Foreclosure Reality Check: 1.6 Million Foreclosure Filings with 5 Months of Data. California Notice of Defaults and Foreclosures Skyrocketing.

There is a wonderful smell of delusion in the air.  As the state marches on to economic Armageddon, there is now a large portion of bottom callers jumping into the market.  Many investors are now buying up homes in the Inland Empire and other depressed areas for 50, 60, and sometimes 70 percent off peak prices.  A mentor once told me, “at times, things are cheap for a reason.”  At the low end, we may be seeing signs of a bottom.  But one thing people forget is that this does not necessitate that prices will bounce up.  Since we have emulated Japan in everything concerning fiscal and monetary policy, we may have a stagnant decade of real estate ahead of us.  So for those buying homes for $100,000 and collecting $800 in rent, you are a long way from cash flowing like a mogul.  Yet those making the argument that the mid to upper range won’t fall simply do not back up their arguments with any good data.  I have for over a year explicitly shown how the Alt-A and Option ARM collapse will depress California housing for many more years and now this is being picked up by the mainstream media.

The  ultimate sign of housing distress is a foreclosure.  With recent data we now find that nearly 1.6 million homes have foreclosure filings for 2009 and this is with 5 months of data:

nationwide foreclosure filings

*Click for sharper image

Now it is relatively easy to predict where this trend is heading because notice of defaults are still at record levels.  California by itself made up 28 percent of all foreclosure filings in May and if we throw in Florida, Nevada, and Arizona we are approaching the 60 percent mark.  The awesome foursome has record numbers of notice of defaults assuring us more foreclosures for months to come.  Now why are notice of defaults so important to follow?  It is an important leading indicator.  When the market tanked in 2008 the notice of default market was telling us gear up in 2007.  A notice of default is the first step in the foreclosure process.  Many times these are filed when 3 missed payments are made.  Now here in California, you can see how quickly this will spiral out of control.  Say you miss your $2,000 monthly payment.  To get current, you will now need to pay $4,000 plus any late fees.  After three months it will be $6,000 and so on.

Now I’ve collected some data on notice of defaults for California and have put them on the chart below (I still need June data out in July) but we are on track for breaking or coming close to the Q1 2009 notice of default record:

nod and defaults ca

With two months of data for Q2 we are approaching a new record number of NODs for California if the rate holds.  Yet somehow this is the bottom to many even though the data is assuring us a flood of distressed inventory for the foreseeable future.  Alt-A and pay Option ARMs are absolutely the worst mortgage products ever devised.  They are creations of the housing bubble and serve no other purpose but to fuel the housing bubble.  I love this pamphlet put out by the Federal Reserve back in November of 2006:

feb-should-you-get-option-arm

I took the liberty of answering the question for you in what the Fed took 17 pages to explain.  These monstrosities are toxic like nuclear waste.  Now a new argument that I am seeing is that since the actual recast time line pushes things well into 2012, that this unfolding will somehow be methodical and efficient.  Really?  These people have not been to the Inland Empire or to any current auctions.  It is anything but.  Some places are selling for whatever they can fetch.  First the argument was, “housing will go down but not in California.”  Next it was, “housing will go down but not in mid to upper range areas.”  Now the argument is, “housing will not go down in prime areas.”  The bottom line which people fail over and over to examine is local area incomes do not support prices even today.  Period.  It wasn’t incomes that supported these home valuations but Chucky Cheese mortgages that allowed fantasies to play out in a debt playground.

Many of you old time Dr. Housing Bubble readers might recall a person from San Diego that used to comment all the time that, “yes, you would be surprised how many people make $200,000 in California.”  This was his rebuttal to each monthly price rise.  From reading his comments, you would think that people in Chula Vista or National City were cruising around in Land Rovers and eating caviar for breakfast.  Of course once the bubble popped many of these people disappeared with their argument.  Yet they are now crawling out of the wood work again.  Suddenly the bottom is in.  Yet when you run a local area income analysis and employment prospects, the bottom is still not here.  They are using the same flawed logic from the past.

Now it is tempting to jump back in because prices have fallen by 50 percent.  Yet California is hemorrhaging money with a $24 billion deficit and we are now approximately 50 days from “meltdown” as our representatives so eloquently tell us:

ca-cash-flow

Does this look like a bottom?  From what I am seeing, it looks like we are heading toward a bottom.  The state is projecting massive bleeding into the next fiscal year.  Now cutting wages and jobs in my book doesn’t make the employment picture much better.  And last time I checked, most people pay their mortgages from money earned at jobs.  The current unemployment rate in California stands at 11 percent, the highest in a generation.

I know facts are stubborn things and people want to believe this is a bottom especially if they bought or own a home.  Yet the data doesn’t support this.  The Alt-A and Pay Option ARM problem still remains and much of this is centered on California.  The average balance on an Alt-A mortgage in California is $442,000.  Now how do you think someone in Texas, Kansas, Minnesota, Michigan, or practically any other state feels about bailing out a $442,000 mortgages?  By the way, the current median price for a home in California now stands at $223,000.

