Where Is The End Of This Shadow Inventory?
Readers suggested a topic on the foreclosure market. “I have noticed that Fannie and Freddie Homepath and Homesteps programs have attractively priced homes. Supposedly aimed at first time home buyers. The interesting thing is that I have called on several and have failed to get even a showing on them because; on the attractively priced ones at least; there is an offer on the home within minutes of it hitting the website. So how does an unconnected buyer get a fair shake? Isn’t there so much shadow inventory that every eligible new buyer should be considered and given a chance?”
“Should a buyer who wants a good deal wait for the market to be flooded? Or will the banks ever let that happen; will they stretch it out to decades? So Fannie owned stuff is rather picked over at this point; but fresh inventory is waiting in the wings. Foreclosure auctions by BofA thru Recontrust have been suspended since last October. Seems largely clogged up; our home has been rescheduled 4 times and we are not even trying to contest it! Wonder if the August auction on wife’s home, where we live but haven’t paid since last March, will be rescheduled again as well?”
“And the numbers of non-payers who are also stayers is growing and growing! Since the stigma is gone; less uhauls are coming and going in the night to leave props abandoned and neighbors scratching their heads. People are clued into the free rent aspect of not being able to afford their mortgages, so some are staying rather than leaving in shame.”
“Where is the end of this shadow inventory, when the price is the price, and everyone is given a fair shake?”
A reply, “Keep reporting the bad agents. If your agent won’t do it, do it yourself. Write letters to the sellers and banks if you are ever refused a showing.”
“You would think the banks would have caught on by now. On many listings I now see them refusing offers for the first 25 days on market. That probably helps. I figure it won’t be long before they’ll be listing the house with two different agents simultaneously (winner takes all) - that might help cut down the questionable antics.”
Another said, “If you come in with another realtor the agent has to split the commission. If it really is a good deal, he or she would much rather not show it, keep the price low, and steer it to one his investors. Repeat, repeat, repeat. Hell, he or she can even agree with his or her investors to split the profits on the flip. Not ethical, but done every day. If the listing Realtor has their eye on it for one of their investors, you do not stand a chance. Only the picked over properties actually have non-hand picked showings.”
The Desert Sun. “Foreclosure activity in the Coachella Valley plummeted by more than one-third in May compared to the same month a year ago, marking the second straight month with a significant decline, a new report shows. It’s an encouraging sign, economists and area real estate professionals said, but it will still take years for lenders to unload all of the homes and condominiums remaining in the valley’s foreclosure pipeline.”
“‘It isn’t over by any means, but I think we’ve reached the peak of foreclosures and now we’re headed the other way,’ said Jim Franklin, president of the Palm Springs Regional Association of Realtors.”
“James Saccacio, chief executive of RealtyTrac, cautioned that as new foreclosure activity has declined steadily in recent months, the inventory of unsold bank-owned properties nationwide actually increased in April and May. ‘That points to continued weak demand from buyers, making it tough for lenders to unload their … inventory,’ Saccacio said. ‘Even at a significantly lower level than a year ago, the new supply of bank-owned properties exceeds the amount being sold each month.’”
“There is also some concern among some housing industry analysts about the size of the ’shadow inventory,’ or homes ready for sale but that are being held off the market. Franklin doesn’t believe the valley’s shadow inventory is a major concern. ‘The homes I’ve seen that have been foreclosed on have come back onto the market within two or three months,’ about the time it takes to clean and fix them up, Franklin said.”
The Bakersfield Californian. “Our question: How concerned should prospective buyers be about the excessive number of homes in shadow inventory?”
“Scott Tobias, President-Elect, Bakersfield Association of Realtors: There is no doubt that the number of foreclosed properties and those that will be foreclosed will affect the real estate market. How it affects price depends a lot on how many are put up “for sale” at any given time. If supply gets too far ahead of demand there will be a decrease in prices. Knowing that too much inventory will affect prices negatively will probably keep banks and asset managers from dumping houses on the market all at once.”
“So, should buyers wait to see what happens? Based on the availability of financing at very favorable rates and terms, this a very good time to buy. There is no certainty that the favorable financing will remain in the future any more than wondering if prices will hold. The point is, at the prices we are seeing now it is unlikely they will drop very much lower and in the long run they will increase.”
“David Cates, president, Lenox Homes: ‘I don’t think homebuyers should be concerned. Shadow inventory is driven by the lending institutions. I think that the shadow inventory right now may very well heal itself.”
