That can’t be good:
2,350 NODs and 902 NOTs were filed in August. This compares to just 2,388 MLS sales closed.
I’ll put some more default charts up once the DQ numbers come out.
That can’t be good:
2,350 NODs and 902 NOTs were filed in August. This compares to just 2,388 MLS sales closed.
I’ll put some more default charts up once the DQ numbers come out.
Can someone help me put this
Can someone help me put this in perspective? We had nearly 1K NOT’s in the county this month. Isn’t average county sales volume running 2K-3K and likely slowing down?
I’m assuming I’m missing something, but if correct, wouldn’t that imply that we will have 30-50% of sales coming from REO’s soon???
Stan
Hmmm, Stan, assuming the
Hmmm, Stan, assuming the banks actually move stuff quickly, then yes. But, mortgage holders might be resistant to clearing their desks quickly if they are under the impression they can hold out for an “improved” market. But, if they do hold on to property rather than dump it, that is just more water behind the leaky dam and probably means delayed, but larger, price declines.
It is an interesting and scary chart…..
NODs are growing at double
NODs are growing at double digit percentages month over month. August versus July was 16%, July versus June was 19%.
You grow anything double digit percentages month over month, and God only knows where it is going to end up.
We are in uncharted territory.
3 years ago, we had double
3 years ago, we had double digit month over month price increases… this is just karma balancing the equation.
Yeah if this was price
Yeah if this was price increases in 2005 they would be saying that prices will never flatten and always increase. Thank … (fill in whomever), we are a bit malthusian here or within about 10 months all the houses would be in foreclosure, and property would be free!!!!!!!!!!!!
It should level out soon, but how long will we stay at 1000 plus foreclosures 12, months?? How long is the avergae dom, 6 months. That would be a very large backlog, very soon.
cheers
When I was a kid, there was
When I was a kid, there was this rollercoaster ride called the “Tidal Wave” at Six Flags. It was loop in the middle at either end of the track it went nearly vertical until the cars lost their momentum in the forward direction and gained it in the backward direction. Looking at this graph brought back those memories…..
Rich,
Wow! With this one
Rich,
Wow! With this one chart, you just trivialized the entire last bust in the 90’s.
This picture really is worth a thousand words.
Looks like that logarithmic
Looks like that logarithmic graph may come in handy after all.
Wow … I have been staring
Wow … I have been staring at this chart, and playing with the underlying data, for an hour now. I am disturbed, excited, shocked all at the same time. July was no anomaly, and I am sure we can look forward to more excitement in September.
What I am stuck on is not the level that the NODs and NOTs are getting to, but their slope. The curves are rising a good deal faster than they ever did in the 90’s bust. What’s more, whatever level they hit, they will likely remain there for quite a while.
This will be rough, folks. Really rough.
The effect of this oncoming
The effect of this oncoming wave has largely not manfest itself yet. It takes a long time for a foreclosure to work its way into being a resale. Right now we are filling up the pipeline. Once it’s full I think it will take even longer to empty out than it took to fill up.
There are two waves of ARM resets, the second containing even more of the most toxic variety. I doubt the REO pipeline will significantly empty out during the period between the two waves of resets. It’s just going to be one relentless and overbearing assault on the market.
At this rate we can assume that it absolutely will reach the point where REO resales will exceed 50% of the transactions that close, thus completely dominating the market. Indeed, at some point almost all sales will fall under the must-sell category wherein the seller wouldn’t be selling if there were any other options. Property owners will rent houses out at $2000/month negatives in order to avoid booking the loss.
Speaking of rents, the effects of buyers renting these homes out instead of putting them on the sales market (either directly or as a result of foreclosure) will add more rental housing to the stock and may possibly undermine the rental market enough to cause the rents to drop too.
At “just” 50% of the market, the buyers will all come to understand that they need only exercise just a little patience before a suitable house comes up for sale at a bargain. If they don’t get the first one they bid on there will be another bargain – perhaps at a better price – arriving momentarily.
