Since the housing bust began, the banks have largely controlled the inventory of homes on the MLS. At first, they flooded the MLS with subprime foreclosures, but with mark-to-fantasy accounting, they were able to slow their foreclosure rates and store delinquent borrowers in shadow inventory. Since early 2009, the number of properties available for sales has been completely controlled by the banks. They determine when to list their standing inventory of REO, and they control the approval on every short sale. Between those two sources, the banks control the market.
Banks decided early this year to slow the rate they took back properties at foreclose auctions thus reducing MLS inventory of REO significantly. More recently banks increased foreclosures 30% as their REO pipeline stabilizes, but this supply is still several months away. Plus, they also slowed their rate of new filings which suggests they don’t plan to increase inventory significantly. Hopefully, the upsurge in banks taking on REO will translate into more available MLS inventory soon. It’s too early to tell if this is a new trend signalling a change in policy.
The banks benefit from the lack of inventory. Buyers bid up the prices on what’s available, and the banks recover more capital from their bad loans. The only caveat is that banks aren’t able to sell that many or prices would crumble again, so by restricting supply and raising prices, they slow the rate of their liquidations. It’s their hope that rising prices will trigger a self-fueling price rally as sidelined buyers enter the market for fear of being priced out. It likely won’t work out that way.
Many sidelined buyers are smart. They are waiting because they know lenders have an enormous shadow inventory they must liquidate, and in many markets, lenders have lost control of their liquidations and drove prices much lower. When buyers know the product is there, they also know they have the upper hand. If they wait, they can generally get a better deal. Most sidelined buyers today are frustrated by the lack of currently available inventory, but they are also being patient and waiting for lenders to pick up the pace of their liquidations. In the meantime, inventory levels are dropping to very low levels, particularly in the western US.
For-Sale Listings Drop Again, Led by California Cities
By Nick Timiraos — September 18, 2012, 6:00 AM
The number of homes listed for sale fell in August, led by a clutch of California cities that posted outsized declines.
Active Inventory in Irvine hit the lowest level of at least the last six years. (chart courtesy of Irvine Housing Blog)
Inventories fell in August by 1.2% from July, bucking a seasonal pattern of a slight uptick before the summer season ends. Listings were down by 18.7% from one year ago and 34.1% from two years ago, according to a report from Realtor.com.
Falling inventories are a leading driver behind the recent rally in home prices, and the declines point to continued price-strength in many parts of the Western U.S., which are also benefiting from strong investor demand.
Investor demand is confined to only a small subset of the property market. The real story behind the rising prices is the lack of supply.
Among the 15 cities with the largest year-over-year declines, some 13 were in California, led by Oakland, which posted a 58.4% decline. Other big declines came in Stockton (down 45%), Fresno (down 43.1%), Sacramento (down 42.4%), Riverside-San Bernardino (down 41.8%), Bakersfield (down 41.4%), and San Jose (down 41.1%).
The decline in active listings across Orange County is remarkable.
Inventory declines have typically preceded stronger prices if demand stays the same, because more buyers are chasing fewer homes. But low inventory could also curb transaction volumes if buyers, frustrated by the lack of choice, sit on the sidelines. …
Many frustrated buyers are sitting on the sidelines. As a result, we may not see a decline in price this winter, and if inventory returns, sales volumes may remain relatively high as unsatisfied buyers from the prime selling season remain active this fall and winter.
The bank wants to make money on this one
This property was purchased for $475,000 on 4/22/2002 with a no-money down loan. She refinanced with a $535,000 first mortgage on 6/7/2005, and on 6/14/2006 she got a $89,000 stand-alone second. She got her $150K.
The first mortgage holder blew out the second mortgage at foreclosure and took the property back for $514,538. I’m surprised the second lien holder didn’t bid the property up to get back some of their capital. Based on the current asking price — a price they may get in this market — the banks stands to make money on the foreclosure.