“Last year there was talk of about 4,000 homes hanging out there in the shadow. All the prospective clients pulled back waiting to see if there’s a better deal in these REO/shadow markets. People waited and nothing happened. Ultimately, the shadow inventory came out in pieces.”
“Our market is the first-time homebuyer. They’re very, very conservative and don’t want to make a mistake. They don’t want to be the one that buys the house as the market’s going down. I believe the lenders will continue to bring it to market in a piecemeal format. I think that we’re absorbing the units. People will hold out, maybe. They might sit on the fence a little longer. But, all in all, when it gets down to it, it’s not going to affect those decisions.”
“Or will the banks ever let that happen; will they stretch it out to decades?”
It seems as though we still live in a bizarro world where private banks confidently allow physical housing capital to crumble into desuetude, with the expectation they will eventually be able to pass on their losses to the taxpayer.
Otherwise, wouldn’t banks be trying to quickly unload that shadow inventory before it crumbles into worthless rubble?
As long as reality is reflected by numbers rather than, er, reality then the numbers will remain on the bank’s balance sheet and will be tallied up and counted as if they are real and valid.
When reality raises it’s ugly head then the numbers will be written down and the banks will be forced to take a sudden balance sheet hit.
It’s noteworthy that the deterioriation due to reality happens gradually but the balance sheet hit happens all at once. That’s why a bank (or any business) can be deemed profitable one day and be declared bankrupt the next.
You have put your finger on one of the problems with fantasy accounting.
Enron provided a great example of where this practice leads…
Under the Republicrats Wall Street financial fraud leads to taxpayer-funded bailouts and a free pass to do more of the same.
That’s why a bank (or any business) can be deemed profitable one day and be declared bankrupt the next.
“TrueDeception™” = “Bidne$$ tool” = “Bonu$ = “Bye-Bye, as in: $ee ya!”
Previously:
“What they can do is keep the a$$et-equity ratio of bank$ within bound$”
1bdrm with carport in Compton, CA = $437,000
“…looks AAA+ to us, but that’s just our opinion$!”
The $tandard & Moody’$ “True$erialEnabler’$™” Corporation$ Inc.
Any other RE “Bidne$$” that can do this sort of “find-a-number” it’ll help thing$ along type of “Bidness $trategy?
“1bdrm with carport in Compton, CA = $437,000…”
“…looks AAA+ to us..”
Pretty much sums up the bubble.
“People are clued into the free rent aspect of not being able to afford their mortgages, so some are staying rather than leaving in shame.”
It seems as though underwater home owners increasingly face the choice between continuing to struggle with a hefty monthly payment on a loan whose collateral value may never recover to exceed the principle balance, or simply throwing in the towel and living rent free. The latter choice may be based on the assumption that the lender might never get around to foreclosure, or when and if foreclosure is attempted, paperwork problems may prevent success.
You’d be $urprised what people will try and get$ away with,…even million$ of them.
If homeowners are staying in their homes rent/payment free without making mortgage payments for months or even years, maybe the IRS should start considering their savings (by not making payments and living rent free) imputed income (and taxing them) based upon the fair market rental value of their property??
It’s no wonder that retail sales are holding up and even increasing. Instead of making their mortgage payment, people are buying things.
The banks are taking so long that by the time they get around to foreclosing, the FB will have the cash to buy the house.
““David Cates, president, Lenox Homes: ‘I don’t think homebuyers should be concerned. Shadow inventory is driven by the lending institutions. I think that the shadow inventory right now may very well heal itself.”
Interesting statement. Here in Monterey county I’m seeing more and more housing coming to market, what I’d called panic listing. People are starting to get it. Neighborhoods that would normally have no listings suddenly have multiples listed, each trying to unload before the next. Problem is they still have ‘wishing’ pricing. How long before future market declines carry these properties into the banks balance sheet of shadow inventory.
Aside: one lady told my wife that every month she takes the precious stones out of her jewelry and sells the gold and silver at a local hotel that sits up a buyer in the lobby.
“…what I’d called panic listing.”
If grass-roots level panic listing gains sufficient force, attempts to control the market by the major Wall Street banks and GSEs may collapse.
