Good piece in the WSJ about how the foreclosure mess is impacting the housing market:
The U.S. housing market is facing new downward pressure as holders of subprime-mortgage bonds flood the market with foreclosed homes at prices that are much lower than where many banks are willing to sell.
While nationwide figures are scarce, a review of thousands of foreclosures in the Atlanta area shows that trusts managing pools of securitized mortgages sold six times as many properties as banks during the six months ended March 31. And homes dumped by subprime bondholders sold for thousands of dollars less on average than bank-owned properties, the data show.
***The good news is that at least foreclosed homes are moving — up to a point. And buyers of houses being dumped by securitized trusts are getting a very good deal. Late last year, for example, a property at 1169 Old Fincher Trail in Cherokee County, Ga., that was in a Bear trust was foreclosed on, Data Intelligence said. The original loan was $292,000. When the owners couldn’t keep up with the payments, the home fell into foreclosure.
Realtor Tim Hamill of Re/Max Greater Atlanta, who was handling the sale for an asset-management firm working on behalf of the trust, said his mandate had been to sell homes in 30 days.
Greg Foster, a neighbor who built the home 13 years ago, saw an opportunity to buy it for his 25-year-old daughter, Ashleigh, a nurse and single mother of two children. When she wasn’t able to secure financing in time, her grandfather bought the house for $164,000 — or 56% of the original loan amount — and then sold it to Ms. Foster.
Isn’t this what “de-leveraging” looks like on the micro level? And to be honest, considering the wildly over-inflated prices in many housing markets, isn’t this a good thing?
Josh Huaco
In the 80s it was junk bonds and S&Ls, in the 90s it was dot-com stocks, and in the 00s it was junk mortgages. So, what will the next bubble be? I’m assuming that there will be a bubble, considering we haven’t had a reality-based economy for the nearly 35 years I’ve been alive, and I don’t see anything to say that things will change.
dr. bloor
If you can find enough grandpas with the credit and cash to cover all the single moms who need a place to live, sure. You won’t. It’s far more likely that those places are going to be sucked up by speculators or gentrifiers looking to turn a profit or change the complexion of a neighborhood.
Nice story, but I suspect the exception and not the rule.
pharniel
yes and #1 is spot on.
Michael
Nice for the speculators, but shitty for everybody else on the block, particularly if they divorce, have to move due to a job change or need to tap home equity to pay for educations or anything else.
Fulcanelli
OT kind of, but Matt Taibbi’s recent smackdown article on Goldman Sachs led me to the site Zero Hedge and while I won’t even pretend to understand all their market and trader-speak wonkery, I can discern enough to tell that they’re certain Goldman has been manipulating financial markets in a number of clandestine ways to their huge advantage, is still doing it and the shit will hit the fan before long. Recommended reading. And oh yeah, the little guy investors are getting fucked blind as usual. Carry on…
A Mom Anon
There are some really nice older homes around me,with good size lots that have been on the market for over 3 yrs at fair prices. There’s also a glut of empty McMansions and commercial real estate(which morons are STILL building around here) which are insanely overpriced,even in this crappy market. I live about 30-45 minutes NW of Atlanta.
As far as this being a good thing I think it depends on what kind of house you have or are looking for. We paid 120K for our house 13 yrs ago. We have about 2/3 of an acre with a huge built in(20×40 ft,9ft deep at the deep end) pool,something you don’t find these days. We took out a 40K loan on our house to do some serious remodeling(the place had not been taken care of) about 2 yrs after we bought the house. We’d be lucky to get 165K for this house,after we’ve completely remodelled,re-done the pool,built decks,replaced all the windows and doors,built patios and gardens,etc,etc. If the market was realistic our home would be worth about 200-225K,that’s not an outrageous or greedy expectation considering the location and the amount of work that was done. We’ll be lucky to ever be able to sell this place,let alone get what we put into it.
People like my husband and I may never see any return on our investment unless things get ALOT better in the next 5 yrs or so. Our plan was not to flip this house,but to stay here til our son graduated from high school(we moved here when he was three,he’s going into tenth grade in August) and then leave GA and head out west or maybe New England to retire. Ha. Na Ga Happen now.
Tropical Fats
We bought our first house in May of last year. We saved for years to be able to buy. If we sold it now, we’d lose $15-20K because of falling prices. Probably a third of the way to losing our entire 20% down payment we put into it. And it’s still getting worse. We lost a very expensive game of musical chairs.
blogreeder
I agree. I think that when a house is listed at a million and is described as a fixer-upper, things have gone too far.
