San Diego Housing Bubble News and Analysis

socratt, it's probably not a great idea if we all cut our spending back to near zero. But I agree that we really could have used a serious change in what we spend our time doing, and many would have accepted and even welcomed that. However, the folks steering the economic ship are doing everything they can to minimize any change.

It's a bit like those few months after 9/11, when people would have accepted making common sacrifices in efforts to make us safer. Instead, most people were encouraged to spend like nothing happened.

Clearly, we cannot forever keep consuming material goods like we we have. With China and India on the road to match our consumption, we must all consume less in material goods. That's OK in most respects. I know I am most happy with better quality, not more quantity, in almost all aspects of my material consumption.

That means we need to continue expanding our ability to entertain and enrich each other. And nurture a small but very important sector of our economy devoted to advancing our technology. I am not much interested in mandatory restrictions on the hours that people can work, but I do think that 200 years from now people will look back at us and consider us deprived of recreational time. We should consider cultural changes that make less time at work more acceptable. (But full-time retirements will probably have to be cut back. We can't have a younger generation doing nothing but taking care of the baby boomers as they play golf and need diaper changes.)

Yeah its pretty much just you.

PR, thanks for the response. As for you Urban, that response seems to be expected from an someone with your intelligence level. Don't get too excited because you have few escrows open. Reality will set in with you as well.

I don't really have a disagreement with your general misanthropy regarding the public. I just don't think that your condemnation is particularly nuanced or useful. Your remarks are the economic equivalent of that dude in college who stands on the knoll yelling about how we are all sinners (and going to hell) for our perceived sexual practices and perceived faithlessness. As with him, there is some benefit the general tone of what you say but this "wake up call" is unfocused and ranting. It would be less exciting but more accurate to simply preach that people should live within their means and save. As someone who subscribes to (and lives) this philosophy, I would endorse this. Though, as with this, I would not find the thread terribly interesting.

The escrows I have right now are all people striving to live within their means and to be prudent about their decisions. I have new buyers who have a cap of 200k (thus keeping expenses equivalent to their current rental costs). I have cash buyers who are looking at designer places because they have scads of money and can afford it.

While it is always true that things could get worse, your shrill discussions of "reality" seem ironically titled.

Socratt I have given up trying to figure it out. The housing market is absolutely on fire right now and yes to me it does not make any sense. All I can say is that people are doing exactly what the government wants them to do. They are buying homes, they are buying into the stock market and pretty much just chugging along. I am not saying I have a clue what will happen because it seems impossible to be sustainable. However it is absolutely imperative to get some of this shadow inventory to get into the market because it is just crazy right now.

On a more constructive note, what do you see as the primary motivation for holding inventory back?

I am sensing mostly a lack of capacity to handle the load rather than simply manipulation (though that could play a part).

SDR, it's interesting because in one sense I can't complain because my business is doing really well right now and there is much more cash on the table than there was a couple of months ago. On the other hand I wonder if we are being misinformed simply to keep US consumer spending moving which will in turn put a temporary float on the economic numbers.

I agree 100% that we need this inventory to start showing up on the market ASAP because it seems as though we could have an immediate impact to prices if these inventories hit the market in a 2-3 month period. I read some interesting numbers about the release of foreclosures supposedly hitting the market during the months of May and July, which would seem to have a pretty dramatic impact nationally.

I think it would have been a much smarter move for the banks to leak these ghost inventories sporadically rather than hold them for such a long period. Assuming rates won't stay this low for a long period, I can't imagine that was the right decision. Once the inventory is released a number of these new plans instated by our government, i.e. 105% loans, won't make much of difference.

I must say it has been very interesting to watch!

Our media is now mostly in the hands of our government. Printing money and buying futures in the stock market surely helped the government turn people perception about what is really happening lately.

Look around carefully: more unemployment, less corporate earnings, shrinking wages, state and local governments are essentially bankrupt, retail sales keeps shrinking, etc.

Feds are trying to reflate the economy by printing loads of money; will they succeed?

My answer: look at Japan over the last 10-15 years.
That's the best case scenario for us.

So YES, it's the calm before the storm. Get ready!

There are lots of people in the restaurants here downtown and the condos are all still overpriced.

However there are new tent communities springing up everyday, and the people in them don't look like the homeless I'm used to seeing down here (and I've lived here since 2001). More young people, more families with children.

So maybe everything is still peachy and these people were already living in tents but have relocated from somewhere else. Or maybe not. All I know is you won't get the real answer from the media...

