Interviewer: You don’t think housing is on the road to recovery?
Shiller: I think it might be. There are a lot of positive indicators. People tend to overreact to these, and if you look at the trend down since 2006, it’s a pretty strong trend that we have to see reversed. You know maybe, you know, I might call it later this year that we’ve reached the bottom, but I’m not ready yet.
Interviewer: So this is an important note here. You’re considered one of the foremost experts on housing. Robert Shiller, as you sit here right now, you’re not willing to say that housing is back?
Shiller: Well, we’ve seen four attempts at recovery ever since the subprime crisis. But it’s seasonal. The seasonal has gotten stronger, it’s been growing, so nobody knows why and during the summer season, the question is, will this continue through the fall and winter? We’ll wait and see. If that happens, then, you know, I believe in momentum in the housing market. and we are starting — it looks like upward momentum, but I think it’s too soon to call.
Interviewer: What’s the tell then? what do you need to see before you’re willing to say that we’ve turned the corner for real?
Shiller: It least a solid year of price increases. and maybe other indicators, as well. but the other — it’s starting to look better. I have to admit. so, you know, for someone who is thinking of buying a home now, you also have to factor in that mortgage rates are at record lows. so, you know, I’m not telling people not to buy a house.
Are you wondering how this strategy of banks-not-foreclosing is working?
Here are the counts of active listings of detached homes around NSDCC:
Town
REO
SS
Non REO/SS
Carlsbad
3
19
208
Carmel Valley
1
3
111
Encinitas
0
3
101
DM/SB/RSF
3
4
304
La Jolla
0
2
164
Totals
7
31
888
The supply of distressed homes-for-sale is 4% of the total active listings, and once you subtract Carlsbad, distressed listings make up 2% of the total supply in the other areas.
Analysts have tried to parcel out whether QE3 will really help the economy.
The way almost everyone looks at this is about the impact on housing, specifically mortgage prices. But mortgage rates haven’t changed at all since the announcement of QE3, and if the Fed was trying to influence the expectations channel, the impact really should have been that immediate.
Then again, rates didn’t rise, either. It could be that QE3 arrested a trend toward increasing mortgage financing costs. But more likely, banks are taking the profits out of the eased cost of mortgage financing for themselves:
The banks are choosing not to reduce mortgage rates further. One reason: By keeping the rates elevated, they are able to earn much larger profits when they sell the mortgages into the bond market. If the level of profits on those sales stayed at recent average levels, borrowers might, for instance, pay $30,000 less in interest payments on a $300,000 mortgage, according to a recent New York Times analysis.
The fact that banks haven’t prepped for a backlog of mortgage applications, meaning that the benefits of QE3 cannot possibly get to customers in a reasonable amount of time, leads us more toward this conclusion. Banks have no problem securing cheap backstopping of mortgages, but they don’t have to channel those savings into the mortgages they sell. It’s a form of collusion, because nobody else has dropped their rates to gather the lion’s share of the business. And nobody can actually get a loan to move, either, because that would require hiring staff. This way, banks can benefit from lower rates for themselves on one side and higher rates for customers on the other. The arbitrage between those two prices equals massive profits.
Let me add another postulate to all this. When you have this delay in financing, the beneficiaries are those who have the working capital to purchase in cash. Furthermore, the cheap market for foreclosures invites groups who can accumulate capital to come in and scoop up the housing stock. This is what we’re seeing all over the country – institutional investors buying up foreclosed properties to rent out in the short term and sell at a profit in the longer term. They are securing very large amounts of capital to pull this off.
This is the next bubble, happening right here, and QE3 facilitates it.
Investment firms can scoop up cheap housing stock and flip it into rentals. There’s also talk of securitizing the rental income streams, which really reinflates the bubble machine. Meanwhile the character of neighborhoods completely changes, homeowners get nudged out for properties by the investors, the phenomenon of absentee slumlord-ism takes hold, and power relationships change when one company owns a substantial amount of the housing stock in a city.
What’s happening in housing right now should absolutely terrify people. The forces that are being coordinated to show positive statistics at the macro level are also creating a dangerous environment for the future.
Hat tip toHWfor publishing this story, but I’m not sure that they or Barclays grasp the full meaning – that banks are deliberately letting defaulters live for free…..for years.
Loans serviced by Bank of America tend to remain in the 90-plus-delinquency state for significantly longer than loans serviced by other big banks, analysts at Barclays Capital find. The length of time that a loan is in the 90-plus delinquency bucket, they say, is driven by the credit quality of the borrower, its geographic location, and especially, by the servicer processing the loan.
A disproportionate share of BofA mortgages in the 90+ days delinquent bucket — 62% — are therefor more than three years. That’s biggest among Too Big to Fails.
“We believe that this is partly driven by the more intense media scrutiny and government pressure being applied to BofA with respect to its foreclosure practices, given its history of servicing lapses,” Barclays says.
Over the past few years, BofA has likely exhausted all other avenues of resolution (loan modifications, short sales, deeds-in-lieu of foreclosure, etc.) before proceeding with moving a borrower into foreclosure. The bank implemented a temporary foreclosure moratorium across the country in late 2010.
With all the action we’ve been having, shouldn’t prices have been going up by now?
We’ve been through an unprecedented four years, and Rob Dawg said it early on – forget all previous assumptions and expect the unexpected.
