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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Whatever happened to the shadow inventory? The reports of bidding wars and price increases due to low inventory must surely have convinced banks to release their inventory onto the market. Are they waiting for the prices to firm up? Waiting for spring?
—————–
Low supply turns home-bidding wars ‘brutal’
By MARILYN KALFUS / ORANGE COUNTY REGISTER
Dec 27, 2012
“When Tanya and Patrick Courchaine recently made an offer for $615,000 on a house in Anaheim Hills, they were up against 18 other buyers. The couple figured they’d have it in the bag. In addition to offering $40,000 over the asking price and a healthy down payment, they went the extra mile to promote themselves – with a PowerPoint slideshow.
They lost to a cash buyer.
“We were very disappointed,” said Tanya Courchaine, 42, an IT operations supervisor. “I convinced myself that with $40,000 over and 20 percent down we were going to get it for sure.”
Bidding wars are raging in Orange County and elsewhere, making home shopping especially frustrating for those seeking properties under $750,000. Low inventory is driving the competition. And homebuyers are going head-to-head against investors, who typically pay cash.
The California Association of Realtors said last month a dramatic shortage of homes for sale in California has created an especially tough market for first-time buyers, with nearly 6 in 10 homes selling with multiple offers.”
http://www.ocregister.com/articles/offers-381617-buyers-homes.html
———————
Are all these cash buyer investors Chinese laundry money?
If you buy today, you will be homeless 5 yrs from now.
If you buy today, you will be homeless 5 yrs from now. However, if you are renting today, you will be homeless in 60 months. Choose wisely!
Whatever happened to the shadow inventory?
The Shadow knows! BWAHAHAHAHAHA
http://www.youtube.com/watch?v=pJyWcUS9RIM
Bidding wars and shadow inventory go hand-in-hand, sequentially speaking.
This will become much more obvious in five-or-so years, when the wave of fly-by-night investors who are sparking today’s bidding wars are trying to escape through the exit door en masse.
Are all these cash buyer investors Chinese laundry money?
They gotta do something with all that trade surplus cash.
What better use than purchasing our descendent’s country out from under them.
A relative is selling a home.
First buyer? FHA loan…fell through.
Second buyer? Non-English speaker (Europe, not China), all cash.
And if the banks were getting itching to release shadow inventory, wouldn’t there be an increase in foreclosure activity, to get those deadbeats out and sell the house for a high cash bid?
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Foreclosure Activity Down By Nearly 50% Over Last Year In Riverside County
By City News Service December 13, 2012
“Although Riverside County had the second-highest foreclosure rate in the state last month, the numbers are tracking downward, a real estate tracking firm reported today.
A total 3,226 mortgage default notices, auction sale notices and bank repossessions were recorded countywide in November, translating to 1 in 248 households in some stage of foreclosure, according to Irvine-based RealtyTrac.
The number of filings was 18 percent less than the previous month and 46 percent below the year-ago level, figures showed.”
http://lakeelsinore-wildomar.patch.com/articles/foreclosure-activity-down-by-nearly-50-over-last-year-in-riverside-county-a3253011
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If you buy today, you will create more zombie homes in near future.
My understanding is that more and more the path to get rid of the delinquent homeowners is to complete short sales and loan mods, not go through the foreclosure process. I don’t have the granular data from LPS (only their publicly available state by state data), but in looking at Foreclosure Radar for Riverside County, Preforeclosures are down 37% year on year, 21% reduction in those homes scheduled for sale through Foreclosure, and there are 35% fewer homes owned by banks. In addition to the number of foreclosures shrinking, so is the rest of the foreclosure pipeline.
http://www.forbes.com/sites/darenblomquist/2012/12/27/expected-foreclosure-wave-weakened-by-short-sale-rip-current/
A timely article on short sales.
Man jailed in federal tax fraud, attempts to extort $ from newspaper for publishing his ‘copyrighted’ name
YOUNGSTOWN — A North Heights Avenue man, who awaits sentencing on federal tax- and mortgage-fraud charges, has billed The Youngstown Vindicator $6 million for using his name, which he says is copyrighted, in a news story. He Who Must Not Be Named, 41, billed the newspaper $3 million for each of two uses of his name in an Oct. 13 story that reported his guilty plea a day earlier in federal court in Cleveland. The being who shall remain nameless said he placed a copyright on his name Sept. 28, requested payment within 10 days of the Nov. 12 invoice. He pleaded guilty to one count each of conspiracy to defraud the United States, making a false 2008 income-tax return and conspiracy to commit bank fraud involving a mortgage-fraud scheme, and to 15 counts of assisting the preparation of false income-tax returns.