So far the banks have been losing money on most of their bad loans, so the cries of predatory lending have been muted. What happens when they start making money on these deals? Will we tolerate banks making money on their foreclosures? Not that there’s anything we can really do about it…
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Proprietary OC Housing News home purchase analysis
9648 WARNER Ave Fountain Valley, CA 92708
$689,900 …….. Asking Price
$475,000 ………. Purchase Price
4/22/2002 ………. Purchase Date
$214,900 ………. Gross Gain (Loss)
($38,000) ………… Commissions and Costs at 8%
============================================
$176,900 ………. Net Gain (Loss)
============================================
45.2% ………. Gross Percent Change
37.2% ………. Net Percent Change
3.6% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$689,900 …….. Asking Price
$137,980 ………… 20% Down Conventional
3.53% …………. Mortgage Interest Rate
30 ……………… Number of Years
$551,920 …….. Mortgage
$126,116 ………. Income Requirement
$2,488 ………… Monthly Mortgage Payment
$598 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$172 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$3,258 ………. Monthly Cash Outlays
($389) ………. Tax Savings
($864) ………. Equity Hidden in Payment
$156 ………….. Lost Income to Down Payment
$192 ………….. Maintenance and Replacement Reserves
============================================
$2,353 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$8,399 ………… Furnishing and Move In at 1% + $1,500
$8,399 ………… Closing Costs at 1% + $1,500
$5,519 ………… Interest Points
$137,980 ………… Down Payment
============================================
$160,297 ………. Total Cash Costs
$36,000 ………. Emergency Cash Reserves
============================================
$196,297 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Gain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."  |
$739,000 9731 South EL GRECO Cir |
0.11 miles 5 bd / 3.75 ba 2,330 Sq. Ft. |
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$720,000 16889 HELENA Cir |
0.18 miles 4 bd / 2.5 ba 2,412 Sq. Ft. |
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$750,000 16542 APPLE St |
0.56 miles 4 bd / 2.5 ba 2,454 Sq. Ft. |
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$585,000 9922 DAHLIA Cir |
0.67 miles 4 bd / 2 ba 2,000 Sq. Ft. |
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$699,000 16583 TEAK Cir |
0.67 miles 5 bd / 3 ba 2,145 Sq. Ft. |
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$990,000 9460 ANDALUSIA Ave |
0.72 miles 4 bd / 3.5 ba 2,875 Sq. Ft. |
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$547,000 15740 POINSETTIA Way |
1.32 miles 4 bd / 2.75 ba 2,465 Sq. Ft. |
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$569,000 8842 SHAPPHIRE Ave |
1.33 miles 3 bd / 2 ba 2,645 Sq. Ft. |
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$499,000 15861 LAS SOLANAS St |
1.42 miles 4 bd / 2 ba 2,101 Sq. Ft. |
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$749,900 8598 CAPE CANAVERAL Ave |
1.42 miles 4 bd / 2.5 ba 2,950 Sq. Ft. |
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Why REO Discounts Vary So Greatly: FHFA
Calculations for REO discounts can differ on extreme levels. In a mortgage market note from FHFA, the agency explained the common reasons behind the variations.
The note stated that REO discounts heard in media reports “are typically found by comparing sales prices of REO properties to prior valuations of the same houses or sales prices of non-foreclosed houses and are generally larger than the discount caused solely by REO status.”
RealtyTrac, which is cited in news reports often, found REO discounts from 2010 to 2012 ranged from 33 percent to 41 percent, according to the note.
The estimates found in the news media are in accord with consumer expectations as well. FHFA pointed to a Harris Interactive survey conducted in April 2011 for an ongoing RealtyTrac and Trulia study, which found American adults expected to pay 38 percent less for a foreclosed house than a similar non-foreclosure.
The academic world, which tends to depend on location, time and controls for estimates, has a discount range that can be anywhere between zero to 50, but most estimates on REO discounts in academic literature fall in the 10 to 25 percent range when looking at nationwide averages, according to the note.
When observing estimates for just one metropolitan statistical area, the variability is even greater since the academic studies adjust for characteristics and property condition.
FHFA stated there are at least six reasons to explain why REO discounts vary so greatly. The first three are the condition effect, characteristics effect, and market effect. Those explanations are directly related to the property value of houses. The last three explanations are: buyer-related effect such as risk aversion, seller motivation effect such as loss aversion, and stigma effect. These are what FHFA called indirect mechanisms.
