Record California Foreclosure Activity
Submitted by
CalculatedRisk on Fri, 10/26/2007 - 10:35am (63 comments)
Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 41 members and 201 guests online.
Currently online
- Nanoo-Nanoo
- Former Idealist
- josap
- Cobradriver
- curious
- Lobbyist Ben Dover
- Rob Dawg
- Cat Daddy
- dilbert dogbert
- shill
- ResistanceIsFeudal
- Mike in Long Island
- Eric
- km4
- volker the viking
- creditcriminalslovetarp
- Vic
- Bubblisimo Gerkinov
- Windward.Broach
- Pearl
- RayOnTheFarm
- skk
- justaskin
- DCRogers
- scone
- GrandOldTurkey
- burnside
- Tool of the Fed
- BelieverJeff
- Govt. Cheese
- 1 currency now -yogi
- pavel.chichikov
- lineup32
- Mert717
- Tom Stone
- montas ankle
- greenchutes
- JP
- energyecon
- yjacket
- fried
Recent Recommendations
Sure, Mozillo, of course you will be profitable next quarter. What with all the declines in foreclosures...
See Page not found
90 day moratorium on foreclosure activity on FHA homes in fire areas, which seems to be defined as each county declared a disaster area- or all of Southern California.
This is just FHA, but I would not be surprised if others felt pressure to follow suit, even though 99.999% of houses did not burn down.
Amazing, especially since wealthy areas like the Bay Area haven't really joined the FC party yet.
We will, once those POA loans start recasting and resetting over the next couple of years.
I can't imagine what will happen here if the VC money gets scared and goes into hiding. Or if the recession is a bad one.
CR,
What would the graph look like if you adjusted for population, households or the number of single family homes?
I'd love if someone went ahead with the next season of "Flip that house" or some similar show. Just to showcase the sheer terror of being locked into a property you can't afford with no way out.
Naturally that won't happen since people only like to see winners. Seeing an entire season of people sustaining huge sometimes catastrophic losses wouldn't make for good TV I suppose.
ShortCourage, yes, so far most of this activity has been in areas like the Inland Empire or parts of the Central Valley. I'm curious to see when this starts hitting the nicer areas.
Best Wishes.
Bob_in_MA, Clearly it wouldn't look so bad - the population has grown significantly in California. It would probably be best to normalize by owner occupied households in the state - I'll see if I can find some annual data and plot a normalized graph.
Best Wishes.
Tip of the iceberg. Canaries in the coal mine. Pick a cliche and run with it. Housing asset equity is so incredibly maldistributed that we can expect a rush of people accelerating their foreclosures to get out before the crowd. 1/3rd own and won't budge. 1/3rd have equity and managable debt loads and will hunker dow. It is the last third. They have any combination of negative equity, unaffordable debt, crushing taxes, failed investments. 4 million units. There is no structure in place to handle that number. That means these people are going to be smart and stop paying. Everything, taxes, insurance, mortgage.
CR: If you can get the data, could you also do the graph as "Percentages of households"?
Dow up over 100 points. Clear skies ahead. You have to accentuate the positive and do whatever to the negative. Negative thinking is UN-American. Those who are suspected of it need to be investigated.
But, when does more of this REO start appearing on the market? Where I am there are just a few on the market. I know about more, they just aren't listed, yet.
Some of the ones that are listed have been priced agressively, maybe 15-25% under what they sold for in '06-ish. None of them have sold though. The prices were so outlandish in '06, even a 20% price cut doesn't help.
Here's a nice chart of our sales activity:
Home sales in Valley drop 55.5% - LA Daily News
Ouch! And, based on pending sales, the sales volume is going to get much WORSE in coming months.
SC, I've worked for VC-backed cos. for 10 years, now. I conclude that mine is a bubble job.
I think that Silicon Valley is going to return to its roots of almond growing and the like during the upcoming depression.
This graph shows the NODs filed in California since 1988
I hate to nit-pick, CR, but the graphs begins in 1992, the point at which DataQuicks NoD stats began.
Kind of a shame, since 92 so happens to be the same time LA started to recover from their previous bust. I think if it did go back to 88 this chart wouldn't look quite so alarming.
