March 26, 2007

If homebuilders can't sell homes at firesale prices, what hope do existing homedebtors have?


44 comments:

Anonymous said...

Well I think it is a fallacy to think everyone wants a new home. I lived in a brand new home and hated it since I was surrounded by construction for 9 months afterwards and had a home with pratcically no yard. And the closest store was 2 miles away since nothing had been built yet. The landascaping was brand new and just didn't look good.

I'll take a 10 year old well kept home in a good neighborhood with mature landscaping, established commerical ammenties and things like that over a spec house any day.

So I think well kept, older homes in good neighborhoods will hold up pretty well, or at least relatively better than spec homes.

Anonymous said...

The one item not mentioned in this article is the dollar amount of foreclosures. Many of these loans in foreclosure are in the millions.

U.S. Foreclosure Filings Rise 12 Percent in February (Update3)

By Bob Ivry

March 26 (Bloomberg) -- U.S. foreclosure filings last month jumped 12 percent compared with a year ago as owners struggled with declining home values and higher adjustable mortgage rates.

More than 130,000 homes entered foreclosure last month, according to a report from RealtyTrac, an online listing of foreclosed properties. That's the second-highest since RealtyTrac began collecting data in January 2005.

The worst housing slump in more than a decade is pushing down home prices and hampering the ability of owners to refinance mortgages. Borrowers with poor or incomplete credit are also vulnerable to mortgages that are resetting at higher rates than introductory or so-called teaser rates.

``The rise in foreclosures over the past year probably only marks the beginning of the problem,'' Jan Hatzius, a Goldman, Sachs & Co. economist, wrote in a March 23 report. ``The main reason to expect further deterioration is that house prices are likely to fall significantly in 2007, with further declines possible in subsequent years.''

Foreclosures in 2007 may rise by one-third compared with last year should rates continue at the level seen in January and February, RealtyTrac Chief Executive Officer James Saccacio said in a statement today.

New Home Sales Fall

The foreclosures may further swell the number of unsold homes. New home sales in the U.S. unexpectedly fell last month to the lowest level in almost seven years and the supply of unsold homes climbed to the highest in 16 years, the Commerce Department said today.

The Standard & Poor's measure of the largest U.S. homebuilders slid as much as 3.1 percent after the government report. Purchases dropped 3.9 percent to an annual pace of 848,000 last month, less than the gain to 985,000 forecast by economists in a Bloomberg News survey.

One in every 884 U.S. households moved into the foreclosure process, which can range from default notices for late payment to auction sales and bank repossessions, Irvine, California- based RealtyTrac said. Banks typically start foreclosing after payments are 90 days late.

On a month-to-month basis, foreclosures are slowing. The rate at which homes were entering foreclosure decreased in February by 3.9 percent from adjusted January numbers, RealtyTrac said. In January, 136,113 homes entered foreclosure.

Florida Foreclosures

Florida reported 19,144 houses entering the foreclosure process in February, the most of any state, RealtyTrac said. It was followed by California, with 16,273, and Texas, with 12,386.

Nevada posted the highest percentage rate last month with one foreclosure filing for every 278 households. Nevada's rate was 77 percent higher than in February 2006, RealtyTrac said.

The state with the lowest rate was Vermont, with one foreclosure filing in February among its 294,382 households.

Washington, D.C. had no foreclosures, according to RealtyTrac.

Interest rates on about $775 billion worth of subprime loans -- those given to borrowers with bad or incomplete credit -- are scheduled to rise in the last nine months of 2007, according to Bear Stearns Cos.

Median Prices

The median U.S. home price was $212,800 in February, 1.3 percent less than a year ago and down 7.6 percent from a record in July.

One-fifth of home loan borrowers have adjustable rate mortgages, according to Credit Suisse Group. About 15 percent of the $9.5 trillion U.S. mortgages are subprime, according to Bear Stearns.

