patrick.net

We're seeing the same thing in Phoenix -- but I don't believe we had any issues with foreclosure process here. I haven't been shown any data that would support a massive shadow inventory here, either.

This is the only positive new I found:
http://www.linkedin.com/news?actionBar=&articleID=5598183321277300769&ids=d38Pe3kOczkQdPwScjcNc30SdiMQd3wOe38Sd3oTdjAVdzcVejkRb3kQcjATcjcVcPwOcjAPdjwVdjkId3oUc3oMcPcOcjcMcPgNejARdiMVdzsMc3cTdP8NczcPe34UejkR&aag=true&freq=weekly&trk=eml-tod2-b-ttl-0&ut=3aPb2SWZe3zRc1

My anecdotal view is that there are a lot of baby boomers waiting for their homes to get back closer to 2002 - 2006 values. I'm talking about folks who didn't refi and who just need the money for retirement.

i am waiting to see if that 'elusive shadow inventory' ever materializes
I have posted some screenshots here :
http://patrick.net/?p=1210623&c=812166#comment-812166

this is santa clara,ca

Got an email from my mother this weekend - she bought a new 'house' kind of like a townhouse kind of arrangment, but single level. She said she 'couldn't sell her other house' - what she really meant is that if she sold it she'd take a loss - she bought it on an ARM around 2005 or 2006 I think, and instead of doing so, she decided to rent it out for $1400 (this is Minneapolis) which she called highway robbery, as in the renters were getting robbed not her.

Since the low inventory is pretty much everywhere (certainly happening here in Oregon) I would have to say it is a combo of two things, old people like my mom who can'twon't sell because they need the money to retire on, or have enough other sources of income to be able to wait, and the other culprit has to be the 'mortage settlement' that the banks conned out of the dotgov - this cratered the rates of foreclosures while the banks were negotiating. And I guess I would add, third. that since the govt is actively working to collude with banks to certify their completely fraudulent accounting systems, the banks are probably holding back inventory waiting for prices to return.

That's my best guess(es) anyways. There are certainly many millions of people out there who are not and have not paid their mortgages in years, so who knows how long this all stays propped up.

Kind of hard (impossible) to stop a vicious circle - but lots of orgs giving it the old college try.

In Nevada, they passed Senate Bill 244; SB244; which requires the lender to sign an affadavit attesting to having the note and deed of trust in possession and have personal knowledge of the mortgage. The penalty for robo signing in Nevada is a Felony. This law was passed in October 2011. Foreclosures have essentially halted here. The market is very tight and cash investors are doing bidding wars to get rental properties.
Meanwhile, loan-owner strategic defaulters have been nesting in their properties for about 3-4 years without making any loan payments.
The Federal lawsuit against the large banks initially halted foreclosures nationwide, but this case has been settled and banks can resume releasing foreclosures without the threat of litigation by the Fed.
In some states, this will mean a rash of foreclosures hitting the market, only to be scooped up by cash investors.
In other states, such as Nevada, they will trickle out slowly as documention is located permitting the bank employee to sign the affadavit. The Vegas market will be tight for a long time to come, with homebuilders being the direct beneficiary, propping up their sales prices via builder-financed over inflated appraisals.

Thanks for the feedback everyone.

My theory on the low inventory:

- The most impulsive and trigger happy individuals who bought in 2005-2008 have walked during 2009-2012. These are the folks who came in with little down and didn't have enough investment to stick around. It's hard to quantify this because we just don't know how many more individuals still plan to either walk or short sale.

- Then there are the people with equity who have owned for a long time, before the bubble. Unless you MUST sell, how many folks would want to sell a home today that they have equity in who experienced the bubble? My folks fall into this category. They won't entertain the idea of selling a paid-off home for 50% of what the neighbors home sold for five years ago. They would rather wait several years in the hopes that it rebounds.

But most importantly:
- The banks control the inventory of REOs and influence the inventory of short sales coming on the market. Rather than throwing the entire cow into the lion pit, they are throwing in a steak or two at a time to keep the lions fighting for it. Of course it's not as cut and dry as that, but they have their hands on the knobs the influence the rate that inventory is coming on the market.

