My money is on 2006 turning out to be the highest since 1998. Fugedabout the current pace; the name of the game where I live (Santa Barbara) is acceleration. The YoY increase for the Q3 here is 194% -- time for the slackers in LA and banana slugs in Santa Cruz to pick up the pace! (Go Gauchos!)
Guest, 66,185 + 26,705 (i.e. current pace) = 92,890.
That is the highest level since '99.
Tom, thanks.
4shzl, it's very possible that this year will surpass '99; and '92! The comparison to 1992 is scary since California was already a couple of years into that housing bust.
As the table shows, the number of Default Notices rose every year during the early '90s bust. If this bust follows the same pattern, this is just the beginning.
The new factors are the speed of information and lender exposure. In 1992 4 months behind on a 20% down loan the local banker probably knew something of the situation. Today 12 days late and the computers start humming. 35 days late and automatic letters, collections officers notified, credit report searches and such are instituted. By the the time you are 62 days late on a high LTV loan the lender is potentially already at risk. They don't have the luxury of 1992 when the owners equity was the equity at risk.
CR I though you would have mentioned something about housing starts. The number added more fuel to the theory that housing has bottomed out - and the worst is over. (FYI heard a rather highly paid analyst make that statement.)
Also, as you know U of Mich publishes their highly popular consumer sentiment reports. One of the questions they ask is if this is a good time to buy a house. Apparently the number of positive responses was the highest in a year. I have not seen the number but thats what I heard.
Sharkbait, you just don't get it. Consumer sentiment is correct. Conditions are more favorable, due to price decreases, for homebuyers than they have been recently. That doesn't mean the market won't continue to fall, because lenders cannot continue to write loans on the same terms and homeowners won't be shielded from default by the ability to sell the house before foreclosure.
Housing starts are up, but housing permits have plummeted. This doesn't tell a good tale for the housing market.
What's stunning is how quickly the default notices are being generated - on average in CA, less then a year and a half into the loan. Think about what that means. Think about the fact that for nearly two years, people have been refiing into higher interest loans - obviously because they needed the money.
Think about the fact that even as housing starts to depreciate, lending standards continued to degenerate.
There's a whole lot of reckoning that's in the pipeline, and these numbers are just the early indications of a new trend.
Lots of highly-paid analysts are saying positive things about home builders, consumer prospects, and economic strength in 2007. You don't get paid big bucks for trash talking "your book." There's a lot of stock that still needs to be distributed, and so it will be.
Sharkbait, did you get all excited when CSCO pulled back from 82 and was selling for the low, low price of 50? How about Lucent when it pulled back from 60 to the bargain price of 40 . . . or 30, or 20, or 10, or 5 . . . The tendency to perceive value in a discounted price is a perfectly understandable response that we're all susceptible to. It can also be a deadly mistake.
I find it pretty interesting that the number of defaults yearly since 1990 seems to track really with the inverse of price appreciation. 1995-6 was the best time to buy in CA for a generation- and it happened to coincide with the highest number of loan defaults. Might be a good benchmark for when to buy again- when defaults go over 100,000 per year.
Er make that since 1992. Also I just noticed that the converse is true- 2004-05 were horrible times to be a buyer, right as defaults seemed to be bottoming out. As a current renter and saver, I'll make a note to try to keep track of defaults as an indicator of when to get a good deal.
Producer, no, statistically the highest risk for default is between 3 and 5 years. This is a much earlier pattern: "The median age of the home loans that went into default last quarter was 14 months, and more than half were originated in 2005.
On primary mortgages, homeowners were a median of five months behind on their payments when the lender started the default process. The borrowers owed a median $9,829 on a median $306,000 mortgage.
On lines of credit, homeowners were a median six months behind on their payments."
So, the median is that these NODs are being sent to borrowers who fell behind after 8 to 9 months of payments? It might be typical for subprime, but this points up why there is so much scrutiny of subprime.
If more than half of the defaults were in loans originated in 2005, a good guess would be that many more of those loans will default. We must be seeing this pattern because these borrowers are underwater and cannot sell.
Think about what that says for the future in a declining market!
Easy people eeeeasy. I'm actually not a stock guy. I dont buy stocks and dont plan to. I think the stock market is the most irrational market out there so I stay out.
