Foreclosures, Auctions, and Banks Obscuring Financial Data. Southern California Shadow Housing Inventory Report – MLS Lists 64,000 Homes but Shadow Inventory over 160,000.

People focusing on the Multiple Listing Service (MLS) data for an accurate picture of the current housing market are missing the bigger picture.  This is like looking at Mercury and thinking you have a full picture of our Solar System.  This is the data that most in the public will be able to see without digging deeper into foreclosure and pre-foreclosure data and this is what is now widely known as the shadow inventory.  It is already clear that banks are holding off inventory because all we need to do is look at how many people are now in a delinquent position on their mortgage.  Yet somehow, the MLS data has steadily fallen for nearly two years.  Of course in states like California, shadow inventory is enormous and defaults internally are booming for banks with Alt-A and option ARMs going bad at an alarming rate.

In today’s article I decided to get an accurate picture of shadow inventory for Southern California, a region where over half the state lives.  But first, let us look at the MLS data going back to September of 2007 when I started tracking this information:

In September of 2007 over 160,000 homes were listed on the MLS.  The above chart shows a clear trend of decreasing home inventories at least from this set of data.  Yet this is deceptive because it doesn’t highlight the surge in banks holding off inventory from the market through various moratoriums like HAMP or other state specific programs that were run in California similar to HAMP (big failures as we all know).  As of today, the MLS has roughly 64,000 homes listed for Southern California.  In fact, listing services are talking about this declining inventory:

“NEW YORK, Jan 13 (Reuters) – The number of U.S. homes listed for sale dropped nearly 5 percent in December compared with November, according to data released on Wednesday by real estate brokerage ZipRealty.

The December decline in listings by the Multiple Listing Service was the 18th consecutive monthly drop, according to Emeryville, California-based ZipRealty.

“Seasonality and the heavy activity by first-time home buyers in October and November, who were rushing to take advantage of the tax credit, impacted housing inventory in December,” Patrick Lashinsky, ZipRealty president and CEO, said in a statement.”

Now cause and effect is hard to sort out with some data and indeed MLS data has fallen as the chart above demonstrates.  But has inventory really decreased because of improvements in the market?  Certainly the tax credit and lower prices have spurred new home buyers but to say the low inventory is because of a good market is a misconception.  This doesn’t account for the massive increase in shadow inventory for many regions including Southern California.  In fact, if we look at shadow inventory for Southern California we will find over 160,000 properties!  These are homes that either have a notice of default filed (missed at least 3 mortgage payments), are scheduled for auction (the next step from NOD), and are bank owned.  If these homes are not part of current inventory they will be down the line.  Short of the homeowner catching up (which isn’t happening through HAMP) what other options do people have?  Say someone in California has an option ARM, are you going to be happy just converting the loan to say an interest only loan but at the bubble valuation price?  What incentive do you have if the value of the home is now down say 40 or even 50 percent?  Most people still wouldn’t be able to afford the payment which is even a bigger issue in a weak economy.

And the “great” year for Southern California real estate doesn’t look like that if we put the decade into context:

At the peak of the bubble, we were selling over 350,000 homes a year in Southern California.  Last year, a supposedly banner year where over 40 percent of home sales were foreclosure re-sales we sold under 250,000.  This is a drop of nearly 30 percent from the peak sale year.  I’ve also included the average “median” monthly price per year as a reference point as well.  This is simply for a reference point in comparing each year in the decade.  Even with lower prices, we are nowhere close to peak home sales of the bubble years and prices for the region are down over 40 percent.  This in conjunction with many of the Alt-A and option ARMs still lingering in the system.

But let us be more exact with the MLS data:

Non-distress listings:                     45,000+

Distress listings:                               19,200+

For distress listings, we are including short sales and foreclosures (the bulk is short sales).  About 30 percent of all homes listed on the MLS in Southern California fall in the above categories.  For example, 5,200+ homes are listed as foreclosures.  Yet bank owned homes are at 28,000!  That is only one part of what isn’t showing up.  Scheduled auctions?  Over 84,000 homes in Southern California are scheduled for auction.  More homes are scheduled for auction than the entire MLS data.  How many homes have a notice of default filed and are still not to the auction stage?  Over 50,000.  The bottom line is the market is saturated with distressed homes but just because it doesn’t appear in the MLS doesn’t mean it is doing well.