JGabriel
John Cole:
While the Foster anecdote is a pretty story, I wonder how many of these foreclosed homes are being bought by realty companies who intend to rent them out?
.
low-tech cyclist
Isn’t this what “de-leveraging” looks like on the micro level?
Yes. And while it’s difficult for people who won’t be able to sell their houses for what they paid for them anytime soon, it’s still better – even for them – than houses remaining in an unsellable limbo, where people won’t pay what the banks owning the houses are asking.
Having a bunch of houses on your street that sold for $100K less than what you paid, but are at least occupied by homeowners who take care of their houses, is far better than having a bunch of unoccupied houses on your street, with the grass and weeds growing two feet high, deteriorating or getting vandalized, and becoming a haven for rats and other vermin.
And for the rest of us, this is how the excess assets from the bubble find their true price, and get put back to work, which is a good thing. Too bad a lot of the excess assets consist of housing stock in distant exurbs that people won’t want to live in if gas goes back to $4/gallon, but too late to do anything about that.
JGabriel
OT, but this must sting like a stick in the eye, Minnesota GOP Writes Big Check To Al Franken:
kay
Beautiful. After stubbornly and stupidly refusing to realize a loss, they’re dumping their bad bet en masse, and blowing up the market on their way out.
The careful, responsible planning and foresight in the financial sector continues to impress.
The only upside I can see is this may force the slightly more responsible lenders to renegotiate the mortgages that are iffy, and avoid foreclosure, keeping people in their homes, collecting payments, and avoiding another huge hit to the economy.
A responsible measure lenders could have taken 2 years ago, all by themselves, with no government intervention of any kind, in a planned, rational unwinding. Take a smaller hit, spread over time, and avoid foreclosure, where, incidentally, they take a huge hit.
But the leaders of the financial sector are apparently petulant 16 year olds, and they don’t WANNA admit they made a bad bet, so that was unimaginable.
Michael
Financial guys are Florsheim wearing, sober, responsible geniuses. We should give them as free a hand as possible to direct the capital policy in this country, as they know that long term stability and rational growth are in their own best interests…..
/GOP propagandist speak
In other news, Jeb Bush is being touted by Tucker Carlson…..
http://www.esquire.com/features/jeb-bush-interview-0809
Napoleon
@Michael:
I would love nothing more then the Rep pick Palin in 12, thereby cementing in the mind of 55% of the public that the Rep. party can not be trusted to take anything seriously, then Bush in 16, which hopefully leads to a defeat that year. I don’t think the Rep party will get the least bit serious about introspection unless they get beat, and hopefully badly, in 16. I would guess most of them figure that barring dissaster Obama will be reelected and following the typical pattern since Truman they will expect to win in 16. But by after that election if the last 4 candidates the Republicans ran were W, W, Palin then Jeb the public is going to tune the Reps out for the next 20 to 40 years.
kay
@Michael:
I think they’re going to trot Jeb Bush out in 2012.
I’m pulling for Sarah Palin, but I sometimes don’t get what I want.
My idea is Palin/Palin. Sarah at the top of the ticket and Todd as VP. Fresh and mavericky! I’m going to suggest it at PalinPac.
We can’t discuss her family because we’re humanitarians, so Todd is the prudent pick. No one will be permitted to ask him questions.
Come to think of it, Sarah Palin is a member of Sarah Palin’s family, so we probably can’t ask her any questions either.
On to victory.
wilfred
Depends. If your neighbor failed on his mortgage because he lost his job and you swoop in and buy it at a greatly reduced price I’d call that the built-in exploitation of a corrupt economic system.
Dog eat dog capitalism, I suppose. There must be some great deals out there after the economic roadkill is pushed to the side.
Michael
I like it!
Johnny B. Guud
It’s a good thing if you’re a disciplined consumer, with a nice cash cushion and therefore able to make a hefty deposit on a home. Or if you have relatives who are willing to put up the money for you.
And of course, for real estate investors, which is not exactly a bad thing.
But, my guess is that the majority of middle class Americans are not disciplined consumers, and they don’t have extra cash lying around, and their personal income is so squeezed that making a monthly mortgage payment isn’t a given.
Falling real estate prices are doing a number on banks across the country. And I don’t mean the Goldman Sachs/Citigroup “bank”. I mean real, brick and mortar, middle America, community banks.
In fact, it seems like the Feds are preparing for some rough seas ahead:
Brick Oven Bill
The unsung victim of this whole mess is the person who played by the rules, and put 20% down on a home between 2004 and 2007, losing it all.
