The Ongoing Case-Shiller Fallacy/Shadow Inventory

[socrattt]

Arraya in the perfect scenario prices will continue to drop, but I must say our government is becoming very good on the supply side of control. I am on the east coast for a month in search of RE investments and funny enough they are few and far between.

I have been to trustee auctions from Florida to the Northeast and if you think the banks are taking less than the failed mortgage amount you are mistaken. Banks are playing into the same game as the FED (maybe because they have no choice). Florida is a scary place right now. The condo associations will probably start filing BK in the boat loads as many are just walking away). SFHs in places like Florida are still way over priced and have a lot of room to drop.

It doesn’t matter how much inventory the banks hold, how many more there are to come and where unemployment is because the banks are obviously in no need to unload inventory or by FED standards are unable to. I truly believe our government has a much bigger plan than any of us can imagine. Even if there were 3-4 million in the shadow inventory on the horizon there has to be a plan to create some sort of income whether it is moving the units or renting them. My guess is the plan to rent is a huge possibility. Property taxes and HOA’s that remain the responsibility of the banks will create an ever bigger problem if banks continue to be on the hook for these.

I predict 2010 will be one of the most interesting times in regards to real estate in the history of this country. You can only play the same game for so long before one side loses!!!

[Rt.66]

So a house in default that sells through short-sale for a 50% bank haircut is somehow not part of the REO disaster? It’s REO disaster 2.0, as in a disaster on top of a disaster.

Nothing has changed since 2008; we are in a reset of the entire bubble. How many REOs will there be? For CA that’s easy; any house with a bubble era mortgage balance is going to go jingle mail or short sale or something. Who is going to keep paying a $500k mortgage on a house worth $300k, then $200k? Not many, and as this correction in prices drags on more people will lose the fallacy of a re-inflation of the bubble and realize RE ain’t coming back anytime soon, then they will capitulate.

The only twist was the shadow inventory, that’s the only thing we can debate. Housing is crumbling but we can keep ourselves busy wondering about all those empty homes that are not for sale.

However, banks selling homes at 50% off through short-sale is just more inevitable bad news for housing, not some argument against calamity.

Those with Option ARMS are still holding on because the teaser rate, interest only payment is still a cheap payment, that’s going to start changing soon and payments on those $200k underwater mortgages are going to shoot up.

Like any crash you have the knife catchers to consider as well. Those who bought REOs in 2008 and those who out bid the other guy for an REO in 2009 are going to end up underwater as well (many 2008 REO buyers already are), especially in areas of SD where prices are still stupid. Many of these folks will be really underwater, some will end in default as well. A small 40 year old house in Poway that was $160k ten or twelve years ago is somehow viewed as a deal at $400k today? The pain train has lots of cars.

Sure the Gov. is trying to prevent deflation but it can’t work. They will get many people to overpay along the way, but prices will keep falling. Japan tried everything to keep deflation at bay, didn’t work. 18 years of falling RE prices and counting. For CA this crash is very different, you can’t look at the tiny blips that were the CA RE crashes before. You need a long timeframe. A lost decade and a decade of knife catchers.

[Rt.66]

So a house in default that sells through short-sale for a 50% bank haircut is somehow not part of the REO disaster? It’s REO disaster 2.0, as in a disaster on top of a disaster.

Nothing has changed since 2008; we are in a reset of the entire bubble. How many REOs will there be? For CA that’s easy; any house with a bubble era mortgage balance is going to go jingle mail or short sale or something. Who is going to keep paying a $500k mortgage on a house worth $300k, then $200k? Not many, and as this correction in prices drags on more people will lose the fallacy of a re-inflation of the bubble and realize RE ain’t coming back anytime soon, then they will capitulate.

The only twist was the shadow inventory, that’s the only thing we can debate. Housing is crumbling but we can keep ourselves busy wondering about all those empty homes that are not for sale.

However, banks selling homes at 50% off through short-sale is just more inevitable bad news for housing, not some argument against calamity.

Those with Option ARMS are still holding on because the teaser rate, interest only payment is still a cheap payment, that’s going to start changing soon and payments on those $200k underwater mortgages are going to shoot up.

