Little Can Stop the Inventory From Growing
-by the Mysterious Flying Miser
From Boston Real Estate Now:
“Want to know one of the scariest things out there right now when it comes to the precarious state of the housing market? It’s the huge amount of shadow inventory banks and other lenders are sitting on, ready to dump on the market as prices start to move upward again.
“… shadow inventory is the fancy name for foreclosed homes and condos that banks have taken back, but have yet to put on the market.
“The numbers are staggering - 1.7 million homes across the country - owned by banks which eventually plan to dump them back on the market. That’s compares to about 3.7 million homes already for sale from Boston to San Francisco.
“Check this story out from Las Vegas:
“In Nevada, Bank of America has announced plans to put 500 foreclosed homes a month on the market. And given the massive inventory Bank of America and other big lenders are sitting on, this pattern is likely to be repeated across the country. Bank of America alone took title to tens of thousands of homes each month towards the end of 2009.
“Conveniently, at least one bank executive is blaming the backlog on the Obama Administration’s loan modification campaign, reports the Las Vegas Journal Review, citing comments made at an industry conference. Banks are holding off on foreclosures as they attempt to work things out with struggling homeowners, which along with a myriad of temporary foreclosure moratoriums imposed by different states, has helped create the giant overhang, John Ciresi, a vice president and portfolio manager for Bank of America, is quoted as telling fellow industry executives.”
From the Arizona Republic:
“Phoenix area home prices could experience another drop in value because of tens of thousands of properties that could flood the market in 2010. This shadow inventory, located across metropolitan Phoenix, is threatening the recovery of the real estate market and overall Arizona economy.
“‘Phoenix’s shadow inventory is very real and very scary when you think about all the homes that could flood the market,’Arizona housing analyst RL Brown said. ‘Some people are in denial about the area’s shadow inventory, but by being informed on what could impact the market, we can all make better real-estate decisions.’”
…
“So far, lenders are opting for foreclosure over loan modifications in most cases. Recent federal figures showed only 15 percent of the homeowners eligible for loan modifications have received one. Lenders know they can take back Phoenix homes through foreclosures and get them off their books quickly by slashing prices and reselling them to investors. They have been doing this for the past 15 months.
“Uncertainty about what those investors will do with the more than 50,000 foreclosure homes they already have bought also stokes fears about a shadow inventory. Most foreclosure homes bought by investors have been turned into rentals. Now, there are so many rental properties competing for tenants, rents are falling. If new investors find they can’t make money off rentals, some are likely to try to resell those homes to try to make a quick profit.”
“As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That ‘shadow inventory’ was up 30% from a year earlier.
“Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices - and thus boost their losses.
“According to Goldman Sachs, the government Home Affordable Modification Program started less than 80,000 trial modifications in March, less than half the number in the peak month of October 2009. At the same time, a growing number of modifications are being canceled as borrowers prove unable to pay. By Goldman’s count, about 68,000 were canceled in March.
“All this means that little can stop banks’ inventory of distressed homes from growing. Too many people owe too much more on their homes than they can afford. For the housing market, that could mean a long-lasting hangover.”
From Bigger Pockets:
by Ryan Hinricher
“Some believe the shadow inventory isn’t a big concern. Steve Cook of Real Estate Economy Watch points out that total housing inventory is at a 7.8-month supply, slightly up, but overall way down over 1 year ago. ‘The huge shadow inventory of 1.7 to 7 million properties first forecast more than a year ago has yet to materialize-and may be a myth,’ said Cook recently in a blog post challenging the shadow inventory concerns. I tend to agree. Although my credentials aren’t as serious as Standard & Poor’s rating system, there is great pressure on the banks to work with owners to work out, modify, short sell, or salvage these loans in some way. Side note; a friend of mine recently modified his loan from 7% to 2% for the next 5 years and had his payment sliced in half. The odds of him paying this back are good. Market absorption is continuing to happen as well. In my market, Memphis, inventories are down 30% from the peak, so it’s hard to comprehend prices dropping much further.”
From the Mysterious Flying Miser:
Ben Jones of the Housing Bubble Blog will be in Washington, DC late June 2010. He plans on making a visit to his elected representative while there. To help his case, he is asking that HBB readers write letters describing how the shadow inventory is hurting them. Letters can be e-mailed to Mr. Jones, and he will deliver them in person. He also seeks input from HBB readers on possible ways to communicate this issue most effectively.
“Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload.”
Whoa! And mind you, that is with low, low interest rates and the $8,000 tax gimmick too. Now what? Running out of ideas D.C.? STOP LOOKING TO THE PAST!
“He also seeks input from HBB readers on possible ways to communicate this issue most effectively.”
Howsa about a new generation of HBB T-Shirts? Possibly a series with favorite sayings or cheeky quips - collect ‘em all? Such as: “No banker left behind - shut up and pay your mortgage!”
Hint to banks with shadow inventory they want to unload:
LOWER YOUR ASKING PRICES!