David Cates of Lenox homes, and the entire REIC and banking industry, has a vested interest in dissembling about the shadow inventory. And while the vast majority of Americans are and will continue to be sheep who believe whatever hopium the MSM’s corporate masters are peddling about the economy, enough people are personally familiar with how dire the situation really is that the meme of “recovery is just around the corner” is being ignored by more and more people who know better.
Ron, It’s not an interesting statement. The guy is only speaking from his direct self interest and nothing else. He wants people to ignore the shadow inventory and go back to taking out huge loans to schedule a build through his company, so he can continue pulling down a huge income and live the now clearly unsustainable American Dream.
These guys are totally self-serving. That the media still gives them ink and electrons and time shows that the media is still corrupted by the REIC.
“There is also some concern among some housing industry analysts about the size of the ’shadow inventory,’ or homes ready for sale but that are being held off the market.”
Since banks appear to be coordinating their efforts to keep homes off the market, would it be legal for consumers to coordinate a similar effort to withhold demand until the point when the inventory finally hits the sunlight?
Perhaps America could just collectively agree from the buyer and the seller sides to stringently limit real estate transactions for a few years, to allow the economy to adjust away from the bubble excesses.
Oh wait…
non-payers who are also stayers ??
Only in America….
What do you suppose might happen in Russia?
Siberia ??
Burly men with 4 foot switch handles & determined type attitude, but no legal warrant!
“How it affects price depends a lot on how many are put up “for sale” at any given time. If supply gets too far ahead of demand there will be a decrease in prices.”
What if buyers, smelling collusion by sellers to withhold homes from the market, played their best response, which would to engage in a similar game, either collectively or individually, waiting for shadow inventory to come to market?
Who would win this waiting game: Prospective buyers who have no real need to buy currently versus a few years down the road, or current owners of empty and physically-deteriorating homes that could be sold today if the owner decided to price them to market?
“Who would win this waiting game”
Nobody, right? I mean, that’s what we’ve been doing for years… waiting. House prices have collapsed and the only thing that’s come of it for me and my family is higher prices for all the shit we need.
/anger
I feel your pain (and anger). But not so much as I would be feeling if all of this stuff were just now coming to light before my eyes…I’m kind of resigned to it by now.
It depends on what you believe as a seller. For sellers, your best price is today’s price. Now you can debate that one all day long but given the fact that 70 million boomers are headed to the grave yard over the next 20 years, my wager is on excess, unused inventory for a very very long time.
Sellers outlook next year will be, “this is the bottom”. And the year after that, “this is the bottom”….. and on and on.
Look…. you can champion the cause of grossly inflated prices until the cows come home but the trend is down. Forced sales will occur via death irrespective of market conditions, thus driving prices ever lower.
Here’s what we know:
Housing sales are at a 14 year low and falling-
Prices are trending downward yet still inflated-
Household formation is at post-WW2 lows-
There is a manipulated, hidden inventory of unknown size-
15/30 mortgages are unsustainable as lifetime jobs no longer exist-
“Last year there was talk of about 4,000 homes hanging out there in the shadow. All the prospective clients pulled back waiting to see if there’s a better deal in these REO/shadow markets. People waited and nothing happened. Ultimately, the shadow inventory came out in pieces.”
Judging from this statement, it sounds like the shadow inventory problem was small, and a matter of the historical record at this point.
In reality land, the current talk is of 6 million or so homes “hanging out there in the shadow.” In fact, I just now heard it on NPR, even though the NAR is a major contributor to their funding.
The elephant hiding under the housing market’s living room rug is increasingly visible these days.
Foreclosed Homes Wait In ‘Shadows’ To Go On Sale
by Chris Arnold
Morning Edition
This foreclosure property in Houston was for sale in 2009. But many houses are still in the foreclosure pipeline and haven’t even come on the market.
June 24, 2011
The housing market is still languishing this summer, leading some economists to believe prices won’t begin to recover until 2014. Even Federal Reserve Chairman Ben Bernake says the market may be worse than most people thought.
This is due in large part to something economists call the shadow inventory — or the number of houses that will soon be up for sale.
On any given day in just about every city in the country, auctioneers are standing on the front steps of homes selling off foreclosed properties. Often no buyers even show up, and the bank takes the house.
Five years after the housing bubble burst, the numbers are still staggering. Additionally, many houses are still in the foreclosure pipeline and haven’t even come up for sale.
“In a worst-case scenario you’re looking at potentially 6 million of these properties,” says Rick Sharga, senior vice president at RealtyTrac, a company that follows shadow inventory.