Just so we are on the same page. I do think that the housing market has farther to fall. I think that supply as measured by the NAR will go as high as 9 or 10 months and stay there for a couple of years. I think that because price appreciation is dropping at the fastest rate on record, this bust is more like the 79-82 than 89-91. I dont remember how bad the 79-82 bust was. But if any of you still remember it please enlighten me. I think that in some cities price depreciation as measured by the shiller index will register close to -45%.
Now, thats what I think. So dont flame me next time I say something positive about the re market. However, I could be wrong, we have interest rates at relatively low levels, and will probably see lower rates next year. So there is some hope that an outright collapse can be avoided. Yet I cant imagine anyone paying todays prices unless 1) you expect the house to appreciate or 2) you dont care what the price is. Another thing thats weird, is that in many of the superstar markets the amount of down payment required to buy a house has become a problem for a big majority of people. I think we are at a point where prices just have to fall.
I also think that since Greenspan no longer runs the fed he smokes dope in spare time -- and it looks like he got a lot of spare time. CR why dont you get in touch with Alan and get him to post a few articles on your blog? Maybe he can put some meat behind why he thinks the worst is over.
Yet I cant imagine anyone paying todays prices unless 1) you expect the house to appreciate or 2) you dont care what the price is.
I pick Door #2!!!
I agree it might not be the complete 'go to zero' everyone is 'predicting'. But I do believe few will buy because they think it's a good opportunity to make a buck via appreciation but rather the price has fallen enough for them to feel comfortable buying - especially if they sell at a lower price then can turn around and also buy at a lower price - then it turns out a wash. I did that a couple times in the early 80s bust. It was all paper.
Producer: the 3-5 rule is not good for predatory loans. I was hunting for something free as to historical averages, so here's this OTS study:
"Home mortgages, like wine, vary in quality by year of origin. Delinquencies on home mortgages display a well-established distribution or "life-cycle." Newly underwritten mortgages tend to have few credit problems, but delinquencies and foreclosures rise sharply after two years, then decline after the fifth year. Data provided by Moodys (see Figure 2) show that more than half of all defaults occur in years three through six for 30-year fixed-rate mortgages (FRM).2 As mortgages season, though, loan-to-value ratios improve as loans amortize and home prices appreciate."
Really predatory lending does produce default patterns more similar to DQ's CA report. But that, of course, is why predatory lending is considered so harmful. I am not going to bore you with mutterings about state-transition models, but I would dearly love to know more info about which of these mortgages defaulted. Were they to "investors"? First-time buyers?
Note that the DQ article reports that actual 3rd-quarter foreclosures were up nearly 400% from 3rd-quarter 2005.
"Trustees deeds recorded on homes totaled 3,424 during the third quarter, up 76.9 percent from 1,936 for the previous quarter, and up 362.1 percent from 741 for last year's third quarter."
I don't have enough information to know what this rise in defaults and foreclosures means. It could be segmented in a relatively small portion of loans and so have relatively little implication for the broader universe of mortgages, or it could be spread more evenly and have pretty severe implications.
Tom, *** sentence deleted, please be polite *** Extrapolating on a rising statistic will eventually bring you to infinity. (66,185/3)*4=88,247. That's less than 2000. Do you understand the math or do I need to illustrate it for you? The same thing happens when people assume since interest rates have risen, they will rise in the future.
COMMENT BY CR: The current quarterly rate is 26,705. The first 3 quarters had 66,185 default notices, so at the current rate the annual total will be: 92,890. That is the highest level since '99. I don't think this is a big deal (2000 vs. 1999), but I just want to point how I calculated the annual rate.
Things are not exactly like they were in the early 1990's SoCal real estate meltdown. Then, the economy was in rough shape due to defense layoffs, but then again, there wasn't as much speculation then as there was here in 2003-2005. I'm not loking for prices to take a huge fall, though. There are so many immigrants to SoCal from all around the world, all wanting to get in on the American Dream. I've heard that there may be a couple of million Chinamen that will be immigrating to Southern California in the next 5 years.
Since 2000. Learn how to do math.
How about you read the article before coming with your quick wit...
He said "at the current pace"
Which means you should first figure out what the current pace is referring to. The article says:
"Lending institutions sent 26,705 default notices to homeowners in the state during the three-month period ending in September."
There's your pace.
I hope for your family's sake you don't jump at home loans like you do at smart a## comments.
My money is on 2006 turning out to be the highest since 1998. Fugedabout the current pace; the name of the game where I live (Santa Barbara) is acceleration. The YoY increase for the Q3 here is 194% -- time for the slackers in LA and banana slugs in Santa Cruz to pick up the pace! (Go Gauchos!)
