Mr Mortgage: May CA Home Sales Report – Housing Market Worsening

Posted on June 19th, 2008 in Mr Mortgage's Personal Opinions/Research

DataQuick just released its May CA Home Sales report“more homes sold,” which on the surface looks great! But the true numbers were far from it. Although more homes sold, inventory is rising and conditions are worsening. Also, please see the YouTube version of this post if you’d rather listen than read. Just make sure you rate it high, I work for stars!

If you back out REO-related sales, the picture is especially bleak with banks taking back 4500 more homes than sold “organically” (an organic sale is a transaction between two private parties and not a home that came from the foreclosure stock). In order to get a handle on the inventory, true burn-rate and market in general, you have to track and separate every piece of the market, which I have done in the CA Housing Market Chart at bottom of the page.

When you look at all of the “parts” of the market, you discover that the CA housing market is at a stand-still and has been all year. In June, only 8,193 homes were taken out of inventory. Year-to-date only 29,759, or 5,352 per month, have been taken out. The numbers are not good. Similar stats can be found in other foreclosure-heavy states nationally.

One would hope that with the number of REO sales increasing and prices continuing to drop, sales would have been up much stronger in the month of May, a peak month for CA housing sales. They were essentially flat.

With the rate of acceleration of shadow inventory, sales need to double from here in order to chew through the inventory already in the “listed” channel and bring the “month’s supply” figures down to the 10-11 months that is thought to be accurate for CA.

In the month of May, the key stats are:

  • 33,024 total sales; up 5.7% over April’s 31,150 but the slowest May since 1995
  • 12,648 foreclosure resales; up 7.15% from last month and 700% from one-year ago.
  • 38.4% of total sales were foreclosure resales; up about 1% from last month.
  • 20,376 “organic” sales (total sales less foreclosure resales)
  • $339k median price; down 4.3% in a single month and a whopping 29.96% in one year. Prices are gravitating towards the most readily avail financing, Agency <=$417 conforming.
  • 43,301 new Notice-of-Defaults, which will result in 34,650 new foreclosures months 4-5 from now.
  • 24,831 homes went back to the bank as REO (shadow inventory)
  • 5,352 units left inventory (total sales less new bank REO)

In addition, in the past 4-months, 167k new notices-of-default were filed. If 80% turn into REO, an average of 33,500 homes per month will be taken back by the banks in the next four months, which is more than sales have been since August of last year.

Next Thursday, we get the NAR Existing Home Sales Report, which may show a similar headline…”Existing Home Sales Rise.” The stock market likes to get all hot and bothered over this number. But, unless you look at all the data and take it into context, the number is deceiving. With all of the data in hand, it is obvious the market is worsening.

Of the total sales, 38.4% (12,648) were foreclosure resales. Most of this is bank shadow inventory. These homes are typically not listed so they do not show up in the inventory estimates. They are typically sold through real estate agents or large auction aggregators such as the Real Estate Disposition Corp (REDC). Bank REO sales are counted in the monthly Existing Home Sales, which is deceiving. When you compare year-over-year sales, last year foreclosure resales were only about 5% of total sales. It is an apples-to-oranges comparison.

This continues to verify what I have been saying for months, that “the foreclosure market is the real estate market and the banks are the market makers.”

This shadow inventory is being sold at massive discounts to the note amount and recent comparable sales in any given neighborhood and pose the real threat to home prices across the nation. All over the country, neighborhoods are being marked-to-market overnight due to shadow inventory being dumped that was never shown as part of the listed housing stock in the first place.

It is a real problem when the headline sales number is growing and according to the MLS the supply is shrinking, but in reality the true inventory is not falling due to the bank REO growing faster.

This is the first Spring/Summer selling season in five years without a full menu of “exotic/affordable” loan programs to drive affordability. You may think that as prices fall, more homes will sell and that will solve the inventory problem. That is not totally correct. As prices fall, more homes sell but more homeowners are thrown into a negative equity position. This leads to more defaults and even more Bank REO. It is a vicious cycle. Negative-equity is now known to be the leading cause of loan default.