Bob In Pacifica
Sold my little condo in early ’05 and got out of owning real estate. It was right when the market was the hottest in the S.F. area. Actually, if I’d been able to hold out another three or four months I could have milked another 20-30 K for it. People were outbidding well over what the banks would value the house. It was crazy. At points I felt like slapping some of these people.
So I had a little nest egg for my retirement.
Having said that, having all that property value disappear from Americans’ pockets is why we are in this mess now. It would have been much better if the economy had been floating on people’s wages.
Anybody else feeling that Krugman was right and we needed a lot more stimulus and a lot less bank bailout? Doing this half-assed may just turn the country to the Rethugs, whose policies will guarantee another ten years of economic misery for most of us.
NonyNony
@Napoleon:
After her stunt last week the odds of her winning a Republican primary dropped to about 1 in a million. I’d say it dropped to zero, but I know what the Republican bench looks like right now and frankly, even with her bizarre antics she STILL looks more likely to win a primary battle than a good chunk of that bench.
Xenos
@A Mom Anon: Won’t happen now, but it may well happen in 2-3 years.
And even if you are flat, or slightly negative at that point, prices will still be better than today where you are going. Atlanta is overshooting on the bottom, but here in the Northeast, for example, we have a long way to go before we hit bottom. At least two more years.
There is a good chance your timing will work out just fine.
Walker
I was actually starting to look at houses this year, but I pulled back. After having houses sitting on the market for quite a while, something weird happened: houses all started selling rapidly in May at above asking prices. So I will wait some more.
The key thing is rent to price. Every property that I find comparable to my rental (farm house on 10 acres) is 300k. While this may sound reasonable, my rental is 900/month.
Xenos
@NonyNony:
But think of the mischief she can cause in the mean-time! Another round of 16 debates with Palin out there on the stage, raising the bar each time with more and more outrageous comments… and the slightly sane candidates needing to disavow parts of their base every few weeks as she inspires the worst behaviour from the worst of the base?
It will be great. And Obama up there debating Kucinich and whoever else runs against him will be looking better and better as time goes on. Obama will hold and control the middle ground with ease.
kay
@Napoleon:
They’re hoping the economy will doom Obama. I think that’s premature. Reagan took three years to get employment numbers up, was down to 41% approval in 1983 based on high unemployment, and went on to win.
They’re like bankers, Republicans. Well, many of them are bankers….they’re crazy 16 year olds, with mood swings.
Still, I’m completely backing Sarah Palin, as a hedge.
Svensker
Yes, but there’s a huge amount of wealth that is simply disappearing. When you buy a house for $400K and sell it for $100K, there’s that little matter of the missing $300K. You can either continue to pay your mortgage on a non-existent asset, or you can default, letting the mortgage holder absorb the loss. That does bad things to the economy. See 1929, re-set of asset valuation, viz.
Punchy
Houses in Detroit going for $3K. No, not missing any zeros.
’nuff said.
geg6
Just another reason to be thankful that I live in Western PA. None of these shenanigans (well, not much anyway) happened here. Housing prices pretty much stayed the same as they always have been throughout the boom and they haven’t moved up or down since. My cute little one-bedroom apartment in a pretty little river town was $350 a month when I moved in 5 years ago; it’s $360 a month now. My sister bought our parents’ home after mom died in 2001. It’s 4 BR/2 baths in a strategically well-situated suburb of Pittsburgh (near the airport and about 20 minutes from downtown) for $80,000. It’s probably worth about $85-90,000 now, according to her real estate agent neighbor. There are positive goods in living in a place that went absolutely crapped out busted during the Reagan era and has learned the hard lessons and does not seem to get itself involved in all the booms and busts of other metro areas. Apparently, that is the whole point of Obama choosing Pittsburgh for the G-20: to show how a metro area can recover from economic disaster in a way that minimizes the chances of such disaster happening again. My only fear is that the p.r. will work too well and we’ll be inundated by the assholes that have ruined Atlanta, Phoenix, Miami, and LA.
truculentandunreliable
@Bob In Pacifica: Oh yeah. That’s really my greatest fear, and I don’t think it’s that far fetched. I’m not going to declare Democratic dominance until at least 2020. Which is also why I’m impatient for stuff to be pushed through NOW.
As for the housing market, it’s like the economy in general. Things could not continue as they had. The American public was holding a record amount of debt. Housing prices were out of control. It was just unsustainable. It doesn’t make anything easier, and it’s bullshit that most of the people who are truly suffering had nothing to do with the conditions that created economic collapse, It will hopefully be better for everyone in the long run.