Now what is even more troubling is foreclosures keep mounting while trillions have been given in outright funds or commitments to Wall Street and some of the biggest banks in the country.  If you haven’t noticed, the bailout was never for you but for them.  That’s why main street has seen nothing in terms of real relief.  Unemployment is still surging.  Sure, they like to point at the stabilization but is it good when the GM worker who lost his $20 an hour job and is now making $10 an hour at Wal-Mart?  And even with that, unemployment is still spiking.  Are we all going to replace these higher paying jobs with working at Red Lobster?  We are living the misnomer of the utopian service economy that was sold to us for two decades.

Foreclosures are jumping not because of home prices falling but because home prices went too high!  Can you imagine during the tech bubble bursting someone explaining that the bubble burst not because of over valuation but because Pets.com was falling and we need to put a bottom on prices?  How about giving tax breaks for those buying AOL stock?  The same thing is occurring with housing.  In fact, the easiest way to fix this problem is to give every American $20,000 more as “wages” and you’ll see prices of everything go up.  Not a smart idea but neither is giving trillions to Wall Street and banks who designed the eco-system of this bubble.  We are giving those “wages” to Wall Street and that is why they are now back up.  Have you taken a look at Goldman Sachs recently?:

goldman sachs

Goldman Sachs has tripled in value since the low reached only a few months ago.  Who wouldn’t be going up in value with a direct line to the taxpayer’s wallet?  Goldman Sachs was a big winner in the AIG bailout.  So if you are wondering where your “foreclosure fighting” dollars are going, look no further.  The U.S. Treasury and Fed are basically the henchmen of Wall Street and they have been going around taking money from the U.S. Taxpayer.  Now let me be clear, foreclosures are a way to find a truer bottom.  All these moratoriums and tax breaks are basically band-aid measures that kick down the housing industry with more money before the home ultimately forecloses.  If you really want to help the average American focus on creating good paying jobs and allowing homes to become affordable once again.

Now Q1 of 2009 saw a record amount of foreclosure filings for the nation:

foreclosure-quarter-filings

Now until this chart starts to stabilize, there is little reason to believe that housing has found any bottom.  Another thing being missed in this market is the mantra of “real estate never goes down” is forever lost on a generation.  That was a powerful allure that has forever been shattered.  How people can be calling a bottom while foreclosures reach historic levels is beyond me.

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62 Responses to “Foreclosure Reality Check: 1.6 Million Foreclosure Filings with 5 Months of Data. California Notice of Defaults and Foreclosures Skyrocketing.”

  • It’s kind of funny in a not funny way because at openings at my store the opening supervisor/manager/etc would always be talking about how there isn’t any recession, and that its the sales people’s fault for not keeping sales and credic card signups high. Then my manager and saleguys are totally shocked when I tell them that we won’t even see a bottom until 2011 or perhaps later depending on the stupid and criminal actions of puppet Obama, the Fed, the Banks, etc etc guaranteed to delay recovery.

  • Local SoCal news had a story of these investors from The South buying properties at auction. They bought some 4 bed 3 bath house on a dirt road in Palmdale. They bought it for 275k and here stoked that it went for 100k below asking price. “At one time this house sold for half a million dollars” they are thinking they’re going to make some money in the future. They’re going to lose there asses in California real-estate and they did not buy in 2006 but in mid 2009.

  • Here’s an interesting (if lengthy) article in the New York Times about the crony capitalist society we’re living in. It basically asks why the increasing confidence when nothing really has been fixed.
    Be brave Comrades!

  • You are right on target. This current “recovery” is really no more than a seasonal jump in sales…just wait for this Fall and then…boom.

  • I subscribe to one of those foreclosure list websites (whose name shall remain silent). Seems to me there are a ton of homes either 1) REO right now, 2) Up for Auction that don’t really go to Auction, or 3) NOD that are way past the 90 day period right now.

    Now the website could just be completely lame–wouldn’t put it past them or lenders are sitting right now with their thumb up their ____ waiting for a bailout or just putting their heads in a whole and hoping this mess goes away or “strategically waiting” for a recovery.

    Are the lenders just waiting to dump these things to the public private finance fund come July? What happens then? Are these houses–many of which are very nice–just going to sit for the next 2-3 years until those holding the deeds realize the night in shining armor is not going to pay double the FMV for these places?

    Would appreciate any insight from anyone as to why there seems to be a holding pattern generally right now. If its waiting for the public private knight–what happens next? If its strategically not trying to flood the market–what happens when the debt holders are flooded with foreclosed properties? WIll the build up of foreclosed properties on the books really tank the market when that gate is opened and they need to sell.

    Any insight appreciated here.

  • As a long time reader, I remember the comment:
    … yes, you would be surprised how many people make $200,000 in California.”…
    I think we’d be more surprised how many people DON’T make $200,000 in California.
    Btw, I’m also concerned anout the holding pattern we’re in…what if it continues and any thoughts on ‘news’ about extending teaser rates so homeowners can stay put for a few more years. Would the banksters really do that, I find it hard to believe?!?!!?

  • Is it possible that many of those people who made $200,000 in California when the guy said:

    … “yes, you would be surprised how many people make $200,000 in California.”…

    were making their money flipping homes, brokering mortgages, and doing other activities that were based on an ever rising real estate market? Perhaps many of these people who were making $200,000 in California are no longer making this kind of money.

