From yesterday’s comment section, regarding BofA quadrupling their NODs locally last month:
More foreclosures would increase sales? Prices go up?
JtR, are you kidding?
Everyone knows foreclosures tank home values!
Hang with me.
Let’s say they are serious, and it ends up being a race to the exits between several banks. They start denying short sales, and go straight to foreclosure, which only takes 111 days, start-to-finish.
If they time it right, they’ll have a virtually-dry market the day after the Super Bowl, February 6th – and begin the flood of REO listings. But a “flood” would only need to be an initial 100 or so for the whole county, and then 50-100 per week after that for 3-4 months, to get the buzz going.
For a county that closed 2,929 detached and attached sales in March, 2011, an influx of 400-500 reasonably-priced REO listings in February wouldn’t tip over the boat – instead it would get everyone attention.
1. The mooches with big egos would be grabbing everything in sight, just so they can tell their friends and family that they got their piece of the All-American Foreclosure Bust of All-Time.
2. The first-timers, previously trounced in bidding wars over the last couple of years, would be plunking down their 3.5% and FHA-finance whatever was leftover.
3. Those who have waited patiently due to the persistent government gimmickry, can finally breathe a sigh of relief knowing their path was prudent. Those who are older, knowing the clock/calendar was ticking, would give themselves permission to proceed.
Because the initial “flood” of REOs was priced slightly under retail, and were vacant and ready to close, they would be well-received. In the beginning, the banks would be afraid of pushing too many out, but would find that the more they release, the more they get gobbled up – because the frenzy would be on to get a bank deal at all-time low rates. The stock market would be a mess due to Europe imploding, and political campaigning would be in full swing – promising the moon.
I’ll give you two historical moments to use as comparisons.
1. In April 2008 when I first became an REO listing agent for BofA, they were dumping the subprime-loan properties at full speed in Oceanside. As fast as we could list them, they were flying off the shelf in frenzied bidding wars like I never saw in 2003-2004. Sure they were cheap, but they were ugly – but they all sold for retail-plus. Today, Oceanside is one of the hottest markets in the county, and prices are up at least 10% to 20% from 2008-2009. Think if they did that in higher-quality neighborhoods where more owner-occupants would join in?
2. In 2003 we saw how this county can get whipped up in a frenzy. Nobody cared about price, the only thing that mattered was buying something, anything. If a frenzy broke out to half of what it was then, it would still be powerful and take on a life of its own.
This county is crazy about real estate, and with prices at 30% off and all-time low rates, the pent-up demand would finally appear.
I know the first dig will be about jobs, jobs, jobs. But the segment of the total population that would be buying is less than 5% of the total. There are plenty of buyers left, and we only need about 200 per month in NSDCC.
You heard it here first.
You are correct in saying demand so far outstrips supply in NSDCC all of the foreclosures could be parceled out in the manner you describe with the results you describe. You have proven your assertion at least to my satisfaction with this blog. However, the problem with your idea is what works in NSDCC doesn’t work in Toledo, Ohio or even Riverside County.
Banks and their federal regulators don’t make policies for the entire state or nation based on the market in one small area. Speeding up foreclosures and putting the resulting REO inventory on the retail market will depress prices overall.
With the push on to unload a lot of the national REO inventory in bulk at fire sale prices to units of entities like Goldman Sachs, that may be the motivation for speeding up the foreclosure process nationwide. You may find your retail buyer shut out, even though a better result for the banks and GSE’s could be achieved by selling NSDCC properties at retail.
One thing you didn’t mention is that…
Deadbeats don’t maintain the properties they live in!
While lower comps can kill property values. A street with 3-4 unmaintained lawns/properties does the same thing. For homeowners pick your poison, either cheaper comps purchased by families that will maintain their property or the illusion of higher comps because the deadbeats not maintaining their properties aren’t getting flushed out.
They showed in the article that they can be selective on where they are ramping up foreclosures – California and Nevada. If they were to keep it up, wouldn’t they proceed cautiously to see the results? I think so, and if it worked, they’d keep doing it. They have been very measured in dripping out the foreclosures the last two years, so they know how to regulate the flow.
We don’t need blanket policy – if it doesn’t work in Toledo than they should do something else.
