I found this blog entry on Calculated Risk. If you did not see it, it brilliantly and concisely demonstrates the problems facing the market in the foreseeable future.
From Calculated Risk:
In the ’90s, as prices fell in California, foreclosure activity (using Notice of Defaults NODs) increased. Prices bottomed in 1996, as foreclosure activity peaked.
Now imagine what will happen over the next few years as house prices fall. Foreclosure activity is already at record levels (2007 estimated on graph). Yet, as prices fall, foreclosure activity will probably continue to increase – the activity will be literally off the chart!
It is pretty difficult to but a bullish spin on that one.
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| Median Sale Price | Sales Volume | |||
|
ZIP code
|
Prev. 4 weeks
|
change from ‘06
|
Prev. 4 weeks
|
change from ’06
|
|
92602
|
$705,000
|
-15.8%
|
12
|
-63.6%
|
|
92603
|
$1,147,500
|
5.5%
|
16
|
-57.9%
|
|
92604
|
$580,000
|
-6.1%
|
20
|
17.6%
|
|
92606
|
$867,500
|
15.3%
|
13
|
-51.9%
|
|
92612
|
$472,000
|
-13.1%
|
26
|
13.0%
|
|
92614
|
$625,000
|
1.2%
|
19
|
5.6%
|
|
92618
|
$648,000
|
34.0%
|
19
|
11.8%
|
|
92620
|
$648,000
|
-11.2%
|
20
|
-71.0%
|
Did 92618 have a couple of big sales this month?
—–
They were probably just houses selling instead of condos (those have not been selling!). 92618 is Oak Creek and Orangewood (?) so there are no mansions there. What I would say is that, about Oak Creek at least, it does not have the glitz and glamor of nearby 92603 neighborhoods (Turtle Rock n’ Ridge, Shady Canyon and Quail Hill) so it is a little bit more of a practical play if you “need” to buy. With the widespread mentality being shifted to “how low can it go” people are probably trying to reign in the purchasing a bit.
What happens to the analysis if the government succeeds in getting Countrywide, Citibank et al. to freeze the rates on subprimes? I fear we’ll be waiting a long time for the foreclosures if that happens.
This was discussed quite a bit on a post from a few days ago. Bottom line is that it may just delay the inevitable. But given the large number of 100% financing deals many people may just decide to walk away since prices are dropping fast.
https://www.irvinehousingblog.com/2007/11/30/frosty-the-snowman/
Can someone direct me to Orange County historic median home price data from at least 1980s to present?
The data here does not seem to jive with what I have seen 2004 – 2007:
http://www.laalmanac.com/economy/ec37.htm
Is that data in the link above correct?
If someone has a spreadsheet already with this data that would be cool.
Thanks in advance !
Also I am sorry if this data is already available somewhere on this site; I can’t find it. I have seen graphical charts on this site but not pure data on historic medians; again sorry if I missed it.
Graph is already dated….
Only shows price index declines to 2005-6 levels whereas this blog finds asking prices are already down to 2004 levels and dropping.
The current price decline appears to be evloving much more rapidly than the early 90’s and more rapidly than anyone would have predicted.
One wonders what effect the internet had on speeding up the price decline.
What shouldn’t be a surprise is how as prices began to rise in 2000-2005 NOD’s were dropping dramatically. The combination of easy access to credit and hyper-appreciation pushed the default rate down.
When prices peaked in 2006 and easy access to credit disappeared in 2007 the default rate began to skyrocket. Nobody should be that surprised by these two peaks. It will just be interesting how quickly this plays out.
I have it, some where. I just can’t find the CD I backed it up on. I know I have it on another computer, so I will get it today.
You are right, that data seems to be on the high side.
The scariest thing about all of this is that this is just the beginning. 2008 is going to be a bloodbath in the housing market, the likes of which we’ve never seen in our country in our lifetimes. Think Tokyo in the 90’s. The only thing making housing in these markets “affordable” has been creative financing, the likes of which brings Enron to mind. Now that financial institutions are being chastened by reality and people are going to have to actually afford their homes, you’ll see these housing values cut in half, at least.
thanks graphrix, that data posted by the almanac looks like it comes from the realtor assoc; I would greatly appreciate the data, THANKS !!
“..you’ll see these housing values cut in half, at least.”
oh you’re such an optomist….
I see 75% to 80% DROP at least.
Once CONFIDENCE is GONE, prices will DROP, and drop FAST.