If/when that happens, the bigger question won’t be price, but financing terms. Most of the REOs I’ve seen already represent losses of $75k and up. As this progresses and prices further degrade the losses will increase in both dollar amount and number. The lenders and their investors will be racking up losses in excess of $200k per REO; those losses and the risks they prove absolutely will be of effect on the costs of financing. Increasing mortgage interest rates will also contribute to the price declines, thereby perpetuating that vicious cycle and making it worse.
The corrolary to a massive spike is a massive overcorrection of nearly commensurate size. By the time this is all over a market segment that “only” suffers the 50% correction may end up being counted as one of the winners.
Bugs, you are SPOT ON
Bugs, you are SPOT ON buddy!!
SanDiegoBanker1
Former REO Analyst at the Resolution Trust Corporation in 1990
sdb1,
I came into the
sdb1,
I came into the appraisal business in 1985, so I got to see the last bust up close too. That’s why I was so dumbfounded that these lenders would allow it to happen again. I completely underestimated how greedy and how short sighted some of these lenders are – I won’t ever make that mistake again.
BTW, if the RTC ever comes back to town that’s going to be one interesting book of work.
OK…this is a bit out of
OK…this is a bit out of control with shaky analysis, but here it goes. If 30% of the resale market is REO’s, and if the loss on each of those is 20% of the value of the home (which I think is reasonable today, and probably conservative tomorrow), we would be at a point where the losses in the county from REO’s were greater than the combined revenue of every brokerage in the area (think salaries of brokers + all those fancy bus bilboards + the real estate section of the paper + the rent on all the brokerage buildings), etc…:
30% (% REOS) * 20% (Loss/REO) > 70% (% non REO sales) * 6% (Realtor Comission/sale).
Starts to feel quite large.
Said another way, if REO sales are 1,000/Month and average price is 500,000, and average loss is 20%, you’d have a 100K loss/REO, which would be a county-wide loss of $100,000,000 per month or 1,200,000,000 ($1.2 billion)per year.
I believe the budget for the county of san diego is roughly 4.4 billion/year. So, we are talking about potential losses in the housing sector of over 25% of the county’s budget, and if I have the math correct, that’s almost $400 for every man, woman, and child in the county.
If I’ve got the math wrong somewhere, let me know, but I’m trying to ballpark this and it’s getting big.
Stan
When comparing Foreclosures
When comparing Foreclosures to NODs from 4 months previous, the conversion rate is continuing to increase. For August, the conversion from April is 60%. Beginning of the year it ran fortyish.
With 2300 NODs in Augst, December could be facing 1400 REOs.
This really isn’t a surprise
This really isn’t a surprise to us. We’ve all seen this graph below many times. Rich’s chart shows certainly puts it in perspective, and is the dark reality of it:[img_assist|nid=4731|title=ARM|desc=|link=node|align=left|width=466|height=416]
It’s going to get worse. Even if the rate of NOTs/NODs slows, there will be so much inventory by the time the lull in Winter of ’09 rolls around, that any progress will be overshadowed as the rest of this chart unfolds.
I’ll speculate that in early 2009 when housing vitals show a slight chance improving the “experts” will call the bottom. Then enter the rest of that chart, and we set more foreclosure records.
With such an impressive
With such an impressive graph which blows away the ’90s, I don’t understand how prices haven’t moved down much. Only about 7-8 percent according to Case-Shiller, right? Yet, wasn’t the correction in the 90’s around 25 percent or so?
With such an impressive
With such an impressive graph which blows away the ’90s, I don’t understand how prices haven’t moved down much. Only about 7-8 percent according to Case-Shiller, right?
The NOD rate about six months to a year ago contributes to the price correction seen thus far. These NODs will make their presence known in early 2008.
However, more than just defaults and trustee sales drives pricing. If more potential buyers and sellers saw this graph, they would be dissuaded from buying and the prices would move down faster. My guess is home builders are well aware of what is going on, and they have the wisdom to drop prices.