BayArea,

After reading your reasons, I thought of one :):

Low inventory could be due to reduced churn. Other than first time buyers and investors, we sell one property only to buy another property elsewhere. To do this transaction, we've to buy first sell later and requires helpful banks and lenders. Selling first buy later would mean renting or squatting in your parent/siblings' home. Given tight lending standards, not many could buy first sell later. Hence reduced churn.

BayArea says

But most importantly:
- The banks control the inventory of REOs and influence the inventory of short sales coming on the market. Rather than throwing the entire cow into the lion pit, they are throwing in a steak or two at a time to keep the lions fighting for it. Of course it's not as cut and dry as that, but they have their hands on the knobs the influence the rate that inventory is coming on the market.

The single biggest factor in all of this is the change of mark-to-market accounting to mark-to-fantasy accounting. If a home has a mortgage of 600K but a value of 300K, and then bank forecloses, they have to recognize that 300K loss on their books. Levered 10X, that's 3M worth of loans they can't make and fees they can't collect.

Banks are simply better off financially with a pretend 600K asset on their books instead of having to recognize the loss. Where once banks were racing to foreclose as fast as possible, they now have little or no reason to bother foreclosing at all.

http://en.wikipedia.org/wiki/Mark-to-market_accounting

GREED! Everyone that can sell, wants 2007 prices for their 2012 broken down homes. The rest can't sell because they are underwater. Pretty simple.

RentingForHalfTheCost says

GREED! Everyone that can sell, wants 2007 prices for their 2012 broken down homes. The rest can't sell because they are underwater. Pretty simple.

Uh,I suppose the shacks have gone done in value but the land value has gone up. :)

RentingForHalfTheCost says

GREED! Everyone that can sell, wants 2007 prices for their 2012 broken down homes. The rest can't sell because they are underwater. Pretty simple.

LOL, so true. There is no need for me to search above 300k because it's all filled with people who bought for 450k in 2007 and are hoping to unload it for 375k.

RentingForHalfTheCost says

GREED! Everyone that can sell, wants 2007 prices for their 2012 broken down homes. The rest can't sell because they are underwater. Pretty simple.

Wait a second. Although I agree with you, how is this 58% more true than it was just 1 year ago in Contra Costa County? That's the question I am trying to answer.

What you are saying fundamentally makes sense in a very broad point of view.

And let's take it a step further:

Everyone that can sell, wants 2007 prices for their 2012 broken down homes. Many can't sell because they are underwater. And for the ones that walk away or short sale, the bank is playing puppet with how quickly properties come on the market. Pretty simple."

I really do believe that a LOT of underwater people here, and fools that have lost a lot of equity, are holding out for election-year promises of loan-mods and principal reductions. They really do believe that something will get rammed through by Obama in order to buy their votes. Everyone knows it is coming.

The settlement between banks & the government over the robosigning stuff has also caused a slow-down in foreclosure activity. There is a LOT of it out there, although most individual buyers never see it. Those houses get bought on the cheap & flipped...which, when foreclosures were going on, kept a supply of flipped houses in the pipeline. I would expect there to be a small surge in flipped houses in the next 2-3 months now that all the bank settlement stuff is done, and flippers can get back to "work." I use the term "work" very loosely here.

bmwman91 says

Those houses get bought on the cheap & flipped...which, when foreclosures were going on, kept a supply of flipped houses in the pipeline. I would expect there to be a small surge in flipped houses in the next 2-3 months now that all the bank settlement stuff is done, and flippers can get back to "work." I use the term "work" very loosely here.

Something my wife and I have been seeing which was sort of surprising is more than a few houses that had sold during the boom, got foreclosed, then bought as a foreclosure, in some cases for under 100k only later to ITSELF become foreclosed. Not sure if this is a more recent phenomena.

edvard2 says

Something my wife and I have been seeing which was sort of surprising is more than a few houses that had sold during the boom, got foreclosed, then bought as a foreclosure, in some cases for under 100k only later to ITSELF become foreclosed. Not sure if this is a more recent phenomena.

