From the latimes.com:
A supply of 1.7 million homes headed for sale because of foreclosure or delinquency looms over the nation’s housing market, which could dampen progress toward recovery should the Obama administration fail in its efforts to aid struggling homeowners, researchers said.
A variety of measures to keep discounted bank-owned properties off the market — including moratoriums on foreclosures by major lenders and federal initiatives aimed at keeping people in their homes with mortgage payments they can afford — has helped increase a backlog of so-called shadow inventory 55% in the year ended Sept. 30, according to a report released Thursday by First American CoreLogic, a Santa Ana-based real estate research firm.
Shadow inventory properties are homes that have not been tallied into official inventory numbers tracked by Realtors and other real estate professionals. They include homes taken back by lenders through foreclosures and similar actions, as well as homes whose owners are at least 90 days delinquent on their mortgage payments.
A year earlier, the pending supply of homes not yet up for sale totaled 1.1 million.
A debate has emerged among real estate professionals and economists over how big an effect shadow properties will have on housing prices and sales if lenders unload them onto the market next year.
Some argue that lenders, concerned about potential losses, will moderate the pace of repossessions to avoid depressing the market. Others say efforts by the government won’t be able to keep up with the sheer number of defaults brought on by unemployment and depressed home values.
“One of the key questions is the timing, and a lot of the timing issues are really related to the administration’s HAMP program,” or Home Affordable Modification Program, said Sam Khater, a senior economist for First American. “If many of the loans that are delinquent are able to be successfully modified, and those loans perform, then that should alleviate this issue of the pending supply and shadow inventory.”
Such success is proving elusive. Data released last week by the federal government showed that though the number of temporary mortgage modifications grew, very few had turned into permanent ones. Only 31,382 of the more than 700,000 mortgage modifications under the federal program — less than 5% — had been made permanent by the end of November. Late last month the Obama administration unveiled new measures, including the threat of fines, to push mortgage servicers to improve.
“Our forecast is that [home] prices will drop,” Khater said. “We are basically expecting that the program will continue to proceed as it has in the recent past. There might be a slight improvement, but it is a drop in the bucket relative to the size of the pipeline of default that is coming up.”
In California, home prices and sales have shown steady improvement in part because foreclosure properties have made up a smaller fraction of the housing for sale in recent months. A report released Thursday by research firm MDA DataQuick showed that the state’s median home price in November was up 1.6% over the prior month, at $261,000. Of the previously owned homes sold statewide last month, 40.6% had been foreclosed on during the last year — the lowest proportion since May 2008, when it was 39.8%, and considerably down from its February peak of 58.8%, DataQuick said.
“One of the big reasons that we have had stability in prices is that there is very little supply these days,” said Gerd-Ulf Krueger, principal economist at HousingEcon.com. “The foreclosure supply really has shrunk, and it will be interesting to see what happens when that comes back on the market sometime next year. . . . It looks like the banks, under the urging of the Obama administration, are going to do the smart thing and mete it out in a more fashionable way, a more careful way.”
First American estimated that the inventory not yet on the market constituted a 3.3-month supply at the end of the third quarter, up from 2.4 months a year earlier. The number of homes for sale was 3.8 million, a 7.8-month supply at the current sales pace, First American said. That’s down from 4.7 million, or a 10.1-month supply, a year earlier.
Stuart Gabriel, director of UCLA’s Ziman Center for Real Estate, laid out a troubling scenario that could play out if shadow properties do hit the market early next year: a contagion effect in which waves of foreclosures beget more, taking down the values of entire neighborhoods. Concern over such an outcome could cause sellers and lenders to act more cautiously, slowing the pace at which they take back troubled properties, he said.
“Some are strategically holding property off the market and are only putting it back on in dribs and drabs,” he said. “They’re playing this interesting game where, on one hand, they need to liquidate these properties, but they can’t create a downward implosion in prices that will come back and bite them even harder.”
Some lenders have declared limited foreclosure moratoriums this year to give troubled borrowers time to catch up on their payments or work out other solutions. Those announcements continued Thursday: Mortgage titans Fannie Mae and Freddie Mac said they would suspend foreclosure evictions from Saturday to Jan. 3, and Citigroup Inc. said it would suspend some foreclosures and evictions from today to Jan. 17.
And some experts aren’t worried about the possibility of a foreclosure wave next year.
John Husing, an economist who studies the Inland Empire, recently wrote a report arguing that home prices in that hard-hit area had bottomed at the end of the second quarter and were likely to keep recovering because homes had reached record levels of affordability.
At the end of the second quarter, for instance, 73% of all families in San Bernardino County and 68% in Riverside County could afford the cheaper 50% of homes in their counties, Husing wrote, citing data from the California Assn. of Realtors. In 2005, 19% in San Bernardino County and 14% in Riverside County could afford to buy such homes.