He says there are more than 1 million houses in foreclosure that haven’t been sold. On top of that, he says there are 4 million seriously delinquent home loans.
“The majority of those will ultimately hit the market as distressed properties, another part of that shadow inventory,” he says.
…
“…4,000 homes…”
Did he really say this, or did the reporter somehow omit three zeros?
6,000,000 = 1500 X 4,000
(6,000,000-4,000)/4,000 X 100% = 149,900.
So the statement was only off by 149,900%
“will they stretch it out to decades?”
Not only do I think this is what will happen, I think it’s what they’ve agreed to do behind closed doors.
The end of the shadow inventory will be upon us with the Spring, er I mean Summer, er I mean Fall Miracle Revival of the housing market and broader economy. Suzane researched this, and the legions of REIC- and Wall Street-owned “economists” who have been issuing such rosy forecasts every quarter since time immemorial cannot possibly be in error. Note how they describe every weekly uptick in unemployment (which no longer counts the millions who have exhausted their unemployment benefits and given up looking for non-existent jobs) as “unexpected.”
“The housing market is still languishing this summer, leading some economists to believe prices won’t begin to recover until 2014. Even Federal Reserve Chairman Ben Bernake says the market may be worse than most people thought.”
At this point, you can stick a fork in the rosy forecasts…
Even 2014 … Where is the justification for this? Exactly what will make 2014 the year of recovery?
By 2014 the date will have slipped to 2016 or 2020.
This article seems highly relevant to the never-ending shadow inventory debacle. So long as owners maintain John Frum cargo cult beliefs that housing price “stabilization” will bring a higher price their way later on if they just wait long enough, there is little incentive to sell currently.
REVIEW & OUTLOOK
JUNE 3, 2011
The Housing Illusion
Washington policies have only prolonged the pain.
Financial markets took a big tumble Wednesday on a series of lackluster economic reports, but the more distressing news was intellectual. Despite at least a decade of contrary evidence, the media and business classes still clamor for a miraculous housing recovery that will save the U.S. economy. The sooner we shed this illusion, the faster America will return to more robust and sturdy growth.
The Standard & Poor’s/Case-Shiller housing survey kicked off the latest bout of pessimism with news that home prices fell another 4.2% in the first quarter. Prices have fallen for eight straight months, after the false dawn of 2009-2010, and average home prices are down to levels last seen in 2002. The Case-Shiller 10- and 20-city indices are back to the level of 2003. Catastrophe, double-dip, threat to recovery! cried the crowd.
Price destruction is rarely fun, and it’s especially painful for Americans who have come to think of their home as their main asset and retirement nest egg. Yet this mindset has been part of our economic problem. A home’s main economic purpose is—or should be—shelter. During the mania of the last decade, housing too often became an investment out of proportion to any sensible contribution to national wealth and well-being.
Fueled by subsidies and easy credit, with mortgages guaranteed by taxpayers, we built McMansions and vacation condos on the assumption that prices would never fall. The resulting bubble saw prices rise faster than any time in modern history, so much so that even after four years they still have further to fall before they reach pre-mania levels.
The clamor to boost housing as an economic savior is especially odd because we’ve tried this before with dire or fruitless results. The start of the last decade’s mania was Federal Reserve Chairman Alan Greenspan’s attempt to boost housing to substitute for the impact of the dot-com crash and 9/11. It worked for a while but created the bubble that led to the panic and meltdown.
Since the housing market began to turn in 2007, Washington has tried to keep prices from falling with every policy gimmick known to politics: Foreclosure mitigation, more guarantees from the FHA, higher guarantee thresholds from Fannie Mae and Freddie Mac, Fed purchase of mortgage assets, and the $8,000 home buyer’s tax credit promoted by the White House and Georgia Republican Senator Johnny Isakson.
Their main result, other than subsidizing some Americans at the expense of others, has been to sustain the housing recession over a longer period of time. The price decline would have been sharper without them, but the recovery would have happened sooner and would probably be well underway by now.
…
‘The cult is still active today. The followers believe that John Frum will come back on a February 15 (the year of his return is not known), a date which is observed as “John Frum Day” in Vanuatu.’
At seems entirely plausible the belief that home prices will come back soon could draw out the shadow inventory problem for decades to come.