Shnaps Parlor, thanks! Actually I think foreclosure activity was very low in the '88 to '90 period - there was a very strong housing boom in California.
Best Wishes.
You have to accentuate the positive and do whatever to the negative.
Stocks fly on view of further currency debasment. How's that?
Here in the suburbs of Chicago, until a few months ago most foreclosures on the Yahoo foreclosure pages were low-value -- under $200k, many under $100k. There were hardly any above $400k. Now, though just a few months have passed, there are so many high-value loans in some phase along the way to foreclosure that if you choose a descending-price sort you have to click through page after page to get to the low-value loans.
And it's only just begun.
[Kind of a shame, since 92 so happens to be the same time LA started to recover from their previous bust. I think if it did go back to 88 this chart wouldn't look quite so alarming.]
Oh my, no no no. LA was in the depths of the price drops and foreclosures from 92-95. Prices were rising in LA up until '90. The '94 earthquake was the last straw that really pushed through a bunch of foreclosures. The market started to clear in '95-96. And then finally prices started to rise in '97.
CR,
Thanks, some of us don't really have a clear conception on population growth in CA, other than that it's "a lot".
The town I was born in, in Upstate NY, has had the exact opposite experience, you can buy a house there for $30-40,000. If you are willing to take one that needs some work, maybe $20,000.
pretty new chart.
jg,
Say some more about what you're seeing in the valley. One of the interesting questions in all this is whether Bay Area stays strong until a particular event. One thing I've considered is that as you see exits from hedge funds and other exotics, you might actually see a surge in VC cap availability.
On the other side, Bay Area will take damage from the general real estate market (10% of economy of CA) and from Finance folks (hedgies, traders, etc) potentially getting laid off.
I suppose it really depends on whether you think the 500k+ buyer set in the bay area is going to be in a position to survive the resets.
OK, I was looking at an HPI chart and making silly assumptions.
I still would like to see this normalized as Bob_in_MA or Nicholas Weaver suggested. I'm assuming that housing stock grew considerably over this period in CA. - Am I right on that one, deb?
This are the most regrettable consequences of the housing bubble.
Not good news, nothing to feel happy about even if it demonstrates ones hypothesis.
In the other hand who cares about ML reported losses? NOT ME.
But I feel unhappy because the greed that demonstrated all those finantial magicians has caused most of this pain.
I think that Silicon Valley is going to return to its roots of almond growing and the like during the upcoming depression.
jg | 10.26.07 - 3:27 pm | #
And then all the bees needed for pollination will die.
FDIC REGULATORY RELIEF
FDIC: FIL-93-2007: Guidance to Help Financial Institutions and to Facilitate Recovery in Areas of California Affected by Major Fires
jg,
LOL! I don't think the Silicon Valley will be going back to its agriculture roots any time soon!
But I am skeptical about all these companies basing their business models on ad revenues, or some yet-unknown way to monetize their traffic. And I wonder how companies that make "stuff" like Cisco and Intel will do if we get a global slowdown and realize that we actually have equipment overcapacity once again. And then there's Apple making all these great toys, and you have to wonder if their price cuts are a sign of things to come (competition and consumer pullback).
There's just a huge amount of downside risk to the companies and jobs here, IMO.
One thing I'm pretty sure is that the housing prices are not sustainable. Especially if some of these two-income households lose one income. Even without severe job losses, I am curious to see how many Payment Option Loans will blow up here.
Like CR, I'm wondering when these FCs move to the high end here.
Bob_in_MA, I've added a normalized graph based on the approximate number of Owner Occupied Units in California (I had to make some assumptions because I could only find data for a few years).
The graph is still ugly, but a little less so ...
Best Wishes.
"Sure, Mozillo, of course you will be profitable next quarter. What with all the declines in foreclosures..."
Yes, that liquid LSD does wonders for his state of mind...
o-b-r-, I worked in SV in '97-'98, but am now down in La Holeya (formerly La Jolla, now renamed given that we have holes in our streets from the recent landslides).
I've always assumed that the bright, focused, driven folks in SV have the same blinders that I see on most folks here in SoCal: that all will be well.
