December foreclosure activity in California commenced by recording a Notice of Default (NOD) dropped 32.5% on a daily average from the preceding month of November, as reported by Foreclosure Radar. This drop is attributable in part to seasonal slowness.
However, the number of NODs recorded for December 2009 is up more than 55% from the same period a year earlier. In contrast and seemingly counter-intuitively, real estate owned (REO) inventory for December 2009 was down 34% from December 2008, indicating that banks are taking longer to complete the foreclosure process. [For more information on the NOD/NOTS statistics, see the December 2009 Market Chart NODs and Trustee’s Deeds: Grim signs of real estate’s present condition]
Mortgage delinquencies are very much on the rise in California. Thus, the current dip in NOD recordings reflects a growing disparity between delinquencies and the much smaller number of NODs lenders are recording. This then stalls the appearance of REOs on the market.
first tuesday take: Lenders now seem to finally understand that it isn’t in their best interests to do what’s right to get an early real estate recovery underway in California so that we will have a stronger real estate market by the end of this new decade. They’ve taken to pulling the political strings behind the scenes to slow down the process of recording NODs and to delay releasing foreclosed properties (REOs) onto the MLS market, all at a deliberate snail’s pace in hopes of temporarily propping up real estate prices to hedge against ever bigger losses. This effectively extends the recovery in the hopes that prices will stay up — which of course they will not.
If all the properties they will eventually have to foreclose are allowed to hit the market as fast as the rising delinquencies indicate they should, prices will go down. That is the way the market works to clear out toxic assets and start lending to get this recovery underway.
This adverse market behavior is largely ignored by the federal government, who, up to this point, has only seen fit to do the equivalent of giving lenders a publically “stern talking to” (when they actually show up to listen) by urging loan modifications — a largely ineffective strategy, especially while the banks are making trillions of very cheap dollars available to lenders.
The government also has an interest in keeping foreclosure numbers low: a high number of foreclosures look bad when the country is supposed to be in recovery. The government is walking a stubbornly thin line: on one hand, it does not want to appear to do too little with so many homeowners in distress; on the other hand, it is unwilling to step up and force lenders’ hands by giving lenders the competition they need to get their upside-down portfolios corrected in the form of judicial cramdowns and private money lending opportunities. Both these Congressional efforts have been successfully stopped by lenders.
In the meanwhile, prospective homebuyers, willing and able to buy and occupy homes, are facing an artificially strong seller’s market. Between lenders playing their market games (which includes their refusal to discount to allow short sales to clear out dead, negative-equity inventory, an activity which drives REO prices up) and speculators snapping up the few properties that are available (only to later return them to the market at higher prices), would-be first time homebuyers are facing a relative dearth of affordable low-tier properties to purchase while tax credit subsidies are driving prices up. But at some point during the next two or three years, the lenders are going to have to foreclose on these delinquent loans. Only then will future homebuyers get their revenge on speculators, and quite likely at prices lower than today’s. Gold bugs have different thoughts on the dollar and pricing of hard assets.
Thus, the standstill continues, and full recovery of the California real estate market is put off a few more years. This adversely affects the effectiveness of real estate brokers and their agents, and definitely reduces their income from fees that would result from the sales which could be made now if lenders would foreclose. Foreclosures are necessary to clear the market place of properties held by insolvent owners and the increasing number of negative equity owners whose strategy is to default, a risk the lenders themselves have created by delaying foreclosures.
Of course, prices would drop in the process of clearing the market. The federal and state tax credits were handy, but will be viewed as an artificial jump in sales to individuals who would have bought anyway during the next year and now have, and at prices some will come to regret. [For more information on the affect speculators have on the other players in the real estate market, see the January 2010 first tuesday article Homebuyer beware: the real estate game lacks fair play]
Re: December 2009 CA Foreclosure Report from Foreclosure Radar
I don’t take too much issue with the article by Giang Hoang-Burdette except that it omits the effect of a jobs recovery and associated employment/unemployment factors, which are regional as well as interest rate effects. As Silicon Valley recovers jobs, and as the stock market recovers, the price of homes in the area will recover. Buyer’s who avoid buying now, while interest rates are down, and waiting for another bottom, may find themselves paying higher interest and effectively more for homes! The Fed has said they will stop buying mortgage backed securities come 2nd quarter, presumable driving rates up. Who really cares if prices decrease a bit more if teh overall effect is a higher payment because of interest?
I also disagree with Keith Morrison’s statement that “problem with the foreclosures is not the fault of the banks”. The banks and their hybrid mortgage backed securities are the specific cause of the foreclsoure crisis. Everybody could get a loan from them, which they packaged and sold for profit, in increasingly risky combinations until the breaking point was reached. It accelerated for 5 years with 1/3 of all sales in the few years before it hit the wall going for non-owner occupied properties. That demand drove up prices unreasonably. That was the Bush Administration allowing lax oversite of the banks and FANNIE/Freddie- pretending there would be no consequences. The current adminstration is aggressively exploring options. The solution is jobs!
The problem with the foreclosures is not the fault of the banks! The problem lies are the hart of the matter- CONGRESS and FANNIE MAE (which is nothing more than another entity of the OBAMA ADMINISTRATION!).
What was stated is correct about cleaning up the matter. The problem is, the current administration does not want to and as long as the current attitude lies in the belief of controlling the economy instead of letting the economy run it’s own natural course, the economy will not get better!
The author is correct in the assumption that the real estate market will not improve until the end of this decade!
What does the future hold? That depends on the State of the Union Address and how much of a tax increase that we will be facing. Example would be what happened in 1933 after F.D.R. passed the highest tax increase in U.S. history at that point in time thereby causing unemployment to increase from 15% to over 25% and the Great Depression to begin!
The pending tax increases in the Cap and Trade Bill and the Health Care bill will cause at least 5 million to become unemployed within the first 6 months of signing and the HEALTH CARE BILL won’t even become laaw for at least 4 years after the law is signed! However, there will be 3 solid years of tax increases before the bill even takes effect.