Housing Market Not Even Halfway Recovered

The good folks at HousingWire have just put out a story today:

Not even halfway to housing recovery: REthink panel

According to the article, Doug Duncan, chief economist for Fannie Mae said:  “We are in year four of a 10-year transition.”

That sounds about right to me – and it echoes what I wrote yesterday about the REO Tsunami –  we’ll see about the same level of REO 2-3 years from now as we are seeing today, and we’ll see elevated levels for the next 3-5 years.

Still plenty of legs left in this market, plenty of time to break into the REO market, it’s only 40% done.

And now, off to do a Cash for Keys.

Double Dipping in the REO Bucket

As 2010 fades into dust – a year which many think is best forgotten – the dawn of 2011 beckons on the horizon.  The question before us is, what’s 2011 going to look like compared to 2010, 2009, and even 2008?

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If the headlines which greet us in the dying days of 2010 are any guide to go by, we can expect more of the same as we’ve had in years past.  In fact, it seems like it’s pretty much back to the future, as many pundits are saying that the dreaded Double Dip in real estate prices is now upon us.

From CNN:  Nation on the Edge of double-dip in Home Prices

Home prices took a shockingly steep plunge on a monthly basis, an indication that the housing market could be on the verge of — if it’s not already in — a double-dip slump.

From Bloomberg:  U.S. Property Values Decline More than Forecast in S&P/Case Schiller

Home prices dropped more than forecast in October, a sign housing will remain a weak link as the U.S. recovery accelerates into the new year.

From CNBC:  Housing Double-Dip Ahead: Economist (video)

David Rosenberg, chief economist at Gluskin Sheff, tells CNBC another decline in housing prices is being underestimated.

To me, this is hardly sensational news.  I, for one, have been waiting for some time for the other shoe to drop.  I’ve been telling anyone who asks for a long time that I believe that we are in a gradual, prolonged decline in home values that will probably continue for some years.

Granted, it has been a little difficult to hold that tune when there has been so much optimistic chaff from housing bulls about how prices have stabilized and in fact are rising in some markets – a contention that is now put to lie by the latest Case/Schiller numbers.  Certainly, there are some areas and of course specific neighborhoods where prices have stabilized and may in fact have risen somewhat.

In general, though, it’s pretty clear that we are nowhere near out of the woods yet with the housing crisis.  And in fact, the coming of the double dip clearly indicates there is more “correction” to come.  For those in the REO Brokerage business such as myself, it means that we can anticipate that 2011 will probably be comparable to the recent years gone by.

The reason for that, of course, is that there’s no shortage of research which indicates that a key driver of foreclosure is lack of equity in a given property – that is to say, the more underwater a borrower becomes on their mortgage, the ever-increasing likelihood that they will simply chose to walk away from their mortgage obligation and let the property go to foreclosure.  This is known as strategic default, and it’s something keeping up many a banker late at night.

It all points to a continuing stream of steady foreclosures pouring into the REO bucket, continued pressure on housing prices, and good and perhaps increasing affordability for buyers.  Of course, many buyers are still on the fence because they fear they may lose their jobs, or the market may have more to fall – and both are good reasons to stay right there on that fence if you ask me.

For those buyers who do feel secure in their incomes and plan to buy a house to – gasp – live in for some time to come, raise their kids – you know, the things people used to do with houses – it’s probably a fine time to buy.  To these buyers, it matters little to them if the price drops another 5-10% over the short term, so long as the payments are affordable and they have long time horizons.

REO Flood, Now an REO drought?

There’s no shortage of prognosticators telling us of a coming flood of REO homes on the market.  OK, a lot of those soothsayers have something to sell you – be it the likes of Lamco Network, REO Vendor Manager, REO Network, numerous REO consultancies and coaches like REO Renegades, SuperStarREO etc. – their message is all the same – join our network, pay the fee, you need to be in all the right places when the flood gates open and the REOs start pouring on the market.

