These days, every time you read the news you’ll see another expert talking about the shadow inventory coming home to roost. Depending on the guesser, there will be somewhere between 3 million and 8 million homes that get foreclosed in America over the next 1-10 years. Can we narrow that down a bit?
The shadow inventory that is hardest to count are the borrowers who are not making their payments, but aren’t on the foreclosure rolls yet. LPS came out with this chart (below), so let’s use their numbers and envision what would happen if banks/servicers change course, and ramp up the foreclosure machine:
The chart shows 17,800 defaults (today the NOD and NOT count is 14,435 on foreclosureradar), and 34,200 properties in San Diego County that are at least 90-days late, for a total of 52,000.
How would it look in your area if EVERY ONE of these were foreclosed in next 12 months?
To estimate the total number of defaulters plus 90-day late borrowers for each area, let’s use the multiplier formula here: 17,800 x 2.92 = 52,000.
Let’s multiply 3x the current defaults in each area/zip code:
| Area or Zip Code | NODs/NOTs x 3 | # of Homes | 1 REO per # homes | Foreclosed since 1/1/07 |
| Spring Valley | ||||
| West RB 92127 | ||||
| Chula Vista | ||||
| Otay Mesa | ||||
| Encanto | ||||
| Escondido | ||||
| El Cajon | ||||
| Oceanside | ||||
| RP 92129 | ||||
| Scripps Rch | ||||
| Carmel Valley | ||||
| Carlsbad | ||||
| RSF | ||||
| Cardiff | ||||
| Encinitas | ||||
| Solana Bch | ||||
| La Jolla | ||||
| PB/MB 92109 | ||||
| Del Mar |
If servicers crack down and foreclose on every 90-day late property, we’ll see one flipper or REO listing on virtually every block in areas like Spring Valley. But with all the foreclosure activity over the last few years, would it bother buyers to see 1 out of 40 or 50 homes getting foreclosed? I don’t think so, and this is probably the worst-case scenario over the next year. The current SD default list is split 65% SFRs, and 35% condos/others, so spread it around as you visualize what might happen in your area over the next 12-18 months.
In areas like Carmel Valley, where we’re estimating 237 SFRs and condos on the NOD/NOT/90-day list, it would bring relief to buyers starved for well-priced inventory. We know some defaulters will get their loan mod or be short-sold, but if not, and 15-20 foreclosures per month came on the market, it wouldn’t overwhelm the market – 71 homes sold there last month. Hopefully, it might scare some of the elective sellers back to the sidelines, to be replaced by bank-owned inventory.
In Carlsbad, if you divide the current NOD/NOT/90-day list by 12, it would mean roughly 56 REO or flipper listings per month, and 124 sold there in August.
We’ve expected that we’d be in a heavy bank-inventory environment by now, yet the ‘delay-and-pray’ strategy has been employed instead. If 30% to 50% of the for-sale inventory was well-priced bank deals (flippers are retail-plus) it could boost sales. If servicers insist on the extend-and-pretend strategy, sales are going to slow down, unless elective sellers get more realistic.
Servicers, please foreclose on every defaulter in the next 12 months – homebuyers would appreciate the well-priced inventory!
Correct me if I’m wrong, but doesn’t 92127/West RB also include 4S ranch, which got completely hammered during the meltdown, as opposed to say Westwood/Westwood Valley which are older and presumably more stable?
Any local repercussions from the GMAC/Ally Bank foreclosure fraud scandal / moratorium?
No, the GMAC moratorium was directed to judical-foreclosure states only. Let it rip in California!
This is main reason America is pissed. The losers need to lose and the winners need to win. Banker subversion of the free market needs to be ended.
“No, the GMAC moratorium was directed to judical-foreclosure states only. Let it rip in California!”
Yeah doesn’t seem to be much repercussions for California, expect that maybe their inclined to get things moving out here. Hurry and do it before CA decides to pass some kind of law making foreclosure more difficult. I guess the other aspect would be the we’re too busy excuse starts to lose some weight.
What are the numbers for Fallbrook, seems there are a lot of REO’s there lately
Banks do what they think is in their own best interest.
But this is not saying anything everyone does not already know.
Thanks for the hard work and stone-cold data.
Here are some thoughts:
1. There are buyers. But the number of buyers are significantly smaller than that of 2009.
2. There are organic sellers: some motivated, some elective. How do they compare with 2009?
3. From above stats, foreclosure inventory has been at least half-way through.
4. It is interesting to mediate for moment and think about why we had a stage-case down in housing price across board during late 2008 to earlier 2009 while there was only slow dripping from 2005 top onwards.
Do the Riverside numbers there include just Riverside, or all of the greater IE, including desert areas (San Bernadino, Moreno Valley, Hemet, Victorville, etc.), or something in-between (say, including the first two but not the last two)? In any case, that’s quite an…um…impressive stat.
