patrick.net

In California, that catalyst is Governer Jerry Brown.

In November we will have an election ito expand sales and income tax. The clueless voters will probably give him waht he wants.

My guess is that a win in November will embolden his next attack on Proposition 13 to expand property taxes.

Zlxr says

I'm concerned that we will get a new kind of money called IOU's which are really hard on the bookkeeping and bank balances. And I'm kind of wondering how a bank that isn't really solvent is going to honor IOU's.

That actually did happen back in 2009 as i recall. and yes some banks did honor the IOUs.

http://www.reuters.com/article/2009/06/25/us-california-debt-idUSTRE55O07Q20090625

California set to issue IOUs as fiscal crisis weighs

I think it will be caused by an increase in the interest rates. Then watch out!

HRH, I totally agree with your fee structure for realtors...they make way too much money. Why not start up a real estate company and establish a commission plan like that for the people who work there. Then when it becomes wildly successful you can franchise the operation and make millions.
Problem solved - no more greedy overpaid realtors !!

APOCALYPSEFUCK is Shostakovich says

They don't. The Realtor® should get $6 an hour, $6.50 an hour if they blow you, wash and wax the car and run to get you cigarettes.

Yes, and I know plenty of them who, I bet, would love to take you up on your offer. They haven't sold a single house in the last 2 years, but they will all tell you that sales are at multi-year high with multiple offers in the double digits.

What about HELOC-bombs? Along with the housing market boom, the HELOC boom began in the early 2000's. Most of these HELOCs were interest-only loans for the first 10 years, which then become 15-year fully amortizing loans.

However, most of these folks probably refinanced their houses in the mid-2000's. With houses appreciating six-figures a year, who wouldn't? Realistically, some of these HELOC bombs may start going off next year, but they won't peak until around 2016-2018.

I guess my only question is, how many houses are still sitting on a HELOC bomb, and how many have already defused their bombs?

Call it Crazy says

It's funny you bring that up... I believe there is a HUGE HELCO bomb just sitting, waiting to blow..... I read a story that Wells Fargo, who holds a crap load of HELOC's, is going out to current customers who are current on their payments to try and settle the HELOC's by offering a payout of .25 cents on the dollar.

It seems that W.F. would settle for 1/4 of what's owed and get some cash back versus get "stiffed" when the home owner defaults, and they get nothing....

Got a source for that? It seems VERY surprising that WF would do that.

CA is out of money, I think that will have a significant impact.

The bubble was fueled, at least partly, by giving anyone with a pulse a loan. Who will replace these buyers at such a large number? New Household formation? Wouldn't most new households be poorer, due to the recession, but in general they are anyway, since they tend to be young and burdened with student loan debt, weddings and such.

Seems like the catalyst will be when the banks give up the ghost!

CL says

Seems like the catalyst will be when the banks give up the ghost!

Which, so long as the US government exists and is functional (I use that word loosely), they always will. The only way we will see a total and complete housing implosion all across the board will be if the entire nation's economy implodes. It is all rigged to extract every last cent out of us working class folks, and history has shown that the extractors do not stop until the entire system comes crashing down on itself. This isn't some prophecy of doom and gloom. It is just repetition of history.

I think that a more likely scenario that will help things correct in the SFBA will be the reduction or elimination of FHA loans of up to $726k. Even that isn't terribly likely, but it is a hell of a lot more likely than having the banking system go down without the rest of the nation going with it. Honestly, there really is a lot of money in the SFBA. Couples pulling $200k+ are in the 75th percentile. So, feeling like you can't afford shit on a very nice salary isn't all that surprising. 1 in 4 couples make more than $200k annually, and I wouldn't be surprised if there are not enough houses for 1 in 4 couples. Add to that the fact that a lot more than 1 in 4 couples are willing to borrow themselves into oblivion to get a house here (and most importantly, there are still ways to do that), and there's no light at the end of the tunnel.

I think that the SFBA RE "correction" is basically over. As many have noted on here, the only way that SFBA house prices will crater is if the entire regional economy totally implodes, in which case there will be a lot less reason to want to be here. This is NOT a good excuse to join the others and borrow yourself into oblivion too since, if you aren't comfortable with it now, you still won't be even knowing that it's a hopeless rat race around here. Your options are to rent close to work/around schools, have a long commute or move away entirely. Sorry, but there's no "buy a cheap house in the area you totally want, close to work with awesome schools." It's best to accept it and stop hoping for something that will never happen.