Like any crash you have the knife catchers to consider as well. Those who bought REOs in 2008 and those who out bid the other guy for an REO in 2009 are going to end up underwater as well (many 2008 REO buyers already are), especially in areas of SD where prices are still stupid. Many of these folks will be really underwater, some will end in default as well. A small 40 year old house in Poway that was $160k ten or twelve years ago is somehow viewed as a deal at $400k today? The pain train has lots of cars.

Sure the Gov. is trying to prevent deflation but it can’t work. They will get many people to overpay along the way, but prices will keep falling. Japan tried everything to keep deflation at bay, didn’t work. 18 years of falling RE prices and counting. For CA this crash is very different, you can’t look at the tiny blips that were the CA RE crashes before. You need a long timeframe. A lost decade and a decade of knife catchers.

[Rt.66]

So a house in default that sells through short-sale for a 50% bank haircut is somehow not part of the REO disaster? It’s REO disaster 2.0, as in a disaster on top of a disaster.

Nothing has changed since 2008; we are in a reset of the entire bubble. How many REOs will there be? For CA that’s easy; any house with a bubble era mortgage balance is going to go jingle mail or short sale or something. Who is going to keep paying a $500k mortgage on a house worth $300k, then $200k? Not many, and as this correction in prices drags on more people will lose the fallacy of a re-inflation of the bubble and realize RE ain’t coming back anytime soon, then they will capitulate.

The only twist was the shadow inventory, that’s the only thing we can debate. Housing is crumbling but we can keep ourselves busy wondering about all those empty homes that are not for sale.

However, banks selling homes at 50% off through short-sale is just more inevitable bad news for housing, not some argument against calamity.

Those with Option ARMS are still holding on because the teaser rate, interest only payment is still a cheap payment, that’s going to start changing soon and payments on those $200k underwater mortgages are going to shoot up.

Like any crash you have the knife catchers to consider as well. Those who bought REOs in 2008 and those who out bid the other guy for an REO in 2009 are going to end up underwater as well (many 2008 REO buyers already are), especially in areas of SD where prices are still stupid. Many of these folks will be really underwater, some will end in default as well. A small 40 year old house in Poway that was $160k ten or twelve years ago is somehow viewed as a deal at $400k today? The pain train has lots of cars.

Sure the Gov. is trying to prevent deflation but it can’t work. They will get many people to overpay along the way, but prices will keep falling. Japan tried everything to keep deflation at bay, didn’t work. 18 years of falling RE prices and counting. For CA this crash is very different, you can’t look at the tiny blips that were the CA RE crashes before. You need a long timeframe. A lost decade and a decade of knife catchers.

[Rt.66]

So a house in default that sells through short-sale for a 50% bank haircut is somehow not part of the REO disaster? It’s REO disaster 2.0, as in a disaster on top of a disaster.

Nothing has changed since 2008; we are in a reset of the entire bubble. How many REOs will there be? For CA that’s easy; any house with a bubble era mortgage balance is going to go jingle mail or short sale or something. Who is going to keep paying a $500k mortgage on a house worth $300k, then $200k? Not many, and as this correction in prices drags on more people will lose the fallacy of a re-inflation of the bubble and realize RE ain’t coming back anytime soon, then they will capitulate.

The only twist was the shadow inventory, that’s the only thing we can debate. Housing is crumbling but we can keep ourselves busy wondering about all those empty homes that are not for sale.

However, banks selling homes at 50% off through short-sale is just more inevitable bad news for housing, not some argument against calamity.

Those with Option ARMS are still holding on because the teaser rate, interest only payment is still a cheap payment, that’s going to start changing soon and payments on those $200k underwater mortgages are going to shoot up.

Like any crash you have the knife catchers to consider as well. Those who bought REOs in 2008 and those who out bid the other guy for an REO in 2009 are going to end up underwater as well (many 2008 REO buyers already are), especially in areas of SD where prices are still stupid. Many of these folks will be really underwater, some will end in default as well. A small 40 year old house in Poway that was $160k ten or twelve years ago is somehow viewed as a deal at $400k today? The pain train has lots of cars.