“It’s not the supply side of the market that we should be focusing on anymore,” Husing said. “Demand has taken off because affordability, at least in the inland region, is at record levels.”
This bust has some more legs to it.Rents are falling off a cliff in a lot of areas.Accidental landlords have been taking losses but this will not last as rents fall.Best to lick your wounds and clean up the balance sheet.
This article got me thinking.. what is the next method of kicking the can going to be?
We’re nearing the end of the first groups of mortgage mods. For those who went 5 or 6 mo and havent qualified for a mod, now what?
Are the banks going to refile a NOD?
How about let them try their hand at a shortsale for 6mo?
Another 4month+ moratorium on foreclosures?
Maybe I’m conditioned to know that banks dont actually foreclose when the owner is fighting it.
I can tell you that, in the IE, demand is insane right now, since pricing is not insane for the first time in years. The banks could easily foreclose on and sell many more properties out here than they are with little to no decrease in pricing, since existing demand would soak them up easily. If every house sold gets five offers instead of ten, prices aren’t going to go down.
Please poke holes in my theory –
My theory is that the majority of the US housing markets will see recovery/stabilization which in turn put the other parts of the US in an even tighter squeeze and have a substantial dip in prices.
80% of the US housing markets show real stabilization at some point in the near future. This leads to the federal government/fed res to stop all of their efforts to prop up housing (mbs purchases, tax credits, reduce Fan & Fred & FHA market share, etc). Interest rates will rise fairly substantially, demand will no longer be pulled forward, affordability (particularly in higher priced areas) is negatively impacted.
Banks start making good loans/money again because 80% of the US market is stable. Since the banks are profitable again, they are ready to finally work off their shadow inventory/realize losses (most are located in the remaining 20% of the US housing market)
Most of the remaining 20% of the US housing market that don’t have real price stability are also in States that are in dire financial trouble – high tax, high unemployment environment like California and are losing brain power/population & businesses.
So in conclusion – LA, SD, OC, SF, SB, etc. are in for a world of hurt part 2.
Most of the remaining 20% of the US housing market that don’t have real price stability are also in States that are in dire financial trouble – high tax, high unemployment environment like California and are losing brain power/population & businesses.
I’ll grant the high unemployment, but California is not a high tax environment. In reality, it’s a middle of the road tax environment on a per capita basis. The difference is our property taxes are so low compared to many parts of the country the most visible part, income taxes, are higher than average.
If every house sold gets five offers instead of ten, prices aren’t going to go down.
Geotpf
how many of those bidding are “investors” planning on renting them out? are rents increasing or decreasing?
oops, 1047 was me!
“but California is not a high tax environment”
really? I think you are the first person that I’ve heard make that claim. I don’t pay property taxes, so it is high for me I guess. Our sales tax & gas tax are some of, if not the highest. How high are property taxes in other states (higher % but less $ due to values?)? And my statement about high taxes wasn’t just what it is currently, but what they will probably be in the near future to avoid bankruptcy.
really? I think you are the first person that I’ve heard make that claim. I don’t pay property taxes, so it is high for me I guess.
On a tax per capita basis it’s not the highest, we sit at 9th. If you factor in we’re 9th in per household income, it’s really fairly reasonable. We have the largest tax burden overall, but also the largest personal income overall. Prop 13 is a big part of keeping property taxes low so the state has to get the money elsewhere. Here are the stats I’m using.
http://www.statemaster.com/state/CA-california/eco-economy
hey guys, I like many others bought a house in the last 5 years and now am stuck with a home that I owe quite more than its worth. Im going through a loan modification at the time and used this mod guide I found at http://www.modifyingmadeeasy.com. The guide only cost me 19.95 and has helped me understand the process I’m going through. I recommend to all, best of luck.
I would like to see a gross total state revenue/working citizen.
We are 6th, not 9th (we were in 2005), according to this site:
http://www.taxfoundation.org/taxdata/show/336.html
Although we may only be the 6th worst, that doesn’t include the fact that we have the highest sales tax rate.
Although we may only be the 6th worst, that doesn’t include the fact that we have the highest sales tax rate.
First off, you have to normalize for the higher incomes that people in California make relative to many other areas. Without doing this, you can’t make an assumption that taxes are high for the amount of income California generates. We happen to have the largest gross product and personal income in the country by a long shot. I’m not saying we have low taxes, but we’re in the middle to mid high range for the country.
Secondly, the state sales tax being so high just illustrates my point. Because we collect less in property tax, it’s made up by higher sales tax and income taxes, which are more visible, especially to non-homeowners. Like it or not, you are paying property tax it just happens to be wrapped up in your rent payments.