Tuesday, March 25, 2008

WSJ: Wave of Foreclosures Drives Prices Lower, Lures Buyers

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I really should read the Wall Street Journal front page before posting since they basically summarized my earlier thoughts on the housing numbers [Home Prices Fall 11.4%]. Now the open question is... we only have the beginning wave of foreclosures hitting the market. What happens when those who have been treading water, get kicked out in the next 3-6 months? And then what about the wave after them (vintage 2006-2007) gets kicked out in 12-15 months? This is why I think we have a lot of inventory coming online and prices still have a long way to go down... BUT again...that will be bullish (not necessarily for home owners, but for potential buyers). And get those mortgage bonds stabilized - although by then they will be owned by the government one way or the other.... (so it will be a moot point)

Keep in mind, this was off yesterday's "bullish" numbers which showed inventories coming in "below analysts expectations" but still up a whopping amount year over year. Already over 10% of all "for sale" homes are bank owned. And the bottom line is banks don't have the emotional attachment to homes and stubbornness to seek "what they deserve" in prices like a homeowner who still thinks 2006 prices are around the corner - so prices will be forced down. Just as more inventory continues to flood in...
  • A glut of foreclosed homes of historic proportions is starting to drive down U.S. home prices faster as lenders put more properties on the market and buyers show signs of interest.
  • The ability of America's lenders to manage this fire sale will be crucial to determining how long the housing market stays in the dumps -- and how quickly blighted neighborhoods can heal. The oversupply is severe: In some major markets, including Las Vegas and San Diego, foreclosure-related sales have accounted for more than 40% of all sales in recent months.
  • On Monday, new data suggested that pressures like these are starting to drive prices low enough to attract some buyers back into the market. Sales of previously occupied homes jumped 2.9% in February from the month before, the National Association of Realtors said, the first increase since July. The median price dropped 8.2% from a year earlier to $195,900, the biggest drop recorded by the Realtors in the current slump.
  • In some beaten-down markets, the price cuts have been stark. The Detroit Board of Realtors recently found that home sales in the city (excluding suburbs) in the first two months of this year jumped 48% from a year earlier, to 1,540. The average home price there sank 54% to about $22,000. (now you see why I am biased by my local news coverage and circumstances - it's ugly here, but this is the inner inner city - the suburbs are suffering quite starkly as well)
  • Banks and others holding foreclosed property have concluded "we've got to move things" and are finally willing to slash prices, says Thomas Lawler, a housing economist in Leesburg, Va. The supply is piling up fast. Overall, the total number of lender-owned homes doubled last year but sales grew only 4.4%.
  • At the same time, the specialist firms that sell foreclosed homes for lenders say banks are sending them additional properties much faster than they can be sold. "They're coming in [at a rate of] two new properties for every sale," said Claudia Smith, vice president of operations for First American REO Outsourcing, which is handling roughly 8,000 foreclosed homes for lenders.
  • First American CoreLogic, a research firm based in Santa Ana, Calif., that collects data from lenders and county clerks, estimates that foreclosed properties held by lenders accounted for 493,000 of all homes on the market in January, up from 231,000 a year before. Properties like these represent roughly one of nine currently listed for sale nationwide, compared with a one-in-15 ratio a year earlier.
  • The overabundance of foreclosed homes in the market is likely to push down home prices in much of the country for the next several years, says Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm in Cleveland. (I thought the bull market in housing starts "in 6 months"?)
  • A recent Credit Suisse report projects that average home prices have another 40% to fall in the Miami metropolitan area, 36% in Phoenix, 26% in Los Angeles and 20% in Las Vegas if they are to become more in line with income levels.
  • Another hurdle is that the lenders responsible for selling the homes don't own all of them. That's because many mortgages are sold to investors in the form of securities; therefore, the investors in those securities actually own the homes. The trust agreements that create securities like these require lenders to show that they are getting the best price possible for the homes. That makes it tough to cut deals with potential buyers seeking huge discounts.

Again, I'll eagerly report to you the housing boom coming "in 6 months" in the blog - as all my Wall Street friends keep insisting will happen... ;) They just never tell me which "6 months" they are referring to.


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