San Diego Housing Bubble News and Analysis

Court,
That was in interesting video...first time I've seen this guy. So what's everyone's take on this guys data that he back this up with? Sounds okay but statistics can always be manipulated.

I'd like to hear what Rich or some of our other number crunchers have to say on this....4.25 years that's pretty bearish and I'm a bear!

There's almost always got to be motivation behind manipulation of stats and this guy doesn't have any.

Seems he's trying to become a tip-top respected analyst in RE and lending practices and he's doing a great job towards earning that title.

Great video. Been to his site before. Wonder what Case-Shiller has to say about 4.25 years inventory. Don't know how you can skew those numbers. Pretty clear.

It's So. Cal. Wish he'd do San Diego. The median was higher than 500k.

He's a good lookin dude and I aint gay at all lol. I suscribed to his videos a while back.

I think he's cute, too. And smart.

I agree in a George Clooney kind of way. I love that "shadow inventory" description.

Aack - I tried to check it out again and it said:
"We're sorry, this video is no longer available."

The print version is located here:

http://mrmortgage.ml-implode.com/2008/05...

Includeds the spreadsheet.

Huh? I just tried the link and it worked.

In all seriousness though. I wait with anticipation for every new video clip this guy comes out with.

In my opinion Rich and this guy are two of the foremost experts in RE/mortgage analysis for SoCal.

I think I will write him and see what the chances are he will do some city specific data crunching and reporting. I would love to see what he digs up on SD.

Has anyone watched his video on the Alt-A meltdown that is coming? He states we haven't seen sh$t yet, and the worst is yet to come...

Yes, I saw the Alt-A video/article w/the chart. Great stuff.

I did post that I wish he would do it by city, i.e. San Diego.

Be careful in subscribing to cospiracy theories, 4 years is too high of an estimate and inaccurate to include all phases of distress and potential distress into the numbers. I track foreclosures and distressed in a single zip code for two years using a variety of sources including visiting them in person and I am not finding a significant number of nod's never getting to market, it takes a while but they all eventually get listed. I do believe that last year their seemed to be a bunch of them not being listed but they are hitting the market now and I don't think the banks are in lockstep, they are competing. There are not 4 or 5 houses being purposely held off the market, sitting vacant for every one house listed, I'm just not buying it.

The term "shadow inventory" is not his, I've heard it for years but the term "phantom inventory" was coined by a blogger here and the main stream media has credited it. Forgive me if I am wrong but I think it was ocrenter or one of our oc guys who invented it (it escapes me but it is one of our regulars), I've seen him credited in articles on cnbc and the wsj.

Are there a dumpload of foreclosures in the pipeline, YES. Will it get worse because every day more and more are underwater making foreclosure the only option, YES. Will prices continue to fall, YES. But 4.2 years is too high of an estimate plus that number is based on today's sales volume and even I will admit there are "shadow" buyers out there, because I'm one of them. However there is more shadow inventory than shadow buyers which is why prices will continue to decline for at least a year, some call that supply and demand.

This Mortgage guy is underestimating the potential supply.

Since real estate always goes down, who wants to own? Therefore I would include all homes in San Diego as potential inventory. By that metric we have about 34.5 years of inventory.

/tongue-in-cheek

There's almost always got to be motivation behind manipulation of stats and this guy doesn't have any.

Hmmm, so getting publicity to potentially get on TV as an analyst and generating web traffic aren't motivation ?

He invited people to tell him different. His numbers at present seem accurate, sales vs inventory. If it continues as is, then it's right, no?

I thought it was a bad sign that Mr. Mortgage was referencing the median price instead of the Case-Shiller HPI. He didn't seem to understand that the median price continued to rise into 2007 because of a change in the mix of sales. He also didn't seem to understand that the rapid fall in the median price since its 2007 peak was exaggerated due to a change in the mix of sales. It suggests to me that this person might not be too thorough with his research. I'd have a hard time trusting his conclusions.

jp, I know he is good looking, even waitinghawk has a hetero man crush, but don't let him make you ignore facts, koolaid comes in both bear and bull flavors.

He is right on a number of points and his prediction of a September dramatic decline in prices will be proven, but we can all see that.