Sure the Gov. is trying to prevent deflation but it can’t work. They will get many people to overpay along the way, but prices will keep falling. Japan tried everything to keep deflation at bay, didn’t work. 18 years of falling RE prices and counting. For CA this crash is very different, you can’t look at the tiny blips that were the CA RE crashes before. You need a long timeframe. A lost decade and a decade of knife catchers.

[Rt.66]

So a house in default that sells through short-sale for a 50% bank haircut is somehow not part of the REO disaster? It’s REO disaster 2.0, as in a disaster on top of a disaster.

Nothing has changed since 2008; we are in a reset of the entire bubble. How many REOs will there be? For CA that’s easy; any house with a bubble era mortgage balance is going to go jingle mail or short sale or something. Who is going to keep paying a $500k mortgage on a house worth $300k, then $200k? Not many, and as this correction in prices drags on more people will lose the fallacy of a re-inflation of the bubble and realize RE ain’t coming back anytime soon, then they will capitulate.

The only twist was the shadow inventory, that’s the only thing we can debate. Housing is crumbling but we can keep ourselves busy wondering about all those empty homes that are not for sale.

However, banks selling homes at 50% off through short-sale is just more inevitable bad news for housing, not some argument against calamity.

Those with Option ARMS are still holding on because the teaser rate, interest only payment is still a cheap payment, that’s going to start changing soon and payments on those $200k underwater mortgages are going to shoot up.

Like any crash you have the knife catchers to consider as well. Those who bought REOs in 2008 and those who out bid the other guy for an REO in 2009 are going to end up underwater as well (many 2008 REO buyers already are), especially in areas of SD where prices are still stupid. Many of these folks will be really underwater, some will end in default as well. A small 40 year old house in Poway that was $160k ten or twelve years ago is somehow viewed as a deal at $400k today? The pain train has lots of cars.

Sure the Gov. is trying to prevent deflation but it can’t work. They will get many people to overpay along the way, but prices will keep falling. Japan tried everything to keep deflation at bay, didn’t work. 18 years of falling RE prices and counting. For CA this crash is very different, you can’t look at the tiny blips that were the CA RE crashes before. You need a long timeframe. A lost decade and a decade of knife catchers.

[sdrealtor]

Sorry Charlie you missed the point. Alot of this so called shadow inventory/REO pipeline is in process via short sales (i.e. already on the market) or undergoing loan modifications.

There are also a ton of people who stopped paying on their 2nds but kept their 1st current. The 2nds wont foreclose cause they will get nothing but they show up in those stats of folks who havent paid in 3+ months. Those are defacto prinicipal reductions that arent ever talked about. Those folks will keep paying the 1st on their $500K 100% financed home now worth $350K cause they are only paying a $400K mortgage that they will get modified down to 3% for the next 5 years or so. At some point the market will come back and they will have to deal with the 2nd unless they come to a settlement earlier but you wont see those shadow homes on the amrket anytime soon either. You try to make this far more simple than it is. More than anything it shows you dont have an understanding of the inner workings of the housing market. Nothing is as simple as it appears to be.

[sdrealtor]

Sorry Charlie you missed the point. Alot of this so called shadow inventory/REO pipeline is in process via short sales (i.e. already on the market) or undergoing loan modifications.

There are also a ton of people who stopped paying on their 2nds but kept their 1st current. The 2nds wont foreclose cause they will get nothing but they show up in those stats of folks who havent paid in 3+ months. Those are defacto prinicipal reductions that arent ever talked about. Those folks will keep paying the 1st on their $500K 100% financed home now worth $350K cause they are only paying a $400K mortgage that they will get modified down to 3% for the next 5 years or so. At some point the market will come back and they will have to deal with the 2nd unless they come to a settlement earlier but you wont see those shadow homes on the amrket anytime soon either. You try to make this far more simple than it is. More than anything it shows you dont have an understanding of the inner workings of the housing market. Nothing is as simple as it appears to be.

[sdrealtor]

Sorry Charlie you missed the point. Alot of this so called shadow inventory/REO pipeline is in process via short sales (i.e. already on the market) or undergoing loan modifications.

