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California Signaling A Housing Bottom? [Housing Tracker]

by: SA Editor Judy Weil August 01, 2008 | about stocks: FRE    
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Quotes Of The Day 

“California is having a wrenching decline in wealth, but this is a cathartic event that will lay the foundation for a recovery. This signals the beginning of the end.” - Mark Zandi, chief economist at Moody's Economy.com.

“Half off in a decent neighborhood is close to the bottom.” - Bill Gross, co-chief investment officer of Pacific Investment Management Co.,  the world's biggest bond fund, referring to 50% home price declines in some parts of California. (Bloomberg, July 31st)

Foreclosure Data

Freddie Mac Doubles Financial Incentives to Servicers Who Help Borrowers Avoid Foreclosure. “Freddie Mac (FRE) today told mortgage servicers it was doubling the amount of money it pays for each workout that keeps a delinquent borrower with a Freddie Mac-owned mortgage out of foreclosure… Freddie also announced it will start reimbursing servicers for the cost of door-to-door outreach programs, give servicers more time to negotiate workouts in states with fast foreclosure processes, and make administrative changes intended to streamline the workout process… Freddie Mac's 0.86% single-family delinquency rate is a fraction of the most recent national single-family delinquency rate (6.35%) calculated by the Mortgage Bankers Association of America.” (MarketWatch, July 31st)

California's Discount Foreclosure Sales Point to Housing Bottom. “Broker PMZ Real Estate: In Stockton, the U.S. metro area with the highest foreclosure rate, home sales more than doubled in Q2 after prices fell by an average 37%. California Association of Realtors: [Statewide] sales rose for three consecutive months starting in April after 30 straight months of declines. DataQuick Information Systems: About 40% of those transactions were foreclosure sales. Moody’s.com: Almost $1.3 trillion of homeowner equity was lost in California since December 2005. Anderson Forecast at UCLA: Discounts of as much as 50% will extend into 2010... RealtyTrac: California led the U.S. in default notices and bank seizures for the 18th straight month in June and had seven of the 10 metro areas with the highest foreclosure rates.” (Bloomberg, July 31st)

Mass. Foreclosure Cases Plummet. “A new state law delaying property takings is working. Warren Group: There were just 350 new cases brought by lenders against delinquent homeowners last month, compared with 2,308 in June 2007… There was a similar decline in new proceedings in May. The drop is attributed to a state law that took effect May 1 [which] created a 90-day period in which homeowners can "cure" mortgage delinquencies by catching up on payments or finding a buyer… [Still,] Massachusetts is on track to have more than double the number of foreclosures this year than in 2007. Through H1’08, lenders had repossessed 6,707 residential properties, compared with 3,083 in H1’07.” (Boston Globe, July 31st)

Manatee County Clerk Begins Online Foreclosure Sales with Realauction. “Florida: R.B. Shore, Manatee County Clerk of the Circuit Court and Comptroller, has selected RealForeclose by Realauction to begin sales of foreclosed property online. Shore has been proactive in reducing the paperwork involved and increasing the number of bidders participating as the leading reasons to embrace technology for foreclosure sales. More than 2,600 foreclosures [were] filed in Manatee County last year… The Clerk's staff will save time… by uploading documents once so all bidders will have simultaneous access to complete information for each case. Shore. "The more bidders we attract, the more likely the property will sell at the highest amount possible.” (MarketWatch, July 31st)

Foreclosure Rate Rising In Hennepin Suburbs. “Minneapolis: Home foreclosure activity in suburban Hennepin County continues to heat up, even as it cools off in Minneapolis. Foreclosure data for H1’08 show that the number of sheriff's sales jumped 59% in suburban Hennepin, compared with H1’07. But the number of sales is up only 20% so far this year in Minneapolis, and there are indications they are leveling off on the North Side, which has been the epicenter of the state's foreclosure crisis… The shift from Minneapolis to suburban districts comes just as the federal government has increased assistance to cities struggling with foreclosures.” (Star Tribune, July 30th)

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This article has 18 comments:

  •  
    Aug 01 09:57 AM
    It is all about supply and demand. There is no demand. Inventories are stagnant. People don't have the credit or down payment to expand this market. And they are afraid that prices will go lower and that they cannot sell when they need to. Zandi is one of those cheerleaders that comes across as bearish, but he is always pumping. Come on, Zandi, we know your game.
    Reply
  •  
    Aug 01 09:59 AM
    Sure at 50% off home sales are increasing. But, there is another wave of foreclosures ahead. This time it will NOT be sub-prime loans! Starting late next year, ARM loans will start to adjust. This will impact middle to upper end priced homes.
    For a very good article on this, by a major San Diego mortgage loan banker, one should visit brokerforyou.com/broke... and look at the 7-17-08 post titled: San Diego Real Estate … The Coming Next Wave of Foreclosures
    Reply
  •  
    Aug 01 10:09 AM
    A bottom ? I doubt it. And definitely not a turn. Ahhhnold fires 22,000 state workers and temporarily imposed minimum wages on 200,000 more does not suggest a turn in the market. When California learns that not every interaction between employers and employees need be regulated, and not every single dispute should go before a court or arbitration panel, then we'll see a turn.
    Reply
  •  
    Aug 01 10:15 AM
    The Ca market is a very complicated one. Many of the homes are located in areas of San Diego county, Contra Costa County and similar areas that have areas of boom built tract homes in very questionable locations, with limited services, flood plains, behind levees, and long commutes. Whether they will ever rebound is questionable. Who wants to live where there are few police, long commutes, and flood danger, and ( I forgot) very real questions about water supply.
    Reply
  •  
    Aug 01 10:19 AM
    Well, it does not seem to me a bottom is yet in sight. Any information coming from a real estate firm is not generally too trustworthy, they have been calling the bottom since the beginning. I know in my community here in Elk Grove, just down the road from the Stockton area, in a pocket of about 50 homes, I see 14 REO's that are not on the market. These are newer homes, built in 2005, front yards are dead, have key boxes on the doors, papers all over the porch, red tagged for no power. That is 14! I think what we have is homeowners who have given up and lenders who are overwhelmed and the data is skewed. That coupled with the Option ARM reset wave is going to make for a very hurting winter. P.S. Investors buying property does not define a market. Oops... maybe it does... arent they the ones who created the bubble? Oh well, let them eat cake.
    Reply
  •  
    Aug 01 11:27 AM
    "“Half off in a decent neighborhood is close to the bottom.”

    The fundamental to real estate is always median incomes for the district in question and competing discounts on rentals, not discounts off of current asking price. If pricing was artificially inflated in that market by unusual mortgages that allowed people to commit to higher home prices than they could ultimately pay, and those mortgages are no longer available to buyers on those terms, then housing prices will have to fall to a viable ratio to local median incomes (usually 2.5 to 5 times gross income). If home prices in those California markets are still above the high end of the ratio, then you can't be at a bottom.

    At the moment it isn't clear that even normal mortgages on normal terms are readily available to everyone who might normally qualify, so again we can hardly declare a bottom. On the other hand, there is statistical evidence that prices have stopped falling in some California markets, so we have to honor that mathematical evidence regardless of the explanation.
    Reply
  •  
    Aug 01 11:55 AM
    Prices in bubble areas are being pushed down back to their historical
    ratio of home price to income ratio. Nationally, the ratio has been home prices are 2-4 times local income levels. This ratio makes sense when you realize that in normal times, sensible lenders will only allow a borrower to use a maximum of 28% of their income for mortgage costs.

    For instance, in many bubble areas, the ratio in 1999 was 4 to1.
    Home prices were four times income levels.

    During the peak of the bubble in 2005-06, median home prices shot up to 9 times median income levels and more in some areas. This was enabled by excessive and temporary purchasing power in the form of exotic mortgage products which enabled borrowers to bid up home prices to unsustainable levels.

    Now that lending standards have tightened, is it reasonable to expect a return to the historical ratio? Most think so. What happens to prices? Consider a typical So Cal area where the median income in 1999 was $75,000. At 4-1 the median home price in 1999 was $288,000. In 2005-06 the median home price shot up to $700,000. Meanwhile incomes rose 3% or were $87,000 in 05/06.

    At 4-1 prices should be $348,000. Keep in mind, it takes a 4% rise in incomes to allow home prices to rise 1%. (.28 x4 = 1)
    There is a nifty tool where you can get historical, bubble and post-bubble home price to income ratios for your zip-code found at UsHousingmeltdown.org. Look for the Ceiling fundamental.
    Reply
  •  
    Aug 01 01:22 PM
    All those talking heads are either on drugs (a good mental spot to be in if you own Calif. real estate), or are hoping that 'talking up' the market will calm the waters. Just to be clear: ***THE CALIFORNIA REAL ESTATE MARKET HAS NOT HIT BOTTOM*** And that's bad for the rest of the Country as well.

    jegan ;-/
    Reply
  •  
    Aug 01 01:42 PM
    Greed is a powerful motivator. I suspect at some point in near future the housing will appear to have caught the bottom. People purchasing foreclosures then flipping it for profit will lure other fools into the game, and soon bidding war will break out, giving appearance of support to housing prices. I suspect that little bounce will not last for long.
    Reply
  •  
    Aug 01 03:44 PM
    Bottom? What bottom?
    If you can buy a house now for say $400,000 in Ca. it will be worth $300,000 in another year. Will you keep paying your mortgage on the full $400,000 or move out? I would be gone. Gone. Gone. And I just moved on. Ohhh, ohh yeah.
    Reply
  •  
    Aug 01 04:10 PM
    My sister in law just bought a $500k triplex in downtown Anaheim (originally $750k). She thinks she struck gold, but I can't wait to see the look on her face when Obama slaps her with the 30% capital gains tax for home sales. Landlords think they own you & it pisses me off.
    Reply
  •  
    Aug 02 12:12 AM
    You must not live in California or you are smokin crack. Maybe in another couple of years and 25% lower wil we hit a stable area. Maybe.