Just don't buy into the smoke and mirrors about 4.2 year supply of inventory because he is using a "potential" numerator and a cherry picked denominator in coming to his conclusion. His ratio of nod to nod is 75%, where did he get that from?

You can't use 75% of the nod's, then divide them into today's sales to come up with an inventory number that you compare to today's actual supply of 11 months, making it seem like 4 to 5 times the inventory is on the way. You also can't take all of the distress numbers and divide them by a single month of sales because they all don't hit in a month. Most of his other observations are accurate, but this inflated stat instantly disqulifies him as a person to listen to. In one of his videos he has a white crt tube computer monitor on his desk, that was my first clue. Anyone who analyzes data seriously has to have dual flat screens, otherwise it's like having a doctor wearing an iron maiden concert t-shirt or a stripper wearing granny panties, it just doesn't look right.

Hmmm, so getting publicity to potentially get on TV as an analyst and generating web traffic aren't motivation ?

This guy's been on CNN already and how long would one last as an analyst posting bad data.  It's tough to get started being dishonest unless you're already in a position to be (a la CNBC analysts?).  When trying to build a reputation from scratch you have to be on it with your data and have predictions run true or else nobody will be listening to you for long.  

My only thought of his motivation would be that he's a big shorter of financials but who isn't when looking at all of the crap paper they are hiding.

I thought it was a bad sign that Mr. Mortgage was referencing the median price instead of the Case-Shiller HPI. He didn't seem to understand that the median price continued to rise into 2007 because of a change in the mix of sales. He also didn't seem to understand that the rapid fall in the median price since its 2007 peak was exaggerated due to a change in the mix of sales. It suggests to me that this person might not be too thorough with his research. I'd have a hard time trusting his conclusions.

 I mentioned that to him and hopefully he'll start including CS HPI numbers.  Problem with that is that the CS reports lag real time so it is tough to show with real time inventory data.  Since Rich has shown how median is a well spun and lagging indicator I hope MrMortgage will take the advice and at least reference CS for real pricing trending.

Video explaind many facts on the RE facts that are currently prevailed in SC. Well this is sure prediction if anyone look into the ongoing trend in other sectors like Gas, commodities and how the $ sunk. My question is will this make any big changes in the new constructions like 4closure Ranch and CV areas.

5yearswaiter

I mentioned that to him and hopefully he'll start including CS HPI numbers.

What bothers me is not the fact that he's reporting the median price - that's okay.  But his conclusion was that prices were rising all the way into 2007 and came crashing down after that.  He thinks that prices have been declining for only 11 months.  All of the Piggies who have been around a while know that this is untrue.  So for an "expert" to come out an make that kind of fundamental error is, for me, a tell-tale sign that he's not to be trusted.

I still remember some impressive sales last summer. There were some knife-catchers buying places, thinking the market was still moving and they were getting a deal on a fluke guy upside-down. One in particular that comes to mind was a house bought in August in Scripps Ranch. BMIT even featured it. It was for a million and now they're trying to sell for over a million.

I think he's accurate that the free money spigot was shut about September. I'm trying to remember what was said in This American Life when they were talking about the pool of money drying up.

Also, he is talking California, not just San Diego. He says the median was 480k and it was much higher in SD. I think it got to 520k. Not positive, but something ridiculous like that.

Rough crowd. I am here to take all your punlishment.
First of all I dont have CRT monitors and haven't for years if that even matters. Kind of trivial criticism dont ya think.

I am out of town with my family so would like to jump back in here on Monday but until then here are some data for you.

San Diego County Data - Trends are all higher

NOTICE OF DEAULT

may 1-18 2410 (at record pace)

apr 3523
45119 (statewide for april)

mar 3121

feb 2977

jan 3286

dec 2753

nov 1578
25702 (statewide for nov)

SOLD TO BANK

may 1-18 1232 (at record pace)

apr 1646
22443 (statewide for april)

mar 1106

feb 1220

jan 1581

dec 1075

nov 781
11978 (statewide for nov)

CURRENT FORECLOSURE AUCTIONS

may 1-18 1963 (record pace)

apr 2593
30293 (statewide for april)

mar 1991

feb 1168

jan 1841

dec 1661

nov 1352
18314 (statewide for april)

DataQuick Sales data below. I use DQ because they are very reliable in sales and REO as a % of sales so I use their median home price figures as well. They capture the entire market. I am a total Case-Schiller fan as well.

