Sunday, October 07, 2007

Distressed Properties Update

Well, it's official, 1 in every 3 homes in the 4 county area is now either a short sale or foreclosure. We had 739 new additions to the roster from last month. Inventory seems to be holding steady, but if it starts dropping anytime soon, expect to see this ratio to get even higher.

20 comments :

Gwynster said...

Nicely done as always.

What is really scary is that I know 5 people who are letting the bank have the house, do not pass go and do not try a short sale. These are in foreclosure process now and haven't yet appeared in your #s, yet.

The reason for all 5 is that they can't afford the homes after their rates adjusted. They could barely afford them with the teasers.

At least 4 of the 5 had 5% or more down and high FICOs. They just never should have bought in the place. They admit that now.

The wife of one of the couples said letting the house go was the best thing they could do and likened it to pulling a bandaid off fast. The huband then pointed out that they wanted to avoid the 1099 from a short sale so they may file BK as well. I almost choked on my lunch!

This is a huge shift in homeowner psychology here.

DrDoom said...

Agentbubble & the inventory crowd:

I have found two data sets for inventory versus price comparisons. There was a reference on the San Deigo bubble site to a Sac Bee article that covered a decade of inventory levels in Sacramento. To cross check Sacto results data from the Seattle market via seattlebubble.com (years 2000-2007) was examined. Because I tend to ramble I will post results here and some questions with other questions later.

The correlation between inventory and price is strongest when comparison is made to the monthly absroption rate at which houses are sold (absorption is the reciprocal of months of inventory). The graphs are most informative but the result is that there is a 86% linear match of price to absorption levels in Sacramento (R2=.8649) where a change of 1% in absorption leads to a .42% change in house prices (as report by OFHEO).

In Seattle the fit is a 83% correlation with a 1% change in absorption causing a .44% change in price.

The strength of the correlations and the slopes being the same was surprising. Also both markets had a 9 month (3 quarters) delay between inventory change and price change. The strongest correlation as reported here was taking the 9 months into account.

Any comments? Why 9 months? Can anyone point me to similar analysis? What are the leading indicators for inventory levels?

anon1137 said...

Hey Gwynster, if they're going to have a foreclosure and a BK on their credit record, I hope they at least refi'd or HELOC'd a load of cash into their savings acct or 401Ks to keep them comfortable while their credit recovers.

By the way, rented a good movie this weekend, a documentary on America's addiction to debt:

Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders
http://us.imdb.com/title/tt0762117/

Max said...

The correlation between inventory and price is strongest...

Are they using asking price, or sales price? If they're using sales price, part of the delay could simply be time it takes the municipality to report the sale. I know in Sac, MLS members get instant access to sales price data, but the rest of the world has to wait at least two months.

Anonymous said...

Anybody know what this home sold for recently?

9187 Rancho Dr Elk Grove CA 95624

AgentBubble said...

Anonymous said...
Anybody know what this home sold for recently?

9187 Rancho Dr Elk Grove CA 95624



$899K

Anonymous said...

Here's a tinyurl to the 'Maxed Out' video mentioned by anon1137.

No need to rent it:
http://tinyurl.com/ythb6y

DrDoom said...

Max:

The OFHEO price data is reported to be current for the stated quarter. Here is the OFHEO description:

"Approximately one
month after the end of each quarter Enterprise data on all single-family mortgage acquisitions
through the previous quarter are delivered to OFHEO on computer tape".

OFHEO publishes the data about 60 days after the end of the quarter. The price data should be current. The web site is www.ofheo.gov and go to the house price index page to pull up cities.

I suspect the 9 month delay is part of the time it takes to close a sale from the contract date (45-60 days?) and the rest is market psychology. There appears to be slightly different behavior in the rising seller "bull" market compared to the falling buyer "bear" market. I don't have MLS access or know the average times for a sale to close.

The important part of the 9 month delay is that average change in house prices can be predicted 9 months out from the last inventory to sales figure. It predicts house prices for May of next year.

Agentbubble: Can you add the number of houses sold to the distressed inventory table so we can see the months of inventory value or the absroption rate?

Gwynster said...

