Yes, but how fast will prices drop?

[SD Realtor]

I agree with Daniels view… a long slide for a long time… Resellers don’t get it and won’t get it… unlike bad stocks that they finally sold off in the dot come burst they actually can live in thier house assuming they can make the payments. Also I believe the recession will really slow down the NOD rate…People will scrape to get by and the low rates will help them do that… it will be an ugly slow road down…. The developers however get it and will continue to lead the market with lower prices… I only wish resellers had the insights of developers…

Powayseller – To be honest I am confused that you financed 97% of your home without PMI. To be honest I am not sure how you pulled that off… You sure you did not have an impound account for tax and pmi? What kind of loan did you get? Who did you get it through? Anyways, the PMI laws have not changed at all. So you have me stumped on this. Most everyone gets around it with a second or a heloc… if they cannot come up with 20% down.

[PD]

I think there are more long-term owners in trouble than people think. Every group fell victim to the lure of the home ATM. The 2000s have been big conspicuous consumption years. Many of my mother’s generation have been taking money out of their houses and spending it. I know of a very middle class retirement age couple that refinanced their home to remove over 50k for their daughter’s wedding. Pure foolishness! They probably spent at least 10% of their net worth on a party!

[JES]

Just saw the numbers yesterday and prices are dropping in many areas already. EG: Median in San Marcos is down 4.7% and the average is down 5% in Vista.

http://rereport.com/sdcnci/

[JES]

Duplicate

[JES]

Duplicate

[powayseller]

SD Realtor, my apologies for this error. I just reviewed my loan docs from 2000, and I saw we put 20% down. It was a family loan, so although we did finance the entire amount, the 30 year loan was at 80% LTV, thus no PMI.

[powayseller]

PD is right. Many people whose homes should be paid off, started riding the MEW wave in 1999 – 2004, to buy new kitchens, college degrees, vacations, cars, business expansions, remodels, 2nd homes, stocks, and more.

While I had my realtytrac.com membership, I could go into the NOD’s loan history. In Poway, there were about 6 foreclosures (many more NODs), and half of those (3) were owned by borrowers who made their home purchase in 1980 – 1983. The other 3 bought at the top of the market in 2002 – 204.

So for Poway, although a small sample, 50% of the foreclosures are from people whose homes should have been paid off, the group that Diego Mamani describes as settled in their homes. Far from it! Even my neighbor’s mom just took out a HELOC to build her dream kitchen. PD’s mom did this too, right? A journalist wrote that her parents refied the equity out to go on a spending spree.

Now for the details: these 3 couples in Poway started taking equity out of their homes around 2000 – 2002. Once, twice, or more. They almost doubled their mortgage amount during that time. The streets are Country Creek, Millards Lane, and Bridlewood. Only 1 of these homes was for sale. The other 2 NOD people were not listed for sale! Why? Were they hoping to come up with the money?

So don’t assume you know anything about anybody’s finances. “The Millionaire Next Door” should have taught us all that what somebody has in the bank has nothing to do with what they choose to buy. Debt is easy to get. Actually, the more stuff someone has, the more debt they probably have.

This NOD wave is going to hit the retired people, the long-time homeowners, the doctors and lawyers, just as hard as it will hit the lab technician who bought his house with an I/O loan.

Schahrzad Berkland

[VCJIM]

Diego Mamani,

Did you know we’re neighbors? I’m in Moorpark!

[LA_Renter]

The issue of liquidity is the primary discussion here. How liquid can RE be? The argument that this downturn will be long and slow is a good one due to the traditional illiquid nature of RE. The most liquid aspect of RE are the developers, they can dump and may have to dump inventory to keep a positive cash flow. The greatest percentage price declines will be set by the developers. That will be in line with the previous downturn IMO. Now the big difference in this downturn that I see and that has been discussed on this thread is the role of exotic loans. This is where we are in uncharted and untested waters. You are probably looking at the most leveraged housing market in history. As the mania ensued people were buying homes (especially 2004 and 2005) that were 7X to 12X income using exotic loans. The fast appericiation of the home would make the two ends meet when the loan reset. Well it was supposed to work that way. When the two ends don’t meet people have to sell or face foreclosure and many will face foreclosure. This dynamic increases the liquidity of RE making steeper and faster price declines possible. IMO we are looking at one of the most liquid RE markets we have ever seen due to credit standards basically evaporating. The good thing is we don’t have to wait too long to determine how severe this aspect will be, the majortiy of ARMS are resetting starting about now and peaking in 07 and 08.

[LA_Renter]

duplication

[no_such_reality]

How liquid is a foreclosed house?

Once the default goes to foreclosure, it becomes REO, then goes to trustee sale right? Can the REO and Trustee sit with it on the books vacant instead of taking the loss?

[VCJIM]

Many homes could be bought while in NOD, never reaching foreclosure. These will remain highly liquid.

[powayseller]

Doesn’t liquidity mean there is a ready market for buyers and sellers? That is not the case for housing.

We’ve got sellers who are asking for above-market prices. So, not a ready market for most sellers.

We’ve got buyers worried about how much further prices could drop, so sales are dropping every day.

This market is getting more illiquid by the day.

Eventually, sellers will get real, and start pricing their homes correctly. But without buyers lining up, liquidity is low.

I was told in the 90’s, some people would go for a year without having one showing. That is illiquidity.

[VCJIM]

I guess I am somewhat expecting that investors will try to pick up NOD properties for a song, but I don’t know. If that were to happen, actual foreclosures would not rise rapidly, which is clearly not going to be the case. I’m just thinking this through out loud (in writing); it still doesn’t make sense to buy a NOD property if the values are declining rapidly, the profit margin isn’t there.

[LA_Renter]

poway,

That is a good point, I was thinking more in reference to the liquidity of actual prices. Developers and distressed properties will HAVE to sell for what the market bears. The market hasn’t totally disappeared. The greater the supply of “HAVE to sell” properties the greater pressure there is to lower price. If the majority of sales transactions taking place are dominated by desperate developers and distressed property owners then they have to compete for the limited number of buyers, thats when you could see median and avg prices plummet. The point I was making is that IMO we will have a far greater number of distressed property owners than in the past due to the disintegration of lending standards.

[Author]

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