Sunday Foreclosure Chart Extravaganza

It’s Sunday and the weather is beautiful, so naturally I took the opportunity to sit at my computer and create some charts. Today’s topic: foreclosures.

First up is a chart of the ratio of sales to NODs, most recently discussed here but originally explained here. The idea is that measuring demand against the amount of potential must-sell supply provides a good read on the market’s health, or in this case the lack thereof.

Yep, we’ve blown right through the "1" handle. Now, keep in mind that the sales here only include single family home resales (because that was the only historical data available), whereas the NODs are for all property types. This isn’t about the raw number but the comparison to past market conditions. Even with that in mind, though, the last reading was dismal — the very worst August reading of this figure in the 1990s housing bust featured twice as many sales per NOD as we saw last month. Not good.

Here’s a look at the same data on a log scale to give a better idea of the depths currently being plumbed:

Here’s an update of a chart I did a while back showing how many NODs seem to be turning into NOTs (see below* for definitions if any of these terms are unfamiliar). As you can see, we’ve now reached an early-1990s level of NOD->NOT conversion, though with a much higher number of NODs, and there’s no sign of slowing yet.

You’ve already seen this next one, but I include it for the sake of completeness. It is a chart of the number of NODs and NOTs filed each month since 1990. Each number is expressed as a percentage of the San Diego labor force in an attempt to account for San Diego’s growth over the years. (Labor force is used instead of population or household population because it is available monthly. Because the labor force is a higher percentage of the SD population now than it was in the early 1990s, the use of labor force actually slightly understates the ubiquity of NODs and NOTs).

The idea for this next chart is stolen from a friend who is a foreclosure expert and occasional guest commenter here at the Econo-Almanac (he also provided the data in the charts). His idea was to stagger the data series’ to reflect the lag between NOD and NOT (about 3 months) and between NOT and REO (about 3 weeks). Given that NOTs feed into NOTs and NOTs into REOs, this technique gives the viewer an idea of what’s in store for the NOT and REO lines. Have a look:

Again — not good. The chart clearly indicates that NOTs and REOs are headed north, especially given that more and more NOTs are making their way all the way through the process and becoming REOs. This latter trend has worsened enormously since last year:

Once they become REOs, aka must-sell inventory, we are talking about real downward pressure on prices and not just ominous (if colorful) lines on charts. It’s a good thing the housing market is about to bottom (again), or else I might be worried.

* Acronyms explained:

• NOD – "Notice of Default" – The NOD marks the initial stage of the foreclosure process, in which a lender officially lets a borrower know that said lender couldn’t help but notice that said borrower hasn’t been paying his or her mortgage, and that if said borrower continues not to pay the mortgage, unpleasantries will follow.
• NOT – "Notice of Trustee Sale" – The NOT informs the still-delinquent borrower that the lender is going to auction off the borrower’s home or, if there are no takers, repossess the home itself. The law requires that there is a minimum delay of 90 days between the NOD and the NOT; and the NOT has to give a further 3 week notice before the foreclosure auction actually takes place.
• REO – "Real Estate Owned" – This terms is used to describe a property that has been repossessed by the lender (because there were no takers at the foreclosure auction) and is now for sale in the general market. Per the above bullet, there is a minimum of 3 weeks between the filing of the NOT and the auction; a property can only be REO after the auction takes place.