I think that venture capital will be hit hard as pension funds and insurance companies suffer losses on CDOs, equities, and bonds, and will shut down their exposure to 'special investments' -- e.g., private equity and venture capital. I'm expecting that pension funds and insurance companies will even choose to ignore capital calls from VCs.
We'll see.
Shnaps-
Here's pricing date from the SRAR. Prices rose until '90, then fell until '97.
I doubt housing stock grew much in the city of LA during that time, there just isn't much are to build. But, I'm sure it grew some. I'm too lazy to dig it up.
CR,
Yeah, pretty amazing. The rate now is 25% worse then the worst rate of the 90's downturn.
Ooops! forgot the link
http://www.srar.com/Revised_SFV_statistics_page/Single-Family_Annual_&_Monthly_MEDIAN_Resale_Price.pdf
Its time to look at the ABX indexes againnnnnn...
Products and Services Overview
18 out of 20 hit new lows.. AAA-07 trading at 86.. AA don't ask..
Somebody HAS to go bust on this surely?
-K
Most of ABX at new lows...
Where is the next blowup?
The index implies many billions of unreported losses.
I noticed they posted the October settlment amounts today:
http://www.markit.com/information/products/abx/contentParagraphs/03/document/ABX_Oct2607_Notice.pdf
The dollar amount broken down by tranche and security.
jg,
Prunes!!! They used to call the BB USS California the prune barge.
When in High School there was a prune dryer near the house that some of the football players worked at. They would snack on the fresh plums but it had an interesting effect when they were tackled in practice.
It is a shame that some of the most productive area for tree crops is now under asphalt.
deb-
you are spot on regarding 92-95 LA foreclosures. That was the perfect storm. Defense cutbacks, lax lending, overbuilding, Rodney King and an earthquake.
It is hard to believe that only the profound abuses of this current lending environment could very well be enough to possibly duplicate declines equivalent to all five of the characteristics needed to achieve the mid-90's decline.
Where is the next blowup?
Allen C
you mean balloon?Bubble?
I vote no-doc,neg -am,cash out auto loans, preferably on porsche, ferrari,
It is almost a toss-up:
Your life up in flames or your life surrounded by piles of ashes that were other peoples lives.
I would bet that many more of those who lost homes in the SD area had insurance than those who lost homes in the malarial swamps that were NO.
Where will they choose to spend their insurance money?
d-d-, it hard to imagine things changing radically.
But, I lived in the southside of Chicago for two years, while in grad school. There, in an area that was dirty, dangerous, and rundown, were the magnificent homes of the Hormels and the like from the early 20th century.
The fortunes of areas change. SV is too costly a place for business, will hollow out, and parts will revert to farming.
I bet SV was a gorgeous, wonderful place up through the '70s/early '80s.
More tasty tidbits from the DQ article and OC Register:
"Banks foreclosed on 24,209 houses and condos in California in the third quarter, up 38.7 percent from the second quarter and a 604.8 percent increase from a year ago, reports DataQuick. Its the the highest total in the companys database, which goes back to 1988.
"The second quarter total of 17,458 foreclosures was also a record, surpassing for the first time the previous peak of 15,418 in the third quarter of 1996.
"DataQuick estimates that 54.1 percent of defaulted loans statewide are ending in foreclosure, up from 19.1 percent a year ago.
"In Orange County, banks filed 3,882 notices of default in the three months ended Sept. 30, up 158.8 percent from a year ago.
On primary mortgages statewide, homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $10,914 on a median $344,000 mortgage.
Those are some ugly numbers. FCs at a record, NODs up huge (also a record), and the number of NODs ending up as FCs is dramatically higher (54% now vs. 19% a year ago). With prices declining and lending still tightening, it seems that the % of NODs ending in FC will certainly not decline, leading to even higher FCs, leading to further price declines. The vicious circle.
And note that borrowers were a median 5 months behind on their payments when lenders started the default process (i.e., recorded the NOD). If lenders see increasing loss severity on FCs, I would think that they would start the default process quicker in the future in an attempt to mitigate their losses. Thus, we could see a real surge in an upcoming quarter if they act quicker on the defaults. Just my guess on this, but it seems reasonable to me.
