Posted on 07/16/2008 6:07:24 PM PDT by Freedom_Is_Not_Free
For a second straight month, CA lenders took back over $10 billion ($10.2 billion) in properties from the foreclosure auctions throughout the state. Last month banks took back $10.4 billion. If the banks are lucky and sell the properties for 60 cents of the NEW appraised value, which could be as little as 30-40% of the value at the time they initially lent on the property, then this could represent another $6 billion+ in losses for the nations largest lenders in one state for one month. In case you were wondering, CA represents roughly 30% of the total foreclosure count and 45% of the total foreclosure volume of the entire nation.
Just think how many second mortgages were completely wiped out. In bubble states, when a first mortgage is foreclosed upon and there is a second mortgage in place, typically the second mortgage is totally wiped out.
Let’s break it down.
(Excerpt) Read more at mrmortgage.ml-implode.com ...
There is also an enormous shadow inventory of repossessed homes not yet listed for sale. I live in Yuba City, an hour north of Sacramento. There is no shortage of dirty homes with brown dead lawns high with weeds, filthy backyard pools and no lights ever on at night, yet no "for sale" sign. Shadow inventory. They will be liquidated as soon as the banks can get around to them. No sense
The drop in price claimed in the article sounds rather exaggerated. Houses that sold for $600,000 are now selling for $200,000? I don’t think so, not in California.
In the bust of Houston the homes were sold in auction. Efficent way to sell. At the time, I thought it was a once in a lifetime event.
California was a housing bubble before it was the rage.
People spending a million dollars for a trailer-sized home on a postage-stamp lawn in a fire zone. All so they could say they “lived the good life”.
Now the liberals have destroyed California’s economy, the writers ruined the engine that was TV (with the actors ready to do their part), and with what is happening in the rest of the country I’d expect California to be worse off.
Maybe when it’s all done the home prices will actually make sense out there — but probably not.
That 66% plunge may be rare, but I assure you, the concept is NOT exaggerated. Click the link below and count for yourself how many California Houses are now at a current asking price with a loss of over 50% from peak purchase price.
60% to 65% loss from peak may well be near for many of the idiots who purchased right at the peak of the bubble, thinking a greater fool would come along to pay the extortion fee. Genuine blithering idiots...
http://flippersintrouble.blogspot.com/
You need to check my math, but I counted 99 houses listed on that site.
Of 99, 16 of them were asking more than 50% off peak.
Of 99, 48 were asking more than 40% below peak.
Taken together, 64 homes on that list were asking AT LEAST 40% below peak.
Of the homes asking more than 50% off from peak purchase price, the 15 over 50% are willing to take the following losses... 50.0%, 50.1%, 50.6%, 51.3%, 51.3%, 51.4%, 52.0%, 54.1%, 54.4% 54.7%, 55.1%, 55.7%, 56.0%, 56.2%, and the BIG weiner... 58.6%.
That’s not a return of 59% of purchase price, but a loss of 59% for a return of 41% of purchase price!
And these are just the asking prices, not the SELLING prices. They will sell for less or they would likely be sold already.
Is one house at 66% below peak still unbelievable in light of the above list of cratering house asking prices?
Sure it is a short list of the worst losses in Sacramento currently on MLS. The point is, this is not uncommon and is worsening. Sacramento median prices is down over 30% from peak and is down to around 2003 levels and despite what some believe, has not bottomed out. Not in the least. Foreclosures are still the leading sales segment and are still putting strong downward pressure on house selling prices.
And it is not as if these homes that lost more than half their value are some inflated multi-millionare mansions that collapsed in price. These are normal crap boxes in Elk Grove going for 45 cents on the dollar.
Now your comeback will be “only 60 homes in the entire Sacramento area are taking a hit? That’s not bad.”. No, only 60 homes have sellers realistic enough to price their homes that low to dump them now before they go even lower in value. There are orders of magnitude more who are still listing their homes for bubble prices and they are just sitting and sitting.
California is among the worst, but not the worst state for foreclosure rates. Don’t forget Nevada, Florida, Michigan, Colorado, Ohio, Georgia, Arizona and Illinios. The list goes on.
California is only 4th in foreclosure rate, behind Nevada, Florida and Michigan.
This is far, far from a California phenomenon. This is a national unwinding of a credit bubble used to prop up the economy and keep it out of a recession and get politicians re-elected, phenomenon. There is hell to pay and it is being paid in a lot of states beyond just California.
California has a huge number of people in foreclosure, but don’t forget that it also is home to 1 in every 7 Americans. Nevada has a higher rate of foreclosures but a much smaller population, so the number of people who have lost their homes is mathematically smaller.
This is way beyond California. If anything, look at all the state listed and correlate that with the relative proportion of illegal aliens that were living in those states. That is telling.
Yes, it is entirely possible. The inflation and run-up in prices in California was (and still is) that bad.
Think for a minute of how real estate prices were set prior to the house selling a foreclosure sale.
Just sit back and think about how real estate is priced, and what happens when people aren’t putting any of their own money into the house - ie, the LTV is 100% (or more.
