Housing Bubble Bursting?

[Terrel L. Shields]

Subprime borrowers have been missing their first and second monthly payments

That is the classic definition of a bad loan that is going to get worse.

 

[Randolph Kinney]

Shiller: Mr. Worst-case scenario

http://money.cnn.com/2007/04/09/real_estate/shiller.moneymag/index.htm

Money Magaine) -- Robert Shiller is worried about your home's value, and that's not good. A finance and economics professor at Yale, Shiller proved he could see a crash coming with his book "Irrational Exuberance," which forecast the end of the 1990s stock bubble and hit bookstores in March 2000 - almost to the day the Nasdaq started to collapse.


Today, Shiller believes homes are roughly as overvalued as stocks were then and, once again, he's worth listening to.

Question: So how rich can you get on real estate?
Answer: From 1890 through 1990, the return on residential real estate was just about zero after inflation.
Question: Excuse me? That's all? Hasn't it been higher lately?
Answer: Since 1987 it's been 6 percent [or about 3 percent a year after inflation].
Question: So real estate doesn't go up roughly 10 percent a year?
Answer: It can't be true that homes rise 10 percent a year. If they did, in the long run no one would be able to afford a house.
Question: Let me grab a calculator. If real estate really rose 10 percent a year, a $25,000 home in 1957 should be worth roughly $3 million now.
Answer: And that flies in the face of common sense. In fact, I'm inclined to think there's a good chance that the return on real estate will be negative, substantially negative, over the next 10 years because all booms reverse in the end.

 

[Randolph Kinney]

California spike in foreclosures points to reduction of income

http://www.latimes.com/classified/realestate/news/la-re-foreclose6may06,0,5833117.story?coll=la-class-realestate-news

Encouraged by the stockpile of wealth that accompanied surging home prices and sweeping equity gains, an unprecedented number of buyers purchased new homes or refinanced existing mortgages in 2004 and 2005. Now a season of slower sales, flat appreciation and teaser-rate mortgage adjustments has borrowers struggling to pay their bills, and defaults and foreclosures are on the rise.

From January to March 2007, lenders in the seven-county Southern California region filed 46,760 default notices, up 23% from the previous quarter and 148% over the first quarter of 2006, reported DataQuick Information Systems, a real estate information service. About 40% of owners who defaulted last year reportedly lost their homes to foreclosure in the first quarter, up from 9% a year ago.

The most common reason for losing a home is frequently tied to a job loss, according to Steve Bailey, senior managing director of loan administration for Countrywide Financial Corp.

"Where people actually lost their home to foreclosure," he said, "64% of the time that loss was because of a significant change of income."

 

[Randolph Kinney]

Well off people fall behind in their mortgage

http://www.latimes.com/business/la-fi-evict6may06,0,5268127.story

As more owners are unable to make higher payments, Deputy Strickland finds himself evicting people in nicer neighborhoods.

Sheriff's Deputy Mike Strickland is a postman of bad news, delivering eviction notices in the western stretch of San Bernardino County.

He is armed with a Glock .45, which he seldom draws, and Scotch tape, which he goes through in prodigious amounts while posting court orders on doors and windows.

The deputy spends most of his days at down-market apartment complexes, where the destitute, the addicted and the forlorn fitfully live. But in recent months he has begun venturing into neighborhoods with spacious homes and groomed yards, bringing his legal warnings to those who have fallen hopelessly behind on their mortgages.

These people typically bought a home they couldn't afford or drained their equity through incessant refinancing. If they had a chance to sell, they passed it up.

Eventually, the lender foreclosed on the property. When it was over, the home was auctioned off.

Now there's a new owner. But they still won't leave.

In some cases it's denial; in others, unwarranted hope. They hang on as long as they can — often to the last week, sometimes to the last day.

Most of the time, they abandon the premises before they have to be forcibly removed, but not always.

That's when Strickland shows up.

"You see me coming. You know I'm not exactly bringing tidings of joy," the deputy says. "I'm the grim reaper."

Take the house he is heading to at the moment, a three-bedroom in Rancho Cucamonga. He is supposed to meet a representative of Deutsche Bank, the new owner, as well as the bank's locksmith.