  • Where can I rent a house in the Inland empire for $800 a month? I’ll be looking for a rental soon as I’m moonwalking away from my $3000 a month house payment that I purchased in 2006, but the least I’ve really seen is around $1500 a month (In South Riverside County). The rentals in my neighborhood are around $1500-1700 a month with the cost of the lower end homes now getting to $150-$170k. To me it appears that an investor could make money if they can find people that would be able to afford to rent. There are plenty of foreclosed people out here that won’t be able to buy another home for 5-7years. I agree with all your reasons for not seeing a bottom until 2011 and I personally hope to see rents go down, but I don’t know where you can rent a single family home in the inland empire for $800 a month… I can’t even find a 1 bedroom apartment that cheap. As a side note I myself and 3 other people I know haven’t made a mortgage payment in 6 months and none of us has yet seen a Notice of Default. At some point they have to seriously increase NODs.

  • Re this: “Since we have emulated Japan in everything concerning fiscal and monetary policy”

    …our monetary policy has been vastly different from Japan’s:

    http://www.pcasd.com/us_not_going_down_japans_road

    rich

  • I, as well, haven’t made a mortgage payment in 6 months and have not received a NOD. I’ve communicated with my lender about the “Making Home Affordable” program from Obama. The details are disturbing. Sure, they will lower your payment to that 31% of your gross income threshold, BUT that only lasts the first five years, then the rate goes back up like an Option Arm.

  • Bottom Feeder

    …”As a side note I myself and 3 other people I know haven’t made a mortgage payment in 6 months and none of us has yet seen a Notice of Default.”

    Un-F-ing-believable. Imagine how many others like him/her have already “walked-away” from their responsibility and we just not being told. How long can TPTB avoid the day of reckoning? No doubt they are shooting for years, but how many years can they (Banks/Gov’t) hold out? The mask will need to fall off eventually. I don’t see how this can end in any other way than “spectacularly”. It seems like such a big problem that maybe even our 1984 Obama new-speak “Gov’t” will have a hard time distracting the sheeple from the truth indefinitely. Athough I really do want my own place, I’m not buying for 3 years min.

  • While I thoroughly enjoy reading the articles on this site it is astonishing to me how many people want to use this crisis as an excuse to blame the current administration for all of their problems. I understand that you probably all live in OC and that is a “Red State” within California, but come on. You are all so proud that you fell for all of the hype in the last few years and bought at the peak of the market with ridiculous loans that you were either too stupid to understand or too lazy to read and now you brag about sitting mortgage free in your homes for over six months. YOU ARE/WERE THE PROBLEM! It is because ignorant people like you that we are in this mess, if you weren’t so stupid to take a 700K loan out while making 30K per year this wouldn’t have happened. Should we presume you also have a HELOC for some ungodly amount that you have not intention of paying off as well? Sure it’s on the banks for allowing this to happen and I place just as much blame on them but don’t pretend that you are some innocent victim in all of this, by your own admissions you are not.

  • Bottom Feeder

    Now, more than ever, I am certain that “walking-away” will not only become de-stigmatized, but it will be all-the-rage, a trendy no-brainer like watching Lost or wearing skinny-jeans. If the Gov-banks decide that NOD’s should be postponed indefinitely to mask the truth, how many months/years will the few remaining honest Americans sit by and watch their neighbors live in “their” McMansions for FREE? I hope the pitchforks come out sooner rather than later.

  • and I just heard today that starting Monday in CA they are implementing yet another MOD program with a mandatory 90 day moritorium if no MOD is implemented – I GIVE UP!

  • Bottom Feeder

    If Obama was smart, he would be accelerating the housing/banking crash-down, so that maybe, just maybe we could get a sustainable recovery before the 2012 election. Instead, by siding with the loot-till-you-drop banks, he is simply postponing, no – painfully lengthening, the much-needed “Great Cleansing”. Obama is clearly aiming to guarantee his title as “recession-era president, Barack Obama”. Sorry, but there will be no “New Deal II” to mask the truth for him, a-la FDR. It will be hard enough to keep the original New Deal alive. I constantly remind people: despite the GOP’s lackluster candidate, 47% of Americans did NOT vote for Obama in 2008, so in 2012, barring a real third party spoiler candidate (very possible), the equally-detestable GOP could nominate Sarah Palin’s retarded snow dog and I think it would be able steal the office from BHO by simply barking: “it’s the economy stupid, woof”

  • Six months and no NOD. God help us. Somewhere deep down we’ve known it has to be happening. There is no way the banks could keep up with all the late pays, no pays, processing NOD’s and mailing them out along with the extra effort it takes to go to foreclosure. The numbers are staggering and growing by the day. But like Bottom Feeder said at some point time runs out. The money has to be wrung out of something to keep this scam running and the taxpayers are in no mood to give another cent.

  • LOL, my company has not given me an opening so that I can clue them in, but today, I did ask my term life insurance agent if I was covered for democide. He goes, ‘What’s democide?’ “It’s where your government kills it’s citizens. History has shown that in the last century 9 out of every 10 murders have been where a government has killed it’s citizens.” I reply. He never did answer my concern. Of course many of us know that with 50 Cents of every dollar produced going to the government, there will be no bottom until the government starts to shrink.

