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?


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.

Foreclosures Up, Down, All Around

I don’t know if you’re like me, but sometimes, I’m just bewildered by all the mixed messages. Sometimes you hear foreclosures are up, record-setting – then you hear they’re down, or will be coming down soon – or were down, but now they’re up again.


Take the latest news courtesy of Bloomberg and

U.S. Home Seizures Rise 38% to Record as Banks Process Backlog

So the question is, if actual “bank seizures” are up 38% (as opposed to Notices of Default and Notices of Trustee Sale, for example) – why are all the REO agents moaning about how the number of assets they’re carrying is way, way down?

It’s a mystery. Not that much of a mystery, actually – the foreclosures are still coming pretty steady (not as steady as a year ago, though) but they are going out to an ever-expanding pool of agents, most of whom just have one or two REOs here and there. At least that’s how it seems to me here in the greater Silicon Valley area.

Although the Bloomberg article doesn’t go into the number of seizures in California, the Miami Herald is reporting that “repossessions” have jumped about 83% in the first six months of 2010 compared to the first six months in 2009.

The Bloomberg article does cite numbers showing that notices of default in California are down 15 percent from the previous six months and down 13 percent from a year ago. That may signal that the foreclosure epidemic is beginning to wane in California. Or, it may not – for the first time in many months, the median home price in California decreased year-over-year – down 0.5% from June 2009, according to the L.A. Times. Specifically in our area, the article mentions that in the S.F. Bay Area, we registered the third-worst home sale performance in 15 years – but that the median price is 16.5% higher than June 2009.

Up, down, and all around – indeed. I recommend everyone keep their seat belts fastened as we are still in for a bumpy ride!