RealtyTrac: Foreclosures Pass 1 Million for 2006
Submitted by
CalculatedRisk on Fri, 11/17/2006 - 3:19pm (29 comments)
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That projection now seems optimistic. RealtyTrac shows 13,601 default notices sent to California homeowners in October alone (half of my Q4 estimate in one month).
Ya but maybe they'll hold back the last part of the quarter because we're coming up on Christmas.
snicker
"The rapid increase in foreclosure activity, combined with falling home prices and a weakening California economy, lead me to believe there will be a record number of default notices sent to California homeowners in 2007, surpassing the previous record of 162,597 in 1996."
For this to happen, the foreclosure rate going forward need not even accelerate from October's pace. With September clocking in at 14,806 default notices, I agree that a quarterly trend of 40K+ has emerged.
I read somewhere that it can be anticipated that 20% of default notices will convert into actual REO's. For 2007, that would translate into 30K+ additional homes thrown onto the California market at discount pricing. (Assuming, of course, that the default rate now steadies and does not accelerate.) That would be an approximate 16% increase to standing inventory.
Historically, is October a slow month for default notices? My guess is that February, March and April would typically be busy months.
The lenders have at least the same benefit of timely data as we watchers enjoy. They can have a back office temp "zillow" individual properties every morning based on an automated report of anyone 11 days past due. They also have incentive. Recent margins make their timeframe to pull the trigger much shorter. No more the homeowner burning through their 20% before the lender feels the heat.
Irvine, Calif.-based RealtyTrac said Palm Beach County had 3,643 foreclosures in the July-to-September quarter, or one for every 153 households. That's more than two times the national average and ranks No. 13 in the country.
Broward County had the nation's second-highest foreclosure rate, with 8,431 foreclosures, or one for every 88 households. Only metropolitan Detroit was worse.
Miami-Dade County had the fourth-highest foreclosure rate, with 9,380 in the quarter, or one for every 91 households.
Hi, 1 millionth foreclosure, meet my buddy, 370 trillionth notional value financial derivative. See if you guys can work something out.
Derivatives Trading Soars to $370 Trillion, BIS Says (Update5) - Bloomberg.com
It's like watching a burning cigarette on the ground at a gas station. So suspenseful.
You know people and CR
It truly amazes the amount of distorted spin (lies) coming from the REIC and various economists about todays miserable housing numbers. Most just pooh poohed them off as being 'unimportant' One wall street wag Hugh Johnson said lower gas prices will make this a soft landing.
In any case-the California foreclosures are just beginning and becoming worse.
The only 'big' name economist thus far with any honesty- and who has been right on with his predictions is Dr. Ian Shepherdson of High Frequency Economics and our friend Roubini.
Oh well I guess I am tired of the clumsy attempt by many of these 'experts' opines that the fundamentals where responsible for housing prices and now the stock market.
I can log off now and take my buspar.
Broward County had the nation's second-highest foreclosure rate, with 8,431 foreclosures, or one for every 88 households. Only metropolitan Detroit was worse.
Ya but at least is warm out on the street in Broward.
"Hi, 1 millionth foreclosure, meet my buddy, 370 trillionth notional value financial derivative. See if you guys can work something out."
Derivatives are not a topic I've put my head around. So can someone explain to me how the total notional value of derivatives can be approximiately 2x total assets of developed economies, or 9x total world GDP? To be a complete simpleton about it, it seems like the same thing is being traded around several times, and counted each time it is traded. I think Enron tried that and it didn't work out so well.
So can someone explain to me how the total notional value of derivatives can be approximiately 2x total assets of developed economies, or 9x total world GDP?
Oh, have I mentioned that they add flexibility and distribute risk? I did tell you about that, right? It is all very complicated. Much to complex to explain, but trust us, our models are very sophisticated. Shouldn't you be getting back to work now?
CR,
Does the data that came out today regarding the sharp drop in new home starts seem like a potential (counterintuitive) positive for eventually shrinking inventory numbers of new and resale homes?