  • Nevada foreclosures up (Reno area_) after months of decline:

    http://www.rgj.com/apps/pbcs.dll/article?AID=2009906110323

  • I live in NorCal. haha

  • If the news of loan mods and postponed NOD’s infuriates you, you will really enjoy this…

    http://lansner.freedomblogging.com/2009/06/11/real-housewife-saves-coto-home-from-foreclosure/25593/

  • Yahoo just posted an article about nightmare scenarios for our economy titled “10 Things That Could Still Go Wrong”. Number 3 discusses the Alt-A and option arm mess ahead. I just copied and pasted the last line….

    “The big wave of Option ARM resets has yet to come, and given the drop in home prices, refinancing won’t be realistic. Let’s hope the homeowners can afford their new monthly payments.”

  • No NOD after 6 months of non-payment. As an REO broker in the OC, I am not surprised at all. The last two properties I received from lenders – both of which are still occupied by the foreclosed mortgagors were actually foreclosed in September and December of ……get this…..2007. That’s right. The lender foreclosed over a year and a half ago, and only now has this asset been assigned to me for disposition. The eviction process has only now started. There is a perfect example of the “shadow inventory” we have heard to much about these past 2 years. How much $ do you think these lenders have lost by waiting so long to liquidate these assets?

  • I want to buy a house, one of those big ones, so’s I can throw my shoes in the middle of the floor. I want this house who’s price is $725,000, is that alot of money? I think I can afford it because I work at MacDonalds maybe you’ve seen me, I wear that silly hat and pass the french fries up.? Oh yeah, most important when the beep, beep, beep sounds I pull the fries out of the hot oil. Anyway I want to get a loan for the whole 750K and the sales man at Countrywide Loans says I can get the money. Wow a big house all to myself, my manager at MacDonalds just won’t believe this when I tell him.

  • Great find, everland! Thanks.

  • grosspointblank1986

    What we need is an American Bail out!!!!

    Imagine what would happen to this country, Mortgages could be paid down then refinanced or just paid off.

    Everyone is talking about homes that are underwater because families have mortgages that are bigger than the homes worth.

    My Idea is that someone with a $200,000 Mortgage and a house now worth $100,000. This idea would allow for the mortgage to realign.

    Of course, If the family is a married couple, then each would get the $100,000 a piece there by completely freeing them to pay off their mortgage.

    This would eliminate a lot of the so called toxic assets. It would also stimulate the economy by encouraging new home purchases by first time buyers, because the money could be used as a down payment or outright purchase of a distressed home.

    If the mortgage is in good shape then the money could go to paying down credit card, other debts, Helping Students with college, or just spend on some big ticket items Cars, appliances, home repairs, Vacations.

    With all this debt being taken off the backs of the middle class, the banks would be forced to start lending again or lose interest/profits.

  • I couldn’t agree more. The whole thing falls on the Goul-dmen’s strategy of leading all Americans into usury bondage, where all we will ever make goes to pay a mortgage on a home we work too hard for to ever enjoy. We have freedom but we eagerly trade it for a granite-countertop prison. Everyone I know that went to Cal comes back east in huge debt, has consumed too much alchohol, coke and cola. The Gouls know our weaknesses and prey on our ignorance, while they fly back and forth from Manhattan to Bermuda. America: somebody better wake me up!

  • New housing construction drives Calif economy rather then sales of existing homes which only provide income streams for the RE/mortgage industry. The collapse of newer subdivisions construction define the current economic conditions here in Calif
    and provide the best indicator for what is really a depression economy. The happy talk in equities is normal pump and dump PR cranked out endlessly by the financial media which is driven by the large banks PR depts. One should always take the MSM narratives with a high level of salt as they herd the money flow towards various points.

  • What grosspoint?

    Are you guys advocating that pensions get destroyed and our taxes go up in the future?

    You can’t just “forgive” debt and have everything be okay. The problem is too much consumption and debt. This has fundamentally destroyed wealth and propersity. The game is up and we’re all only going to have to work hard to get back to where we were. If we’re lucky those that caused the mess (banks, real estate speculators, and overextended loan owners) will be punished and it will discourage this kind of crap from happening again.

  • Thanks for the facts once again Dr. HB. How anyone with half a brain can’t see the coming trainwreck for mid to highend homes is beyond me. The writing is on the wall for the Westside. After the biggest RE bubble in history (10 years), common sense will tell you we have ways to go. Throw in a mountain of bad loans and record foreclosures in the pipeline, and what other option is there?

    Most people don’t do the research and go on other’s opinions or the MSM. It will be their own fault by making uninformed decisions. Thanks for data, FACTS don’t lie.

    http://www.westsideremeltdown.blogspot.com

  • Apparently the way to live rent free is to buy a house and not make payments. Makes this responsible renter feel like a sucker, making those monthly rent payments.