First let’s review the easy reasons why pricing will languish:
Potential sellers waiting in the wings, anxious to get out. There are 165,650 underwater homeowners in San Diego County, plus we have a steady flow of baby-boomers heading for their final destination. Every time we see a little pricing pop in a neighborhood, these potential sellers will want a piece of it. When two or more list their home, they will likely thwart any pricing momentum.
Short sales will undermine pricing momentum until somebody does something.
Economy/Europe/Politics/Deficit, etc. will cause buyers to stay cautious. There is no widespread economic recovery, and stagnant wages and unemployment will limit pricing.
Let’s call those the ‘easy three’ reasons why pricing with struggle to increase, and include some evidence. Lately we’ve been hearing that housing has bottomed out. Consider Rich’s graph below (from his latest post) that shows how the inventory count changed course in August, which is unusual. Sellers must be getting a whiff of the opportunity, and the more listings we see, the more cautious buyers will be:
THE OTHER REASONS WHY PRICING WILL STRUGGLE:
Buyers have full access to the comparable sales. This has never happened before – the realtors kept a tight grip on the pertinent pricing data earlier, and during the 2003-2007 era, all that mattered was that you bought before you got priced out forever. These days, the buyers are coming to their own conclusions, and being conservative with their estimates of value – and you can’t blame them. They will pay a fair price, about the same as the last guy, or maybe a tick more, but that’s it.
Realtor gimmicks and sleazy techniques are turning off the buyers. Those who might pay a little more than the last guy will be the buyers who felt like they were treated right.
The presentation of homes has improved, but still far short of what could be. There are still too many listings with few photos, lousy photos, or no photos, there are few professional open houses and even fewer video tours, and trying to show a house hasn’t improved one bit – and it may have gone backwards. Buyers cool off in a hurry, and this new trend of inputting listings onto the MLS but not showing them for a week or two is killing deals.
We keep hearing pundits talk about pricing in simple terms; up or down, good or bad, buyer’s or seller’s market, etc., but today’s homebuyers know that pricing issues are more complex. They aren’t going to be influenced by lazy talk.
Ben said he’s going to keep rates low through 2015 or as long as it takes, so buyers don’t feel any big rush. The American Dream ain’t what it used to be, and people have a new appreciation for the benefits of renting. Generally, there is a new ambivalence towards homebuying, and a determination to not overpay.
Buying the right house, at the right price, is prevailing.
You could make the case that you should buy now while there are still this many hurdles, because if they got cleared out and we had a pure marketplace, we could be off to the races.
There are a number of possibilities that could change everything.
Somebody like Google could start the PublicMLS, banks could stop allowing short sales (or only pay 3% to dual-agents), or the law could run through the whole industry. I keep hoping that the truth and transparency will prevail, but it is slow in coming!
The previous video acknowledged a good realtor doing it the right way, but unfortunately there are still plenty of bad apples – and they are allowed to run loose. What could happen?
The Attorney General could get involved, and convict some of the offenders of defrauding the banks. If we had just a couple of perp walks, it would go a long way to solving the problem, because realtors don’t even realize that it’s wrong when they see so many others doing the same thing.
Or banks could pull the plug on short sales, but they would have to believe that foreclosing was the preferred option. Foreclosures sell for what the open market will bear, whether at a trustee sale or REO listing. Short sales rarely do, because there are so many conflicting forces at work – sellers enjoying the free rent, and agents drooling at the thought of hoarding commissions.
In a rising market, banks would be better off foreclosing and holding properties for months or years, rather than having guys like this rob them today:
We should be seeing more applications of the modular home, especially for remote areas.
Here’s another that starts their base pricing around $200/sf, and goes up from there:
For those who are interested, they are having open house in Joshua Tree this weekend, where temperatures are predicted to be in the 90s – lower than here!
Last month was the busiest month for San Diego County homebuying since 2006, while home prices continue to hold at four-year highs, Thursday’s DataQuick report shows.
The county in August recorded 3,981 residential sales, the highest level since 4,533 sold in June 2006. Sales in Southern California hit the same milestone, driven by near-record activity among investors and cash buyers as well as as low mortgage rates, DataQuick analysts say.
“August was the strongest month for home sales so far this year, and the strongest for an August in six years,” said DataQuick President John Walsh in a statement. “That’s really saying something given the drop in low-end sales, especially foreclosure resales. Much of the pickup in activity reflects a continuation of trends we’ve seen for months, like the unleashing of pent-up demand in move-up markets and high levels of cash and investor buying.”
Prices locally also continued to chug ahead. The median home price for all homes sold in August was $345,250, a four-year high (the median price clocked in at $350,000 in August 2008). August’s median price changed 1 percent from July’s and nearly 8 percent year-over-year.
Right now, there are 5,589 active home listings in San Diego County, roughly 50 percent lower than the same time a year ago, based on figures from the San Diego Association of Realtors.
The marked drop in the number of homes on the market coupled with the increase in the share of investment buyers have proven to be challenges for people like the de Violinis, house hunters from Chula Vista.
Throw in the increasing presence of cash offers, and things start getting really complicated for buyers who would need financing. In San Diego County, 32.6% of all homes sold in August were bought with cash. That share is near the all-time peak of 33.5 percent recorded in May.
“We’ve put in some offers,” said Robert de Violini, who’s been looking to buy a home with wife, Karen. “”In one case, we were beat by someone who put more than 40 percent down … I said, ‘What? Whoa.’…A couple of times there were multiple offers. A couple of times there were cash offers. It’s hard to beat a cash offer.”