``People who bought homes in the 1980s and 1990s started refinancing their equity out in the 2000s, so we can't assume that foreclosures will only affect people who bought their homes in the last couple of years,'' said Schahrzad Berkland, who publishes the California Housing Forecast in San Diego. ``And a lot of adjustable-rate mortgages were taken out by prime borrowers, so we can't assume that the more qualified borrowers will be immune to losing their homes.''

Most homeowners who enter the foreclosure process do not lose their homes, said Rick Sharga, vice president for marketing at RealtyTrac.

``Of the properties that enter our database as initial notice of default, only 40 percent of them actually go to the auction,'' Sharga said in an interview.

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net .

Anonymous said...

WTF? Vermont had 1 foreclosure in the whole state?!?!

I find that hard to believe. I know it's a small state, but 1 out of 294,000 households? Something's up with those numbers.

Anonymous said...

Notice how most homedebtors have a said story for losing their homes and getting deep into debt, while the main reason is out of control consumerism. The couple in this video is about to lose their home, but check all the crap from China they have inside and at his shop. Excuses, excuses, excuses...Pay up suckers!

http://tinyurl.com/3czg7c

*This video from Money.com just opens with Internet Explorer.

Anonymous said...

They cannot unless they slash and burn the price, leave behind all the improvements they made and pay closing costs w/ POINTS!! and toss some chum in the water.

I did it and much happier for it. The six other sheeple who had their place up for sale in my old plan in wilmington Dela$h!th0le are holding the line with just 5-10k reductions in 6 months. I did a 35k reduction in 30 days and dumped my luxury ghetto townhome. If I had not done that then I would have incurred another 15k in carrying costs + an special assessment because the HOA decided to put in the automatic sprinkler system the developer left out which ruined the greenspace in the community in addition to many homeowners thinking watering of the lawn was included.

Also the cesspool of a county the plan was in just jacked up property taxes by 20% just to maintain an anemic status quo in terms of schools and government services.

GrandInquisitor said...

Does anyone else want to kick that realtor c*nt in the teeth? You know, the one on the realtor propagana commercials urging buyers to take advantage of the current dip in prices. I'm trying to enjoy the NCAA's and they keep playing that commercial. Did they resurrect Joseph Goebbles and put him in charge of this campaign?

Anonymous said...

none

They're screwed for years to come

Anonymous said...

Anyone notice that Greg Swanndive doesn't report any housing numbers

Frank said...

They have no hope. It's time for them to learn that a house is a place to live for the long-term and not something to be "flipped" like a stock or bond. They're learning what buying a house is all about in the real world: You stay there for at least 10 years and make it a home. Their idea of being "stuck in a house" is what the house was actually meant for in the first place.

Anonymous said...

I'm so sick of hearing about people about to foreclose because they "didn't read the fine print". What the f*ck !! They were happy when prices were rising, and now they're falling - pay the fu*king piper his money.
That schmuck in the video posted at 9.44 has a boat in his yard, a garage full of tools and can't afford a mortgage reset increasing is payments by just $150 per month?! He deserves to be living in a trailer - I hate to sound mean but they live a life they can't afford.
When the tide goes out we'll see who not wearing underwear!

Anonymous said...

in the tulip bulb bubble, the lawyers didn't enforce the non-verbal contracts.

so maybe something will be done to let people by invalidating contracts as "opportunistic?"

The Thinker said...

Keith, any seller can sell their house in a relatively short period of time for far more than they paid for the place 5 years ago and for far more than its worth.

The seller only has trouble unloading his house when he holds out for what the Joneses got for their house last year.

Lets not forget, this is still very much A SELLERS MARKET. That is to say, a seller can easily sell their house for far more than the fundamentals would dictate the house is worth.

Housing prices are still at ridiculously and unsustainable high levels.

I don't see why you think homeowners have it so rough.

Anonymous said...

Here you go:
scottlushing.com
call 1-866-540-7374 and ask about the lakebridge townhome.You will see the picture displayed.A crappy little townhome by the railroad tracks on a tiny lake.He slashed his price $26 g's when he finally checked comps.Call and ask what he can offer.You will laugh at the amazing financing he can get you.103% financing!?!LOL!Would you want a mortgage broker who had a recent lien.LOL!

