He claimed that I said Yes, because of my post about it being a great time to buy if you’re selling a cheaper home and buying a more-expensive home. It’s because the higher you go price-wise, the colder the market gets. Fred said it is a good time to buy as long as you don’t plan to move in the next five years.
It’s a question that deserves a full answer, not just yes or no.
The most common blog chatter is that history always repeats itself, and it will just be a matter of time before this cycle runs out.
The economic cycle will sputter again, but the housing market is different now.
Why?
Because distressed sales are well-managed.
The California Homeowner Bill of Rights mandates that loan modifications be dangled in front of anyone in trouble. The foreclosure process gets drawn out for months and years so we’ll never see a flood of trustee sales again.
As a result, making your mortgage payments has become optional.
If we have another economic downturn where homeowners can’t pay, then the government will insist that lenders give them a break. The cast was set in the last crisis – the government will create bailout programs that allow everyone to kick the can down the road.
With distressed sales few and far between, the vast majority of home sales will be elective. Sellers with the mantra – “I don’t have to sell, I’m in no hurry, and I’m not going to give it away!”
Prices will maintain a tight range of +/-5%, because the minute a seller thinks he is being forced to ‘give it away’, he will object. Different neighborhoods will have periods of stall-out, where few or no buyers will pay what sellers want, and real estate loitering will be common.
But days of drastic price dips are gone.
The other buffers to a housing downturn include reverse mortgages, rampant flipper business, and baby-boomer estate distributions.
If today’s buyers have assurances of pricing protection, is it a good time to buy? Well, yes, if that’s all that matters.
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But for most, it is a terrible time to be a buyer, which is different.
If you are on the low-end of your market, you can forget about buying your “dream house”. The competition is fierce, and compromise required – if you can even get your hands on something.
My listing at 2022 Cherokee in Escondido – the one priced at $549,000? We had six offers, and four of them were all-cash. All were at list price or higher.
It was viewed 3,198 times on Zillow since Friday, and I received 100+ phone calls and texts from agents. I had over 200 people visit the open house on Sunday, and it was probably shown at least 50 times between Monday and Wednesday.
Almost all of the lookers didn’t offer, so they will be competing against each other on the next one – literally hundreds of buyers floating from new listing to new listing, hoping for a miracle.
Was it a giveaway? Agent comments included, “Price was fair and reasonable’, and ‘The defects were properly discounted’ (defects included no direct access from house to backyard, master suite downstairs and kids’ bedrooms up, and it backs to the I-15 freeway – the rear fence was the CalTrans chainlink).
Buyers have to endure bidding wars on anything decent, no rules about how to win, and shady realtor tricks that seem to favor insiders. Buyers are quick to jump to that conclusion, but it is more due to a realtor’s incompetence that bidding wars are vague and hard to win.
If you can get a house into escrow, it almost always happens that it’s condition is worse than imagined. But sellers are in the driver’s seat, and do little or nothing to assist. Buyers usually end up feeling like they are buying an over-priced turd.
In June, 2011, Ben Bernanke said at a live press conference:
“We have told the banks to handle their REOs…..long pause………..in an economy-supportive way.”
Banks took that as permission to stop foreclosing, and that, combined with the California Homeowners Bill of Rights, have caused foreclosures – as we once knew them – to dry up. All three of the big North County REO brokers have all given up and left the business, and the occasional bank-owned listing that does hit the market is priced at retail, or retail-plus.
Here are the NSDCC detached-home listings that were bank-owned (REO) or short sales:
Year
REOs Sold
Short Sales Sold
2010
199
216
2011
190
278
2012
162
356
2013
43
134
2014
13
44
2015
15
30
Instead of foreclosing, the banks have thrown a loan modification to anyone who would sign it, and when those expire, extensions will likely be granted. Distressed sales have gone the way of the dodo bird!
Those 45 sales last year were 1.5% of the 3,018 total sales, and with higher prices, the count is likely to go down. We will be in a retail-priced environment for the foreseeable future!
With publication of his memoir, The Courage to Act, on Tuesday by W.W. Norton & Co., Bernanke has some thoughts about what went right and what went wrong. For one thing, he says that more corporate executives should have gone to jail for their misdeeds. The Justice Department and other law-enforcement agencies focused on indicting or threatening to indict financial firms, he notes, “but it would have been my preference to have more investigation of individual action, since obviously everything what went wrong or was illegal was done by some individual, not by an abstract firm.”
Fannie Mae has been over-pricing their REOs by at least 10% since 2012, and have been getting away with it because buyers think that because it’s a foreclosure, they are getting a deal, and because Fannie provided ‘HomePath’ financing where no appraisal was required.
They instituted a seven-day First Look Program, where only the owner-occupying buyers were allowed to purchase, which helped to whip up the excitement in unsuspecting buyers, many of whom were purchasing their first home.
