“Steve, do you still think all these REDC bidders are first time buyers? they’re going to keep the home?”

I’m not sure who the buyers are. But apparently there are buyers out there. What I’ve heard reported on the news was that the auction in my area had about 400 homes and they all sold. The examples of the deals were around 50% of the bubble peak price.

There is allegedly a $7500 tax credit (that gets paid back $500/year for 15 years) and this is enticing some young firt time buyers, like a friend’s daughter, that I know are trying to buy.

I friend of mine who has bought and sold a lot of real estate and has been out of the market since early 2000, bought what he is calling a “flipper”. He bought it with a short sale, put some $$$ into it to upgrade it (heating system, new baths, paint, etc.) and he’s moved in. His time horizon is 3 to 5 years. He plans to grab the $250K tax free cap gain on this (his primary res). He’s also looking for really low priced condos that will give him immediate positive cash flow at 80% market rate rent. He found 1 after the bank’s own auction failed he went directly to the bank and threw them a very low-ball price and they took it.

“Not to mention that lots of these REDC flippers are not succesfull selling for the visualized profit”

If there are any real “flippers” out there right now at these REDC auctions, I’d suspect that they’re getting their heads handed to them. “Flipping” like my friend is doing – with some sweat equity upgrading – and a long time horizon, should work when the market comes back, especially if, like my friend, you get it for a very low price and it’s in a great location. It should work for him.

you said:

They are literally STEALING our childrens money to pay for their bloated pension plans and perks

I would like to correct you… it should be:

They are literally STEALING our childrens’s children’s children money to pay for their bloated pension plans and perks

Not to mention that lots of these REDC flippers are not succesfull selling for the visualized profit.. and keep changing/lowering their price.. some trying to sell just bellow their purchase price.. just to get out..not a pretty picture!

Are we seing a price bottom now? without these buyers? There must be lots of investors (aka speculators, oportunitists? buying at REDC.. and trying to turn around to sell for anywhere between 30K-600K profit.. all within 1 month).. .. this is not healthy for the market..is it?

Steve, do you still think all these REDC bidders are first time buyers? they’re going to keep the home?

I guess there are no rules in our model.. to tell someone.. hey you just bought, can’t turn around and sell! it’s a housing mess.. don’t you know? we don’t need another listing..

with exception that volume yoy (to feb 08) increase is 41.3% in February, versus 53.9% in January (yoy..to Jan 08) .. to me that looks like a decline in %..rather than doing better..as spring is starting.. anyone care to comment?

I suspect the percentage gain could drop in the next few months (compared with last year) versus January yoy’s gain.. and prices should then start droping again..

ex_owner

ex_owner

Mr Mortgage – Guide to the TRUTH!

Feb 20th 2009

- Jan CA Home Sales & Prices Plummet – Jan CA Home Sales Report p. 1 – p. 2

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Good morning,

I hope all is well. This report with a chart that I am unable to email will be posted in the Barry Ritholtz Café by Monday. Mr Mortgage

Jan CA home sales were released this morning from DataQuick. Typically the national Existing Home Sales number due out next week tracks this closely so I expect that to be significantly lower as well. The real estate associations will try to compare the results to 2008 and not Dec 2009 or previous January’s in order to pad the results.

CA Jan 2009 home sales fell 22.1% from Dec and were at the lowest level years. The median price hit $224k, down 10% from last month and 53% from the peak. 60.4% of total sales came from the foreclosure stock. This is now a categorical wipeout.

Next, is for the mid to upper end homes to follow in expeditious fashion accelerating the Alt-A, Pay Option, Jumbo Prime and Prime Implosion. This will make the ‘Subprime Implosion’ look like a walk in the park.

With rates slamming down in late November everyone assumed that home sales in January and beyond would up-tick as Dec contracts rolled through. This may be the first sign of proof that rates are not as important as ‘price’ when the majority of purchases come from the foreclosure stock in distressed regions.

People want a ‘deal’ on a house. In the bubble states where 60%+ of all sales come from the foreclosure stock and three exact properties within a one-mile radius can be listed for 15-20% apart — depending upon if the seller is a bank, servicer or individual and their required respective selling price – price being the driver vs. rate makes sense.