I suppose the definition of "eventually" could be the key factor here?
Thanks for your opinion/expertise and very informative site.
Tom DC/VA
Derivatives: A Broader Industry Issue
http://www.occ.treas.gov/ftp/release/2006-121a.pdf
"That is the total notional amount of derivatives outstanding, which
for U.S. commercial banks at the end of the second quarter was $119 trillion. A staggering
number, to be sure, but while notional amounts might be a useful measure of business
volume in some sense, they tend not to be very useful indicators of risk.
A better place to begin our focus, we believe, is on net current credit exposure, or the
amount that would be owed to banks if all of their derivatives contracts were immediately
liquidated. According to our quarterly derivatives report, that exposure was $199 billion at
the end of the second quarter. The top three dealer banks have $150 billion in net current
credit exposure, or 75 percent of that total, illustrating the concentration risk that many
analysts have noted."
In all seriousness, Credit Default Swaps have become very popular. The human name would be Bond Insurance -- but they can't use that word because then they would obviously need to be regulated. Bond insurance policies are experiencing quite the bull market. Just in time for a tidal wave of mortgage defaults. The 370 Trillion Dollar question will be just how deep are the pockets of the CDS underwriters. Call me naive, but without regulation, my magic 8 ball is telling me that somebody is going to come up short once people need to start making good on promises.
When you get done with that one here is another one. Huston we might have a problem.
Responding to Financial Crises: What Role for the Fed?
St. Louis Fed | Page Not Found
This is what the banks are facing, and also why the FDIC raised thier insurance rates.
bubbleinfo.com
Here's the listing history:
9/22/96 - $290,000 last sale
9/22/04 - $1,370,000 listed for sale, expires 80 days later
3/11/06 - $1,247,500 listed for sale, expires 74 days later
9/7/06 - bank forecloses - loans and back payments are approx. $1.2M
11/8/06 - $1,021,000 listed by bank
11/16/06 - $949,000 bank reduces price 7% after 8 days on market.
Expected losses look to be in excess of $300,000 for the bank (CFC).
sandiegoRE, yes. If fewer new housing units are built, then the excess inventory from the overbuilding of recent years can be absorbed. So this is a step in the right direction.
I think we need starts to drop to around 1.1 million units before residential construction can bottom - so we still have a way to go if my analysis is correct.
For resale homes, the process will be longer than for new homes. Unlike markets that adjust price quickly to balance supply and demand (like say corn), housing has a "sticky price" problem. Historically real estate prices display strong persistence and are sticky downward. Sellers tend to want a price close to recent sales in their neighborhood, and buyers, sensing prices are declining, will wait for even lower prices.
That is why transactions fall way off during busts, and prices usually drop slowly over several years (many busts have taken 5 to 7 years for prices to bottom).
Best Wishes.
To be a complete simpleton about it, it seems like the same thing is being traded around several times, and counted each time it is traded. I think Enron tried that and it didn't work out so well.
Oh its not so difficult to understand, just think of it as the financial equivalent of fruit cake. Its that time of year after all.
so after getting foreclosed, your credit's shot right? no more savings, may be... where do they move/live??? i'm not trying to be sarcastic or whatever. just curious about their future...
Well, people who foreclose have ample time to prepare for it. Most will be able to rent a place before they move out of their home.
They will rent, and then just walk away from their home. After that, their credit is shot.
After you buy a distressed property, do the unfortunate former owners come back and stand in your yard and call you an opportunist? That's what always bothered me about buying stuff at a police auction...I wouldn't want to run into the drug dealer who USED to own the car.
Derivatives used to insurance, now they are bets. Thinks a high class version of the numbers game. Hit a number and the derivative is good. Provide the bookie can pay off.