But in October, 2014, the HomePath financing was terminated, and apparently the REO portfolio needs to be goosed again.
Here the ‘new’ 20-day First Look Program is rolled out by our N.A.R. goons, and presented as a great new idea to help buyers and preserve neighborhoods. But in reality, it’s extending the period that Fannie can take advantage of unsuspecting buyers:
In September, Susan Rodolfi, celebrated an unusual anniversary: five years of missed mortgage payments.
She is like a ghost of the housing market’s painful past, one of thousands of Americans who have skipped years of mortgage payments and are still living in their homes.
Now a legal quirk could bring a surreal ending to her foreclosure case and many others around the country: They may get to keep their homes without ever having to pay another dime.
The reason, lawyers for homeowners will argue, is that cases have dragged on too long.
This story is humbling, but these folks could have short-sold this house years ago and gone back to living in their townhouse. How many people are not paying their mortgage, and not getting foreclosed? Hat tip to Nathan for sending this in from the wapo:
A decade ago, Comfort and Kofi were at the apex of an astonishing journey they had made from Ghana in 1997, when they had won a visa lottery to come to America. They did not know it at the time, but they were also at the midpoint in their odyssey from American Dream to American Nightmare.
Today, they struggle under nearly $1 million in debt that they will never be able to repay on the 3,292-square-foot, six-bedroom, red-brick Colonial they bought for $617,055 in 2005. The Boatengs have not made a mortgage payment in 2,322 days — more than six years — according to their most recent mortgage statement. Their plight illustrates how some of the people swallowed up by the easy credit era of the previous decade have yet to reemerge years later.
This guy only sees negative in the real estate world. He called me once trying to get me to bash the market, and when I refused, he hung up. Even today he is still ranting:
Real estate analyst Keith Jurow, author of the Capital Preservation Real Estate Report, is warning that the real estate market is not as strong as it seems.
Says Jurow: “I never bought into the idea that we had a recovery at all.” His research leads him to conclude that home prices will be heading lower.
His research? Because the Case-Shiller Index is still rising, just not as fast – that means prices will be heading lower? There are plenty of reasons you could use to justify the doomer position (wars, unemployment, unaffordability, earthquakes, etc.), but smaller increases are a weak excuse.
He also thinks we will still have a surge of foreclosed properties to come, just because their are so many people delinquent. But once you miss a few payments and ruin your credit, the delinquent homeowners might as well ride it out until they get the boot.
How are the San Diego foreclosures?
Some said they dropped off because of the Homeowners Bill of Rights, which was released two years ago and became law on January 1, 2013. The bansk have had plenty of time to adjust – here’s how they are doing:
It’s hard to believe that people just go back to making their payments, whether they get a loan mod or not. The banks will wait until they can make money by foreclosing, which around the coastal markets, should be after another 10% appreciation or so. Until then, why foreclose and lose money?
I spoke with a long-time REO listing agent this week who agreed completely with my theory that banks have stopped foreclosing.
Banks like Wells Fargo keep laying off workers:
The latest round of layoffs is “the result of continuing market changes, including improvements in delinquency and foreclosure rates and reduced demand for mortgage financing,” said Wells Fargo spokeswoman Mariana Phipps in Oakland.
But the improvements in delinquency and foreclosure rates are due to the banks not pursuing foreclosures. My friend mentioned how hard it is to get several owners of mortgage tranches to agree on principal reductions and loan modifications, and instead the servicers just let defaulters ride.
The accounting standards were suspended long ago and Helicopter Ben said himself that he told the banks to not do anything to harm the economy – so not foreclosing is a great solution. Banks can then cite the ‘improvements’, and layoff workers to pump earnings further.
The decline in foreclosures continues, but the pundits and media don’t really look into it much further. Here is the best quote they could come up with in this article, linked below (hat tip to Stormin’):
“We have now registered two and a half years of continuous decreases in the number of homeowners who are in some stage of the foreclosure process. This consistent decline means fewer Americans are experiencing the distress of delinquency and default,” said Anand Nallathambi, president and CEO of CoreLogic.
The foreclosure notices and the number of properties actually foreclosed have dropped considerably in San Diego County.
We have had 1,500 to 2,207 notices sent out per quarter over the last 12 months, but only 450-610 properties foreclosed per quarter. The big gap makes you think that the banks/servicers are still throwing loan mods at anyone who wants one, and cancelling any notices soon thereafter.
“The relatively high percentage of foreclosures with equity is surprising to many because it would seem homeowners with equity could easily avoid foreclosure by leveraging that equity by refinancing or with an equity sale of the home,” Blomquist noted.
No surprise here.
With no pressure from anyone to foreclose on non-payers, mortgage servicers can be picky about who gets foreclosed. It makes sense to foreclose where you can make a profit, and let the still-underwater folks ride the gravy train for another year or two.
Deadbeats don’t need to panic, it’s still quiet around SD County:
