Tracking California foreclosures: two scary pictures

This is the graph of foreclosures in Southern California that appeared in today's L.A. Times. Not pretty. But remember: The foreclosure problem is much worse in the Central Valley. Keep scrolling down to see the graph of foreclosures in the entire state.

Now that's ugly. This is courtesy of OCRenter at Bubble Markets Inventory Tracking, who took an old  L.A. Times graphic for the entire state and updated it.

The important take-away here, for me anyway, is that this graph clearly establishes that the current downturn isn't anything like the last one. It is much, much worse.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Graphics: Los Angeles Times and Bubble Markets Inventory Tracking

Comments

[Laker]

Last down turn 1990-1996, CA and LA saw about 40% decline both low end AND high end.
Our resident Realtor,sfvrealestate, on the previous post claims that good parts of LA will never see even 20% decline.

Looking at the lower graph, a 6th grader will tell you that we will see declines a lot steeper than those of 1990-96. Simply by magnitude (linear numbers). From this it is clearly logical that we are going to get a bottom somewhere at 50% of peak value. That is simply guaranteed by principal algebra.
Unless you claim that 1+1 is not 2. Then there is no way to agree here.

[dwr]

"...the current downturn isn't anything like the last one. It is much, much worse"

Hi Peter, welcome to the party. Maybe now you'll stop overanalyzing the Housing Tracker data looking for the bottom any week now.

[buz]

It will be a great time to buy in another two years. Maybe three. I've noticed that bank owned houses in my area are still unreasonably priced and haven't sold. Probably an attempt by big banks to make their balance sheets look good for Wall Street analysts. Just exagerate the real value of your assets, cross your fingers and kick the can down the road to next quarter.

[l.a.guy]

Clearly worse but it would be interesting to see the foreclosures represented as a total percentage of mortgages in order to put it in perspective. (ie. 1,000 Inland Empire foreclosures is a lot different than 1,000 SFV foreclosures)

Anyone who thinks we're going back to 2000 prices is just wrong. Even if pricing had followed historic increases (ie. the price of inflation) a $100,000 house in 2000 would cost $126,677 in 2008 assuming a 3% annual increase. If you've built something in the past few years you know that material costs for items like concrete have skyrocketed due to global demand.

You can laugh at sfvrealestate, but if you check the median sales prices for desirable areas you don't see massive year-over-year declines. Unless those areas (Westside, Sherman Oaks, etc) get flooded by REO's I don't think you're going to see a dramatic drop that everyone is expecting. (Although I think 25% from peek pricing is likely and needed)

[MyLessThanPrimeBeef]

They've really done it this time.

I bet the guys who run or used to run Freddie Mac, Fannie Mae, and all the other Wall Street firms that bought and sold SIVs, CDOs, etc, I bet these guys went to schools with good SAT scores...really good SAT scores.

Too bad there isn't a section in the SAT about common sense, ethics or honest work.

Of course, when you buy a house, you still want it near a school with good test scores. But just what are the kids learning?

[jag]

I seen a similar graph in the past..........I remember; Al Gore's Inconvenient Truth documentary. Pete, you forgot to provide an automated forklift that will allow us to see the graph in one shot without having to scroll.

[adoptive father]

Something's fishy with the graphs above.

Top graph shows 4,860 SoCal foreclosures in 2000 and bottom graph roughly shows 6,000 statewide California forclosures in year 2000.

Were over 80% of year 2000 foreclosures located in SoCal? If we are going to show data here lets make sure it is correct.

Peter??

[surfernate]

This analysis is useless. Need to know the total number of housing units at data point to get a normalized conclusion. So far the data could actually correlate if normalized

[anon1137]

Looks exactly like the Case-Shiller graph of home values 1890-2005.

[puckhead]

Laker,

You can’t just look at two graphs and draw a conclusion on anything. All you’re doing is making the data fit your hypothesis. The biggest difference I see now vs the previous bubble is that within the last 5 years we’ve had so much new construction in places where there never should have been new construction. The majority of the people of who bought there were lower income families that had no business buying and had little invested and nothing to keep them fromwalking away. Many of the more established neighborhoods saw price increases buy little turnover. I’ve been living at my current house 11 years. Out of curiosity I did some research and saw that on my block of about 30 houses, I was the 6th newest owner. It’s safe to say that the vast majority of us either own our homes outright or have mortgages low enough that walking away does not make sense. I suspect that this is the case in most established neighborhoods. I also don’t see very many houses for sale in my neck of the woods. Nothing like the ghost towns that everyone keeps talking about. Maybe we eventually see 20% drops from peak, but I’d be very surprise to see 50% from peak.

[John D.]

Laker, The problem, again, is the distribution of foreclosures. The fact that areas Riverside and Stockton have huge numbers of foreclosures, has little to do whether buying a house in Santa Monica is likely to get much cheaper. They are separate markets. You are also wrong on the facts. Prices declined much less markedly on the high end in the last downturn.

[Cal]

puckhead,

If you know a friendly realtor or appraiser with public records access you should check your block again for refinances.