Once the door is open, Strickland will go through the rooms, quickly but carefully. A couple of years ago, a foreclosed man in Rialto shot himself when Strickland showed up.

This time a bank rep and an assistant are already inside when Strickland arrives. The door was open, they say, and they have so many foreclosed homes to prepare for sale, they couldn't wait.

Strickland checks the place out just the same.

Much of the furniture is gone, but the former owner's teddy bears are still there. Two eggs are rolling around on the kitchen counter. A bottle of ale is on the table. On the front door is a note for a deliveryman: "Please leave package in back. Will be back shortly."

Not shortly enough. There's a drained pool in the back, and the bank rep, Riverside foreclosure specialist Kemper Kelley, is hustling to secure a loose gate before a neighborhood tyke wanders in and takes a fall.

The foreclosed owner, identified in court paperwork as Aaron Engerson, should have known his days were numbered. "We sent letters, put notices on the door, offered him cash for his keys," Kelley says.

Engerson, either oblivious or optimistic, ignored it all. He could not be reached for comment.

Strickland tapes a red sheet of paper to the front door: "Unauthorized entry prohibited by law. Violators subject to arrest and prosecution."

Of all the ways to lose your home, few are as shameful as having the sheriff lock you out. Yet Strickland regularly sees such people.

In the first three months of the year, San Bernardino County recorded 909 foreclosures, according to research firm DataQuick Information Systems. That's double the number in the last quarter of 2006.

 

[Randolph Kinney]

Who's at risk from subprime implosion?

http://www.ocregister.com/ocregister/money/homepage/article_1681805.php

They're often described as tickets to homeownership for people with damaged credit.

But subprime mortgages also are reshaping entire neighborhoods. In subdivisions from Rialto to Sacramento, half or more of all home-purchase mortgages in 2005 were subprime.

That means the implosion of the subprime market could hurt not only borrowers, who may lose their homes, but neighbors whose home values could be reduced by a wave of forced sales or foreclosures nearby.

Subprime mortgages usually cost two to three percentage points more than conventional loans. Monthly payments typically rise sharply after two years, forcing most borrowers to refinance.

But because of the collapse of the subprime industry, many borrowers may be unable to refinance when their payments go up.

The Orange County Register analyzed all 920,000 home purchase mortgages made in California in 2005, the last year for which complete data is available. The analysis showed a strong geographic pattern to subprime loans:

Buyers in fast-growing areas such as the Inland Empire and in lower-middle-class neighborhoods like Santa Ana were far more likely to sign subprime mortgages than buyers elsewhere.

"Subprime lending does not happen equally throughout the state," said Paul Leonard, California director of the Center for Responsible Lending, a nonprofit advocacy group. "There are concentrations, both at the county level and the neighborhood level."

He added that racial minorities are "likely to suffer more when housing prices drop and foreclosures begin."

The Register was unable to determine if minority borrowers were disproportionately prone to get subprime mortgages. The newspaper used a database compiled under the federal Home Mortgage Disclosure Act. One of every five borrowers in the database did not list his or her race, making it difficult to draw firm conclusions about race and subprime lending.
The analysis also found:

• The subprime market share varied widely among counties, from 8 percent in San Francisco to 40 percent in San Bernardino. In Orange County, 21 percent of home-purchase loan volume was subprime.
• Subprime commanded most of the market in relatively poor cities such as Compton, Lynwood and Rialto. In wealthy cities like Beverly Hills, Saratoga, Newport Beach and Laguna Beach, subprime accounted for less than 5 percent of the home-purchase market.
• Subprime dominated the bottom of the market, accounting for 61 percent of all home-purchase loans under $100,000 and 51 percent of loans under $200,000. Subprime lenders grabbed just 11 percent of the business in the over-$500,000 loan market.

 

[Greg Bell]

Underwriting has gotten so frothy that we have to take a stand … The industry was heading to Niagara Falls." Am I the only one who thinks these guys must be dumber than a bag of hammers? I mean, residential mortgage defaults are soaring, residential foreclosures are skyrocketing, and residential subprime lenders are going out of business left and right because they made too many high-risk residential mortgages. Yet everyone's assuming all these high-risk commercial mortgages will work out just fine!

