Aug082013
Housing bears roar over influx of MLS inventory
I was a housing bear. From when I started writing publicly about housing in February 2007 to September 2012, I was bearish on Coastal California real estate. In August of 2010, I wrote the post Buy Las Vegas real estate, which made the case for buying cashflow assets in beaten down markets. I was and still am very bullish on properties in these markets.
Because I was completely bearish for four and one half years, and because I continue to point out the bogus manipulations of the market, some people classify me as a permabear. The reality is that since last September, I have discussed in numerous posts the reasons prices will continue to rise despite the manipulations of the housing market. In the post Must-sell shadow inventory has morphed into can’t-sell cloud inventory, I detailed the overriding set of circumstances created by the banks, the federal reserve, and government regulators that caused the elimination of must-sell REO inventory and maintains the restricted inventory condition causing prices to rise. So far, nothing I have read from the remaining housing bears has convinced me the bank’s gambit will not work.
8-4 Housing…”For-Sale” Supply Wave Hitting Market?
by Mark on August 4, 2013
1) I am tracking a sharp jump in MLS “listed” supply all over the Western region in the past 3 weeks.
In my little city in California for example, listed for-sale supply went from 60 houses to 100 in the back half of July. Say what?!?
We sell 20 houses per month so this market went from 3 months to 5 months supply “going into” the slow season. This is unprecedented. It reeks of panic. And comes as Realtors from coast to coast tell me that the “frenzied” demand pace through May has all but evaporated.
I recently gave the advice Sell now, mortgage interest rates to keep rising. Apparently, some sellers got the message.
The rise in MLS inventory, though significant, is overblown. (See: House listings increase, but MLS inventory still at very low levels)
Listings in Irvine and Aliso Viejo (courtesy of Irvine Housing Blog) show a dramatic percentage increase this year. Both are up more than 100%, but considering the very low level that forms the base of that calculation, it sounds more dramatic than it is. Taken in a historical context, current listings are still very low, approximately the previous low listing count recorded over the previous six years (see below).
As more evidence clearly presents itself — as the lagging housing data begin to capture the effects of the interest rate “surge” that most everybody has blown off as “negligible” — I am more convinced than ever that it was as a significant catalyst; that a 45% increase in interest rates over 6 weeks has acted a lot more like the sunset of the 2010 Homebuyer Tax Credit — an immediate removal of stimulus that was mostly responsible for driving demand and prices — than any other time in modern housing market history when rates “rose” slowly over 3 to 6 “quarters” giving everybody lots of time to “think” and act accordingly.
Rising interest rates are certainly having an impact (See: OC housing affordability fading fast). However, with the frenzy from the spring, many potential buyers are still out there who were unable to obtain a house. Those buyers will likely remain active during the fall and winter keeping prices and sales up.
I think everybody — private and institutional — knew that sub-3.5% rates was in fact a gift. And over the long, 18-month “gifting period” a great job was done at filling pent-up demand but an even better job was done at pulling it forward.
I would love to hear from real estate and mortgage professionals out there on real-time MLS “listing” activity in your regions. Specifically, if you are tracking the same jump in listed supply as I am over the past few weeks.
I had lunch with Shevy yesterday. He told me it is getting much easier to get buyers into escrow. There are more sellers, and they are somewhat more motivated. None of them are desperate, but it’s far easier to get a buyer a property than it was 60 days ago.
2) Some will say that a wave of supply is great for the market; exactly what is needed in an “under supplied market.
Put me in that camp.
To this I have a few things to think about.
First, there is not a shortage of houses in which “to live”. This is evidenced in all the legacy bubble/crash regions — new-era “recovery boom” regions — by the large amount of vacant properties; properties under rehab/remodel awaiting sale/rent; and “single-family” houses listed for rent.
Finding a house to live in is not the issue. Finding one to purchase still is.
