Here in San Diego, we've seen the lower end areas correct to over 50% in some cases, while the middle and higher end has corrected maybe 25% (thus far). When I share my opinions that the middle and higher end will correct even more, I am met with incredulity as well. So I ask them, is it rational to think that prices would double everywhere, but only the lower end will see a 50% correction and not the middle and higher end?
I believe the lower end corrected first mostly due to the subprime mess breaking first, and the middle and lower end is next, because that's where a lot of the option arm / alt-a / neg am / etc loans are.
My theory has always been that among owners of high-end homes one third embezzled the money, another third are grossly overleveraged, and the final third legitimately can afford it. Just a theory...
While foreclosure rates will never be as high as in poor areas, the damage to lenders is probably going to be equivalent given the much higher absolute dollars.
When prices drop, foreclosures rise, because people can't refi when something (divorce, sickness, indictment) happens to them, if the falling market puts them upside down.
You know it's serious when:
Cadwalader to Fire 96 Lawyers on Real-Estate Slowdown (Update2)
By Lindsay Fortado and Linda Sandler
July 30 (Bloomberg) -- Cadwalader, Wickersham & Taft, the New York-based law firm founded in 1792, will fire 96 salaried lawyers in the U.S. and London because of a significant slowdown'' in real-estate finance and securitization work.Cadwalader has adapted to this market reality,'' the firm said today in a statement sent by spokeswoman Claudia Freeman. Cadwalader fired 35 lawyers in January. The latest round of cuts will leave the firm with 580 attorneys, the same number as in January 2006, it said. Cadwalader to Fire 96 Lawyers on Real-Estate Slowdown (Update2) - Bloomberg.com
Seriously, can't they find a new stupid battle to fight? Only sub-prime, well, ok, maybe some alt-a -- well, maybe some alt-a and jumbo --- well, maybe some alt-a, jumbo and things formerly misclassified as prime. Only MI -- well, ok, maybe MI and the Rustbelt -- well, ok, maybe MI, the Rustbelt and CA but never Charlotte! -- well, ok, maybe MI, the Rustbelt, Seattle and Charlotte, but never a national downturn!, well....
While the rates in these "better" ZIPs may be never attain the same percentage default as those in those "sub-prime" ZIPs, there's no real reason they can't hit the same measure of "unusually -- whoops -- unexpectedly higher than before".
Every day that goes by, reminds me of how lucky I am to have moved out of OC & CA back in 2006. I do miss Disneyland, but not the earthquakes.
I was so afraid back then, I would not be able to sell my townhouse in Anaheim Hills with all the houses up for sale back then.
Now my parents are trying to sell their house in the same neighborhood, but already their price has dropped $140,000 from the peak. They actually got an offer and its in escrow, but I keep telling myself (but not my parents), to not hold my breath until the loan goes through.
By the way, thanks CR & Tanta for all the posts this last year. I have been a daily reader (lurker) but rarely post anything myself.
as I posted over 2 years ago on the hbb, we can expect 80+% of all these exotic mortgages to go back to the bank. I did underestimate the "regular" loans that will be walkaways, though.
OC is no insulated from anything and I have never seen such "strivers" anywhere. I would say many bit off way too much.
sbarrkum | Homepage | 07.30.08 - 4:29 pm | #
Tim, (or anyone else)
Is there ay partticular place where you can plot total volume for an index with calendar day.
Answered my own question. The WSJ Market Data center has it.
Not sure if this is a valid observation, but open discussion to the floor...
Regarding lender losses due to foreclosures; "low" end loans are held to some extent by F&F, "high" end are held by financial institutions or have been collateralized.
So while the higher end may not have as large a volume of FC's as the lower end, the potentially higher dollar value and the fact that the noteholder is someother than F&F changes who is affected.
I think there are at least two "higher areas," one for the very rich, who buy in cash, and one for the wannabes like me who rely on financing...
Here is the thing: Basically, the way that funding is organized for mortgages, prices for the wannabe places MUST come down, or sales must evaporate. Jumbos are very expensive now, and lenders are refusing them, or requiring more $$ and documentation, which is the same thing. The GSEs have been given the right to loan up to $729k this year, but this goes down next year. The real constraint though is the lower threshold percentage limit (115%) and the median.
