By Michael Olenick, creator of NASTIACO, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data
Every day a growing crescendo of housing cheerleaders posit the end of the foreclosure crisis. We’re flipping our way out of the mess that we flipped ourselves into, is their usual line of reasoning. I’ve looked at national data, local data, and even data on my own block here in Florida. I tried to make the evidence prove the market has found a genuine, sustainable bottom. There are clearly gimmicks giving a temporary boost, a great PR campaign that may or may not be coordinated, and some foreclosure flippers that may do well, until they don’t. But the evidence is overwhelming: home prices are anything but stable.
For background, a chorus of the same people that created the housing crisis have been predicting a housing bottom every year or so. They’ve always been right for anywhere from a few days to a few months, then the cycle of foreclosures and lowered home values restarts and causes prices to spiral downwards. This time though, especially in certain micro-markets, there does seem to be measured home price appreciation.
Two trends are apparent. One is that banks are delaying foreclosures, or not foreclosing at all despite long-term delinquencies. The other is that private equity firms – flush with cash thanks to Tim Geithner’s religious devotion to trickle-down economics and the resulting cascade of corporate welfare – have been bidding up and holding foreclosed houses off the market. These two factors have artificially limited supply and, combined with cheap mortgages rates, driven up prices. While we can debate whether these strategies represent the best public policy, these policies are obviously not long-term sustainable.
Using data from the Office of the Comptroller of the Currency’s Mortgage Metrics Report, the percentage of seriously delinquent mortgages was 4.8%, 6.5%, 4.8%, and 4.5% in Q1, 2009-2012 respectively. Foreclosures should follow delinquencies somewhat – a vector of non-payment is supposed to lead to a foreclosure – but, at least according to the OCC, this has not been happening. Delinquency rates slowly fell a little but foreclosure activity dropped through the floor. Stranger still, delinquency rates predictably rise and fall in measured movements whereas foreclosure filing volume gyrates wildly.
In Q1, 2009 there was a .2% quarterly change in the delinquency rate, from 4.6% to 4.8%, yet a 41.1% spike in foreclosures, from 262,691 to 370,567 (presumably the OCC reports only for the last month in the quarter or the filing volumes make no sense). Similarly, in Q1, 2010, there was .6% decrease in the delinquency rate resulting in an 18.4% bump in foreclosure filings. These non-correlations then reversed. In Q1, 2011 there was a .6% decrease in the delinquency rate but a -11.4% decrease in the foreclosure rate, and in Q1, 2012, a -.5% in the delinquency rate with a -1.8% decrease in the foreclosure filing rate.
Putting this in perspective the lowest change in the delinquency rate was a .6% decrease, and the highest a 1.1% increase, whereas the lowest change in the foreclosure rate was a -21.1% decrease and the highest a 85.7% increase. So delinquencies barely budge but foreclosure volumes wildly spike then drop.
Lenders argue the drop in foreclosures is caused by delays in the court system. However, Judge Jennifer D. Bailey, lead foreclosure judge in Miami-Dade County – epicenter of the foreclosure crisis – solidly rebuts that argument. “Here in Miami-Dade County’s Eleventh Circuit, there has been no delay in foreclosure case hearings for nearly two years,” Judge Bailey said in an Aug. 19, 2012 interview with the Miami Herald. “If you want to see a judge to hear your trial or summary judgment, you get a prompt court date.” This coincides with my own observations in foreclosure court, where judges rail at bank lawyers for repeatedly delaying their cases, even when borrowers are in no way contesting their foreclosures.
Holding back inventory means that the houses that are put on offer sell faster and at higher prices. That creates an incentive to delay foreclosures or not foreclose at all even when a home is delinquent. Though this seems obvious, the mainstream housing finance community – aided by a freelance “housing analyst,” – uses the faster figures to somehow prove banks are not holding houses. “In 2007, lenders needed a median of 10 months to sell a house they’d just foreclosed on,” reads a report “Fears recede of second crash from ‘shadow inventory,'” by Eric Wolff, published Aug. 28, 2012 in the San Diego/Riverside North County Times. “By 2008, they needed a median of six months. At the end of 2011, they’d reduced that median to four months in North San Diego and Southwest Riverside counties. An article addressing shadow inventory, that does not once use the word delinquencies, is the type of trick the cheerleaders use to drive speculators wild.