Not mentioned was whether or not he is suing the USA for using his name on their court documents.
I see my name used everywhere - often it is all lit up! - and I have never received one cent of royalities.
One German bank sues another German bank in US court over mortgage-backed securities.
FRANKFURT–German regional bank Landesbank Baden-Wuerttemberg is suing Deutsche Bank AG in the U.S. for alleged fraud in connection to the purchase of $173 million in mortgage-backed securities, according to documents available from the Supreme Court of the State of New York.
Landesbank Baden-Wuerttemberg
also known as Die Dummköpfebought the residential mortgage-backed securities from Deutsche Bank in 2007, unaware that Deutsche Bank considered the loansto consist of used toilet paperof “exceptionally poor quality,” LBBW claimed in the court filing. The alleged misconduct resulted in a high rate of default on the loans underlying the securities, it said, and resulting incratering of their supposed valuesubstantial damages.That’s California. Let’s check our old standby:
Phoenix Real Estate Market 2012 Review:
[sorry, this is from a realtor, but it's MLS data]
“Overall Home Supply – For the entire Phoenix MLS at the first of November, the total number of active real estate listings was 22,826 while the number of sold listings for October was 7,724. One year ago, total active listings were 25,879 properties. So, the active inventory is lower at the end of this year than last.
…Chandler: 1.5 months inventory
…Mesa: 1.8 months inventory
…Gilbert: 1.6 months inventory”
http://www.thompsongroupaz.com/phoenix-real-estate-market-2012-review/
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Even adjusting for realtor propaganda, that sounds like pretty tight inventory.
Now, foreclosure activity:
Shrinking inventory for big investors
By Catherine Reagor
The Republic
Fri Dec 7, 2012 3:02 PM
As foreclosures continue to fall in metro Phoenix, the dominant buyers and sellers in the region are changing. Fewer sales of lender-owned inexpensive foreclosure homes means a rapidly shrinking pool of houses for investors to purchase.
As a result, more homeowners will be able to sell to buyers for higher prices because they aren’t competing with lenders.
In November, lenders foreclosed on 1,549 houses in Maricopa County. That’s the lowest level since December 2007, right before the foreclosure crisis hit metro Phoenix, according to the Information Market. During 2011, a typical number of foreclosures was 4,000 to 5,000 a month.
Foreclosure starts, the early indicator of foreclosures, fell to 2,094 last month. By comparison, in March 2009, lenders started the process to foreclose on more than 10,000 metro Phoenix houses, a monthly record for the area. These declines in foreclosure activity are key to telling what will happen to the housing market in coming months.
But there’s another piece of foreclosure data that is even more important now: The total number of foreclosures in lenders’ pipelines across metro Phoenix was 10,606 at the end of November. A year ago, there were double that many foreclosures under way in the region. Two years ago, there were more than 40,000.
Homes on which lenders are in the process of foreclosing are the ones investors hope to buy for low prices and turn into rental houses that bring them high returns on their cash.
Big investors including Blackstone, American Residential and Colony Capital have dominated metro Phoenix foreclosure auctions and its lender-owned home sales market this year. Those firms and other want to package their thousands of rental homes and resell them to investors through real-estate investment trusts, or REITs.
http://www.azcentral.com/business/realestate/free/20121205shrinking-inventory-big-investors.html
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So this is the pattern in both Arizona and California:
+ Foreclosure activity at a low (forclosures happened in 2007-2012?)
+ inventory at a low (for both public and investors)
+ big investors snapping up for cash or in bulk (for rental or later sale)
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= Bidding wars for screwed-over regular Joe.
Is it just me, or are the big investors trading the shadow inventory among themselves, in the shadows? The general public can’t buy this inventory. Either they can’t see it, or they can’t work and save wages as fast as banks can borrow from the discount window (at 1% interest rates). Meanwhile, LL’s see the low inventory and high prices and raise rents accordingly.