UR I am not entirely sure why banks would hold things back. I think it is a combo of understaffed departments, and or slow to no motivation to release marked down assets in light of the fact that they will be repurchased via the government private/public programs. As you know the foreclosure process has been effectively stalled or dragged out by various legislative actions over the past 2 years. The lines between government and Wall St are so blurred now that it is laughable.

As far as I am concerned it is nothing but a big stall. I am sure you know of people who haven't paid a dime on the mortgage for months, I know of someone who is now a year into free home living, and they have not even received a NOD yet.

The bottom line is I cannot tell you why things are the way they are. I can speculate, but that is just me guessing. All I know is that it does not make sense at all and it feels like some serious artificial pincers are in place.

As you said, within all this confusion are many a buyer who can buy now, who can afford a home now, and who are buying now. I would also add that CLEARLY todays buyer is MUCH MORE educated with realistic expectations. Not any more of the pie in the sky types we had just a few years back. Overall this is a very good sign.

As said by others, yes to lack of capacity but to me that is not the entire reason. I just do not see it. Perhaps lack of motivation to resolve the lack of capacity is playing a big role.

It is not like this is a surprise to the banks. Geez it is spring of 09 already!

Nothing goes down in a straight line. Human beings need optimism, even when its unfounded.

You can basically say we haven't hit bottom because nobody in power has admitted what the problem is. Essentially the hard choices are being put off yet again, in terms of reigning in spending. Perhaps people are eating out because they aren't making a mortgage payment, or because they can! Perhaps this temporary uptick in spending while short lived has convinced your customers to buy more of your services (socratt).

Banks are still tightening credit, velocity of money is still dropping and housing is still overpriced in most of San Diego. However none of these things have stopped people from feeling optimistic.

JTR asked me to stop posting on his blog when I said, he was selling optimism. SDR thinks that the RE market is on fire right now. That implies there are a lot of people who are optimistic about the future and enough of them have money to spend.

In the end the overwhelming nature of the looming debt default will swamp the current optimism. Whether its a few months or a year, I don't know. I do know that none of the symptoms I would look for to mark that point have occurred.

Its ok to feel good today! Just keep an eye open for tomorrow and don't make any long term debt commitments, because the govt can't hold interest rates low forever. Ultimately risk must be rewarded. These last few years it has not.

Josh

Fair enough SD>
However, I am up close and personal with lots of REOs in my neighborhood.

I would say 9 times out of 10 the properties are trashed out and re-keyed within 2 weeks.

Usually they are back on the market within 2 weeks after that.

There are exceptions but they are rare.

I live in an area with LOTS of reos.

To me this delay can be accounted for just by administrative process.

Are you seeing something different?

UR - I don't know where you live, but the ZIPs I'm monitoring are not listing. I've seen many NODs and they are not listed, short sale or otherwise. Remains to be seen if in the next 2 months the banks just foreclose and list them w/in 2 weeks. But for now, there's a lot of stealth inventory.

I'm thinking people are in denial. Like SDR, I don't know what to make of it. Inventory is diminished greatly on the MLS while the stealth has increased expotentially. I don't know what the delay is in listing. Theories and speculation are floating around. Will they all be re-worked and loand mod'd? Are the banks just not wanting the loss on the books and intentionally procrastinating? What will happen when Alt-A and Option ARMs come due?

People are acting like ostriches and sticking their head in the sand, ignoring what's looming on the horizon, as if they ignore it, it will just magically go away. People were short-sighted during the ride up and continue to be, never looking ahead beyond the nose on their face.

Maybe they think the government will just take care of everything. After all, they've done a great job so far. /end obvious sarcasm.

As for people still going out, if you lived somewhere for free for a year, you would have money to spend. Your major monthly expense is the house where you reside (mortgage/rent) and vehicle, expenses associated w/them both.

It is so common for banks to lag for a year and people just not pay their mortgage for a year. That's extra money in their pocket to go out and dine and shop.

I am curious about all of these people who have stopped paying their mortgage and are still living in their house. Is this really a popular phenomenon? Who are these people? And are they really spending their mortgage money on Outback Steakhouse dinners and new purses?

Maybe I'm just naive, but I have a hard time seeing this being the huge phenomenon that it is portrayed here on this board. I'm sure there are a few deadbeats that actually do crap like this, but the way some of you describe it makes it sound like PF Changs would be out of business if it weren't for these people. That seems unbelievable to me. I think that PF Changs is staying in business due to people who don't want to live without the 'life of luxury' that they got used to during the boom years. People who are still paying their mortgage, but are still racking up the debt on their credit cards -- not deadbeat mortgage holders.