Dumb questions of the day:
1) What percentage of the world’s religious cults entertain a belief that some greatly beneficent individual who lived in the distant past will return some time soon to bestow further beneficence on the steadfastly faithful?
2) Is this kind of cargo cult thinking hard-wired by evolution into the human brain?
“The price decline would have been sharper without them, but the recovery would have happened sooner and would probably be well underway by now.”
I hear this a lot, but I’m not really sure what it means. Does it mean houses would be at a lower price point, but increasing, again, in value every year? So we’d be back on the REIC hamster-wheel? With people investing as much as they could in RE, and driving up a new bubble?
Or does it mean that houses would be dirt cheap and flat-lining, and we’d all have excess money to become mindless consumers again? Except that no one has a good-paying job any more, and lot of people would be broke from their house losing its value, and all the stuff we might buy if we had the money is made in China. And the banks and gov would be broke too. And we’d have a much higher national debt.
In either case, there would be trillions lost in the bust, so I’m dubious about this miraculous recovery that would be well underway if we’d just done x. At best, houses would be cheap, but the massive losses incurred by many, including the gov, in getting there wouldn’t disappear.
People always say that the housing/credit bubble served to distract us from losing our jobs and wealth to Chindia. What would change about that, just because houses were cheaper?
IMO if houses were cheap, and bankers were forced to write off debt and take their losses, we would have a workforce of people who could work cheaply enough to compete against the rest of the world without starving or living on handouts or credit. That’s the first step toward real recovery, isn’t it?
So part of the recovery would involve us making $10 a day? And us having no environmental or workplace safety regulation?
Hell, if that’s the recovery, let’s put it off as long as possible.
Just because you take a zero or two off of everything doesn’t mean you get rid of regulation. It doesn’t matter what you make, it’s what you can buy with it. You’d be able to buy a lot more domestic products (and houses) but a lot less imports. One way or another that’s where we’ll end up…the zeroes are just a distraction, IMO. The real question is who ends up with the wealth that already exists here? I think we still have some control over the answer to that question.
“Just because you take a zero or two off of everything…the zeroes are just a distraction, IMO. ”
How is that different from just adding a zero or two to everything, except that taking the zeros off makes paying our national (and personal) debt impossible, whereas adding a zero or two makes our debt easily payable?
I think I’m in agreement with the people who say it’s not going to get paid regardless. The problem I see with adding a zero or two is that it won’t get added to everything. Pay is not going up…it may not be able to even stay where it’s at relative to the rest of the world.
“I think I’m in agreement with the people who say it’s not going to get paid regardless.”
But it could be paid rather easily if we have inflation, and you yourself say that zeros are unimportant. If that’s the case, then inflation, and paying off our debts, is a heck of a lot less risky than deflation and default.
And inflation gets us to a cheaper dollar, and a resulting stronger export position, too.
Inflation=win/win?
Inflation=win/win?
Only if income inflates too.
There tends to be a lot more job loss in deflationary environments, rather than in inflationary ones. That’s the self-reinforcing nature of deflation.
Alpha-sloth, I’ve learned so much by reading you bubble bloggers for all these years. But sometimes the truth gets too hard for even you folks to take. Now it time for me to return to favor, and now you’re gonna learn from me.
If the MARKET had been allowed to operate, it would have arrived at lower prices overall, much, much faster. All those houses in the shadow inventory would be on the market, pulling prices down like a ship’s keel. So the price correction would have been more brutal, and a lot more FBs would have taken it in the shorts, but in short order, instead of just being bled dry like now. And the banks would have collapsed… which is fine, since they are zombies now anyway. And after the brutality of the price collapse, there would be a period of maybe 5 years when people in general would be too stung to sign up for mortgages like that.
But the government’s interference (just like when Japan did it in 1991) produced this effect: Prices fell, but gradually, while the rich players and banks either softened their losses, unloaded their losses, or were made whole outright by the government. The FBs keep the system more solvent by being milked of their savings for a longer period. MUCH longer. So we’re in a long period of price falls… the 5th year, in fact, taking 2006 as a rough peak. In a market freed from gov interference, the price falls would have been a brutal 2-3 years. But our price falls will go on for maybe 8-10 years.
In addition, once the prices correct (and will not overcorrect as badly as in the “brutal model”), they will sit there in a much, MUCH longer period of stagnation. I’m talking 15+ years.