    Rent to value ratios of 25-30 make no economic sense and with incomes falling and unemployment rising something has to give -

    Hint: it's home values and they are gonna keep dropping as fast as a toilet flush from the Sears tower.
    Reply
  •  
    Aug 02 02:04 PM
    My husband and I live in Whatcom county Washington. The realtors here lie lie lie. The local paper read"theres no bubble here" Then the bubble burst but it wont effect whatcom county". the homes here are so grossly over valued that we are still going to be first time home buyers after 5 years of market research. (never bought into the subprime)My husband and I looked at a home the other day. (for research) 1,100 sqft. built in 1916, all appliances were removed, both stoves removed, sits on an acre and 1/2. and they are trying to sell this garbage on willeys lake road for $269,000. 30% of our homes on the market are sitting vacant.There are no more idiots left here to buy and the realtors are saying the value is in the land. WHAT THE HELL!!!!!!
    Reply
  •  
    Aug 02 07:19 PM
    User 235452-- Your link to UsHousingmeltdown.org'... tool for finding the Ceiling Fundamental is OUTSTANDING. Thank you for posting this!
    Reply
  •  
    Aug 02 08:44 PM
    California? Southern California? Look at the demographics. Who is going to support the home prices in the big cities like San Diego and Los Angeles? What jobs are being produced to support home prices that are still far ahead of the 50 years trend line? Prices will keep falling. Some areas like La Jolla may bounce back sooner than others, but the basic situation remains quite bleak. The median income is higher in Huntsville, Alabama than San Diego, Ca. How homes in San Diego can be over even $300,000 is beyond mathematical reason. When only 18% of the populous can afford a median priced home (this is the case in San Diego) a market has not bottomed. People are leaving the big cities of California in droves. Take away the illegal alien criminals flooding into California and one can see that California has had a net migration out of the state regularly since 1998. This is the first real downturn in California real estate history where the state will not have a huge influx of educated workers from other parts of the country to boost the housing market. This is what many are failing to recognize. In most down economic periods California was always the last in and the first out of a recession or slowdown. This was primarily because of the huge influx of "California Dreamers" that supported everything from the job demands of silicon valley to the track homes of Southern California. Today just the opposite is happening. Places like Iowa, Colorado, Idaho, Texas and Georgia are seeing a ton of California refugees fleeing high homes prices and a culture gone mad. Up next, the great migration back to the mid-west that you will see in the coming 25 years. White flight will take on a whole new meaning. The future of California real estate is not completely horrific. It just won't ever boom like it just did. The one thing America has for itself it is is always "becoming" and is never finished. Perhaps in to generations California will be golden again.
    Reply
  •  
    Aug 03 10:49 AM
    Greenspan on housing:

    Greenspan Says Housing Prices Not Yet Near Bottom (Update1)
    By Steve Matthews

    July 31 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are ``nowhere near the bottom'' and the resulting market turmoil isn't showing signs of abating.

    While the odds of a recession are 50-50, achieving stable markets will ``take a while,'' Greenspan said today in a CNBC interview.

    The economy grew at a 1.9 percent annualized rate in the second quarter after expanding 0.9 percent in the first quarter, the Commerce Department said in Washington. Gross domestic product was revised to show a contraction in the final three months of 2007.

    More Americans filed claims for unemployment insurance last week than at any time in more than five years, the Labor Department said. Fed policy makers have cut the benchmark rate to 2 percent from 5.25 percent since September, halting the reductions in June amid rising concern about inflation.

    Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, are a ``major accident waiting to happen,'' Greenspan said. ``The solution'' is the ``nationalization'' of the companies, he said.

    After the former Fed chairman spoke, Washington-based Fannie Mae dropped 69 cents, or 5.7 percent, to $11.52 at 3:48 in New York Stock Exchange composite trading. Freddie Mac fell 55 cents, or 6.3 percent, to $8.18.

    ``It important that we focus on stabilizing the financial system,'' Greenspan said. Policy makers also need to reconcile slowing economic growth with rising prices, he said.

    The U.S. faces ``a very substantial change in the balance between growth and inflation,'' Greenspan said.
    Reply
  •  
    Aug 03 12:24 PM
    "Freddie Mac's 0.86% single-family delinquency rate is a fraction of the most recent national single-family delinquency rate (6.35%) calculated by the Mortgage Bankers Association of America."

    However, a so far unanswered question is "to what extent did the increase in cohabitation precipitate this crisis"?
    Reply
  •  
    Aug 05 04:37 PM
    Greenspan the 'Bubbleman' along with 'Helicopter' Ben will go down in history as the culprit behind the hyperinflation of the US dollar. By that time, government will force us to switch our worthless dollars to the new Amero.
    Reply
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