Price Distribution of Distressed Homes
Submitted by
CalculatedRisk on Mon, 06/02/2008 - 7:18am (22 comments)
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The higher price ranges are probably distressed, but they just don't know about it yet because those transactions have slowed to a crawl.
CR,
Do you have any idea (from past experience) if this distribution is specific to Orange County? Or is it representative of what one would see everywhere?
If the loans written with the least diligence were securitized, it would stand to reason that they don't need to disproportionately be at the low end of the market.
Is it likely that in other markets (such as San Francisco) there will be a flatter distribution because more of the "weak" loans are in the higher ranges (because of higher incomes)?
It was pointed out elsewhere that banks have been slower to drop prices on more expensive REO property than on the cheaper stuff. When they do so, that may trigger price reductions in those markets. (The upper end prices seem to have held better in many markets than have the lower-end prices).
It will be interesting to see if defaults then begin to move up the ladder.
The high price range is above $627,381.
Sorry but $627k is more of a substantial downpayment at the high end of OC housing rather than a purchase price. I'd say roughly 40% of OC housing is priced above $627k.
CR,
Also, if the distribution of Orange Country is representative, what does that imply for the higher end ranges? That they will descend only because of pressure from the lower ranges as those descend? In which case the stickiness will last a long time. Perhaps long enough for the next cycle in 5-10 years to take them up before they return to their inflation-based trend line?
wally,
Thanks for the information. I assume that you're postulating that once the banks reduce prices on REO's then the ensuing appraisals will drop. However, if the density of REO's is low enough, won't appraisals still be dominated by the higher priced past sales? In which case, the mark downs may be very slow in coming from un-distressed sellers. I'm just trying to understand if localities can hold their inflated values if their residents are highly leveraged but still able to pay their mortgages because their incomes are higher, giving them more room to cutback non-essentials. Will we see areas of high home prices but less consumption? Or are prices likely to drop back while people continue to have similar patterns of spending (when a town's median income is double the states, for example).
Lansner's data confound any attempt to separate cause and effect.
As I understand it, the data shown in the plot demonstrate that homes with currently low asking prices are predominantly distressed. That's not at all the same as saying that in general, the less a home is worth, the more likely it is to be distressed.
For instance, the data are perfectly consistent with the idea that every distressed home in OC is really "worth" $1 M, and every undistressed really "worth" $800k, but distressed owners are more likely to be willing to sell for less, and undistressed owners more likely to overprice it.
To demonstrate that less-valuable houses are more likely to become distressed, one must slice the data by the pre-distress price. This might be hard to get, but there are surely a number of proxies (highest sale price in the last 10 years, highest property tax assessment, highest Zillow estimate in the last 10 years, or some such) that would be better for binning than using the current asking price.
looking in berkeley oakland I just saw a house in the flats (north oakland 826 57th street) that is foreclosed selling for 310K, down from 475K 4 years ago. Across the street is an auction house. THese are in the most impoverished areas of oakland. But they are comps for housing that is closer, 1200 block in Emerville that they are trying to get 825K.
The pig in the python is the alt-A's that many of the houses in the oakland hills were bought by, that series of resets starts next year....
eric- "The pig in the python is the alt-A's..."
Yes. Conjure and I think Round 2 is going to be a hell of a lot more fun than Round 1.
I caution anyone whose "better home" appreciated 100% in the past five years not to imagine that price depreciation is now "contained" to cheap houses in poor neighborhoods.
I watch our old Bay Area neighborhood pretty closely, where houses still sell in the range of $1.25M to $2.25M. They haven't dropped in the past year or so, and they are definitely up about 10-15% from the time we sold in 2005.
But what I see indicates that disstress is increasing at least as fast as prices are. Houses being put on the market are, more often than not, houses that sold previously in the past 3 years or so. For example, one is listed for sale today for $2.2M which sold about 1 1/2 years ago for $2.1M. Of course, when I ask RE agents why they are selling so soon, they are cagey, but occasionally an agent will admit that the owner cannot afford the house.
Not a good sign, IMHO. The pool of optimists is dwindling. So is the pool of foolish lenders.
Buy one, get one free in San Diego!
this isn't a joke.
Of course Orange County is going walloped by this downturn. Hell, they're the instigators and the home of The Real Housewives of Orange County.
Markel, that's exactly how I feel. I have listened to numerous people here in the Bay Area tell me how the nicer locations (Los Altos, Palo Alto, Mountain View, and the likes) will not see declines, despite the fact that they had 100% gains in five years during the boom.
"There's just too much money there."
"Google is there."
"People want nice schools."
What can you say to them when the current prices serve as evidence they are right!? But as I pointed out in my last post, I see increasing distress in those nicer areas.
I wish I could short houses in nice neighborhoods!
CR which one of those 253 homes is yours? Or is that the wrong county?
"RhodesianRidgebackinAZ writes:
Buy one, get one free in San Diego!"
What should we call this? BOGOstate? BOGOvelopments?
Distressed is at least 2 subcategories, REOs - which are moving here quickly, leaving a 2-3 month inventory in REOs,
Short sales, which hardly move at all, 10-20 month inventory - future REOs.
Unblemished inventory is hovering around 6 months in Northern CA. Total inventory dropping below 2006.
ac, right county, but my house isn't on the market. I'm happy living here watching the price go down!
Best Wishes.
yes I know that just so stories ain't facts, yet they sometimes shine a light on the facts of the matter.... having worked in both start-ups and advertising I got to see the persons who bought in the oakland berkeley hills. The people in high tech bought with the windfall of their stocks going from a penny to 10$, there is a very limited number of such people in the world. But they always will be their keeping the prices above the median. But not that much above median.
It is the advertising person that is the more interesting, they bought far more house than they could afford via alt-a's and 100% down.
They are the one who rather dominate the hills and the lifestyle lofts in the flats, IMHO. These are the one's who are going to be fiscally strapped when the resets happen. These are the houses that are going to be the comps for the people who have windfalls who are buying (and selling ) in a couple of years.
It seems silly to go against the regression to the mean in something like housing. That means that an median house everywhere in any location will be determined by the median income of that neighborhood. Flats of Berkeley, 90K, a median house there then should be 380K max... just saying...
Those lehman jan20p's sure don't look expensive at 1.15 anymore.
We did some similar analysis in the Twin Cities and have been pretty happy with the response from the public & agents: http://www.twincitiesrealestateblog.com/wp-content/uploads/2008/05/foreclosures-and-short-sales-in-the-twin-cities-housing-market.pdf
I just looked at some short sales down close to 40% from the peak. Much more and they will be worth buying for investments. Most were sold near or after the peak.