In Vegas, Phoenix, the inland empire etc — the regions that are getting so much press for being so “hot” — there is plenty of supply in which to live with 10s of thousands of SFR units coming online in the next year. Housing units have simply been misallocated by “investors” — many with with endlessly deep pockets due to Fed QE like all the hedge and private equity funds running these markets — for rentals. This skew will work itself out, as investors smarten up…of course, that will happen all at once when they realize they “are” the bagholders.
I don’t think so. These investors expected tepid appreciation for several years. The fact that prices went up dramatically and suddenly may cause them to stop buying, but it gives them no reason to head for the exits. The plan was always to hold these properties for 5 to 10 years, then sell them to owner occupants.
Second, “total potential demand” is half of what it used to be. Remember, analysts, builders, the media, investors et al are looking at historic metrics on supply and demand without normalizing the numbers to adjust for 50% of all mortgage’d homeowners — the absolute largest demand cohort — being locked-in due to negative equity, “effective” negative equity, a legacy HELOC not charged off, or insufficient income/credit needed for a mortgage loan. This is a fatal oversight. Essentially half of the nation’s top demand cohort died over the past 6 years. This is something that is absolutely unprecedented.
Now this part of his analysis is right on. The move-up market will suffer for another decade because delinquent jumbo loans in Coastal California pollute bank balance sheets.
Lastly, a surge of supply into a market with 10-year notes at 1.6% and 30-year mortgage rates at 3.25% — when investors and organic buyers were driven by the biggest stimulus to ever hit housing too jump all over each other and pay 15% over last price/appraised value — is a completely different situation than a surge of supply AFTER a house prices and interest rate surge, which have both done a great job of sidelining a large percentage of investors and organic buyers alike.
This is exactly what happened.
One of the buyers we have been working with makes enough money to borrow far more than the conforming limit at 3.5% interest rates. However, he was competing for properties with people making far less money than him due to the interest rate stimulus. Now with rates at 4.25%, he can still finance to the limit, but many of the potential buyers he was competing with are gone. This is the dynamic causing many buyers to lower their expectations, and it removes demand all the way up the housing ladder.
In short, people forget the housing market has been turbocharged by the greatest direct stimulus in history over the past 18 months. They are so accustomed to historic rates stimulus they simply don’t see it. I hear so much that the past year “recovery” has to be “organic” because the “government” is not providing any stimulus or subsidies.
I can see why he is frustrated with that nonsense. The market over the last year bottomed despite the poor fundamentals because policies permitted the banks to restrict inventory. Though this market manipulation has been successful (See: Las Vegas: a case study in successful housing market manipulation), it’s a clear sign that the fundamentals are weak, and the recovery is not an organic one.
Perhaps, technically they are correct because the Fed is not a government agency. But when you factor in the power of the Fed buying rates down from 5.5% in 2011 to 3.25% in 2012/13 on demand and 6.5 million mortgage mods on supply you come up with a very volatile situation if that go-go-juice is ever taken away. And it was just taken away.
Real simply, the housing market “hard reset” to Twist/QE3 — rates being forced down to 3.25% from 5.55% by the Fed over a couple of months — began in late 2011. Now that this stimulus has been taken away literally overnight, housing must “hard reset” again. This “reset” will appear in the form of a sales volume/price “air pocket” through year end at least.
I agree (See: Investor activity to plummet, home sales volumes will drop). However, this air pocket will be offset by the unsatisfied demand from potential buyers who didn’t get homes earlier this year, and even if sales drop, prices probably won’t. I recently asked Will fall and winter see a significant pullback in house prices?. My answer was probably not.
Bottom line: While more supply would have been great for “this” housing market a year ago, now — with far fewer buyers, prices through the roof (far more expensive than in 2003 – 2007 on a monthly payment basis), and 15% purchasing power lost in the past 2 months — it could crush it.
I don’t see how the crushed market scenario can come to pass. With the cloud inventory manipulation policy in place, nothing is going to force must-sell inventory on the market. Sales volumes may drop off, but without must-sell inventory to push prices lower, the market may stagnate, but it won’t go down.