We have personally sold two homes at two different times, in two different markets and at different points in the business cycle, both times within one week of listing them. The secret is to list slightly below market value; buyers come out of the woodwork to make offers on homes that are priced appropriately for market conditions. That 103 months (8 years and 9 months) worth of shadow inventory could be whittled down to normal levels in no time at all if it were appropriately priced to sell.
‘That 103 months (8 years and 9 months) worth of shadow inventory could be whittled down to normal levels in no time’
Yeah, I’ve been reading about this in terms of time to sell, but I think that’s meaningless. It’s the overhang, and attendant overpricing that will hammer the people buying today. And this is aside from the future losses the lenders will take as millions of foreclosures continue to decline in value.
There really are no winners in the way this is being handled, IMO.
This morning I briefly looked at a site that had MLS supplied information on the major US cities current housing inventories, dream asking prices and also the unemployment rates.
What it dosen’t supply for each of the major cities was the easily available current average or medium wages or income for those cities.
Hey NAR, size matters… when it comes to money !!
We all know why they aren’t lowering the prices. Lower prices mean even more current debtors will be underwater, and deeper as well. This means more foreclosures as debtors will “strategically default” in greater numbers than ever.
The bankers are hoping for a miracle as the taxpayers won’t be able to bail them out into perpetuity. But it won’t happen. The hollowed out and eviscerated US economy won’t be staging any miracles any time soon.
I recall some years ago in this forum that some mentioned how none of the folks in their social circle had a “job”. That everyone seemed to have some kind of BS business that was tied into the bubble economy, whether its was hustling houses or mortgages, hauling refuse from construction sites, cleaning out grease traps in chain restaurants, etc. That junk isn’t coming back and millions of people have no skills beyond hustling. Not that having skills is always helpful as Corporate America continues to export our skilled jobs at a breakneck pace.
In Colorado,
So very well said, I’d only add that the REIC-based Economy “won’t be staging any miracles any time soon”. ( It’s a good thing )
It’s incredible to me as to how many that worked the fringes of the HB are still clinging to the hopes of a comeback though?
I was having a bit of an odessey of the mind while taking my AM run this morning, pondering what would have been had there not been the 5 to 7 year housing bubble. What would all of the people that made serious money (from the execs and workabees at GS all the way down to the carpenters getting 40 hours of OT a week in LV) have done for a living?. Unfortunately, I really couldn’t develop a decent mental picture of what things would have looked like, except that maybe we would still have relatively high levels of unemployment but would have had for a longer period, probably never fully having recovered from the tech wreck recession. But at least there might not have been so many FB’s out there. Don’t know.
Spokaneman,
Funny thing is…all these people had jobs before the bubble economy took over.
Maybe we could get back to…you know, PRODUCING things that are useful to society. Maybe we can build things that last (unlike the plastic crap from overseas) and that aren’t toxic to the people who use them (like our good friends in China seem so fond of doing).
God forbid, maybe we can have a **middle class** that lives a nice, peaceful, simple life where families can raise their children in clean, safe, but SIMPLE housing and neighborhoods.
We’ve done it before, and I’m sure we can do it again. We just have to take control back from the FIRE sector executives and the politicians they’ve bought off.
” Although my credentials aren’t as serious as Standard & Poor’s rating system, there is great pressure on the banks to work with owners to work out, modify, short sell, or salvage these loans in some way. Side note; a friend of mine recently modified his loan from 7% to 2% for the next 5 years and had his payment sliced in half. The odds of him paying this back are good”
The odds according to Who ?
Who is supposedly figuring, classifying or stating these good odds of re-payment as the can mysteriously bounces down the street in the pale moonlight ?
The banks ?
The taxpayers?
YOU ?
These vague re-payment odds that you spout out are certainly not the same good odds as “According to Holye” and his Rules for Gambling.
I’m a little deaf but I love ya Bruce Springsteen and sings with the chorus…
“Broke in the U.S.A.
Broke in the U.S.A.
Broke in the U.S.A.
Broke in the U.S.A.
“That 103 months (8 years and 9 months) worth of shadow inventory could be whittled down to normal levels in no time at all ”
Isn’t that 8 years and 7 months? That is so much more manageable.
Right — those two months make all the difference.
Comment by Cantankerous Intellectual Bomb-thrower
2010-05-25 07:40:02
Hint to banks with shadow inventory they want to unload:
LOWER YOUR ASKING PRICES!
We have personally sold two homes at two different times, in two different markets and at different points in the business cycle, both times within one week of listing them. The secret is to list slightly below market value; buyers come out of the woodwork to make offers on homes that are priced appropriately for market conditions.
————————–
PB,
We’ve also had to sell during some of the worst times (my mom’s house was in the worst performing zip code in the nation in the fall of 2007…when inventory was at its highest, and credit was nearly impossible to get) and had no problem doing so within 60 days. It is ALL about the price.
I am sick and tired of hearing the fools claim that this is a bad time to sell. Quite the contrary: it’s one of the best times to sell; second only to the most manic part of the bubble.
Why everyone is so opposed to affordable housing is beyond me.
“Howsa about a new generation of HBB T-Shirts? Possibly a series with favorite sayings or cheeky quips - collect ‘em all?”