Sadly, there is no shortage of buyers rom 2009-2010 that are under water.

One of the stipulations of the HARP program is the following: 'The mortgage MUST have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009"

And the folks under water after May 31, 2009, well, you don't have a leg to stand on.

BayArea says

GREED! Everyone that can sell, wants 2007 prices for their 2012 broken down homes. The rest can't sell because they are underwater. Pretty simple.

Wait a second. Although I agree with you, how is this 58% more true than it was just 1 year ago in Contra Costa County? That's the question I am trying to answer.

Each and every year the percentage of underwater home owners will continue to rise. Prices are not moving up rather down. The percentage of people that can sell continues to drop. For each foreclosure there is another hidden home sitting on the banks books trying to stay in the shadow. It is like the gov't removing the pennies from the money system. Pretty soon no one has any pennies. The ones that do then want 5x their value for them even though the market is saying they are only worth 0.65 cents. it will not get better, only worse for a quite a while. Banks will have to become banks again, not real estate holding companies. Then we will have too many pennies to deal with in an environment where no one wants them because the continue to depreciate. This will happen when banks profits start to accelerate so just buy bank stocks and watch the pennies become worth 0.40 cents or less. Then sell your bank stock and buy a really nice shiny penny for less than you thought possible. My guess is 10 years for this cycle to play out.

APOCALYPSEFUCK is Tony Manero says

The banks are all fucking dead, deservedly so
But until they are told to resolve the dead notes, they can pretend to be alive

Zombie Banks!

That's what they were called in Japan after the Japanese asset bubble that peaked in 1989.

My friend's husband is in the air force. I told her she would be moving around a lot. She didn't take my advice but bought a house anyway, in 2004. He was given orders and they sold their house in 2007. After transaction costs and some bubble appreciation, they barely got their downpayment back.

Then they moved to the other side of the country. Again, didn't take my advice, and bought a house. Still 2007. He was given orders in 2010. They couldn't afford to sell the house when they moved, and wouldn't get any downpayment money back. So they are renting it out right now at negative cash flow.

He's living with his parents near his new station, and she is two states away in a studio apartment while they figure out what they are doing with their old house they can't afford to sell and how to scrape up a downpayment to buy a new house. >sigh

Philistine says

My friend's husband is in the air force. I told her she would be moving around a lot. She didn't take my advice but bought a house anyway, in 2004. He was given orders and they sold their house in 2007. After transaction costs and some bubble appreciation, they barely got their downpayment back.

Then they moved to the other side of the country. Again, didn't take my advice, and bought a house. Still 2007. He was given orders in 2010. They couldn't afford to sell the house when they moved, and wouldn't get any downpayment money back. So they are renting it out right now at negative cash flow.

He's living with his parents near his new station, and she is two states away in a studio apartment while they figure out what they are doing with their old house they can't afford to sell and how to scrape up a downpayment to buy a new house. >sigh

They were sold the American dream by a bunch of commission and fee hungry vultures. The husband should go rogue one day and take aim at the title companies, realtors, banks, etc. and show them some payback. Completely irresponsible A-holes. No realtor with the interested of this family should have even said it was a good idea to buy. They should have been shown comparable rentals. Oh, but then the vulture realtard would only get 1 months rent as payment. Slime

RentingForHalfTheCost says

They were sold the American dream by a bunch of commission and fee hungry vultures. The husband should go rogue one day and take aim at the title companies, realtors, banks, etc. and show them some payback. Completely irresponsible A-holes. No realtor with the interested of this family should have even said it was a good idea to buy. They should have been shown comparable rentals. Oh, but then the vulture realtard would only get 1 months rent as payment. Slime

Oh heaven forbid someone didn't do their homework and now get to pay for it. I'm sorry -- but you should know better (you being the buyer, not you personally). Any buyer who did any decent amount of research would have known it was a terrible time to buy. The only person to blame in that situation is the buyer. Not the banks. Yes, there's greed and people willing to take advantage of people who don't do their research -- wake up and smell the obvious. I'm all for protecting our citizens from predators, but there comes a point where people need to do their own research and look after themselves too.

