The Bulls’ Case

The doomdayers had their run yesterday.  But they’re just referring to the same facts that have been present for the last couple of years (lots of foreclosures, shadow inventory, unemployment, government intervention, etc.) and declaring that 2011 is the year that it’ll all come home to roost.  It is the casual-bystander viewpoint.

Let’s review the reasons why we’ll weather the storm:

1.  Lower pricing is a good thing.

The bears think that another 5% to 10% decline will set off a new round of defaults.  I think the close-to-underwater folks have already decided, and another 5% or 10% isn’t going to change their mind.  I hope that those who are underwater go ahead with defaulting in 2011, so we can get it over with – enjoy the free rent while it lasts!

A surge in defaults might put focus on improving the short-sale process, which is still a mess.  

The best part of lower pricing is that it’ll bring more buyers.  If the tax credit caused people to buy, think of the incentive of lower pricing.  While a 5% to 10% dip in prices may not be felt in the wallet like a check for $8,500, lower pricing would be great on the ego.

2.  Servicers will continue the drip system.

The slow processing of defaulters/trustee sales/REO listings is working beautifully for lenders and servicers alike.  Losses are drawn out, and fees racked up – if you are them, what’s not to like?

Servicers are probably telling the MBS-holders that their money is only gone for now – it’ll be back in 5-10 years, hang around!

Hopefully a big lender will go renegade, and flood a test market with well-priced inventory.  They’d see it get gobbled up, especially in the better areas, and they’ll end up wondering why they thought that there was no demand.

3.  The perception of a bad market will keep casual sellers off the field.

An extremely tight inventory of quality homes for sale at reasonable prices will only get tighter.  Bidding wars were erupting throughout December, and, as we head into the spring selling season, the buyers will be out in force.  Any seller who has a decent price on a quality home will be inundated by lookers, and have no trouble selling.

4.  Mortgage rates in the 5%-range won’t dissuade serious buyers.

There might be some grumbling, but buyers who have been looking for months are already anxious.  Rising rates will feed that anxiety.

5.  Unemployment is more of a confidence issue, than actual threat.

The pundits throw around unemployment like jobs are the answer to everything.  But the jobs they are dreaming about aren’t going to magically create homebuyers in the next couple of years, and may never happen.  Yet, in spite of the 10% to 20% unemployment, we have plenty of buyers today!  We could use more sellers – if more actually do lose their job and decide to sell, they will have an audience. 

6.  Hopefully all participants will learn some lessons.

At some point it will become obvious that we need not fear lower prices – conversely, lower prices are the answer.  Unfortunately, that never occurs to the pundits, because the gloom-and doom fears are better for TV soundbites and book sales.

What we need is inventory to sell, and let prices go where they go – most will be surprised at how healthy the demand is for homes around the North SD County Coastal region.

I appreciate the bubbleinfo readers who turned into clients this year – 2010 was the best ever for Jim the Realtor!  Yet I could have sold TWICE as many houses if other realtors had any common sense about the market – their ignorance is as much to blame as anything why we don’t have more sales.

More Doomsday

Excerpt from Peter Schiff’s article seen in the WSJ:

How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer’s tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.

Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.

With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.

From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.

In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.


Robert Shiller got in on the action too:

San Diego 4Q Foreclosures

“There has been an effective moratorium on foreclosure,” said Roubini.

Around here it looks like the servicers got back on their horse pretty quick:

San Diego County Trustee-Sale Results, Weekly

“The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year,” Roubini says.

Don’t they say that every year? I think the servicers will keep dripping them out little by little. There is no pressure on them to hurry up, and nobody thinks that adding more supply would help the situation. Well, almost nobody.

Summary of Bears’ Case

 By Ash Bennington, NetNet writer, special to cnbc.com:

According to economist Nouriel Roubini, the housing market is in a double dip.  And negative Case-Shiller Home Price numbers out today only confirm that unpleasant truth.

“It’s pretty clear the housing market has already double dipped,” says Roubini. “And the rate of decline is stronger than in previous months,” he said of the new housing data.

Aside from below trend economic growth, there are two factors specific to the housing market that are putting downward pressure on home prices.

The first factor is the expiration of federal home buyer tax credits for first time home buyers.

“If you look at the data, Case Shiller has been falling every month since the tax credit expired in May. Everyone who wanted to buy a home did so by April,” Roubini said.

“That tax credit stole demand from the future and its expiration led to another 30% fall in home sales, pushing Case & Shiller lower for the last few months,” Roubini wrote in a text message earlier this morning.

The second factor putting downward pressure on home prices is the ongoing chaos with mortgage documentation, and the consequent suspension by banks of mortgage foreclosure proceedings—which has actually worsened the underlying problems in the housing market.

“There has been an effective moratorium on foreclosure,” said Roubini.


NSDCC Sales and Pricing

The detached sales in North San Diego County Coastal have been holding up pretty well in 4Q10.

The 4Q09 sales were somewhat enhanced by the tax credit, yet the last two months aren’t too far behind.  This quarter should only end up about 10% lower than the 4Q09 total of 642 sales.

In the peak 2005-2007 era, the pricing for most months was range-bound between $450 to $500/sf, so we’re about 20-25% lower now.  It looks pretty steady too –  we would need a surge of well-priced inventory to create frenzy, and push pricing higher:

I tacked on 10% to December, 2010’s total to adjust for tomorrow’s closings, and late-reporters.  Currently there are 1,261 active listings whose list prices are averaging $619/sf, and have been on the market for an average of 131 days.

Paperwork Cop

Hat tip to David for sending this along, from USA Today:

Steven and Tamara Gewecke are three years behind on their mortgage payments, but they’ve fought off foreclosure.  The Minnesota couple refinanced in 2006 to start a business. It failed. Debts mounted. The Geweckes went bankrupt and failed to win a loan modification. But they bought time.

In 2009, the Geweckes filed a lawsuit to block their foreclosure. At the heart of their case is this question: Who owns their mortgage?

They allege the investor trust that claims to doesn’t because there’s no proper record of the mortgage’s transfer to the trust. Their complaint also alleges that the mortgage didn’t get to the trust until 18 months after the trust closed to new loans. If US Bank, the trustee, can’t prove ownership, it can’t foreclose, the Geweckes say.

The Geweckes want a loan modification so they can stay in their home of 16 years. Their current loan has an adjustable 9.25% interest rate. They owe more on the house than it’s worth.

They’re not looking for a “free ride,” says Steven, 40, who works in marketing. Neither do they want to pay off one firm and then face a future claim by another.  They also hope their case will send a message to mortgage companies that they must obey rules, too.

“I understand that if you don’t make your payments, you’ll lose your home,” says Tamara Gewecke, 41. “But make sure you do it right. Make sure you’ve got your paperwork done.”

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