The condition effect can affect an REO discount since REOs, unlike non-foreclosures, are more likely to remain unrepaired if damaged, such as from inclement weather. Also, some REOs would find a loss in value because of intentional damage left from a previous owner.
The note also stated that REO discounts reported in the news typically don’t account for differences in property characteristics such as age and size when comparing REO properties to non-foreclosures. According to the note, REOs actually tend to be older and have smaller lots than non-foreclosed houses.
The note explained that REO discounts found in media reports also usually compare REOs to prior sales prices or previous assessment values of REO properties or values of non-forecloses from other neighborhoods.
This can have a significant impact on REO discounts, especially during market downturns. For example, during a downturn, a home that sold in 2006 for $100,000 may sell for $80,000 in 2011, even if it’s not an REO. This type of market downturn can inflate the REO discount estimate, the note explained.
The buyer-related effect deals with concerns over risks such as hidden costs, unforeseen delays, and potential loss of property value due to unexpected issues.
Seller motivation can also affect the REO discount. Since servicers have to pay fees such as taxes, insurance fees, and maintenance costs, they have an incentive to maximize the sales price.
In addition, the stigma of REO properties has an impact on the discount.
Risk of Default for New Loans Slightly Higher in Q3: UFA
The risk of default for loans originated in the third quarter of this year is slightly higher compared to the previous quarter, according to the University Financial Associates (UFA) Default Risk Index.
With 100 as the average, the risk index rose to 113 from the previous quarter’s revised 111. This means UFA estimates the risk of default on newly originated mortgages (both prime and nonprime) will be 13 percent higher than the average of the 1990s.
Still, the risk of default is much lower than the worst vintages from 2006-2008. During certain time periods in 2007, the index rose above 200.
While the risk of default increased slightly and the economy has slowed, the housing market is growing overall.
“UFA’s nominal, five-year house price forecasts are solidly positive at both the state and metro area levels,” said Dennis Capozza, the Dale Dykema Professor of Business Administration in the Ross School of Business at the University of Michigan, and a founding principal of UFA. “With the risk of falling house prices greatly diminished, default risks on new mortgage loans are also reduced.”
Each quarter, UFA assesses economic conditions and their impact on future defaults each quarter. UFA was founded in 1990 by two professors, who bring over fifty years of experience in mathematical modeling and data analysis to financial problem solving.
Yes, because buyers with 3.5% NEVER default. Love the FHA business model.
And since they don’t put enough down to cover the transaction costs and fees in event of a foreclosure, the default losses will be enormous. One of the reasons banks require 20% down is to cover liquidation costs in event of a foreclosure. The “skin in the game” idea has its merits, but the reality is that lenders need a buffer to prevent losses. The FHA has no buffer, and since all of the FHA loans from 2007 to 2011 were in a declining price market, the losses will be even larger.
I guess the cost for FC’ing is 6% RE fee plus at least 1% for house for a vacant house after FC. There also the loss of real income from the one to four years of squatting, but the at will be a profit for those years until a one time expense is charged. These expense will be the taxpayer headache for the FHA approved of the loan knowing all the financials of the market and borrower (no liar loan this time). The FHA is in the red even before the ink is dry by at least 6-8% RE fee plus 1% loan origination fee/underwritting.
Fannie Mae Projects ‘Sluggish’ Economic Growth for 2012
Economic growth isn’t looking good for the rest of the year, according to Fannie Mae’s Economic & Strategic Research Group.
According to the GSE’s most recent Economic Outlook report, downside risks such as the European debt crisis, the fast-approaching fiscal cliff, and the recent slowdown in hiring have created a drag on the second quarter’s modest economic growth.
In addition, the summer drought is expected to compound the current slump, with food and agricultural prices rising. With gas prices also on the rise, headline inflation is expected to pick up, stifling consumer spending and possibly affecting consumer attitudes for the rest of the year.
Given this scenario, Fannie Mae is setting growth expectations to 1.8 percent, a slight increase from Q2, but under Q1’s projected 2.0 percent pace.
“The September outlook carries forward many of the trends in July and August, which are keeping growth expectations at sub-2.0 percent for the rest of the year as well as for all of 2012,” said Doug Duncan, chief economist for Fannie Mae. “Compensating for some of the economy’s sluggishness is an increasingly positive, though subdued, housing market.”