Cash investors in Coastal California
We know investor purchases are at all-time highs, and with rising prices, the big hedge funds who are focused on returns will slow their buying. However, that isn’t the dynamic driving investors in Coastal California.

The investors active in our market have a different agenda. Many are kool aid intoxicated and will be disappointed with their outcome, but another group is buying for different reasons.
When the federal reserve lowered interest rates to zero, many people who retreated to the safety of government bonds found the returns lacking. These investors started buying further out on the yield curve trying to gain a few pennies over the safer yields of short-term Treasuries. These investors are not stupid, and they realize that continued quantitative easing is going to cause inflation, and it will make their long-term bonds less valuable. These investors are looking for other places to park their money.
Investors fleeing bonds find real estate attractive, particularly what they consider to be properties in stronger markets like Coastal California. They know that if they stay in bonds, they will lose money when bond prices collapse, so they are moving their money into safe-haven real estate, obtaining the same dismal returns, but they won’t face the prospect of crashing asset prices like they will in bonds (unless the housing bears can show how these prices will collapse). For these investors, even tepid appreciation is better than the crushing losses they face in bonds, so buying overvalued Coastal California real estate is actually a wise move for them.
It’s the activity of these investors that may cause prices to continue to rise, and perhaps even inflate a new housing bubble. Remember, these investors are not constrained by financing limitations, and they believe this is a good place to park money. If enough of them pile in, we could easily have a bubble, induced by federal reserve policies, that causes another painful crash. We aren’t there yet, but it’s a scenario that could come to pass.
These Ponzis nearly tripled their mortgage
The former owners of today’s featured REO bought near the bottom of the last real estate recession, over the 11 years they owned the property, they took their original $200,000 mortgage up to $592,500. That’s $392,500 in mortgage equity withdrawal. If their last appraisal had come in higher, they might have tripled their mortgage.
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”OC13157310″ showpricehistory=”true”]
25436 ADRIANA St Mission Viejo, CA 92691
$696,900 …….. Asking Price
$260,000 ………. Purchase Price
1/23/1996 ………. Purchase Date
$436,900 ………. Gross Gain (Loss)
($55,752) ………… Commissions and Costs at 8%
============================================
$381,148 ………. Net Gain (Loss)
============================================
168.0% ………. Gross Percent Change
146.6% ………. Net Percent Change
5.6% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$696,900 …….. Asking Price
$139,380 ………… 20% Down Conventional
4.46% …………. Mortgage Interest Rate
30 ……………… Number of Years
$557,520 …….. Mortgage
$137,838 ………. Income Requirement
$2,812 ………… Monthly Mortgage Payment
$604 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$145 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$3,561 ………. Monthly Cash Outlays
($604) ………. Tax Savings
($740) ………. Principal Amortization
$229 ………….. Opportunity Cost of Down Payment
$194 ………….. Maintenance and Replacement Reserves
============================================
$2,641 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$8,469 ………… Furnishing and Move-In Costs at 1% + $1,500
$8,469 ………… Closing Costs at 1% + $1,500
$5,575 ………… Interest Points at 1%
$139,380 ………… Down Payment
============================================
$161,893 ………. Total Cash Costs
$40,400 ………. Emergency Cash Reserves
============================================
$202,293 ………. Total Savings Needed
[raw_html_snippet id=”property”]
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High re-default rates spur servicers to action
Re-default rates on the Home Affordable Modification Program are approaching 28%, Frank Pallotta, managing partner of Loan Value Group, said this week.
In order to prevent the problem, consumer marketing and finance firm LVG is working hard to maintain a connection between the borrower and the servicer.
As a result, LVG claims it started facing a re-default rate of less than 3% after more than 12 months.
Additionally, LVG was also able to reduce short-sale timelines and lower delinquency and servicing advance rates.
“We will continue to see the trend of high re-default rates for the foreseeable future, unless the mortgage industry begins to explore proactive strategies that assess and re-assess the needs of all borrowers throughout the life of the mortgage,” Pallotta noted.
