August numbers out. No impact of the credit crunch in San Diego…

[bubble_contagion]

According to the numbers from:

http://rereport.com/sdccsd/

The numbers from that website usually correlate well with Dataquick’s and are published a little sooner.

August sales and prices are about the same as July. The San Diego housing market median price continues to be very resilient. Increased rates on jumbo loans and tighter lending standards have yet to have an effect in San Diego.

[(former)FormerSanDiegan]

Here’s how I would interpret this:
Despite the negative pressures, sometimes when things really, really suck (as in July), it’s really, really hard for them to suck more.

[drunkle]

hey, cool numbers. according to the second graph, sales volume in 2004 was +12% over 1999 figures. sales volume now is almost 40% off 2004.

good times.

[Bugs]

The credit crunch is really only a few weeks old. I read its effects in the number of pending sales that fall out of escrow for lack of buyer qualification.

Financing costs are but one element of this puzzle, and most of the opther pieces are contributing their fair share. Filtering out the effects of these other covariants is practically impossible. Suffice it to say the pricing trends aren’t just reacting to one or two elements, and the effects of all of them are cumulative.

[kewp]

And its going to stay this way as long as the damn banks are sitting on the inventory!

[HereWeGo]

Hard to believe, but very interesting (if true.)

[Arraya]

And its going to stay this way as long as the damn banks are sitting on the inventory!

And the inventory just keeps rising and rising. As Led Zepplin has said “If it keeps on raining the levee’s gonna break”.

[Sandi Egan]

I wander what do they mean by “sales”. If they count COEs, then this really is July data.

[TheBreeze]

“And its going to stay this way as long as the damn banks are sitting on the inventory!”

I have a theory about why banks are holding onto their REOs like they are pure gold. Basically, I believe the REOs are marked at a much higher price on the banks’ books than they will sell for. Further, I believe that if the banks were to lower their prices enough to actually sell them that it is very likely that many banks would then be insolvent.

If this is true (and keep in mind that my theory is pure speculation), then the banks actually have a perverse incentive to hold onto their REOs as long as possible in hopes that something will cause the market to pick up. The banks have a choice between slow death through carrying costs or quick deaths through foreclosure auctions. Not surprisingly, they’ve chosen the slow death because it’s the only thing that gives them a chance at survival. I also believe this same phenomenom applies to the builders, such as Standard Pacific.

The next stage in the housing crash we are likely to see is bankruptcy for banks and home builders. At that point, we will have not only flippers competing against REOs, but also bankruptcy trustees thrown into the mix as wells. Because trustees are accountable to all creditors, they will have an incentive to sell their housing inventory quickly. This should drive prices down nicely. Well, at least according to my totally speculation-based theory.

Also, I’m not buying this tech strength in the stock market. I think the tech stocks are still running off the easy credit that existed until just a few weeks ago. Soon enough tech stocks will be feeling the pinch also. We’re still on course for a housing crash (and likely a recession also). We just have to give it time to play out.

[TheBreeze]

One more thing: If I understand the accounting rules correctly, public companies are allowed to book revenues for ARM payments at a steady rate over the entire life of the loan. So, for example, if Countrywide wrote a 2-year ARM that had a $1K monthly payment for 2 years and then a $2K monthly payment for the remaining life of the loan, then Countrywide is allowed to book revenue at a rate of $1.94K per month for the life of the loan. Look for banks such as Countrywide, Wamu and others who wrote lots of ARMs to either do major earnings restatements as they foreclose on those loans or to take huge charges.

The mortgage unraveling is just beginning.

[Sandi Egan]

Very interesting theory.

Another reason banks may not be interested in fire sales, is that it’s not a one-time clean the inventory action for them. Dropping the prices will lower the comps for all their future sales and prompt even more foreclosures.

[SHILOH]

Aside from declining property value, what other costs do banks accumulate for sitting on inventory? DO they pay the property tax?

[Bugs]

I agree that some of these lenders appear to be clinging to the forlorn hope that the market will recover and minimize their losses. They have that hope because of some of the bull economists. Unfortunately for the lenders, this is one time when running the clock is going to backfie on them.

A lender resells money. It buys the money from depositors or investors at one rate and resells it to the borrowers at a higher rate, the difference between the two (and the additional fees they charge the borrower) being the margin off of which they operate.

For a portfolio lender, if they are sitting on a non-performing loan their holding costs include their payments to their depositors. For a secondary market investor who is holding the paper they are losing their returns, and once the asset gets resold at the loss they are losing their principal.

Besides all that, banking and accounting regulations require the lender to write those non-performing assets up as losses after a relatively short time. This triggers requirements to set aside larger reserves to cover these losses. In essence, it’s equivalent to the margin call because it reduces the leverage they normally use to operate with. The bottom line on all this is that once they take a property back the clock is ticking. Some of them appear to be gaming the system by not charging these losses off in a timely manner but sooner or later those books will have to balance out.

That’s why I think of the “slow bleed” for these lenders in terms of their annual reports. They can play games on their quarterlies, but come their year’s end they have to restate everything.

[sdduuuude]

At the very start of a credit crunch, often times there is a run on loans. People feel it is now or never, so there can actually be a little spike in sales just before the crunch takes full effect.

[Rockemsock]

I’m not that surprised to see these numbers for August. The credit crunch really happened at the beginning of August, so all those homes that were in escrow prior to that had a decent chance of closing…i’m sure it takes a little time for all the banks to tighten their standards AND enforce them. People are still working off of commissions, so they are going to try and get those 100% NINJA loans through the pipe especially if they know that changes are coming down the road. So I bet that there was a conscious effort by all parties involved in closing, to dot their “eyes” and cross their “tees” as early as possible.

I know Piggs have a tendency to say “just wait, you’ll see” but I think that the numbers reported in early October will be much more telling of the real impact of the credit crunch. Don’t you agree?

[Author]

Posts