Evidence That End of Housing Price Collapse Is Not Far Off

It is still too early to call a bottom in housing. However, it is not too early to begin looking for an end to the collapse in housing prices.

And we are seeing evidence that the end is not far off. As the Wall Street Journal notes this (Thursday) morning, bidding wars are emerging for foreclosed properties.

Falling home prices are starting to ignite bidding wars in a few parts of the U.S. as first-time buyers compete with investors for the same foreclosed properties.

In most of the nation, the supply of unsold homes continues to swamp demand. Home prices in many markets continue to fall, and foreclosures, which slowed in late 2008 as mortgage companies delayed taking action against delinquent borrowers, are picking up again.

But real-estate brokers say multiple offers on certain homes have recently become more common in parts of California and Arizona and the Washington, D.C., and Minneapolis-St. Paul metropolitan areas.

January saw a 1% rise in home prices. This is the first time since 2007 when home prices have risen two months in a row. Not something to get all giddy over of course, but a slight improvement nonetheless.

The Wall Street Journal's quarterly survey of 28 major metro areas shows that there is still a glut of homes available in most markets. But the glut has shrunk, and some areas are running into shortages of moderately priced homes in middle-class neighborhoods. ...

Across the nation, there is still a tug of war between bullish and bearish forces. On the bullish side, falling prices and the lowest mortgage rates since the 1950s have made homes far more affordable, luring shoppers like Ms. Leonard, who has been renting for years. Adding to the attraction, the U.S. government is offering tax credits for certain people who buy homes before Dec. 1. The credit -- equal to 10% of the purchase price, up to a maximum of $8,000 -- is available to buyers who haven't owned any other primary residence in the U.S. during the three years before the date of purchase.

On the bearish side, rising unemployment has knocked many people out of the housing market and made those who still have jobs skittish. Even those with secure jobs who want to buy can't always get loans on attractive terms because of today's tightened credit standards.

Critics will contend that the sales merely represent banks blowing out their inventories and the sales do not represent underlying health of the economy.

That misses the point. Before the economy can really start to improve, banks have to get rid of their inventory. Clearing out their inventory allows banks to free up capital which then can be used to lend to more profitable endeavors. The process also facilitates price discovery where home prices clear. Such activities are building blocks for the eventual recovery.

Comments

[Tricky:]

On the positive side -- I am starting to see multiple offers on foreclosed homes here in TX, where we didn't have as big a boom/bust cycle.

On the negative side -- the trouble with AltA and prime mortgages may be only beginning and could potentially be larger than the subprime losses were?

Apr 23 11:07 AM

[Leftfield:]

Is there enough blood in the streets yet? With all the publicized events waiting in the wings, like alt-a, commercial real estate, credit cards, public pensions, unemployment, no discernible catalyst for new industries and jobs, Wall St. sucking our blood, one could conclude Armageddon is possible. More bad stuff could happen, like, Eastern Europe is set for likely collapse. War. Or, this is the time to invest.

I don't see it, though. With real estate, property taxes can be devastating, and relief is hardly in sight with public sector pay and pensions at stake. That bargain property can be considered a cash cow by government.

Apr 23 11:36 AM

[ArkansasAngie:]

Housing will not led us out of this recession.

The FEDury's soft landing is consuming time and as we all know -- time is money.

In the case of companies that are on one or more bankruptcy lists time is really expensive. They're losing more and more each day.

It is also making possible problems in AltA, prime mortgages and commercial real estate more probable.

I wish it would bottom, but I don't see it happening any time soon.

Apr 23 12:31 PM

[Jimmy K:]

bidding wars on foreclosed properties can be easily explained. say banks have thousands of foreclosures to sell, they put 10 on the market, holding back the others... get a few suckers bid up the falling knife before repeating with the next batch. don't believe me? There is a home 5 doors down, has been empty and foreclosed for over 6 months. not on mls, no sign, nothing... they must be waiting for the right time to list it...

Apr 23 12:59 PM

[conceptwizard:]

The banks are definitly manipulating the market. I think it is prudent to peel back a layer and don't always look at the government charts and media.
In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory." ("Banks aren't Selling Many Foreclosed Homes" SF Gate)

If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They'd also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 "disappeared" homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is underwater.
Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season...Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days....The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium."

Apr 23 01:12 PM

[1 of 4:]

He3re In Orange County, CA, they're reporting consecutive month-over-month price increases in housing. Not so for inland Riverside and San Bernadino. Still, it's the early sign of a bottom. Coastal properties are most desirable and recover the quickest. Least desirable is the stuff much further inland. That's where people who could not afford coastal bought. That stuff is still spiraling downward.

Apr 23 02:04 PM

[Charles Lie...:]

Yes, housing appears to be bottoming by every measured metric available. Existing homes sales have been about flat for six months. In select markets, bidding has erupted for lower priced homes. (This can only happen because these are the best "values" so that's what the buyers or speculators want to buy first.) Inventories of existing homes are down more than 20% since July 2008. Inventories of unsold new homes have declined for the past 18 months and are now below the average of the past couple of decades (despite a larger population). See my article on Seeking Alpha seekingalpha.com/artic... for a far more detailed analysis of the data that suggests the bottom of the housing cycle should be evident within the next few months.