In summary, in May there were 33,024 total sales of which 12,648 were foreclosure resale’s leaving only 20,376 organic sales. This is a multi-decade low for May. There were 24,831 homes for $10.4 billion that went back to banks and 43,301 new notices-of-default. The new NOD’s will bring about 34,650 new homes that go back to the bank as shadow inventory 4-5 months from now. In the past 4-months, 167k notices-of-default were filed, meaning 133,500 homes will go back to the bank as shadow inventory in the next 5-months, which is more per month than monthly sales have been in the past year. The median price dropped once again to $339k and stands 29.96% below its 2007 all-time price peak. Finally, only 5,532 total homes left the inventory pool given how many homes came back to banks vs. total sales. To cap it off, none of these figures include most FSBO or home builder inventory.

If sales do grow and the number of foreclosure sales continues to grow as a percentage of total sales, where does this leave Joe and Jane Homeowner and the Builders?

If sales do not grow and foreclosure sales continue to grow as a percentage of total sales like we are seeing right now, we have the makings of an absolute meltdown on our hands. -Best Mr Mortgage




Record-Breaking CA May Foreclosure Report

CA Housing Stats, The Real Story…4.25-years Supply?!?

Record-Breaking CA April Foreclosure Report

April CA Home Sales Rise, But Not As Fast As Inventories

ALT-A Disaster Looming – Know the Facts!

38 Responses to “Mr Mortgage: May CA Home Sales Report – Housing Market Worsening”

  1. check this out

    the future for Ginnie Maes isn’t looking so good

  2. “As prices fall, more homes sell but more homeowners are thrown into a negative equity position. ”

    Which begs the question, when does it end?

    Theoretically, it is a never ending cycle if you are negative equity. Dump your house, and buy the one right next to you for 20% less. And do it again, in your wife’s name. I guess there is a limited number of times you could do this.

    There is just not a single positive out there except falling prices. Positive only in the sense that it is making homes more affordable.

  3. Article over at Yahoo Finance on the FBI’s Operation Malicious Mortgage stated:

    “The most common type of mortgage fraud was misstatement of income or assets, followed by forged documents, inflated appraisals and misrepresentation of a buyer’s intent to occupy a property as a primary residence.”

    That last statemet about “intent to occupy” should send a shiver up the spine of the failed flippers out there contemplating walking away. As I’ve stated before, IMOHO, the law enforcement agencies will be used as a stick to threaten those that lied on their applications from thinking that they can game the system. I expect to see a few dozen high profile prosecutions of Joe Sixpack house flippers to make the point.

  4. They can’t do anything about white-lie fraud. If they opened that can, they would have to arrest half of America.

  5. I am just glad to see something happening here. The Ameriquest-type brokerages that forged w2’s, asset statements, and paystubs will hopefully be next. I can’t tell you how many deals I lost to these brokers who told borrowers they could full-doc qualify them after I’d seen their statements and stubs. I lost a few to flippers because I wouldn’t give them owner-occ pricing as well. I know all of these scumbag brokers were losing money, but I said a year ago I felt like a lot of these places were shuttting their doors becasue they new the FBI’s mortgage fraud unit was going to ramp-up. Mr. M is right….the over-stated income and owner-occ flippers will never be brought to justice. There are probably 30% or more of home loans out there that fall under these categories. I am sure every LO in the world over-stated the income of more than a few self-employed borrowers. I did. How else to you qualify a restaurant owner with an $900k mortage, an Aston-Martin, a Range Rover, 2 kids at private school and a personal federal tax return showing $35K a year gross adjusted income? The problems are big, and the biggest might be our tax code, and the stupidity of the IRS.

  6. They will make a nice parade like today and say “You see crime doesn’t pay.”, put in prison a couple of guys, and then ?, business as usual. Did it change after ENRON and Tyco ? 🙂 🙂 🙂 No, no and no no no. It became worse !

  7. I am tellin ya, the ‘pay option implosion’ is going to make the subprime implosion look like a good thing.

  8. […] More Mr. Mortgage fun. […]

  9. admin Said:
    June 19th, 2008 9:55 pm
    I am tellin ya, the ‘pay option implosion’ is going to make the subprime implosion look like a good thing.