Bourbon Straight said...

“the thinker” is dead on.
It is still a sellers (suckers) market.
So is the USSA.

Anonymous said...

To Anon 10:07

I live in Chester County, PA but work near Wilmington. Gawd almighty - the state has been totally ruined - it ain't for nothing that Jim Kunstler calls it "The pavement state" (L'il Pavey for short).

Anonymous said...

Oh yeah,that crappy little townhome is Scott Lushings by the way.The mortgage broker.LOL!Along with a few condos in Wilton Station.These are also listed on his website.This is a newly finished condo project with a 120 condos for sale.LOL!These are also built on RAILROAD tracks.LOL!$350,000 plus for a condo on the tracks.(plus $700/mo condo fees)The whole completed project is finished and it is vacant.There should be a blog for this guy alone.
For yucks I pulled up where he actually lives.$365,000 for a dump on a canal that is basically useless unless you own a submarine to go under the foot high bridge.This is built across from seedy rental units and of course one street over from you guessed it,RAILROAD tracks.Imagine taking advice from a realtor/mortgage broker who is completely buried in bad investments.SCAREY!!!

Anonymous said...

LOL!To the thinker.Delusional comes to mind.

Anonymous said...

Anonymous said...
in the tulip bulb bubble, the lawyers didn't enforce the non-verbal contracts.

so maybe something will be done to let people by invalidating contracts as "opportunistic?"

March 26, 2007 10:17 PM
------
Fraud in the formation of the contract is their only hope. In fact anything that taints the "formation of the contract" (e.g. duress, intoxication etc) will void the contract. But ORAL assertions about what the contract contains before or during formation of the contract will not be made part of the contract. So by waiving the reading of the contract and relying upon the oral assertions of the parties at the table holding the pen saying anything about the contract is done at your own peril.

All docs need to be delivered before the closing by several days and you need to scrub them with an attorney retained to represent YOU and not the title insurance company nor anyone else. Remeber everyone at the settlement table will be gone & paid seconds after you sign and you no longer have any power. BUT up until you sign, you have all the power. Demand that everything be explained. If they hymn & haw about getting the papers to you then tell them you will need an all day closing and that you'll bring your attorney to it and that they will be paying his fees.

Weed out bogus junk fees from the HUD-1. Just because the seller has agreed to pay the agent some bogus marketing fees does not bind you to pay them. Demand they be removed. go with a direct lender who is a pillar of your community and not some out of town/state parastic fly by night loan shark business recommended by a mortgage broker friend of an agent. They are just spreading YOUR wealth around. 'Nuff said.

Anonymous said...

WTF? Vermont had 1 foreclosure in the whole state?!?!

RealtyTrac, an online listing of foreclosed properties, must not handle the Vermont book of business.

Burlington Free Press, Sun., Mar. 25

"There were 158 foreclosures filed with Chittenden Superior Court in 2006, the highest number filed in Chittenden County since at least 1997, according to County Clerk Diane Lavallee. In January and February, there were 29 additional foreclosure filings, she said. If that pace continues, there will be 174 foreclosures in the county this year.

The problem is not limited to Chittenden County.

Foreclosures increased roughly 23 percent in northwestern Vermont, according to a Free Press analysis of foreclosures filed in Addison, Chittenden, Grand Isle, Lamoille and Washington counties. Addison County tallied the second-highest increase, at 36 percent; data were not available from Franklin County."

Anonymous said...

Not all Forclosures are created equal. The lot we have today are first payment Forclosures, these are homes that have not had ONE payment made. The banks make money if you live in the house for 7 years, even if they forclose on you they make a profit after all is said and done. When these puppies are poping in 6 months-2 years the banks get creamed. They also need to take in account that 6 months - 2 years of these loans are not real payments, if its a teaser rate the bank is even further behind.

If I was one of these Lemmings I would just live in the StuckO box for 6 months and not pay Sh@t, let the bank get screwed for being stupid enough to lend me $600,000 for 1,000 Sq Ft. over priced Ponzi Scam.

Anonymous said...