Yes, there are all sorts of good logical reasons for things to be different. Much of the frustration comes from having a system that is VERY openly rigged against "responsible middle class" people that is making it difficult to accomplish something that we are all told to do from birth in this country. Well, it's entirely our choice whether or not we are miserable about it. I used to do it to myself, but life's a lot better now that I see it for what it is and don't give a fuck. It's wrong on many levels, and it's a reality that self-inflicted misery will not change. Wait and save up more money, learn to enjoy renting or move away. I doubt that prices will have any meaningful gains in the next 5 years since even a system this badly rigged will have a hell of a time dealing with the endemic structural rot within it. Yeah, we'll see seasonal oddities like this year, but prices will probably be flat for all intents and purposes. So, wait & save is the strategy to employ if you want a house here. It is what I am doing, while also working the logistics on a move to Seattle.

Oh, and increasing interest rates might help. This isn't so much because it hampers borrowing power, but because it may start to attract investors to other money making venues. Right now, RE is all the only "safe looking" cash flow investment with decent return on it with the world economy and markets looking to be on the brink of disaster.

CL says

Seems like the catalyst will be when the banks give up the ghost!

I still haven't seen any reasonable explanation for why banks would continue keeping their properties from the MLS at this point when inventory is crazy low. If this was some sort of plan by all the banks, wouldn't they be feeding properties out to the MLS so that there was a good balance? Say 4-5 months inventory at any time?

The theory that banks are purposely holding properties back just doesn't pass the smell test.

Do we really need to discuss just one? Here are the potential downsides to housing as the market sits now:

- Shadow inventory
- Economic growth stifled
- Unemployment
- Decrease in small business formation
- Stagnant incomes
- Decrease in new housing starts
- Decrease in overall household formation
- ZIRP strategy, and when it will end (because it has to)

and MOST of all

- Housing is still too expensive in nice areas of non-flyover states when compared to incomes!

All of the above show me that housing still has many legs left to go down.

Goran_K says

- Housing is still too expensive in nice areas of non-flyover states when compared to incomes!

It sure feels that way to us, since we are unwilling to utilize the almost criminal financing methods that are still available (FHA 3.5% loans). Irvine is a nice area, and I bet that a $200k household income puts you somewhere in the 70-80th percentile there. Are there actually enough nice houses, conveniently located and in "good" school districts to accommodate even 1 in 5 people? You are competing with even more than that since damn near anyone can come up with 3.5% down, and investors are making up about 1 in 4 purchases to boot.

I don't disagree that there are TONS of logical reasons for prices to come down in nice areas. I just disagree that they will since the whole system is anything but logical, and very deliberately so. I would LOVE for prices around where I am to tank, but I am not "waiting for it" at this point. Doing so did nothing more than make me frustrated. So, I count all of the many blessings in my life and rent. Some people call it "settling" and they are absolutely right. I am settling for a set of annoyances that outweigh all the things that would REALLY bug me if I financed my way into an expensive house around here.

Renting isn't settling, especially if you're renting for a lot less than what you could "finance" for given equivalent properties. That's called being smart.

But for the most part, people are over leveraging, FHA needs a bailout, and human beings prove again that they have short memories.

Goran_K says

Renting isn't settling, especially if you're renting for a lot less than what you could "finance" for given equivalent properties. That's called being smart.

But for the most part, people are over leveraging, FHA needs a bailout, and human beings prove again that they have short memories.

I try to be honest, and in some ways I feel like I am settling. That's life though...trying to get everything you want usually just leads to misery. "Pick your battles" as they say. I want a garage (with a house attached to keep the Mrs. happy) for woodworking and car projects. Non-shared walls are also a plus for me since I am into building speakers. However, it is worth far MORE to me to rent, have a 5 minute bike commute and money for most of what I want (other than a house) than it is to have the commute that comes with a house that hits rental parity. A house is a WANT, not a NEED. No matter how big one makes the WANT, it still isn't a NEED except perhaps to our emotions. We all know how smart it is to let THOSE make the financial decisions lol.

tatupu70 says

The theory that banks are purposely holding properties back just doesn't pass the smell test.

Wouldn't locking the previous buyers into their loans be an incentive? The ones that are on the fence need a reason to stay put, rather than default and drag the market down lower.

Temporarily, you can make the loan holders feel like they waited it out and prices are coming back. Return the 1099 tax penalty, and you've hooked their payments in.

When Ritholtz defines "shadow inventory" he includes millions of people who are within a certain percentage of their breaking point, doesn't he? So, any dip adds those to the real inventory and then the cycle would feed on itself.

bmwman91 says

I think that a more likely scenario that will help things correct in the SFBA will be the reduction or elimination of FHA loans of up to $726k.

What if that happens, and Governments decide to balance their budgets by adding parcel taxes, or Brown has enough desperation to rejigger prop13?

And wouldn't migration out of the state create less demand?