Some have questioned the double counting of the data.  Well, if we remove the 19,200 homes on the MLS listed as distressed, that still leaves us with over 140,000 homes in the shadow inventory data.  Plus, how many other homes have people that have stopped paying and have no notice of default filed?  I’ve received many e-mails and comments from folks living three, six, and even twelve months with no payment and no notice of default.

Part of the problem is the belief that home prices were going to rise to the moon:

Many people now assume that we are back on track to ever increasing prices.  Look at the chart above.  The red line charts the delusional bubble average if it only continued.  The median California home price would now be over $800,000 if we kept on the previous path!  Now, the median price is down to $264,000 for the state.  The median for Southern California is $289,000.  Definitely not close to those previous projections.  And keep in mind that the boost in current sales came at the expense of every possible gimmick.  The Federal Reserve has artificially kept interest rates low.  Only one place to go when you hit the zero bound.  We have implemented every moratorium imaginable in California.  We invented the idea of HAMP early in the bust.  Of course those programs failed.  Banks are hoarding inventory at the expense of taxpayer bailouts.  What good has that brought to our economy except keeping the bankers and Wall Street rich?  Tax credits?  Front loaded sales but we saw a similar drop last month with a cash for clunkers effect.  The only next step is to give everyone a free home.

Both the national median home price and state median price have come down to more realistic levels:

When I say realistic, I mean being able to buy a home without a toxic mortgage.  Yet many areas in Southern California are still overpriced.  Areas like Culver City and Pasadena come to mind.  It isn’t limited to these areas.  We have many cities where you have working professionals making good money but not enough to buy $500,000 or $600,000 homes (even though they think they can buy a home).  These people think low six-figures is enough to buy a home but fail to follow the rule of three.  That is, don’t get a mortgage that is three times your gross household income.  If you make $100,000 you shouldn’t buy a home that costs more than $300,000.  Of course I hear from many in this range yet they want a $1 million home for $300,000 while making $100,000 a year.  Or they have their eyes set on some niche and trendy market.  Following trends via the herd is expensive as we all know.

Southern California has an enormous amount of distressed real estate.  Our economy is in tough shape.  64,000 homes on the MLS versus 160,000+ homes in the shadow inventory.  Over 90 percent of these distressed homes do not cure so that means these will be additional inventory at a certain point in time.  Unless incomes double over night, we can expect housing to be in for a long year.

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42 Responses to “Foreclosures, Auctions, and Banks Obscuring Financial Data. Southern California Shadow Housing Inventory Report – MLS Lists 64,000 Homes but Shadow Inventory over 160,000.”

  • The inventory is shrinking because there’s very few owners in a financial position that enables them to sell. Hence the short sale. But the word is getting out that one need not move eventhough they’ve quit paying their mortgage. Banks dont want to foreclose or list properties anyway. That would ruin their sweet little Mark-to-myth scheme. So let’s all pretend and extend a little longer.

  • Thanks for the article.

    You write many of the “Alt-A and option ARMs still lingering in the system” … and …”For distress listings, we are including short sales and foreclosures (the bulk is short sales)”. Yes I do agree. Banks hanks hate foreclosures because these bring an end to the process of valuing homes under FASB 167 and 168 at mark-to-bank-manger’s estimate, that is mark-to-fantasy. At many, many banks, once a bank owns a property, this toxic asset is immediately transfered “off balance sheet”, as the bank holds that Ginnie Mae and Freddie Mac own the asset and insured loss of value is picked up by the FHA and “guaranteed” by the Federal Reserve.

    And you add: “About 30 percent of all homes listed on the MLS in Southern California fall in the above categories. For example, 5,200+ homes are listed as foreclosures. Yet bank owned homes are at 28,000! That is only one part of what isn’t showing up. Scheduled auctions? Over 84,000 homes in Southern California are scheduled for auction. More homes are scheduled for auction than the entire MLS data. How many homes have a notice of default filed and are still not to the auction stage? Over 50,000. The bottom line is the market is saturated with distressed homes but just because it doesn’t appear in the MLS doesn’t mean it is doing well,” Yes I agree … Real Estate values are going to fall in value.

    And you write: ” I’ve received many e-mails and comments from folks living three, six, and even twelve months with no payment and no notice of default.” This is just more evidence that banks hate foreclosures.