HBB fundraiser idea:
- Run a thread on suggestions for new HBB tee-shirt slogans
- Sell a new line of HBB tee-shirts to the masses, featuring the best of the slogans the HBB gang has to offer
“Howsa about a new generation of HBB T-Shirts? Possibly a series with favorite sayings or cheeky quips - collect ‘em all?”
With tiny HBB Olygal Frog logos, pictured stomping out crime, would go a long way with this crowd.
I like it. Thanks for the suggestion.
I have long thought Ben should have a contest to come up with the best t-shirt design for the HBB. With all of the talent here I am sure he would have great designs to choose from. I would not be amongst the contestants. I can’t even draw a stick figure. I would put up $100 towards the top prize if he wanted to entertain such an idea.
I have long thought Ben should have a contest to come up with the best t-shirt design for the HBB.
My entry.
Very clever, lavi d.
Thought problem for the day
If the banks literally gave away all its shadow inventory, could
the receipents still [on average] afford the properties?
In other words, if the cost basis to Joe Sixpack is zero,
how does he generate sufficient cash flow to pay taxes,
insurance and maintenance?
If Joe Sixpack has a job then the problem is solved. If he doesn’t have a job then the problem isn’t solved.
Look at Cleveland and Detroit for some examples. Houses there can be bought for a dollar.
Even if Joe Sixpack has a job, it better be a good one.
Suppose Joe (who works as the 7-11 night manager) is
given a Mc Granite Top “valued” at $500,000.
Could he still [even with zero cost basis] “afford” the property?
and just think of the cap gain when he sells!
Do you think some of those high rise Miami condozes will turn into section 8 housing Since they will be worth negative money. Costs will be more then you can ever get in market rent?
Do you think some of those high rise Miami condozes will turn into section 8 housing
I’m wondering what might happen in Vegas.
There are scads of developer and bank-owned high-rise units, but the rent price is sticky at about $200/sqft. I have to imagine that they can’t rent them for less because of the upkeep on the building - it might be cheaper to keep them vacant.
“So far, lenders are opting for foreclosure over loan modifications in most cases.”
Per a realturd friend, the banks rely on “mortgage insurance” to make up for what they would loose. Loan modifications just delay the foreclosure.
How long can the banks hold this tsunami of vacant homes off the market??? IMO it the elections this Nov should show our elite that the people want real change so I suspect 2011 they will have to start the Dumping Process.
Lip “the renter”
ISTR that there’s not alot of mortgage insurance out there. The percentage of homes covered by mortgage insurance went DOWN during the bubble runup because it became advantageous for most people to get a second mortgage rather than MI. So instead of getting a single 90% mortgage and getting insurance, they’d get one 80% mortgage and a second 15% mortgage. Traditionaly, lenders don’t requrie MI if the Loan-to-Value ratio is 80% or better.
Well, the 2nd peak of mortgage resets is scheduled for 2011 anyway, so I guess that’s probably about right. I’m sure some banks will get a head start and begin to release houses in bulk slightly before the peak actually peaks. Other banks will be stupid and wait it out.
Is there a current mortgage reset chart which is updated to reflect only loans which have not defaulted yet?
The most recent
http://bayarearealestatetrends.com/2010/03/02/new-credit-suisse-recast-chart/
davidd,
Thanks
Thank you!
Although, it doesn’t look much different from the old graph.
If (big if) the properties are maintained, then one might say that we have all the housing we need to keep down prices for a couple of decades. Isn’t that a good thing?
Don’t forget the effects of families doubling up. The inventory of vacant houses grows in proportion to the number of shrinking households.
“Don’t forget the effects of families doubling up.”
And the boomers will be.. ah… moving in with Jesus.
Morbid, but +1.
Just today there was a news segment about all the “homeless” kids in Vista, CA (San Diego area). They were considered “homeless” because they were doubling and tripling up with other family members.
This is what happens when housing prices are not allowed to reset back to where they belong…and where they would immediately go without all the govt intervention.
Let’s bring back affordable housing!
‘Conveniently, at least one bank executive is blaming the backlog on the Obama Administration’s loan modification campaign’
‘Well at least now we know one thing. If Bank of America and other lenders swamp the housing market with foreclosures, sending prices plunging to new depths, it’s pretty clear who they are going to pin the blame on.’
Conveniently, huh. Pin the blame? Oh boy, this should get interesting.
How many ways have we heard this described? Delaying the inevitable, kicking the can down the road, on and on. This kind of deception wouldn’t work on the smallest level, much less the biggest financial mess in history.
And don’t forget, while this has been going on, our government has been pulling out all the stops to keep people paying for houses they can’t afford, and encouraging families to buy overpriced houses with little down. Go ahead, DC, throw these people under the bus for your short term relief. We’ll be in your city soon to tell everyone it’s on you when it blows up.
The pols didn’t wander into that trap, they lept in feet first, smilling all the way. They thought they were being clever and they brought along a cadre of economists to say so.
Yes, I remember being told by every major news outlet that I, as a mere idiot citizen, could not understand what was going on, and that I should be happy our elected representatives were voting for the bailout against the wishes of their respective constituencies.