So that’s how I see it. Government interference has turned an 8-yr economic catastrophe into a truly damaging 25-year Great Depression. Japan did the same thing, by forcing the Bank of Japan to swallow all the bad commercial loans, and they’ve paid for it by a 20-yr period (which is not yet over, BTW) of price falls and stagnation. We learned nothing from them, even though it was perfectly obvious.
Thanks for the opportunity to set you guys back on course. Luv ya!
I tend to agree with your theory, Better Renter.
Thank you for your kind words, BetterRenter. You then say:
All those houses in the shadow inventory would be on the market, pulling prices down like a ship’s keel. So the price correction would have been more brutal, and a lot more FBs would have taken it in the shorts, but in short order, instead of just being bled dry like now. And the banks would have collapsed… which is fine, since they are zombies now anyway.
So let’s be honest- many, many more people would be broke by the prices being pulled down like a ship’s keel, and when the banks went broke, they’d be bailed out by the FDIC, which would cost a fortune, driving our national debt much higher. And many people’s pensions would be wiped out, or greatly diminished, given that many are invested in RE and its derivatives. They too would require either a very expensive bailout, or letting many people enter retirement with little or no money (and we all know that leads to ’socialist’ demands, or else large-scale social disruption). The loss of so much money leads inevitably to major job losses (and greatly increased unemployment bennies), and those are self-reinforcing in a deflationary environment. The massively increased national debt would be more and more onerous to pay in a deflationary environment.
But I think you agree with my overall point- that there is no x that we could have done that would have us be well on the road to recovery already. All options involve years of grinding sideways- including the one you offer. There is no simple, ‘free market’ solution, that quickly solves everything.
There is no candy-crapping unicorn.
I find your words to be equally kind. But I must take a tidbit of umbrage, in all candor.
The market allowed to be much freer, would have definably been much quicker, as I outlined. You hint of suffering, but it’s the suffering of people who are denied discretionary spending, and not the suffering of those denied life and limb. They would still have lives, housing and transportation. It’s not like you’d stick a gun in your mouth because you couldn’t eat out more than once per week, or you couldn’t go shopping for new clothing every month.
Moving on, you speak of some sort of massive bailout costs associated with making bank depositors whole via the FDIC, and then you said that it would send our national debt shooting up. You might wish to recall what’s happened to our national debt ANYWAY. We’re on the 3rd year of deficits on the order of $1.5 trillion. That’s $4.5 trillion in a mere 3 years. And the current projections show no relief in sight; they claim $20 trillion reached ($6 trillion more) by only 2016. So please correct me, but I can’t for the life of me see how taking the FDIC route would have been that expensive. We should have let the banks fail and be re-capitalized first by the FDIC, then by the free market (if they could re-cap LTCM from the globals …).
And we should have let pensions fail similarly (not that anyone would re-cap them, but it’s not the proper role of government or the citizens to make such things whole). Gramma and Grampa would just have to give up their expensive lifestyles and move in with their adult children, since that’s the clear model that worked from our American history.
The Second Great Depression that has now been invoked, is going to be far more damaging to the United States. And it was all done just to make a few bankers and retirees whole. Bankers don’t need any help, and retirees were living too high anyway. I wonder yet if it’s too late to fix all this, since such a deep Depression takes the huge risk of killing people either directly (through war) or indirectly (through neglect).
‘What would change about that, just because houses were cheaper’
Mortgage equity withdrawal. It was a big number. Add the multiplier effect. People would have borrowed a lot less. The result distorted the economy enormously.
‘I’m dubious about this miraculous recovery that would be well underway if we’d just done x’
Globalism is a complicated picture, and the manias played a key role. But IMO there was never a positive outcome to consuming our way to prosperity. The stock and housing bubbles made it a lot worse.
I would think a return to steadily increasing RE prices would result in the return of MEWs.
I agree with you on the problems with globalism and a consumer-based economy. That was my point about the ‘if only we had let it crash, everything would be better’ point of view. We’ve got problems beyond overpriced housing.
But IMO there was never a positive outcome to consuming our way to prosperity.
I must nitpick, here. You can consume your way to prosperity if such consumption is based upon a constructive model. In other words, consuming raw materials used for achieving energy independence, does advance the nation’s overall socio-economic health. Building up your ability to become more able, is itself a worthy goal for personal investment.
As you well know, the problem was that people largely consumed in the most wasteful modes possible. They largely made bankers and Chinese crap manufacturers rich. Prosperity actually decreases when such parasites are enriched.