THIS David Lereah GUY IS A SCUMBAG! A real idiot. Look what he said:

"I expect prices and sales to be modestly growing by June in most of the country," said David Lereah, the chief economist for the National Association of Realtors and perhaps the most bullish housing economist. "But we'll have to go into 2008, maybe even 2009 before we get even close to the peaks we saw in late 2005 or early 2006."

teresa boardman said...

Here in St. paul the new condo builders are having a heck of a time. Older houses are selling much faster than new construction. I think real estate is local and not exactly the same all over the country or even from one side of a city to another.
You have an awesome blog by the way. :)

Anonymous said...

Thinker, it's not the owners who bought in 2001 who are in trouble it's the buyers who bought in 2005/2006 with "no money down" and those who bought earlier but took out another loan against the "equity" in the house.

They're about to owe more than the house is worth - an unpleasant position to be in.

Anonymous said...

They're only screwed if they owe more than the house is worth and if they absolutely have to sell. I don't know anyone that over-extended themselves or that was dumb enough to take out an ARM they couldn't afford. At least no one talks about it if they did. And sadly the NY metro area is still pretty strong in spite of high inventory. NY is becoming a land of have and have-nots. At some point, the have-nots will get fed up, crime will increase and real estate will come down

Anonymous said...

A lot of homeowners HELOC'd out every penny of gains on the way up. Sometimes twice a year.

Now they can't borrow any more AND they have to pay interest (floating) on the old HELOCs. Used to be you could pay interest on HELOCs by HELOCing out NEW money. No longer.

It's like David Liarah said "people had 500,000 sitting in their pillows just doing nothing!".

Well, not quite. If they want that money to do something (liberate their equity!) they have to pay the money back WITH INTEREST. The was the REIC put it, they made you think you were "freeing equity" taking it off the table. I think alot of people don't realize that it was just a loan with their house pledged as collateral.

Anonymous said...

16,000 foreclosures in California equals 32,000 foreclosures in Florida, and 48,000 foreclosures in Texas.

Frank said...

The Thinker is definitely delusional. I just moved from Phoenix to Orange County and in both places it's a common sight to see the same houses with for sale signs out front for months and months on end. In the development where I now live in Newport Beach, the same houses that had for sale signs 3 months ago when I was here looking still have those signs, and in Scottsdale it's even worse where nothing is moving at all. I do know of one recent sale in this community for around $700k for the same model house that everyone else is asking $1.2M - $1.3M for ... LOL

Anonymous said...

Excellent observation THINKER. The THINKER is thinking in terms of the big picture. Any seller who was a pre-bubble owner and has no urgency to sell has nothing to lose by putting it out there for 04-05 bubble prices. They can drop "significantly" relative to the current/prevailing market and pay all the transaction costs out of the proceeds w/o concern or heartburn. The buyer will get a prevailing "good deal" but empirically, as THINKER noted, the buyer is getting a bad deal because the fundamentals which say current valuations are unrealistic.

A friend of mine thinks he got a good deal 560k for a townhome that was initially offered at a bubble price of 630k. The owner paid a quasi-bubble price directly from the developer but with a toxic mortgage product. The loan was in the adjustment zone and after 6 months on the market (an unheard of DOM here in NOVA/DC the last 5 years) he dropped price and got a buyer. But he paid something in the 400k range just 2 years prior. Many friends at the house warming were happy for him and the place is nice. But after we left and were talking in the driveway we all agreed that the place really just was not worth anything over 500k.

The Thinker said...

The Thinker is certainly not delusional!

Honda Civics may sell well, but if they raise the price of the Honda Civic to $100,000 I am pretty sure they will stay on the lot for a long long time. Would that mean that the automobile industry has crashed? Unlikely!

So now what if people bought those $100,000 Honda Civics on 100% credit and try to sell them for $90,000 because that is what they need to satisfy their lien. I am still pretty sure the car wouldn't sell.

But don't be confused! The Honda Civic is still an excellent car with high demand, even if it won't sell for $100,000.