  • Here’s a story discussing the bulldozing of cities/neighborhoods:
    ~
    US cities may have to be bulldozed in order to survive
    ~
    Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic “shrink to survive” proposals being considered by the Obama administration to tackle economic decline.
    ~
    http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5516536/US-cities-may-have-to-be-bulldozed-in-order-to-survive.html

  • Any more bailouts, and we might as well just declare a National Jubilee and write down every debt in the country, in

    For how much more can the remaining payers endure? The dominoes are toppling rapidly, and now the blight is reaching people who had no problem meeting their obligations, until the losses and defaults triggered the inevitable steep contraction, resulting in job losses and business failures that are now causing yet another wave of defaults in credit cards, prime mortgages, and commercial loans. There is more and more bad debt, with the worst yet to come, with fewer people left to absorb it.

  • the wife and i lived in ca got out in the 80’s for lack of work moved to texas and after 20 yeas of marriage finaly bought a house a house we knew no matter what we could pay for with a little money and a lot of help we have a nice house with home steading it reduced our payment greatly we bought a home because home is home not a money making tool we can pass this house to our kids and grand kids our mortgage is 550 a month

  • “Goldman Sachs has tripled in value since the low reached only a few months ago. Who wouldn’t be going up in value with a direct line to the taxpayer’s wallet? Goldman Sachs was a big winner in the AIG bailout. So if you are wondering where your “foreclosure fighting” dollars are going, look no further. The U.S. Treasury and Fed are basically the henchmen of Wall Street and they have been going around taking money from the U.S. Taxpayer.”
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~
    GOLDMAN SACKS-USA!

  • PSPS, I have read, with horror, of the plan to return whole swaths of ailing old cities to “nature” with horror at yet another sweeping government plan that is monstrously short-sighted and will generate many unforeseen consequences.
    We propose to gut what remains of our already hollowed-out midwestern cities by bulldozing solid remaining housing stock? ARE WE CRAZY? The Feds choose the very moment at which people will have to return to cities and consolidate around retail-service cores as oil starts to become scarce and expensive. Grant you, our larger metro areas will have to contract substantially, which likely means that their populations will be increasingly consolidating in small towns and dense cities close to rail and retail hubs, as driving comes off the menu for many people, and others decide to become one-car families.
    We forget it was misconceived, ham-fisted federal programs, applied sweepingly and with massive allocations of tax monies, that destroyed our cities to begin with. The FHA redlined city neighborhoods of solid, good housing stock, and steered buyers to suburban homes, while Congress allocated an outsized portion of our money for the biggest highway system in the world, to make it easy and cheap to drive. Then, HUD finished the job by destroying closely knit poor communities and warehousing their residents in vertical slums. Now, all there remains to do is tear down what remains?
    Oh, well. At least the worst and most decrepit housing stock will be cleared away when people return to these midwestern cities and start rebuilding them, which they will because these places are so favorably located in relation to water routes and fertile hinterlands.

  • And everbody’s favorite, the Sage of Omaha, is a major inverstor in GS. Coincidence? Is the guy that smart, that lucky? or is he just the ultimate insider. I don’t know, but where there’s smoke…gotta get back to rowing the slave galley…

    Obviously a lot of new readers. Everyone thought I was an A-hole when I told them about this site in 06. Who’s the A-hole now? Lot’s of folks dying of thirst and finally finding the Fountain of Truth. You will definitely come out better drinking here than Jim ‘Booyah’ Jones’ Koolaid.

  • Actually the comment by grosspointblank1986
    is the answer. Referred to as a Jubilee year with historical precedent over 2000 years, where Rome released all from their debts and allowed an economic restart. It would almost instantly restore the economy.

  • GS and its looting of America is absolutely shocking. GS has long claimed to be smarter than everyone else (and it is true that GS employs smart people) but not enough to justify their profitability. The truth is that GS is hard-wired into the government. During this bailout GS was gifted tens and tens of billions of dollars through direct and indirect channels (think of the $30 billion from AIG which was supposedly hedged on the other side already; that amounts to an outright theft of $30 billion from the American people). GS has consistently had a pipeline into the major financial deals and decisions on Wall Street and in Washington. If it were you and me acting this way, we would be arrested and convicted of insider trading and any of several hundred other federal, state, and municipal crimes. Not GS, they are merely “smarter”.

    And while GS is the most egregious example of the sickness which pervades Wall Street and Washington, it is but one example. Even now, when Congress, the media, and the American people know just how the system works, nothing will change. In fact, Washington and Wall Street are doing all they can (using taxpayer money) to make sure the system is not changed. They keep their bonuses, perquisites, and sham regulations.

    Every effort is being made to re-inflate the bubble. The American Consumer (alas, “citizens” and “people” no longer exist) is stupid enough to believe anything and consequently believes the bottom is in, the market is on its way up forever, and things will be just like they were in 2005.

    America deleda est, for the good of humanity.

  • One and a half years living with no home or mortgage payment? While honest people pay their rent on time? Nice.

  • The rest of us know that Al and grosspointblank1986 are some of the clueless morons who advocate behavior leading to the end of society.
    Quick banking lesson: A bank has liabilities (the money they owe you–you know, your bank account) and assets: the money people owe them (their loans). That’s pretty much it. Take away banks’ assets and they will instantly collapse along with your bank account. The FDIC can’t handle ubiquitous collapse, nothing can. Hence, everyone would have nothing.