Where do the foreclosuree's live? Figure 20% of foreclosures will be non resident, so the owner's will be safe for a while. Them that are residents will move to friends, relatives, campgrounds, cars or homeless shelters. My plan is to max out credit cards to get nice RV and move a lot. Part of the sticky will be that the holders of the mortgages will be unwilling to take hit to income and 'work' with resident owners until it is just too late. During the depression of the 30s foreclosurees were allowed to stay in houses just to prevent looting of fixtures and vandalism, alone these lines holders might rent to residents at market rates for the same reason, until a buyer comes alone. Expect all kinds of games and the state legislatures will get involved if things get very bad. To get a flavor of what foreclosures on the working class is like, view Michael Moore's "Roger and Me".
population growth is about 1% a year of 3 million. put another 1 million on for immigration and you have a growth of 4 million people who have to live somewhere. if the builders continue to rachet down new starts at current decreasing levels we should have most of this inventory worked off within a year. this won't be uniform as some areas overbuilt and there isn't enough income generating potential for all the houses to be sopped up.
Say, Derivative D= 10xA where A is the market asset price..This is a simplistic analogy.
Now we know where does the estimate 270-300 trillion derivative market comes from..Once A takes a hit, D will fall off the cliff.
The 200,000 glodman sach bonus is a classic example of derivative pay-off.
But, what will be the end game? and how Bad?
Caver, I've not run into too many situations of foreclosed owners stalking the new owners, but I've seen a lot of cases of foreclosed owners who went after the drywall with a baseball bat, pulled out all the light fixtures and wall outlets, and poured concrete into the toilets before leaving. Buying a foreclosed property that is vacant has its risks; so does buying a foreclosed property that is still occupied by the former owners, since while they probably hate the bank more than they hate you, it's the property that will take the damage. Generally speaking, I suggest that people who want to buy look at lender-owned REO, not foreclosure auctions. The lender is going to bid the loan amount at the foreclosure sale anyway most of the time, so it's harder than most people think to get a great deal at a foreclosure sale. If you can let the bank win the auction and then negotiate to buy from the bank, you might pay a bit more but you take far fewer risks.
And if you want to know, no, I've never seen one of my employers send the sherriff with an eviction order to put children out in the snow after a foreclosure. But I haven't ever worked for one of the 800-pound gorilla lenders who push Option ARMs like candy, and I wouldn't go on record with any assumptions about whether they will display any more conscience in a foreclosure than they displayed when they originated the loan.
Such a cheery start to my day, from Caver:
After you buy a distressed property, do the unfortunate former owners come back and stand in your yard and call you an opportunist?
And assuming you aren't that drug dealer moving up the ladder, why shouldn't he call you an opportunist?
That's why you have rotweilers and not chiwawas like those bigger bandits...you know how to keep the front yard tidy in your neighborhood.
Tanta with anecdotes about crushed drywall and cemented-in toilets reveals some of the details of that growing 'unhappy' bunch (losers) that is intimidating the less unhappy (possibly opportunists, possibly merely thrifty) [possibly former campers on the rise to American Dreamhood] new owners. Acceptable risks, yes? Otherwise the new owner has more than a pack of rotweilers when he moves in.
If we can turn our eyes for the briefest of moments to Iraq and ponder the large scale of 3 kid-nappings in the last week and consider what happens to your confidence in social structure when your usual cues ( a policeman might be a terrorist, but now, a convoy of police vans might be a terrorist convoy) are not working, we (non-threatened civil citizens) need to see that 'unhappy' does not scale to 'unrest' and more desperately need to see that 'unrest' does not scale to 'civil disobedience' or uncivil 'civil war'.
Thank you Caver
Get my free analysis of the Bakersfield and Los Angeles market at Daily Home Price Analysis
Additionally, analysis reports are available for most any town in the US.
For those who need to see something on the connection between derivatives and anything, but especially housing, there is this somewhat dated piece from PB:
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In the 80s ag crisis there were stories were locals stared down bank auctioneers - probably just 'rural' legend for he most part - but good stories just the same.
Thanks for the info, folks.
http://thumbsnap.com/v/OjlAGdrR.jpg