I know that if I was in their situation and I knew that I could be kicked out of my house at any moment, I wouldn't be blowing my savings on nice dinners and flat screens. I'd be saving like a madman.

So can someone with more knowledge on the subject explain whether this is a true phenomenon, or whether people are using it for dramatic effect in their arguments?

The banks aren't gonna list those REOs until they are forced to. And guess what, they aren't going to be forced to because their buddies in the government will keep shovelling OUR money THEIR way. Essentially we have a sort of Soviet system now where the government is paying for housing. Why move out or pay your mortgage when the bank won't kick you out? Dammit if I knew then what I know now I would have:

1) Bought as many houses as possible with as many crazy loans as I could have gotten.

2) Flipped as many as I could have and used the proceeds to buy some real property in cash out of the country somewhere.

3) Stayed in the nicest, most expensive and hardest-to-sell one here in SD.

4) Stopped making payments on it in 2008.

Hell I'm sure they wouldn't have kicked me out by now. I'd probably have a couple of more years scot-free there until the sheriff showed up. By then I would have saved a BUNDLE and I'd shuffle off to my foreign retreat.

What sickens me most is the knowledge that quite a few people have done what I just described, AND THEY'RE GOING TO GET AWAY WITH IT with our government's help. AAAARRRRGH!

JP:
Perhaps I need to see what you are seeing.

What areas are you seeing examples of what you describe and what is your definition of stealth inventory.

A lot of stuff that registers as non-paying is in the middle of HUD-sponsored mods.

I have encountered this several times when mining the NOD's.

It is pretty unlikely that these ones (again I don't have numbers on how many) will end up as REOs.

I have seen numbers that suggest consumer debt has slowed or decreased.
(eg: http://www.thefreelibrary.com/+THE+GREAT...)

At an anecdotal level, I am seeing only certain restaurants increase in business.

Specifically those with much lower prices.

I don't see a lot of people wasting discretionary income but maybe I need to see where you are experiencing this.

That is VERY true. I used to be of the belief who can last the longest, those who have to sell or those who want to buy. But if the banks don't foreclose and take their sweet time about it, allowing buyers to stay in their house for free, well, what's the rush.

I feel your pain greatly.

UR - I monitor 92109, 92037, 92110, 92117, 92106, 92107, 92103, 92104, 92116, 92122, 92130. I've marked the NODs on SDL. I do all the SFR and in a few select zips I also mark the condos. The last month 9 out of 10 NODs were not listed for sale, as opposed to throughout last year, 9 out of 10 were listed.

I consider the NODs as stealth. I don't have the numbers in front of me, but it seems a high percentage of NODs in the past eventually either were short-sold or became REOs.

The other factor that some bulls do not want to consider is the U6 BLS unemployment number which is now 15.6%. It is expected to rise. What impact will that have on future NODs or future sales or the economy in general.

"JTR asked me to stop posting on his blog when I said, he was selling optimism. SDR thinks that the RE market is on fire right now. That implies there are a lot of people who are optimistic about the future and enough of them have money to spend."

The market is on fire right now. I should have added the caviot with the exception of high end but if you talk to any serious buyer who has submitted offers on homes, I bet you they will express EXTREME frustration of multiple bids, getting outbid, and HORRENDOUS inventory selection. I also feel that active pending ratios in many of the zip codes we study are attrocious and more then half of any short sales you see already have offers on them. I am not saying they will close, I am saying they have offers on them. So yes I do believe that many zips are on fire.

As to optimism about the future I am not sure I would assume that. I would simply say that people have found a home they want to buy rather then rent. In fact most all of the buyers (at least those who I have been working with) feel that the economy is going to continue to sputter and unemployment will grow and that the housing market will continue to depreciate. They have the resources to outlast it, and they have made the choice to buy. Trying to figure out why people are buying is close to an exercise in futility.

UR, tracking the trust deeds shows that there is a significant reduction in the number of homes going to foreclosure. Whether that is happening because of the legislative efforts by the government, or because of staffing problems at the lenders themselves, or because of sheer lack of motivation makes no difference. All I know is, if I am a bean counter at a lender, and I can dump that property off so some investor at an inflated price instead of going through the legal hassle of foreclosure, it is a no brainer. Even if I have to sit on the property for months, so what if it is not performing. I get to dump it. No sale, no broker, no commission, no market, no foreclosure proceeding, no trustee sale. The best thing is that everything is backed by our tax dollars. Isn't that sweet?

Really now, this is possibly the most manipulated market we have ever experienced and it should be painfully obvious to people.