The inventory figures reported with this story seem an order of magnitude too small compared with recent stories on the millions of homes in the shadow inventory; is the shadow / non-shadow distinction what is relevant?
And I am confused about the “3 percent down” loan deals, as I keep reading in other sources that lending standards are too tight. Certainly a 3 percent down payment requirement doesn’t qualify as excessively tight lending standards?!
THE NATION’S HOUSING
Kenneth Harney:
Fannie, Freddie offer summer clearance
Sunday, June 26, 2011 03:11 AM
Washington Post Writers Group
Looking for a deal in which the home seller pledges to contribute potentially thousands of dollars toward your closing costs? If so, check out the summer sale terms available from two of the largest and most motivated sellers of foreclosed homes in the country: Fannie Mae and Freddie Mac.
You might know the companies for their troubled mortgage businesses or the financial foibles that crashed them into the control of federal conservators in 2008. But the flip side of those problems is that they now have massive numbers of properties taken back through foreclosures.
Fannie Mae owned 153,549 of them at the end of the first quarter. Freddie Mac owned 65,174. That’s almost 220,000 houses for which they need to find new owners - quickly - or they’ll rack up even bigger losses for taxpayers.
To move that bulging inventory, both companies have begun time-limited sales campaigns with significant incentives for new owner-occupant purchasers - no investors allowed - and extra cash for the real-estate agents who bring buyers to the table.
Fannie and Freddie both are offering to pay up to 3.5 percent of the price of the house toward buyers’ closing costs, plus they’ll hand over a bonus of $1,200 to participating real-estate agents. Fannie’s program covers properties on which contracts are accepted and close no later than Oct. 31. Freddie’s sale requires contracts no later than July 31 and closings by Sept. 30.
Fannie’s program even offers mortgage money to help finance these purchases, sometimes with as little as a 3 percent down payment. The company also has what it calls a “renovation mortgage” option that provides additional mortgage amounts to cover fix-ups.
Freddie does not offer special mortgage financing for buyers during the sale period but has other inducements, including two-year home warranties and 30 percent discounts on appliances.
All the foreclosed properties are listed with photos and descriptions at either http://www.HomePath.com (Fannie) or http://www.HomeSteps.
…
Here is a Fannie Mae REO listing for a condo-conversion unit in our zip code.
I guess the Fannie people don’t think we have run out of greater fools with buckets of money and boxes of money, given that they are pricing this $29K above a similar current listing and above all recent sale prices for identical condos in the same development?
15357 Maturin Dr Unit 133
San Diego, California 92127
San Diego County
REO ID: L110Z87
MLS ID: 110036009
$261,491
2 Beds, 3 Baths
1,116 sq. ft.
Condo/Co-op
Just Listed
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Property Details
Price: $261,491
Bedrooms: 2
Bathrooms: 3
Full Baths: 2
Half Baths: 1
Living Area Size: 1,116
Lot Size: 65209
Exterior: Stucco
Roof: Clay Tile
Appliances: Oven
Utilities: Gas,Electric
Sewer Type: Public
HOA Fees: $249
Year Built: 1987
Parking Spaces: 1
Description: **Fannie Mae Property** Beautiful Unit on the 2nd Floor and with 2 Stories. Features: 2 Master Suites with private baths, guest bath down stairs, indoor laundry closet, balcony off living room, Wonderful layout, walk to schools, shops and main transportation.
HOA Frequency: Monthly
FROM REDFIN.COM:
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moneystupid (d’oh…)Two bedrooms, three bathrooms? What is this, one bathroom for every person?
Looks like ABX-indexed mortgage bond prices are headed back towards the basement…
MARKETS
JUNE 27, 2011
Anatomy of a Market Meltdown
By SERENA NG And CARRICK MOLLENKAMP
Going into 2011, battered mortgage bonds looked like a relatively safe bet for Wall Street. Prices of bonds underpinned by subprime home loans had recovered from the depths of the financial crisis, and mortgage defaults—while still high—were easier to predict.
For months, banks were able to profit from buying the bonds and selling them to investors as they rose in value. In late 2010, Boston custody bank State Street Corp. sold $11 billion in mortgage- and asset-backed securities to investment banks including Goldman Sachs Group Inc. that quickly sold most of them to investors, a sign of market demand for the securities.
