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ParticipantThe way I read that graph the 01/2007 numbers increase by 35% in the next 3 months and they don’t come back down below that level for 15 months after that.
We can figure that the percentage of marginal borrowers among those ARMs increases faster than the sheer numbers of ARMs, and their level of sensitivity also increases. In effect, even though the numbers of resets only increase by 35% – 50%, the numbers of overstressed borrowers may double, or worse, as time goes on.
ParticipantThe MLS shows 1751 SFR/Condo sales for February 2007, vs. 1916 sales in February 2006. A good percentage of those were new units that wouldn’t have been marketed in the MLS a couple years ago.
I took the liberty to thumbing through a couple cities to see how many of the listings for closed sales mentioned they were bank owned or subject to short sale approval. Oceanside had 13 of these out of 113 sales. Vista had 4 of them out of 54 sales. Carlsbad had 4 out of 82 sales, and San Marcos had 6 out of 72 sales.
That doesn’t count the probate sales, the relocation company sellers or those couple that were stated as divorce sales, nor does it include any sales in the must-sell categories that were were not openly marketed that way.
I don’t think it’s much of a stretch to suggest that in some market segments right now these numbers indicate as many as 15% of the total sales in Feb. 2007 were in the must-sell category where the seller didn’t have the option of waiting for better days. Meanwhile, there are other market segments with no outward indication of forced sales.
The newer homes and the higher price ranges seem to have fewer problems at the moment, as far as the manner in which they’re being marketed, anyway.
Seeing as how subprime just got cut back, I reckon we’ll see a few of the current pending transactions fall out of escrow for lack of financing. But the real impact will come when the number of the must-sell transactions starts increasing because of the mounting pressures on the overleveraged of the homeowners. That will be in addition to the declines that heretofore have been attributed primarily to price declines and lost employment in the RE sectors.
It’ll probably take at least 6 months before the banks get through the foreclosure process and start closing REO sales resulting from the mauling of subprime. It’ll probably take another 6 months before that trend fully hits its stride. By then the market psychology will have already passed the tipping point and will take on a life of its own.
That’s why I think 2008 could wind up being as bad as 2006 and 2007 put together.
ParticipantIt’s how fast that 10% racked up that should register.
Ten percent over a year is part of a correction, 10% over 6 months is something altogether; add a few of those years up and the results turn into a meltdown.
ParticipantHolding off would only work if they actually believe the market is turning around sometime in the next 2 years. There are some bulls out there saying that yet, but the builders would have to really want to believe them at this point.
They probably took out construction loans to get as far as they did with the lots; those loans are short term instruments and do not have favorable terms for holding the lots for any length of time. Lenders aren’t going to be that hot to extend those loan right now, either.
Holding the lots only increases their loss, especially in a declining market. Their only reasonable choice is to either build them out and sell them off ASAP or to sell the lots off to another developer at a loss. They’re both bad situations for a builder, so they have to choose the lesser of the two losses.
What they could do is to reduce the size and quality of the house they put on the lots. It cuts way into their profits but it also cuts their costs and the houses could be priced even lower to attract those buyers who are out there.
ParticipantThose markets didn’t enter into decline until recently, ya? Maybe they’re making up for lost time.
What’s ironic is that if that pace keeps up San Diego County will end up following L.A. instead of the otherway around.
ParticipantTomkinson probably wasn’t complaining when the market psychology was working to his benefit, but now that it has turned he’s going to whine about it?
Market psychology didn’t create the upswing, it only strengthened it. The same goes for the correction; we’re not in correction because of the market psychology but the effects will be magnified because of it.
ParticipantAnother 10% isn’t even close to closing the gap to within reason between rents and mortgages.
ParticipantThe difference is that there was never enough user demand to sustain that level of increase. There are enough would-be emmigres to overwhelm a western country that’s willing to take them.
ParticipantThe VA terms are part of the entitlement programs we provide for our veterans. It’s not a subprime loan even though they do often have similar levels of foreclosures when times get tough.
A down payment of $12k isn’t even 5% in most price ranges around here, so I hope for your sake your borrower wasn’t relying on a financing program that has evaporated in the last week or two.
Unless you believe you can stay put in that house for at least another 5 years you probably should consider yourself to be in the “must sell” category. I say this not to be obnoxious, but because there is no indication that the current trend for price declines is going to do anything but pick up steam for at least the next couple years. Depending on how true to the long term trendline this market corrects to it may be years before prices recover to their current level.
You have nothing to gain by waiting unless you have both the will and the ability to sit tight for the duration.
ParticipantIt isn’t just those who purchased, it’s also anyone who maxed out their mortgages. There were usually lots more refis than purchases during any given year.
ParticipantThis somewhat ties in with the question of how many distressed sales does it take to swing a market. If the average holding period for SFRs in one of these neighborhoods is 10 years then the number of sales in any given year would average 10% of the total. If that’s the average then the actual number for one of the down years in that 10-year cycle might be 70% or 80% of that, because the upswing years will compensate.
These economists talk about foreclosures stemming from these mortgage rests as running a certain percentage of the total number of homes. What they don’t talk about is that the number of distressed sellers doesn’t just include the bank-owned foreclosures; it also includes those borrowers who are smart enough to let go before they lose it all. If only 30% of the NODs get to foreclosure and 30% get cured without a sale that still means that foreclosures only comprise half of the must-sell-right-now inventory.
You can see how even if 1% of all homes get to the must-sell status those transactions will heavily influence the pricing for the other 7% that sell during that same time period. At 2% of the total (not annual) it’s all over – they’ll drive the market.
Between 01/2003 and 01/2006 there were over 118,000 sales through the MLS, and that doesn’t count the new home sales that didn’t go through the MLS. In addition to those buyers there were a ton of refinance transactions on properties purchased prior to that, probably most of which substantially increased the debted encumbrances on those homes. We’ve seen estimates that as many as 70% of the mortgage financing transactions (including refis) during that period involved ARMs and other non-conventional terms.
They aren’t all stressed to the breaking point, but then again they don’t have to be.
ParticipantWhether that sale goes through may depend on the availability of financing to either your buyer, or if they have a “downleg” sale pending, to the buyer of their other house.
ParticipantSomething you guys aren’t considering is that there are starter neighborhoods, move up neighborhoods and destination neighborhoods. All of them will have a different level of churn. I can go into some neighborhoods and see homes that seem to sell every 2 or 3 years, and I can go into other neighborhoods and see homes under the same ownership for 20+ years. Clairemont has more churn than Pt. Loma.
ParticipantAre you saying that you hold Pres. Bush more responsible for the current bubble and its aftermath than the borrowers who overextended themsleves? Did he send his jackbooted thugs to force all these unfortunates to buy when they had no business buying or to refi every year with no thought of repayment?
You can blame him for the things he has done but you can’t blame him for the decisions each of these individuals made of their own accord. He’s powerful but he’s not that powerful.
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