    The obvious conundrum is to revalue real estate to where people can afford it without crumbling the banks in the process (can’t revalue their assets below their liabilities). The intent of the bailouts was to prevent collapse, but once again the retarded moratoriums are preventing the banks from getting non-performing assets off their books.

    What about the impending increase in property tax necessary in California? When people aren’t paying their mortgages, that leaves a greater burden on banks to pay these taxes or risk the government auctioning off their assets. There are more than enough votes from renters and deadbeats to increase the real estate tax to pay for the state’s budget problems. That pain will further exacerbate the slide in housing prices.

    Don’t get me wrong, I want the banks to put their inventory on the market now. I’ve been waiting 5 years to buy my first house. I have FICO over 800 and a down payment saved up. BUT, the current house prices still don’t reflect reality. Homeowners (home-occupiers) who can’t pay need to vacate and let responsible people take over. Banks need to stop delaying the inevitable and realize their losses as quickly as possible. I’d be happy to pay $200/sqft in the 91001, but not the $400 that people insist their homes are worth. That goes double since property tax is sure to increase. I think I’ll just wait till the ALT-A and Option ARMs work their way down to rational numbers. The impending inventory and the increase in property tax will hopefully knock house values down to reasonable levels. If not, I’ll be happy to keep renting. My ability to do math has kept me stress free so far.

    Does anyone know if there are resources to match home-occupiers with people who might be able to take over the mortgage? There has to be a better way than forclosure, and I’m not liking the traditional real estate system monkeys that take 7% or more of the sales price every time a house is sold.

  • I was just in Palm Springs with my family (wife & 3 little kids) for the weekend.

    2 couples were down there from Orange County. Probably in the 32-35 age range, hard to tell with the fake boobs, big sunglasses, deep tans, etc…

    Anyway, they were saying (without any shame) that they hadn’t made their house payments in about 9 months, they were living rent-free (saving almost $6k/month for each couple) and they figured pretty soon the chips were going to be called in.

    One of the husband/boyfriends said “We figure the free ride can’t go on forever… might as well go on vacation before we lose the home, they can’t a vacation back!”

    Those were the words verbatim as best I can remember them.

    I hope at least one person reading this comment has to be scraped off the ceiling, otherwise this society has lost any sense of personal responsibility & moral hazard.

    I don’t recognize my country anymore.

  • There is no “bottom”. Did Rome have a “bottom” ?
    The movie is over and the credits are running.OUT

  • Grassrootsval

    I felt for months now that we should have a Jubilee just like it says in the Bible. Perhaps we could have a one time World Wide Jubilee where Every Country Starts Over again. The Big Bankers wouldn’t like it because that might take away some of their power over us. The Federal Reserve Bank got us into this mess. Lets tell them buy, buy, we don’t need them to print our money anymore, we can print our own money. Why should we give them that power to print the money and then charge us interest for doing so. It cost them about 1,000 dollars to print up 1 billion dollars. The Fed’s are a privately owned company with the blessing of our congress to take the American people for all they can. The Federal Reserve Bank has more power over the American people lives and how they live then the congress. Several international super rich families own the Federal Reserve Bank, not the American People! We would do well without the Fed’s. They have done everything they can in the last 70 years to make themselves rich and us poor. We can’t even Audit them. Ron Paul has a bill to completely Audit the Federal Reserve Bank. I think it’s the HR 1207 bill. It’s about time we look into what they are doing with all our money.

  • Bottom Feeder

    No, a “jubillee” is not the answer, retards. How unfair would that be to all the people who showed restraint for years and did not jump on the easy money train, knowing that there would be a day of reckoning eventually. Well, the day of reckoning is here and I, like many, many others are enjoying watching the debt fools burn on their self-erected stakes. The answer is foreclosure and bankruptcy over and over and over again. Then the responsible souls can come out of their bunkers and pick up the smoldering pieces. That is the beauty of the self-cleansing free market. That is how mother nature wants it to be. A lot of people (like say, all of Texas) will go postal if there is a “jubilee” bullshit. Obama will try it though, once the walk-aways get out of hand in 2011.

  • and now we have a new 90 day moratorium… CA rules!!!

  • If you’ve got a crystal ball, you’re better off than most of us. I’m glad to see you using statistics and factual information to back up your conjectures. There are some great clearance sale deals out there — moderation in all things.

  • May I make suggestion?

    Find a location you really would like to live in, look for homes for sale, and then calculate what is 20% of your after-tax, after monthly living expenses, after mortgage/property tax/insurance income, then purchase the first home in that location that meets the 20% range. THAT will be a bargain, regardless where the market goes.

    You will have the home you wanted, and will not feel any strain making the monthly mortgage/property tax/insurance payment, or paying your bills..

    And because it is a place you REALLY like to live to LIVE, not an INVESTMENT vehicle, you won’t care if the price goes up, or goes down.

    And if you don’t find it now, be patient, wait a year or two.

  • Are you kidding me Al? Did that really worked out for the Romans? Just try that garbage and watch the dollar inflate to toilet paper. The Chinese will quit buying our worthless government bonds (if they haven’t already) and enjoy your $50 loaf of bread.