Nobody in the Northeast seems to understand the cloud inventory phenomenon. Manhattan has a shortage of properties for sale due to loanowners and squatters getting a free ride. Plus, this market is even more attractive to the same kind of cash buyers I mentioned above. This is causing property values to rise.
Manhattan Homes Under $3 Million Never Harder to Buy
“For the bulk of the market, the 90 percent, it’s probably the most challenging period for a buyer in the 25-plus years that I’ve been observing the market,” Jonathan Miller, president of Miller Samuel, said in an interview.
In the second quarter, 3,638 units priced at less than $3 million were listed for sale, the smallest nonluxury inventory in nine years, according to Miller. The absorption rate, or the amount of time it would take to sell all those properties at the current pace of deals, was 3.9 months, the fastest in records dating back to 2004.
“The people looking to buy now are the people who were waiting for the last boom cycle to burst and then were kind of watching the market and hoping that this might finally be the time,” said Sofia Song, vice president of research for StreetEasy.
The lack of supply is encouraging homebuyers to seek out properties in Brooklyn, driving prices in the neighboring borough to a record in the second quarter.
It’s also spurring bidding wars in Manhattan that particularly hurt those dependent on a mortgage, according to Jacky Teplitzky, a broker at Douglas Elliman Real Estate. Fast-rising home values mean the appraisals that lenders rely on to finance a deal are always out of date, she said.
Some purchasers are agreeing to complete a deal even if they can’t get financing. When she represents sellers, Teplitzky requires buyers who waive a mortgage contingency to prove that they can handle the full cost in cash.
Hanson is right, that we are headed for an air pocket, but I’m not sure that will drive down prices. But the uptick in inventory should be worrying. It might mmean that PE guys are bailing before the storm. If the investment component goes down, then demand will weaken more and prices could give ground.
It’s too early to run up the red flag, but mortgage apps are signaling a pretty spotty market ahead.
Mortgage Applications Plummet Throughout July
Higher interest rates toppled mortgage applications in July, though late-month figures showed a slight uptick.
According to Capital Economics, mortgage application volume fell 18.6 percent from June to July, doing slightly better than the 22.5 percent drop from May to June. At the same time, the average 30-year fixed mortgage rate rose to 4.62 percent.
Capital Economics’ figures come from data provided by the Mortgage Bankers Association (MBA). According to the association, applications closed out July with a 0.2 percent weekly increase.
Applications for refinancing dropped 24.2 percent over the month, again performing slightly better than the 29.5 percent decline recorded in June—making it the second-biggest monthly decrease so far this year. According to Capital Economics, refinance application volume has halved over the past year.
In July’s final week, refinance applications were unchanged, MBA reported.
Home purchase applications, meanwhile, declined 5.6 percent month-over-month in July—the largest monthly drop in that category in nearly two years (though volume was up 0.7 percent in the last week of the month).
While higher interest rates would appear to be the biggest factor behind July’s fall in purchase applications, property economist Paul Diggle noted there are more issues at work.
“The relationship between applications for home purchase and mortgage rates since 2009 suggests that if anything higher rates have been associated with increases in applications,” Diggle said. “In other words, the real constraint on mortgage activity is not the cost of credit, which remains favourable, but its availability.”
With economic growth accelerating and the labor market in recovery, Diggle expects banks will continue to expand mortgage availability (as evidenced by the latest Senior Loan Officer Survey and MBA’s most recent index)—though “there’s no doubt they will have to do it at a quicker pace than this for mortgage-dependent buyers to fill the gap left by retreating investment buyers.”
“The relationship between applications for home purchase and mortgage rates since 2009 suggests that if anything higher rates have been associated with increases in applications,” Diggle said. “In other words, the real constraint on mortgage activity is not the cost of credit, which remains favourable, but its availability.”
I wasn’t aware that the availability of credit suddenly dried up in June and July. Even if that were true, how would that affect mortgage applications? Does monsieur Diggle mean that credit was no longer available to buyers because the rise in rates made their income non-qualifying?