Besides lower foreclosure activity, the government is going all out to give away houses to private equity firms. Recently Fannie Mae sold 275 properties across metro Phoenix in one sale to a mystery buyer, according to a report by Catherine Reagor of the Arizon Republic. All Fannie disclosed is the buyer is an LLC, which Fannie apparently helped create, based at 135 N. Los Robles Ave., in Pasadena, CA. Google shows that is the US address of EastWest Bank, a bank whose tagline is “Your Financial Bridge,” presumably between Asian money and Phoenix real estate. Fannie’s decision to sell Phoenix to Asian investors keeps 275 houses off the local market, which drives up prices for Phoenix homes people intend to actually live in, rather than flip. (Update: Nick Timiraos points out by e-mail that Fannie’s address in Pasadena is the same as EastWest’s, and Bloomberg has reported that Colony is the buyer. But this still raises the question of why Fannie cooperate with what appears to be an effort to hide the identity of the buyer. California, a high tax state, does not look as if it was chosen for the domicile of the LLC for tax reasons).
Anybody who has been a landlord seems to quickly tire of it so, assuming there isn’t a pending planned mass immigration to Phoenix, these investors will eventually want to cash out by selling these houses. Further, they will want to minimize maintenance expenses while they are renting out these houses, so the eventual sale of these houses will increase supply and prolong the housing crisis. Geithner’s policy of shaking down Main Street to help Wall Street continues to hurt your street.
Taking account of the delayed foreclosures and the beginning of mass purchases of houses would mean there should be a surge in home prices, but we’re still seeing little movement in many areas. This is especially puzzling given how inexpensive mortgage are. Let’s look at a typical Florida home and assume that a $400,000 loan was required in 2007, whereas a $200,000 loan is required now due to depreciation. In August, 2007, the average 30-year interest rate was 6.6% so the P&I payment would be $2,554.64. Today the interest rate for a 30-year fixed mortgage is about 3.8%, so the payment on a $200,000 loan – same house, it just cost lots less – is $931.91, 64% less. Since taxes are based on the value of the property these would also be lower, leading to a much lower monthly mortgage payment.
Of course, this assumes that people can get mortgages for these houses, though many can’t. Young people especially are hopelessly in debt thanks to out-of-control tuition hikes predictably caused by equally out-of-control student loan policies. Some owe the same or more for overpriced degrees than they would for a house. So payment streams that should be flowing into communities are instead flowing, at high interest rates despite low risk, into banks. Further, the GSE’s decision to “punish” people who defaulted by prohibiting them from buying a home again for years, regardless of the reason for the default, keeps otherwise creditworthy borrowers out of the system. Consider the case of a person who paid their mortgage for years while parking a reasonable amount of savings into a medium-risk mutual fund. Thanks to the financial crisis they lose both their job, their savings, and their house. But eventually they find a new job, work there for a year or two, and the value of their portfolio returns. I think it is fair to question whether they are really a serious credit risk, unless there is another financial catastrophe, in which case everybody is a serious credit risk.
New home sales figures give us additional insight in the so-called housing recovery. From June, 2010 to June, 2012, the median number of months to sell a new house was 7.9, 6.7, and 8 months respectively, according to data compiled jointly by the Census and HUD. While the number of homes sold went up slightly, from 28,000 sold last June to 33,000 this June, there are 144,000 new homes for sale. It seems reasonable to believe that if the demand for houses is real – if there really are no existing homes for sale – then demand for new homes would have spiked, but that isn’t the case. However, new houses are obviously are more difficult to flip, because somebody can just buy their own new house next door, suggesting that increased demand for existing homes is due to speculation.