I re-read the post again. I would not use what described in the above as “worst-case scenario”. We could have another shock and get home price hammered for another 10% across board—A credit source/analyst CR seem to imply the same direction at least. This begets more layoff/less hiring and damages current elective sellers’ hope. All those could induce more foreclosure until the house-hold debt level reaches a comfortably servicable level. The comfortability can be measured by the portion households would/could spend on non-house items.
Keep this in mind, the above statement is pure speculation.
“Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand.”—Albert Einstein
nct,
I have padded the numbers, and shown what would happened if EVERY SINGLE PROPERTY IN DEFAULT OR 90-DAYS LATE GOT FORECLOSED OVER THE NEXT 12 MONTHS, and that’s not a good enough worst-case for you?
Plus, do you think the servicers could work that fast, or the government sit back and do nothing? There were 14,509 foreclosures last year, and you think the possiblity of 52,000 in the next year isn’t worst-case?
You are welcome to get your own blog to explore that one.
Yes we could have another shock, Wells Fargo could fail, another war could start, an earthquake hit Socal, etc.
But a 10% hit in pricing is not a shock, it would be a welcome relief to thousands of buyers around here.
BTW, why do you say there are less buyers now? What is your evidence besides the 2-3 people around you who either bought or stopped looking?
YTD county sales are almost identical to last year.
Back to foreclosures, do you realize that 51,333 properties in San Diego County have been foreclosed since 1/1/07?
People in general are numb to foreclosures by now, and probably won’t know or care if we see that amount happen again over the next 2-3 years.
Government ain’t done yet:
The Federal Housing Administration is bringing together lenders and investors at a Sept. 29 meeting to ensure that its new FHA short refinance program does not stumble like other attempts to address negative equity and strategic defaults.
My favorite JTR go-to retort: “You are welcome to get your own blog to explore that one”.
Simple, yet powerful and crystal-clear.
But a 10% hit in pricing is not a shock, it would be a welcome relief to thousands of buyers around here.
BTW, why do you say there are less buyers now? What is your evidence besides the 2-3 people around you who either bought or stopped looking?
I agree, and to hammer it home these two items are directly related. A 10% drop in prices plus some foreclosures hitting the market would increase the number of home sales. Unrealistic selling prices are what’s keeping sales volume down, not a lack of buyers.
“BTW, why do you say there are less buyers now? What is your evidence besides the 2-3 people around you who either bought or stopped looking?”
Since I don’t have blog yet :(, I have to reply here if you do not mind.
You are right that I have no other evidence other than by counting what is around me. Of total 25 people I know of, seventeen has been purchased thirteen houses and five attached during the priod from early 2009 until Aug 2010. Of eight leftovers
. One is looking now due to Advantage Point fall-out.
. One moved out for job reason
. All left are three first-time buyers and three move-ups. Among those, one is looking. Others are not partially because kids are in school and partially they think things will get worse before getting better.
I also remembered that you countered the “lack of buyers” argument previously by saying that you get calls from new buyers almost every day. Admittedly, it is a very strong evidence of “buyer pool”. How does it compare to couple of years ago, like 2005/6/7? Also, is there any chance more business coming to you because more publicity you acquired in recent years?
Anyway, if you don’t like what I posted, please feel free to delete.
Of total 25 people I know of, seventeen has been purchased thirteen houses and five attached during the priod from early 2009 until Aug 2010.
I wish I ran into you a year ago! 🙂
I don’t mind you commenting, but I’d like to encourage you to keep it in perspective. If all you do is look for the negative, and then heap more imagined negative on top, you won’t see anything else. I lay out what seems like worthy data for consideration, and you do with it what you want. The most worthy in this post are:
1. 51,333 foreclosures haven’t killed the market.
2. One foreclosure per year out of 40-50 homes seems tolerable.
Jim: spoke to a mortgage broker who said several of the companies he works with stopped making jumbo loans in many counties in SoCal because they think housing prices are going to drop substantially in the near future. Have you heard of that? It seemed like the economy and housing prices were recovering, but if banks won’t lend money on homes, that could become a self-fulfilling prophecy and drive prices down. Would appreciate your thoughts.
Jim wrote:
“Servicers, please foreclose on every defaulter in the next 12 months – homebuyers would appreciate the well-priced inventory!”
Amen!
I sure hope they hear you, Jim.
Jim – I’d like to know how the NOD number you use was determined. Are these actual filed NODs?
Thanks.
Both the NOD and NOT counts were directly from http://www.foreclosureradar.com so yes, filed and active.
I’m so glad, but also sad, to have my experience in trying to find a home in North County at least anecdotally validated. We sold our out of state house in 3 weeks (that’s what pricing right and desirable property does-call us motivated sellers). But now we’re having great difficulty finding a property south of 78, west of 15, north of Encinitas, ~2100 sq ft, with something more than a postage stamp yard for under $525k. Some will say, “you’re kidding”. No, I’m not. There’s a huge void in inventory in that price range, but properties priced in at $550-650k are sitting. Why? Because they’re at least $50-75k over priced I think! Thanks for listening.