The full entourage was brought out. From economists, to secretaries of various state agencies, to the chairman of the board of the Federal Reserve. All to assure me that THEY knew exactly what to do, so I shouldn’t bother to interfere. Never mind the fact that I wrote letters to these people YEARS in advance, warning them to act proactively or bear the consequences.
Of course, none of them could be bothered to read/understand what they were being told. Now look.
This is exactly what I’ve experienced as well, Big V.
Years ago, when I was trying to warn the pols, I’d either get some useless form letter, or was told that the “experts” knew what they were doing and we on top of it.
Isn’t it odd that when everything was beginning to gather speed, the pols turned not to the bloggers who outlined, in detail, what was going on…but rather they turned to the criminals who caused all the problems in the first place to “fix” things.
I’ve never been so frustrated in all my life.
“Go ahead, DC, throw these people under the bus for your short term relief” LOL. ( I would have only added “unsuspecting” people )
So this part of the equation I get. Creating mock incentives for continuing to OVER pay for homes these people can no longer ( nor likely ever ‘could’ afford? ) which IMHO is the greatest drag on the economy right now…
Hey, at least they are taking their clues from the private sector and investing in McMansions instead of infrastructure.
“Blood in the streets”…it isn’t just a saying anymore.
The movie, Machete, is coming out in the fall and that is going to quiet everything down a bit.
Pffftt. I heard even LiLo wandered on to the set but wasn’t sure why? Looks pretty whack.
“Now, there are so many rental properties competing for tenants, rents are falling”
Thus far I’ve managed to steer clear of the great Shadow Inventory Debate. Given we’d need an entire new wave of freshly minted specuvestors ( devoid of any existing RE exposure and armed w/ CASH! ) I’m just not seeing anything to get worked up over? )
As far as scripting potential outcomes where banks will suddenly dump their entire REO inventory in one fell swoop, it just sounds like we’re feeding our own bottom-feeding fantasies here?
‘it just sounds like we’re feeding our own bottom-feeding fantasies here’
I don’t know what you’re talking about. I for one don’t ‘fantasize’ about a situation that is very real, hoping for a worse case scenario. But I can see huge mistakes being made, and many people who aren’t aware of what’s going on are going to get their financial ass kicked. These are people I live around everyday. Businesses, jobs, everybodys future is tied up in this thing in some way.
Ben,
Particularly coming from you, I find that reassuring! Suffice to say there’s enough downside momentum, it’s not like The Crash needs any further cheerleading?
Other than getting a screaming deal on that home/s you’ve always wanted.., nevermind bars on the windows, we’ll need concertina wire. I suppose there’s now a fine line between being mindlessly optimistic ( really? ) and just wanting to see the world burn? Just glad you’re going to DC to represent!
Long ago, I commented here that anyone who hopes for a depression hasn’t lived through one. I think most rational posters here just want our economy to return to something resembling normalcy. Housing prices might overshoot to the downside. You know what ‘overshoot’ means? Pain, and lots of it.
This current situation reminds me of 2005-06, when the housing bubble was treated like some academic exercise. And I was using words like disaster, not because I wanted to scare people, but because I could see that IF there was a housing bubble, it would get ugly.
Now I see the media swarming all over the ’shadow inventory’ thing like it’s a curious sideshow. But I don’t see anyone doing anything about it. I would be overjoyed if just ONE of the elected people were taking this seriously, and approaching it for what it really is. But I don’t, so instead of going to DC and meeting the nice people from the HBB, and touring the national monuments, I’m opening up the opportunity to put together a petition, or something, to try and steer the debate in what I see as the correct direction.
“treated like some academic exercise”
I must admit, for me, for a time, it was! Rollicking good ‘fun’ actually, as long as it didn’t land on ‘my’ doorstep? Uh.. but it did. Bigtime.
Looking back now to that time, we should have gotten the impression that where you were concerned, this had escalated to a point where you didn’t have to be Casey Serin to find yourself in real trouble.
What is the end game though for all these… shadows? We’re big on putting the pain where it most rightly belongs ( and I’ve no issues w/ that ) but is there a potential for the Grand Dump yet again becoming something that grows way beyond our control?
I found prices and the levels of new construction in 2005 to be OBVIOUS indications that we were in RE bubble and felt that a fall in prices was inevitable. I even though that were likely to go through a recession as a result. But the severety and pervasiveness of the impact of the RE bust took me by surprise. The degree to which our economy had become based on the turning of MEW into consumer spending is shocking.
Jim A,
For me it was starting to feel like a hazing incident starting to go awfully, awfully WRONG!
Every year we hear about terrible incidents where some poor freshman is forced fed alcohol until he drowns internally or his heart simply gives out on him/her.
Sure! We’ll keep giving all that “free money” to these REIC fools and their loyal followers ( should be entertaining? ) Well, not by 2006. All of a sudden the kid is checking out on us, no one knows CPR and no one wants to call 911 for fear “we’ll get in trouble”?
“I would be overjoyed if just ONE of the elected people were taking this seriously, and approaching it for what it really is.”