  • @Al: Isn’t Jubilee year a Jewish thing that happens every 49 years and really only dealt with returning land to it’s original owner (religious dogma not economic policy). Also giving everyone $100k would just create a new floor or establish a new poverty line at $100k, basically inflating $100k to equal $0

  • Hint to Laura Louzader: The post-industrial ruins called “cities” located in the Northeast and Midwest are NEVER coming back.

    There is no need to locate a city near a “water route” (see Phoenix, Dallas, Las Vegas, Tucson, Albuquerque, Salt Lake City, etc, etc, etc).

    Fertile hinderlands? What so factory farms owned by ADM can plant genetically modified food and use pesticides and nitrate mineral fertilizers that kill wildlife in river runoff?

    Unneeded.

    The midwest ain’t never coming back. Good luck on your investment in those locations…

  • So for those buying homes for $100,000 and collecting $800 in rent, you are a long way from cash flowing like a mogul. That is the reality, but that’s not how people are seeing it. The mindset of the bubble hasn’t gone away. It’s just channeled the hysteria into collecting houses for apparent discount. People need to read “The Power of Small” ( http://tinyurl.com/cmdxg6 ) and start paying attention to the details. Yes, houses are cheaper than they were a year ago, but as you say, maybe there’s a reason for that.

  • You can call me he problem and you are probably correct but I really just don’t care. I actually wasn’t one of the people who bought a 700k house I could afford. I can afford my mortgage payments, but why the hell would I pay on a 400k mortgage that is now worth 150k when I have nothing invested into the game(0 down 80/20 loan 40 year FRM). I would have to be a complete idiot. No business would pay on debt they could easily write off so why should I? I was actually fine when my house dropped $100,000.. I wasn’t happy, but I wasn’t walking away. Everyone has their price and mine was $200,000. I was actually smart enough to say no when they tried to put me into a 5 year ARM. I ended up with a prime fixed rate mortgage the only somewhat stupid thing I did was allow a 15 year balloon payment on my 2nd.

    I can afford the $3000 monthly payment, but obviously it has a huge impact on my lifestyle. Why should I continue living on scraps when this was a primarily(at least in my mind) caused by a bunch of idiots on wall street. I’m no financial expert and this was my first house. While I probably should have seen housing prices were stupidly inflated I allowed myself to believe the lies of the real estate and banking industry. I honestly wish they would just come take my home and get it over with. Free rent is great, but my credit score is getting ravaged(810 to below 600 since January) and cc companies are canceling my cards left and right. Not knowing when you are going to be forced to move when your credit score is below 600 is also quite stressful. I’d like to start the process of credit repair so I can get back in before the next bubble starts because you know it will happen again.

    Side note: I still don’t see where you can rent a single family home in the Inland Empire for $800. If this actually exists I’d like to know about it.

  • Jubilee? Any moral hazard there? So everyone that pays their mortgage is an idiot because all debts are forgiven at a specified time? And all those in hopeless debt are geniusus because someone else eats their debts while they keep their stuff? Absurd, except that is what is already happening with Goldman–Heads I win, tails you lose…

  • There was an old risque blues number called “If I can’t sell it I’m gonna keep on sittin’ on it”. In the song it was a chair (surprise) but it works for housing too (see DG post). Maybe DG deserves a kick in the (chair?) but since millions of DGs are out there and vote, the entitlement folks in our government will find a way to paper over a lot of this nonsense. MY question is, when will the debt deflation and dollar devaluation curves cross each other so people with life savings can get out of cash and back into something they can sit on?

    Stocks, bonds, cash and gold… nice to have but you can’t sit on them. With stocks, you hope for enough economic activity to pay dividends and capital gains so you can live off the proceeds. But if profits aren’t there, you lose. Bonds are more unsure than ever since the government has decreed that the promise of “first in line” is now dead. The big appreciation in bonds is probably gone forever since interest rates aren’t likely to go negative again (people bought t-bills with negatives during the panic). Cash is absolutely needed for one thing: rendering to Caesar. U.S. dollars are the only thing the governments are taking nowadays for their due (although maybe at one time the local ones would take chickens or sacks of grain). About everything else you need can be obtained through barter (especially if you live in the country). At today’s interest rates, every bank account is springing a slow leak. Gold pays no dividends so you must trade it for things you need at whatever rate is current. Its price is determined by the market and not by any fixed index to inflation. Look at the price of gold over the last 30 years if you don’t believe me!

    Real estate in a non-bubble market is the most sure thing you can own (apart from shovels and shotguns), especially if you are living on it or have some means of livelihood attached to it (and by “own”, I mean you, not a bank!). [NOTE: Yes, I know about the long term history of stock appreciation, but it is certainly true that you can’t hunker down on a pile of stock certificates and live.] Unfortunately for me, I live in one of the big four bubble markets. Although real estate bubbles have happened before (usually fueled by investor euphoria over new territory gone wild, like the California bubble of the late 1800s), this one is the first one where the government (through its pseudo-independent agents who create real estate loans) was the driving force. People who bought California real estate after the first big bubble burst made out like bandits, as did those who bought at the bottom of the depression. I’ll keep reading this blog to track the inevitable progression of California real estate from bubble to bargain.