Median prices have fallen much faster than the top-end in bubble areas. The calculation for what the GSEs can lend is going to really pull down the wannabe areas. Here is an example:
The current threshold in San Diego for GSEs is 697.5k or 125% of $558k (last year's "official" SD median). The median in SD has dropped to $390k and may fall further before the new calculation. Let's take $390k x 115% = $448.5k. This is a drop of almost $250k in what the GSEs will fund next year!
I don't know whether they will play games with the median again (they may use an old number as they did this year), or they may be chastened by their financial situation and new oversight. In any case, there is a BIG drop coming in what they will fund, and this will have to come out in the form of reduced sales or lower prices at the high (wannabe) end. It may also start a stampede for the door as people with dicey financing but still not underwater see the wall of water coming.
"Although the high end areas will never have the elevated foreclosure rates we are seeing in the low end areas, it makes sense that the foreclosure crisis would spread. "
Not necessarily, a majority of foreclosures will be driven primarity negative equity and not cash flow constraints. For example:
if someone's OC house is now worth $1.6M and they owe $2.1M on the mortgage = foreclosure
Gas prices will remain high and inflation will eat away incomes, savings and all future value. The blackhole is attracting more matter towards it and I'm sorry to be the first to tell you, but the end is near.
My zip code (92647) appears to be represented by the right-most 92649 in those maps. Seems to be holding up relatively well -- a little blue dot in a sea of red for coastal orange county.
If you figure a lot of those rich folks foreclosed their investment properties in Riverside, Las Vegas, Arizona, it seems just a slightly larger step to foreclose a primary residence as well to get out of a money-losing investment.
I will say that I have noticed a huge reduction of staff cars in the parking lot at the time share sales across the street. Each month for the last 3 months there has been less and less cars. Probably 1/2 of what was there before.
w00t! We're still in baby blue! Our neighborhood is pretty much immune to a drastic downturn because we have fantastic weather and just about everybody wants to live here. Oh, and all the chicks are hot.
DETROIT - A General Motors Corp. official says the automaker plans to cut 15 percent of its U.S. and Canadian salaried work force or around 5,100 jobs by Nov. 1.
The GM official declined to confirm the specific numbers Wednesday but indicated they were generally accurate. The official asked not to be named because the company had not planned to release the numbers until later.
GM had said in mid-July that it would cut white-collar costs in the U.S. and Canada by more than 20 percent, but it wouldn't say how many workers would leave.
Since the Inman conference was mostly populated by Realtards, it is not surprising that you were met with incredulity.
The truth of the matter is that people in the better neighborhoods got in way over their heads, just like the sub-prime folks did. I wonder just how many homedebtors HELOC'd their "prime" neighborhood abode in order to gamble on the formerly hot property markets of Phoenix and LV? These folks were the most delusional of all and will be pounded just like everyone else.
"greeted with incredulity"
I have friends in different areas of Sales; specialty chemicals, food, food additives, ERP systems, etc.
I've noticed they are all ahead of the prevailing wisdom. A friend who sells potash bought a load of futures contracts 9 months ago. A food salesman actively pursued nursing homes and schools when restaurants were still doing well.
Why is it that so many relitters have absolutely no idea about market trends in real estate? I do not think it's so much a case of education level, but more a pathology of short-sightedness and self-delusion in this industry.
(but, what do I know?)
The chart of the day shows the rapid decline in the Conference Board's index for Americans with incomes greater than $50,000. The 12-month rate-of-change rivals the descent seen in the year prior to January 1991.
"Well-heeled" is an income over $50,000?! I would think that borderline poorly heeled, i.e., poor.
if you look at the graphs CR posted carefully you will notice that high ends homes did not appreciate as much on percentage basis as the lower ends did during the boom period. e.g. compare the lower end and higher end graph for LA posted by CR yesterday. Both segemented start around 75 on Real Case-Shiller in 1997. Lower ends shoots to highest of 290 (approx) while high end line hardly crosses 200. that means low end appreciated 286% to the peak while high end appreciated only 167%. I am assuming their lowe points in future will also coinside as they did the last time in 1996-97. That means there is no way higher end market will drop same as lower end in percentage terms.
I spoke with a First Team Realtor in Huntington Beach, CA and he expects to see a large increase in foreclosures in Huntington Beach and Fountain Valley, CA in 2009-2010 because there were a lot of folks who Ioved from Garden Grove and Anaheim to HB/FV in the past 2-3 years....
it makes sense that the people who moved out of the poorer areas of GG/Anaheim would only have the money to move to FV/HB, if they chose to stay within Orange County, and soon their loans will adjust and the foreclosures will spread.....
and "the circle goes 'round and 'round"...Joni Mitchell
Anonymous writes:
This is good for economy, because excess cash is being absorbed like giant depends pad in tsunami.
