Real Estate Crash thread

[liv2ski]

The Hard Truth About Residential Real Estate

Submitted by madhedgefundtrader on 05/27/2010 07:00 -0500

"Anyone who believes that housing is on the rebound, and that now is the time to buy, should take a very hard look at the numbers I dredged up for my spring lecture and luncheon tour.

There are 140 million personal residences in the US. Today, there are 26 million homes either directly or indirectly for sale. According to a survey by Zillow.com, a real estate appraisal website, 20 million homeowners plan to sell on any improvement in prices. Add to that 4 million existing homes now on the market, 1 million new homes flogged by companies like Lennar (LEN) and Pulte Homes (PHM), and 1 million bank owned properties. Another 8 million mortgage owners are late on their payments and are on the verge of foreclosure, bringing the total overhang to 34 million homes".
http://www.zerohedge.com/article/har...al-real-estate

Likely a bit of a harsh assessment, but in light of the fact he doesn't mention the current default primed World Economy, maybe not to far off IMO

[Platinum Pete]

Kevo, opportunity is always out there. I felt the same way you did when I graduated college. Every ad agency I worked in always talked about the "glory days" of the past. Countless people in the agency became millionaires off Iomega stock and other tech stocks (and sold at the right time). A year after I joined the work force the tech world crumbles, 9-11, etc... Hard to be optimistic at that point. Work hard, work smart, look for opportunities around you. Save your money so you can let it employ you some day. When you do walk from the work force know the business you're choosing to get into. I don't think the American Dream has ever been a freebie (maybe for those that inherit it). There will be plenty of years of hard work and sacrifice to get things rolling, but once they're rolling they're hard to stop.

Word. It is so easy to whine and moan about how difficult things are or what a disadvantage you're at - it's much harder to bust your ass, create opportunities for yourself, and take control. Don't join in with the "I need a frickin' job" website losers, misery loves company and will drag you down. Choose which momentum you want and surround yourself with people creating that momentum. It's like skiing - you can surround yourself with the bitchy fucks who only want to ski in perfect conditions from the top of the lift and then quit to the bar once that's bumped out, or you can join the crew who rips no matter the conditions and hikes for the best turns.

[Toadman]

It's hard to look at the current system in place and not come to the conclusion that my generation (24 years old) missed the boat.

Huge unemployment for recent grads. I had a hell of a time finding a job, and now am finally in a position where I have a salary (albeit at 25% less pay than where it would have been several years ago) and health insurance, but fuck...I know so many people that can't find ANY job. They are FUCKED with student loan dept that they can't pay back.


But what about the entire generation of recent (and soon to be) recent grads, whose careers will never really launch like we they expected. People graduating now won't have a solid first job on their resume. Their debt will pile up. I'm not sure if some of these people will ever recover to a comparable level to people who graduated just a few years before.

There have been multiple studies of college grads who graduate into a recession and the effects on salary. In a nutshell earnings are less, and they continue to earn less throughout their careers. I am one of those people who graduated into a recession but I worked my ass off, and don't waste my energy thinking about the folks that graduated a year or two before me that started out making $4k-$8k more than I started out making, doing the same thing I do.

Just reading MD9's post says it all. If you have a good work ethic and a good attitude, things will start rolling your way.

[Benny Profane]

I blame my Mother.

[Toadman]

I'm sure there's a book in there somewhere, "How to live rent free for Dummies". Or something to that effect.

ST. PETERSBURG, Fla. — For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”

Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

[liv2ski]

I'm sure there's a book in there somewhere, "How to live rent free for Dummies". Or something to that effect.

Just a repeat of what has been going on for a few years now. "Nothing to see here, move along".

[Benny Profane]

I don't know. I think we have arrived at a new stage of foreclosure, and that article in the NYT today pretty much legitimized it after 60 Minutes covered it a few weeks ago. The banks need house sitters everywhere because they know they're fucked, and they have more than enough problems lying through their teeth with Ben and Timmy standing behind them about their mark to fantasy garbage, and, the last thing they need to do is landlording or maintenance. It would fuck with their pedicures.