    And you write: “The only next step is to give everyone a free home.” Well, I live in Bellingham Washington, Whatcom County, where the Median Household Income Is $50,000; pretty much middle class here. And out in the county in Ferndale, we have some agriculture, and Intalco Works, an aluminum ingot producer, that has been able to survive with a reduced electricity bill courtesy of Bonneyville Power Administration. When I was into a credit union where I “bank” because it provides free checking and reduced banking fees, I saw an add on the wall for a home –a nice starter home in Ferndale, with 100% financing; that is getting pretty close to a free home.

    Well, if you ever want to move out of the big city, I suggest renting in Bellingham, WA — its a nice place in summer; it rains a lot in the winter, except this winter, as we have had no winter due to the El Nino effect.

    One thing you might not be aware of is that the EPA has proposed a stricter standard for ozone, that is smog; there is currently a comment period; after which the ruling is likely going into effect. This is steal legislation and essentially stealth taxation. The result will be very harsh, as $90 billion will be required to be spent over ten years to get the air clean. The net result of the new standard will likely be such things as mandatory no drive days, implementation of an ozone tax on clunkers, moving of manufacturing and chemical processing overseas, purchasing of whole fleets of non polluting locomotives, busses and trash removal vehicles, and purchasing of pollution equipment by every businesss, especially small automobile paint shops and bakeries. All of this means basically no employment so prices will be going down to the 1972 level shown in your charts.

  • The house across the street has been vacant for a few months, still no for sale sign. A maintenance company stops by to check on it every week, but no other activity. This is clearly part of the shadow inventory.

  • Your 2nd to last paragraph is perfect. I know of at least 3 families in the Culver City area whose incomes are probably in the low 6-figures (I’d ballpark them all around $120K-$140K, TOPS.) And they all think they can afford a home in the $600K range here (“these homes used to be $850K! We have to buy now!”)

    As you’ve said 100x, home prices must fall until they match the incomes of the area’s population. There is no reasonable way to buy a $600K home with $120K income, especially when you have 2 kids and all the associated costs.

  • “There is no reasonable way to buy a $600K home with $120K income, especially when you have 2 kids and all the associated costs.”

    Every single one of my friends and co-workers could be described by that statement. (Plus student loans in some cases) That is about what they make and they have kids. They still bought homes in that price range, and honestly I don’t know how they do it. They all regard me as a fool for not doing the same. I must be allergic to debt. O well, my loss huh?

  • I live in Chicago and know people who are living in their homes without making a mortgage payment for about 18 to 24 months. And these people are experts at gaming the system. They won’t pay for six to nine months, and then mail the bank a check for like $3000 and then go back and not make a mortgage payment at all for another few months. The bank gets the false hope that they will somehow or someway come up with the missed payments. But the joke is ultimately on the bank. While people live either rent free or very cheaply.

    Also, when it comes to the price of a home, people here in Chicago are still deluded. Extremely deluded. For example, in Des Plaines, IL (a middle class suburb of Chicago) a three bedroom, two bath, 1.5 garage, 2000 square foot split level home would sell for $300,000 during the bubble years. Now, that same home is selling for $135,000 and it is still sitting on the market. It will probably sell, for a lot lower. But people still think that exact home they are living in is worth “oh gosh probably about $270,000”.

  • One way I’ve see the scenario play out with the $600K home on a 130K income is the couple I have in mind left the state for a couple of years, rented a hole-in-the-wall apt in an area with much lower cost of living, socked away nearly 120K (they both worked 2 jobs- one full time and one per diem each) Drove clunker cars(paid off), only $2-300 per month student loan payment. Loan amount about $480K, which is still a stretch, but between lots of overtime and other extra stuff, I guess they can make it. Contrast that with another of my staff who has 170K worth of student loans(monthly payment is over $1500/mo) is 37yrs old- may never be a homeowner. Oh well. I wish everyone the best and we will see how it all plays out.

  • It just pisses me off that people who make a fair amount of money ($120K isn’t exactly chump change) are being told to pay $600K for homes in neighborhoods where the average income is $60K and they’re not getting any more house than their neighbors. How does this make sense to anyone, other than as a result of banks holding so many properties off the market that they create a sense that even buying a house is still difficult.

    My agent deals primarily in foreclosures, and not only are they going so quickly that people are paying over asking (and they’re spoken for in the same day), but they’re also frequently paying bribe money out to the second lien holder.

  • on my small street we have 3 vaccant houses. One was bought by an investor, one is a reo, and another is owned by BOA which has done nothing with it for a yr.