Do you get my point? If the price does not match the fundamentals then the product wont sell. This does not mean that there is not a high demand for the product. Demand for houses is currently so high that a house worth $200,000 could easily sell for $250,000 in less than a month! Unfortunately, the owner of the house worth $200,000 owes $300,000 on the house and doesent want to/cant sell the house for less than $300,000 and thus the house that is worth $200,000 languishes on the market because the price is unreasonable.

Anonymous said...

It depends where on the housing bubble curve you bought your house. I bought my house in 2003 for $180,000 with a household income of $85,000 per year. Since then, the market value for my house has doubled, and the household income is now $110,000 per year.

I have refused to refinance to take equity out of the house. I pay for all upgrades with the money that I save and I make extra mortgage prepayments every chance I get.

People have asked me, "You got a nice 1400 sq ft starter home, and since you make more money now, when are you going to upgrade to a bigger house?" I'm not a stupid moron--I'm staying where I am right now. Changing places of residence is a pain in the ass.

And if the job market crashes and I have to take a lower-paying job, those prepayments will allow me to restructure my payment plan that is within my means when the time comes to negotiate another 5 year term with the bank (In Canada, mortgages are usually 15, 20 or 25 years with 5 year fixed rate terms).

AndyS said...

http://www.cnn.com/video/player/player.html?url=/video/business/2007/03/24/chernoff.losing.the.family.home.cnn&source=money&wm=11

Regarding this video, I think the real problem is, they still have a $234,000 mortgage at 70. Shouldn't that ahve been paid off for the past 15 years? I don't see anything wrong with a modest workshop and small boat, unless they were all financed through home equity extractions.

Anonymous said...

Thinker is dead on.

I bought an overpriced home for $430K. 2 years later I listed for $670K and ended up selling for $585K in a supposedly buyer's market in January. The buyer probably thinks he got a great bargain and all his friends probably patted him on the back for the "steal" he got.

I - the desperate seller - made $155K tax free profit on an investment of $25K (my downpayment). The supposedly shrewd buyer paid paid $585K for a home that in a year will probably be worth $500K, if he's lucky.

Now I'm renting the same home for less than what my PITI was and have $155K in the bank. Boo hoo for me.

Anonymous said...

a mortgage at 70 isn't a bad idea since you'll die before it's paid off

Anonymous said...

“the thinker” is dead on.
It is still a sellers (suckers) market.


I would agree. The full impact of fewer buyers, tighter credit, increasing delinquencies and foreclosure sales are not fully fleshed out yet. Most of the houses I've seen for sale in St. Louis are still priced above this area's true value.

Smug Bastard

sinis said...

Anonymous said...
Thinker is dead on.

I bought an overpriced home for $430K. 2 years later I listed for $670K and ended up selling for $585K in a supposedly buyer's market in January. The buyer probably thinks he got a great bargain and all his friends probably patted him on the back for the "steal" he got.

I - the desperate seller - made $155K tax free profit on an investment of $25K (my downpayment). The supposedly shrewd buyer paid paid $585K for a home that in a year will probably be worth $500K, if he's lucky.

Now I'm renting the same home for less than what my PITI was and have $155K in the bank. Boo hoo for me.

March 27, 2007 3:09 PM



Why is it everyone continues to figure purchase price minus selling price = PROFIT?!?!?

It doesn't work that way especially since most of your money goes towards interest and very little to equity. When it is all said and done, you pay around 3-4 times what your house cost. To be fair you need to deduct mortgage payment total plus any repairs or upgrades plus down plus what you currently owe minus selling price, and thats what you got.

So based on your calcs above you might have made around 100K, which still isn't bad.

Anonymous said...

