Foreclosures' effect on housing market

Discussion in 'Economics' started by The Kin2, Jul 25, 2007.

  1. A Realtor friend of mine printed about 200 MLS listings for me. I invest in real estate and was thinking a bottom may be in.

    I had the shock of my life!

    The criteria was very simple: every single family home under 220k in the county.

    Of the 200 listings, about 175 were foreclosure related: "Pre-foreclosure or "bank-owned." The rest were "motivated seller." Not one single traditional sale.

    My Realtor said the "normal" traditional sales between a willing buyer and a willing seller were still being listed for 250k and above. The problem is, the foreclosed property had super value. We're talking 3 and 4 bedrooms, newer construction for 200k vs. 260k for a 2 bedroom shithole "normal" listing.

    Needless to say, anything that isn't bank owned foreclosure is having significant trouble selling as no seller wants to cut the offer (below what they paid for the house).

    A short-sale on the other hand (where the mortgage on the property is higher than the selling price) is common as banks do not want to be in the business of property management. They would rather take a loss and get rid of the property. You could low-ball the bank's offer by as much as 30% and the bank just might say yes. Can't blame them when considering property taxes and sky-high insurance on insuring a vacant property (potential fire hazard and attracts gang-related activity).

    My intuition tells me this could be a messy situation. 175 to 200 foreclosed properties where the banks are competing to unload as fast as possible can only mean prices will have to come down in the near future. Normal sellers will never be able to sell their property until the glut of superior foreclosed properties have been sold.

    All those people with ARMs, I/Os, and Ballon mortgages are fucked because no bank will refinance when the value of the property is falling so rapidly. This will only means more foreclosures... talk about death spiral of the RE market.

    With the 125% home equity loans, banks need not worry due to double-digit gains that would have the loan-to-value fall to 80% within a few years. Now they're at 150 to 200% and the borrower is no longer interested in paying the mortgage. Multiple banks (1st, 2nd, and even 3rd mortgages) are tring to recoup whatever they can.

    Just some observations and thoughts...
  2. The foreclosure game is too mature to see anything extreme. It will provide strong support. There is a whole nothing line of money & debt available for it.
  3. It's getting ugly. The word is Uncle Sam, using Fannie Mac/Mae, will have to ride in and rescue many of the big firms on wall street left holding worthless CDOs. Debt market is going to unwind quickly and take equity market down also as the days of low cost debt for LBOs and HFs runs short.


    755 Percent Increase In Bay Area Foreclosures
    Real Estate Professor Warns Of Potential For 'Market Meltdown'

    SAN JOSE, Calif. -- New statistics about the number of foreclosures in the state of California are causing alarm among those who keep watch on the real estate market, NBC11's Vicky Nguyen reported Wednesday.

    According to DataQuick, a company that provides real estate and land data, the number of homeowners who could not pay their mortgages has hit an 11-year high in the state of California.

    There were 258 foreclosures in the Bay Area in the second quarter of 2006. That number spiked to 2,206 in the second quarter of 2007. That's a 755 percent jump, according to DataQuick.

    The second quarter includes statistics from April through June.

    California-wide the number of foreclosures also skyrocketed. There were 17,408 foreclosures in the second quarter of 2007. The number for the same time period in 2006 was 1,936. That is an 800 percent increase, according to DataQuick.

    San Jose City College real estate studies professor Ted Faravelli said the news is starting to have a major effect on the real estate market. He said trillions of dollars tied up in mortgage securities are at risk, because they are tied to the record foreclosure rates.

    "There's real potential for major market meltdown that would make Enron or Worldcom seem small in comparison," Faravelli said. "The wild west freewheeling days are no longer with us and there's some accountability now."

    The accountability has come in the form of federal investigations, according to Nguyen. One mortgage broker told Nguyen off camera the FBI has raided offices of at least a dozen brokers he knows.

    The unidentified mortgage broker also told Nguyen he has faced three lawsuits from banks after borrowers defaulted on their loans.

    Faravelli said the market has allowed too many unqualified buyers to get loans on improperly stated income. He predicted the increase in foreclosures might continue into 2009.
  4. if you have deep pockets this might be a good time to be looking at those forclosed homes...not for a flip but for a wait it out approach...

    i would like to hear oldtrader's thoughts on this one....
  5. Magna

    Magna Administrator

    As the real estate spokespeople continually try to put lipstick on a pig, here's some startling numbers on California foreclosures from DataQuick (a real estate data provider):

    2nd Qtr 2006 San Francisco Bay Area: 258
    2nd Qtr 2007 San Francisco Bay Area: 2,206
    755% increase in foreclosures

    2nd Qtr 2006 California statewide: 1,936
    2nd Qtr 2007 California statewide: 17,408
    799% increase in foreclosures

    Here's a link...
  6. An old saying is "never catch a falling knife".
  7. There's no blood on the streets yet. Waaaaay to soon to be jumping in.

    Just my .02 :)

    Good luck.
  8. No builders have file BK yet.
  9. Careful. Did you ever consider this could be similar to the time period of March 2000 with the difference being housing vs. tech ? ADP jobs report today: weak, weak, weak. Big corp layoffs to begin in earnest.
    On the positive side, when you have trouble reselling, you can always rent to all of those newly homeless families !
  10. ADP is a joke. They miss significantly more then they hit.
    #10     Aug 1, 2007