Property Grunt

Friday, March 07, 2008

Well, mortgage defaults have reached an all time high

The Mortgage Bankers Association reported Thursday that the number of loans past due or in foreclosure jumped to 7.9 percent, from 7.3 percent at the end of September and 6.1 percent in December 2006. Before the third quarter, the rate had never risen past 7 percent since the survey began in 1979.

Recently the NYT published an article about the backlash against aid for people in foreclosures.

I have to admit they present some compelling arguments.

Seattle, which has nowhere near the kind of foreclosure problem other cities have, began a modest program last month offering loans of up to $5,000 to help a few dozen homeowners avoid losing their homes.Not only are people in Seattle relatively prosperous, but they have a reputation for being nice, too. Yet no sooner had Mayor Greg Nickels announced the program than opposition surfaced.
“Just can’t agree with using taxpayer dollars to bail out private homeowners, no matter how the mayor tries to justify it,” read a complaint posted on the “Soundoff” section of The Seattle Post-Intelligencer’s Web site.

Ryan Ellis, the tax policy director for Americans for Tax Reform, a conservative antitax group, said his group opposed efforts by the Bush administration to nudge banks and lenders into restructuring some loans, much less direct government loans to homeowners facing foreclosure.
“You can call it community reinvestment, neighborhood protection, whatever you want,” Mr. Ellis said, “but if you’re taking away the downside risk of a loan, you’re bailing them out.”

I understand why all these municipalities are handing out aid because foreclosures are just all around bad for a community since abandoned houses lower property values and it also makes municipalities vulnerable to forces like crime and especially corporate America. I believe that you will see the destinies of towns taken over by other parties because they have the cash to do as they please.

But I think foreclosure aid is a complete utter waste of time and money. These homeowners don’t want to be saved. They have done the math and even if they keep their homes, there is no way in hell in their lifetimes they will able to recoup the same level of equity they did in the past 5 years. Even if they are offered workouts by their lenders, there is no incentive to take them because the house is going to be worth less money than what they are paying for.

Of course lenders are freaking out because the last thing they want to deal with is become landlords. Usually what happens is that the distressed property community jumps in takes those properties from the lenders for a very low price but from the amount of inventory that is piling up it appears there are not alot of takers.

I conclude it is due to the following reasons.

1.The investors are waiting for the market to really bottom out, to the point that
the lenders are so exasperated that they just toss the keys over to them.
2.There is no money to invest or at least investors do not want to touch anything
related to real estate.
3.It’s all garbage. Whatever is out there right now is not worth buying
4.The process of distressed property investment is to be able to get something cheap
and to sell it off for a profit to another party. In this current environment it is
very difficult to find those parties.

Barry of the Big Picture had this to say.

Thursday, March 06, 2008 | 10:30 AM

The hallucinogenic spin-meisters over at the National Association of Realtors are once again, misstating what their own data indicates:

Flat Existing-Home Sales Likely Before Gradual Recovery
The volume of existing-home sales is expected to hold steady through late spring, with a gradual recovery during the second half of the year as the mortgage situation improves in high-cost areas, according to the latest forecast by the National Association of Realtors. Lawrence Yun, NAR chief economist, said many buyers have been waiting for higher mortgage loan limits. “The higher loan limits for both FHA and conventional loans will increase consumer choice and provide greater access to lower interest rate mortgages in high-cost regions,” he said. “Therefore, a notable rise in home sales can be anticipated in the second half of the year."
This statement reflects a combination of wishful thinking and factual misstatements. Let's review the specifics.

First, the Pending Home Sales Index fell 19.6% from year ago levels. This is hardly a "flat" number, as described by their PR release. This is significant, as the NAR itself notes in the footnotes to their The Pending Home Sales Index:
"There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons."

Hence, the data that matters most is not the change from December to January, filled as it is with seasonal anomalies, but rather, the January 2007 to January 2008 comparison. That showed almost a fifth lower than the prior year's index.
When we consider the rest of the data that's out there, its apparent that stabilization is not the correct word:

We are near stabilization in the housing market as we are near to landing astronauts on Mars. It will happen eventually but not for a very long time.