Trustee deeds: Jan ’06, 62; Jan ’07, 457. Ouch!

[bigtrouble]

http://news.yahoo.com/s/sddt/20070209/lo_sddt/januaryforeclosuresjumpconcerngrowsoverexoticloans

San Diego County real-estate foreclosure sales jumped more than sevenfold since January 2006 — levels not seen since the real-estate downturn of the 1990s, according to the most recent figures released by the county.

Trustee deeds, the measure of homes that change ownership as a result of foreclosure, rose from 62 in January 2006 to 457 in January 2007.

“By far, the main culprit is the loss of home price apreciation and in some areas … at least mild declines in home prices,” said Andrew LePage, an analyst with La Jolla-based real-estate research firm DataQuick Information Systems. “Less appreciation equals fewer options to get out of a financial pinch.”

LePage said homeowners are often economically stressed by something, whether it is a pending divorce or job loss. During the recent housing boom in which homeowners saw double-digit increases in the value of their homes, that stress was concealed because it was relatively easy to refinance or get out of a troublesome loan, he said.

But as interest rates have increased from the historic lows seen in 2004, so have the mortgage payments needed to buy a home. As a result, owning has become less and less attractive to buyers. Experts believe many buyers are simply waiting for prices to come down after years of increases.

This has caused a glut of homes to languish on the market. The number of homes sold in San Diego County fell 21 percent from October 2005 to October 2006, according to DataQuick, dramatically increasing the inventory of housing on the market.

There are currently more than 16,000 units for sale on the market, according to Lisa Lem, spokeswoman for the San Diego Association of Realtors.

“Back in January 2006, if you were having trouble paying your mortgage, you just put your house on the market and sold it for a profit,” said Alan Gin, a University of San Diego economics professor. “Now it’s a lot tighter.”

A lot of people may not be able to sell because of the huge inventory, he said.

Those people unable to make their mortgage payments or to sell their home would be forced into foreclosure.

During the mid- to late-1990s, the San Diego economy was in recession and there were significant job losses. The real-estate market stumbled afterward and foreclosure activity jumped. In January 1997, there were 550 foreclosure sales, according to county figures.

Few experts believe the residential real-estate market or the San Diego economy is anywhere near a repeat of the 1990s trouble, but there continue to be signs of weakness.

Both Gin and LePage said they were concerned with the amount of “exotic loans,” such as mortgages with adjustable rates or negative amortization that allow borrowers to decrease monthly payments in exchange for increased exposure to risk from rising interest rates.

Although LePage said he has yet to see evidence of a “huge correlation” between nontraditional loans and foreclosure in the area, he noted the prevelance of these loans has grown significantly since the beginning of the recent housing boom.

This has ushered in a stream of lower-income investors into an increasingly expensive market through creative and often riskier mortgages. In areas such as San Diego County, where the median home price is $586,000, according to the most recent California Association of Realtors figures, nontraditional loans have become more common than the national average.

As of November, 67.1 percent of the loans granted in San Diego County — including home purchases and refinances — were interest-only and negative ammortization loans, according to Sacramento-based research firm First American LoanPerformance. That’s more than twice the national average of 32.7 percent.

“We’re probably more vulnerable than other areas because our housing is so expensive,” Gin said. “Those nonconventional loans were probably the only way some people could have gotten into the market.”

He said he expects the foreclosure activity spike to continue well into 2007, but doesn’t anticipate serious problems because of the strength of the San Diego economy.

“Clearly it’s going to have a lot to do with what happens with inflation and mortgage rates,” LePage said. “A lot of people are pretty stretched and if we saw rates pop up a percentage point or more, we could see some serious trouble.”

[no_such_reality]

Ouch, is right. If the foreclosure numbers maintain just this volume, not sure how the market will react to having over 10% of the sales volume being REOs that need to be cleared from the books in the next few months.

[garysears]

So let me rephrase…

A bunch of people got forclosed on. That would be 7X the previous year. But don’t worry it is only because…

“the main culprit is the loss of home price appreciation and in some areas … at least mild declines in home prices,” … “Less appreciation equals fewer options to get out of a financial pinch.”

The dreaded soft landing strikes again!!! But don’t blame the buyers for getting upside down on the loan. Who could have predicted home prices might not continue to increase at 30% per year?

Clearly, 1 or 2 years of having to make minimum payment option payments is way longer than anyone should have to go without refinancing or selling at a huge profit.

It is the accursed glut of inventory! As we all know, home appreciation has always been the only practical way people have afforded homes.

And don’t worry about those so called “toxic loans”…

“LePage said he has yet to see evidence of a “huge correlation” between nontraditional loans and foreclosure in the area”

even though…

As of November, 67.1 percent of the loans granted in San Diego County — including home purchases and refinances — were interest-only and negative ammortization loans

and…

“We’re probably more vulnerable than other areas because our housing is so expensive,” Gin said. “Those nonconventional loans were probably the only way some people could have gotten into the market.”

but don’t worry…

Few experts believe the residential real-estate market or the San Diego economy is anywhere near a repeat of the 1990s trouble, but there continue to be signs of weakness.

Clearly you can’t be an expert if you believe the market is in trouble.

The experts do not anticipate serious problems…

because of the strength of the San Diego economy.

After all a whole 1 in 3 buyers don’t need to rely on creative financing. So we are in good shape.

There is no reason to panic unless…

“rates pop up a percentage point or more. We could see some serious trouble.”

[end sarcasm]

What?

I guess the economy is so strong 2 out of 3 buyers screwing themselves is OK.

If the rates are near all-time lows today, what are the odds they don’t rise a whole percentage point before home appreciation begins again?

[Happy renter]

The foreclosure rate will skyrocket and be much worst than 1990. Most buyers / flippers still don’t lower their asking prices. They are just too greedy and will either regard or even lose their houses. But I think they don’t deserve any mercy if it really happen to them.

[bigtrouble]

Another factor: The elimation of zero down that we are seeing impacts first-time buyers. I paraphrase this from comments at another blog.

40% of FTBs in CA put no down payment; this puts them out of the market–they actually want to buy, and can’t get financing.

So 40% of FTB don’t get loans. Since FTBs made up about 30% of CA purchases in 06, you’ve just eliminated about, what, 12% of prospective buyers on this basis alone.

Ouch!

[Author]

Posts