"LOL! I don't think the Silicon Valley will be going back to its agriculture roots any time soon! "
No, probably not. Sometimes I wonder if a good old ferocious slowdown and property value collapse might be the best thing ever to happen to valley culture. Get a bunch of unemployed/retired techies to working to garages and low-rent warehouses on the next cool things without corporate smothering.
But I am skeptical about all these companies basing their business models on ad revenues, or some yet-unknown way to monetize their traffic.
As am I--you call that a "product"? After a couple of decades in SV, I now recognize the fragility of the local Tech economy. Most newcomers don't even see the systemic risks. And with local workers taking mounting debts just to live here, a credit crunch set against a bad business cycle could be disastrous for many.
Quincy k said: "you are spot on regarding 92-95 LA foreclosures. That was the perfect storm. Defense cutbacks, lax lending, overbuilding, Rodney King and an earthquake."
Yes---after a recession with huge nationwide job losses. So if we expect that to repeat, the first thing we need is a recession---which we still don't have and for which there is no evidence that we will have anytime soon.
Sebastia
Sebastian, you lose credibility when you say there is no evidence that we will have a recession soon. C'mon, no trouble signs at all?
Are you ignoring those graphs showing past recessions reliably following big drops in new-home sales? Are you ignoring declining state tax revenues? Are you ignoring declining trucking volumes? And I suppose the Fed's rate cut in the face of rising inflation was not suggestive at all?
Tiresome, tiresome, tiresome.
The economy is made up of sectors. Housing can tank, it is tanking, quite a bit of it is already tanked and bankrupted, but other sectors can do well, have done well, and may continue to do well.
The sub-prime meltdown is big, but in and of itself it will not cause a crash.
The broader credit crisis does pose a systemic risk, but the ABX crash only reflects one sector of the credit market. And a systemic risk is just that, a risk. There have been substantial costs already, but a crash? Not yet, nor yet a recession, though growth has slowed and prospects of a recession look worse and worse (or better and better, if you want a recession).
The risks of a recession have gone up susbtantially, and if you want to bet on it, go ahead. Even in a recession not all sectors go in the same direction.
Likewise, while the strength of the dollar is in some ways a measure of the overall strength of economy, quite a few major sectors can do well during a dollar decline. When the dollar declines, exports go up, and as imports become more expensive there is also likely to be import substitution.
Will the housing bubble collapse take a bite out of consumer spending? Definitely. And job losses in housing related industries will continue to mount. But that doesn't mean all other sectors will tank, too. The ABX reflects and perhaps predicts ongoing crises in the mortgage and housing sectors, but nothing more . . .
although the SIV fraud might make the sky fall, or it mght not.
I wouldn't buy CFC or C these days, but there's good reason to think several sectors will continue to do well, domestically and internationally, such as tech, drugs, consumer staples, and natural resources . . .
unless the whole market crashes, which could happen . . .
It is all a matter of calculating the risks.
Oh, that's what they call this blog, isn't it?
Definitely not the best of all possible worlds, but not the Second Great Depression, either, not yet. One bright spot is that Bush can't get elected again . . . and not just because he may not have been elected before. Of course, he could declare martial law and refuse to leave office. In that case, bury gold, buy shot guns, and dig a bomb shelter.
Joe
joe shmoe,
I'm not sure I understand your point. Yes, there will always be individuals and businesses or sectors that do well during rough times. Even during the depression that were probably more than a few who prospered.
However, every once in a while a financial crisis comes along that affects so many people that it leaves its imprint on behavior and attitudes for a generation. I believe this has a very good chance of being one of those times.
In the big scheme of things, the hits from a few hundred thousand foreclosures and a few hundred billion dollars of evaporating securities pales in comparison to the 2.4 trillion we're pissing away in Iraq.
We are going to be paying for a long time.
"The sub-prime meltdown is big, but in and of itself it will not cause a crash."
And why the hell not? Your line of reasoning is EXACTLY what was being said 7 years ago about the internet space -- "not big enough to bring down the markets - so what if there was a little too much of a build-out?"
