Keith Jurow: House prices in New England crashing

The amend-extend-pretend policy of America’s banks is most pronounced in New England, particularly New York where the lenders live. There have been very few foreclosures despite high default rates, partly because the judicial foreclosure process in these states is log-jammed, and partly because lenders don’t want to foreclose and recognize their losses. Of course, this policy has prompted a great deal of strategic default among loan owners who recognize they can live for free, but it has succeeded in making everyone else believe their neighborhoods are somehow immune to the housing bust, at least until the last year when prices because to fall precipitously.

I have gotten to know Keith Jurow over the last year or so. He authors articles on Seeking Alpha, Business Insider, and Minyanville, where he also publishes his housing market report. He and I correspond frequently, and I am impressed with his writing and research. His latest work is a presentation to the Financial Policy Council in New York. His main presentation begins four minutes ten seconds into the video.

One of the most astounding revelations that came from his research is how much larger the shadow inventory is than is widely reported. Lenders don’t have to file a Notice of Default when a borrower becomes delinquent on their payments. They have the right to do so, and prior to the housing bust, they always did as quickly as possible to begin the foreclosure proceedings and get their money back. However, as the housing bust worsened, lenders began delaying their NOD filings because they already had more than they wanted to process because the foreclosures were hurting house prices. The borrowers who were delinquent but not yet served notice became shadow inventory.

CoreLogic is the most widely reported measure of shadow inventory, but they rely on lenders to voluntarily report their delinquencies. Lenders are under no obligation to report, and no obligation to tell the truth if they do. However, the State of New York requires lenders to notify the state and the borrower when they become delinquent that they may be subject to a foreclosure. It’s like a pre-notice prior to the actual Notice of Default. In New York, the shadow inventory is visible to those who know where to look for it. These numbers used to be published, but for some unknown reason (likely industry pressure), these numbers have not been published for quite some time. The data is public information, and Keith Jurow found the bureaucrat responsible for tallying this information and obtained it. The numbers in New York are astonishingly large. Keith’s outlook on prices in New England is rightfully bleak.

Zero down Ponzis got their share

If interest rates remain low, if house prices go up, and if lenders are stupid enough to start issuing Ponzi HELOCs, the economy will improve because the free money Ponzi scheme will be back on. There are thousands upon thousands of Ponzis like the former owners of today’s featured property just waiting to put that appreciation to good use.

• Today’s featured property was purchased for 237,000 on 6/6/2002. The owners used a $189,600 first mortgage, a $47,400 second mortgage, and a $0 down payment.
• On 6/30/2006 they refinanced with a 256,500 first mortgage.
• On 12/30/2003 they obtained a $45,000 stand-alone second.
• On 9/30/2004 they refinanced with a $322,000 first mortgage.
• On 8/2/2005 they obtained a $66,000 stand-alone second.
• On 3/12/2007 they obtained a $102,000 HELOC.
• Assuming they rolled the previous second mortgage into the HELOC and maxed it out, the total property debt was $424,000, and the total mortgage equity withdrawal was $187,000.

$187,000 in free money with no down payment.

They will want to do that again.

Rancho Santa Margarita Overview

Median home price is $352,000. Based on a rental parity value of $552,000, this market is under valued.

Monthly payment affordability has been improving over the last 7 month(s). Momentum suggests improving affordability.

Resale prices on a $/SF basis increased from $226/SF to $226/SF.

Resale prices have been falling for 12 month(s). Price momentum suggests falling prices over the next three months.

Median rental rates declined $8 last month from $2,299 to $2,290.

Rents have been rising for 12 month(s). Price momentum suggests rising rents over the next three months.

Market rating = 7

Proprietary OC Housing News home purchase analysis

41 PASTO RICO Rancho Santa Margarita, CA 92688

$299,900 …….. Asking Price
$237,000 ………. Purchase Price
6/6/2002 ………. Purchase Date

$62,900 ………. Gross Gain (Loss)
($18,960) ………… Commissions and Costs at 8%
============================================
$43,940 ………. Net Gain (Loss)
============================================
26.5% ………. Gross Percent Change
18.5% ………. Net Percent Change
2.3% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$299,900 …….. Asking Price
$10,497 ………… 3.5% Down FHA Financing
3.62% …………. Mortgage Interest Rate
30 ……………… Number of Years
$289,404 …….. Mortgage
$89,150 ………. Income Requirement

$1,319 ………… Monthly Mortgage Payment
$260 ………… Property Tax at 1.04%
$67 ………… Mello Roos & Special Taxes
$75 ………… Homeowners Insurance at 0.3%
$301 ………… Private Mortgage Insurance
$281 ………… Homeowners Association Fees
============================================
$2,303 ………. Monthly Cash Outlays

($198) ………. Tax Savings
($446) ………. Equity Hidden in Payment
$12 ………….. Lost Income to Down Payment
$57 ………….. Maintenance and Replacement Reserves
============================================
$1,729 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$4,499 ………… Furnishing and Move In at 1% + $1,500
$4,499 ………… Closing Costs at 1% + $1,500
$2,894 ………… Interest Points
$10,497 ………… Down Payment
============================================
$22,389 ………. Total Cash Costs
$26,400 ………. Emergency Cash Reserves
============================================
$48,789 ………. Total Savings Needed
——————————————————————————————————————————————-

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We're sorry, but we couldn't find MLS # S703111 in our database. This property may be a new listing or possibly taken off the market. Please check back again.

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