There are also a ton of people who stopped paying on their 2nds but kept their 1st current. The 2nds wont foreclose cause they will get nothing but they show up in those stats of folks who havent paid in 3+ months. Those are defacto prinicipal reductions that arent ever talked about. Those folks will keep paying the 1st on their $500K 100% financed home now worth $350K cause they are only paying a $400K mortgage that they will get modified down to 3% for the next 5 years or so. At some point the market will come back and they will have to deal with the 2nd unless they come to a settlement earlier but you wont see those shadow homes on the amrket anytime soon either. You try to make this far more simple than it is. More than anything it shows you dont have an understanding of the inner workings of the housing market. Nothing is as simple as it appears to be.

[sdrealtor]

Sorry Charlie you missed the point. Alot of this so called shadow inventory/REO pipeline is in process via short sales (i.e. already on the market) or undergoing loan modifications.

There are also a ton of people who stopped paying on their 2nds but kept their 1st current. The 2nds wont foreclose cause they will get nothing but they show up in those stats of folks who havent paid in 3+ months. Those are defacto prinicipal reductions that arent ever talked about. Those folks will keep paying the 1st on their $500K 100% financed home now worth $350K cause they are only paying a $400K mortgage that they will get modified down to 3% for the next 5 years or so. At some point the market will come back and they will have to deal with the 2nd unless they come to a settlement earlier but you wont see those shadow homes on the amrket anytime soon either. You try to make this far more simple than it is. More than anything it shows you dont have an understanding of the inner workings of the housing market. Nothing is as simple as it appears to be.

[sdrealtor]

Sorry Charlie you missed the point. Alot of this so called shadow inventory/REO pipeline is in process via short sales (i.e. already on the market) or undergoing loan modifications.

There are also a ton of people who stopped paying on their 2nds but kept their 1st current. The 2nds wont foreclose cause they will get nothing but they show up in those stats of folks who havent paid in 3+ months. Those are defacto prinicipal reductions that arent ever talked about. Those folks will keep paying the 1st on their $500K 100% financed home now worth $350K cause they are only paying a $400K mortgage that they will get modified down to 3% for the next 5 years or so. At some point the market will come back and they will have to deal with the 2nd unless they come to a settlement earlier but you wont see those shadow homes on the amrket anytime soon either. You try to make this far more simple than it is. More than anything it shows you dont have an understanding of the inner workings of the housing market. Nothing is as simple as it appears to be.

[Rt.66]

You missed the point (again). The point is there are many facets to this disaster (you point out some) and all are bad for RE values.

My point is we have a huge inventory of shadow homes AND a growing short-sale epidemic AND a looming Option ARM issue. Oh, and I did not post a time frame for shadow market homes to hit the market.

Did I try to make it sound too simple? I thought I made a case for the situation having many “cars” on the pain train, as in NOT simple, but rather convoluted, with many aspects that effect RE now and far into the future.

[Rt.66]

You missed the point (again). The point is there are many facets to this disaster (you point out some) and all are bad for RE values.

My point is we have a huge inventory of shadow homes AND a growing short-sale epidemic AND a looming Option ARM issue. Oh, and I did not post a time frame for shadow market homes to hit the market.

Did I try to make it sound too simple? I thought I made a case for the situation having many “cars” on the pain train, as in NOT simple, but rather convoluted, with many aspects that effect RE now and far into the future.

[Rt.66]

You missed the point (again). The point is there are many facets to this disaster (you point out some) and all are bad for RE values.

My point is we have a huge inventory of shadow homes AND a growing short-sale epidemic AND a looming Option ARM issue. Oh, and I did not post a time frame for shadow market homes to hit the market.

Did I try to make it sound too simple? I thought I made a case for the situation having many “cars” on the pain train, as in NOT simple, but rather convoluted, with many aspects that effect RE now and far into the future.

[Rt.66]

You missed the point (again). The point is there are many facets to this disaster (you point out some) and all are bad for RE values.

My point is we have a huge inventory of shadow homes AND a growing short-sale epidemic AND a looming Option ARM issue. Oh, and I did not post a time frame for shadow market homes to hit the market.

Did I try to make it sound too simple? I thought I made a case for the situation having many “cars” on the pain train, as in NOT simple, but rather convoluted, with many aspects that effect RE now and far into the future.

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