And if all the foreclosures already happened in ~2007-2010, then where did all the original mortgages go? Is this what the Fed is ultimately buying from Fannie+Freddie at $40 billion/month?
HBB (especially alpha) predicted this years ago: rake in juicy fees on origination, when it goes kablooey shovel the toxic mortgages off on the taxpayer, snap up the actual “distressed” assets for pennies, and then then sell in bulk for rentals.
The rich are fighting over what little blood we have left.
You pimp too much. The losses must be keeping you awake at nights.
Watch the non-current loan numbers, you’ll see that all this reduction in distress tracks accordingly.
The three serial flipper houses in my berg have all been purchased this last year at 50% of the last foreclosed upon price by what appear to be private buyers who live elsewhere but certainly cannot be expecting to rent them out to anyone.
One is an obese illiterate with a fat wife and a young child who comes up every couple of weeks and paints small sections of the exterior different colors. He’s never stayed more than two days at a time and comes up less and less as time goes on. The weeds he painstakingly whacked are regrowing and the oak trees he inexplicably cut down are not. Despite four different renovation attempts by four different owners over the last seven years, the place is literally falling apart. (It was a cheap kit house to begin with.) Plus it’s haunted…but that’s another story.
The next shack (and it really IS a prettified shack) was purchased by a huge skinhead with full body tats and her equally large, bald, tatted boyfriend, with whom she fights. She comes up for one afternoon and night on most weekends. The pipes froze and burst a couple of weeks ago prompting a screamfest I could hear all the way up the canyon.
The third has been unoccupied for three years, but I saw the new owner once when he dropped off his camper shell a couple of months ago. The last time I looked, range cattle were eating it.
Maybe these are intended as early retirement homes? (All sold for just under 100K.) This set of owners all look like they’re on SSI/disability. Perhaps they used the initial payout as a (minimal)down payment and claimed their monthly benefit as collateral for the FHA loan? All three sets drive large, relatively late-model SUV’s, but they are definitely not bankers or foreign investors. And none of them looks as though they have the slightest clue about living in a mountainous ranching community.
We can’t have this violence continue. It’s time we have a serious conversation about assault trains. We should look at every possible avenue, including banning of assault trains. If people didn’t have access to assault trains it would be harder for them to kill people.
http://www.nypost.com/p/news/local/queens/man_dead_in_train_push_horror_in_9GAX83oeSi36YYRTZ77AqO
whats scary is that’s my train stop..
I’d suggest standing close to the wall while waiting.
“We can’t have this violence continue.”
Mental illness afflicts more people than many realize. Years ago we rented a house that was formerly occupied by an audiologist, and we discovered a shoe box on top of the kitchen cabinets that was absolutely loaded with mood shaping anti-anxiety medications prescribed to the guy’s wife. I called his office informing him of our discovery, and he sent someone right away to fetch them. Later, chatting with our neighbors, we learned that she was a real handful—ready to explode at a moments notice. They were surprised that she still had a driver’s license.
The massive excess inventory still exists. You can’t hide it.
Carry on my hopelessly enslaved debtors.
10 or 20 or so million extra (crappy) houses built. Snap them up while they last.
ZIRP does not solve this problem.
The Fed buying MBSs does not solve this problem.
Bulk purchases to turn McMansions into rentals does not solve this problem.
Short sales cannot solve this problem.
And worse yet, the massive inventory problem grows by the day as the boomer demographic continues to age out permanently.
And being the depreciating asset housing has always been, combined with massive and growing inventory means falling prices for the next two decades or more.
Housing is still massively overpriced.
Ben,
I believe that the poster who keeps changing his username and spouting the same thing over and over is hellbent on destroying the usefulness of your blog.
It is tiresome, repetitive, and banal and gets in the way of real discourse.
Joshua tree extension does not work with the constant name changing.
Debtor,
I believe that you and a few others are here to steer sentiment on this blog like you do on the “other” blog.(Here’s a hint…. it’s not gonna happen here)
It’s dishonest, illegal and will always be confronted head on by us.
Carry on my dear debt slave.
patrick.net devolved into a cesspool of nonsense, in part due to the ranting of posters like you. I no longer visit it.
Adding another username to my JTE block list
All the same, ex, it would be useful if you’d at least put some thought into your sloganeering. Parroting the same tired tag line (especially in the face of thoughtful evidence to the contrary) is tedious even to those of us who share your sentiments.