There is VIRTUALLY ZERO inventory here in Orange County, California... I was looking for a townhome in City of Orange, CA, 1500+ sqft, upto $350k, 1980+ construction, 3 bd and it returned me about 3 properties in non-Pending status... all 3 of which were overpriced and not in a good state.

about 15 other matching properties were all in "Pending offer" status.

Based on that, it is hopefully obvious that now is a poor time to think about buying. The logical course of action is to wait for the market & inventories to return to normal.

For some strange reason though, a lot of people see the market like this & panic, thinking that they "have to get in a house, NOW!" Maybe they think that there will never ever be another property available at some point. Who knows? It is all sort of a strangely amusing feedback loop that only destabilizes itself and leads to all sorts of silly non-linear behavior in the short term, and entirely predictable results in the long term.

GUAB says

I'm all for protecting our citizens from predators, but there comes a point where people need to do their own research and look after themselves too.

So it is okay for a selling agent to tell me in 2003 that putting 40% down on a house is a mistake. I can buy the current house and 2 rental properties and do better. She has no accountability. There is no accountability from the banks to make me leverage 10-to-1 with houses costing over $2mil when my salary is 1/20th of that. No accountability at all. And the banks that send people checks for 50K, just sign and take the money out of you house, when they know full well the families are strapped because they bought into too much house. No accountability?

I once got a check for 50K from my bank with 0% interest for the first 60 days back in 2005. I cashed it immediately and over the 60 days made an additional $1k in interest. The banks kept calling me asking what I used the money for, I told them none of their business. I paid them back after 60 days and end of story. That is just? They are not trying to prey on people?

Sure the buyers are responsible for doing the right thing. But when the supposedly professionals that dictate the business are all quacking the same f'd up story they are just preying on families. To say the buyer is fully responsible is also irresponsible. The banks, realtors, gov't agencies are all criminal in my mind. They don't give a rats ass about families. They care about their returns, their re-elections, etc. Corrupt to the core.

RentingForHalfTheCost says

I once got a check for 50K from my bank with 0% interest for the first 60 days

Bro, why are you such an ingrate? They only want to help you to get all that STUFF that you don't really need! My CC company periodically sends me free checks too, because they are so nice. They say that I can use them to buy that new TV, or maybe new appliances, or even make a down payment on a nice new car with them. How generous! I guess it is a "cash advance" whatever the hell THAT is in the fine print, but it sounds sort of like winning the lotto I think. Why would some dummy pay $1300 cash for a new TV when I only have to pay $23 per month for it?! Jesus, if those cash-paying fools just had credit cards, they could make a CASTLE out of TVs and live in it every month for that $1300!

BayArea says

Well, that's partly because the amount they are underwater isn't nearly as dramatic as those that bought in 2005-2007. Also because of stricter lending standards... The buyers in 2009 onward can all OBVIOUSLY afford the mortgage, because they had to have the income for it.

So these people are not going to be foreclosing. And if they started to foreclose in large numbers, the government would eventually allow them to refinance at what may possibly be 2% 30 year-fixed interest rates in the near future to keep the system chugging along.

One of the stipulations of the HARP program is the following: 'The mortgage MUST have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009"

And the folks under water after May 31, 2009, well, you don't have a leg to stand on.

BoomAndBustCycle says

Also because of stricter lending standards...

Hahahahaha. Stricter in what sense. Now you need to be alive and have had a job sometime in you life? 0% financing still exists. Strict will never be in the American Banks vocabulary. If they really got strict and demanded 20% down, then see what happens to the number of sales. Dries up like a prune on a hot summer day. Strict, give me a break.

http://www.carvajalgroup.com/austin-real-estate-market/2012/01/23/how-to-buy-a-home-with-0-down-in-austin-texas/

RentingForHalfTheCost says

Hahahahaha. Stricter in what sense

Stricter may not be the best word. Back to be SENSIBLE in that you need 2-3 years of W-2 forms, a salary and debt ratio that's reasonable. (Although I do believe they allow you to take on too high of a debt ratio still.. especially for FHA loans).