Futher, the sub-prime meltdown is just one consequence of a much bigger problem: Too many unaffordable homes.
Lenders started formal foreclosure proceedings on a record number of California homeowners last quarter, the result of declining home prices, sluggish sales and subprime mortgage distress, a real estate information service reported.
Is this to suggest that all the foreclosures are from home prices going down, sales being slow, and subprime mortgages blowing up?
I'll venture that many, many foreclosures are not being caused by reckless borrowing or home values dropping, but by people suddenly out of work - the real estate industry, financial industry, home improvement industry, etc. etc. There are tons of people either outright losing their jobs, or self-employed people whose work is getting v-e-r-y slow and the income just isn't stretching enough to cover the mortgage. That's what my antennae are telling me, anyway.
I wouldn't buy CFC or C these days, but there's good reason to think several sectors will continue to do well, domestically and internationally, such as tech, drugs, consumer staples, and natural resources . . .
joe shmoe | 10.26.07 - 8:07 pm
So shmoe, you think these sectors wouldnt take a big hit when we go into recession? Think again. Look back at these sectors after the last serious recession.
I think you have been watching too much CNBC!
That means these people are going to be smart and stop paying. Everything, taxes, insurance, mortgage.
Robert Coté
game theory in action...
I think that venture capital will be hit hard as pension funds and insurance companies suffer losses on CDOs, equities, and bonds, and will shut down their exposure to 'special investments' -- e.g., private equity and venture capital. I'm expecting that pension funds and insurance companies will even choose to ignore capital calls from VCs.
Yes. In tough times, everyone gets conservative and pulls in their horns.
joe schmoe totally misses the point... bubbles, booms, busts, recessions and/or depressions are predominantly psychological events.
Materially there was little difference in the USA before and after 1929, 1987 or 2000. It's the mood change that gets you.
BTW, in a poll reported two days ago 65% of Americans said they expected a recession.
I agree with Larry K about the Iraq war.
Topher I think is not correct. When the tech bubble burst the markets overall took a hit, but a hit is not a crash. 1929 was a crash. After 2001, and after the 9/11 accelerated recession, the broader market and economy recovered pretty quickly. the broader market recovered starting in 2003 quite clearly, and now 6 years later the tech sector seems to be doing well again, too.
A lot of this dispute is about scale and perspective. To me, a 10% or 20% dip in the S&P500 is not a crash. It's a correction in the first instance, and into bear market territory in the second. Corrections happen almost every year. Bear markets every 5 to 10 years. Recessions happen periodically, too - no new paradigms, remember? It is not different this time, not yet, anyway.
I wouldn't be happy about a recession or big correction or an overall bear market. I own a big chink of S&P 500, but 10% or 20% is not a crash or a systemic crisis. For that, look at 1929 or 1907. Even the long bear to flat market of the 1970s was not a crash. It hurt, but that's different. That's part of investing and part of being interested in the nation's economy as a citizen. It will happen periodically, try as we might, and should, to prevent it.
The housing sector alone will pinch and hurt the overall economy, but only a moderate amount, and only for about 5 or so years, even if full recovery in the sector takes longer. Many people are being hurt now and entire communities are being hurt now, and that is a very serious political and social issue. But for the overall economy it is just a case of the flu that should make people think about living healthier lives in the future (i.e., regulate the f'ing markets like a grown up country). It is not a case of cardiac arrest that will put the economy six feet under.
Now if the entire SIV and CDO markets seize up and then collapse, then we'd be in a systemic crisis, and we could end up there. We could end up replicating Japan post bubble, which would suck. But housng is but one piece of that potential pit. And even the Japan case needs to be put in perspective. Japan still exists. Some sectors of its economy have done well. The sky over Tokyo did not fall, though older people there remember a time that it, from about 1943 to 1945, leaving people to live in a kind of rubble that is almost unimaginable for most of us in the US.
All I'm saying is keep it in some perspective.
The Iraq war is going to be far, far costlier than the housing bust.
Joe
TJ and friend
Oh dear, do read up on 1929. 25% unemployment was quite a bit different than what existed before. In bear markets losing brokers don't buy a new car. In 1929 some of them jumped from windows. Wow. It was not just a state of mind.