Punchy
I’m not getting this. This “value” never really existed. It was a value given by a supply and demand curve; it was based on lots of paper-shuffling. To say it came from Americans’ pockets makes it sound like homeowners were robbed….I would say, they were brought back to Earth after a brief trip to Insane Overvalued Heaven.
Again, what made peeps think that 30-40% y/o/y “value” increases were either legit or sustainable? In what universe did owners live that this was normal, and should be counted on as a source of “income” or worth?
Betsy
Well, maybe it means I’ll be able to buy a house when (if?) I get a real job upon getting my PhD next year. (Looking on the bright side!)
OT: This article makes me want to cry, rage, and punch something.
jon
I still see unrealistic expectations all over the housing market. There is desperation for the good times to return, but no reason for it to do so. When prices in my area reached over $200,000, I didn’t see many jobs in my area that could justify that cost. And neither could many lenders, apparently. Now that they’re dropping toward $125-150,000, the lenders still aren’t common. And jobs are worse. The credit market is blown, interest rates are going up so any loans given now are losers for the lenders, and most of the homes in outer suburbs are going to be taking a long time to sell if there aren’t jobs nearby.
The housing market, the job market, and the credit market are all showing that there isn’t going to be a nationwide recovery anytime soon.
Walker
@A Mom Anon:
When I lived in Dallas, realtors told me that pools are actually worth 0 value. For every person that wants one, there is someone who absolutely does not want one (I am one of those — I would rip out a pool if I got a property with one on it). This reduces aggregate demand for the property, and so the affect on price is a wash.
Granted, part of this is because water was not cheap in the Dallas area. But the basic principal remains.
Svensker
@Punchy:
Yes and no. “Value” is what someone is willing to pay. A bubble happens when people get way over excited and pump up values temporarily.
Unfortunately, the “value” did exist in the sense that the buyer contracted to pay for that value and the mortgage holder (or someone) actually forked over the value in cash to the seller. So there were real dollars paid for vanished value. That is the problem. (Compounded horrendously of course by the fact that numerous financial institutions leveraged that “value” hundreds of times through their credit-default swaps and other bogus instruments.)
Dennis-SGMM
@Punchy:
What you said. I watched as homes in my town that were selling in the 300s at a leisurely pace in 2000 ratcheted up to the 600s, and then to 800s or more. It reminded me of when people were investing in baseball cards – or tulips.
We bought a house years ago so that we’d have a place to live in. Period.
Xenos
@Svensker: Actually, due to a combination of loose underwriting standards and fractional reserve lending, the money in those transactions existed legally but as a matter of economic value was a bit of a will-o-the-wisp.
It reminds me of Tinkerbell. We all stopped believing in it, and it just went ‘poof’.
Steve V
A person buying a house looks more at the amount of the monthly mortgage payment than the overall selling price. Thanks to historically low interest rates for much of this decade, monthly payments are relatively low in relation to sale price. So, housing prices don’t really tell you anything unless you also look at interest rates. Also, I believe recent price drops have put prices in some areas where they should be with “normal” appreciation, but prices are still falling. So … we just really have a ducked economy right now, which I don’t think is a good thing.
DecidedFenceSitter
I’m one of those getting divorced folks. (Soon to be ex-)Wife and I bought in 2003 at 140K; prices in the intervening years shot up to 280K+; that’s fine, we figured when the prices fell they’d wouldn’t make us negative. Ha!
Well right now there are houses going for 100-110K; and thankfully that’s a 30-40K INCREASE.
Of course, this means we can’t split the property – she’s moved out, and thanks to a house mate I can make rent. The best thing for me to do financially would be strategically get foreclosed on, but this is NoVA and it would kill my clearance. So here’s to not losing my job while I wait to break even and get out of this place.
Walker
@Steve V:
People this criminally stupid about their finances have no reason to complain when they lose money on their investment.
Steve V
Walker, what are you talking about? Sure, it’s probably stupid to take out an ARM or interest-only mortgage, but if you can afford a 30-year fixed mortgage at a higher selling price thanks to low interest rates, what’s “criminally stupid” about that? Selling price is just a number. It’s the monthly payment that matters.
low-tech cyclist
@DecidedFenceSitter: just where in NoVA are all these $110K houses? Seriously, are you halfway to Fredericksburg, or what?
Walker
Ignoring the complete cost over the lifetime of the loan make this a leveraged investment, pure and simple. Leverage multiplies losses on the downside.
DecidedFenceSitter
@low-tech cyclist: Just about – PWC has been hit hard, and my area especially hard. Stafford County has been hurt worse apparently.
Hell, go one neighborhood over (10+ years older and slightly worse neighborhood) and you can probably still find 50-60K houses. Wouldn’t want to buy one unless I was willing to put in a lot of sweat equity + new appliances, but they are there.