As to the number of homes that are actually bank owned and not yet on the market, the same holds true but yes most of them are coming on the market. Prices are sufficiently low so that those to will sell quickly.

At least for the moment, at least here in San Diego, the effort of constraint combined with low interest rates and price reductions has been IMO wildly successful. Fundamentally this is in no way what a bottom should look like and I know you are not claiming a bottom.

That's exactly right, CONCHO. But don't forget that it's all in a good cause - to save our economy. It's for our own good.

Okay. I just went through my weekly NOD and foreclosure search. I have noticed that a lot of properties that in January had NODs but were not listed (and still not) are scheduled for foreclosure. This surprised me. But it's in line w/3 months. So maybe - just maybe, the banks will actually foreclose and we will see them listed soon thereafter.

If this is going to be true, then look out for the February and March NODs. It may be one heck of a summer.

jpnpb, my thanks for sharing your original and timely research with us. I, and a few of us, are guilty of mostly just bloviating here, but this is hard data that is useful.

If I were really motivated, I'd track the real numbers of how many get postponed. It's difficult to tell which get redeemed or reworked/loan mod'd unless I go downtown to county. I don't have access to title info. I wish that were more transparent.

I can say that so far I have seen many postponements but those have been for properties attempting sale or short sales in progress. This is a little different as many are not listed.

Anyway, glad the info I provide helps to shed some light and it's not totally a waste.

The obscene thing about a mod or rework is that there is not any recording that I know of to identify it.

Perhaps other realtors know if those events are recorded. As far as I know, my guess is that they are not.

Perhaps there are other people just like you.

When an economy starts to bottom or recover from a recession it is the result of a bunch of people making individual decisions based on their personal situation. This tends to happen well before their is any confirmation from the corporate world, hiring or employment figures.

I think, considering how averse the banks are to actually repo'ing the properties, it might be a better metric to examine the NOTs rather than the NODs and evaluate the percentage of NOTs to listed REOs.

Its not that the NODs are wrong, just that more than half the NODs I see get filed these days never turn into NOTs or only turn into them after 12-18 months. Often if a homeowner is reworking a loan or negotiating with the bank for a DIL, they will not list it (because they have not interest in selling it). During this time, the bank will often file the NOD as they process whatever sort of change in contract.

I would venture to say that about half of the NODs in, say, 92103 will never get to NOT or REO stage.

The owners want to stay there and the bank wants to continue to collect payment (even at a reduced rate) from them. Such contract modifications are often in the best interest (except, perhaps, bargain hunters and realtors).

Do you remember the saying in stock market that "do not fight the FED"? Currently they (FED and Gov.) are doing everything possible begging people to take the money and buy. People are just being "patriotic", buying and spending like there is no tomorrow. I think people are smarter than what we give them credit for.

Hi SDR, I am missing something here. How can they dump it and to who? The only thing I can think of is that banks can use those loans as col laterals to get cash from FED. Is this what you are referring to?

Thanks!

I am hearing people stating that the RE market is 'on fire' right now, but I just don't see that. I know my sample size is comparatively small. An example is a house near me. It is off over 30% from market price.. many lookers, no offers.

As for inflation. Inflation involves more than just M0 (currency). You really want to look at M3 + value of leverage-able assets (ie. RE). We just took a huge hit in the price of homes (shutting down the home ATM). The drop in dollar valuation of near-liquid and liquid assets is highly deflationary. The current 'printing' going on is offsetting some of the loss at M3.. but not all.

Here is another factoid. Many people think that the TARP funds are a give away. Take a look at the earnings report from BofA. They just paid the gov $402Mil of interest on the $45B of TARP funds it received. I don't think my calcs are wrong.. It comes out to something near a 3.6% interest rate. That is definitely not free money, thought it is cheap. Interesting point is that it is costing the fed about 2.5% or less in terms of paying out on the treasury bills were sold to get the TARP money.

I won't attempt to steal SDR's thunder, but I think PPIP is a taste of what's to come. If banks can't sell REOs at inflated prices on the open market, then govt subsidies will be created to allow them to sell to some investors at inflated prices. It's the PPIP model for MBSs translated to REOs.

Quote of the Day

"Really now, this is possibly the most manipulated market we have ever experienced and it should be painfully obvious to people."

And it should come as no surprise to any of you. The only way out is inflation. Inflation takes time to set in. Time is what they are buying. This manipulation will go one for years. Dont expect a free market or them to allow free market forces to reign the day. It is not fun trying to buy real estate today. It wont be when its your turn either. For better or worse, its the way it is and the way its gonna be. I gave up trying to warn you folks on a daily basis several months ago........