Guest, 66,185 + 26,705 (i.e. current pace) = 92,890.
That is the highest level since '99.
Tom, thanks.
4shzl, it's very possible that this year will surpass '99; and '92! The comparison to 1992 is scary since California was already a couple of years into that housing bust.
As the table shows, the number of Default Notices rose every year during the early '90s bust. If this bust follows the same pattern, this is just the beginning.
Best Wishes.
The new factors are the speed of information and lender exposure. In 1992 4 months behind on a 20% down loan the local banker probably knew something of the situation. Today 12 days late and the computers start humming. 35 days late and automatic letters, collections officers notified, credit report searches and such are instituted. By the the time you are 62 days late on a high LTV loan the lender is potentially already at risk. They don't have the luxury of 1992 when the owners equity was the equity at risk.
CR I though you would have mentioned something about housing starts. The number added more fuel to the theory that housing has bottomed out - and the worst is over. (FYI heard a rather highly paid analyst make that statement.)
Also, as you know U of Mich publishes their highly popular consumer sentiment reports. One of the questions they ask is if this is a good time to buy a house. Apparently the number of positive responses was the highest in a year. I have not seen the number but thats what I heard.
sharkbait, I was going to post something on starts and completions, but I kept getting distracted with other posts. Maybe I'll get around to it later.
Best Wishes.
Sharkbait, you just don't get it. Consumer sentiment is correct. Conditions are more favorable, due to price decreases, for homebuyers than they have been recently. That doesn't mean the market won't continue to fall, because lenders cannot continue to write loans on the same terms and homeowners won't be shielded from default by the ability to sell the house before foreclosure.
Housing starts are up, but housing permits have plummeted. This doesn't tell a good tale for the housing market.
What's stunning is how quickly the default notices are being generated - on average in CA, less then a year and a half into the loan. Think about what that means. Think about the fact that for nearly two years, people have been refiing into higher interest loans - obviously because they needed the money.
Think about the fact that even as housing starts to depreciate, lending standards continued to degenerate.
There's a whole lot of reckoning that's in the pipeline, and these numbers are just the early indications of a new trend.
Lots of highly-paid analysts are saying positive things about home builders, consumer prospects, and economic strength in 2007. You don't get paid big bucks for trash talking "your book." There's a lot of stock that still needs to be distributed, and so it will be.
Sharkbait, did you get all excited when CSCO pulled back from 82 and was selling for the low, low price of 50? How about Lucent when it pulled back from 60 to the bargain price of 40 . . . or 30, or 20, or 10, or 5 . . . The tendency to perceive value in a discounted price is a perfectly understandable response that we're all susceptible to. It can also be a deadly mistake.
"What's stunning is how quickly the default notices are being generated - on average in CA, less then a year and a half into the loan"
Not stunning really, but rather fairly typical.
One would guess there would be more NODs filed this go around because there are many more homeowners in CA than there were 10 years ago.
I find it pretty interesting that the number of defaults yearly since 1990 seems to track really with the inverse of price appreciation. 1995-6 was the best time to buy in CA for a generation- and it happened to coincide with the highest number of loan defaults. Might be a good benchmark for when to buy again- when defaults go over 100,000 per year.
Er make that since 1992. Also I just noticed that the converse is true- 2004-05 were horrible times to be a buyer, right as defaults seemed to be bottoming out. As a current renter and saver, I'll make a note to try to keep track of defaults as an indicator of when to get a good deal.
Producer, no, statistically the highest risk for default is between 3 and 5 years. This is a much earlier pattern:
"The median age of the home loans that went into default last quarter was 14 months, and more than half were originated in 2005.
On primary mortgages, homeowners were a median of five months behind on their payments when the lender started the default process. The borrowers owed a median $9,829 on a median $306,000 mortgage.
On lines of credit, homeowners were a median six months behind on their payments."
So, the median is that these NODs are being sent to borrowers who fell behind after 8 to 9 months of payments? It might be typical for subprime, but this points up why there is so much scrutiny of subprime.
If more than half of the defaults were in loans originated in 2005, a good guess would be that many more of those loans will default. We must be seeing this pattern because these borrowers are underwater and cannot sell.
Think about what that says for the future in a declining market!
observer, here is a graph of default notices vs. price in California.
As you noted, prices bottomed in '96 just as default notices peaked. I suspect we will see the same trend over the next few years.