    Absolutely, because sub-prime loans were mostly conforming amounts….so many pay-options were jumbos, and up to the millions…and they were sold as stated income and non-owner friendly. The dollars lost by the banks and investors would HAVE to be exponential compared to the subprime mess.

  10. Has anyone projected what happens (nationally and regionally) if house prices revert to pre-Bubble levels – say 1997? How many mortgages will be ‘upside down’, what will be the total balance and what will that do to inventory levels? Anyone watching the ‘Reverse Mortgages’ trend? If the unemployment rate keeps rising to 10% and income levels drop correspondingly, how much further will house prices have to fall before ‘traditional’ ratios are reached? – let’s say for a 1% interest rate. What will that do to property tax receipts and municipalities budgets? Where will the budget cuts be made and how will that impact public sector employment? How many illegal alien burger flippers, gardeners, social workers and Homeland Security airport friskers can the ‘New’ service economy support? Will PhDs and mainstream economists have to conduct protest marches in DC to get those plum jobs held by illegal aliens? Perhaps they will supply the ‘New Deal’ sweat to rebuild America’s broken infrastructure? Anyone tracking credit card debt and defaults? Truth be told?

    At what point in time and total national indebtedness do we cross the Event Horizon of the American economy’s Black Hole? What sort of Singularity is anyone predicting when we finally disappear into the drain? Now there’s a bunch of ‘meaningful’ questions!

  11. Patience is a virtue.

    It will be ending when either two things happen. The house prices fall enough to be affordable for the average buyer. I think the affordability becomes evident when it becomes cheaper to buy than to rent. Historically I think that buying a house is a bargain when you buy it at 3 times your earnings. What was it in California 12 times at the peak. And now it is at 7 or 8 ? No bargain here for the average Joe.

    A miracle could happen but don’t count it. The average earnings of workers could goes up. 🙂 🙂 The West is going down the drain at that level. In Canada, where we are supposed to be rich (What damn federal lie!) revenues are stragnant or even declining for the last 15 years. I presume it must be the same in the US. Let’s assume that another -25% is necessary.

  12. You will soon be able to thank Israel in the USA but also in the rest of the world for global economic depression. If ever Israel bombs Iran, oil is going to 400$. Thanks a lot the boys and gals in New-York. Yeah I am quite tired by the right wing facist in power in Israel. This action is stupid. It won’t solve anything and it will solidify the rage of Arabs against the West. Anyways the US as all the West is toast.

  13. Median prices in California now down -30% in may.
    There is at least another -20 or -25% coming. But hey who knows ? At 400$ a barrel and an economic induced israeli bombing by Iran and oil fields, the price may go down another -50%. Get ready to stay ultra liquid, ultra gold, silver, oil in Alberta. Ger ready for a lot of body bags coming from Bagdad and Bassorah to. It’s all related. Oil at 140$ is accelerating mass bank bankruptcies.,0,4339043.story?

  14. Wow this is bad, really bad. The International Monetary Fund now has almost ordered the FED to raise interests rates. What a vicious cycle. Higher inflation, Higher oil, Higher debts, Higher taxes (absolutely !), Lower salaries, Vanishing jobs. I don’t see a happy ending.

    “But if household expenses are rising, such as higher prices for gasoline, where is the money coming from?” he says. “People coming after mortgages today don’t have as much disposable income.”

    The rise in mortgage rates also affects a key factor in assessing a bank loan: the applicant’s debt-to-income ratio. Pulling out a loan application for a $295,000 refinancing, Matthew Graham, a mortgage broker for Excalibur Inc. in Portland, Ore., says a mortgage rate of 6 percent would result in a debt-to-income ratio of 43 percent for that client. But with mortgage rates now closer to 7 percent, the ratio for his client shoots up to 46 percent because the debt portion of the loan has increased.

    “Now, instead of financing $295,000, the client can only do $265,000 – a $30,000 decrease according to the underwriting guidelines,” says Mr. Graham, who is also a columnist for “In a worst-case scenario, he can’t refinance to pay off the mortgage and has to go into foreclosure.”

    The rate increases come as delinquencies and foreclosures continue to rise.