[liv2ski]

Irvine Housing Blog:

* The property was purchased on 11/13/1999 for $485,000.
* On 5/13/2003 they opened a HELOC for $63,400
* On 1/26/2004 they got a HELOC for $100,000.
* On 2/1/2005 they refinanced with a $634,500 Option ARM with a 1% teaser rate.
* On 3/23/2005 they obtained a $80,000 HELOC.
* On 8/10/2005 they got a HELOC for $100,000.
* On 11/3/2006 they refinanced with a $688,000 first mortgage and a $85,000 HELOC

During 2004-2005, it was California which led the way in refinancings. Keep in mind that many of the largest unregulated mortgage lenders were headquartered in California. They were only too willing to shovel out refinance loans to practically any homeowner in California who could sign a document.

For those two years, the California numbers are simply mind-boggling. According to mortgagedataweb.com, which derives its figures from municipal recordings, slightly more than 2.6 million California mortgages were refinanced in 2004 and another 2.4 million the next year.

The average size of these refinanced mortgages was a surprisingly small $200,000. That's because most of them were second lien Home Equity Line of Credit loans (HELOCs) many of which were taken out by long-time homeowners who refinanced several times as home prices climbed seemingly toward the sky.

The following short sale situation, described in a September 2009 post in the socalbubble.com blog, was not at all uncommon in California: "The homeowner had purchased some 20+ years earlier, but had withdrawn over $500K [refis] in the last decade." He goes on to explain that "The most amazing thing to me during the housing downturn is the number and amount of refis that I have seen. It seems MOST of Southern California took out several hundred thousand dollars each from their houses; enough to buy entire houses outright in most other places in the country."

HELOCS:

Last year, a 63 year old widow wrote a letter to one of the major banks complaining about her treatment as she attempted to obtain a mortgage modification. The letter was posted on the website MoneyCafe.com. She lamented that she had owned the house for thirty-seven years, but financial problems stemming from the recession had caused her to miss several mortgage payments.

You are probably wondering, as I did: How much could she possibly owe on a house she had owned since 1972? The woman went on to mention that her first mortgage was $1,247,000 and her HELOC balance was another $198,000. Yes, that's right - a total of $1,445,000. You would think that most homeowners who have lived in their house for 37 years would own it outright. Not in California, though, where she resided.

When the housing crisis erupted in early 2007, banks began to curtail their originations of HELOCs. In spite of this, a study published by Equifax Capital Markets in October 2009 found that 45% of prime borrowers with securitized first mortgage loans that were still current in July 2009 also had a HELOC. Worse yet, the average outstanding balance on these HELOCs increased steadily from roughly $83,000 in mid-2005 to $118,000 four years later.

It is very likely that a considerable number of financially-strapped HELOC borrowers are using their line of credit to cover the first mortgage payment and avoid default. Unfortunately, banks have begun to reduce or eliminate the available line of credit in states where home prices have declined substantially.

Last September, Equifax estimated that there were roughly 13.6 million HELOCs outstanding. Nearly all of them were second or "junior" liens that stood in line behind the first lien holder in the event of a foreclosure. When added together, they pose a tremendous financial burden for the vast majority of these 13.6 million homeowners.

Several key analyses of so-called "underwater" homeowners do not include these outstanding HELOCs in determining whether a property is underwater or not. Some do not include the refinancing of first mortgages which we have looked at. To omit either or both of them will cause a real underestimation of the number of homeowners with negative equity and in serious danger of defaulting.

It is not an exaggeration to say that the massive refinancing undertaken during the bubble years of 2003-2006 is a burden that will probably push back the housing recovery well into the future.

HOUSING:

The real problem in California is with refinance jumbo mortgages which exceeded Fannie Mae and Freddie Mac loan limits. For 2004/2005, a total of 780,000 jumbo refinance mortgage loans (averaging 520K) issued during these two years in California and a total debt of roughly $400 billion. If we add in the 2006 refinances, there were roughly 1.1 million jumbo refinance mortgages originated in California during 2004-2006.

To give you an idea of the magnitude of this jumbo refinancing number, there were only slightly more than 1.4 million jumbo mortgage loans originated throughout the entire nation for the purchase of homes in 2004-2006.

In the major metros such as Los Angeles, San Francisco and San Diego, four times as many refinancing loans as purchase mortgages were originated in 2004-2005. For the Los Angeles metro area alone, roughly 1.2 million mortgages were refinanced in these two years. The average L.A. jumbo mortgage during this period was approximately $530,000.

Because of the very low down payment that lenders required from borrowers during these two years, the collapse in California home prices has resulted in nearly all of the outstanding jumbo refinance mortgages originated in 2004-2005 being seriously underwater now.

