The big repo: $10 billion worth of foreclosed homes in May

News item from ForeclosureRadar.com, via Bloomberg: "California homes representing more than $10 billion of defaulted mortgages were repossessed last month as more than 97 percent of foreclosed properties failed to sell at auction, research company ForeclosureRadar said."

More: "The firm said 24,831 homes, with $10.4 billion of debt, received no offers higher than the lender's opening bid at auction. Last month was the first time new repossessions surpassed $10 billion, Discovery Bay, California-based ForeclosureRadar said today in a statement. Still, the number of foreclosed properties bought by investors and other third parties rose almost 35 percent."

Analysis: The market is still rolling downhill, with banks owning more California property each month.  Ultimately this could be healthy in the sense that it leads to a relatively quick clearing of distressed inventory.  But it puts further downward pressure on prices, and I happen to agree with those who maintain that falling prices -- not rising mortgage payments -- are causing foreclosures. In any event, it's not a sign of a bottom; it's a sign of continued decline.

I'll post more from the ForeclosureRadar report later in the day.

Comments

[Doug in Toronto]

"The firm said 24,831 homes, with $10.4 billion of debt, received no offers higher than the lender's opening bid at auction." A little bit of math gives us an average of just under $419,000 of debt per unsold home. I'm assuming that not all of these homes had subprime mortgages, so at least some of the former homeowners had to be credit-worthy. The question then becomes: where did the money go? Not the equity; the money. If some of these folks were credit-worthy enough that they didn't need subprime financing, then had earnings / other equity that they could put towards the purchase. So where did it all go? SUV's? Trips to France? College? Rodeo Drive? This says to me that the mortgage mess isn't entirely a financial problem; it's also an attitude problem. An endless attitude of personal entitlement, an assumption of eternal price rises, and the hubris of "it can never happen to me" is a major contributor to this mess. Until this attitude is eliminated, I fear this mess will go on. And on. And on.

[Last Laugh]

I've been tracking the area around the 57/60 fwy and I am actually starting to see nice houses fairly priced. By fairly priced I mean 3% appreciation for the past 10 years. This past weekend I saw a really nice house in Diamond Bar (Pantera Park area) for 500K. That house sold in 2006 for 800K!. The house is already off the market after only 1 week. The problem now is that houses that are fairly priced are usually getting their priced bidded up. I guess people think these houses are undervalued?

[Cal]

I think the LA area is behind the rest of the state and the nation as far as foreclosure filings. But I think we are starting to play catch up. So when other areas have already peaked we will still have a ways to go. It is a result of the denial the local market was in.

[Dummy]

Question: Why are falling home prices contributing to more foreclosures? Is this a chosen consequence of not wanting to pay a high monthly mortgage on an "asset" of declining value? Surely, people can continue to afford their mortgages regardless of whether the home goes up or down in value, right?
Or am I missing something?

[CD]

Nouriel Roubini has 2 excellent articles :
1) The Complacency that the worst was behind us in financial markets is rapidly fading away.
2) Deepening recession, tumbling equity markets and sky-high oil prices.
It's a good read.

[Cal]

Just received the report, 4,274 homes sold in LA County for May, 6,416 NTS filed, 8,209 NOD filed.

DQ has ~5k sales for April in LA County, if sales are around the same for May you'll have almost as many homes foreclosed than sold. And should definitely have more homes foreclosed than sold later this year. I don't even think much of this inventory is reaching the resale market, the servicers just can't handle the volume.

Prices will keep falling to spur sales, the servicers are going to need higher sales volume to clear the backlog they simply don't don't have the luxury to wait it out. The volume is too big.

The people who are able to afford the home but got a bad loan had their chance to refi. Now the 2 choices left to servicers are major loan mods or foreclosure. We will see which route they will take.

[jag]

I have seen many properties owned by banks and their prices are still high. Banks are stubbornly holding on to many properties and don't want to take any offers that are less than the asking price. Like I said, I seen properties owned by banks for over two years! How in the world are the banks ever going to get rid of their inventory? I made an offer on a "Short Sale" three months ago and the bank has not responded as of today. Also, what I notice, in some instances, is that banks will list their properties and price them low in anticipation of getting multiple offers to bring up the price. Pete, if banks are in distress why are they so slow to respond and get rid of their inventory?

[Martin]

There already are recent buyers who believe they purchased a residence on the cheap. However, the vast majority of would-be buyers now feel they have nothing to lose and everything to gain by waiting for the real bottom. Whatever the bottom might be will prove to be as unrealistic as the peak of prices. In truth, buyer sentiment is the main market force now. Demand has declined primarily because prices are still declining.

Cal, you say there's "denial" in certain parts of L.A. proper. Among who? The sellers? Perhaps. But among the homeowners I know and who do not have to sell now, they prefer to wait it out. Or, this too shall pass. It will. It really will. ... Maybe not this year or the next or the next. But it will happen.

[tealeaf]

Hear that?

The sound of crickets from the bulls' corner.

[Cal]

"But among the homeowners I know and who do not have to sell now, they prefer to wait it out. "

Wait it out? Because we will see real prices (inflation adjusted) above this point again sometime in our lifetime? We just had the biggest credit bubble in history coincide with the historic low interest rates which created enormous false demand.

I really want to know what their end game is for waiting it out. What they expect out of it? "Their" price? Do they just not understand inflation?

It is very likely we could have rates in the 7-8% range as well (about average) which would put further pressure on the market. And if rates are below that it is because the economy is tanked. I just don't see the optimistic end game for the people waiting it out. I guess they must not think prices will fall very far and that the boom time demand was real and not artificial.