Further out anecdotal, yet interesting evidence, also exists: television shows. Spike TV announced that they have purchased a second season of Flip Men, a show about two men who flip foreclosures. Enough public interest in foreclosure flipping to justify a reincarnation of Flip This House, which ran from 2005 (cough) to 2009, suggests a speculation bubble is brewing. Interestingly, one of the two flippers, Doug Clark, told the Wall Street Journal there are fewer houses at foreclosure auction now than in 2004. I’ve reached out to their publicists for clarification of whether he meant fewer houses they are able to purchase, at prices enabling a profitable flip, or fewer houses total. If there are fewer total houses at local auctions now than in 2004 – when the availability of a pulse-loans meant that anybody could easily refinance a house to delay a foreclosure – something is clearly amiss.
Finally there is shadow inventory, a figure that is either so small it is meaningless, as housing cheerleaders seem to believe, or the end of the world as we know it daunting, which I believe is more accurate.
I’d like to make a strong prediction but trying to gain credible insight into housing and foreclosure information is difficult because the industry, including and especially Fannie Mae and Freddie Mac, continue to hoard housing data. We can’t measure what we can’t see, and thanks to murky and inconsistent housing data all we really know is that there is a lot we don’t really know.
To illustrate how bad some housing data is I’ll refer to a three-part series written by Nick Timaros of the Wall Street Journal, which ran Aug. 14-16, arguing that shadow inventory does not matter. Embedded is a graph showing the total number of vacant properties nationwide, sourced from Freddie Mac. Freddie’s graph does show a steep recent decline in vacant properties, but at the upper end it never crosses the two million unit mark in its twelve-year history. That is, according to Freddie Mac’s Office of the Chief Economist there were never more than two million vacant properties nationwide.
In contrast, the 2010 US Census reports 10.3 million vacant housing units, after backing out the 4.6 million seasonal houses. Two million empties – a figure Freddie argues we never reached – is far less than 10 million, the figure the far more objective census reports. Even the OCC data I cited above is suspect, since they report the same number of outstanding first mortgages in Q1, 2009 as Q1, 2010, which seems impossible to believe given the number of foreclosures and tighter credit standards.
Thanks to low lower foreclosures, real-estate speculators buying in bulk, and low interest rates there is enough direct and anecdotal evidence to suggest that we may be seeing a real-estate recovery on paper. Further, these policies are clearly calibrated to bring about a bubble, despite that bubbles are difficult to control and are not, by definition, sustainable: they always eventually pop. Let’s at least hope that when this bubble bursts the new Wall Street bulk buyers are treated with the same ruthless “free market” vigor that the prior owners of these houses were treated with after the last bubble burst. However, I doubt the mystery Asian money buyer, that Fannie sold Phoenix to, will ever be subject to something like the rocket docket.
I was under the impression from our masters that the housing bottom had been reached in the USA and that its all smelling of roses in the garden again.
As such, one is obviously shocked that Mr. Olenick puts a fox amongst the chickens by claiming the US has a housing problem and that the nadir has yet to be reached.
Evidently team Obama will have him in their crosshairs for being a malcontent and communist.
I’m off to read the Daily Kos – that fountain of truth and responsibility – ever heard of ‘responsible reportage’!!!!!!!!!!!!!!!!!!!!!!!!!!
For anyone with no other debt, a secure job, and cash for a 20% down payment, it is a great time to buy a house if you don’t mind being surrounded by renters and delinquent squatters and decaying empty houses. This suggests that perhaps 10% of those who don’t already own a house qualify to buy one, and most of them are too smart to fall for propaganda about a housing bottom and too careful to sign up for a potential black hole, even at prices that would have been a bargain eight or nine years ago. You can’t expect a housing market to thrive independently of an expanding real economy. Today’s housing market consists of speculators hoping to gouge rent and flip in two or three years. The smartest guy I know is moving in this direction and I expect he will make a bundle. I think it’s safer to gamble in the stock market.
