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Just look to any of the heavily hit bubble markets to see continued price declines even as sales volumes increase. It's happening now. Orange County CA sales are up 44% year over year with prices down about 30% and still dropping.
Even though sales are up, it still might not be enough to keep pace with houses coming on the market. Once sales reach those levels, they have to exceed them by enough to work off all of the excess supply that's been sitting around clogging up the market. That takes time, and until an equilibruim is met between supply and demand, prices will continue to drop.
As for the new foreclosures, they've been mentioned quite a bit. There's two things here. The first is the pending Alt-A resets : Alt-A Pain Still Ahead | Piggington's Econo-Almanac | San Diego Housing Bubble News and Analysis. There's also the problem that the majority of people who have had their loans modified are in default again : Modified Loans Often Lead Homeowners Back to Trouble - Center for Responsible Lending (http://www.responsiblelending.org/news/newsbriefs/modified-loans-often-lead-homeowners-back-to-trouble.html - broken link).
Actually I thought that this bubble would behave like the OC bubble of 1988. But it is clearly not the same. If you watch the Las Vegas data from mid 2006 to mid 2007 you see the classical OC peak than rachet down behavior. Then in mid 2007 the lenders start dumping inventory and it vastly accelerates. So what we appear to have is the five or six year decline collapsed into 2 years or less. I would think it will overshoot and then correct back.
Watch Vegas. It is simply ahead of everywhere else in this process.
I still believe that AltA will be somewhat different but we will see. These folk were in much better shape financially than the sub-primes. And the reset may be far less harsh...though again there may be a large number of people who walk given the degree to which they are upside down.
I don't think the mod data has any real meat. The problem was that they did not change the principal. So people have simply gotten way under water and do the rational thing. If the lenders start modding the principal to realistic levels I suspect the double defaults will drop way off.
So the "shadow inventory" will be the reluctant sellers that will sell into a declining market? Or the foreclosure zombies finally giving up the ghost? Hmm, it could happen, but it would be unusual.
The shadow inventory is both sellers "waiting to the market to improve" and foreclosures in the works. The latter you can measure by looking at current default rates etc. The former is hard to measure. But many of these people that are waiting are going default. They were trying to hold on until the "market improved" without realizing just how long that could be. These people really weren't interested in when sales would start to pick up, but rather when prices would return to their highs.
Anyhow, there is nothing unusual about it.
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Originally Posted by chet everett
If we use the C-S data to try and say that housing is pretty much like every other normal good / commodity when supply exceeds demand prices fall. If we agree that tightened lending standards were the trigger that caused demand to fall I have a hard time envisioning why the "suppliers" of homes would be willing sell their homes to 'buyers' that are no more qualified than than the existing 'owners'.
Huh? Sellers don't care about the quality of buyer so long as they get their check. Any seller, corporation or individual, that gets out first stands to benefit the most. As a result there is a rush to get out of the market. You seem to believe that everyone is going to decide, that its in their best interest to try to undersell the guy down the street etc. But, the person (or company) that cheats in such a system comes out the best.
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Originally Posted by chet everett
Maybe I am naive, but I see the new administration working very quickly to stabilize housing values. The steep declines in value are no more "sustainable" than the extreme price increases.
Why is that? Housing is still above its historic norms. Why are the declines not sustainable? The administration can try to ease the bleeding, but they can't stop it. The real estate market is too big to correct with government intervention. Plus, propping up prices saves one group while throwing another under a bus. As far as the long term health of the economy, its going to be much better to allow housing to correct. I'm pretty sure the Obama team realizes this..
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Originally Posted by chet everett
Housing prices ARE in close to free fall right now, but it is not going to continue that way. I honestly don't know if prices will fall to levels seen the 80's or 70's or something MUCH higher, but I do believe that anyone that thinks housing prices will just drop without some MASSIVE interventions are not paying attention to what is already happening inside the "lame duck" administration...
Nothing that has been done as been targeted at propping up real estate prices. They have taken action to keep the mortgage markets working, but that isn't going to prevent a correction.
But yeah, real estate prices aren't going to "free fall" forever. I mean, they can't get past zero after all. Anybody expecting them to stop falling before their return to more historic price levels (in most areas, 1998~2000 prices) is going to be greatly disappointed.
I completely disagree that interventions have failed. The signs are not rosy, but the "so bad we can't talk about it in public" situation that seemed to be a REAL CONCERN of Paulson & Bernacke has not happened (yet).
That's assuming that those "so bad we can't talk about them" worries weren't like the top secret intelligence that showed Iraq had WMDs, of course. But maybe I'm just cynical for assuming that the current administration would lie about something that important just to get their way.
Anyway, my point was that the trillions of dollars dumped into the credit market black hole hasn't done much to stabilize housing so far. The thought that the new administration is going to come in and fix everything is a bit far fetched.
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In many part of the country house prices ARE normal. In some of those area there is even decent employment. Just becuase there are MANY areas where this is not true does not mean that there are NO such areas.
The majority of areas of the country have seen abnormally high appreciation over the last decade. Not all, but about 2/3rds. That's enough to make a dent.
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I have good confidence that the errors of other countries and other eras are NOT being repeated.
"The Bank of Japan has brought back its zero per cent interest rate policy, in an effort to boost the country's ailing economy.
And it has guaranteed to keep the ailing banking sector afloat by flooding the economy with money if a major bank was threatened with bankruptcy.