Since these jumbo loan amounts exceeded the Fannie Mae and Freddie Mac limits for either purchase or guarantee, banks which originated them were forced to keep in their portfolio those loans which Wall Street could not securitize and sell to private institutional investors. As jumbo mortgage defaults skyrocketed in the last two years, banks have raised down payment requirements for new loans and sharply curtailed the total number of jumbo originations. According to Lender Processing Services, 66,000 jumbo loans were originated nationwide in March 2007. Three years later, in March of this year, a mere 13,000 were closed.

The drying up of jumbo mortgage money has made it extremely difficult to sell almost any California home which is encumbered with a jumbo mortgage. That has put tremendous downward pressure on prices for these homes.

Many of these California homeowners who have not yet defaulted are in serious danger of doing so. Fitch Ratings reported that 44% of all outstanding jumbo mortgages were originated in California. As of March, 11.8% of all prime California jumbo mortgages were more than 60 days delinquent, nearly triple the rate of a year earlier. Since the cure rate for all delinquent loans is only 10% now according to Lender Processing Services, it is very likely that as many as 90% of these California jumbo mortgages will end up in default.

If you add in the roughly 1.8 million underwater homeowners who purchased a property in 2004-2006, you can begin to see the enormity of the California mortgage disaster.

Data:http://www.realestatechannel.com/us-...heloc-2633.php

ISM from WellsFargo

[jayfrizzo]

Woah, liv2ski, that giant wall of text is making me rethink my position that it's OK to walk away.

On one hand, grandma shouldn't have used her house as a cash machine. She was probably thinking, "hey, free money."

On the other hand, the banks shouldn't have given an old lady $1.2 million dollars for her house. Though the bank that gave her the loan most likely wouldn't hold the loan...they'd just sell it and were probably thinking, "hey, free money."

I can understand grandma being short-sighted and dumb. But how could the banks be? I guess if they were just offloading their risk, then it's a dumb decision not to do it.

[cramer]

In the major metros such as Los Angeles, San Francisco and San Diego, four times as many refinancing loans as purchase mortgages were originated in 2004-2005. For the Los Angeles metro area alone, roughly 1.2 million mortgages were refinanced in these two years. The average L.A. jumbo mortgage during this period was approximately $530,000.

to put in perspective. 530K was at the LOW END of the market during those times. That bought you a 1500 sq ft cookie cutter. Thats what the last sucker who bought my house in 2006 paid.

[skier666]

I really can't think of anything witty to say about the story above. I guess I'm doing things wrong by saving up a down payment, obtaining a loan that I can afford, wait to sell a house before purchasing another one, and then using that equity to put down on the next home. FML.

[meatdrink9]

The crazy thing is those people pumped those HELOC's out into the economy buying boats, escalades, clothes, dinners, vacations etc... It drove me nuts as we are currently out in suburban mcmansionland and everyone was living beyond their means. My wife would reference what her friends had just bought or spent etc... whereas so many people lived that way that behavior was cited as "normal or healthy" and that something must be wrong with me (scrooge). Years later several have lost their homes (and she gets it now), but her seeing others living like that caused me a lot of arguments as to why we weren't living like that too (entitled). Drove me nuts.

[GiBo]

The crazy thing is those people pumped those HELOC's out into the economy buying boats, escalades, clothes, dinners, vacations etc... It drove me nuts as we are currently out in suburban mcmansionland and everyone was living beyond their means. My wife would reference what her friends had just bought or spent etc... whereas so many people lived that way that behavior was cited as "normal or healthy" and that something must be wrong with me (scrooge). Years later several have lost their homes (and she gets it now), but her seeing others living like that caused me a lot of arguments as to why we weren't living like that too (entitled). Drove me nuts.

I worked for a builder during the boom. I'd drive through one of our projects and see a 20-30something couple in the yard of 435K home. Toy hauler trailer, brand new SUV and truck, jet skis... I would tell my co-workers, "This shit's not sustainable. Not only can't these people not afford this stuff, but they're proping up the economy with equity and when this bubble bursts it's going to hit everything." I was real popular around the office. No one wanted to acknowledge that the gravy train might run dry.

I think your experience was typical. People saw all those toys and they wanted them too. Human nature. You did it right. You don't buy toys with a HELOC or refi. DUMB!