Once again, the housing market proved to be a bright spot in a dim economy. Upticks in home prices indicated that the market most likely hit bottom in the first quarter of the year and is bouncing back up. Home sales also gained ground in July, with year-to-date existing home sales up about 10 percent from the same period last year – the best showing since 2007.
Although housing trends continue to be positive, Duncan issued a reminder that gains are being measured from a depressed market, meaning there’s still a long way to go.
“We expect home sales of approximately 9 percent for 2012, and we should see steady improvement from there, although it will take some time before we reach healthy norms,” Duncan said.
My brother works for Wells Fargo in their home loan division. He said they’re waiting for the recent anti foreclosure laws to run out and will release a lot of inventory. That remains to be seen, but I refuse to overpay (especially in Vegas). I don’t care how long I have to wait.
I too don’t want to over pay. But it’s getting to a point that will need to purchase a house in 2-3 years. I can’t wait forever.
I watch Las Vegas pretty closely, and I haven’t seen any signs of an upcoming release of inventory. The banks have been steadily reducing their standing inventories in Las Vegas just as they have here in California.
The real problem in Las Vegas is the shadow inventory of about 100,000 delinquent borrowers they can’t foreclose on. I have no idea what they are going to do with these people or when they will do it. I can tell you anecdotally, that if a Las Vegas resident lists for short sale, the banks are much quicker to approve those than in the past. Right now, it’s the only way they can get their money back.
Las Vegas is a squatters paradise right now.
As long as the banks can show the delinquent loans as par assets and the unpaid for amounts as income, why should they do anything. It is to their benefit to pretend and extend. Anybody who expects the lenders to foreclose is involved in wishful thinking.
I keep thinking the banks eventually have to do something to force those people out of non-performing assets, but they certainly aren’t in any hurry, particularly with a zero cost of capital from the federal reserve.
All I can say is good luck to you.
3 years ago, I was told, repeatedly, that the banks were waiting for this or that to occurr and then the great DUMP would happen. Thus I waited while in my area (DC) inventory kept shrinking and shrinking while prices rose and rose and rose.
3 years later, prices are up 12-15% off the bottom. Even worse, inventory is now 20% lower when I was first told to “wait”. Back then my offer would be outbid by 2 or 3 other higher offers. Now, its 20+ with no end in sight.
Not trying to scare you. However, I can tell you this. There is not a single day that the 2012 version of me wishes I could to go back in time and slap the shit out of the 2009 version of me and say, “wake up you idiot – the inventory is NOT coming” step up to the plate and buy, or move on with life!
There was no way you could have known the banks would do this. Plus, you had no way to know the banks would be successful in your area even if they tried. Waiting was the wiser choice. For example, anyone who bought in Las Vegas in 2009 is 30% or more underwater. They have the opposite feelings to yours.
Waiting was the wiser choice.
Probably – but for how long. In hindsight – 1 year of waiting was probably all I should have waited.
There was no way she could have known, but she knows now.
If the lenders have been motivated to pretend and extend the last couple of years, what has changed that would cause them to change their behavior? NOTHING!!!!
I knew, it was easy to see inventory would shrink and interest rates would drop.
All you had to do was understand the accounting rules and fed action.
It was hard to see that prices would rise. I thought they would be relatively flat or down slightly. The helicopter will be dropping money until 2015. Plan accordingly. Buy anywhere prime: DC, Irvine included.
“It was hard to see that prices would rise. I thought they would be relatively flat or down slightly.”
Not that you ever admitted that…
Nice to know your reality interested with Reality at some level.
Unfortunately, it’s not possible to quantify ”the inventory is not coming”.
Reality is, it’s much more likely to come than not.
It will come from asset holders who eventually capitulate due to reflate-FAIL. Also, it will come if prices go up in a sustained manner (more people will be able to sell to get out from under their ‘ball&chains’) … thus, inventory will rise accordingly, right up to the point where supply once again exceeds demand and prices fall. Then….it’s back to square one.
The banks have proven that “it doesn’t ever have to come”. They will hold onto empty or squat-filled properties indefinatly.
