Archive for June, 2013

For people who purchased properties in California, a non-recourse state, and never refinanced, lenders cannot come after them seeking to recoup their losses on a foreclosure. For those who live in recourse states, or California loanowners who refinanced, the situation is quite different. Lenders still have the right to pursue these borrowers for the deficiency, unless they agreed to a short sale in California after July 15, 2011. Most borrowers walked away thinking the debt was extinguished. While it was detached from the property, borrowers are still legally liable for any shortfall on the lender’s books. Lenders haven’t done much to collect on these old debts so far. Most lenders reason that they couldn’t get blood from a turnip, so…[READ MORE]

Housing inventory nearly always bottoms on January 1 and increases steadily until July or August. In early 2013, inventory bottomed at levels 50% to 90% below normal depending on the market. This shortage of inventory, engineered by lenders, forced buyers to compete over the remaining for-sale homes. This made nearly every sale a multiple offer situation, and as buyers became more frustrated, they also became more aggressive. Finally, in April and May of 2013, aggression gave way to complete stupidity as buyers bid 15% to 20% over recent comps with all-cash or heavy cash offers and waived their appraisal contingencies. Even if these buyers believe prices will continue to rise 10% or more a year (which they likely won't), paying…[READ MORE]

Housingwire was the first to jump on the implications of this story.  Standard & Poor's upgraded the credit of the US federal government, which is pretty amazing considering it's in debt for almost $17 trillion and growing very rapidly.  One of the criteria for the upgrade was the better than foretasted financial condition of Freddie Mac and Fannie Mae, which is interesting because they are technically not part of the government, but rather just assets owned by the government.  Obviously, the potential revenue (at least for the time being) is going to influence the decision on the privatization of the Government Sponsored Enterprises. Fannie and Freddie help brighten America's credit outlook By Jacob Gaffney June 10, 2013 • 8:47am Nearly…[READ MORE]

Rising house prices are supposed to be driven by robust growth of high paying jobs. This drives household formation, and the high wages allows buyers to borrow large sums to drive up prices. This demand creates a shortage in housing as households compete with one another for the available housing stock. This prompts homebuilders into action to provide more supply to meet the demand. Those are the conditions that drive sustained price increases. Obviously, that isn't what's happening today. Gains in Home Prices Driven by Unsustainable Forces Despite the Increase in Prices Over the Last Year, Weakness Persists in the Housing Market The press is buzzing with news of year-on-year gains in housing prices, but a look under the hood…[READ MORE]

The current housing market price rally is largely being fueled by investors competing for restricted inventory. Both the banks that are restricting the inventory and the investors who are buying it are counting on selling these properties to owner-occupants who are willing to pay higher prices for a place to shelter their families. Conventional wisdom is that a resurgent economy and low mortgage rates will bring owner occupants back to the housing market with a willingness and ability to pay higher prices. But will it really work out that way? As proof that the current market rally is entirely fueled by investors, the chart below shows total home sales versus purchase applications. As you can see, purchase applications have been…[READ MORE]

Banks are in survival mode. They must reflate the housing bubble, or the losses on their non-performing single-family residential loans will wipe them out. In order to reflate the bubble, the banks must keep these properties off the MLS, a task they are currently succeeding at, and mortgage interest rates must remain low so buyers can bid up prices to peak levels so banks can liquidate without a loss. The chart above shows the $144.75 billion exposure they have just on their non-performing loans. Since these non-performing loans only represent 9% of the total number of underwater borrowers, the total potential exposure is more than 10 times larger. As I noted, banks are still exposed to $1 trillion in unsecured…[READ MORE]

While the US and many other countries around the world inflated housing bubbles, Ireland tried to surpass them all. From 1996 to 2006, house prices in Ireland increased more than 300%! As in the United States, Ireland inflated it's housing bubble with lender debt. When the toxic brew of mortgages poisoned borrowers, delinquencies mounted, and house prices crashed. An issue of solvency When the service on existing debt exceeds the borrowers capacity to make payments, the borrower is insolvent. The limit of insolvency is also known as the Ponzi limit. Once this threshold is crossed, only additional infusions of borrowed money used to make debt service payments keeps the borrower afloat. Every dollar loaned to a borrower beyond the threshold…[READ MORE]

Prices in many housing markets around the country are rising at unsustainable rates. The last time this happened was 2004-2006, and the pundits at the time said that appreciation would moderate and resume its "normal" 5%+ yearly rates in the future. Gary Watts even assured us that "Fifteen percent is pretty much in the bag for Orange County in 2006," he says. "It's impossible for prices to go down this year." It's difficult to imagine a statement that was more wrong. The bust from 2007-2009 was characterized by steeply falling prices. It was a relatively quick and severe crash by real estate standards. Residential real estate prices rarely fall, and when they do, they are generally "sticky" on the way…[READ MORE]

Current housing news has been mostly the double digit increases in home values with the CoreLogic and Case-Shiller indexes are the prime example.  This home value news is initiating further review into different aspects of the housing market and older subjects are coming into the news cycle  Remember way back at the start of the housing bubble the main focus on the news was the shadow inventory.  Shadow Inventory are homes that have mortgage values greater than market values. The greater the negative equity on the house the more likely it would cause the homeowners to walk away and default their mortgages.   Shadow inventory is also classified as homes with adjustable rate mortgages, negative amortization loans, or option ARMS…[READ MORE]

The US taxpayer (you) paid for the mess the bank's made. Back in late 2008, the Department of Treasury took the GSEs under conservatorship and injected about $150 billion into them to make them solvent. And although the FHA has not officially requested a bailout yet, it's no secret a bailout is coming. The only mystery so far is when the bailout will come and how large the ultimate price will be. Politicians have consistently lied to us about housing bailouts. The first batch of lies surrounded the GSEs: “There is no guarantee. There’s no explicit guarantee. There’s no implicit guarantee. There’s no wink-and-nod guarantee. Invest and you’re on your own.” — Barney Frank, senior Democratic congressman, notable Fannie supporter,…[READ MORE]

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