  • for a $480,000 load and 1.25% property tax, 4.5% mortgage rate, 5yr fix/30yr term mortgage. The payment is around $3,132, plus insurance, $700. If there is no other debt, it should be arrangeble and reasonable.

    • Agreed. 3x salary rule depends on interest rates. With them so low, it is rational to pay PITI of 1/3 your gross instead. When interest rates go up, then housing will swoon. Again.

  • Who can say where the market is. They are reporting figures of 178k average prices. What I don’t trust anymore is ANY type of property valuation. The figures that are tossed around I don’t find all that dependable. Reason desperate agents trying to hang onto their own houses and goods. So you can work things true. However. What is valuation anyway? Lets put it this way. You walk into a store and they have a fixed price on it. So is that soda really worth 1.52$ at the convenience store. I think not. We are all big boys. Still you can’t go up to the guy and say look. I want to give you 20c for that soda. See. Why is America like that. China isn’t. Remember Michael Douglas in falling down. He knocked everything over on that guys shelves. Then he slapped the soda down on the counter and said now HOW MUCH. See. I can identify with that guy. You can go to jail or be considered a marmaluke. For even discussing something like that. I am not suggesting you approach a home owner in that manner. What I am saying is. What is going on?

  • I am continually boggled by the ratio of incomes to housings costs in SoCal. I have a wife and two kids, virtually no debt and a decent income (~ $130k), but can’t fathom any reasonable scenario in which it would be prudent for us to buy a house here. In the areas where homes are priced lower, there are the issues of a longer commute (additional expenses), Mello-Roos, and HOAs which jack the monthly nut into the risky range making them no more affordable than areas with higher priced homes in more established areas without the extra taxes/community fees. Where are all of the people who seemingly can afford the homes they have getting the money? Although we have a huge number of people with distressed mortgages in SoCal, there are 3-4 times as many who are getting by with their payments in their far too expensive homes. What am I missing here? It is just a matter of time until we see a 50% default rate or do people make more than I think?

  • 3800 a month reasonable? Why would one pay that when they can rent a similarly sized place in a better neighborhood for 1600? Rent controlled too.
    For a family of four with two kids in daycare (app 1800 a month) even with no other debt what’s the motivation for buying a home at these prices? Seems like a sucker move to pay more, not benefit from great schools, not receive an increase in space, for more responsibility and less financial security. That 3800 a month would only be reasonable with no children, no car payment, no student loans, no credit card debt. I just don’t see many fitting into that category. But lots of people do it living the dream house poor.

  • There is a home on Crescent Heights I drive by everyday on the way to work that has been empty for a little over three years. It has paper shades in the windows and every once in a while someone parks a car in the drive. I remember it having a for sale sign for a bit more than two years ago, but apparently they gave up and it just sits there. There’s another like this on Detroit south of Rosewood only they don’t even bother with the shades. A lonely curtain rod with one end on the ground and the other attached to the wall crosses the front window displaying it’s empty and unkempt front room. That one has been there since atleast 2004. Empty houses everywhere….empty store fronts and commercial spaces too.

  • I live “south of the boulevard” (i.e., Ventura Blvd.) in Tarzana, in what is considered one of the nicer areas of the San Fernando Valley, near the El Caballero Country Club. About a year ago, a new-ish two-story house on Valley Vista was gutted by fire. They put a chain link fence around it, and it has sat there ever since – no sign, no cleanup, nothing.

    It’s charred, burned-out hulk is a daily reminder of the TRUE state of Southern California Real Estate.

  • Comment by Dan
    Your 2nd to last paragraph is perfect. I know of at least 3 families in the Culver City area whose incomes are probably in the low 6-figures (I’d ballpark them all around $120K-$140K, TOPS.) And they all think they can afford a home in the $600K range here (“these homes used to be $850K! We have to buy now!”)
    As you’ve said 100x, home prices must fall until they match the incomes of the area’s population. There is no reasonable way to buy a $600K home with $120K income, especially when you have 2 kids and all the associated costs.
    >>
    We have that exact income range, base is just above 120k, with bonuses and overtime it’s typically closer to 140k. I imagine this is the range a lot of dual income young professionals fall in. But there is no way we could pull off a $600k house even with a 20% down payment, and we have no debt, and already live fairly frugally. Well we probably could stretch every last penny, but we’d have to cut all saving and retirement contributions. It’s just not worth it.