Like many a savvy investor, your waiting for QE III, which will no doubt only be implemented once the Euro goes tits up, hence all the bets on the Euro going tits up.
As for purchasing a home presently, they do seem reasonably priced in some US districts, especially when compared to property prices in the UK.
That said, have ventured across the US Continent only a few weeks ago, most of the housing stock I noticed was certainly not desirable – indeed, hailing from a small town of less than 10,000 persons, one was shocked that the suburbs seem like soulless deserts – no shops within walking distance, no pubs for people to enjoy themselves and an abundance of Churches – hence, neither the inner cities or gated communities appeal to me – although, Asia’s Dr. Doom suggests now is a good time to invest in property in small US communities to avoid the coming conflagration – one which will come sooner if Romney is elected.
Here’s to Jill Stein,one of only a handful of serious politicians in the US.
Hear, hear! And, thanks for using the phrase “tits up,” as it always makes me laugh (in a British way.)
Its like their is an infinite amount of data that the house selling industry is nothing but hype
One small point – the idea that low interest rates are a unalloyed good for house buyers. This is true until they become house sellers, and interest rates may be much higher, making the monthly house payment considerably less afordable.
Although not quite within the ambit of this article, the effects of falling property tax receipts are clearly part and parcel of the housing bust. Locally, several public projects have been delayed or shelved pending ‘recovery’ of tax shortfalls.
By propping up housing values, the bait and switch going on also helps local governing bodies to delay the dreaded day when funds run out. Couple that with constant ‘austerity’ cuts to federal ‘matching funds’ and grants, and you have a perfect storm of state and local bankruptcies coming at you. People, at least those of us who imagined ourselves to be ‘solid middle class citizens,’ don’t know what trouble is yet.
The backlash from the presently quiescent ‘silent majority’ will be great, and frightening. I think I’ll hunt up my copy of “Grapes of Wrath” and give it another read.
I thought the address “135 North Los Robles” sounded familiar.
Check out THIS google image of 135 North Los Robles Avenue in Pasadena, CA 91101. (Change the words “dot” to actual dots ;-) ) :
(Notice the shorter signage–to the left of the East West Bank signage–well, whaddya know! It’s Fannie Mae’s Western Regional Office!)
Oh! And look! The convenience of it all–at the very SAME address–135 North Los Robles Avenue, “Local Junk Removal Pasadena!”
(And make sure to check out the “Local Junk Removal Pasadena” company’s “Gallery” on their website. Very special.)
Hmmmm….I bet Fannie Mae wouldn’t like these optics.
Perhaps a new slogan is in order for Fannie Mae: “At Fannie Mae–we’ll not only take your home from you–we’ll take your “stuff,” too!”
“After your American Dream has been destroyed–Fannie Mae’s there to make a buck. And guess what? We’ve even got a truck!”
Now I need to go busy myself with the writing of a new Fannie Mae advertising jingle. Let’s see now….I need a word that rhymes with “buck” and “truck”…….
Thanks Pearl! I’ve asked Yves to update the post. It’s the same address, they must share a building with the bank. Doesn’t really change anything, or explain why Fannie didn’t hasn’t disclosed the buyers (they say they will any day now; I don’t know why they didn’t before a sale though because it adds to public distrust, which is already sky-high). Come to think of it why would Fannie create an LLC for a group of buyers: it seems like the buyers be doing their own corporate structure if they don’t already have one. Also, why would they domicile it in CA, where there are some of the highest taxes and regulations in the country? I could see if it were a group of CA houses, or if their primary HQ was there, or if they received a tax or regulatory benefit, but none of those are the case.
@Michael, I used to live on Los Robles many years ago, so I was just curious because I had never heard of that bank. (I moved out of CA, however, a long time ago–so this is understandable.)
But, anyway, I was just wondering if “East West Bank” had eaten up some old California bank, because it lists a lot of branches in CA. Apparently, it did–it ate up UCB when the FDIC was spitting it out back in 2009. Per this old LA Times article, East West Bank has a hard-to-come-by Chinese banking license, due its 2007 acquisition of a Shanghai-based bank.
(Replace “dot” with real dot.)
I don’t know if there are any conclusions to be drawn from that info or not. But I still think it’s weird that East West Bank’s headquarters are located at the same address as the Western Region offices for Fannie Mae. The building at 135 Los Robles is a relatively small building.
One explanation might be that East West Bank just came up upon the Googling because they are in the same building. I just glanced at the AZ Republic article that you referenced–and I wonder if it’s just plain ole Fannie Mae acting as buyer and seller. Because East West Bank says they are on the 7th floor, but this old floor plan of Fannie Mae’s Western Region HQ there on Los Robles has them occupying the 4th floor. (And the “Mystery buyer” is on the 4th floor of 135 Los Robles.)
Here’s an architect’s floor plan from when Fannie Mae remodeled that particular office space:
But, because of your reference to “Bridge”–coincidentally or not–I was able to pull up this organization, which has as its Director of Development, a man who used to work at Fannie Mae’s Western Regional Office in Pasadena. (Philip Williams.)
The organization is apparently into something I had never heard of before–“urban infill.” I Wikipedia’d “urban infill,” and it sounds like it would be a plausible thing to do, for example, in some of the really poverty-stricken areas of Atlanta where poor people were targeted by financial predators for the purpose of selling loans and condos that were both made to fall apart.
Ya know–here in GA–it’s very conceivable that 275 of 275 condo-owners could have been victims of illegal and fraudulent foreclosure. You really could imagine a scenario for 275 homeowners of a single address (i.e. an entire condo complex) to be legally deserving of a brand new place to live. (To replace real property that was taken from them fraudulently/illegally.)
But if they end up bulldozing some of those blighted places and putting up nice buildings for the same people to live in–this is a scenario that could actually make me happy. (As long as the folks who get the new places are the same folks who were screwed out of their old places.)
No yuppies or “investors” with thoughts of “regentrification” allowed.
This Philip Williams guy, apparently, attended UC Berkeley, which is an awesome school because my daughter graduated from there. :-) And because of Robert Reich. (btw, Go Bears!)
I dunno, Michael. Every piece of news on the foreclosure front is staggeringly horrifying to me. But maybe this Fannie Mae selling of 275 homes in Phoenix will ultimately have a happy ending?
I know. I’m probably on a chocolate high–I’m officially hallucinating ideas of wrongs being righted.
Gawd, I really need a new hobby.
And as homes fall into the hands of a few, tax appraisal appeals are on the rise.
Oops messed up the “reply” thing again. Sorry, ambrit.
Michael–my reply above was meant for you. :-)
I guess I’m going for a trifecta of oopses today.
That first link should have read “businesses” (plural). Like this:
(Don’t forget to change both “dots” in the address to actual dots.)
Little weak on research here – no mention of short sales. Foreclosures have slowed down just about everywhere, but mostly as a result of the courts requiring stricter documentation. A fair amount of the foreclosure slowdown has been offset by a dramatic increase in short sales.
Short sales are tied to foreclosures and delinquencies. In a prior post I went over a lot of that data. Substantial mods, making the loans sustainable, are probably making a bigger difference lately at making a substantive dent in shadows than anything else. The OCC reports a downward trend on mods but their latest report only goes through Q1, 2012 and — based on investor reports — I think the AG settlement has bumped up the level of mods since then.
What happens to that $200,000 home if interest rates rise by 1% ? The home price would have to fall for people to afford the same payment.
If anything causes interest rates to rise, it will be the beginning of the end of this government sponsored game, because home prices across the land, and equity positions, will vaporize.
Clouded title every where…MERS NIGHTMARE…those who venture out and purchase a foreclosed home have no idea who owns it. ‘Sub-Servicers’ do not own homes and can no longer illeagally foreclose. Fraud is on 90% of mortgage documents…Oh did I mention’loan modifications’ that were illegally approved?