Joe
joe schmoe,
You're confusing cause with effect.
You're telling me that one day after the 1929 crash there were suddenly less factories, fewer workers, lower productivity, mountains of missing cash? No, only the mood had changed.
CR,
According to the 2006 Census data 58.5% of the occupied housing stock in California is owner occupied or 53.9% of the total housing stock. In 2000 it was 56.9% and 53.6% respectively.
I have looked at the numbers going further back for OC and they run in the 60% range. I also have double checked this data by the amount of property tax bills and the Census data averages of 2000 and 2006 are a good estimate.
On the housing stock ratio California is beyond 1996 by far and OC is lagging but catching up very quickly.
ShortCourage said: "Sebastian, you lose credibility when you say there is no evidence that we will have a recession soon. C'mon, no trouble signs at all?
Are you ignoring those graphs showing past recessions reliably following big drops in new-home sales? Are you ignoring declining state tax revenues? Are you ignoring declining trucking volumes? And I suppose the Fed's rate cut in the face of rising inflation was not suggestive at all?"
Check out CR's beginning-of-the-year estimates of home construction job losses and likelihood of recession before you call my credibility into question.
Those forecasts were based on the data and charts he posts here, yet they went pretty wide of the mark. Clearly, new-home sales data (or any housing-only data) as a leading indicator of recession isn't foolproof.
Of course there's not "no trouble," there's always trouble of one sort or another. It's just that it hardly ever rises to the level of bringing on recession. There are reliable, objective measures that do offer plenty of warning---they're just never mentioned on bearish blogs. Not good for traffic.
Sebastia
TJ
One day???? No, of course not, and I didn't say that. The crash of 1929 was not a one day event, nor was it a single event. Even the market indices each day are not a single event, but the result many millions of trades that are the result of many actions and deliberations, etc. The crash of 1929 and the Great Depression that followed unfolded over weeks and months and lasted into the 1940s, such that at the end of WWII there was great concern that the depression conditions would resume.
That was not a sentiment problem! It was a real structural crisis.
Sentiment matters in the stock market short term, but medium to longer term we're in the realm of fundamentals.
I can't help but think what you say sounds a bit like the Bush administration's faith-base intelligence going into the Iraq War: if we believe it is true, then it is true, just because we say it is true.
The problem is that the first Republican President was right. You can fool all of the some of the time . . . but eventually 25% unemployment - or lots of dead bodies and an ungodly mess of a war without end - will convince lots of people that the real economy (or real world) matters, and it isn't just whatever we wish it to be.
Joe
Check out CR's beginning-of-the-year estimates of home construction job losses and likelihood of recession before you call my credibility into question.
Those forecasts were based on the data and charts he posts here, yet they went pretty wide of the mark. Clearly, new-home sales data (or any housing-only data) as a leading indicator of recession isn't foolproof.
Sebastian
Sebastian
Yet, BED survey data has construction jobs down 105k from Q206-Q406(next survey is Nov 16, wanna guess which way those numbers trend?)
2007 construction jobs are down 105k S/A in CES even with B/D model baking in 136k jobs.
So somewhere between 200-300k jobs lost in construction and you're still crowing about your assertion? Credibility? puh-leaze.
It's going so swimmingly due to housing that there's been a 50bp rate cut and possibly more to follow, a credit crunch and trillions of dollars at risk.
So to go back to January 20
, shall we??
CR posited
1) Show me several hundred thousand residential construction jobs lost, and little or no impact on the general economy.
2) Show me mortgage equity withdrawal (MEW) at less than 3% of disposable personal income (DPI), with little or no impact on consumer spending.
3) Show me near record foreclosure activity, with little or no impact on lenders or the general economy.
1: has been a drag on the economy, not enough to drag it under.
2: The crappy numbers in house sales, autos and now retail should be enough to prove right.
3: Well, we know how that's going, don't we?
3 for 3 is a pretty good average, innit?
Yup,
Foreclosures have definetly gone up.
Yeah.... I agreed.
It is a time to think about the sudden rise in Foreclosures... It is a serious business.