That fact that some don’t (always) does not make them liars, fools, or real estate salesmen (always). I like persimmon pudding. I believe that persimmon pudding is good for the soul. But I don’t go around shouting it to the world (every day), nor do I disparage those who tell me that persimmon pudding gives them hives. And I understand that for some folks, not eating persimmon pudding probably makes sense, fools though they may be….
Perhaps you could put your massive creativity to better use than this silly trolling? You used to be one of our most thoughtful posters.
“especially in the face of thoughtful evidence to the contrary”
This is fundamentally false so why bear witness to falsehood? This has been the problem since this mess began developing in the late 1990’s.
Now… as to your dislike of my posts~
Here’s the problem….. Let’s call them “the other blogs”. They’ve been taken over by the same players who are pimping the same falsehoods here. It’s not gonna happen for as long as BJ allows me to stay. You see….. getting to the truth is sometimes a painful process*. And truth is in very short demand when your wallet is wagered on what what we all know are falsehoods, of course you’re anchored to mistruths and misrepresentations.
The truth is I’m indifferent to the direction of housing prices. I’m not indifferent to lies and misrepresentations the power structures use to screw people who are my coworkers, friends, family, etc. How many casualties are you willing to overlook before you set aside your own wallet and stand in the way of this charade? How many times are you going to take the bait from those who detract from housing with this stupid political BS? How long will you wait before you personally acknowledge that the entrenched power structures own both political parties and you and I are its’ targets for slavery of all types? How long are you going to ignore the fact that we and our competitors continue to build housing units very profitably for very small fractions of current inflated asking prices of resale housing? Are you willing to learn anything here?
* Thanks to evildoc for that lesson
MUCH better. Thank you.
Peace.
How much extra would it cost to build houses that wouldn’t depreciate so rapidly? What techniques & materials would you use?
This is a serious question - please don’t reply with a flippant answer.
This is rather a paradoxical question, but whoever takes the time to think it out on a commercial level will likely lose a fortune trying to build to higher specs. True quality construction doesn’t translate into commercial housing development.
Unless you build custom (starting from the design itself) you’re still going to get grade (or pre-fab) construction, so it’s hard to figure what you could self-contract for to get a sturdy house that will reasonably last for 150+ years without significant maintenance. (This is not including land or infrastructure costs and considerations.) At a minimum, I would imagine it to be a third higher than conventional IF you can find qualified labor and source high caliber bulk materials. (And this is for the house itself, not the interior add-ons like cabinetry, fixtures, and appliances.)
My house is currently “valued” at approximately 1/4 of what it cost me to build it and 1/10 of what it would have brought at the peak of the bubble. Which is just fine by me, because I didn’t build it to sell it and it will be here long after I’m not.
(But most people wouldn’t have gone to the time, effort, and expense I did to get a house like this, either.)
Most interested in (insert name here)’s thoughts and estimates on this. Is there a big enough market anywhere to make this realistic for a commercial developer? Who would want to pay twice as much for half the square footage and none of the gewgaws?
I don’t care what means, methods or materials used, it’s going to depreciate. Ok you might get 30 years out of a standing seam roof over 20 year asphalt shingles but that’s not a very good reason to go with tin. 10 or 12″ cast in place walls aren’t anymore effective load paths than 8″ walls. Throwing more money at a structure is just that… throwing more money at it.
Stick with timeless architecture as it relates to interior finish systems. No wallpaper, no oddball colors(all materials), everybody loves oak floors and they’re durable, etc. Doing work twice costs alot of money regardless the time between doing the work. Be level headed about it the first time and you’ll never have to do it twice.
Shelter costs money. It doesn’t pay you so provide it for yourself as efficiently as possible. Yah….. that means renting too.
Smaller houses are coming back in style so it seems the incremental cost of better materials wouldn’t be such an issue.
Interesting that your house cost 60% less than peak bubble “valuation” - just the figure that (insert name here) repeats. Did a lot of people buy at those inflated prices? If so, where did the money go? Blinged out duallys for the contractors - drugs for their mistresses, bloated pensions for the building officials? That’s a lot of excess profit though it pales in comparison to the banksters’.