 

[Brad Ellis]

Randolph,

Foreclosures up 40% in San Bernardinao! Wow.

Yet, if the data in the LA Times yesterday is correct, median prices continued upward.

Hmmm...

Brad

 

[Randolph Kinney]

Randolph,

Foreclosures up 40% in San Bernardinao! Wow.

Yet, if the data in the LA Times yesterday is correct, median prices continued upward.

Hmmm...

Brad

Brad, it is amazing how a statistic is noticed, taken at face value, and then when compared to some other statistic, flies in the face of common sense.

How is it the median price is continuing to rise?

No one authoring the statistical data is providing a clue. Well, maybe they are; foreclosures and defaults are continuing to rise, right along with the median price. :new_smile-l:

 

[Randolph Kinney]

Foreclosures rise 47 percent in March

http://biz.yahoo.com/ap/070503/risky_mortgages_reforms.html?.v=2

WASHINGTON (AP) -- As state lawmakers rush to reform lending practices that have contributed to a recent surge of mortgage defaults and foreclosures, consumer advocates say these efforts fall short of what is truly needed: a federal law protecting home buyers.

The number of foreclosures nationally jumped 47 percent in March from a year ago, according to RealtyTrac Inc., a problem concentrated among borrowers with shaky credit who took out higher-priced loans.

Amid fears that the distress in the so-called subprime lending market could spill over into the broader economy, some members of Congress are demanding reforms. But industry officials counter that increased scrutiny from regulators and investors has already triggered self-corrective measures, such as lenders demanding from borrowers more income verification and larger down payments.

As defaults rise, credit agencies Standard & Poor's and Moody's have in recent weeks downgraded or placed under review bonds backed by risky mortgages, particularly second mortgages that borrowers have used to finance 100 percent of a home's value.


Moody's predicted last week that investor losses on subprime mortgage bonds issued last year would likely be bigger than expected, as many borrowers will soon face higher -- and unaffordable -- interest rates at the end of their initial fixed-rate periods.


Christopher Thornberg, principal with Beacon Economics in Los Angeles, said the credit rating agencies should have been far more skeptical. "These things should have been rated as risky a long time ago," he said.

At the state level, lawmakers and government officials have been responding quickly to the mortgage market's troubles. There are more than 100 bills either introduced or already passed to deal with lending abuses and foreclosures, according to the National Conference of State Legislatures.

 

[moh malekpour]

Brad, it is amazing how a statistic is noticed, taken at face value, and then when compared to some other statistic, flies in the face of common sense.

How is it the median price is continuing to rise?

No one authoring the statistical data is providing a clue. Well, maybe they are; foreclosures and defaults are continuing to rise, right along with the median price. :new_smile-l:

Randolph,
The median sales price in such market is misleading if the market details and condions are not analyzed or mentioned.
Take a look at two scenario of median sales price in the real estate market
In the 1st quarter the market was booming and we had 7 following listings.
All of them were marketed and sold at the listing price.
Sales 1, 2 and 3 had sub prime borrowers with 100% financing and no down payments
Sales 4 and 5 had Alt-A borrowers and sales 6 and 7 had prime borrowers
1-200000
2-300000
3-400000
4-500000
5-600000
6-700000
7-800000
In above booming market, the Median sales price is $500000

In 2nd quarter we got sub prime problem and market melt down. So real estate agents had to reduce 100000 from each listing price in order to sell them. 200000 listing price was reduced to 100000 and 900000 listing price was reduced to 800000
Since the market was slow in this quarter, there were more listings in the market at this time. Instead of 7 listings there were 8 with each 100000 lower than previous quarter asking price
100000
200000
300000
400000
500000
600000
700000
800000
And since the first 3 above listings that were usually financed by sub-prime were rejected, we got only 5 following closed sales out of the above 8 listings
400000
500000
600000
700000
800000
In above bust market, the Median sales price is $600000

Although, each sale price in the 2nd quarter was 100000 less than previous quarter which indicates a remarkable decline in the sales prices but the median sale price is higher than previous median sale price because low end sales were not sold due to the anomaly of past financing in the market.