Foreclosure Chart Extravaganza: January 2008

Over at VoiceofSanDiego.org, I just put up a piece on the January 2008 sales-per-default data. Conclusion: if potential must-sell housing supply was overwhelming demand back in the protracted downturn of the 1990s, it is now 3.5 times as overwhelming.

Up until now, my basic read on this chart was binary: historically, if single family sales-per-NOD were below about 2, prices were declining, and if they were above 2 prices were rising. Needless to say, sales-per-NOD at .3 means the housing market is deep in downward pressure territory. (Remember that we are comparing NODs on all properties to just single family home sales, because the latter was the only long-term sales volume series I could find — my thanks go out to the reader who supplied me with the historical sales information).

However, user gdcox (a Brit who, in addition to being an actual real-life economist, occasionally supplies we Colonial Piggs with insights on the UK housing bubble) suggested that I try to quantify the specific degree of price pressure caused by changes in the sales-per-default ratio. I think that’s a great idea and it’s something I’m going to be looking into in the weeks ahead.

In any case, I had a few more foreclosure graphs to share. First, here is a version of the above graph using a logarithmic scale to show precisely how eh-screwed the San Diego housing market is in comparison to the 1990s (thanks to sdduuuude for haranguing me into doing a log chart):

Next up, an update on the number of NODs becoming NOTs:

Now, this is an extremely rough graph, because I am simply taking NOTs in a given month as a percent of NODs 3 months prior (because 3 months is the standard minimum time between NOD and NOT). However, as a great piece of investigative reporting by ocrenter shows, a lot of NODs are taking a heckuva lot longer than 3 months to work their way through to the next stage in the process.

Despite that fact, the ratio of NOTs to 3-months-prior NODs was most recently at 66% — higher than anything seen in the 1990s bust.

Of course, this wouldn’t be a proper extravaganza without trotting out the recent chart of NODs and NOTs as a percentage of San Diego labor force (original writeup here):

Finally, user radelow asked for a close-up on the above chart to get a better idea of recent monthly changes. I decided to start the chart at the beginning of 2005, which as you can see above was pretty near the lows but not long after they had started rising. Just for kicks, I am using the raw number of NODs and NOTs instead of adjusting them for labor force growth, because the population changes don’t exert a noteworthy impact over the shorter term.

There appears to be a serious onslaught of must-sell inventory coming down the pike, friends. One thing that’s worth noting, though: like most of the charts I constantly assail you with, these figures represent San Diego county in aggregate. There are in fact huge regional differences in where these foreclosures are showing up. So far, most of them are still from subprime loans and thus showing up in the lower-cost submarkets. I do think we will see more trouble in the higher end markets from three potential sources:

1. Non-subprime mortgage timebombs. The subprime loans tended to have shorter reset periods, but there were plenty of no-doc, negatively amortizing loans written to people with good credit (i.e., people living in the more expensive areas). The evidence suggests that reset-driven foreclosures resulting from these loans are still in the future.
2. Price declines. Here in the era of low- or no-down payment, price has become a huge factor in foreclosures. The more prices fall, the more people are left paying giant mortgages on homes with zero or negative equity, making foreclosure a fairly painless option. As the price declines continue to spread to the higher end submarkets, instances of foreclosure could increase in those areas. (On that note, I am fairly convinced that the price decline will continue to spread to the more expensive areas — I intend to write an article on why that is at some point, but in the meantime, the venerable Pigg known as Bugs has written some excellent analysis on that topic in the forums and comments).
3. Job loss. The 1990s bust was more of a job-loss driven downturn, while this is comparatively more of a financing-driven downturn. So most of the problems are cropping up in the areas where people were most dependent on wacky financing. However, if we do get more widespread job loss either as a result of the housing crash or from housing’s second-order effects on the overall economy, this could change in a pretty big way.

But that’s all speculation on the future — for now, let’s bear in mind that the above charts hide some pretty big regional disparities in foreclosure activity. On the whole, however, San Diego’s foreclosure situation is like absolutely nothing we’ve ever seen.