Notices of Default are Getting Ugly

[admin]

Reading that NODs and foreclosures are up is one thing; for me, seeing the picture makes it clearer: [img_assist|nid=1885|title=
San Diego County Notices of Default|desc=|link=node|align=left|width=466|height=267]

What an ugly rate of increase in NODs. And, ARM resets are only just beginning. This is going to be very, very ugly.

[CAwireman]

JG,

I dig the graphs. Looks like we are rivaling the NOD level of mid-year 1991. After that there were about 5 years before hitting the last peak. After that, the NOD’s fell off and started the most recent RE run up.

Also interesting is that we’ve gone from NOD levels which were lower by 1/2 of those in 89 and scaled roughly 2/3 of the difference between current bottom (750) and the most recent peak in 93.

[zk]

Great graph, jg.

That may be the ugliest sign for the future I’ve seen yet.

The change in source in ’04 slightly distorts the situation, but even using the same source, it’s quite scary. Here’s an article that contains a graph using dataquick data for the whole time frame. The ’96 peak, using dataquick data, is about 3900 vs. about 3300 using the other info.

(As a side note, I find it strange that in that article NPR, which usually gives us relatively intelligent reporting, would quote this Burns character on when the market will bottom. He’s trying to get a bunch of people to pay for his course to learn how to profit now from the downturn by buying houses. If his potential customers think the bottom is 5 years away, his business suffers. Maybe NPR figures its readers can figure this out for themselves.)

Anyway, the sudden and steep rise in NODs is, to me, probably the scariest thing I’ve seen yet regarding the future of San Diego real estate. I didn’t expect it to rise that quickly until all the 5-year resets for homes bought in spring ’04 and after.

I’m curious why it’s going up so fast already. And I wonder if it can continue upward at this pace for very long. And I wonder what’ll happen in ’09-’11 when all the 5-year ARMs taken out in ’04-’06 reset.

I’d be interested to hear some opinions on that.

[Anonymous]

Aw, zk, can’t you give me a source other than NPR, something more to my liking, like Fox News!

Robert Campbell’s book, ‘Timing the Real Estate Market,’ uses NODs that he purchased from DataQuick, but it may be for something smaller than San Diego County, hence, the disconnect.

PowaySeller did some back of the envelope calculations, and postulated that defaults could get as high as 60-90K per quarter, at peak (PS, please forgive me if I misquoted the number). Her assumptions seemed reasonable to me.

I agree with you that the sudden and steep rise in NODs is alarming.

I think the ‘fun’ has only just begun, and will be very, very ugly.

[PD]

If it continues at the same rate, we equal the previous peak during the next year. Wow!

[gold_dredger_phd]

This is why I go to the internet when I want to learn something and not watch television for “news.” Television is for entertainment and sometimes for a shallow learning experience, but when you really want to learn something, you have to read it, at the very least.

My parents watch the Evening News, since it’s what they grew up with and maybe they read the paper. They get none of their information on the internet, but they are in their 70’s and that’s the demographic of the evening news viewership. Television is too readily used for propaganda which is why I routinely discount everything I see or hear on television.

They will never show you any graphs like this on TV. Better to show burning cars or houses. It’s much more interesting to viewers who are looking for eye candy.

[powayseller]

jg, you rock! Great chart once again…

[DaCounselor]

I too am a bit surprised at the spike in NOD’s so soon – thought we wouldn’t see a run-up until next year as the ARM re-sets really get underway. Perhaps this spike is in some way related to the substantial number of homes recently purchased as speculative flips – someone who does not need the home as shelter and is more apt to simply walk away from a bad investment that they can’t sell? And walk away quickly due to getting killed on monthly carrying costs?

I would like to see a chart that takes into account the number of total mortgages in existence during the ’93 and ’96 peak NOD’s as well as the number of total mortgages today so as to provide a frame of reference for the raw NOD figures. If the number of homeowners/mortgages in ’06 is substantially higher than in ’93 and ’96, the NOD figures must also rise to achieve the same NOD percentage. The raw figures are great but NOD percentage figures would be better. Wish I had the time to research it.

[ybbor]

Thought this would go along with this post perfectly.

[img_assist|nid=1901|title=ARMs ready to reset|desc=Arms about to reset soon|link=node|align=left|width=422|height=310]

-Robby

http://rvlife.mrwhipper.com/

[VanMorrisonFan]

Great chart, Robby! What I find interesting is that there will also be a lot of re-sets between 2008-2010, when some are forecasting that this current little hick-up will be over.

Ha!

[sdrealtor]

I get a list of NOD every week from my title rep. 1/3rd are in Zips starting with 91XXX. Most of these are in Chulajuana. I would estimate that 50% are in the garden spots of the county like Ramona, Escondido, Oceanside and El Cajon. The vast majority of the NOD’s thus far are from people that never should have bought homes in the first place.There is still very little activity in the nicer parts of the county.

[no_such_reality]

At this point, it looks like we’re 50% through.

Given that it takes 3-6 months before the bank will NOD you and probably another 0-6 months before you can’t make the payments anymore, you get lag of approximately a year from reset to NOD.

With that as a default lag we’ve likely only seen the first 10% which means over the next 6-9 months, we may see as much as a 400% increase in NODs.

[PD]

Yikes! What is happening to me? My friends are all watching Grey’s Anatomy and I’m glued to Piggingtons, getting excited about NOD and ARM reset graphs.

Thanks for the graphs, guys!

[Anonymous]

Great chart, Robby. Thanks much!

Two questions:
1. Can you run this for prime (or whatever is the complement of ‘non prime’), too?
2. What does this service/access cost you? Do you subscribe for personal investing, or is this business related?

Thanks, again, Robby.

[Anonymous]

These charts realy help to illustrate the problem. What people often don’t understand is that the reset date is only the beginning of the pain. Most loans, especially prime loans, have annual caps. The payment can’t adjust upwards more than 2% (more for sub-prime) per adjustment. If a borrower had a 4% start rate, a 1 year treasury index currently at 5%, and a 2.75 margin then he would currently have a fully indexed rate of 7.75%. His first adjustment would take him to 6.0%. His second adjustment would take him to 7.75% if rates stay at thier current levels. From a payment standpoint his start rate payment on a $500,000.00 loan would be $2,387.08, first adjustment $2,997.75, second adjustment $3,582.06. Ouch! A subprime loan would be much more painful.

These payments are for P&I only and do not include taxes, insurance, or PMI. They are rough calculations only and do not include principal reductions but I think they are fairly representative of a real world situation based on current rates.

[Author]

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