And hey – it’s legit!  I believe it, that explains the copious quantity of dollars flowing from my bank account to some of the above-mentioned outfits.  A lot of folks will point to data provided by our friends at RealtyTrac (who, coincidentally, also have a product to sell you), which, if you believe them, say there are…jeez, I forget how many, 4-5, 7+?… million homes across the United States at some point in the foreclosure process right now.  Of course, they are quick to point out, not all of these properties will go REO – some will be sold via short sale, some will get loan modifications, etc. – but that no matter how you slice it, there’s a lot of REO coming down the pike, although it’s likely to come more as a steady stream rather than an outright flood as many of my colleagues in the REO Brokerage business seem to be hoping for.

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Well, that was then.  Now, klaxon bells are sounding and the blogosphere is in an uproar – they’re pulling the plug on foreclosures!  It started with Ally/GMAC but quickly spread to JPMorgan Chase, Bank of America – and now others.  The New York Times has a couple good articles on the subject (Foreclosure Furor Rises, The Gathering Storm over Foreclosures), that old salty dog Bloomberg weighs in on it (Hydra of Foreclosure Probes).  A lot of states’ Attorneys General area getting in on the act, including our own Jerry Brown and the attorney general of Connecticut has ordered a halt to all foreclosures – while at the moment the foreclosures have ground to a halt only in judicial foreclosure states, it seems likely that it own’t be long before it spreads to non-judicial states like California.  And of course there’s no shortage of grandstanding politicians at the national level, either.  This could get messy (not that it isn’t already – foreclosure is a somewhat messy business).

Perhaps not surprisingly, all of this hubbub has actually reached its way down from on high and touched our business here at the Silicon REO Group.  Two days ago, I received via RES.NET a task to list one of the properties I had in pre-marketing.  Awesome!  I fired off the tasks to the appropriate people on the team – flyer design, MLS entry, ordering the sign up, filing the paperwork with my brokerage, posting on Craigslist, etc. Hours after seeing the RES.NET task, the property was listed.

And then, yesterday – kaboom!  An email from the asset manager arrived saying that the property needs to be pulled of the market, any marketing be discontinued, and that no offers/contracts would be negotiated on it at this point.  Of course, I’m expected to maintain the property and continue doing MSRs (monthly status reports) BPOs and whatnot while we wait to see if the property is to be re-listed, or…or what?  Give the property back to the former owner because there was an error in the foreclosure process?

Somehow…I don’t see that happening.  All this hue and cry about the MERS system and flawed titles, by the way – much todo about nothing if you ask me.  But people have advertising to sell to eyeballs looking to see the banks get theirs and hapless underwater homedebtors hoping and searching for how they can get relief for overextending themselves in the easy money mania of a few years back.  And I get that, and it’s fine, do what you gotta do, it’s a free country, right?

Although I’m no sage, and I’m the farthest thing from a legal or financing expert – I predict that all this will be just water under the bridge in a few months’ time.  For all the social tumult and government inquiries and TARP, HAMP, HAFA, HARP and a whole alphabet soup of other catchy acronyms – the foreclosure train rolls on, and I think it’s going to keep on rolling until the root causes of the crisis are behind us (negative equity, unsustainably high home prices, unemployment).  From the sound of it, we’re still some years away from working through it all.  So I’m prepared for lots of foreclosure drama in the headlines for some time to come – and you should be too.

REO Inventory on the Rise

A few weeks ago, I posted a blog entry about it looked as though lenders were stepping up foreclosure.  Since that time, I’ve continued to see a steady stream of REO assignments – kind of like in the good old days (all of 2008 and much of 2009).  That explains a bit about why it’s been a while since my last blog post – I’ve been busy doing occupancy checks, re-keys, negotiating cash-for-keys, overseeing trash-outs and initial services, all that fun stuff.