If you got a traditional loan though in the last few years.... Those people were SQUEAKY clean and high earning for the home purchase. No bank was loaning out money without at least 10% downpayment and very safe debt ratios with some decent reserves in the bank.

FHA loans, i agree are insane. But then again, student loans amounts are insane too. I don't see the government changing it's policies anytime soon.

BoomAndBustCycle says

No bank was loaning out money without at least 10% downpayment

10% seems still too low in today's environment. I'd say I would not lend anyone my money to purchase a house today, but since I am a taxpayer I guess I already am. Sucks.

Student loans are insane. I agree that nothing is really going to get done, and time and inflation will slowly chip away at the problem. Unfortunately, lots of time.

GUAB says

The only person to blame in that situation is the buyer

Amen. My point is these are the typical folks that are just not seeing it, and many of them are putting houses up for rent instead of selling, and many of them at a monthly loss after rent income. I don't even want to think of the condition of their house after they finally are able to sell it after kicking out renters.

Here's my observations thus far after a few weeks of looking. We're totally new to this BTW.

Yes- there's a pretty low inventory, which seems weird. Not sure why that is. The realtor I use thinks that its because a lot of more recent buyers are trapped and can't sell for what they paid. So there they sit and they can't move up even though a lot of them want to.

Secondly, there still seems to be a LOT of foreclosures- even in the nicer areas like where we live. There are also a lot of short sales.

Thirdly, at least what I can vaguely see is that there is a whole lotta' crap. As in really crappy falling -apart houses or really weird houses. The prices are low but they also don't seem to sell.

Fourthly ( is that a word?) there are still some folks seemingly pricing their stuff at bubble prices. Those houses also sit and sit.

Lastly, there are in all of those just a few houses that aren't crap, aren't priced ridiculously, and those are the ones that do sell and in some case sell quick.

So the bottom line from what I can see- as in my observations from what we're looking at- is that what sells is what sold last year: Reasonably priced homes. Its just that there are less of them and thus there is more competition. But that doesn't mean the prices are going up either.

edvard2 says

So there they sit and they can't move up even though a lot of them want to.

Seems like it. I don't see move up opportunity for recent buyers for several years.

RentingForHalfTheCost says

So it is okay for a selling agent to tell me in 2003 that putting 40% down on a house is a mistake. I can buy the current house and 2 rental properties and do better. She has no accountability. There is no accountability from the banks to make me leverage 10-to-1 with houses costing over $2mil when my salary is 1/20th of that. No accountability at all. And the banks that send people checks for 50K, just sign and take the money out of you house, when they know full well the families are strapped because they bought into too much house. No accountability?

"I'm sorry your mad because someone gave you an opinion that you considered financial advice." Yes, she is not liable for giving you an opinion, you taking it, and end up getting screwed. Nor should she be. Always do your own research. If you're not willing to do your own homework, you should not be buying. But plenty of people will continue to buy without doing their homework, and continue to get screwed. I think we just have different opinions to what extend the government should go to in order to protect people from corporations who practice things that are morally wrong to a certain group of people. Please note that I am not saying you ARE WRONG -- everyone is entitled to their opinion. I'm simply giving mine.

Furthermore, people are free to make their own decisions. Bad ones included! I think your example on leverage is an extreme one that probably won't happen for a long time (history does repeat itself -- how that history re-manifests itself is always up in the air, but it will happen). But hey, if you're dumb enough to leverage yourself that poorly, you deserve to pay for it -- both you, and the bank (and both of you will in some way shape or form).

GUAB says

If you're not willing to do your own homework, you should not be buying. But plenty of people will continue to buy without doing their homework, and continue to get screwed.

It seems like a good idea to crunch the numbers before making the biggest purchase of one's life, doesn't it? But I guess a lot of people don't like math.

edvard2 says

Yes- there's a pretty low inventory, which seems weird. Not sure why that is. The realtor I use thinks that its because a lot of more recent buyers are trapped and can't sell for what they paid. So there they sit and they can't move up even though a lot of them want to.