Thanks, Jim. If they are just counting the NODs that are actually filed, then I hate to say this, but I suspect the numbers we’re discussing are probably low.
I know several people who have not paid in many months, one in over a year and they have not received even one NOD. One was successful in a short sale. Never received a NOD. Another is attempting a loan mod, however income has dropped significantly, as also the value of the property. That person still has not received a NOD.
Just wanted to bring to your attention that there is a greater number of people not paying who are not receiving NODs and it’s difficult to put a number on how many there of those there are, but they are falling through the cracks for now. Nevertheless, those people/properties will have to be considered, dealt with, whether loan moded or short sale or foreclosure.
Takes stealth to a new level.
Wonder how this translates to months of inventory after introducing a fudge factor for short sales.
I hate to say this, but I suspect the numbers we’re discussing are probably low.
I took (NOD+NOT) x 3, and you think it’s low?
Thank you for bringing to my attention that there is a greater number of people not paying.
There were 14,000 foreclosures last year, and in my example I outlined how each area would look on a 52,000-foreclosures-per-year pace, which for many reasons I doubt could ever happen – the servicers not able to handle the volume, government wouldn’t let it happen, etc.
How much worse do I have to make to satisfy?
If it were on a 100,000-per-year pace, it would still be around 1 foreclosure per year out of 20-30 homes in Carlsbad and CV.
When it was like that in Oceanside it didn’t seem that bad. And that was back when we were new into it – after 51,333 foreclosures, people are numb to it.
Maybe I’m not understanding the numbers, either.
Are the 90+ delinquents a subset of the NOD/NOT (defaults), or are they *in addition to* those already in the foreclosure process?
I’m reading them as being “in addition to” those in the NOD/NOT foreclosure process.
Is this what Josie’s getting at?
In addition to
The thing that bugs me is how LPS knows who is delinquent, and who isn’t. If they were Experian or another credit-reporting agency, then I’d buy it.
But they are like RealtyTrac, a foreclosure-processing service. From their website, where they talk about their ‘mortgage-perforamce data’:
“the data is gathered directly from the servicers.”
The same servicers who can’t/won’t tell us how many are in the shadow inventory (3 to 8 million).
But on their chart used above they say that there are 34,200 SD properties that are 90 days late, and 17,800 in foreclosure. 52,000 total.
(there are 14,361 on foreclosureradar today)
So I divided 52,000 by 17,800 to get 2.92, rounded it off to 3.0, and figured if I multiplied each area’s NOD+NOT x 3.0 it would give me an approximate buffer to estimate those who could get foreclosed some day.
I agree with analysts who say that once you hit 90-days late, you’re not going to make it, hence the idea that EVERY ONE of these could get foreclosed.
But all in one year? No chance that many could get processed.
But if they did, it would be 1 foreclosure per year out of 40 or 50 homes in places like Carlsbad and Carmel Valley. Because we’ve already seen 51,333 foreclosures in SD over the last 3.5 years, I think we are numb to it, and buyers would shrug off 1 out of 40. If anything, they would enjoy it.
According to ghostfactinvestash, aCR frequent and MBS trader , LPS has the most complete database for mortgage.
ghostfaceinvestah wrote on Wed, 3/17/2010 – 9:49 am
reply tags
As I have said, it isn’t that hard to get data on the problem. The LPS data is very, very credible. Look at page 7.
http://www.lpsvcs.com/NewsRoom/IndustryData/Documents/02-2010%20Mortgage%20Monitor/Pres_MM_Jan10Data.pdf
Average days delinquent for 90+ mortgages, now 272 days, up from 204 days in 2008. These are 90+, not yet in foreclosure. So the average is 9 months.
Average days delinquent for loans in foreclosure, now 410 days, up from 260 days in 2008.
Or, if you want, just subscribe to the Loan Performance dataset, you will get a monthly loan level update of securitized loans. There are many loans that are many years delinquent but still active.
Jim
Really appreciate your website and all the hardwork you do.
Your 3 multiple is a reasonable multiple. However, an additional 10% decline may push the market into a death spiral. That is lower prices beget more foreclosures.
With a 10% decline in prices the additional number of owners with no equity puts a larger number “under water”. It is this ‘slope of the curve’ which can exacerbate the entire market.
The single most important issue that is never discussed is JOBS and the unemployment rate. Should the unemployment stick at these levels for
for an extended period all bets are off.
No jobs, no new buyers.
The extend and pretend by the banks is a veiled attempt to make the price declines an orderly market.
The great fear out there should be a “lost decade’ like Japan suffered. We, like Japan are now pushing the zero bound interest rate limitation and experincing disinflation and what they referred to as a balance sheet recession.
In my opinion, until we get GDP growing and create more jobs real estate prices will see continued downward pressure.
Thank you, Jim!