  15. Consumer discretionnary stocks are falling like a rock today. Big big losses at Ford Credit Unit.
    The stock is down – 7%. It’s all related.
    Citigroup down 6 %. It’s not just Alt-A, it’s also consumer credit that is going down the drain. “The environnement stinks.’ CEO of Citigroup.

  16. Banks are in HUGE trouble. Wells Fargo, Countrywide, etc. will not work with borrowers because work with one and well you will be forced to work with all. And each case equals a lose for the bank – which they deserve in every way for propogating this PONZI SCHEME.

    I live in CA and the ALT-A will make subprimes problems look tiny.

    Has anyone heard or know more about the proposed idea of taking current value of a home cut it to 85% and getting an FHA loan in that amount with the original lender taking a lose on the note?

  17. Keep an eye on Freddie and Fannie – they must be getting KILLED as the housing situation continues to unravel. Will they have the available capital to guarantee anything else?

  18. Please correct the REO as % of Organic Sales for MAR,APR & MAY 2008. THEY ARE NOT CALCULATED CORRECTLY.

  19. More videos, more videos! This things getting crazy!

  20. Holy jeepers Batman, the banks are screwing up the markets again today.

    Meanwhile, us in the real world, started smelling the camel in the tent before the lights were turned on. I want to see a nice orderly disposal of perma-bulls before I cover my positions.

    How could the permaIdiots not understand that borrowing and buying were two-thirds of our economy … yet there they were telling everyone to buy. Thanks, Fu*kfaces!

    Much more pain to come.

  21. Bankers don’t really care. It’s not their money. It’s yours. I expect the US dollar going down again and again and again. The FED doesn’t want to hike interest rates. Expect 20% real inflation next year. By the way worker’s earnings will not be going up 20%. Bye bye GM and bye bye Ford. And bye bye all companies that have too much debt.

  22. WHOOOOOOOOOOOOOOOOOOOOOOOOOO…….Think crime rates are going to start going up? job loses, severe debt, inablilty to afford basic necessities, medical insurance unaffordable, increases in everything is going to put too big a strain on our citizens and a lot will have to do more just to get by.

    I think its time for a revolution! Why should some have too much money and so many have not even enough to get by? Think about it….most of the rich never really earned their money through hard HONEST work.

  23. Well at least, they could pay just a little bit more income taxes. Taxes don’t kill you. We pay a lot of taxes in Canada and Euroepe. Nobody is dead. Cars are a little bit smaller. Houses are a little bit smaller. But you don’t go bankrupt if you catch cancer. Clinton was right on one thing in the US. The health care system in the US is a scandal. OECD average is 7% of GDP and in the US because of lawyers and insurance companies, it’s 15% ! This is crazy. You have a lot of learning in the US to do from others.

  24. IT ISN”T about learning…..the US knows what should be done. The problem is GREED…big business in in bed with American politics and secret deals, swaps, favors are done endlessly. How would CEO’s of United Health Care etc. make over $100MM a year?

    Did you people know that Hillary Clinton helped the Credit Card companies “so did Bush” by passing legislation to allow Credit Card companies to hike fee’s to 30% rates. Oh and who was Bush’s biggest campaign contributor in 2000, that little company called MBNA.

  25. Mike, you are right, my husband and I are very worried about a rise in crime rates, within our area already there is an increase in people steeling copper, from churches, vacant retail space, etc. What is next, will someone with a full grocery cart be a target in the parking lot….could that happen? maybe?