SDC is experiencing the same foreclosure activity as most other counties that were the most bubbly. Right now their Notices of Default are surging and 75-80% of them are not being cured and going back to the bank. These numbers are a fact. A year ago, many more were cured or purchased from 3rd parties at the action auction, now 98% go back to the bank.

The big numbers of REO as a part of total sales are coming from the bank inventory through large auction aggregators such as REDC and from what they sell through realtors.

In san Diego County "Of all the homes that resold in April, 37.5 percent had been foreclosed on at some point in the prior 12 months, compared with a revised 35.8 percent in March and 4.6 percent a year ago. Across the six-county area, "foreclosure resales" ranged from 26.9 percent of resale activity in Orange County to 52.7 percent in Riverside County."

Below are the most recent SDC stats

http://www.dqnews.com/News/California/So...

All homes Apr-07 Apr-08 % Chng Apr-07 Apr-08 % Chng
Los Angeles 7,225 5,016 -30.6% $540,000 $435,000 -19.40%
Orange 2,682 2,166 -19.2% $629,000 $500,000 -20.50%
Riverside 2,987 3,186 6.7% $409,000 $295,000 -27.90%
San Bernardino 2,049 1,667 -18.6% $370,000 $265,000 -28.40%
San Diego 3,436 2,809 -18.2% $490,000 $400,000 -18.40%
Ventura 890 771 -13.4% $572,000 $445,000 -22.20%
SoCal 19,269 15,615 -19.0% $505,000 $385,000 -23.80%

below is the CA foreclosure report from Foreclosure Radar. This gives great detail on the market in CA.

http://www.foreclosureradar.com/press_re...

Bank REO is the killer guys. It is coming and coming hard. In Jan - Apr we had 163k Notices of Default, which will turn in to 122k REO in the next four months if the 98% NOD to REO figure that has held true for many months holds true in the future. CA only sold 31,150 homes total last month. Since we already know what REO will do for the next four months, sales better pick up.

There are so many question we have yet to answer this Spring Summer with no exotic loan programs, seconds etc.

This is CA's first real test of the mortgage/housing implosion. Our market has not been been stress tested in 6 years with no exotics, potential home owners not being able to sell their home in order to raise capital for a downpayment on the new one, having to put out actual savings downpayment etc.

Buyers maybe stepping in to buy the REO as you can see above in the DQ data, but back that out and organic sales is a disaster. People are not selling homes to each other.

When it comes to my 4.25 year prediction...that is of course if everything were to continue on the same path as now and we know that will not happen. What will happen is a total unknown. Perhaps the Govt will do an across the board principal reduction and the problem will be greatly diminished - who knows.

Nobody knows what the true REO is or what future foreclosure supply will be. All we know now is that foreclosure are surging and sales are still far below the past serveral years. If all were to reman constant, we would have 4.25 years supply. 16 months ago 3300 units per month were going back to the bank. In April, 22300. That is significant.

So, we stand at a 360k NOD annual REO run given the past four months numbers. That may increase. Also, the sales may very well decrease as they typically do according to seasons. Right now we are at a 250k run rate for 2008.

Foreclosure supply is not infinite therefore counting a months supply as I have done of 4.25 years is likely incorrect. It could be longer, it could be shorter. What happens is rates shoot up to 15% due to a hyperinflationary effect brought upon by the crashing dollar and surging commodities prices. There are so many wildcards but it is a good example of the problem.

A 'retun to normal' will not happen anytime soon and will not happen until values fall much more. Markets overdo things to both sides so it is safe to assume it will overdo it to the downside as well. Looking into the future, it is so tough to predict anything I kept coming back to the here and now with my analysis. The here and now is as ugly as it gets. -Best, Mr Mortgage

I think he's cute, too. And smart.

Thanks MM for coming here and clariyfing things and giving us some numbers for San Diego.

Welcome to the forum MM, many of us have watched your videos with intest over the past few days, and I think you'll fit in nicely here.

By the way, calling us a rough crowd is an incredible compliment.