Acknowledging the existence of the problem might alarm the sheeple. Better to keep on extending and pretending and hold out hope that the problem will go away on its own.
Right, alarming the sheeple will stop too many mortgage payments, and people might stop catching the falling knives. Then the music would stop again, and the banks would find there is no chair for them.
It would be refreshing though, to have but one elected official actually telling the truth.
“Suffice to say there’s enough downside momentum, it’s not like The Crash needs any further cheerleading?”
If we all just start collectively praying and thinking more optimistically, the Shadow Inventory will just disappear before our eyes like a bad dream.
Green Shoots,
Now I don’t believe I’ve ever advocated that. And I think the sheeple are plenty alarmed. At this point, we’ll crash with or without the sisk-boom-bah.
As In Colorado has already shared, the banks aren’t likely to do this so why do we constantly obsess about it? What ‘would’ be to the benefit of the country?
Notice I said ‘country’ ( not ‘me’ and my one-time screaming good deal? ) The market doesn’t exist just so (1) person can get a bargain you know.
I do not agree that banks are “not likely” to dump their assets. IMO, the Big Help (i.e., the TARP $$) is almost ensuring the Big Dump, thereby contributing to the downiest portion of the Big Down.
If there were no TARP money (and no attendant government collusion), then we wouldn’t have such a huge shadow inventory on our hands. And if we didn’t have such a huge shadow inventory, then we would not have such a huge pressure differential from “hold” to “sell”. It is this pressure differential that will eventually force the Big Dump - right about the time the TARP $$ is running out.
Question is, will we be there (with cash on hand) to buy these suckers when they come to market?
Suddenly I have to go to the bathroom. The power of suggestion is so strong.
“Question is, will we be there ( with cash on hand ) to buy these suckers”
No.
And anyone w/ cash will be cowering on the sidelines. There’s a limited number of psycho-demented specuvestors to go around. I just don’t see this going mainstream let alone “viral”.
Banks have already amply shown it’s every man for himself and if it were to their benefit to do so, I would think they would have already.
I think there are people who know how to time a market, and these people will be available to negotiate a deal precisely when the banks are on their knees.
Big V,
Oh I agree, and at times, The Money God has shined upon me as well. But given the sheer scale of this thing, ‘who’ would those people ‘be’? China?
Cuzz that’s what it would take to move this size of inventory. Opening the floodgates ( and scuttling their col. in the process ) just doesn’t make sense to make it avail. to a select handful of very, very picky investors?
Now I know it would make sense for ‘us’! And don’t get me wrong, I’d love for there to be an ‘end’ to ALL of this, hell let’s start first thing tomorrow! ( Well there’s ‘one’ thing you can say for the show ‘Lost’ at least it HAD an end! )
The rest of us here are still stuck on the Island, purgatory if you will.
“Cuzz that’s what it would take to move this size of inventory.”
Oh no, water finds a way to move itself, with the help of gravity, of course.
Comment by DinOR
2010-05-25 11:59:47
Green Shoots,
Now I don’t believe I’ve ever advocated that. And I think the sheeple are plenty alarmed. At this point, we’ll crash with or without the sisk-boom-bah.
As In Colorado has already shared, the banks aren’t likely to do this so why do we constantly obsess about it? What ‘would’ be to the benefit of the country?
Notice I said ‘country’ ( not ‘me’ and my one-time screaming good deal? ) The market doesn’t exist just so (1) person can get a bargain you know.
——————-
The benefit to the country would be AFFORDABLE HOUSING in a time when wages are going down because of globalization, we need **cheaper** housing than ever before.
If we get cheaper housing for the masses, we’ll have more money left over to spend on the more productive sectors of our economy.
As long as people intend to stay in their homes, and as long as they only took on mortgages they could comfortably afford, I’m not sure why lower housing prices are thought to be such a bad thing.
As long as people intend to stay in their homes, and as long as they only took on mortgages they could comfortably afford, I’m not sure why lower housing prices are thought to be such a bad thing.
They aren’t, but for higher housing prices to not be viewed as a good thing, we need to decouple housing from all the linkages where high housing prices are viewed as a good thing.
Possibilities:
-Replace residential property taxes with consumption taxes.
-Set fees for real estate transactions rather than compensation based on a percentage of the sales price.
-End tax incentives for housing purchases.
-Limit mortgages to purchase price only, no home equity loans except for improvements to the property (not just updating, i.e. maintenance).
- No favorable tax treatment for income for profits from increasing property values.
Without cutting those types of linkages, it will be vary hard to move broader society to viewing housing as a commodity with lower prices a plus rather than a minus.
“These are people I live around everyday. Businesses, jobs, everybodys future is tied up in this thing in some way.”
And I foresee a lot of small, out of the way nice towns, in Wisconsin and in many other states, that are gonna literally die because of this idiotic housing mania and bust.
It was get rich quick in housing, now they have nothing left and who is gonna pay those quait top dollars to move back there to Green Acres to stare at the cows and be jobless?
sorry… quait = quaint
I’m busy working on coffee and a deadly glazed donut while I ramble.
mikey,
Yeah, lay off those donuts, they’re killers man!