And now your house is “valued” at 25% of replacement cost. Or is the replacement cost lower now because contractors are hungry. Are there homes for sale at that low price or is it a valuation from the tax assesor?
Locallandlord, he would build it in Oil City — that is, not anywhere near anything with a job base. Easy to build for cheap that way.
Well that may be a good strategy with the rise of telecommuters. But if he’s familiar with oil city he knows that owning can be cheaper than renting in the smaller towns and cities. He also knows that labor costs are lower so maintenance may not be such an expensive proposition.
Thanks for the well thought out response, PW.
My dear debt junkie….
M&L costs don’t vary more than 7% irrespective of location.
You got burned. We know it. You haven’t figured it out yet but you will.
Smaller houses are coming back in style so it seems the incremental cost of better materials wouldn’t be such an issue.
You didn’t read what I wrote. What is “better” materials getting you? A higher price. They still depreciate.
Interesting that your house cost 60% less than peak bubble “valuation”
You know that the disastrous events of 1998-2012 was a once in world history event so why invoke it?
And now your house is “valued” at 25% of replacement cost. Or is the replacement cost lower now because contractors are hungry.
What are you talking about? Again, you’re comparing to a once in human history event. Why is that?
he knows that owning can be cheaper than renting in the smaller towns and cities. He also knows that labor costs are lower so maintenance may not be such an expensive proposition.
You’re putting words in my mouth. Knock it off.
You know full well I’m not referring to M&L.
What we know “full well” is you’re winging it and you really don’t understand what you’re talking about.
You threw the dice and you lost because of it. The process of picking up the pieces and carrying on is admitting you made a mistake. And you’re not there yet.
I believe you guys are using the word ‘depreciate’ where you mean ‘deteriorate’.
It’s ridiculous to say that all houses depreciate (although most probably do over a long period of time), unless you’re using the bookkeeping meaning.
As to what materials would deteriorate more slowly, I would say brick or stone on a steel frame or on concrete block would be very long lasting and low maintenance, as long as you keep water out of it and away from the foundation (the first and most important rule of structure maintenance), and as long as you don’t live in an earthquake zone. Brick would certainly be the more affordable of the two.
A slate roof should last a century or more, but you can probably replace your asphalt shingle roof five times for the same price, so it’s about a wash. Unless there’s inflation…
Trim should be minimal and covered in either vinyl, aluminum, or copper. Copper’s like slate, it’ll cost more but last forever.
Inside, wood floors, tile in the bathrooms. Tile is probably best in the kitchen too, although I hate standing on it to work, and I hate how, just like granite counter-tops, every glass or plate dropped on it breaks. Maybe wood is better in the kitchen too.
A house like this should require minimal maintenance for a long time. You’ll deteriorate before most of it will.
You don’t know what you’re talking about but we already knew that.
At least I know what depreciate means. And I’m not a d@mn, dirty housebuilder talking my book.
You’re right. You couldn’t build a doghouse if I gave you plans, materials and six months to put it together.
And yes….. ALL manmade items depreciate.
And yes….. ALL manmade items depreciate.
And yes, you still don’t know what depreciate means.
ALWAYS
Is fiscal cliff avoidance lite “in the bag”?
Dec. 28, 2012, 10:58 a.m. EST
Obama to offer scaled-back budget package: report
By Robert Schroeder
WASHINGTON (MarketWatch) — President Barack Obama on Friday will make a new, scaled-back offer in a bid to avoid the looming fiscal cliff, Bloomberg News reported. Details weren’t immediately available, but the White House has been pressing for extending current tax rates for those making less than $250,000 a year, as well as for extending unemployment benefits. Obama and congressional leaders from both parties are due to meet at the White House at 3 p.m. Eastern.
$20T in 2016, or bust!
Kicking the can…a new American pasttime.
http://www.thecankicksback.org/
a new American pasttime ??
Nothing new here…
Continuing to kick with this level of deficit unfortunately IS new…
Same kind of kick just a bigger can….
Sounds like a job for “Bigger Boot”.
Continuing to kick with this level of deficit unfortunately IS new…
We did it after WW2, with a higher debt to GDP ratio, almost had it all paid off until Reagan and Greenspan took over.
The fiscal charade is in the bag.
Indeed. And it is a charade.
Can a charade be in a bag?