Until some serious criminal prosecutions against these servicers there will be no ‘bottom’.
This has ruined millions of American’s lives. Who can find a job when they’ve been evicted from their home…many of whom were current…FIND OUT WHO REALLY OWNS YOU SECURITZED LOAN1!
Sorry about typo’s…everyone should check your PSA’s…many of them are phantom assignments…you don’t need an attorney to do your research.
As always, who actually holds your note????????
One the problem that was not alluded to by Michael Olenick is that housing production has fallen off the rails. I believe that only about 450-500K homes are being built this year, as contrasted to about a the normal production of about 2.5 to 3 million houses a year. That would account for part of the increase in prices in certain/limited markets. The rest of the price increase is of course due to the witholding of inventory by the banks, some Hamp assistance, cheap money being provided by the Fed-Treasury to housing-investment speculators, etc. that Olenick alludes to.
Just look at Wisconsin’s recent governor’s election. We in the progressive community made the same mistake there that Olenick is making. That is the fallacy of over-estimating the progressive community’s strength. The capitalist system through market and media manipulation will, likely, ram this “shadow” inventory in a trickle down fashion down our throats, especially given that there are too many gullible and uninformed people out there in good old USA. Don’t under-estimate Geithner and Bernanke clones in the next administration be it Red or Blue, even though the real demand is likely to shallow.
Its not that you over estimated the strength of the progressive community in the case of the Wisconsin Governor recall election. First, many people don’t buy a recall. Secondly, the Democratic establishment fought the efforts tooth and nail, and finally, the same Democratic establishment has aggressively dismembered party structure and chased out actual party enthusiasts.
Obama campaign offices are deserted compared to 2008, but they are deserted compared to 2006 coordinated campaigns too. Plenty of people are just flat out done with the Democrats or at least done doing the work which actually wins elections, making people vote. Waving signs doesn’t get people to the polls even if one claps really loudly, and if the so-called progressive community wants to get the people who actually did the organizing work, they need to get out their phones and beg those people to come back and demand their Democratic leadership behave.
The most well-positioned seller is the one with the free and clear mortgage paid prior to the shenigans post 1997….that buyer can expect to pay through the nose for the comforting quiet title
In re Phoenix; Have you looked and population growth and job growth? Apparently not.
Glad to see that someone is really analyzing data and not just simply repeating what the large self interested governmental and professional institiutions are reporting. The beauty of your post and the subsequent comments that I have read is that whether your interpretation is correct or not, it reminds me to be very circumspect when looking at economic reports and trends.
Olenick posts are always strange. He focuses on his “real time” data, but cites really old and stale Occ data. He really doesn’t discuss any of the recent home price index reports, or discusss the huge decline in the inventory of homes for sale, only a relatively small % reflects declines in the number of reo for sale; though the number of REO for sale has fallen a lot.
One last post; Olenick trashes folks using recent data; cites old data; keeps changing what he tracks; has no clue as to what is going on; Net: he should go back to making badges. Survey says; 98% agree
Don’t rightly know why Olenick is so sensitive to any criticams, or why he attacks certain folks. But let’s be nice; it’s been a terrible year for Olenick; his forecast for 2012 has been way off, and that happens to many forecasters. It could be related to his data, or it could be related to his poor analysis of data. But hey; this is a guy with no track record, so … ooops!
Tom Lawler, as Olenick says, it is difficult to get hold of correct data. Couple that with what the Obama Gov’t is doing, IE, shoring up the housing market, I think it is difficult to predict anything. Prehaps the only constant prediction is that the Gov’t will keep “meddling” to keep house prices high.
Eventually, house prices will fall in line with earnings as they have done for hundreds of years. Generally around 3 times the borrowers salary. Nowhere near the exponential amoumts borrowed when the bubble was being inflated.
History of 10 years ago seems to be repeating itself, though I would guess it is, as Olenick suggests unsustainable.
I’m afraid Romney will just just the can down the road, they are all good at that…In fact, I am terrified every time that guy opens his mouth!