Housing Flood

Yesterday, the venerable and still-somewhat-respected Wall Street Journal chimed in a piece informing us that housing inventory climbed again in September – for the ninth straight month!  It’s a pretty nifty article and it gives stats from 26 metro areas throughout the United States.  In California, they provide data for Los Angeles, San Francisco, Orange County, and San Diego.  For San Francisco, the chart they provide shows that the available inventory increased by 5.4% at the end of September compared to the previous month.  Their interactive chart also has a cool feature where you can see the inventory level rise and fall for any of the metro areas over the past 18 months – and looking back, you can see that from January 2009 through December 2009 the inventory in the San Francisco area slowly declined – but it’s been rising ever since, and is now back at about the same level.

What, pray tell, could this mean?  I think it’s clear that given the overall anemic demand from buyers for most types of residential real estate that we are going to be seeing a lot of price pressure over the coming months – it could be a very cold and dreary winter for a lot of people trying to sell their houses.  And they’ll have to compete with REO sellers, who are often in great competition with each other, who absolutely-positively-gotta-sell-it and will mercilessly reduce the asking price until the right buyer comes along, although this process can take months (they don’t just give away these REOs you know – not usually, anyway).

Interestingly enough, the Wall Street Journal’s chart also provides one other interesting piece of data:  the percentage of homes that have had a price reduction as of the end of September.  In the SF Bay Area, the figure stands at 44% – which may seem high, but compared to the other 25 metro areas surveyed, it’s probably a little bit below average.  I wonder, though – will we be seeing that number pick up over the coming months?  With the way things are going, I don’t see any way around it.

Office Vacancy Rate at 17 Year High

This morning the web is full of all kinds of doom-and-gloom statistics, showing that we’re not out of the woods yet on this real estate crisis. In fact, there’s a loud chorus of voices saying not only are we not out of the woods yet, we’re actually still going deeper into them. Shiver me timbers!

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There’s also a lot more talk not just about the housing crisis, but the commercial real estate crisis, too. So far, the problems with commercial real estate loans are getting a lot less press than those generated in the residential mortgage market – but you can expect to hear more about troubled commercial loans in the months to come.

Today, for example, Bloomberg is reporting that the office vacancy rate in the U.S. climbs to a 17 year high. Nationwide, office vacancies stand at 17.4 percent, up from 16 percent a year earlier – and the article goes on to state that employers are hiring fewer people than economists had forecast. This is perhaps not surprising to you if you’re waiting in the unemployment line.

Pending Home Sales Plummet 30% in May

Your friends at the National Association of Realtors (NAR) have some non-news for us today:

Pending Home Sales Drop as Expected

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And it’s hard to argue with NAR – yes, it was expected that sales would drop after the expiration of the homebuyer tax credits, but I’m not sure that anyone was thinking it would be as much as 30% down. Also in the article, NAR expects sales closings in June to “remain elevated” but drop off in July and August.

But then again, NAR’s chief economist Lawrence Yun is also predicting that jobs are coming back:

“If jobs come back as expected, the pace of home sales should pick up later this year and reach a sustainable level of activity given very favorable affordability conditions,” Yun said.

Yun goes on to say that he doesn’t expect any further price drops, and is actually forecasting home prices nationally will rise 4% over the next two years.

Time will tell.

Rates So Low, Demand So Weak?

This morning the Wall Street Journal opines in a blog entry:

Mortgage Rates Set New Record at 4.69%, So Why Is Demand Weak?

As I myself survey the housing market, I often ponder this very issue. The WSJ makes some interesting observations: many who could refinance have already done so – and many who have not done so are underwater on their mortgages and so can’t refinance to take advantage of low rates.

As for new home buyers (who I am mostly concerned with), the Journal points a steady finger at the economy. There’s no job growth fueling household formation, and thus demand for housing remains weak.

NY Times: New Home Sales Drop 33% in May

This news perhaps comes as no surprise to anyone who’s in the new home sales business, but for everyone else thinking that the housing market is coming out of its slump, the New York Times is today reporting:

U.S. New Home Sales Drop 33% in May, to Record Low

This heart-warming statistic comes to us from your friends at the US Commerce Department. The drop in sales is down from April – and April of course benefited from the surge of buyers working to take advantage of the home buyers tax credit. However this drop, according to the article, is the largest single drop since record-keeping began in 1963.