2008 is going to play real havoc on the homedebtor…
Hello. I am a long time lurker. I just want to pose a question to the group. There have been articles about freeze or fixing the ARM. Anyone have any idea about:
1. If this is likely to happen?
2. If yes what would be the impact?
Thanks to all contributors.
fiat, government intervention will be greater and greater as price drops increase. So don’t expect more than 50% declines in 2008. Maybe 15-30% drops will happen in 2008, but if declines extend beyond that, they are likely to play out over a longer period than just one year.
IMHO, it’s not going to happen. It’s too much of a colossally f’ed up undertaking. There will be potentially a million or more lawsuits if they attempt it. Paulson & Co. essentially want the subprime mortgage investors to be forced to take a financial hit for the sake of the poor subprime deadbeats. This will anger:
1) The investors who own the notes. They would be forced to take less money than what they’re owed, at the pleasure of the Treasury and the mortgage servicers (Countrywide, etc.).
2) Non-subprime borrowers with either fixed or adjustable mortgages. They’ll get to pay higher rates on their own ARMs while the subprime deadbeats (which is why they were subprime to begin with) get rates frozen at low teaser rates. They may sue to have their own rates frozen or reduced, since it’s unfair to have the subprime stuff frozen and not theirs.
Then, mortgage investors will realize that our government will come in on a whim, just because things aren’t “rosy”, and rewrite other people’s contracts, even though no crime was committed, there was no fraud or deceipt, etc. This will chill further mortgage investments down the road, making it even harder for people to borrow money for a home.
There’s also the fact that they have to tease out who’s really an owner-occupant (lots of people lie and claim occupancy for lower mortgage rates, taxes, etc.) They they have to tease out who lied on their mortgage applications. They have to tease out the cash-back mortgage fraud. They have to figure out what happened to the money that the refinancers took (do they just have it stashed under their bed?)
Then after all that, they get to tell the people who just went into foreclosure to go to hell while only those still in their homes after a certain drop dead date get to participate.
I could certainly be wrong, but I don’t think the freeze going to happen. Raising Fannie and Freddie limits didn’t happen either, and that would have been easier to accomplish.
Lurker:
Lurk in the Forums (main freeze post here) and in the Frosty main blog post. plenty of discussion in both spots.
ARM “freezes” are band-aids. They only delay the inevitable. There are several reasons why:
1. An ARM freeze doesn’t change the fundamental fact that so many home buyers are leveraged way beyond their means. The size of the outstanding loan (and the loss of value in the underlying property) aren’t going to change when an ARM’s rate freezes.
2. At some point, the piper has to be paid. An artificially low interest rate might keep some houses from foreclosure, at least temporarily, but the lenders will wait only so long. When lenders and their stockholders get impatient, ARM freezes unfreeze.
3. The housing market is not coming back anytime soon. Consider how rapidly housing prices have gone up. They need to come back down just as much, if not more. Letting the air out of the bubble slowly, through gimmicks like ARM freezes, will only extend the amount of time the bubble takes to burst. In the meantime, people will not be buying homes, because who wants to buy an asset that’s slowly losing value?
4. Mortgages have been sliced and diced, bundled up, and marketed globally to buyers who just want their return on investment. And they want it now.
They don’t have enough people to service properly, who is going to do any of this? Just to figure who’s underwater and who’s not.
Are you going to do new appraisals on each and every one of these? Who will pay? There aren’t enough appraisers in the U. S. to do this many appraisals.
I think, if this were to fly, which I agree, it probably isn’t, the assumption would be made that the house is presently worth at least what the principal balance of the loan is.
Much less figuring out who is actually living in the houses. I don’t think they would bother with that, actually.
Here come the predatory attorneys looking to go after the predatory lenders. Nice…
If you can’t afford your subprime loan payments:
1. Bank seizes collateral property
2. Bank sells property at auction
3. Bank applies sale value to total debtor owes
4. Debtor now has remainder of loan period to pay back remaining amount that was borrowed, but not recovered by auction
If debtor was able to qualify for original loan surely they would have no problem paying the reduced amount. Just the fact that the payments wouldn’t include fire insurance nor property tax might be enough to help them meet their contractual obligation.
The bank depositors get all their money back. The failed house flippers get to keep their credit ratings. The housing market is free to set price based upon supply and demand.
Unfortunately the Bushtard has signed legislation removing taxation on the canceled debts. This was exactly opposite of what should have happened. Joe Blow now has every incentive to walk away from his $400k loan on his $200k house, then purchase the nicer $205k house across the street using his spouse’s, uncles, mother’s, sister’s clean credit.
Congress and the Bushtard should have placed a 105% tax on canceled debt, with the proceeds from the tax going to pay FDIC insurance claims of failed banks.