    Marc A., sure you have health care in canada, do you have a primary care doctor? My sister in law says she has called at least 25 “all full” No new patients accepted, Dr.’s are leaving Quebec in numbers. Can you get routine cancer, cholesteral, blood pressure, colonoscopy screenings without having to go private or wait at the clinic for 8 hours? My husband’s best friend in Canada has no doctor for his children, Their Dr. dropped them, because they were “too healthy” . If they get an ear infection, strep, they can go to the clinic, and wait….forever, my sister in law has had no health screenings in over 5 years,another sister in law finally went private becasue she was worried to find they she does have some issues to take care of. My mother in law’s boyfriend was put on a waiting list for prostate cancer, until so frustrated had to go private. Another brother in law (lol my husband is the youngest of 8) with a very serious illness had to borrow money from family for his medicine because the govt. cut back on his medicine, he had to pay over $700 month, back in 1995! I will agree we have a health care crisis in the U.S., but you have one in Canada too…why do you pay the taxes you do? For health care?, but why is it so darn hard to access?…20 years ago, you did not pay a co-pay, why do you now? why do so many companies in Canada now offer additional health care as a benefit…..and finally, why did my brother in law making 50K canadian never have the ability to buy a decent car (under 10 years old), pay off his tax debt, and finally began to refuse “over time” pay, because it was always eaten up in taxes….have they all lied to me?….We need some kind of health care reform in this country, we could never handle Canadian or British Socialized medicine we have way too many people! From what I see Canada is buckling under that pressure as well. There is no easy answer, but just saying it is better in Canada is not exactly how it is either. 🙂

    c’est quoi de nouveau?

  26. My wife and I bought in San Diego in 1999 and cashed out in the summer of 2005. My question is; when does everyone think the market in California, Arizona and Nevada will bottom out? We’re hoping to sit on our capital a while and then pay cash for a home. The thought of no mortgage is very attractive.

  27. These articles and comments are mostly skewed toward those speculators who bought real estate when it was (and as it still is) above 3 times annual earnings of the buyer.

    Most real estate in California should be around $200,000 considering that most managers and executives hover in the $60-80K salary range. Homes in Pleasantville near SF could have a premium and be $350,000 while homes out in Antioch or towards Sacramento can be $150,000…but the average needs to be $200,000: people need to be able to decide how much they want to pay extra not to have to commute so far.

    And yet…the last article I read showed that homes in Antioch are at $400,000 even right now. Renting downtown San Francisco is cheaper. Rents in the Bay Area average about $900 per month.

    Prices for homes need to drop by half again before the market is corrected.

  28. Want to know what I think about doctors. They stink.
    Stinking corporatist bastards not just in Quebec but in America too. The government has plenty of competent and experienced foreign doctors wanting to practice, but this crime syndicate,restricts intentionnally any new admissions or permits. F&?$in mobsters. Nope. I have no sympathy for this sophisticated type of mafia called AMA.

    They are still well paid. I read that in Louisiana they had the same problems there, because of the lawsuits against doctors. Your health care system still stinks in the USA evil-A.

    There is something completely screwed up in the USA. I know of no other country that spends 14 to 16% of its GDP in health care.It’s crazy and it’s one the main cause that companies like GM and Ford are going bankrupt.

    As for the accessibily problem you can thank our right wing governments in Ottawa. It’s not just a Quebec problem might I remind. I have family living in New-Foundland and they have the same problems. The problem is mostly a demographic one in Canada and in the West; not enough babies.

  29. @Petersen

    Give me a break: Rent in the bay area is $900/mo? Avg exec salary $60-80k? Maybe in the 80s. Those are not credible numbers.

  30. “Failed States; Mexico and California.”

    The ressemblance is troubling indeed.
    “Hasta la vista baby.” Total Recall.

  31. News from the United Kingdom.

    15 sellers for 1 buyer.

  32. […] Mr Mortgage: May CA Home Sales Report – Housing Market Worsening […]

  33. […] For more on real estate, here is an interesting post from Mr Mortgage on the real estate landscape in California: HERE […]

  34. […] foreclosure sales, which means ‘organic’ sales actually decreased. I cover this concept in my Monthly Home Sales Report. As a matter of fact, Data Quick reported that 38% of last month’s total CA existing home sales […]

  35. […] Mr Mortgage: May CA Home Sales Report – Conditions Worsening […]

  36. […] The amount of ‘non-listed’ bank REO, or shadow inventory, is staggering. In my most recent May CA Home Sales Report, I have a chart that identifies the actual inventory burn rate and calculates a more accurate […]

  37. […] Mr Mortgage: May CA Home Sales Report – Conditions Worsening […]

  38. […] Mr Mortgage: May CA Home Sales Report – Conditions Worsening […]

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>