In the latest DataQuick report out this morning, they compare 09 to 08 showing a 52.9% up-tick, which is not a good comparison. This is because as most exotic loan programs went away in q3 and q4 2007 values were still near all-time highs. This immediately forced home sales down by 60% overnight — 08 is a very easy target to beat. As values declined some 50% at the median in 2008 and mortgage lending became more stable throughout the year, sales gradually increased. But sales are nowhere near as robust as they should be with low rates and values down as much as they are. In past years when total sales were much greater by count, organic sales were 98% of total sales – those were robust markets.

CA Home Sales – Previous January’s

Jan 04 = 47,138

Jan 05 = 42,300

Jan 06 = 38,937

Jan 07 = 32,425

Jan 08 = 19,145

Jan 09 = 29,458

Are we running out of buyers? Where will they come from? Homeownership going into this crisis was at an all-time high, credit is tight and the all-important market-moving move-up buyer is gone. Prices are falling so fast and rents closely behind that we could conceivably see a default and foreclosure crisis among investors who bought foreclosures too early thinking they were getting a good deal a year ago. The investor today can rent the home for much less than the one who bought nine-months ago putting pressure on past buyers.

CA Homes Sales and /Default Foreclosure Stats

Let’s analyze all moving parts of the CA housing market. In January, new loan defaults led the pack at 36,600. Then came total sales at 29,458. Of those, foreclosure-related sales were17,850.and the all-important organic sales came in near an all-time low of 11,600. There were 14,500 taken back as REO. Finally, a whopping 3k new homes were sold on the West Coast in January. Organic sales being at an all-time low shows home owners are trapped in their homes unable to sell – or at least unable to sell for the amount needed for the down payment now required for a purchase money loan. Move-up buyers have always been the largest segment of the real estate market and now they are not to be found.

What is significant is that loan defaults were once again greater in January than Total Sales. Total new inventory coming in the form of defaults and REO stood at 51k — 73% greater than total sales, 400% greater than organic sales and 200% greater than foreclosure-related sales.

I don’t think there is any argument as to why home prices are falling – they are too expensive relative to income and rents given today’s sensible lending standards. Additionally, supply is everywhere in the form of defaults, foreclosures and REO.

Supply Everywhere

Then there is the ‘pent-up’ organic supply that after a 53% fall in median home prices dwarfs all other forms of supply. Values fell so fast that organic sellers were taken out of the market before they had the time to fill out their sales agreement or hold and open house. As values fell below the price they needed in order to pay off their mortgage, get the down payment necessary for a new purchase with tighter underwriting guidelines etc, they pulled the listing from the MLS.

So on the way back up what do you think will happen? First of all, housing is down over 50% at the median so it has to increase 100% to ‘come back’. That won’t happen. If by any stroke of luck house prices were to pop 5-10% organic sellers that wanted to sell and who were flushed out of the market will re-list their property very quickly in order to ‘finally’ move. This ‘pent-up’ inventory will keep a lid on home prices for years.

Many will argue that the reason house prices are falling so fast is because the data are skewed to the lower end areas where most of the default and foreclosure have occurred. They may be right…so far. The higher-paper grade –high loan amount — loans are now defaulting to a much greater degree than Subprime and show no signs of easing up. Across the Alt-A, Pay Option, Jumbo Prime and Prime universes it looks like Subprime did in 2007. The ‘Subprime Implosion’ will repeat up the paper grades, incomes, and house prices. We are already seeing a significant house price compression from the upper end and rents falling fast.

This Spring/Summer selling season could very easily bring this all to a head. Banks, that have been holding on tight to much of their distressed note and REO inventory awaiting the big taxpayer bailout that would buy distressed assets for 100 cents on the dollar, may decide Obama’s plan was more of the same and bring a flood of inventory to the market right before the buyers show up in March. Those looking to buy this Spring/Summer should have a lot to choose from.

Have a super weekend!

Best Regards,

Mr Mortgage