Good points, and yes, I believe the number of small towns that will die on the vine are beyond estimation. When you look around, all of a sudden everyone has taken a real interest in becoming ‘hardball’.
3 years ago we couldn’t convince 30 yr. olds they wouldn’t be retired after the next dream flip. Now that they’re minus a number of extremities.., ‘they’ want to lecture ‘you’ about what it means to be old school!
Trust me, they’re not in a position to concern themselves with quaint Victorians or Roadside America any more. Not that they ever were. In the movie On Golden Pond Kathryn Hepburn had a sign that simply said “Please go away” and for the longest time I didn’t get it?
I had an interesting conversation with my 24 YO daughter a few weeks back. She graduated from College about 2 years ago, and while she was able to find a job, and has been reasonably well employed since graduation, I commented that her earnings are probably significantly less than that of people who graduated a few years ahead of her. She agreed that that was true, but nolted that lots of those earlier grads had gotten themselves tied up in the real-estate bubble, buying overpriced Seattle condos before they were priced out forever, and now have properties that are upside down and are experiencing significant declines in personal income. All in all, she is not dissatisfied and (I hope) she has learned a free lesson. Sounds like she has.
Spokaneman!
God love you Sir! That was my whole objective w/ daughter #1. They were in a perfectly livable 60’s ranch here just outside Salem, OR when the in-laws offered them “the deal of a lifetime!”
( Actually all they wanted to do was get out from under their debt/millstone so they could go on w/ their -next- incredible RE Adventure! )
Like your daughter, mine only graduated a few years back and she makes less than her counterparts at work that started just a few years prior. But there’s no regrets on her part, she’s smart enough to know she dodged a debt-bomb. I’m just so glad your daughter realizes how lucky she was.
I think I posted this before, but the parents of her roommate in college bought a apartment/condo conversion as an investment (invited me to join in, no thanks, but I will be happy to pay rent). I think seeing that fiasco play out was a great learning lesson as well.
Spokaneman,
Don’t recall that but now that you mention it, it could pan out, she’d just have to be in school for a decade or two?
Spokaneman–One of the signs adulthood is the ability to learn from the mistakes of others. It is surprising how many people seem unable to do this.
1st they came for the Polar Bears, now it’s the snowmobiles…
I can just see my brother in Northern Minnesota buying his 1st Mexican snowmobile.
Polaris hopes to salvage some jobs from Osceola plant
By John Schmid of the Journal Sentinel
Posted: May 24, 2010 |
Polaris Industries Inc. said Monday it will try to salvage an undetermined number of the 515 full-time jobs at its components factory in the western Wisconsin city of Osceola, which it will close within the next 18 to 24 months.
http://tinyurl.com/2dvfhga
I just wish someone would spell out the details….
Is it: we could save $40-50 per snowmobile by making it in mehiko…
or would it be $400-500 per vehicle and we can keep the same list price????
“Uncertainty about what those investors will do with the more than 50,000 foreclosure homes they already have bought also stokes fears about a shadow inventory. Most foreclosure homes bought by investors have been turned into rentals. Now, there are so many rental properties competing for tenants, rents are falling. If new investors find they can’t make money off rentals, some are likely to try to resell those homes to try to make a quick profit.”
I’m seeing a glut of rental houses here in Tucson. Some are owned by the accidental landlords, while others have been in the rental pool for years before the current housing bust.
It all reminds me of what my former landlady said about Tucson, starting, oh, shortly after I moved into the front half of her duplex back in ‘92: “This is a bad rental market.”
I lived in the front of that duplex until late 2004. Then I moved over here to the Ranch. During those almost-13 years, my landlady never described the Tucson rental market as good. Ever.
“If new investors find they can’t make money off rentals, some are likely to try to resell those homes to try to make a quick profit.”
How does one make a quick profit on an underwater investment?
They may have bought the house for a price at which rental (under normal circumstances) would pencil out. As in, the purchase price was 100-120 times the monthly rent that the neighborhood rental market would bear.
Well, note the use of “normal circumstances” in the previous paragraph. You find some tenants that you’ve screened to the nth degree, and they move in.
Then one of them loses a job and that magnifies those routine problems that crop up in every marriage. You know, differences about money, child rearing, that sort of thing.
Next thing you know, they start having knock-down, drag-out fights. And that poor old rental house is getting the worst of it. It’s getting beat up too! Ouch!
The two adults go their separate ways, leaving the house in a shambles, and guess who gets to fix that up? The landlord! And fixing up a trashed house can be the difference between making money or losing it on this investment.
I invite others to add their own scenarios.
Been there, done that, won’t ever again. There are those that are cut out to be landlords and those like me who are not. Most miserable five years of my life, owning a duplex.
There’s a guy that drives a pickup around Spokane emblazened with his property owner’s motto: “Christmas Eve evictions, my speciality”. I suppose it sets the tone of the relationship when he shows a property.
Our landlord was cut out to be a landlord, and we were cut out to rent until housing prices bottom out. It’s really a great symbiosis!