    Comment by tim
    for a $480,000 load and 1.25% property tax, 4.5% mortgage rate, 5yr fix/30yr term mortgage. The payment is around $3,132, plus insurance, $700. If there is no other debt, it should be arrangeble and reasonable.
    >>
    You didn’t state an income, but assuming you’re refering to the ranges already talked about, it’s not reasonable at all. It leaves you without the ability to put away a decent amount for retirement, or save enough for a rainy day. It just doesn’t leave you with any wiggle room if circumstances change.

  • Partyboy..

    You are so right on..Our household is also $130k with 0 debt …and I cannot buy a SFH in SO CA..Its just out of reach with current prices…I have no idea who is hell is buying all the property we are liking…we like a property and want to put a offer and the next day its sale pending..unbelievable…I am in SF Valley..where are you located?

  • for a $480,000 load and 1.25% property tax, 4.5% mortgage rate, 5yr fix/30yr term mortgage. The payment is around $3,132, plus insurance, $700. If there is no other debt, it should be arrangeble and reasonable.

    $3132 + $70 a month not $700 a month for insurance.

  • As Tim points out, a 600k home on 120k income is very reasonable. With a suitable down payment, PITI is estimated at ~$3200/month, which is 32% of the household income dedicating to housing – this is the gold standard, and a conservative one compared to many in CA. House prices aren’t going to come down to the level YOU want them to be. They will come down the the amount people are willing to pay. If you’re not willing to pony up, then expect to rent for a very long time.

  • Comment by CB

    CB, Have you given any thought to what might happen when 30 year rates are no longer at record lows? Or are you under the impression the Fed will be buying MBSecurities for the rest of time?

  • Kid Charlemagne

    Folks,
    You gotta go around the middle men–realtors and bankers–and make offers to underwater owners. You can look for rentals and ask if they might sell. Not every home will be a hit, but there are a lot of albatrosses and a lot of anxious buyers. If the conventional market doesn’t work, bypass the market. It’s not easy, but it’s better than a life of strangling debt just to live in a house…personally, I think anyone is insane to buy a room when the Titanic is taking on water, but if that’s what you are hell-bent on doing…someone could even make a killing being an underground agent…

  • Quote Dr. Housing Bubble: ”I’ve received many e-mails and comments from folks living three, six, and even twelve months with no payment and no notice of default.”

    Quote Nimesh: “people who are living in their homes without making a mortgage payment for about 18 to 24 months”

    And guess what guys? Exactly these people play the banks perfectly and save the money for the down payment towards their next house!

    We are looking in Canyon Country and even further out towards Palmdale and the house prices just won’t come down. The valley is just not in our price range unless the unfavorable areas Panorama City *uuuuuuuuh*

    Can we file a class action lawsuit against the bankers??? 😉

  • Unemployment persists and rates rise….prices are coming down.

  • People, people,people! Don’t despair. Remember, it is all about the ratio of income to the property price. Just like Southern California, here in Chicago in certain neighborhoods, it is still way out of whack.

    For example, in a nice upper middle class neighborhood in Chicago (Forest Glen) a 2400 square foot bungalow used to sell for $700,000. Now it can fetch for $500,000 with an average income of about $42,000 per person in Chicago it is still unaffordable. Heck, even if the couple made $65,000 each it would be unaffordable when you factor in property taxes (here in Chicago property values have gone down, but property taxes have gone up so on that same 2400 square foot bungalow you are going to pay about $11,500 in property taxes. Ouch!), insurance, maintenance, utilities, basic living expenses like food, clothing, etc…. health care, gas for the car, etc….

    Factor all of those expenses and the price of a home and it is still too unaffordable. However, the average Joe and Jane thinks the following; “oh dear God did I get a steal or what? This house used to sell for $700,000 and now I am getting a steal for only $499,000. Prices are sure to go up because real estate values may go down for a while but they are headed up soon”.

    Stay patient folks. Stay patient. Even Warren Buffet said if valuations don’t make fundamental sense, then don’t buy, wait on the sidelines.