Arguments suggesting that the housing market will go down much further on descriptions of things happening, like foreclosures, bankruptcies, a weak economy, and such, all of which might happen, but need not happen and are not always supported by the actual data. Foreclosures, however, do not create net incremental housing supply. That displaced family typically moved into a rental, thereby adding one unit to the market inventory, but also removing a unit from inventory.

Apr 23 02:34 PM

[Chris B:]

Interesting conspiracy theory. My question is, how would hundreds of "the banks" all cooperate and agree not to sell their foreclosed houses - maybe for years? What if just one bank refused to cooperate, and sold all their foreclosures? Would the others keep paying insurance and taxes on the properties just for the sake of the conspiracy?

Not even OPEC can manage to keep its handful of members from cheating on oil production levels. Why would an illegal cartel of competing banks and mortgage companies be any more successful?



On Apr 23 01:12 PM conceptwizard wrote:

"The banks are definitly manipulating the market. "

"If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They'd also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. "

Apr 23 05:08 PM

[HardwoodFlo...:]

Toro- all this info is a little dated? no?

One might think that current numbers are a bit skewed because of the JUMBO loan factor. It's almost impossible to get a JUMBO now and all the banks want to write are FHA loans ($400K and below). There is talk of the FED raising the FHA line to $750K- this will dramatically change the "housing price" statistics going forward so watch out for that. What I mean is when that goes into effect, you will see a spike in prices.

The other thing that makes these numbers a bit erroniuos is the fact that what is selling are "distressed" sales. People who don't have to sell or move aren't. They are staying in their homes not wanting to "move" because they don't have to. So the remodel industry is getting strong again right now. Interestingly, becasue of the sited "home price declines" they are not doing these projects with home equity loans but, rather, with cash.

Anyway, look out for when the FED raises the FHA loan cap to $750K. Then prices will spike. But don't read to much into it, becasue it won't be indicative of a stronger market- except on paper- the reality is that prices will prob. to remain relatively stagnent for years on existing homes.

New homes will be something very different in the future. They will be built by smaller builders with a higher cost per squarefoot but the square footage will go down as "McMansion" become a thing of the past. The cost will go up as people become more "design" orentated and "green" building gains popularity.

Charles- your information is excellent and people seeking objectivity should really check it out.

In terms of the "bank sales" they are the ones blowing out sales at $.40 on the dollar in Miami and other places. I don't buy the shadow inventory conspiracy. I also think that employment is an issue as who wants to movewith an uncertainty hanging over them. The idea, however, that unemplyment will make foreclosures go through the roof is not looking hard at the data. There is another consiracy theory out there that there is some "HUGE" arm rest about to happen that is going to create another wave. This too is not supported by facts.

The housing data will get incrementally better over the next six months. When there is a full recovery however, don't expect it to look anythign like the past. It will be back to teh future as far as housing is concerned. That's jsut fine with me. Who needs PULTE TOLL et al. Who needs McMansions and the rest...

Apr 23 05:33 PM

[D. McHattie:]

I honestly wonder what world some of these real estate cheerleaders live in.

The fundamentals of real estate prices are incomes and rents and these are both still too low relative to real estate prices. Incomes and rents are not rising so real estate prices MUST continue to fall.

End of story.

Apr 23 07:18 PM

[Riley Brock:]

“Mortgages are not done. The story last year was "Subprime." This year's will be "ALT-A", "Option ARMs" and so-called "Prime". The Fed and Treasury know this, which is why they are playing games with "agency" debt in a desperate attempt to clear this market before the ticking nuclear devices go off. The amount of debt involved in these "bad deals" is vastly higher than that in the "subprime" space and if they fail to contain it (a near certainty) Round #2 of severe bank instability gets served up on us in the second half of 2009.”

Mortgage Meltdown...13 minute video of what is coming (it is not good).

www.cbsnews.com/video/...

Monthly Mortgage Rate Resets 2007-2016 Chart

consumerist.com/340334...

The housing bubble is clearly in a bull trap.

Main Stages In A Bubble

5.media.tumblr.com/1q4...

Apr 24 12:58 PM

[theseanman:]

They did it on the way up, why not on the way down as well?


On Apr 23 05:08 PM Chris B wrote:

> Interesting conspiracy theory. My question is, how would hundreds
> of "the banks" all cooperate and agree not to sell their foreclosed
> houses - maybe for years? What if just one bank refused to cooperate,
> and sold all their foreclosures? Would the others keep paying insurance
> and taxes on the properties just for the sake of the conspiracy?
>
>
> Not even OPEC can manage to keep its handful of members from cheating
> on oil production levels. Why would an illegal cartel of competing
> banks and mortgage companies be any more successful?
>
>
> "The banks are definitly manipulating the market. "
>
> "If regulators were deployed to the banks that are keeping foreclosed
> homes off the market, they would probably find that the banks are
> actually servicing the mortgages on a monthly basis to conceal the
> extent of their losses. They'd also find that the banks are trying
> to keep housing prices artificially high to avoid heftier losses
> that would put them out of business. "

Apr 24 09:02 PM