The goal and way this (so called capitalistic-free market economy) works is by indebting people ..more like generations…forever.
Im predicting 50 year mortgadges.
Really, it IS coming? OK if you are so sure, unlike the hundreds of other “wait I promise you its coming” fools I listened to over the years, care to put your money where your mouth is?
Case shiller in DC is now 190. I passed on it when it was at 165 back in March 2009. Based on what you “see” when do we smash below March 2009 levels, and how far down do we go?
I ask because you seem a little more virulent in your certainty than most that the inventory IS coming and, presumably, will crush prices. Most people at this point crumble and flail about, failing to address specific Case Shiller timeperiods or prices. Still, we will see if you are different…
“Reality is, it’s much more likely to come than not.”
What reality? You say it like you say it means it is real. Reality is the lenders have absolutely no motivation to foreclose and every motivation, PROFITS and BONUSES, not to.
With regard to what the banks are going to do with their REO that continues to pile-up, looks like they have a lot of people ‘thinking/believing’ right where they want them. Brilliant!
Regarding the set-up, the difference this time around vs last time is people will have a lot more of their own ‘skin’ in the game. Sad really.
So nothing specific huh el O? Just thinly veiled “you’ll lose your ass” pessimism just like I heard in 08, 09, 10, 11, and now 2012? OK, I will put you in the same pile of unspecified pessimists who tell me to “wait” while prices keep rising, rising, rising, and inventory is falling, falling, falling…
Sarah,
Your challenge is impossible to meet. None of us has any way to know when or where the banks will process their bad loans and release the pent-up supply. Obviously, the banks want to meter these out as slowly as possible so prices continue to rise.
IMO, even if prices go down, it won’t be by much. With rates being as low as they are, there isn’t much reason to keep waiting. My local housing market reports went bullish late last year.
Sarah-
It’s not anybody’s responsibility to tell you when to buy. You need to study your local market and decide for yourself when it makes sense. Many of the perma-bears that you listened to were HOPING for lower prices, and were willing to ignore facts that contradicted their worldviews. The fact that they were screaming louder didn’t mean they should be listened to any more than the bulls. The best thing you can do is listen to all sides and decide what makes the most sense, with a skeptical mind towards all views.
Many bulls and bears have agendas that manifest in wild self-serving predictions. Others are just deluding themselves. At the end of the day, we are just a bunch of anonymous posters with no credibility to tell you what to do.
Good luck.
Sarah, I already provided specifics above about why it’s more likely than not inventory will come.
Once again….
1) It will come from asset holders who eventually capitulate due to reflate-FAIL.
2) Also, it will come if prices go up in a sustained manner (more people will be able to sell to get out from under their ‘ball&chains’) … thus, inventory will rise accordingly.
BTW, no mention of banks in my initial post, yet you chose to insert them into the conversation and subsequently fly off the rails into drama. LOL!
Also, please lead me to the post where I told you or anyone else ”to wait” for anything. Thx in advance.
MR: one of your best posts EVER. Well said!
Hopefully, Theresa oops-Sarah will be comforted by your words of wisdom
Smart money could care less about ”OC demand + prices are up” media headlines.
What matters is ‘why’.
Are current OC market dynamics being driven by higher wages + productivity? ABSOLUTELY NOT! (ie., see QE infinitas. LOL)
What is driving current OC market dynamics?
massive shadow intervention, accounting fraud, speeches, public policy, more speeches, supply suppression and the worst of the worst….dillution of money.
As a result, smart money will happily yield to dumb money.
The problem with this argument, is the same legitimate argument made against housing bulls during the bubble. A home you live in is not an investment. People buy brand new Honda Accords, not as an investment, but because they want them and are able to finance (amortize) the expense.
Indeed, hence the phrase ‘dumb money’ was coined/validated
I don’t mind paying for the consumptive value of housing. I do it whenever I pay rent. I would have to really like a house to pay more than it’s rental value to obtain it. Of course, I don’t believe in the magic appreciation fairies, so I’m not willing to pay any price.
Housing, as always will have to compete with energy and food in people’s budget. I guess now the debate is housing vs shelter?
Food Prices To Soar After Mass Animal Slaughter
A mass slaughter of farm animals across the world is expected as food prices are forecast to reach new record highs, according to a new report.