  • Martin, I think prices have yet to bottom. But I also think that people are making the mistake of associating median incomes to their impression of median home, and then convincing themselves that they deserve a custom chalet in the mountains because the make a few thousand more than most. The question is not if you make more than everyone in your location, it’s do you make substantially more money than people buying homes? I think most angry renters who frequent this blog need to understand that they are in no better earnings situation than the majority of homeowners or current prospective buyer, and this reality combined with the multiple factors that define CA’s RE markets is the reason why homes seem so expensive. They are not easy to afford, and under traditional circumstances aren’t a guaranteed stipend afforded to the prudent working class. My parents moved to CA in the 70’s and paid through the teeth for a home in SoCal. The drove beaters and took “staycations” for the majority of their child raising lives, and are now extremely well of because of their levity. Juxtapose this to the whiners in the comments section to this blog who think that because they bring a few thousand than the average income they deserve an above average home, a luxury car, bi-yearly Hawaiian vacations and enough to sock away 20% of their gross into retirement. They want to own, but they don’t understand the sacrifices required to do so, so they instead blame the system for not being tailored to their dismal tolerance to sacrifice.

  • CB you are wrong. Your attitude is why your state haS the most ridiculous property valuations, damn near the highest foreclosure rate and a state budget completely out of whack. Nobody here wants a chalet in the mountains because they make 129k a year, they want to buy a regular house. However, there will always be some moron willing to devote a higher percentage of his lower income to the mortgage so he can live the dream. He’s also the same guy who defaults on his mortgage if he misses even one payment and the milks the system. Your CA system isn’t working and your status quo attitude is just more of the same.

  • Nimesh, I also live in Chicago, and we had our own property bubble, although not as extensive as California’s. We have many many neighborhoods, especially on the NW side, where the median price has risen from the $100’s in the mid-90’s to the $400’s at the height of the boom, and they still sell in the $300’s today (Portage Park is the place I”m thinking of). In any neighborhood that’s gentrified the price has risen from the $100’s or $200’s in the 90’s to literally near a $1,000,000 for a SFH in some places, I’m thinking of bucktown and roscoe village. I call it the ‘Californization’ of prices i.e. when prices rise in a certain neighborhood far far beyond what the average inhabitants can afford because bozos with funny money are HELOCing the hell out of it or new buyers with 0 down are buying everything up. However, CA has real homes of genius everywhere, whereas our median price is significantly lowered by the southside of Chicago and the south suburbs, which is for all practical purposes, Detroit. War zones, vacant for blocks and blocks, low population density, etc. $10,000 for a boarded up home, etc. But in the areas you mentioned like Forest Glen, those prices have shot through the roof just like CA although our bubble didn’t quite reach as high.

  • CB: I’m a happy renter. I have no intention of buying. I view people who do buy so little house in a neighborhood for so much money with questionable schools at these prices as fools. Go sucker someone else salesman.

  • M Nair,

    I live in Murrieta and our rent is $1500/mo for a nice 1800 sq ft single story home on a cul de sac with a great view and good schools. I have looked in areas closer to where I work (currently 55 miles away) but they are either $200+/sq ft or trashy areas with terrible schools. In fact, most of the schools in the “affordable” areas have > 25% of the students listed as non-English speaking. This would not be condusive to a decent education for my kids so I have to rule those areas out and continue to make a lengthy and time-comsuming commute to work. I guess that is the new American Dream…two working college-educated parents working their asses off and sacrificing quality time at home in a traffic-ridden commute to buy a house in SoCal where people actually speak English. I grew up in SoCal and don’t want to leave, but my gut tells me that it won’t be long until I relocate my family to a place with reasonable earnings/cost of living ratios. Maybe we will vacation in SoCal from time to time for old time’s sake. Great weather is overvalued and I can get NFL Sunday Ticket to watch the Chargers. Best of luck in your serach.

  • Anyone who pays twice to own what they would pay to rent for a comparable place is fooling themselves if they think it’s a good investment. It’s not.

    Housing is not going up anytime soon. Rising unemployment and increasing foreclosures are only part of the story. Check this out:

    Lenders Pursue Mortgage Payoffs Long After Homeowners Default
    http://www.bloomberg.com/apps/news?pid=20603037&sid=aIf_vUQZFt.s

    an. 28 (Bloomberg) — When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

    King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

    “The big dogs get a bailout, and the little man gets no mercy,” said King, 39, referring to the U.S. government’s rescue of banks and other financial institutions.