Steve V
If your mortgage rate is low, the complete cost over the life of the loan goes down.
If I have $1200 a month I’m going to spend on my housing, over 30 years (no trick loans or anything), what do I care if the purchase price is $200,000 or $350,000? I’m going to be spending the exact same amount of money over the life of the loan, whatever the division between principal and interest over those years. In a low mortgage rate environment, the ratio of principal to interest simply skews a little more to the “principal” side, that’s all.
I have friends who bought a house in 1999 on a 30-year loan, then refinanced in 2004 to a 20-year loan, and thanks to low interest rates their monthly payment basically stayed the same as under the 30-year loan. On the other hand, they could have refinanced with a 30-year loan and just lowered their payments. I would not consider either of these paths “criminally stupid.”
Michael
I’ve been paying my mortgage diligently for 10 years, and was responsible with regard to the money I borrowed.
Of course, with the wreckage inflicted by the GOP on the economy, my income is 1/3 of what it had been by the late 90s, and I’m down to early 90s income figures. The mortgage payment has been a stretch at times, but I’ve been able to keep things going.
The distress sales in my neighborhood have now have brought appraisals down to the point where I now know beyond a shadow of a doubt that downpayment (earned from the sale of a responsibly paid in previous home) and paid down principle are gone as the property is now only worth about what is owed on it. This puts us in several binds with relation to college costs, and is going to constrain the life opportunities for my kids.
So if anybody wonders why I *spit* whenever I see the word “conservative”, that’s why.
Cathy W
@Steve V: The difference of opinion between you and Walker seems to come down to the difference between purchasing real estate as an investment and purchasing a home to live in long-term. If you don’t intend to sell the house or borrow against the equity any time soon, the difference between what you bought it for and what you can sell it for is kind of irrelevant, but if you view your home as a financial asset as well as (or even instead of) a dwelling, it’s a lot more important.
KSMIAMI
John – yes and yes are the answers to your questions. Finally, people are buying homes not primarily as investments, but as real places to live and without the expectations of 30% year over year appreciation.
The good news is that eventually a lot of housing will be repurchased, the bad news is what to do with the excess commercial real estate like strip centers that have no reason for being…
Michael
I never expected that. I did, however, expect it to at least retain the value it had when purchased, with maybe a small bonus factor of pacing ordinary price inflation relative to food and fuel.
Ten freakin’ years of payments after a nice downpayment. ten years of expensive maintenance and repairs and worry.
I’d have been better off renting.
jh
I bought my house in 2005, even though I know the price was grossly inflated. I did this because I needed a place to live and admittedly, I was tired of renting.
Even though I can easily make my monthly mortgage payment of $1200/mo, the fact that I owe about double what my house would sell for (based on redfin comps and my own research) has me itching to call Wells Fargo and tell them to either modify my loan down to what the house is actually worth or expect the keys in the mail.
I like where I live but at some point, enough is enough.
Montysano (All Hail Marx & Lennon)
@kay:
This is purely anecdotal, but the three hardcore wingnuts in my office all admit that Obama was not the one who brought down the economy. 2 of these 3 listen to Boortz, Limbaugh and Hannity all day every day, all of whom tell their listeners that “Obama inherited no problems”. So I think it’s apparent to everyone but the 20% hardcore knuckledraggers that Obama is simply trying to fix someone else’s fuckup.
kay
@Montysano (All Hail Marx & Lennon):
I can’t believe you have three in your office. You poor thing.
I regularly interact with only one bona fide wingnut in my work. He blames me, personally, for the stimulus package.
He blamed me, personally, for the stock market, until it went up, then we moved seamlessly to my central role in the unemployment picture.
He’s a state employee, so the fact that he’s still employed probably means he benefited more than I did from the stimulus package, but no matter.
I’m for “less government” if they promise to “trim” him first.
grumpy realist
The whole “rent vs. own” comparison unfortunately leaves out the fact that in certain locations one might not be able to find property to rent at the same scale as one owns. Too many locations in the US seem to have rental property only at the cheap/college student/plastic linoleum end. Any upper-class rented stuff caters to peripatetic executives and similar–which unfortunately means expense account prices.
Xenos
@grumpy realist: People riding the bubble down are starting to rent some nice properties. There is a very nice five bedroom house in my town that is listed for $590,000 and has been sitting for months looking for a renter at $ 2,250 per month.
That price has to come down to match a proper multiple of the rent, but as long as the homeowner has hope, and the means to hold out, true market moving prices will not be realized.