Research by investment bank Rabobank said consumers should brace for a 15% rise in food prices, as farmers struggle to cope with the soaring costs of animal feed and slaughter more of their stock.
The worst drought in the US for almost a century, combined with droughts in South America and Russia, have hit the production of crops used in animal feed – such as corn and soybeans – especially hard, the report said.
As a result farmers have begun slaughtering more pigs and cattle, temporarily increasing the meat supply – but causing a steep rise in the price of meat in the long-term as production slows.
“Farmers producing meat are simply not making enough money at the moment because of the high cost of feed,” Nick Higgins, commodity analyst at Rabobank, told Sky News.
“As a result they will reduce their stock – both by slaughtering more animals and by not replacing them.”
The “mass liquidation” of animals – which Rabobank said will pick up pace in the beginning of 2013 – will contribute to food prices hitting new highs.
The cost of pork is expected to rise at the fastest pace – by 31% by the end of June next year – while beef costs could increase by up to 8%.
“This record cost of meat and dairy will combine with already-high crop prices to increase food prices by 15% by the middle of next year,” Mr Higgins added.
This would see food prices reach their highest level on record, up by 175% compared to the year 2000.
But the report stressed that the current situation is very different to the crisis of 2008 – in which food stables of the world’s developing economies, like wheat and rice, were severely affected.
The bank’s research follows official figures that showed inflation had slipped back to 2.5% in the UK – closer to the Bank of England’s inflation target of 2%
But Mr Higgins warned that next year’s food price rise could push inflation in the UK higher, and so further away from the Bank’s target.
That may drive up the price for meat, but in most of the world, meat is a luxury item. Corn, wheat, and rice are still the staples.
One of the negative side effects of currency devaluation will be rising costs on commodities and other imported goods. That’s were much of the inflation will show up from Bernanke’s printing money.
I have a question:
Since wages are at 1995, depending on the statistics. And food and energy have increased greatly is this same time frame.
Should lenders lower the DTI on housing qualifications because food and energy are more expense? So if the DIT was 31% in 2007, shouldn’t be 25% in 2012 (or some other lower amount)?
The DTI is compensated for by lower tax rates. If tax rates start to go up, the problems with rising costs and stagnant wages will start to show itself with more defaults at the margin.
I’ve always thought it was weird that DTI calcs don’t factor in tax liabilities. Fed/state income/payroll taxes are by far our biggest expense. That figure is 1.33x bigger than our total housing cost (currently before the refi closes). It will be even bigger after the refi because we’ll be paying one-third the amount of mortgage interest and therefore our income tax will increase. Why would a lender leave this out of the DTI calc?
“Why would a lender leave this out of the DTI calc?”
Lenders want to make the biggest loans they possibly can, particularly now that the government takes all the risk. I think they ignore tax implications for that reason, plus the tax rates change so often that it’s difficult to keep a coherent set of guidelines.
The standards for DTIs used to be 28% before the Bush tax cuts. The additional take home pay has allowed borrowers to support 31% DTIs today. If tax rates go up, the current 31% DTI standard may not work, particularly if they curtain the HMID.
The food inflation for both meat and grain will be great for the banks and producers. More middle east unrest/riots over high unemployment, high food cost and US foreign policy to inflate food cost. The unrest will cause money to flee those regions for the safer USA and thus keep USA rates low. More income from US people to spend on food and other essentials. A win/win for the banks and producers.
In that scenario, it’s the poor who pay the greatest price.
The poor usually are the ones to pay first. If you travel, the ultra rich in all the countries have similar luxury goods and services. The poor get hit first, then lower middle class, etc. The poor are also most influenced by empty political promises because they don’t feel they have much to loss and have lots to gain.
“….in many markets, lenders have lost control of their liquidations and drove prices much lower.”
Great post! Can you share or explain the unique factors or chain of events in such markets where the banks “lost control”? Were there rogue banks in such markets panicked and stepped out of the cartel line by releasing more of their inventory to cover bad loans? I imagine some banks are way better off right than others, were recently acquired, and don’t have the same pressures.