As you eloquently pointed out, Mr. Diggle is full of shit.
Excellent post, but it’s really quite simple to quantify a rush to the exit door is a given.
1) With QE, home prices are higher. Without QE, home prices are lower. With QE, rents are higher. Without QE, rents are lower. With QE, real incomes have decreased. Without QE, real incomes have decreased.
2) Since QE extinguishes all market signals, when it’s time to get-out, nobody will be able to see the signs.
I have to agree with el O on this one. If investors were immune to losses then we wouldn’t have had the tech bubble/crash, the Great Recession, the first housing bubble, the recent gold pullback, etc. I think Bernanke knows that a true interest rate increase will signal everyone to abandon ship. So this head faking with when the purchases will stop is having its desired effect… how do we begin the rise without clueing the idiot investors to the fact that their head is on the chopping block? If the Fed was truly interested in pushing rates back down, they would have by now. The lemming investors are being led to slaughter. As el O says, when it is time to get out, they will be too late. Some will get lucky, but most will be left holding the bag. This housing situation may be lasting longer than expected, but it cannot go on forever. At some point the music stops and someone doesn’t have a chair to sit down on. The Fed/Government is doing what they can to make sure the people that they want chairless are far away from a chair when they stop the music. In the meantime everyone keeps circling the chairs and skipping along to the happy music they are playing.
I don’t understand what data people are looking at when they say that prices are going to continue to rise. From the data I look at every day, the prices are falling right now. This is a fact. I track closed sales in YL every day. If you plot $/sf vs days since the sale, put in a linear trendline, display the equation on the chart, you can easily see how $/sf is changing over time.
So, I plot the data for 750k-1M closed sales in YL since July 1st, and what do I get: y = 0.5265x + 298.6 (with y being $/sf; and x being days since sale). The y intercept is 298.6$/sf, at 0 days, or today. If we want to see 30 days ago: x=30 and y = .5265*30+298.6 = 314.39$/sf. Prices are falling here. Period. They are falling at a rate of .5265*30 = 15.8$/sf/month since July 1st.
From mid-May to July 1st, I get the following equation in YL: y=.319x+312.05. So closed sales were already falling at a .319*30=9.6$/sf/month rate. This apparently accelerated after July 1st.
When I look at closed sales in Irvine for the same price range, since July 1st, I get the following equation: y=.1629x + 371.92. Current $/sf is 371.92 and prices are falling at .1629*30 = 4.9$/sf/mo. So Irvine is doing better, but prices are still falling over the last month. From mid-may to July 1st (y=-.2716x+366.15), prices were rising in Irvine at a rate of .2716*30=8$/sf/mo. That no longer appears to be the case. So even the hallowed halls of Irvine are starting to show distress.
Now why is July 1st important? Pending sales take about 30-35 days to close on average. The rates started up on 5/23. FHA lifetime mortgage insurance started on 6/3. Contracts signed before both these dates had much different price tags than contracts signed after.
Am I missing something?
Are you using the graphing options in Excel?
Yes. It’s hard to see the trend without using charts.
Since ZIRP bilks seniors out of ~$450 billion in annual interest income and in essence, QE is pulling future home price gains forward to today, those who think ”prices will continue to rise” and choose to transact accordingly are going to provide new meaning to the word….
…bagholder.
“awgee – The difference is that unlike you he believes one can profit from real estate despite the heavy manipulation”
Huh?!?!?! When have I ever said that I don’t believe that one can profit from real estate despite whatever? Do you have any idea that you write things about which you have either no knowledge or incomplete knowledge? Not only have I never said I don’t believe that one can profit from real estate despite manipulation or anything else, I have never thought it, and thought quite the opposite. I think that for the average guy like me, So Cal real estate is about the best way to speculate, but it is all dependent upon timing. Most of my family’s wealth has come from So Cal real estate.
Please, your comments have consistently been uber-bearish and attacking towards anybody that suggested a housing bottom was in, even throughout 2011 when buying would have been optimal from a timing perspective.