Anonymous | Homepage | 07.30.08 - 3:53 pm | #
well then...it's a good thing no one has "excess" cash...Right??
Yo!
I don't think there are foreclosures at the high end, just very short sales...
This is good for economy, because excess cash is being absorbed like giant depends pad in tsunami.
what is the cutoff for highend?
Some of think it's funny how folks who live in Orange County are so obsessed with everything that happens in Orange County.
Must be the Disneyland factor.
A big no no CR. You don't want to confuse spin and obfuscation with fact. There you go again. Now you did it.
only 165 visitors now. market may jump higher....
And yet I watch fools jumping in with both feet.
I don't live in California, but an old adage is as goes California, so goes the West (and possibly the country). Look down below!
Light volume today...Light volume three days in row with triple digit moves... weird.
CR,
Here in San Diego, we've seen the lower end areas correct to over 50% in some cases, while the middle and higher end has corrected maybe 25% (thus far). When I share my opinions that the middle and higher end will correct even more, I am met with incredulity as well. So I ask them, is it rational to think that prices would double everywhere, but only the lower end will see a 50% correction and not the middle and higher end?
I believe the lower end corrected first mostly due to the subprime mess breaking first, and the middle and lower end is next, because that's where a lot of the option arm / alt-a / neg am / etc loans are.
My theory has always been that among owners of high-end homes one third embezzled the money, another third are grossly overleveraged, and the final third legitimately can afford it. Just a theory...
Note the increase in NOD's for Newport Coast (zipcode 92657) -- 400% to 1200% increase. YIKES!
Newport Coast is a very high-end area that just happens to have a high concentration of (former) mortgage brokers and real estate agents.
Notices of default, second quarter 2008 | map, foreclosures, increease - Business - The Orange County Register
Light volume today...Light volume three days in row with triple digit moves... weird.
If I were part of the PPT, I'd sure choose low volume days as easier to manipulate.
Oil up $5 AND the market up 1.5% though? That I find weird...
While foreclosure rates will never be as high as in poor areas, the damage to lenders is probably going to be equivalent given the much higher absolute dollars.
When prices drop, foreclosures rise, because people can't refi when something (divorce, sickness, indictment) happens to them, if the falling market puts them upside down.
Even I can understand that.
You know it's serious when:
Cadwalader to Fire 96 Lawyers on Real-Estate Slowdown (Update2)
By Lindsay Fortado and Linda Sandler
July 30 (Bloomberg) -- Cadwalader, Wickersham & Taft, the New York-based law firm founded in 1792, will fire 96 salaried lawyers in the U.S. and London because of a significant slowdown'' in real-estate finance and securitization work.Cadwalader has adapted to this market reality,'' the firm said today in a statement sent by spokeswoman Claudia Freeman. Cadwalader fired 35 lawyers in January. The latest round of cuts will leave the firm with 580 attorneys, the same number as in January 2006, it said.
Cadwalader to Fire 96 Lawyers on Real-Estate Slowdown (Update2) - Bloomberg.com
Maps!! Yea for CR!
Seriously, can't they find a new stupid battle to fight? Only sub-prime, well, ok, maybe some alt-a -- well, maybe some alt-a and jumbo --- well, maybe some alt-a, jumbo and things formerly misclassified as prime. Only MI -- well, ok, maybe MI and the Rustbelt -- well, ok, maybe MI, the Rustbelt and CA but never Charlotte! -- well, ok, maybe MI, the Rustbelt, Seattle and Charlotte, but never a national downturn!, well....
While the rates in these "better" ZIPs may be never attain the same percentage default as those in those "sub-prime" ZIPs, there's no real reason they can't hit the same measure of "unusually -- whoops -- unexpectedly higher than before".
Foreclosures rise when HELOCs and refis are not available to pay the mortgage.
Tim | 07.30.08 - 4:08 pm | #
Light volume today...Light volume three days in row with triple digit moves... weird.
Tim, (or anyone else)
Is there ay partticular place where you can plot total volume for an index with calendar day.
Just like we can plot DOW closing with each day, say the DOW tot volume for the day.