Lastly do you think that bank regulators/examiners are finally on the warpath about capital levels, unperfected liens/collateral, reserves for loan losses, non-performing loans and bad-debt ratios of these banks?
http://www.fdic.gov/bank/individual/failed/banklist.html
The classic example of a market where the banks lost control was Las Vegas. They completely capitulated there. In early 2009 when banks were withholding product from the market in most markets, they continued to dump in Las Vegas. As a result, prices kept going down while they stabilized in other markets. I don’t know if it was the banks or if it was the lack of demand caused by the very high levels of unemployment. I think the supply and demand imbalance was so bad that even a few cartel cheaters were enough to wipe out the market.
I will check out your link. I haven’t seen any real evidence that regulators are cracking down yet. Earlier this year, they did makes banks recognize losses on delinquent second mortgages behind an underwater first. Since these loans are obviously worthless, I was surprised to learn they had to be told to recognize them as such.
Regulators will make small steps over time to get back to normal. I don’t think anything significant will happen as long as the too-big-to-fail banks are still insolvent.
Can we qualify bubbles? The real estate bubble is re-inflating, but this time, 1) buyers’ expectations about appreciation are reasonable, and 2) lending standards are reasonable. Therefore, we can’t expect this re-inflated bubble to pop – at least not nearly as violently as the 2000s’ bubble.
http://blogs.reuters.com/felix-salmon/2012/09/18/chart-of-the-day-housing-bubble-edition/
The reflation of the bubble this time is based on manipulating fundamental affordabiliity through super low interest rates. It gives the federal reserve a mechanism to control the decent of prices by controlling affordability. If they keep interest rates low, prices may inflate back up to the peak soon, but we will all pay the price with inflation on other necessities of life.
Is it possible to have a “rent bubble” as well? I know the idea is that you cannot finance rent money and therefore rents must be based on real incomes. The question is with wage stagnation how are rents increasing? Just anecdotally myself and friends have noticed rent going up lately. Where is this money coming from? Are people financing other purchases in order to put more towards rent?
Rising rents is also a supply and demand issue. Each foreclosure creates another renter, but it doesn’t necessarily create another rental unit as many properties are held in the bank processing pipeline. Empty homes are driving much of the rent increases. Rents will not keep rising at current rates, particularly in areas like Orange County where we are building a large number of apartments.
From ZeroHedge:
What Mitt Romney Also Said: A Glimpse Of The Endgame?
In response to an audience question:
Romney: [The] former head of Goldman Sachs, John Whitehead, was also the former head of the New York Federal Reserve. And I met with him, and he said as soon as the Fed stops buying all the debt that we’re issuing—which they’ve been doing, the Fed’s buying like three-quarters of the debt that America issues. He said, once that’s over, he said we’re going to have a failed Treasury auction, interest rates are going to have to go up. We’re living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who’s loaning us the trillion? The Chinese aren’t loaning us anymore. The Russians aren’t loaning it to us anymore. So who’s giving us the trillion? And the answer is we’re just making it up. The Federal Reserve is just taking it and saying, “Here, we’re giving it.” It’s just made up money, and this does not augur well for our economic future. You know, some of these things are complex enough it’s not easy for people to understand, but your point of saying, bankruptcy usually concentrates the mind.
Source: Mother Jones
There isn’t anything that stops the federal reserve from buying. Eventually, they will face inflation pressures, but until that happens, they will just keep printing money.
Mother Jones, a decidedly lefty publication, printed transcript of Mitt Romney’s discussion. They crowed much about some of his remarks, like the one saying 47% of the electorate won’t be voting for him mainly because they receive some time of government entitlement. To them it was more proof of Romney’s elitism.
The quote you pulled out of the talk is, I think, the most important and one that most did not pay attention to. It tells us that Mitt gets it. What he’ll do is another matter. I don’t believe any amount of additional taxes or cutting spending – even if it were politically possible – will save us now.
Batten down the hatches.
There were surely a number of people in the Rmoney fundraiser who were either getting government contracts and/or were recipients of bailout funds. That’s ‘sucking at the gummint teat’ for real & big time…
The Fed will not stop buying US Treasuries or derivatives.
I don’t think so either. They really have no choice.
It’s like a drug, isn’t it?