You’ve consistently been full of vitriol for anybody that even implied housing prices were going up.
So yes, you’re right that I have incomplete knowledge. I can’t read your mind. I can only interpret your statements over a long period of time and I’ve never seen you imply that somebody could profit in this environment. Ever. Quite the opposite actually.
http://www.threadbombing.com/data/media/2/78bf8aa82c268fde7453e372d8c791b5.gif
You are absolutely right. I have never implied that somebody could profit in this environment. Rather I have just out right said that I think real estate can be a great way for the average person to increase their wealth. Anybody who knows my story, and they only know it from reading it, and I have not kept it secret, knows when I bought and sold and how I/we profited from it.
The other day you professed to know about my losses from owning gold. And you obviously have no knowledge from which to speak. Again, anybody who knows by story knows when I bought and can figure out easily that POG would have to decline by many more multiples before I lose anything.
It isn’t that I have withheld. It is that you jump to conclusions from incomplete information. You make preposterous statements based on faulty and incomplete knowledge. Your latest statement on interest rates affecting gold and your exposition of the factors affecting POG when you were Liar Loan are enough evidence of that.
“Rather I have just out right said that I think real estate can be a great way for the average person to increase their wealth.”
Ok, I’ve read your comments on at least 5 different forums over the years and don’t recall ever seeing you say that. If that’s the case, then maybe you’re alright after all…
I am alright after all? Didn’t know I wasn’t. Thanks for letting me know.
You’re welcome. I’ve always done what I can to help you.
For instance, if you had listened to my exposition on the price of gold you would have preserved a large chunk of your wealth by getting out near the peak. As it stands gold is down more than my ’06 condo purchase. Ouch.
Well, aren’t we all just getting along…just like old times. 😉
Game Over? No way Richmond can afford these types of legal bills.
Pimco, BlackRock Seek to Bar California Mortgage Seizures
Pacific Investment Management Co. and BlackRock Inc. (BLK) are among bond investors seeking a court order blocking Richmond, California, and Mortgage Resolution Partners LLC from seizing mortgages through eminent domain, saying the initiative would hurt savers and retirees.
The city’s plan is unconstitutional, according to a complaint filed yesterday by mortgage-bond trustees in federal court in San Francisco. The trustees, Wells Fargo & Co. (WFC) and Deutsche Bank AG, were directed to take the action by investors in the debt that also include Jeffrey Gundlach’s DoubleLine Capital LP, said John Ertman, a partner at Ropes & Gray LLP.
“Mortgage Resolution Partners is threatening to seriously harm average Americans, including public pension members, other retirees and individual savers through a brazen scheme to abuse government powers for its own profit,” Ertman said in an e-mailed statement on behalf of investors.
The plan advanced last month with Richmond backing offers to buy 624 loans, making it the first city to push the idea so far forward. Those offers would need to be refused before the city could follow through with its mayor’s vow to invoke its potential powers to force sales of the mostly non-delinquent loans, so that homeowners could get their debt balances cut to less than the current values of their properties.
Investor Costs
The program would harm owners of mortgage bonds by paying them too little for loans, as well as damage communities by drying up lending, at least 18 trade groups representing asset managers, bankers, real-estate firms and builders have said in past statements. Costs to investors could exceed $200 million just on loans in Richmond, according to the complaint.
Proponents of the plan including Cornell University law professor Robert Hockett and Steven Gluckstern’s Mortgage Resolution Partners, which is advising municipalities and lining up private funds that would profit as the buyer of the loans, dispute those claims. They have said that the plan will survive court scrutiny.
:…force sales of the mostly non-delinquent loans”
If the loans are mostly non-delinquent, what, exactly, is the the problem?
Right now, these bondholders are making money on their delinquent loans through appreciation. Plus, they are holding them on their books at face value rather than fair market value of the loan or the collateral. Eminent domain seizure will force them to recognize a loss, and it will take away the appreciating collateral they expect to repossess the moment its value exceeds the book value on the note.