    (more at link)

    ——————————————————–

  • Strange how home “ownership” is elevated in our society. But, the fact is that most people who “own” their home really don’t. The deed-holder is the bank, until that 30 year note is paid. I’ve “purchased” two homes but never “owned” one. Meanwhile, we who rent frequently respond to people who might say, “I love your place,” by responding, “I’m just renting.” I understand that home “owners” tend to have more of a commitment to an area and are more likely to keep the place up versus a rental. Even with cars, we tend to quality our ownership by saying, “I’m buying it” until we actually pay off the note, then we proudly proclaim, “It’s paid in full!” But houses are different….

  • Comment by CB
    The question is not if you make more than everyone in your location, it’s do you make substantially more money than people buying homes?

    I agree people are expecting a little too much too soon in prices going down. Price elasticity and some gov’t financial engineering will slow the fall. But everyone buying homes is not making more than $120k/year. Many are/have taken on more risk than is financially prudent during a huge credit bubble, and have taken advantage of low interest rates and gov’t programs to make it work for them. This can only go on for so long though. And the rule of thumb relationship is not between home prices and median income of home buyers, but between home prices and the median income of all people in an area. This had tended to be a bit higher in California than in the rest of the country for the last 30 years or so, most likely due to our lower property taxes, but currently this ration is waaaay out of whack and I expect this ratio to turn back to more historically “normal” levels as all of this shakes out over the next 5-10 years. If you want to save money or use real-estate as a long-term investmetn/hedge, just rent until then. If you just must buy a place to impress your friends, then just look at it as the expensive, overly fee-laden, illiquid commodity that it is.

  • Comment by Mike M
    January 28th, 2010 at 1:05 pm

    ….interesting read Mike M.

    “Unemployment is one of the two leading indicators of a mortgage default. The other is a home being “underwater,”

    There are some commenters on here that think that a home being underwater isn’t an indication of default and are encouraging people to buy…or maybe they are just pretending and are still trying to sucker people into buying something so they can get a commission.

  • CB……What you say is 100% right. California is expensive and requires sacrifices in ones life in order to afford it.

    But it is also true that home prices from 2000 to 2006 went up so drastically that if you wanted to buy a home in California the stakes rose from sacrifice to financial suicide aided and abetted by banks and everyone involved in the realestate market.

    The people who come to this site are angry that now that the so called “free market” is trying to correct the imbalances caused by these people, our Federal Government is spending trillions trying to keep the imbalance alive.

    California will always be expensive and require sacrafices to live here but I think the days of requiring financial suicide to buy a home are numbered……..numbered to the amount of days the Federal Government keeps interfering with the free market.

  • Just a few days ago BofA said they were going to sell 5,000 houses in Nevada this year. I think listing 500 a month.

  • What makes you believe the 160k of stealth inventory will every hit the market? Some people have been living for free for up to 2 years and still not hit the market. The powers that be can drag this out until inflation takes hold and then some of these POS houses will cost and arm and a leg. And then the powers that be can claim victory. They will have restored the values of homes back to bubble prices via inflation. With the way they’re hitting the printing presses, inflations is not to far off around the corner.

  • Great Article, as usual.

    I don’t see any mentioned in the article though on the ‘WHY’, why are the banks holding on to their inventory?
    Here is what I think: Earlier last year the Govt. relaxed the ‘Mark to Market’ rules for banks, which essentially means that the banks can value their inventory at whatever price they see fit and hence still pretend to be appropriately capitalized.

    If the banks start marking their inventory to the market value, its quite likely that they will be shut down by the FDIC for being under capitalized.

    The FDIC does not want that, the banks don’t want that. Do we want that?

    Would appreciate a better understanding from anyone who can shed further light on this information.

  • LOL! It is sad that people that “Pony up” based on Realtor lies have to post garbage to validate their poor decisions. Prices will come down to the level you want. Do your reearch and know that the Government can’t prop the banks up forever!

  • If you think we are anywhere near the bottom, you have spent the last 5 to 6 weeks living in a bubble! Everyday the Senate has pushed more and more of the unemployed closer to the precipice, the more homes that will go into the foreclosure pool. By the end of June there will be 1.2 million unemployed without benefits, which means no house payments and people just walking away from their houses. If you conservatively look at only 20% of those losing benefits as homeowners, you are looking at 240,000 homes being added to the foreclosures. If Congress continues to stall the unemployment extensions the 240,000 could easily become 2.4 million! So the same arrogant snobs that bailed out the mortgage lenders and the banks are willing to dump even more uncollectable debts upon the same industries that they just bailed out! I can see the housing market dropping another 25 to 35%.

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