As a California home-debtor who bought in 2003 pre-bubble, and have NEVER done the cash-refi or sucked the HELOC-Cock (patting my back), I am reporting things are not looking good out here. I can say that most people I know are in trouble because they REFIED or HELOCd the shit out of their homes. Most thinking prices would still be going up and away still so why not take out another 80k for the Escalade, new tits, 80inch LCD and the $2000 dollhouse? It was too damn tempting for people to not take out money on the house as prices went nuts here in the last 5 years. I have tremendous will power and a ball busting wife when it comes to finances so that kept me in check when I saw that new 50 inch plasma at Costco everytime.
Now most of these poor saps are trying desperately to sell their home and not willing to drop the price becuase they owe a certain amount to the bank.
The only guy I feel sorry for is my neighbor. He had plans to stay a while (10years?) so he took the HELOC so he did tons of new upgrades to the house. Looks nice. His wife recently ran over a pedestrian and they are getting sued for about 150k so he needs to sell. Tough break.
However, I have no synpathy for all these ass hats around me that kept taking money out for stupid shit and trying to live large. Fuck them all.

Anonymous said...

"Why is it everyone continues to figure purchase price minus selling price = PROFIT?!?!?"

They never subtract the 6% real estate clerk commission either. It looks like the stupid calculation that Flip That House makes, which never subtracts buyers labor cost, opportunity cost, sales commission.

Anonymous said...

Why is it everyone continues to figure purchase price minus selling price = PROFIT?!?!?

It doesn't work that way especially since most of your money goes towards interest and very little to equity. When it is all said and done, you pay around 3-4 times what your house cost. To be fair you need to deduct mortgage payment total plus any repairs or upgrades plus down plus what you currently owe minus selling price, and thats what you got.

So based on your calcs above you might have made around 100K, which still isn't bad.
-----------------------------------

YOU
ARE
WRONG
AGAIN!!


Saying interest payment is a cost of owning is absolutely ridiculous.

If I pay $1500 for mortgage who cares whether the $1500 is $1499 interest and $1 principle of vice versa? When you rent 100% of your rent goes to the landlord. When you own 95% of the mortgage goes to the bank in interest. Get it?

The only cost of owning is the after-tax foregone interest earned on the down payment and any difference in mortgage vs. rent costs if any. Plus whatever maintenance is paid for. In my case I owned the home for 2 years. It was a brand new home, no repairs, no maintenance. So that cost was $0.

Anonymous said...

They never subtract the 6% real estate clerk commission either.

Anyone who pays 6% is a fool. For $299 anyone can list their house on the MLS and pay 3% to the buyer's agent.

But I guess as life-long renters you wouldn't know about that...keep believing everything you read here....hey it's on the internet it must be true!!

Anonymous said...

"But I guess as life-long renters you wouldn't know about that...keep believing everything you read here"

Bwahahha...it seems that homedebtor-hamsters and real estate clerks are on edge lately. No wonder, that lifestyle of living beyond their means through the housing ATM has ended, and the only thing they have left is a bad credit rating and a gazillion bills to juggle.

We, renters by choice who sold at peak, are just waiting for you financial wizards to go down in flames, so we can buy you out for pennies on the dollar. The clock is ticking...tic-tac, tic-tac, tic-tac...

Anonymous said...

Their prices are as irrational as my belief that no house is worth more than 125,000

fawked borrowers said...

A lot of life-long borrowers don't know either because the realtors are making a killing off those dolts. So are the mortgage brokers. They charge the homedebtors $10,000 to fill out some paperwork.

Anonymous said...

We, renters by choice who sold at peak, are just waiting for you financial wizards to go down in flames, so we can buy you out for pennies on the dollar. The clock is ticking...tic-tac, tic-tac, tic-tac...

WHOA!! Slow down there. I sold too thinking I was the smartest guy in the room. Now, according to zillow my old home is worth $12K more than when I sold last June. That 30% drop I was expecting is nowhere to be seen.

sixpercent said...

I have no problem paying an RS clerk 6%. Everytime I move, my company or the new company pays all closing costs, everything. More than happy to have someone make up nice glossy pictures, show the home (no lock box) etc. Doesn't sell- no worries, company buys it at what I paid. Since I bought it a year ago good chance it has gone down. No worries, I get what I paid for it. Everyone on this blog has a diff situation so generalizing is futile. And the best thing about having a relo company and rs agent do all the work, I don't have to suffer sitting in the same room opposite some dolt attorney and think he is getting how much for doing what?