The Bank says it will maintain its zero interest rate policy as long as consumer prices in Japan continue to decline. Such deflation makes consumers reluctant to spend money, and thus increases the severity of the recession.
Financial analysts are doubtful, though, whether the new policy will help the economy. With rates already close to zero, the move is more of symbolic than economic value."
Our policymakers might be quicker to do the wrong thing, but they seem to be taking similar actions. It took Japan longer to get to 0%, for example, but the move to 0 here was driven by the fact that the Fed had lost control of the rate. It was effectively 0 (0.1%) for several weeks before the target rate was cut. Does being forced to act to catch up with the market count as being quicker to act than they did in Japan?
Again, being forced to cut the target rate to match the reality of what's actually happening in the market doesn't really inspire confidence in our leadership actually leading instead of just being dragged along by events just like the rest of us.
But regardless of how exactly we differ from Japan, the trillions of dollars in government intervention hasn't done much to prop up the market.
I don't think anybody in the government is actually trying to prop up the market at this point, and even if they changed their mind its pretty much too late. There is just too much downward momentum.
Mortgage related securities are selling for prices that are greatly discounted from today's prices. The case shiller futures point to much more declines. The markets are all crying out "More is coming"...but yet people still are debating it....
Just look to any of the heavily hit bubble markets to see continued price declines even as sales volumes increase. It's happening now. Orange County CA sales are up 44% year over year with prices down about 30% and still dropping.
Even though sales are up, it still might not be enough to keep pace with houses coming on the market. Once sales reach those levels, they have to exceed them by enough to work off all of the excess supply that's been sitting around clogging up the market. That takes time, and until an equilibruim is met between supply and demand, prices will continue to drop.
As for the new foreclosures, they've been mentioned quite a bit. There's two things here. The first is the pending Alt-A resets : Alt-A Pain Still Ahead | Piggington's Econo-Almanac | San Diego Housing Bubble News and Analysis. There's also the problem that the majority of people who have had their loans modified are in default again : Modified Loans Often Lead Homeowners Back to Trouble - Center for Responsible Lending (http://www.responsiblelending.org/news/newsbriefs/modified-loans-often-lead-homeowners-back-to-trouble.html - broken link).
If you refer to the "Center for Responsible Lending" you will find that it is "A Resource for Predatory Lending Opponents." It is NOT called the Center for Responsible BORROWING! If people had had to make some of these sub-prime loans out of their own pockets, there would probably have been a lot less of these liar loans, etc., made. Instead they were sold off to FNMA, etc. and we were off to the races.
So the "shadow inventory" will be the reluctant sellers that will sell into a declining market? Or the foreclosure zombies finally giving up the ghost? Hmm, it could happen, but it would be unusual. If we use the C-S data to try and say that housing is pretty much like every other normal good / commodity when supply exceeds demand prices fall. If we agree that tightened lending standards were the trigger that caused demand to fall I have a hard time envisioning why the "suppliers" of homes would be willing sell their homes to 'buyers' that are no more qualified than than the existing 'owners'. Even if the "sellers" are lenders that have taken back properties from foreclosure, is it really in their interest to accept collapsing values if that causes a domino effect that makes MORE of their borrowers likely to default / walk away from properties they are massively "upside down on"...
Maybe I am naive, but I see the new administration working very quickly to stabilize housing values. The steep declines in value are no more "sustainable" than the extreme price increases. An implosion HURTS more people faster and potentially LONGER than anything else. THe example of Japan's "Lost Decade" is something that no one wants to repeat in the US. Confidence has to be restored, and that can start with some pretty inexpensive and unobtrusive efforts.
I have lived in the Chicago for almost my whole life and I have seen that the urban and suburban efforts to prevent the erosion of LOCALIZED housing values (because of racial or environmental changes) have been SUCCESSFULLY undertaken by cities and towns. As long as there is no corruption, the participation of financial institutions, and the BELIEF that the system is not working AGAINST regular people these things HAVE WORKED QUITE WELL.
Housing prices ARE in close to free fall right now, but it is not going to continue that way. I honestly don't know if prices will fall to levels seen the 80's or 70's or something MUCH higher, but I do believe that anyone that thinks housing prices will just drop without some MASSIVE interventions are not paying attention to what is already happening inside the "lame duck" administration...
Dear Mr Everett:
Maybe a new administration can TRY to intervene to prop up RE prices, but, when you have situations when only 19 percent of the homes are in the "affordable" category (eg Los Angeles) I don't see how homes can regain their previously "unaffordable" levels. I suspect that the speculators who were busy flipping homes (and propping up prices) have moved on to other interests.
Dear Mr Everett:
Maybe a new administration can TRY to intervene to prop up RE prices, but, when you have situations when only 19 percent of the homes are in the "affordable" category (eg Los Angeles) I don't see how homes can regain their previously "unaffordable" levels. I suspect that the speculators who were busy flipping homes (and propping up prices) have moved on to other interests.
Why would you want the new administration to "prop up RE prices" in areas where prices are still to high for many people to afford them? With no more 'snake oil' loans(sub-prime, option arms, etc.), prices will have to come down to a level that is consistent with an individual's earnings based on conventional mortgages. Although 'speculators' did contribute to the housing problem, the biggest impact was made by people paying more for a house than they could afford by using the non-conforming types of loans. A true and lasting correction in the housing market will occur when a regulated free market approach is taken that balances supply and demand by using acceptable risk/reward lending strategies. The 'snake oil' loan products used recently were obviously not acceptable and substantially increased the risk involved.
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