Slim,
Green Shoots isn’t without his points, and I can’t even remember what ‘normal’ looked like! What aggravates me is that this new breed of specuvestor just seems bound and determined to do ’something’!
Why they just know if they do their ‘homework’ ( read 20 minutes on the internet ) that here’s just -got- to be a ton of values out there! It’s as if they’re trying to simply instigate their way into profit?
http://news.yahoo.com/s/ap/20100525/ap_on_bi_ge/us_home_prices
Despite the “increasing optimism from the population (polls 3x in a row) that the economy is improving”… housing prices are slumping.
Housing prices are slumping back toward historic measures of incomes and rents. Sounds like people will be able to afford their houses without giving their lives and incomes over to them.
+1, AZ.
Since home prices are now stable and the economic picture is brightening, there is no further need for government support of the housing market. The Fed, the Treasury and the zombie GSEs should immediately withdraw their support and let the market stand on its own two feet.
* The Wall Street Journal
* ECONOMY
* MAY 25, 2010, 3:45 P.M. ET
Home Prices More Stable but Under Pressure
By SARA MURRAY
Home prices have pulled out of their recession free-fall but remained weak as concerns lingered about the strength of the economic recovery.
A composite index of 20 cities showed prices fell 0.5% in March from the prior month, not adjusted for seasonal fluctuations, according to an S&P/Case-Shiller report released Tuesday. The drop marked the sixth-straight month of decline.
But another report Tuesday showed consumer confidence strengthened in May as the improving labor market buoyed Americans’ hopes for further economic gains.
Despite the recent monthly decreases, March home prices in the 20-city index are up 2.3% from the same month last year. A broader nationwide index was up 2% in the first quarter from the same period a year ago.
A separate home-price index also released Tuesday showed prices nationwide were up a seasonally adjusted 0.3% in March from the prior month, the Federal Housing Finance Agency said. Prices fell 2.2% from March of 2009, according to this index.
While the two home-price indexes diverged in March, they outlined the same overall trend of prices stabilizing after steep drops during the recession. But with the expiration of the home-buyer tax credit likely to pull down demand, and the potential for more foreclosures, the housing market is still bouncing along at low levels.
“We’re just going to go through an adjustment period,” said Patrick Newport, an IHS Global Insight economist. “After it settles I think the market’s going to start growing sustainably because the [labor] market’s starting to create jobs.”
Prices have snapped back the most in San Francisco and San Diego in the past year, up 16.2% and 10.8%, respectively, the Case-Shiller report showed. Home prices took the biggest hit in Las Vegas where they were down 12% for the year.
…
Wasn’t there some heavy denial just last month or early this one that shadow inventory existed at all? (I can’t remember who or from what source.)
My, my.
When I first started discussing “shadow inventory” here, some posters treated me like I was posting from Mars. Nowadays, there isn’t much of a secret regarding the huge overhang of supply soon to hit the U.S. market. In fact, the story is ubiquitous throughout the MSM.
It is kind of hilarious how the MSM is so fixated on the YOY price change, ignoring six straight months of price declines. Six straight months of price declines establishes a pretty consistent trend, especially against the backdrop of the first-time home buyer credit, which was supposed to prevent home prices from sliding down the drain.
And we have yet to see the effects of the first-time home buyer tax credit phase out, which could turn a gentle gradient in the housing price index decline into a veritable waterfall, especially when many more flippers and underwater loan owners throw in the towel and dump inventory on the waterlogged market.
U.S. News & World Report Money
Personal Finance
Home Prices Have Further to Fall: Here’s Why
By Luke Mullins
Posted: May 25, 2010
…
After increasing last summer, U.S. home prices are drifting lower again—a disconcerting development for property owners who had hoped that the real estate market had finally bottomed out.
The S&P Case-Shiller home price report, which was released Tuesday, showed that the U.S. National Home Price Index increased 2 percent in the first quarter of 2010 from the same period a year earlier on a non-seasonally adjusted basis. (S&P says its non-seasonally adjusted data provides a more reliable snapshot of the housing market today.) The month-over-month figures, however, were less encouraging. Home prices in 20 major U.S. cities dipped 0.5 percent from February to March—the sixth straight monthly decline for this index.
[Slide Show: 10 Cities Facing Double-Whammy Defaults]
“The housing market may be in better shape than this time last year; but, when you look at recent trends there are signs of some renewed weakening in home prices,” Standard & Poor’s Index Committee Chairman David Blitzer said in a statement. “In the past several months we have seen some relatively weak reports across many of the markets we cover. Thirteen MSAs and the two Composites saw their prices drop in March over February.”
The recent slide in home prices has taken place amid favorable housing market conditions. Real estate prices have fallen sharply from the peaks reached during the housing boom, making a home purchase more affordable to a wider swath of potential buyers. At the same time, 30-year fixed mortgage rates averaged an attractive 4.97 percent for the month of March. Even the labor market showed signs of stabilization, adding more than 160,000 new jobs in March. These forces—in addition to a tax perk from Uncle Sam—helped increase sales of previously-owned homes in March by nearly 7 percent from the previous month. “It is especially disappointing that the improvement we saw in sales and starts in March did not find its way to home prices,” Blitzer said.