I picked a neighbordhood to rent in because of the low turnover rate. I got the public records sometime after I moved in and was amazed at the number of people who cashed out money from their house. So while stability is definitely a factor in a neighborhood, so are equity positions and it is possible that they are lower than you might think. Something to look into. In general, if people are able to keep their fingers out of the pie (cash out refis or HELOCs) and turnover rate is low then the neighborhood should do better than others during a downturn. The houses probably won't sell except for a hail-mary occasional sale here and there.. but because people can hang on it won't matter much. But that is the tradeoff, low sales and high prices or lower prices and higher sales. With financing normalizing there isn't any other answer than that.

[Richard Greenwood]

Some call it "The Great Correction". http://TheGreatCorrection.com

[Laker]

John D. and Puckhead, you guys are either plain wrong or decide to bury your head in the sand.
Foreclosures are not the direct cause prices are going down but they are more like getting the price correction FASTER.
It is true that there are 100 times more foreclosures in IE, high desert than in Westside.
But you fail to understand the cause for this.
I will refresh you memory. The reason is that most buyers at high end placed used 5 year ARMS/ Option ARMS while the buyer in riverside and IE mostly got 2/28 ARMS/ OPTION ARMS.
The end result is that buyers at 2005-2006 got foreclosed in 2007-2008....But the buyer of west side from same 2005-2006 WILL GET FORECLOSED (you want it or not) in 2010-2011. That is the reason that eventually, the housing correction will clean out the mess in Santa Monica, BH, Westwood, and every nice place in LA.

[puckhead]

Laker,

I'm not putting my head in the sand. I'm writing exactly what I'm seeing. You on the other hand are forecasting foreclosures 2-3 years in the future. I have no idea what's going to happen 2-3 years in the future and neither do you. I will concede Cal's point in that I do not know if any of my neighbors has taken out equity out of their houses. Judging by the lack of new cars in their driveways and lack of remodels on their houses, I tend to think that it's probably no. Based on the LACK OF TURNOVER in more established neighborhoods, ie fewer houses in these neighborhoods during the height of the bubble, I tend to think the impact on foreclosures will be less than the IE. That's a valdi arguement and not merely putting one's head in the sand.

[RJMasdon]

Adoptive Father,

I don't have the source data for the beginning of the charts because DataQuick news releases from that period mostly seem to list notices of default rather than Trustee's Deeds.

However, you can see from this press release that the *ends* of the charts are consistent, i.e., DataQuick claims 33,689 trustee's deeds in SoCal (excluding Imperial County) and 63,031 trustee's deeds in all of California for 2Q08.
http://www.dqnews.com/News/California/
CA-Foreclosures/RRFor080722.aspx

So, probably the two charts are consistent.

Evidently DataQuick considers Imperial County to be part of Southern California, but the LA Times does not.

[latesummer2009]

Hi Peter,

Foreclosures are becoming more and more of the Resale Market here in Southern California. As you know, Real Estate prices are imploding to the downside from the outlying areas towards the city. WIth the coming Alt-A and Prime Mortgage Meltdown coming, we have started witnessing significant price declines on the Westside of Los Angeles. Over 40% median price drops in Brentwood SFRs and Condos in Santa Monica (90405) during June 08.

I want to introduce you to website that chronicles current price declines on the Westside. It would be great to have people all over, post their observations as we "Readjust" to the historical mean.

www.westsideremeltdown.blogspot.com

[Fred]

"If you've built something in the past few years you know that material costs for items like concrete have skyrocketed due to global demand."

This has no impact on home prices in a buyer's market. Buyers can only afford a house in proportion to their incomes. What the seller had to put into it is irrelevant.

[Fred]

Puckhead - of course there will be a 50% drop from peak. That's because prices more than doubled by the peak. When a bubble pops, it loses all of its gained value. Always has, always will.

[bitterLA renter]

I love the denial on here. *MY* neighborhood won't be touched! It's not like those other neighborhoods! Everybody wants to live here! Only the low end will go down! Foreigners will snap up property in the good areas! Great schools! low crime! blah de blah

The majority of people that I know that own have refinanced and taken out money once, twice, three times or more during the boom. I'll guarandamntee some of your neighbors have, and sooner or later they won't be able to pay and lose the house. How many forclosures does it take to set the comps? One. It's coming, you can count on it. Have a good one.

-bitter

[YourFinalWarning]

What these numbers really mean is that financial institutions holding lots of mortgage debt will continue to fail. Indymac was the first major domino not the last.

Time to make sure you don't have uninsured deposits at any bank, especially not a weak one. Prediction markets are forecasting high probability of failure of at least one local bank.

loss calculator (for true idiots): http://qzaki.com/download.php?fileid=351

[RM]

The foreclosure problem wont be over until nearly all the teaser and option pay loans are out of the system, either with refinancing or walk aways. These loans should never have been allowed in the mortgage market and now many are paying the price for it. Once this happens and after several years of builders cutting back production, price stability will return.

Gold and real estate have for a long time being assets that go up with the appearance of inflation and easy money. The easy money is for now gone, but a lot of inflation is already headed our way and the fed is doing everything it can to put lots of liquidity back into the mortgage market.

Five years ago if someone had told me that gold would reach $1000/per ounce and oil $145 per barrel I would have thought they were fools. Unless those two things come sharply lower and the dollar regains most of value against other currencies, I believe we will be headed for a time when ALL prices will make our eyes pop wide open in disbelief.