I agree with you that the bank REO's will be the real wild card here, but it's maddeningly frustrating how slowly they seem to be coming to market. Using foreclosure sites by zip demostrates large numbers of NOTs which you demonstrate nicely with your data, but communities with really high NOTs dont seem to have that many new listings.

I guess I'll have to stick to our mantra over the last few months, patience young Skywalker.....

BobS
Welcome to the Piggs, Mr. Mortgage. You'll find that although we have sharp elbows, most posters here can give you some very insightful feedback that should prove useful in your work. Given the pathbreaking data and stands you are coming out with, peer-review of the sort you find here can be the best way of honing and refining your message.

One reason San Diego trends should be a major part of your research is that is that we lead other areas in this housing cycle. We led other housing markets in the bubble runup, and we peaked before others--I believe in the summer of 2005. Will we lead in finding the bottom? That's for you to find out.

Slightly off topic here:

1. Get the camera straight. Those off kilter shots really aren't artsy, despite what MTV might lead you to think.
2. Background, background, background. Think about it before you shoot. A plain background, not white, preferably medium gray or blue won't reflect light and helps the viewer concentrate on the speaker.
3. Lighting. Five minutes worth of effort will pay huge dividends. Backlighting as well as foreground.
4. Focus. Better than 90% of the YouTube subjects but it could use a little work.

At least the audio is better than 95% of the current YouTubes. If you can find a helper to work the focus and watch the capture as you go, it'll pay off bigtime.

And good job with the subject. That's what counts!!

.45, Don't leave home without it.

Les - are you a movie director or what?

I don't think the monitor comment was trivial, it was a nice setup to a hillarious joke. I'll give you points for addressing the other criticism but you have to admit that the here and now numbers will not continue forever. Just like percentage gains during the rise could not be sustained, planning as if the record foreclosures/dismal sales will be sustained will get someone into similar trouble. What we are likely seeing is the tipping point, rather than a sustainable long term trend, two years from now there won't be the same level of resets and the majority that needed dramatic price gains and a refi to survive will have been flushed out already. But you are right, there are too many wildcards. The wild claims aside, do you honestly believe we will have 4.2 years of inventory on the market at somepoint in the next two years, I think 2 inventory would be a stretch. Steer clear of wild predictions, take the movie producer's advice and you just might extend your fifteen minutes of fame.

One last question, where are your numbers about nod/not ratio coming from, Rich posts a not/nod graph about every month and 75-80% ratio let alone 98% is just not there. I track foreclosure.com and the "sheriff sales" (aka back to the bank) is nowhere near those ratios. You may be right, I have just never seet stats put out on it.

resets have nothing to do with this. Most loans in default have not even hit their first reset. Almost half of subprime loans in default came after a modification of some sort.

The negative equity effect will be what gets everyone because it crosses all socio-economic boundaries. Pay Option ARMs are another killer just waiting on the horizon to slam the market.

You saw the devastation that came from subprime. In CA, ALT-A is a 50% larger market and acting just like subprime did a year ago with defaults ramping to nearly 20% across the alt-a universe. The average CLTV on Alt-a purchase loans in 2006 was 89%. Most are now underwater now. 83% were limited doc loans. In the subprime universe only half were. 45% are cash out refi's meaning what do the borrowers have to gain by staying, they already cashed out.

In addition to Pay Options, those with Home Equity Lines/loans are mostly underwater as the average CLTV across that uninverse was 85% or so.

IF we had all the same loan programs as we had from 2002-2007, I would conceed. But, now that mortgage lending has gone back to 1990, I think that the foreclosure nightmare is in the early phases, housing prices will continue to fall and the negative equity snowball effect will touch more homeowners than not.

for the % of REO from auctions and NOD's see the monthly Foreclosureradar reports here. Radar is very accurate with this stuff.

http://www.foreclosureradar.com/ca-forec...

45% are cash out refi's meaning what do the borrowers have to gain by staying, they already cashed out.

I think this is going to be a huge driver once market capitulation happens.  Honestly if many of the defaults are not due to resets but people just giving up before the first reset then by EOY these rates should beat the parabolic curve.  You're 4.25 years may be very conservative if this happens and lending dries up even further.

Nice data MM or Hedgie!