1137,

Nope. The couple is a jr HS teacher and a post doc. They'd been living on the edge and bought into the buy now or be priced out forever hype. I didn't have the guts to ask them if they were going to just stop making all payments so they can bank the little they have.

Sippn said...

So G - do you think a couple with that much education (and responsibility) should be let off the hook? Lets look at the loan app.

Gwynster said...

Sippin,

I'd say no to letting them off the hook. They're be horrified to hear me say that. I have always maintained that a PhD doesn't make you smart. It just improves the odds of not doing something completely stupid.

smf said...

My question still remains.

If this couple, or any other, just 'walk away', and the bank determines that they have other financial means, would the bank still not try to get them to PAY?

I have a hard time believing, for example, that I willingly let a house go into foreclosure, and the banks will simply say 'OK', when I still make good money.

Lander said...

Dr. Doom-

What is the other dataset for inventory that you found? Do you have a link or date for that Sacramento Bee article? Thanks.

Gwynster said...

SMF,

I have no clue what will happen. These are friends of friends. I know what the post doc is making because it's what all post docs here make - 31k. Not sure about the wife. She teaches in Sac out near Antelope. How they managed to buy a 430K house on those wages is beyond my ability to reconcile.

My impression was that they were walking because they had nothing to protect.

It's hard to say because they popped out with this bombshell and the table just went quiet. I could tell my husband was ready to kick me under the table if I pursued it. It was like RE turets syndrome - you never know whether to respond to the outbust or not.

smf said...

"My impression was that they were walking because they had nothing to protect."

What about their credit rating? If I understand correctly, you really have to prove hardship to be able to 'walk away', and if you still have a good job and good wages, I don't see the banks saying 'go have a good life'.

Gwynster said...

SMF,

I think that's why you go Ch. 7 BK. Chapter 13 is the restructure and 7 is the once every 7 yrs wipeout. The rating will be toast no matter what. They will have a lot of student debt coming and a loan reset. Not many families can survive that.

I didn't know this but a quick google tells me that Chapter 7 does not wipe fraud debt. That could be a huge issue for anyone trying to BK and keep a house. You know the banks will go after anyone with a SIVA or SISA loan.

So much for the easy escape route.

tom stone said...

As ar as "letting" someone walk away without paying,"purchase money" loans are non-recourse in california.however a refi loan or a heloc loan are recourse loans,and student loans are usually not dischargeable in BK.of course if there is fraud involved,that purchase money loan becomes a recourse loan and no BK is allowed.however the lender wold need to provide the court with the IRS response to the T-4506 and a copy of the application,and considering the state of the loan servicing companies right now...ah those misspent years in risk management.

Greg E. said...

Tom Stone is right about the recourse issue. Bottom line is that in California lenders simply will not pursue a deficiency even if it is an option.

Considering all of the noise around predatory lending and pending legislation related to the subprime meltdown lenders are not going to invite further attention and bad publicity.

Bottom line is that there are tens of thousands of folks exactly in this situation. They are going to have to make a financial decision regarding their home. In many cases, walking away is a viable albeit painful option.

DrDoom said...

Lander:

Sorry for the delay. I have been over on the seattlebubble.com site studing their predictive model.

Data set you asked about is in posting on 10/5/07 on "Sales Plummeting" by The Tim at seattlebubble.com. See link to "Seattle Bubble Spreadsheet". It is an Excel 2007 format file which I eventually pried open in Excel 203.

Sac Bee article was 5/19/06 by Jim Wasserman and used Trendgraphix data supplied by Lyon.

For predictive models there is some work on the irvinehousingblog.com. See post of 5/11/07 by Irvinerenter "Predicitons for the Irvine Housing Market".

However, the Seattlebubble work seems the most advanced. See post of 10/8/07 by deejayoh "If Were Top.." and follow the link in the first paragraph to the "Case-Shiller Index to growth of Inventory" post on 6/17/07 also by deejayoh.

I am working on understanding deejayoh's methods to see if they can be applied to Sacramento and other markets. The exciting aspect is the model predicts CS prices (similar to OFHEO)14 months out using year-to-year change in inventory levels.

If someone would tell me how to embed a web link I will use them in the future. I plan to report back after seattlebubble comparison is complete.

Lander said...

drdoom- you just need to add a line of HTML. How to create a link