In February, Credit Suisse AG chief executive Brady Dougan said the Swiss bank saw strong results from trading residential mortgage securities amid “what was a resilient environment for those products in 2010,” according to a transcript of its fourth-quarter earnings call. Mr. Dougan also said the mortgage business should continue to benefit in 2011 from investors’ desire for higher-yielding investments.Wall Street’s confidence grew in March when American International Group Inc. publicly offered to buy back a $30 billion portfolio of mostly subprime mortgage bonds from the Federal Reserve Bank of New York, which had held them since the crisis. The bailed-out insurer offered to pay $15.7 billion cash, or an average of 53 cents on the dollar, for the bonds.
AIG’s move prompted several banks, including Credit Suisse and Barclays Capital, to consider assembling rival offers, according to people familiar with the matter. The banks expected to be able to sell the bonds to hedge funds and other insurance companies that were keen to buy pieces of the portfolio, known as Maiden Lane II.
But hints of problems in the market surfaced that month. The day after AIG’s offer, financial markets were jolted by the earthquake and tsunami that struck Japan. MKP Capital Management, a $4.5 billion hedge-fund manager that bought discounted mortgage bonds during the crisis, sold the bulk of its holdings of residential and commercial mortgage debt.
MKP chief executive Patrick McMahon said the fund, after poring over data at its offices in Manhattan and London, sold risky assets in March in light of “deteriorating fundamentals” in the U.S. economy and housing, such as the growing inventory of unsold homes and swelling numbers of borrowers seriously delinquent on their loans.
“When we saw how fragile the market and the economy became after the disaster in Japan, we exited subprime completely,” Mr. McMahon said in an interview. He declined to say how much MKP sold.
The ABX, an index that tracks prices of subprime mortgage bonds, weakened in mid-March but largely recovered by the end of the month, according to data from Markit. On March 30, the Fed rejected AIG’s bid and, citing improved market conditions, said it would auction off the portfolio piecemeal over time.
The central bank kicked off weekly sales which went well initially, with investment banks and investors buying most of the bonds the Fed offered for sale. In April, the ABX, slipped about 4%, from 58.5 cents on the dollar to 56.4 cents.
By mid May, the Fed’s sales were hitting a wall. The market was satiated. The central bank put the sales on hold for a few weeks just as economic warning signals flashed. Home prices fell sharply in the first quarter, sinking to 2002 levels and dashing hopes of a near-term recovery. The U.S. unemployment rate increased amid weak job growth in May, and in Europe, fears increased that Greece wouldn’t be able to repay its debt sparked renewed concerns of a sovereign-debt crisis.
Banks and investors that had just bought mortgage bonds from the Fed found themselves sitting on potential losses, forcing them to pivot. They scrambled to protect their holdings by making bearish bets on the ABX, and an index known as the CMBX that tracks commercial mortgage-backed securities, buying credit-default swaps that would pay out if bonds defaulted. The trades accelerated declines in both indexes and pushed down prices of many mortgage securities.
In late May, French-Belgian bank Dexia SA said it would sell off $8.5 billion in U.S. residential mortgage bonds to clean up its books, raising concerns of more supply hitting the market. The Fed held another mortgage bond auction in early June, but sold only half the securities it offered up. By then, the ABX had plunged to 47 cents on the dollar, down 20% from April, and even corporate high-yield “junk” bonds were losing value.
“It definitely felt like contagion,” said Sean Dobson, CEO of Amherst Holdings LLC, a broker-dealer that specializes in mortgage debt. Mr. Dobson says many mortgage bonds were “grossly overvalued” earlier in the year and prices are now more reflective of the bonds’ actual values given the absence of a housing recovery. Any quick moves can cause big sales as risky debt securities move in tandem in today’s market—a change from how markets reacted before the crisis when risky mortgage securities might not move in lockstep with the stock market, says Sreeniwas Prabhu, managing partner of Atlanta money manager Angel Oak Capital Advisors LLC, which invests in mortgage securities. “It becomes a food fight,” Mr. Prabhu said.In light of the recent turmoil, Dexia intends to wait till market conditions are better before selling its mortgage bonds, according to a person familiar with the matter. Wall Street traders, meanwhile, are waiting to find out whether the Fed, which has so far sold a third of the Maiden Lane II portfolio, will put its auctions on hold for the rest of the summer. At current prices, the Fed would fetch less than what AIG originally offered for the bonds.