Thanks
sbarrkum
Every day that goes by, reminds me of how lucky I am to have moved out of OC & CA back in 2006. I do miss Disneyland, but not the earthquakes.
I was so afraid back then, I would not be able to sell my townhouse in Anaheim Hills with all the houses up for sale back then.
Now my parents are trying to sell their house in the same neighborhood, but already their price has dropped $140,000 from the peak. They actually got an offer and its in escrow, but I keep telling myself (but not my parents), to not hold my breath until the loan goes through.
By the way, thanks CR & Tanta for all the posts this last year. I have been a daily reader (lurker) but rarely post anything myself.
The day Cadwalader hires again is the day it's finally time to catch the knife.
as I posted over 2 years ago on the hbb, we can expect 80+% of all these exotic mortgages to go back to the bank. I did underestimate the "regular" loans that will be walkaways, though.
OC is no insulated from anything and I have never seen such "strivers" anywhere. I would say many bit off way too much.
incredulity
I like that word !
sbarrkum | Homepage | 07.30.08 - 4:29 pm | #
Tim, (or anyone else)
Is there ay partticular place where you can plot total volume for an index with calendar day.
Answered my own question. The WSJ Market Data center has it.
Not sure if this is a valid observation, but open discussion to the floor...
Regarding lender losses due to foreclosures; "low" end loans are held to some extent by F&F, "high" end are held by financial institutions or have been collateralized.
So while the higher end may not have as large a volume of FC's as the lower end, the potentially higher dollar value and the fact that the noteholder is someother than F&F changes who is affected.
I think there are at least two "higher areas," one for the very rich, who buy in cash, and one for the wannabes like me who rely on financing...
Here is the thing: Basically, the way that funding is organized for mortgages, prices for the wannabe places MUST come down, or sales must evaporate. Jumbos are very expensive now, and lenders are refusing them, or requiring more $$ and documentation, which is the same thing. The GSEs have been given the right to loan up to $729k this year, but this goes down next year. The real constraint though is the lower threshold percentage limit (115%) and the median.
Median prices have fallen much faster than the top-end in bubble areas. The calculation for what the GSEs can lend is going to really pull down the wannabe areas. Here is an example:
The current threshold in San Diego for GSEs is 697.5k or 125% of $558k (last year's "official" SD median). The median in SD has dropped to $390k and may fall further before the new calculation. Let's take $390k x 115% = $448.5k. This is a drop of almost $250k in what the GSEs will fund next year!
I don't know whether they will play games with the median again (they may use an old number as they did this year), or they may be chastened by their financial situation and new oversight. In any case, there is a BIG drop coming in what they will fund, and this will have to come out in the form of reduced sales or lower prices at the high (wannabe) end. It may also start a stampede for the door as people with dicey financing but still not underwater see the wall of water coming.
@CR:
"Although the high end areas will never have the elevated foreclosure rates we are seeing in the low end areas, it makes sense that the foreclosure crisis would spread. "
Not necessarily, a majority of foreclosures will be driven primarity negative equity and not cash flow constraints. For example:
if someone's OC house is now worth $1.6M and they owe $2.1M on the mortgage = foreclosure
Gas prices will remain high and inflation will eat away incomes, savings and all future value. The blackhole is attracting more matter towards it and I'm sorry to be the first to tell you, but the end is near.
My zip code (92647) appears to be represented by the right-most 92649 in those maps. Seems to be holding up relatively well -- a little blue dot in a sea of red for coastal orange county.
sbarkum:
Old saying: "Never sell a quiet market after a rise".
Traders want to close the NAZ gap at 2375, up 2%.
The GSEs have been given the right to loan up to $729k this year, but this goes down next year
Chances of it going away . . . slim IMO
Scotty, if you can fix the imbalance in the matter/antimatter pods, then we can skirt this so-called black hole.
If you figure a lot of those rich folks foreclosed their investment properties in Riverside, Las Vegas, Arizona, it seems just a slightly larger step to foreclose a primary residence as well to get out of a money-losing investment.
I will say that I have noticed a huge reduction of staff cars in the parking lot at the time share sales across the street. Each month for the last 3 months there has been less and less cars. Probably 1/2 of what was there before.
I've reached peak incredulity.
My cousine (despite my advice) bought a $1.7M house in San Juan Capistrano on Dec. 2006.
I was nosy-nosy and looked at his area's houses for sale in the redfin.com, and surprised to see many houses were listed below the purchase prices.