Report: Asking Prices Slip in July for First Time Since November 2012
For the first time since November 2012, asking home prices decreased month-over-month, slipping 0.3 percent from June to July, Trulia reported.
“If you were worried about a housing bubble, July’s asking-price slowdown will probably be the best news you’ve heard this year,” said Jed Kolko, Trulia’s chief economist.
Factors such as rising mortgage rates, growing inventory, and declining investor demand led to the dip in asking prices, according to Trulia.
While monthly changes can be volatile, Trulia explained the quarter-over-quarter change in asking prices confirms
the slowdown, with July asking prices improving just 3.3 percent over the last quarter compared to the peak of 4.2 percent in April.
Over the last year, asking prices were still strong, rising 11 percent, though Trulia noted the change won’t be as apparent since the annual average is based on a longer time period.
At the same time, 98 out of 100 metros saw prices appreciate compared to a year ago, but on a quarterly basis, prices declined in 64 metros.
“The biggest price slowdowns have come to some of the hottest local markets,” added Kolko. “California and Nevada remain the Wild West for asking home prices, with some of the sharpest drops during the bust, strongest rebounds over the past year, and now biggest slowdowns in the past quarter.
“The market over the last year bottomed despite the poor fundamentals because policies permitted the banks to restrict inventory. Though this market manipulation has been successful”
Do you think this article indicates cartel might be over?
Feds say JPMorgan broke securities laws in mortgage deals
FORTUNE — The Justice Department has concluded that JPMorgan Chase broke federal securities law in connection with subprime and Alt-A mortgage bonds that the firm sold between 2005 and 2007.
The bank disclosed that it had received the notice of violation in May on Wednesday in its regular quarterly earnings filing with the Securities and Exchange Commission. The bank, which is the largest in the U.S. in terms of assets, also said its mortgage operations are under investigation by both the civil and criminal divisions of the Justice Department.
JPMorgan (JPM) said the Justice Department’s determination was still preliminary and that it came from the civil investigation. The bank has not been charged with civil fraud, and it’s unclear whether criminal charges are pending. JPMorgan declined to comment beyond what it had said in its securities filing.
The Justice Department has been looking for a while into whether investment banks in the run-up to the housing bust misled investors about the quality of the home loans that were backing the bonds the banks were selling.
On Tuesday, the Justice Department brought a civil suit against Bank of America (BAC), saying that bank had defrauded investors in an $850 million mortgage bond deal that was backed by jumbo home loans and sold by the bank in 2008. U.S. Attorney General Eric Holder said in a statement that the Bank of America case “marks the latest step forward in the Justice Department’s ongoing efforts to hold accountable those who engage in fraudulent or irresponsible conduct,” and that “President Obama’s Financial Fraud Enforcement Task Force” is proceeding with “a range of additional investigations.” A Justice Department spokesperson could not be reached for comment on its potential charges against JPMorgan.
Earlier this year, the Justice Department sought documents from JPMorgan related to mortgage bonds that were underwritten by Bear Stearns, which JPMorgan acquired in early 2008. JPMorgan’s disclosure on Wednesday did not say whether the deals in question had been completed by Bear or JPMorgan.
I was just looking at the inventory level graph on Redfin for the city of Rancho Cucamonga. It’s showing 233 houses listed as of 8/5/13. It peaked at 245 on 7/22/13 and the lowest dip that I can find is 156 on 4/1/13. I know I was seeing lower numbers as I watched inventory levels in real time though. It was down to just above 100 there for awhile just a few months ago so I’m not sure why the graph isn’t reflecting that level now.
http://www.redfin.com/city/15390/CA/Rancho-Cucamonga
Unfortunately most of the added inventory appears to be from delusional sellers who think it’s 2006 again. Their ridiculously high asking prices are reflected in the extended lengths of time that most have been listed for too.
You can’t trust the graphs on Redfin. It’s like Zillow, where the prices change as time passes. The May price when viewed in May is different than when viewed in June, or July. This drives me crazy. Why can’t they just publish a value and not later revise it? This is why I record the market data for my area every single morning and do my own analysis. Redfin allows you to download the search results to excel. Then you can save it for later comparison.