Heloc bombs, tidal waves of shadow inventory, collapsing economies around the world… YAWN. Listen negative nancys these are reasons why YOU SHOULD BUY A HOUSE. A happy place you can paint any color you like and have super bowl parties, instead of paying attention to reality!!! Listen to BMWMAN, obviously doing well he has a bmw, step right up ladies CHACHING!

CL says

Wouldn't locking the previous buyers into their loans be an incentive?

Maybe--I'm not saying it's impossible--but it still seems kind of far fetched to me.

Who's to say that the 1099 penalty won't be revoked again if foreclosures spike. I certainly wouldn't bet against it.

I just don't think: 1. banks cooperate with each other, and 2. are smart enough to pull this off.

tatupu70 says

Who's to say that the 1099 penalty won't be revoked again if foreclosures spike. I certainly wouldn't bet against it.

I can picture a Kabuki theater situation where the Dems blame the GOP for obsessing about deficits and the GOP blames the Dems for spending like drunken sailors. The casualty would be the fence-sitter, but the benefit would be to the banks.

They just want to push the emotional drive to stay put, already likely since the affected owners have been in a zombie-like state for years, but now they will just be stoically resolute. "Ahhh, fuck it. I like the house, the pool and the addition I built".

tatupu70 says

I just don't think: 1. banks cooperate with each other, and 2. are smart enough to pull this off.

They certainly have the incentive this time. Trillions of dollars and economic collapse could create enough collusion and coordination to do it!

Why do you think they are sitting on them? Or do you think they aren't?

“Or is he finally retired on a tropical island with his cash-flow positive Concord properties providing lots of drinks, and island virgins?” Ahh you bitter renters don’t know how close to the truth you are, we duckheads, ARE ROLLING IN IT. Just the other day we swapped Real Estate Tycooning tips over drinks and steaks at SF Penthouse Club! Too expensive for you negative nancys but let me tell you CHACHING BABOOMBOOM.

duckhead says

Heloc bombs, tidal waves of shadow inventory, collapsing economies around the world… YAWN. Listen negative nancys these are reasons why YOU SHOULD BUY A HOUSE. A happy place you can paint any color you like and have super bowl parties, instead of paying attention to reality!!! Listen to BMWMAN, obviously doing well he has a bmw, step right up ladies CHACHING!

That's right, come git it ladies. You know you want to ride in my 21 year old car that I paid $2k for...the sucker can hold ~0.85 G's on the skidpad and rev to 8000 RPM all day long! Sorry honey, you can't turn the AC on. I never put it back after tearing the motor down 5 years ago. Yeah...'tis a real pussy magnet!

CL says

Why do you think they are sitting on them? Or do you think they aren't?

This is (obviously) just my opinion, but I don't think there is any concerted effort to hold back inventory to raise prices.

I think it's possible that banks are foreclosing at some steady rate to manage the effect on their financial statements. And it's also possible that the whole robosigning debacle slowed the process.

But I can't see how banks would orchestrate this to stabilize prices then let inventory get this low without taking advantage of the situation to unload a bunch of their REOs.

Aye Carumba no ac! Bmwman is not doing as well as I thought. :( Okay bro here is what you need to do: buy as many houses as you can ( pay the Realtors â„¢ full commission cause they got your back) then rent them out YOU WILL BECOME RICH. Ignore the doomers here, and dream your way to reality!!!

tatupu70 says

But I can't see how banks would orchestrate this to stabilize prices then let inventory get this low without taking advantage of the situation to unload a bunch of their REOs.

So, if it's not concerted, then you'd think that a large amount of inventory will be coming online soon, bringing down prices?

CL says

tatupu70 says

But I can't see how banks would orchestrate this to stabilize prices then let inventory get this low without taking advantage of the situation to unload a bunch of their REOs.

So, if it's not concerted, then you'd think that a large amount of inventory will be coming online soon, bringing down prices?

No--why would a large amount of inventory come now? Maybe a little more because of the robosigning settlement...

So you think inventory is genuinely low? It seems as though the robosigning issues held up the processing, but now that they have their guidelines they will be able and have been foreclosing on more houses.

What happened to all the houses that became REO? What about the ones that are being processed now that the logjam has been cleared?

They gotsta go somewhere.

CL says

What happened to all the houses that became REO?

That's a good question. What is the actual number of REOs? How many/what percentage are on the MLS? That would be interesting data to have.

CL says

What about the ones that are being processed now that the logjam has been cleared?

There was an increase in foreclosures last month. Maybe it's the beginning of a sustained rise. We'll see.

CL says

They gotsta go somewhere.

That is a fact.

http://www.ritholtz.com/blog/2012/04/corelogics-shadow-inventory/

Like this?

"Note that CoreLogic has a much more restrictive definition of Shadow Inventory than some other folks (including myself) do. They create an estimate of “Pending Supply” by calculating the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent, in foreclosure as well as real estate owned (REO) by lenders.