"Our debts exceed our assets, you parasite!", said Tom, incredulouse.
w00t! We're still in baby blue! Our neighborhood is pretty much immune to a drastic downturn because we have fantastic weather and just about everybody wants to live here. Oh, and all the chicks are hot.
Why does 92649 get two different colors? Why don't they include all the zip codes?
DETROIT - A General Motors Corp. official says the automaker plans to cut 15 percent of its U.S. and Canadian salaried work force or around 5,100 jobs by Nov. 1.
The GM official declined to confirm the specific numbers Wednesday but indicated they were generally accurate. The official asked not to be named because the company had not planned to release the numbers until later.
GM had said in mid-July that it would cut white-collar costs in the U.S. and Canada by more than 20 percent, but it wouldn't say how many workers would leave.
GM calls reports of salaried jobs cut accurate - Autos- msnbc.com
"Not necessarily, a majority of foreclosures will be driven primarity negative equity and not cash flow constraints"
Or you could get laid off. That would quality as "cash flow constraints" in my humble opinion.
Since the Inman conference was mostly populated by Realtards, it is not surprising that you were met with incredulity.
The truth of the matter is that people in the better neighborhoods got in way over their heads, just like the sub-prime folks did. I wonder just how many homedebtors HELOC'd their "prime" neighborhood abode in order to gamble on the formerly hot property markets of Phoenix and LV? These folks were the most delusional of all and will be pounded just like everyone else.
"greeted with incredulity"
Didn't Dickens or somebody like that say "the rich will always be with us"??
Maybe I misheard. Apparently your audience did.
Hey, there is one thing kindof refreshing about that. They weren't "laid off", "rightsized", or "made redundant". They were simply...fired.
After 20 yrs or so the actual reality of life is beginning to edge back into the way we talk about it.
I wonder how many of them will be in foreclosure soon?
sadly for me, in the last 6 months the DC close in foreclosure rate has experienced "no change"
US Credit Conditions - Federal Reserve Bank of New York
I really really hope this is just a lag between california & DC
Some "Well-Heeled" news.
Rosenberg Says `Well-Heeled' Join the Pain: Chart of the Day - Bloomberg.com
"greeted with incredulity"
I have friends in different areas of Sales; specialty chemicals, food, food additives, ERP systems, etc.
I've noticed they are all ahead of the prevailing wisdom. A friend who sells potash bought a load of futures contracts 9 months ago. A food salesman actively pursued nursing homes and schools when restaurants were still doing well.
Why is it that so many relitters have absolutely no idea about market trends in real estate? I do not think it's so much a case of education level, but more a pathology of short-sightedness and self-delusion in this industry.
(but, what do I know?)
The chart of the day shows the rapid decline in the Conference Board's index for Americans with incomes greater than $50,000. The 12-month rate-of-change rivals the descent seen in the year prior to January 1991.
"Well-heeled" is an income over $50,000?! I would think that borderline poorly heeled, i.e., poor.
if you look at the graphs CR posted carefully you will notice that high ends homes did not appreciate as much on percentage basis as the lower ends did during the boom period. e.g. compare the lower end and higher end graph for LA posted by CR yesterday. Both segemented start around 75 on Real Case-Shiller in 1997. Lower ends shoots to highest of 290 (approx) while high end line hardly crosses 200. that means low end appreciated 286% to the peak while high end appreciated only 167%. I am assuming their lowe points in future will also coinside as they did the last time in 1996-97. That means there is no way higher end market will drop same as lower end in percentage terms.
I spoke with a First Team Realtor in Huntington Beach, CA and he expects to see a large increase in foreclosures in Huntington Beach and Fountain Valley, CA in 2009-2010 because there were a lot of folks who Ioved from Garden Grove and Anaheim to HB/FV in the past 2-3 years....
it makes sense that the people who moved out of the poorer areas of GG/Anaheim would only have the money to move to FV/HB, if they chose to stay within Orange County, and soon their loans will adjust and the foreclosures will spread.....
and "the circle goes 'round and 'round"...Joni Mitchell
o 90210
any unusual pizza deliveries for Fiday heard yet?
Thank you many times over ...CR and Tanta -
health and wealth to you both.
sez the mouse.
Anonymous writes:
This is good for economy, because excess cash is being absorbed like giant depends pad in tsunami.
Anonymous | Homepage | 07.30.08 - 3:53 pm | #
well then...it's a good thing no one has "excess" cash...Right??