California Housing's Less Bad Bad News

Linked here is the April sales report from the California Association of Realtors. The big news is that the state has now had two months of increases in the median sales price.

The median price for April was 36.5% lower than for April 2008. This is the first time in 9 months that the YoY price decline was less than 40%. Kind of like less bad bad news. The number of sales was 49% higher than a year ago and the available inventory was at 4.6 months.

With good-credit homeowners tempted to “buy and bail”, (buy a low priced home with a smaller, low interest mortgage, then walk away from their current high balance/high payment mortgage) now is the time for bankers to make some serious attempts to modify their troubled mortgages. Making concessions to lower rates, payments and have most of the mortgage payments go to principal seems to make more sense than spending ten of thousands of dollars to foreclose then lose 30% to 50% on the sale of the home.

Bankers should offer the same concessions to all of their mortgage holders, so those who are trying to save their credit get some benefit also. It seems to me that these steps would work to restart the whole real estate system and all parties would benefit in the long run. But when was the last time a banker did something smart for the long run?

Comments

[tobi:]

The median price is a double edged sword. Now that most of the subprime has been foreclosed the foreclosures walk up the ladder to more solid borrowers that now have lost their job or part of their income. Of course if more higher prized houses are foreclosed or put on the market the median price moves up, so I would see it as a contrarian indicator that more trouble is ahead.

May 31 07:23 AM

[Trane250:]

Question: How can a distressed homeowner obtain a mortgage on another home while he is still making payments on the house he's living in? Sounds like a new twist on the "great California real estate game." "Buy and bail," indeed.

May 31 10:52 AM

[Fighting Yoda:]

Sobering news:
Delinquencies and Foreclosures Continue to Climb in Latest MBA National Delinquency Survey May 28, 2009

The seasonally adjusted rate is the highest in the MBA’s records going back to 1972 and the unadjusted rate is the highest recorded in the first quarter of any year back to 1972.

“What has not changed, however, is the oversized impact of California, Florida, Arizona and Nevada in driving up the national numbers. Those states continue to account for about 46 percent of the foreclosure starts in the country, and represented 56 percent of the increase in foreclosure starts, including half of the increase in prime fixed-rate foreclosure starts.
“It is difficult to overstate the severe impact home price declines have had on mortgage performance in those four states. 10.6 percent of the mortgages in Florida are now somewhere in the process of foreclosure. In Nevada it is 7.8 percent, Arizona 5.6 percent and California 5.2 percent. "

MBA is suggesting worse of sub prime is likely over, now we are going to start the foreclosure on Alt-A and prime loans - a much larger market.
"Prime fixed-rate loans now represent the largest share of new foreclosures. In addition, almost half of the overall increase in foreclosure starts we saw in the first quarter was due to the increase in prime fixed-rate loans."

Jun 01 02:56 AM

[cadoggy:]

I don't understand why the coming wave of Option ARMs and Alt-A foreclosures is not getting any attention in the mainstream media (except for 60 minutes whom I respect greatly).

The banks sure understand it. That's why they're still hoarding cash and trying to pay back TARP asap. They don't want the gub'ment telling them what to do with the million dollar homes that they will soon be repossessing.

Jun 01 01:18 PM

[Mad Hedge F...:]

Theres still more bad news. Sadly, once again, my home state of California is threatening to commit suicide. The formerly Golden State officially runs out of cash in 50 days, and our body building governator, Arnold Schwarzenegger, refuses to borrow any more until the legislature delivers $24 billion in spending cuts. Standard & Poor’s has placed it on Credit Watch, and premiums for credit default swaps on the state’s debt have already spiked back up to 300 bp. I got a letter today from Robert Birgeneau, Chancellor of the University of California at Berkeley, where my son goes to school, telling me that his budget shortfall has just leapt from $67 million to $145 million, and that tuition is going up 9.3%, while staff wages will be cut by 8%, and financial aid will be chopped to the bone. And this is the place we are counting on to deliver the scientists, engineers, and professionals who are supposed to keep us globally competitive. Pleas to Obama for a bailout have already been brushed aside, like a pesky fly. He rightly sees us as an alcoholic friend asking to buy him just one last drink. A default would be no joke, as California accounts for 15% of US GDP, and ranks as the world’s eighth largest economy. Few realize that the state is home to the country’s second highest per capita payers of tax revenue into Treasury coffers, after New York (Sarah Palin’s Alaska is the lowest). Hardly a day goes by without banner headlines about closing state parks, cancelling local sports programs, or freezing payments to mothers with dependent children. In fact, most state residents now prefer the Sacramento government to go bust in order to bring a speedier resolution. There is only one possible solution. A new governor holds a constitutional convention to reduce the vote to pass a budget from two thirds to 50%, or a statewide voter initiative accomplishes the same. Maybe ex Ebay CEO Meg Whitman, who will run for Arnold’s job next year, can pull this off?

Jun 16 11:33 PM

[PhillyDan:]

Good comments on the "state of what is going wrong in California". Will disagree with you on Meg Whitman as next Governor though. Although, the jury is still out on who from either party would be able to get California going again. There are many changes that are required in the California State Government in addition to changing the number of votes required to pass the budget. I for one am tired of voter initiatives. I'm for no more voter initiatives. You elect representatives to do the job of coming up with solutions and getting them enacted into law. If you don't like what they are doing, you vote them out in the next election. Voter initiatives have created "set spending" that is no longer sustainable. It creates too many interest groups on the left and right who in my opinion come up with half-baked solutions based on ideology, self serving interests, etc.
We need to realize that not all taxes are bad. If we want reasonable services like education, infrastructure, and other necessary services we need to be willing to pay for them either by taxation or higher fees. You cannot have your cake and eat it too.
An example is education: The State Government wants to cut spending on education. But, parents/teachers come out of the woodwork and oppose the cost reductions. Teachers are unwilling to take pay cuts or cuts in benefits; parents are unwilling to pay more taxes to fund the education they want their children to have. As a semi-company (that I worked for) used to say to customers: "You can have three choices, you pick two, we pick the other (Price, Delivery, and Quantity)." In this example, the three choices are quality education (less children per classroom/more teachers, etc.), no spending cuts for education, or more taxes to pay for quality education.

I do agree that a constitutional convention should be held to restructure how the California Government runs and to reestablish what the State Government should be responsible for doing vs. local governing bodies. What tax structure both Corporate and individual is needed to support the priority needs at the same time making sure that California is set up to be competitive in attracting businesses to the State not just based on the great climate but more on providing a much better environment for business.

Jun 17 12:58 PM