[liv2ski]

I worked for a builder during the boom. I'd drive through one of our projects and see a 20-30something couple in the yard of 435K home. Toy hauler trailer, brand new SUV and truck, jet skis... I would tell my co-workers, "This shit's not sustainable. Not only can't these people not afford this stuff, but they're proping up the economy with equity and when this bubble bursts it's going to hit everything." I was real popular around the office. No one wanted to acknowledge that the gravy train might run dry.

I think your experience was typical. People saw all those toys and they wanted them too. Human nature. You did it right. You don't buy toys with a HELOC or refi. DUMB!

I was popular too. I got hired by a company that was one of the first out there doing 100% stated income loans. At the interview I asked the Wholesale VP if they were nuts. I told her I have a CA brokers license and would be happy to handle all the REO's for the bank when the market imploded. I still got the job.
Then about 3 years later, I was at Wachovia when they bought World Savings. At the meet and greet, I told a room full of World head honchos their shitty Option ARM business would be the death of Wachovia. They really didn't like my comments, but about 18 months later, Wachovia was dead. Fucking World Savings.

[Benny Profane]

The crazy thing is those people pumped those HELOC's out into the economy buying boats, escalades, clothes, dinners, vacations etc... It drove me nuts as we are currently out in suburban mcmansionland and everyone was living beyond their means. My wife would reference what her friends had just bought or spent etc... whereas so many people lived that way that behavior was cited as "normal or healthy" and that something must be wrong with me (scrooge). Years later several have lost their homes (and she gets it now), but her seeing others living like that caused me a lot of arguments as to why we weren't living like that too (entitled). Drove me nuts.

I got divorced just at the right time, in '02. If I was still married, I'd be so fucking deep in debt.

[cramer]

interesting stuff off ziprealty. I do a search on the same prices i bought at in 2008 and i get a grand total of 38 properties. That is searching 3 cities. Back when i bought i was pulling 250 properties to choose from over 6 months of looking. I do a search on 250K - 500K 192 properties show up. Bottom dwelling is done out here. All these houses are 2500 sq ft + that are showing up now. I didnt search for the above 250K when i bought. I was approved for 350K, but the reality that i could afford was topped out at 250K.

So i really cant comment on how many were available in the next price range when i bought. But that is quite a big difference compared to when i bought.

[enlosandes]

A property in my old neighborhood in Truckee was in escrow for $525K about 3 years ago, before the buyer got cold feet. It just sold recently for $333K.

That's quite a 3 year swing!

[GeezerSteve]

interesting stuff off ziprealty.

I don't know ziprealty, but the data might be derived from the local multiple listing service. If so, comparing 2008 to 2010 is apples vs. oranges. More and more residential properties are off the MLS radar as more and more people seek to avoid paying brokerage fees.

Also, it's common strategy to pull off of MLS if a property is not getting any interest, lest the property will get a stigma of having been on the MLS for X number of weeks.

The notion that "bottom dwelling is done out here" is very optimistic, perhaps too optimistic. Where is "out here?"

[cascadianwarrior]

We just put a waterfront home with secondary cabin on Lake Chelan, WA under contract. It's been on the market for 538 days, started at $1.9M, dropped to $1.5M about a year ago and then down to $1.295M in January. Apparently they passed on an offer of $1.2M about two months ago. My clients just picked it up for a cool $1M cash.

[cramer]

zip realty is just mls listings. As for houses not being listed on MLS, i dont need them to be. I moved in this neighborhood, half had signs out front. They all have cars now, its pretty clear that there isnt much inventory anymore. That and everyone i know and their mother like me, who didnt buy into the real estate boom all snatched up houses and have house payments now that are less than we were paying in rent! Granted, im out in suburbiaville, but whatever, i at least have a long term savings account that i can tap into 20 years down the road.

Where is "out here?"

Pretty much ground zero for SF bay area when you talk about real estate crash. Oakley, ca. Houses are worth less than half of what they were in 2007. As an example, i paid 220K for mine. The guy who walked in 2006, paid 520K.

The notion that "bottom dwelling is done out here" is very optimistic

They just built a bunch of new houses in my neighborhood. They are selling like hotcakes. There isnt anymore foreclosures to buy anymore. All thats on the market now are short sales and new houses. There were 50+ foreclosures in my neighborhood when i bought. The builder actually foreclosed. The banks had to come in and finish them up. There is none left now and they are building again. When exactly would you be optomistic that the bottom dwelling is done? Keep in mind, my neighborhood was built in 2003-2007 before the builder walked. So these arent old houses. The one i bought was only lived in for 2 years then sat empty for 2 years.

Will there be another waive of foreclosures? Not a big one like i scored on. Banks arent going to make that mistake twice. They'll release the slowly. At least i sure as hell would if i was a bank.

I'm really not onboard with liv2ski. Im in the opinion, anywhere near the SF bay area is a good long term investment when it comes to real estate. If not, oh well. At least im getting the tax benifits and will have something to leave to my kid instead of paying someone elses mortgage and letting them pocket 10K in returns every year.

[liv2ski]

"Senate Majority Leader Harry M. Reid (D-Nev.) co-authored a proposal that would allow those eligible for the tax credit to close on a home by Sept. 30 to give lenders more time to process a crush of applications.”

Could it be that the “crush” was caused by the artificial stimulus? Aren’t you glad you have such competent folks up in D.C.? Here in Southern California the housing delusion goes deep into the psyche. In Los Angeles County we have approximately 21,000 homes on the MLS while 58,000+ properties show up as distressed properties. The shadow inventory is alive and well.

The most common reason to buy given by those in the industry today is “because the government is helping” and “look how far prices have fallen!” Well prices have fallen but for a reason. This is in stark contrast for prices going up merely because of herd mentality spurred by a mania fueled by Wall Street toxic debt. Why would inventory be moving up steadily if homes were selling like pancakes? The simple reason is sales are starting to weaken while banks are having a harder time holding back the flood gates of properties. Remember that confidence is the name of the game and the public is getting tired of the current circus. Click your ruby slippers hard enough and repeat that “housing values can only go up” and all will be well".
http://www.doctorhousingbubble.com

Good on ya Harry. Let's keep priming the pump and see if the sheeple will come out and buy?

[liv2ski]

I'm really not onboard with liv2ski. Im in the opinion, anywhere near the SF bay area is a good long term investment when it comes to real estate. If not, oh well. At least im getting the tax benifits and will have something to leave to my kid instead of paying someone elses mortgage and letting them pocket 10K in returns every year.

I hear you, I try and convince myself that the current mass blow out in foreclosures is due to people getting 100% stated income loans, that they in fact could never afford. Those loans came out in 2002-2003, so assuming all those loans blow up, where will we need to be in the near term (next few years) value wise to clear the excess inventory? I see homes listed at 2001 prices now, so maybe 1999-1998 levels? I don't know.

What is more troubling to me is that our housing crisis has manifest itself as the largest financial debt crisis the World has had to deal with since the Great Depression. This is a debt crisis, as in, to much of it. Iceland got fucked, Greece is getting fucked, Spain is dropping her panties, as is Hungry and pretty much every other country in Europe. Only time will tell how all this plays out. At this time Ben B and Timmy G are running around telling everyone to do what the USA did, extend and pretend. I think at some point the piper will have to be paid and at that point the whole house of cards fails. R.E. values will just be a small part of the overall financial collapse and reset.
We will see. I don't want shit to blow up, I am just very pessimistic there is any way out of the impending debt collapse.

[Moeghoul]

They don't have to reset asset prices, there will be a global currency event. revaluation on the downside will take care of it. What event will precipitate it or when is unknown. As far as RE goes, if there's this much trouble with rates near zero, watch what happens when rates creep higher by year's end or next year.

[Benny Profane]

Rates ain't going nowhere. No central banker in his right mind or looking to seal his legacy in history would dare. Welcome to Japan squared. M3 money supply is falling off a cliff faster than 1932, and that was before bank deposit insurance, unemployment, social security, medicare, food stamps, welfare, and the use of a gigantor "Stimulus" to keep things inflated. There just isn't any money anymore, and "quantitative easing" is just pissing in the wind.

[Nobody Famous]

Timely read from the NY Times: As Buyers Get Picky, the Housing Market Slows

Notable quote:

“We see buyers who must have learned their moves from the World Wrestling Federation,” said Glenn Kelman, chief executive of the online broker Redfin. “They think the final smack-down occurs at the inspection, where the seller will be reluctant to refuse any demand because the alternative is putting the house back on the market as damaged goods.”


Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided.

Edit: Some real good insights in this article.