Home sellers suffering huge losses

Discussion in 'Wall St. News' started by S2007S, Aug 13, 2008.

  1. S2007S


    I think housing prices are still coming down and will for another 18-24 months, as it says in the second to last paragraph that $200 billion more ARMS are due to reset in the second half of 2008, this is going to create more writedowns for the banks, I believe the equity markets have yet to see a bottom and the DOW will be headed back to new lows sometime towards the end of the year.

    Home sellers suffering huge losses
    Wednesday August 13, 1:38 pm ET
    By Les Christie, CNNMoney.com staff writer

    More homeowners than ever are selling at a loss, propelling the real estate market deeper into crisis.

    In the 12 months that ended June 30, nearly 25% of all homes sold nationwide fetched less than sellers originally paid, according to real estate Web site Zillow.com.

    While the nation's double-digit decline in home prices has been well documented, the new report underscores the economic force of those price declines. Homeowners are walking away with much less in their pocket when they sell. And that affects more than the real estate market.

    "It's stunning what's happening out there," said Stan Humphries, Zillow's vice president of data and analytics, who looked at statistics that date back to 1996. "The numbers are the worst we've seen and it's not just the magnitude of the problem but the scope - so many markets are affected."

    In Merced, Calif., 63% of homes sold during the past 12 months brought in less than what the owner paid. Prices there have fallen 40% over the past 12 months and 56% from their 2006 peak.

    About 63% of sellers in Stockton, Calif., lost money during the same period, 60% in Modesto, Calif., 55% in Las Vegas and 38% in Phoenix.

    And the trend has worsened in recent months. In Merced, 74.9% of sellers took a loss when they sold during the three months ended June 30 compared with just 28.7% during the same period in 2007.

    The experience of one would-be seller in Cape Coral, Fla., illustrates the kinds of losses sellers are suffering. The homeowner, who asked not to be named, paid $147,000 in 2003 for a three-bed, two-bath ranch. Prices have dropped there more than 22% in the past 12 months.

    He said he made a 10% downpayment spent big on upgrades, including two renovated baths. The house was appraised at $279,000 two years ago. Two months ago: $140,000. He has been trying to sell it for more than a year and has dropped the price to $129,900.

    "It's terrible," he said. "I'm taking a major loss. I'll probably have to bring a check to the closing."

    The short-sale solution

    Many sellers are so underwater that their only solution is a short sale. Elsa Bell, a claims adjuster, bought her Riverside, Calif., house in 2006 for $330,000, using a no-down-payment loan. In April she put the house on the market for $275,000, but it hasn't sold.

    "The bank is willing to do a short sale, and we have an offer of $170,000 on the house, but we believe the bank will turn that down," Bell said.

    A short sale is when a lender agrees to take less than the amount it is owed on a mortgage and forgives the remaining debt.

    For Bell, whatever the sale brings, it's going to be a lot less than what she paid.

    The good news is that she should get out of the deal fairly clean. Since she has little invested, she has little to lose. The bad news is that a short sale may mean a hit to her credit score.

    Nationwide, nearly a third of all homeowners who bought since 2003 owe more on their homes than the homes are worth. And those that, like Bell, put little or none of their own money into the home purchases, are more likely to try to sell short or simply abandon their homes.

    "They hand over their keys and walk away from the homes," says Danielle Babb, a real estate investor, instructor at the University of California Irvine and author of "Finding Foreclosures."

    That adds to foreclosure rates. Zillow reported that nearly 15% of U.S. existing home sales during the last 12 months involved foreclosed homes.

    That trend will almost surely continue.

    In Stockton, Calif., 2006 buyers now owe a median of nearly $171,000 more than their homes are worth. In Salinas, Calif., 2006 buyers now have median negative equity of $161,000, and in Merced, the figure is nearly $160,000.

    Broader impact

    A plethora of sellers taking losses can have a chilling effect on people's lives, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

    People don't want to sell at a loss, so they put off their plans, whether it's a move for a better job opportunity elsewhere or trading up to a larger home.

    "That will delay the [market correction]," said Baker. "It takes time for people to recognize that [these losses] are real."

    A quick turnaround is not likely. More than $200 billion in adjustable rate mortgages are scheduled to reset during the second half of 2008, according to the National Association of Realtors, and loans of all types defaulting at high rates. There is also about 11 months of inventory at the current rate of sales.

    "With $3.9 million unsold homes on the market, prices will have to come down even more before the market stabilizes," said Zillow's Humphries.
  2. Just wait until the banks get past this sub-prime mess and the Fed raises interest rates to help the banks try to recoup some of their losses and slow inflation. Look out below!
  3. I didn't even have to OPEN up the thread to know WHO posted . . .
    Please tell us how much Baron pays you per post?

    And . . . Do you get a "bonus" for crossing 7,000 posts?

  4. sprstpd


    As long as Bernanke is in charge, the Fed will never raise rates.
  5. Yawn.

    Leave it to you to think that there is a strong correlation between the Economy and stock market performance.


    losses seem like every one who writes about houseing prices leaves out the gains that were made before, did Ca. houses double or thriple since 2000?
  7. If you own a house, there's still time to get out before the market goes lower. According to polls, many homeowners are still in denial that they've taken a big hit in their equity. When those homeowners wake up and start to sell in 18 months, prices will be lower than they are now.
  8. wave


    We will revert back to 2000 prices.
  9. And it's not over yet:

    by CalculatedRisk
    Alt-A; the new subprime. Or "We're all subprime now!"

    There is some evidence that subprime defaults have peaked, but Alt-A defaults are picking up steam (Tanta will have more today). The next wave is here, and these defaults will impact house prices in the mid-to-high range.

    And on house prices:

    In general – on a national basis - I think nominal house prices have probably fallen more than half way from the peak to the trough. There are some areas where prices are probably closer to the eventual nominal bottom than others; these are low end areas with high foreclosure rates and high demand for housing - or areas that saw little appreciation during the boom years. But in other areas, prices have really just begun to fall.

    There will be two housing bottoms.

    A bottom for new construction is very different than a bottom for existing home sales. For existing homes, the most important number is price. So the bottom for a particular area would be defined as when housing prices stop declining in that area. Historically, during housing busts, existing home prices fall for 5 to 7 years - so I'd expect to start looking for the bottom in the bubble areas in 2010 to 2012 or so.

    For new construction, we have several possible measures of a bottom. These include Starts, New Home Sales, and Residential Investment (RI) as a percent of GDP. These measures will hit bottom much sooner than for prices for existing home sales, and one or more of these measures might even bottom in the 2nd half of this year. However ...

    There will be no rapid recovery for housing.

    Usually, following a housing bust, new home sales pick up pretty quickly. However this time, with the huge overhang of excess housing inventory, new home sales and starts will probably not be an engine of recovery for the economy. Without a contribution from housing, I expect the economy will remain sluggish well into 2009 and the effects of the recession will linger.
  10. Another article using one of the 4 bubble states as a description of the entire housing market. Core housing (everything but the 4 states) is bottoming out with price to income ratios falling back in line as inventories are declining. Karl Case said it best in that article in Barrons that if you buy a house now (in the core housing market), you've seen the worst of it.

    Is it true that there's 39 months of inventory in the Miami/Fort Lauderdale market?
    #10     Aug 13, 2008