Until a house goes to foreclosure in that environment, it is really difficult for the market to provide a price correction to absurdly inflated values. The banking sector just kept inventing more and new loan products to keep up with the absurd run-up in prices, prices were based on “comps” and just kept going up, up, up.
Median home prices in California are running about 6+ times median combined household incomes. The historical norm for real estate prices is about 2.4 to 2.8 times combined household income.
Well, in that case I would expect them to find buyers. If the house that used to be $950,000 is now $350,000, it will sell. In fact, I wouldn’t be surprised if prices start to creep up when the supply of foreclosures runs low.
Yes, that’s being reflected in the stats. The houses that have such huge price reductions are moving.
This does not make the neighbors who are straight-and-narrow homeowners and looking to sell their house happy, of course.
“In bubble states, when a first mortgage is foreclosed upon and there is a second mortgage in place, typically the second mortgage is totally wiped out.”
I guess Mr. Mortgage didn’t make it to law school. In all states foreclosure by the first priority mortgage lien holder wipes out the second. The second lien holder then goes from having a subordinated security interest to having the status of a general unsecured creditor. Generally if someone has let their house fall into foreclosure, they probably didn’t have much in the way of unencumbered assets to go after and the second mortgage holder simply writes it off. But not always.
There are a few things to consider before I am convinced that $950,000 house can sell for $350,000.
Is $350,000 a fair market price. Just because some idiot paid $950,000 does not mean it is selling at a discount of $600,000. If the house never should have been worth north of $300,000 on fundamentals, then the house is still $50,000 over prices.
More likely $350,000 is not out of line with current values, assuming several things... Buying mentality has gone from “I better buy now or be priced out” to “Lets see how low this sucker goes for”. A lot of people are just not in a hurry to catch falling knives. Some are, some are’t.
How many people can meet the tighter credit conditions. Not only are interest rates up, but banks are demanding 10-20% down payments again and good credit, as well as higher fees. This cuts severely into the pool of people who CAN buy a house from those who would like to buy a house. I hear of lenders who are disqualifying fully 50% of applicants. That doesn’t bode well for selling houses, even at reasonable market prices.
Among that shrinking population of those who have the credit and down payment to buy, how many still want to in light of soaring food and fuel prices. A lot of people are delaying big purchases, including home purchases, until they see raises or at least know they can’t get laid off.
You may expect houses that are down 60% from peak to sell, but in order to sell, they need a new pool of motivated buyers who have the down payments and credit-worthiness to qualify for harder to obtain loans, who can afford the fees, who can afford to buy appliances and tools and equipment for the home, who are not getting beat up by inflation, and who are confident they not only will have a job tomorrow but will be getting wage increases on top of that.
OK, I’ve painted a worst case scenario here, but I would hope you get the point. This isn’t the era when anybody with a heartbeat would be given a loan for that lower-priced home just because they “wanted it”. The candidate pool of buyers has been slashed and the hesitation in that candidate pool may be much greater than you think.
Just food for thought, but that is how I fear it is.
As for your hope that prices creep up when foreclosures run low, well here in California, and in places like Florida, Nevada, Michigan and Arizona, homes are being repossessed as fast as they are selling. There is a large shadow inventory of houses owned by banks but not for sale, so as not to put too much inventory in the market at once. There is an entire new tier behind that of non-performing mortgages that the banks haven’t had the time or resources to foreclose on and the delinquent owners are being allowed to stay in them until the time banks can repossess and evict.
All that inventory has yet to hit the market, and then we get to do the WHOLE THING OVER AGAIN, with all the homes that get repossessed from non-performing Alt-A and Option Arm loans. The supply of foreclosures doesn’t look to run low for 3 or 4 years to come, if the reset schedules for Alt-A and Option Arm loans are to be believed. Investors will have a plentiful supply of tasty new foreclosures to choose from at least into 2012 and further on if the banks don’t staff up to repossess and evict in a prompt manner, but keep stretching out the times of repossession.
This is why short sales are so rare. There is no second lien holder to fight with after foreclosure.
You know the exact mechanism and neither I nor Mr. Mortgage did, but I hope you still get the point he was trying to make. The losses among these 2nd lien holders is pretty much complete. Investors in these loans and all the securities they are based on will be completely written off. I think that was his point.
600K to 200K sounds a bit sensational. However, a house on the next block over, in much better shape than my old house, is now on the market for an asking price of $275, and it has been sitting for a long time, and has slowly been reduced from 350. Similar houses were quickly selling for 450k+ at the peak of the bubble. Conservatively. We sold our house in 2003 for 225k and were thrilled to get out of that awful, crime-ridden area with crummy schools. And our house was not in great shape, despite putting a lot of work into it. (We only lived there a year before deciding to sell.)
So, in the Inland Empire, prices have basically dropped by at least half, and have dropped back to 2003 levels. That’s still a really big “ouch” to most mere mortals.
Short selling history:
2002: 178 (my house)
2003: 225 (My house)
2006: 450+ (just like my house)
2008: 275 (asking...and asking...and asking - and the house is in better shape, with fancy new kitchen, etc.)
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