Hi All – A few comments,
Hi All – A few comments, since I can actually make them now! (per the prior post)
1. The famous Credit Suisse reset chart is informative and dramatic, but I’m not sure how useful it is for pinpointing San Diego’s future. The reset chart applies to the whole nation in aggregate, and for the most part, San Diego was earlier in the cycle than the everywhere else. So our own reset chart would likely be shifted early/leftward, and our shockingly high default rate may well indicate that we are closer to our own reset peak.
2. Fearful is absolutely right that there is a big delay between a house going NOD and hitting the market as an REO. There are 3 months between NOD and NOT, and another 3 weeks between NOT and REO. Those are legal minimums, and the delays are probably even longer than that as they have to clean up the house, get it appraised and listed, etc. Even then, the REOs don’t immediatley drag down prices — as we’ve seen, lenders are chasing the market down like everyone else.
3. So, the spike in NODs now won’t lead to a surge in must-sell inventory for at least 4 months. The latest Case-Shiller, on the other hand, reports June sales, which actually reflects deals that were signed in May. So between the HPI lag and the delay between NOD->REO, the latest batch of NODs won’t show up in the HPI for a minimum of seven months.
4. As an aside, we are also seeing that more NODs are going to NOT, and more NOTs are going to REO. I will have some more charts on this soon. The result is that over time, each NOT becomes more "powerful" in that it is more likely to actually become must-sell inventory. Again, though, that will be a delayed effect.
5. The early-90s decline in the Case-Shiller was closer to 16% if I recall, though that is an aggregate number so obviously some individual properties lost more (especially REOs, which tend not to be well cared for). It fell about 25% in inflation adjusted terms.
1. The famous Credit Suisse
1. The famous Credit Suisse reset chart is informative and dramatic, but I’m not sure how useful it is for pinpointing San Diego’s future. The reset chart applies to the whole nation in aggregate, and for the most part, San Diego was earlier in the cycle than the everywhere else. So our own reset chart would likely be shifted early/leftward, and our shockingly high default rate may well indicate that we are closer to our own reset peak.
Good point, Rich. Any place we can find ARM reset stats for San Diego or So Cal as a whole ? That would be a useful tidbit of info.
It sure would be useful, but
It sure would be useful, but I have never seen such a thing.
Rich
1. The famous Credit Suisse
1. The famous Credit Suisse reset chart is informative and dramatic, but I’m not sure how useful it is for pinpointing San Diego’s future. The reset chart applies to the whole nation in aggregate, and for the most part, San Diego was earlier in the cycle than the everywhere else. So our own reset chart would likely be shifted early/leftward, and our shockingly high default rate may well indicate that we are closer to our own reset peak.
The more I think about this the more think that San Diego’s trend probably is different from that of the nation. However, different may not be synonymous with earlier. The bull run started earlier in SD than for most of the other metro markets, but I’m not sure the abuse of exotic financing products and elimination of underwriting standards followed the same timeline.
If I compare the NOT/NOT graphs to the pricing graphs I see that reverse correlation – at the same time prices were skyrocketing up the NOTs were falling, and vice versa.
For all we know at this point, the local graph for ARM resets could more closely resemble a 3-year echo of the pricing spike that it facilitated, with the foreclosure track lagging another 6-8 months behind that. If so, we may be at the same place for ARM resets that we were for price increases in 3q2004, and the same place for foreclosures that were at for price increases in 1q2004.
While we’re making wishes, I
While we’re making wishes, I wish for a report of home loan types by zipcode, by year initiated, and by reset date, for the greater San Diego area.
HiggyBaby
Higgy,
If you are fortunate
Higgy,
If you are fortunate enough to get that info, forward it onto me and I can map it in a GIS/Google map.
Wouldn’t a reset chart for
Wouldn’t a reset chart for San Diego roughly correlate to sales volume during the heavy exotic loan years after having a lag for the teaser rate periods applied? I think the data for loan types is floating around here somewhere.