[See Why Housing is Headed for Second-Half Headaches]
Mike Larson of Weiss Research blames the massive inventory of unsold homes for the weakness in prices. “With the supply overhang that we have, it shouldn’t be a surprise that pricing isn’t doing anything spectacular,” he says. The most recent existing home sales report, for example, showed that the inventory picture deteriorated in April, with the months’ supply of homes for sale increasing to 8.4 from 8.1 in March. “Sales were up, but inventory was up more, which is something you don’t want to see,” Larson says. “It tells you that there are sellers lurking in the wings, and as long as that is the case, you are not going to see real firmness in pricing.” The alarming number of Americans heading into foreclosure will ensure that inventory pressure will continue to sandbag prices for some time.
…
Dumb questions of the day:
Why do real estate people try to hide the truth about the glut of homes on the market? Do they think they are going to sell more homes if the prices are unaffordable? Are they really that stoopid???
“homes on the market”
…meant to say “held off the market”…
Bloomberg
Home Prices in U.S. Cities Rise Less Than Forecast (Update3)
May 25, 2010, 10:15 AM EDT
(Updates with economist comment in fourth paragraph, consumer confidence in fifth and table at the end.)
By Bob Willis
May 25 (Bloomberg) — Home prices in 20 U.S. cities rose less than forecast in March from a year earlier, a sign the housing recovery is cooling.
Federal tax credits have succeeded in propping up home sales and prices, raising concern the looming end of government support will spell another round of losses. Any sustained recovery in housing hinges on maintaining and deepening job growth in the world’s biggest economy.
The housing market is “fragile,” Karl Case, co-founder of the index, said in an interview on Bloomberg Radio with Tom Keene. “There’s a lot of inventory out there. It takes guts to buy a house and it particularly takes guts to buy a house in a tough economic environment.” Just the same, “prices are holding,” he said.
Shares Drop
Stocks dropped as bank borrowing costs rose and on reports that North Korea ordered its military to prepare for combat. The Standard & Poor’s 500 Index fell 2.1 percent to 1,050.74 at 10:09 a.m. in New York. Treasury securities jumped, sending the yield on the benchmark 10-year note down to 3.14 percent from 3.20 percent late yesterday.
The year-over-year forecast was based on the median of 26 economists surveyed. Estimates ranged from a gain of 1.5 percent to a gain of 3.3 percent. Year-over-year records began in 2001. The group revised February figures to show a 0.7 percent year- over-year gain compared with a previously estimated increase of 0.6 percent.
The decrease in the national gauge of home prices last quarter followed a 1 percent drop in the last three months of 2009. The declines followed gains in the previous two quarters.
…
More From Businessweek
* California House Prices Rise on Fewer Foreclosures (Update1)
* Asia-Pacific Bond Risk Rises, Credit-Default Swap Prices Show
* Japan Post Bank Buys Dollar Bonds for First Time Since 2006
* U.S. MBA Mortgage Applications Index Rose 13.6% Last Week
* Gold May Fall in London as Some Investors Sell to Cover Losses
Ben,
I’ve been thinking that we need to form a single-issue PAC in order to gain any traction in D.C.
We need to work together with all the other housing/econ bloggers who also believe that the housing stimulus and foreclosure bans/loan mod nightmares are **holding back** a REAL recovery.
We need prices to drop, and we need our govt to save resources so we can deploy them when necessary and in ways that are far more productive than saving banks and trying to keep asset prices artificially inflated.
It would be fairly easy for our PAC to come up with a nice, logical presentation, filled with charts and graphs and some concise, direct, highly logical arguments that show why allowing housing prices to fall would be the most effective thing we could do to get out of the recession/depression.
Lets see: On a typical street
house A is paid off,B owes 2,000 a month, C owes 3,000 a month, D is a renter, E lost their job,F house is empty, G sees everything thru rose colored glasses.
All have one thing in common in today’s market, all losing value and property taxes will go up.
Yes kids believe the experts the recovery is in place and the recession is over and btw the name of this street
Yellow Brick Rd?
The 9 or so years supply of bank owned shadow inventory assumes that there are no additional foreclosures. Simple logic shows that reality how much more downside as a serious possibility. What about the affects of this economy continuing for years, and the multiplier affect of increased taxes on businesses especially with the burden by Obama care and the new federal spending? Many more people are likely to lose their jobs which will cause further foreclosures. Perhaps most significant is that during this 9 years of foreclosure sales, more people will become upside down and realize that they are paying a much higher “rent” to the bank while owning nothing. Strategic Foreclosure will combine with the economy to make the shadow inventory larger. Of course, if banks speed up the their sales rates, that will increase strategic foreclosure, but it will be best in the long run. We have too many homes decaying in value like fruit because there is no incentivized owner. Better to have house prices bottom out and get new owners with a financial incentive to preserve the value. Banks are playing a gamble, because no house is going to fix its own leaking roof for 8 years!!!