[MyLessThanPrimeBeef]

Is it a valid survival strategy to say that, on the sinking Titanic, the line to the remaining lifeboats is not to your liking? Plus, there aren't enough caviar and champaigne on them. And the wooden benches, what no cushion? I think I will wait it out.

Last Laugh, some people are just prone to premature celebration.

Dummy, a very good qeustion. I think the thing to consider is that some people couldn't afford their mortgage payments in the first place, but took the loans anyways hoping a rising market will come to the rescue later, but since it is actually falling now, rather than rising, these folks add to more foreclusures and die out as a financial/housing species, thus contributing to the survival of the strongest bank accounts.

[MyLessThanPrimeBeef]

For those looking for a bottom, that's you lefty, here is the cold, hard fact - bottoms are like jams and around the farm, we have a saying: Jam tomorrow and jam yesterday, but never jam today.

There you have it. Better luck tomorrow.

[Laker]

Dummy asks: "...Question: Why are falling home prices contributing to more foreclosures? Is this a chosen consequence of not wanting to pay a high monthly mortgage on an "asset" of declining value?...
Or am I missing something?"

Dummy, the main reason lower prices contribute to rise in foreclosures is the fact that the ones that need to sell, CAN NOT sell as their house is worth less than the loan amount...Many people need to sell from 1001 reasons. If prices are flat or rising, selling houses that were bought with 100% financing is easy. When prices are dropping (or free falling), selling 100% financed houses is IMPOSSIBLE!
(unless the seller has cash to bring to escrow...if he had cash, he wouldn't need 100% financing...)

[Laker]

"...Is it a valid survival strategy to say that, on the sinking Titanic, the line to the remaining lifeboats is not to your liking? Plus, there aren't enough caviar and champaigne on them. And the wooden benches, what no cushion? I think I will wait it out..."

Primebeef, two thumbs up! Great example!

[E]

I love the "wait it out" mentality of homedebtors.

They just don't understand the nature of a ponzi scheme using kinky financing.

[shockg]

Cal, No one is going to give their home away to you fools. You base yout arguments on the false assumption that so many people have to sell. The only ones waiting things out are you speculators. Repeat after me: "I love renting" "Homeownership sucks" lol.

[Cal]

I guess i'll just have to stay in my rental snuggling with my money. Suprisingly, I'm ok with that.

They aren't going to give their home away. I'm not going to give my money away. Until I see value, I'm renting.

I've seen 30% drops within blocks of my home and yet I don't see anything I feel is worth putting my money into. Some disagree and are buying, others agree and are sitting on the sideline. But the majority who don't have a home simply can't afford one and so the bulk of the buying market can't be tapped without big price drops. With continued credit tightening and foreclosures i'll take my position over someone trying to wait it out to get their price.

You can troll all you want, what you can't do is come up with a scenario where normal underwriting standards do anything but return price in line with income.

[Laker]

shock"angry loan owner" g , while you are ranting I am renting....LOL.
Every week i save more than i make in wages....
My effective salary has almost doubled since July 2007...
I LOVE LA....We love it.

E, i have many in my family, people that are well educated and smart that cannot believe how the same house could sell for $1,200,000 and today can't sell for $800,000....it is hard to believe. I can't blame them....

[tealeaf]

shock, it's not their home.

it's their loan obligation. that's it. nil equity.

lately, they are walking away from such, which is the point you didn't touch and upon which you remain silent.

oh wait, we're talking about leading indicators. Sorry - we'll go back to your fantasy land where the market has bottomed and we're stabilized.

Sorry.

[tealeaf]

"...No one is going to give their home away to you fools. You base yout arguments on the false assumption that so many people have to sell. The only ones waiting things out are you speculators..."

Posted by: shockg | June 11, 2008 at 06:58 PM

Great post about 2 neighbors in Irvine, one of whom dropped a comp asking price by $500k:

http://myurl.in/rbBVa

[Laker]

shockg said "...No one is going to give their home away to you fools...."
tealeaf said: "...shock, it's not their home....it's their loan obligation. that's it. nil equity...."

exactly tealeaf. It is not their home, they are renting it from the bank, paying high rent, they are bankrupt, their landlord is bankrupt...An actual home buyer is waiting to buy it from the landlord (bank) with real cash (20% down) and waits until the price is right...(2001 price).

Guys like shockg do not understand that ownership is not only holding the deed, it is owning something that is worth more than the obligation on it. NOT LESS.

Get this!, When i rented my current place, I actually put more "down payment" than the average buyers put ZERO DOWN. I was asked to pay 1st last, and security deposit....Good thing is that when i leave the place i will get my "down payment" back. How about the buyers?

[Ace]

My thoughts on 'waiting it out',

I talk to a builder or flipper a couple of times a week who say they are just going to rent out the property and wait it out.

They then try and rent out the property for whatever their monthly mortgage is (usually twice the market rent). The MLS and craigslist are flooded with overpriced rentals right now. I now see entire brand new condo complexes listed for rent.

These builders need prices to go back up 20 or 30 percent before they can sell. The only way that can happen is that if interest rates go down (not likely) or subprime loans come back (really not likely).

I have not heard a single builder give a decent explanation of how they believe that prices will rise other than 'it happend a couple of years ago'.

[Cal]

Good stuff Ace.

Renting out presumes it will be short and shallow and happy days are just around the corner. It is a huge gamble with very little upside.

Im renting a house from one of those waiting out the market in hopes it gets better. LIST (wish) prices in the neighborhood have dropped over 100k since I moved in, closed sales are between 110-140k less. That is a lot of ground to make back up. The only reason my landlord can do what they are doing is because they bought during the last bust and so the monthly payment is low enough to cashflow. Someone who bought from 2003 forward probably doesn't have that luxury.