Even as home prices are beginning to show signs of stabilizing and the industry is ramping up efforts to keep troubled borrowers in their homes, the latest market study from Jacksonville, Florida's Lender Processing Services (LPS) shows that mortgage delinquencies and foreclosures remain alarmingly elevated.
... Nearly one-third of foreclosures remain in pre-sale status after 12 months - twice as many as the year prior ...
RTB: Ouch. That is an ugly backlog, which seems to be increasing. If I'm not mistaken, doesn't the Office of the Currency Controller (OCC) have regulations that state a bank can only hold on to a residential property for 18-months? [5-years for commercial that it does not use for its own purposes]
... for every loan that improves in status, three more deteriorate further ...
Those were the highlights, here is the article link.
The San Diego real estate market is stable. The total months of inventory increased slightly from last month. The entry level market is still very strong. The mid-market plugs along. We saw a slight dip in the months of inventory at the high end of the market.
With the extension and expansion of the homebuyer tax credit, I expect we will continue to see a very strong entry level market through to next summer. In fact, I expect that it will again result in dramatic price increases on the order of 10-15% from now until the end of the summer.
I believe we will see more inventory chewed off at the mid-level. I don't see prices increasing much, until the market absorbs another two months of inventory.
We should probably see a slight decrease at the upper end of the market, but it will continue to remain distressed. In fact, with the effective elimination of the stated loans designed for the true self employed person, we will continue to see prices decline at the higher end of the market.
RISMEDIA, November 9, 2009-President Barack Obama has approved the first-time homebuyer tax credit extension which will extend the tax credit until April 30, 2010.
-First-time homebuyers, who are defined by the law as buyers who have not owned a principal residence during the three-year period prior to the purchase, may be eligible for up to an $8,000 tax credit. -Existing homeowners who have been residing in their principal residence for five consecutive years out of the last eight and are purchasing a home to be their principal residence ("repeat buyer"), may be eligible for up to a $6,500 tax credit. -All U.S. citizens who file taxes are eligible to participate in the program.
The implications will be to cause / maintain an increased demand for entry level housing. With the extension, it will also cause an increased demand for the move-up homes - possibly reaching price levels as high as a jumbo loan will permit.
It will likely have little or no effect on the highest segment of the market, which will continue to decline due to the ability to get loans.
Friday's unemployment report from the Bureau of Labor and Statistics is anything but a green shoot. The official U-3 unemployment number is 10.2%. The broader and more comprehensive official unemployment number, the U-6, is at 17.5%. The U-6 counts all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, and all the people who dropped off unemployment benefits because their unemployment benefits ran out. John Williams at Shadowstats.com suggests that real unemployment is actually running at 22%, which, by our calculation, is approaching Great Depression unemployment numbers.
RTB: This is worth the read, not because there are so many key government officials' predictions that have gone horribly awry, but rather for the links to the related sites and their charts. Here is one interesting chart courtesy of ShadowStats.com
And this one from MarketTicker.org
All that aside, what does this mean for the housing market, homebuyers, and real estate investors?
I can't remember where I saw it, but someone commented that there was no correlation between unemployment and an increase in home prices during the great depression, that home prices rose regardless. Well, I don't think our situation is quite the same, because I don't recall a great big housing bubble preceeding the great depression. They also did not have a homebuyer tax credit.
The only national level comment that would be fair based on this data is a general downward pressure on prices. Similarly, the escalating delinquencies Federal Reserve Board Delinquency Rates Soar Exponentially will put downward pressure on prices from more short sale attempts to more foreclosures.
Most notable about the inventory level is that up to $500K for detached (and $450K for attached homes), it is a clear seller's market with less than a month of inventory in many price ranges. With the homebuyer tax credit being extended and expanded, then in San Diego, this end of the market will see even more fierce competition from buyers. I expect to see an increase in prices and continued low inventory - even if we do get some of the foreclosures to start flowing locally. The homebuyer tax credit (and current low interest rates) will trump the unemployment and delinquency pressures.
The middle of the market may gain a little from the tax credit, likely reducing inventory a little, up to $900K
However, the higher end of the market will continue to suffer and decline because there are neither incentives (phased out for too much income) nor available loans for the self-employeed people who are generally in these homes.
But, these last comments are mostly only applicable to San Diego Real Estate
WASHINGTON (MarketWatch) -- The House of Representatives late Saturday night approved a historic bill to remake the U.S. health-care system, delivering President Barack Obama a key procedural victory on his top domestic priority after a lengthy and sometimes emotional day of debate on the nearly 2,000-page measure.
By a vote of 220-215, lawmakers approved a 10-year, $1.055 trillion bill that aims to put in place near-universal health-care coverage in the United States...
It now goes to the House and based on momentum, will likely go to the President and be signed this week or early next week.
Assuming passage all the way through, this will continue to prop up home values. Where entry level demand is already strong, expect price increases. Your optimal buying time is new through about the second week of January, before the seasonal price increases start hitting the market.
News: 115 Bank Failures in 2009 And Counting... [news from MarketWatch.com]
Today was almost a double digit bank failure day and some are predicting triple digit day(s) before it is all over. Today's 9 bank closings bring our 2009 total to 115 bank failures.
The Federal Deposit Insurance Corporation (FDIC) is expected to lose approximately $2.5 billion as of the end of September. With two more months left this year, it is reasonable to expect that cost to be $3 billion by the end of the year.
Counter Spin: 3.5% GDP Is Not Necessarily "Healthy"
The GDP numbers this week are artificial in the same way that buying that big screen television on credit increases your take-home pay. Are your really going to kid yourself that you got a raise? No? Then don't let the GDP numbers fool you. There is a future price to pay.
The cash-for-clunkers represents 1.66% of the growth (http://www.businessinsider.com/chart-of-the-day-motor-vehicle-output-2009-10). The problem is that it compressed the timeline of a year's worth of a certain kind of car buyer into a short time-span in Q3 2009, or as they say, "pulled forward future auto demand" leaving behind a vacuum of these buyers for the next three quarters.
The first-time homebuyer tax credit of $8,000, expiring November 30, 2009 was responsible for approximately 20% of all home purchasing decisions, again pulling forward demand. This is likely responsible for another 0.1 - 0.25% of the GDP. Presently, it appears as if a homebuyer tax credit will be extended, repeating the cycle over the next 6-9 months.
BOTTOM LINE
The failing banks are mostly an expression of their non-performing assets (aka foreclosures). This is nothing new. But, with FDIC responsible for the non-performing assets, expect these foreclosures to hit the streets soon.
With the likely extension of a homebuyer tax credit to include existing homeowners, we should expect to see an additional pulling forward of housing demand, peaking about two months prior to the next sunset date. This will prevent / delay the second drop of a "W" shaped recovery
There are areas where the entry level housing inventory is under 1-month and prices have been on the rise since the beginning of 2009. If the tax credit is extended, then mid-priced homes are likely to see the same fate and even the higher end homes will see some benefit (perhaps reducing 9 years of inventory to 8).
If you are looking for a real estate deal, you need to do two things.
Identify your property and negotiate your contract by the second week of January to get the lowest prices for the foreseeable future.
Use the "Search by Price Discount" feature of http://FinestExpert.com. Simply specify a discount, say 20%, in your financial criteria and hit search.
All else being equal, population growth will pull us out of the housing despair. And having so few housing permits, will only accelerate that. Now for the bad news... we overbuilt during the bubble years.
According to my calculations based on government figures of one net person growth every 11 seconds (about 1% annually against a population of 3.07m) and an average of 2.59 people per household, we need 1,106,915 more homes this year. That 11-seconds may have been rounded because another source reports a need for 1.34m homes. For now, let's use the lower, more conservative number. Working back to 2000, we get the following:
We have been over producing for many years. I have to assume for at least several years prior to the beginning of this chart in 2000.
Now for the real "downer", the cumulative effects
If these calculations are right then we have approximately five years of excess housing. If we can keep the new housing at less than half the growth need would indicate, then in about 9 or 10 years we'll be on track with the right amount of total housing.
Of course, housing needs are not uniform as job and economic growth and population migration vary.
* The title credit goes to Personal Real Investor Magazine. It was a subheading from an email I received from that just struck my fancy.
An analysis of foreclosure-related filings at the metro level by data aggregator RealtyTrac shows new hot spots emerging in cities not generally viewed as bubble markets, including Provo, Utah; Rockford, Ill.; and Lansing, Mich.
All but one of the 20 metro markets tracked by RealtyTrac as having the highest rate of foreclosure-related filings during the third quarter were located in four states where speculation helped drive up prices during the boom: California, Florida, Nevada and Arizona. Those states also accounted for 37 of the 50 markets identified as having the highest foreclosure rates.
... and of course that is but a snipped of the article.
Robert Shiller, the man who predicted the dot com bubble in his best-selling book Irrational Exuberance has warned that house prices in some areas of the US could be approaching bubble territory.
... and of course there is more ...
I think there is a certain truth to increasing prices, but Schiller does not seem to acknowledge that this little "bubble" is due to three things...
1. The homebuyer credit. Right now, we have people who have accelerated their purchase decision because of an $8,000 tax credit. This necessarily puts more demand. Unless some form of credit is extended in the coming months, we are just about to lose as many as 20% of the current buyer pool.
3. Home prices were undervalued. In the typical spendulum swing, home prices (at the entry level) had become undervalued. Everything was on sale. You could not build a home for what you could buy a home and land.
Based on #3, I would call this more of a correction than a bubble. However, #1 & 2 definitely have a bubble feeling. All combined, I think this "bubble" does not so much as pop as dissapate with the expiration of the tax credit
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