  • You are correct in saying that Jubilee is extreme moral hazard. We should never have started this back in the 80s with the S &L bailout, which set a horrible precedent.

    However, we are underwriting so many bad debts that the few remaining net payors are being unduly burdened with everyone else’s toxic mortgages and related derivative swindles. Is there any MORAL reason for those of us who are still struggling to pay our bills as we lose our jobs and our incomes are decimated because of this debacle, to continue to meet our obligations while paying taxes to rescue banks, auto makers, and mortgagees from flagrant malfeasance and prodigious stupidity and carelessness?

    Frankly, thanks to reduced hours and pay, I’m having a much harder time meeting my relatively few obligations, but I’m paying anyway because I want my credit rating. But I’m sitting here feeling like a chump for doing so while so many people who are so much more affluent than I am are walking away from $700K mortgages, with the knowledge that in a few years, they’ll be far enough out of BK to repeat the process.

  • An interesting link:

    http://www.impactarticles.com/artman/publish/Business_1/Real_Estate_Booms_Busts.shtml

    …or why it isn’t different this time.

    I enjoyed Laura L.’s comments. I want to say that there are always two paths to follow. The right one and the wrong one. But the short term result of following each path isn’t always obvious. I think that paying your debts because you said you would is the right thing to do, but I don’t worry about my credit rating. That is why I got rid of a bunch of credit cards, even though someone said it would hurt my credit rating to do so. I hope that things will start to go well for Laura soon, and that she will find enough work to make ends meet.

    I really admire the way my younger brother has handled his finances. He got laid off again this year ( like the 3rd time since the 90s) but he’s doing OK because he lives in a house he built himself. As his family grew he just added on to the house. No mortgage and a big garden on the lot. He just has phone and electricity utilities to pay in the Summer since he pumps his own water from a well. He heats with wood pellets, but could switch back to firewood if he had to cut his own to save money. He lives in the country, but near enough to two small cities with big tech industries where he can find work. He started this plan when he was 18, long before he got married.

  • Coming from the other side of the fence, this has all trickled down to affect low income rentals. Landlords/Property Managers/Owners have toughened up their credit requirements, raised rents on apartments, and so many low income apartments are sitting vacant while the homeless tent cities grow.

  • I think in general that paying your debts is also the right thing to do. When you are the victim of a ponzi scheme generally if they catch the person involved you get some maybe even all your money back. I’ve never defaulted or even paid late on any debt other than this home. Do people dispute that this was an elaborate ponzi scheme? I think I’ve seen the good doctor himself has said it many times. Why would I lose all my money from getting into a ponzi scheme right before it burst if I don’t have to? How many people if given the chance to not lose 4 years pretax salary wouldn’t take it? I’m sorry and maybe i’m an ******, but I don’t think what I am doing is that and considering how I got to where I am. Sure it was my fault for being an idiot and buying into the bubble, but I’m taking some serious punishment in the form of credit. I won’t be getting any loans for at least 5 years. Hope my vehicles lasts that long.

  • People who do not pay commitments are stealing. Sorry but thats what it is.

  • I was wondering what those pundits were talking about when they were saying the housing market had hit a bottom. I wish we could just whip these charts out and show it to them. Their response would probably be the proverbial “Duh”.

    But in all seriousness, those are some scary statistics. I’m almost afraid to be in Socal for the Option ARM fallout… although in a way it’s almost fascinating to watch it unfurl like an impending car accident.

  • Fraud, you’re basing your assumptions on the trends of the past 60 years, which are about to reverse:
    1. The availability of cheap industry
    2. The diversion of tax revenues generated in the more populous eastern cities to relatively unpopulated places. The pharoanic water diversion projects and the interstate highway system that made the metastatic growth of places like Phoenix, Las Vegas, and Dallas possible were paid for by New York, Chicago, and until they were utterly destroyed, St. Louis, Detroit, Cincinnati, Cleveland, Albany, Akron, and other old industrial cities.

    Phoenix and Las Vegas, located in two of the most arid spots in the world, would be impossible without cheap oil. It took cheap energy to make the massive water projects and interstate highway system economically feasible, never mind universal air conditioning. And now the cheap oil is gone, with no replacement except nuclear that will come near replacing it- and even nuclear does not have the versatility and portability of oil.

    As we head down the slope of permanent depletion, these cities will become substantially unlivable, and things like good farmland, regular rainfall, and easy access to water transport will become important once more. I predict that the desert cities will start to disinvest and depopulate rapidly within 15 years, along with the outer suburbs of my city (Chicago) and other large metroplexes; and that places like St. Louis, Memphis, Detroit, Cincinnati, Cleveland, and other medium and small midwestern and eastern burgs will be attractive. They will be even more attractive if they give up their cargo-cultish fixation on dying, obsolete old industries, such as the Detroit auto industry, and grapple with the fact that all of that is completely over and never coming back and that they need to rebuild their economies on a new template.

    Don’t bet on any of the major trends of the post-WW2 era continuing, for they are all predicated on prodigious waste of resources and reckless debt creation.

  • Excuse above, I’m a word and number transposer…. I meant to say “the availability of cheap oil”

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