I saw the same inventory “revision” in Yorba Linda this spring. I remember the home inventory dropping to 73 homes at one point. I checked it the other day and it showed the low being about 30% higher. From the data I did save, the low in my search was 39 listed homes on March 4th, and is now at 111 listings. Pendings have gone from 40 on March 4th to a peak of 60 on July 8th and have since dropped to 43 (up from a low of 40 on 8/5). Three-month sales were at 77 on March 4th, peaked at 118 on August 5th, and have since fallen to 114. Since sales lag pendings by about 32 days on average, the peak in sales should be around right now. and drop off to 43/60= 72% of current sales figures by early September.
So, from my data, at the start of the spring season, the active to pending ratio was 39/40 = .98. Now the active to pending ratio is 2.58, or an increase of 100*2.58/.98=263%. Months of inventory has risen from 39/(77/3)=1.52 months to 111/(114/3)=2.92 months. If sales fall to 72% of current sales by next month, as the drop in pendings would indicate, then months of inventory will rise to 111(.72*114/3)=4.06 months, assuming active listing remain the same. Active listings rose from 104 to 111 over the last month, and assuming the same trend we will have (111*(111/104)/(.72*114/3)=4.33 months.
If pendings fall again next month at the same rate as last month, then the above calculations can be redone again and we could expect a net increase in months of inventory of 4.33-2.92=1.41 months by October-November. This will put the market back at 4.33+1.41=5.74 months of inventory which is considered by realtors to be a normal market. And when you have a normal market, you don’t have multiple bidder situations nearly as often.
Ooops! Did I just let the cat out of the bag? Sellers are losing their selling power not just from the rise in rates, but also the increased competition with other sellers from the rise in inventory!
By keeping track of your own data, you get a great feel for what is taking place with your target homes, and you aren’t left to wonder if you remember right. You can also tell when a listing is re-listed at a lower price after being on the market for 60 days. So when people tell be about house prices rising, inventory falling, etc; I can call BS with confidence, because I have the data an analysis to back it up.
There is your article to write about!
I think as realtors update values in the MLS it flows through to the Redfin graphs. It’s an external data issue they don’t have control of, so either they post the up-to-date version of the truth, or they go with a snapshot in time which may not be accurate either. Remember, realtors are the source for that data so it’s all suspect to a degree.
RW – So true about knowing BS when you are keeping track yourself. Before I bought, I blogged about Coto and would keep track of and release various statistics that were not published. My wife would constantly crack up when a sitting agent at an open house would tell me what was happening in the Coto market.
I would just stay quiet, smile, and remember.
Well another offer shot down just now. We bid 20k over listed price but still lost. Another house my wife had fallen for and another heartbreak. I could tell how much she liked this one cause two days after the tour she could draw the floorplan from memory while I could barely remember if the front door was facing north.
I know everyone says to not get emotional but reality is it is almost impossible if you intend to buy something to live in. So far the wife is handling the rejections well..
Are you using one particular agent? I have always had success just calling the agent on the listing. If they can double end it, the house is yours. It may not be the most honorable thing for the agent to do, but it will save you money and wasted time. There is enough info on the internet that you do not really need an agent to “find” you a home. Good luck.
There is always another home and no home is “the perfect home.” It doesn’t exist. Don’t chase the market. BTW, I am as pro RE as they come. I’ve bought one home above asking price and it was the only one that ended badly for me. Carry on.
If the banks continue to allow squatter to live rent free and pretend to be trying to sell the dried ATM, there is little reason for them to lower the asking price even the the larger number of houses for sale and low sales number. Why would one give up free housing?
Are the all cash buyers flippers or speculators hoping for Fed manipulations to drive up housing prices?
“Are the all cash buyers flippers or speculators hoping for Fed manipulations to drive up housing prices?”
Yes, they are. In fact, they are relying on it. Further, it may prove to be the right move in the end.