Jobs Jobs Jobs – – My parents, and my wife’s parents both bought houses during the depression – I know there is 10% unemployment, but 90% of the population has some kind of a job, and as Jim said, only about 5% of the population at any given time is in the housing market – in San Diego County that would be 150,000 possible people – so let the foreclosure roll!
I think the premise is good as long as the financing market remains constant. If we’re in an environment where financing tightens up because the banks are liquidating to improve balance sheets we might have buyer demand but a really tough time getting financing. I would guess the high down and all cash buyer is going to be the one to benefit if it plays out this way. I don’t necessarily think interest rates are going to rise but I do think availability of loans might be tough.
As I read the article, B of A is ramping up in all the non-judicial foreclosure states. It appears from anecdotal evidence they are doing the same thing in Phoenix as in California.
B of A is under huge pressure from the regulators and from other federal folks right now and they have made a lot of changes in their corporate organization in the last few weeks. This could be a decision by B of A, with the agreement of the feds, to clean this mess up and move on. Another possibility is the feds may have decided to take these underwater portfolios down one at a time, possibly by servicer.
The folks in Washington clearly believe the housing mess is gumming up the economic recovery. They have been running the bulk sale idea up the flagpole to see who salutes and who shoots for several months now. That’s why I still think there is a very good chance these properties will get bulk sold instead of retailed out over time. The potential bulk buyers are certainly advising them to rip the band aid off. And, of course, next year is a presidential election year….
Two things. One, the frenzy that began in 2003 was an irrational bubble picking up speed, fed by a lending environment that would give anyone a loan. I don’t see that happening again soon, and I think we all agree we don’t want that to happen.
And two, we don’t hear too much about it, but IMO there is a significant number of people in SD county that desperately want to sell their home. I know it’s anecdotal, but I personally know of many people in that situation, who are waiting for prices to go back up, then they will sell. So if and when home prices do start climbing, the supply is going to ramp up, and that increased supply will be a drag on home prices.
I don’t think this economy has a chance of recovering until this whole housing mess is resolved, until the over-indebtedness is resolved, and I agree that more foreclosures are needed.
Jobs, Jobs, Jobs – I have worked in hi-tech in SD for 15 years and hired 20 or 30 people over the years; Right now is the toughest HIRING environment I have ever faced. Anyone with an EE degree and pulse can get a great job today
Thanks FuturesWatcher.
I know one of the upper managers at Illumina, a local genetics company. They have 400 positions to fill, and are having a hard time finding enough qualified applicants. But if they could, they still have to throttle their expansion, because…get this… they can’t find enough real estate to lease or buy in Sorrento Valley for further expansion.
Clearing away the foreclosures would be a good thing even in parts of the country that do not have the consistent demand as SD.
It would signal a definitive bottom — most of what can be dumped has been dumped. Yeah, there would be a tail of people who were underwater and who either get into trouble or walk away, but the worst would be over and people would realize that from here on out, the pricing is just gonna harden.
I also agree with JtR that if buyers understand that the banks are dumping, they’re gonna come running because they’ll know that this is likely a once in a lifetime opportunity. There will be bidding wars. Perhaps even in Toledo (though god knows who would want to live there).
JtR, The lack of available candidates is no longer because salaries are too low, either. It’s that quality people are getting multiple offers or big raises to stay where they are. Market rates / salaries are actually increasing in high tech right now as companies adjust to this new reality and pay more to retain or acquire talent. That should be good for housing demand in the quality areas.
JTR – We’ll buy Illumina a Sorrento Valley bldg…for the right rental rate, of course!
I’m in the computer industry and we’re dieing to hire qualified applicants. Find me people that have codeing experience in the areas we’re looking for and they’ve got a job.
“But if they could, they still have to throttle their expansion, because…get this… they can’t find enough real estate to lease or buy in Sorrento Valley for further expansion.”
I know they’ve leased the entire Biogen/Idec campus and are planning to move in Nov 2011 (340K sqft now and another 138K on the way in 2013). That campus was planned to be expanded to 780K under Biogen/Idec. Their current space is about 200K so they’ll increase their space by 70% in the next 3 months.
Notice several people in biotech on this blog. You’re the next bubble.