That formula yields them a count of 1.6 million units — or about a 6-month supply at current sales rates"

CL says

That formula yields them a count of 1.6 million units — or about a 6-month supply at current sales rates"

That is an interesting chart. And it does have what I'm really interested in--REO and pending foreclosures separated out. Those are at about 3 months inventory as of January. Sales have increased since January though, so I'd suspect this number has gone down.

I'm somewhat skeptical of the pending serious delinquency numbers. Notice that they went down from Oct. 09 to Oct. 11 without any real increase in REO or pending foreclosure. I would have expected the red to be a predictor of blue--ie, a hump in the red area would be followed about x months later with a hump in the blue. Otherwise, why is the red going down?

Core Logic deals in CRE. Thats a lot of commerical Real Estate. Thats a lot of stuff owned by the big boys to begin with. GE cap is the largest small to mid sized lender in the United States on those. You might as well call them the Nation Association of Appraisers. Re-Max GM home lending, Chase Manhattan. Actually they are based out of Britian when it all comes down to it. You think America has interlocking corporations. You should see how many corporations not all, lock back into British PLC's

robertoaribas says

the robosigning settlement is 4 months old,

Can they really print all they want?

Nationally, the housing bubble is *mostly* deflated. At least according to case-shiller:

http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/

Another small drop from 128 down to 120 would get us back to the post WW2 average.

Every market is different. Some parts of the Bay Area might be "importing" part of the Chinese RE bubble. A+ or GTFO!

Here's Ritholtz's take, for reals:

http://www.washingtonpost.com/barry-ritholtz-on-investing-house-prices-are-down-mortgage-rates-are-low-but-is-the-real-estate-market-ready-to-rebound/2012/04/05/gIQAnveZzS_story.html

or

http://tinyurl.com/77l2dpf

"These houses will eventually become part of the total supply for sale. Although there is no official count, estimates of potential shadow inventory run as high as 10 million."

That's considerably higher than the Corelogic numbers, eh?

robertoaribas says

1. I'll take odds more of this is in judicial foreclosure states, like Florida and New York, where I've heard of multiple years of shadow inventory. Arizona and California are trustee deed states, and thus the sale is much quicker.

And, we do have the benefit of being in a non-judicial state, but we also have the burden of being in a sand state, so you'd have a much larger number of distressed properties to clear non-judically, n'est-ce pas?

Capitol Controls perhaps:

"•Restrictions on bank withdrawals

•Restrictions on money market fund redemptions

•Greater restrictions on retirement fund liquidations

•Fixing an official exchange rate and criminalizing market rate transactions

•Banning the conversion of domestic currency to foreign currency

•Banning the movement of assets out of the country to foreign financial institutions

•Barriers, restrictions, additional transaction costs imposed on foreigners seeking to deposit funds or make investments in safe havens

•Forcing sovereign debt owners to accept longer maturities rather than principal repayment

•Banning gold ownership

•Reissuing the currency in a new form (an acute risk in Europe obviously)

•Restrictions on the size of cash transactions"

http://theautomaticearth.com/Finance/capital-flight-capital-controls-capital-panic.html

Then again, the timing might make this the catalyst for the third and most brutal leg down.

wthrfrk80 says

Nationally, the housing bubble is *mostly* deflated.

I agree with this. For the most part the bubble is gone, and what we have now are local mini-bubbles (Bay Area, Orange County, parts of NY). These bubbles are deflating a lot more slowly, but still deflating.

However a lot of the downside to housing isn't entirely contained within the housing market itself, it's other "external" factors that could cause this correction to "over" correct like all bubbles eventually do.

First, there is a dearth of inventory. Second, the Fed will cease to do anymore easing after June 30 - QE3 or Twist. This will result in rising interest rates and all the procrastinating buyers on the sidelines will jump in to buy.

Result - a booming housing market!

Sure, the banks are "evil", but they are managed by professionals and they do know how to play it better than the common folks.

jhurio says

This will result in rising interest rates and all the procrastinating buyers on the sidelines will jump in to buy.

Are these buyers going to magically find money to buy unaffordable houses?

Are these buyers going to magically find money to buy unaffordable houses?

No. There are lots of buyers waiting on the sidelines. Decreasing inventory and rising interest rates will be the stimulus ...

Housings Dead Cat Bounce says

Nonsense.
When rates go up, housing prices fall

History tells a different story.

jhurio says

No. There are lots of buyers waiting on the sidelines. Decreasing inventory and rising interest rates will be the stimulus ...

Are there many sideline buyers? If they're waiting on the sidelines because prices are too high, how will "higher" prices push them off the sidelines? Rising interest rates will make the "affordability" factor even more acute.