Best Wishes.
Easy people eeeeasy. I'm actually not a stock guy. I dont buy stocks and dont plan to. I think the stock market is the most irrational market out there so I stay out.
Just so we are on the same page. I do think that the housing market has farther to fall. I think that supply as measured by the NAR will go as high as 9 or 10 months and stay there for a couple of years. I think that because price appreciation is dropping at the fastest rate on record, this bust is more like the 79-82 than 89-91. I dont remember how bad the 79-82 bust was. But if any of you still remember it please enlighten me. I think that in some cities price depreciation as measured by the shiller index will register close to -45%.
Now, thats what I think. So dont flame me next time I say something positive about the re market. However, I could be wrong, we have interest rates at relatively low levels, and will probably see lower rates next year. So there is some hope that an outright collapse can be avoided. Yet I cant imagine anyone paying todays prices unless 1) you expect the house to appreciate or 2) you dont care what the price is. Another thing thats weird, is that in many of the superstar markets the amount of down payment required to buy a house has become a problem for a big majority of people. I think we are at a point where prices just have to fall.
I also think that since Greenspan no longer runs the fed he smokes dope in spare time -- and it looks like he got a lot of spare time. CR why dont you get in touch with Alan and get him to post a few articles on your blog? Maybe he can put some meat behind why he thinks the worst is over.
"Producer, no, statistically the highest risk for default is between 3 and 5 years."
Where do you get this info?
Yet I cant imagine anyone paying todays prices unless 1) you expect the house to appreciate or 2) you dont care what the price is.
I pick Door #2!!!
I agree it might not be the complete 'go to zero' everyone is 'predicting'. But I do believe few will buy because they think it's a good opportunity to make a buck via appreciation but rather the price has fallen enough for them to feel comfortable buying - especially if they sell at a lower price then can turn around and also buy at a lower price - then it turns out a wash. I did that a couple times in the early 80s bust. It was all paper.
Producer: the 3-5 rule is not good for predatory loans. I was hunting for something free as to historical averages, so here's this OTS study:
"Home mortgages, like wine, vary in quality by year of origin. Delinquencies on home mortgages display a well-established distribution or "life-cycle." Newly underwritten mortgages tend to have few credit problems, but delinquencies and foreclosures rise sharply after two years, then decline after the fifth year. Data provided by Moodys (see Figure 2) show that more than half of all defaults occur in years three through six for 30-year fixed-rate mortgages (FRM).2 As mortgages season, though, loan-to-value ratios improve as loans amortize and home prices appreciate."
Really predatory lending does produce default patterns more similar to DQ's CA report. But that, of course, is why predatory lending is considered so harmful. I am not going to bore you with mutterings about state-transition models, but I would dearly love to know more info about which of these mortgages defaulted. Were they to "investors"? First-time buyers?
Note that the DQ article reports that actual 3rd-quarter foreclosures were up nearly 400% from 3rd-quarter 2005.
Sorry, correcting actual foreclosures:
"Trustees deeds recorded on homes totaled 3,424 during the third quarter, up 76.9 percent from 1,936 for the previous quarter, and up 362.1 percent from 741 for last year's third quarter."
I don't have enough information to know what this rise in defaults and foreclosures means. It could be segmented in a relatively small portion of loans and so have relatively little implication for the broader universe of mortgages, or it could be spread more evenly and have pretty severe implications.
Tom, *** sentence deleted, please be polite *** Extrapolating on a rising statistic will eventually bring you to infinity. (66,185/3)*4=88,247. That's less than 2000. Do you understand the math or do I need to illustrate it for you? The same thing happens when people assume since interest rates have risen, they will rise in the future.
COMMENT BY CR: The current quarterly rate is 26,705. The first 3 quarters had 66,185 default notices, so at the current rate the annual total will be: 92,890. That is the highest level since '99. I don't think this is a big deal (2000 vs. 1999), but I just want to point how I calculated the annual rate.
Edited By Siteowner
Things are not exactly like they were in the early 1990's SoCal real estate meltdown. Then, the economy was in rough shape due to defense layoffs, but then again, there wasn't as much speculation then as there was here in 2003-2005. I'm not loking for prices to take a huge fall, though. There are so many immigrants to SoCal from all around the world, all wanting to get in on the American Dream. I've heard that there may be a couple of million Chinamen that will be immigrating to Southern California in the next 5 years.
"Chinamen???"