Not strange at all here in Phoenix. It's still not a good time to sell, but it's a pretty conservative time to buy. Would-be-sellers don't sell -- they rent it out (or live there and wait out the mortgage), and are buying up places in addition. Less people selling, more people buying. More people are becoming landlords -- most people still renting.

It's not even like there's a ton of buyers on the market here either. Prices aren't dramatically rising. Just not a lot of people selling -- and who would with S&P/Case Shiller claiming a 6+% increase this year in Phoenix? Not I.

There's your market shortage.

wthrfrk80 says

GUAB says

If you're not willing to do your own homework, you should not be buying. But plenty of people will continue to buy without doing their homework, and continue to get screwed.

It seems like a good idea to crunch the numbers before making the biggest purchase of one's life, doesn't it? But I guess a lot of people don't like math.

I'm inclined to believe they at least run the math on what they can afford. But that's about where it ends. Every potential home owner should be analyzing their home purchase in a (somewhat) similar way they analyze a potential acquisition of a company or start-up. They need to examine every avenue and potential risk to their future asset. But most people don't even go past the affordability part.

How many people actually look at trends in the markets they're at when buying a house? Probably almost none.

robertoaribas says

Listing prices are rising now, however, the homes closing are short sales written months ago, hence the sales prices is lagging the market effect by a huge time delta. For the forceable future, i.e. the next six months minimum, prices in Phoenix (and anywhere else with a supply/demand imbalance) will rise.

Maybe... the homes that are selling around here in the easy bay again- aren't generally going over asking and of those selling, we're talking homes that are relatively decently priced- as in nowhere near the bubble prices. I looked at quite a few houses in the last few weeks and those that were even moderately overpriced were scantly attended. Homes in the 300-450k range however were.

Banks at this point still require to not only have a fantastic credit score- as in at least 700+, but you have also got to prove you have had a job that pays enough, the job is stable, and you have a sizable down-payment up front to match.

This is totally different than it was circa 2003-2005. That is a major difference. So if there's any belief that happy days are here again with frantic overbidding and through-the-roof price increases then that's more or less a fantasy.

Lastly, all of this is going on with ridiculously cheap interest rates. The bottom line is that the market is extremely fragile right now and it wouldn't take much to derail it. Am I as a homebuyer worried? Nah... not in the least.

robertoaribas says

you sir, have no clue what you are talking about. Call some listing agents and ask to write offers, see what they say.

I do know -- I've bought several properties "here" (in my section of the valley) in the past month. Sounds like you are buying in a different price range than me though. Each area of the valley has different mechanics to it. But hey -- if I really am wrong and there's a lot more buyers than I think -- well, awesome -- that's good news for me! I've been wrong before. But from my own personal experience I have not yet had to deal with a situation with tons of offers (less than 3 in every situation).

Everyone's situation in the valley can be different depending on what they are searching for. Not sure why you would say I don't know what I'm talking about -- just look up the statistics in N. Scottsdale in the $500k+ range. It's not like I said there were no buyers -- I just said there weren't a TON of buyers. Homes up here still sit on market for an average of 60+ days. Suppose you could classify that as a "ton" compared to a few years ago.

Also not sure if you were classifying me as someone who was saying prices aren't going to rise -- they will -- in most zip codes. One property has already risen 3.5% in 3 months.

GUAB says

How many people actually look at trends in the markets they're at when buying a house? Probably almost none.

The housing market is not rational and the gov't. propping up prices and banks holding back foreclosures means that predicting housing trends is a crap shoot.

Did anyone predict this rental bubble we're seeing now?

1sfrenter says

GUAB says

How many people actually look at trends in the markets they're at when buying a house? Probably almost none.

The housing market is not rational and the gov't. propping up prices and banks holding back foreclosures means that predicting housing trends is a crap shoot.

Did anyone predict this rental bubble we're seeing now?

They are not in AZ (holding back foreclosures) to my knowledge, but that's all I heard and I'm not sure I'm correct on that. Roberto -- do you know anything on that?