to keep interest rates low in order to not exacerbate the housing downturn.
On median wages and median house prices, different areas have historically had different formulas, with some areas having higher multiples than others. It’s possible for Reno to move from one multiple to another though in the absence of some reason for this it seems doubtful. It is, however, a possibility.
Can’t agree with Mercer Island. $200K wouldn’t be enough to buy there. If he bought in Freemont he bought in what is actually the “hot” area.
billddrummer
To CommercialLender,
It’s true that commercial properties are taking big haircuts right now. We’ve seen it in our own portfolio as well. And if you’re looking to do an A & D loan, you probably need to pre-fund two years worth of interest reserve. True also, the default rate on commercial deals is only a fraction of the rate on residential mortgages, but the trend is weakening, and the numbers are larger. A big loan (or group of loans) that go into default at once can sink a bank. Some smaller banks (not this one) have made loans up to their capital limit to one borrower, so that the bank becomes an equity player in the borrower’s business without realizing it until the payments stop.
Commercial properties seem to be falling less rapidly than residential, but I think they will continue to drop in value until the broader economy recovers, which might not be until late 2009.
cash buyer
at some point a house is a home. very true, however at the current rate of depreciation, a million dollar house today will be worth substantially less in 12 months. diane and guy have demonstrated this to all of us on a very personnal level. awful time when risk becomes an integral part of the pure joy of home ownership.
CommercialLender
Define ‘big haircuts’. Commercial property values appear to be falling in that there is a lack of deals being consumated (lack of comps), therefore cap rates appear to be rising, though to date, really not that much. In some sectors, there are appreciably no comps, period. I see deals just sitting or being pulled or being done private-party. Not to say values won’t demonstrably plummet, just there’s really not that many distressed sellers in commercial at this writing, with the quite obvious exception of condos. The next wave will be 2005, 06 and 07 vintage assets bought with high leverage on a deep renovation play and with short-term debt.
Your comment regarding a pool of loans going into default, well, that would be an anomoly not the norm and to date I’ve seen no evidence. There are many, many reasons why, not the least of which is that the vast majority of commercial loans (institutional, $5M+, not small local bank ones) are to ‘single asset entities’ underwritten independantly and designed to stand alone. The pools of securitizations you hear about not selling in the secondary market are due to the seizing up of the capital markets, NOT the underlying collateral. At least not yet.
But I think you’ll see stress and eventually rising defaults, but we’re not seeing them to any concerning degree at the moment.
No, what we are seeing is a lack of lenders willing to lend at all and a lack of lenders willing to lend at the aggressive terms of 12, 18, 24 and 36 months ago.
And BTW, my area is $5-$200M loans, not necessarily the smaller loans to smaller investors. In that sector, I would not doubt if defaults are up at a more rapid pace.
BanteringBear
I don’t know where you’re getting your facts DonC, but it sounds like you’re drinking the northwest Kool Aid. Pre-bubble, $200k per year income easily put you on Mercer. Sure, not a monstrous view home, but something very nice. Fremont? Huh? Fremont is NOT a neighborhood for $200k per year wage earners. More like working class.
BanteringBear
PS DonC-
Phinney Ridge is the area he bought in.
JnJ
I find the median prices, and median wage argument interesting, and the fact some people seem to think all the california buyers are all but gone..
how can all this be when we have had about 1,500 house sold this year alone in reno .. at prices above what the median wage can support? Personally I think after people realized the market was headed south they decided to wait it out and continue to keep saving. in turn they had a larger down payment to get them into the house they wanted?
either way someone is buying homes and if reno’s wages don’t support the current prices then who is buying?