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Distressed Inventory Report 1-2-10

As we discussed last week things are pretty much in a holding pattern. Trustee Sales will not start occurring again until this Friday, January 8^th, so you will probably see the number of foreclosed homes drift down for the next two or three weeks. Remember it takes two to three weeks for the Trustee’s Deed to record and get in this report. That is why in some areas you are seeing the amount of overall distressed inventory going down but the  NTS/ Foreclosure ratio is edging up. That is because there is not much new foreclosed inventory coming on.  I expect you will start seeing the amount of foreclosed inventory edging up by the end of the month as the Trustee Deeds are recorded for the sales which resume this Friday. The big issue is if sales will pick up enough to offset the anticipated new foreclosed inventory.

Here is the link for the spreadsheet: Bellevue Foreclosure Report 1-2-10

Tags: Distressed Inventory, Foreclosed, notice of trustee sale, NTS/Foreclosed, report, Weekly
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2010 Major Issues

Well here goes the post where I put my foot in my mouth and make some predictions. All of the comments are purely my own speculation and are based on events that I see on the ground or are from my own personal antidotal experience.  So beware, this is a little off the wall.  

1. This is not a Cycle it is a Shift – The United States will be dealing with shifting from the post WWII consumer economy to a new model in the future. I see our economy going to an innovative knowledge based economy in which we obtain our prosperity in the next 50 years by supplying the information and technical infrastructure to the developing countries; in particular China, Brazil and India. These countries in turn will begin developing their own consumer economies. Brazil is well on its way and China is resisting the trend but has no choice since we can’t be the consumers anymore and India has many problems to overcome but in the last decade has started the process.  Personally I see this in play in our local market. Many sellers are those who have been laid off or were part of the consumer economy; real estate agents, laid off financial service workers and executives, down sized retail workers and executives. The buyers are from those economies that are doing well. The cell phone companies, Google, Microsoft, Amazon, etc. There is no reason to see this trend stop. The question is how do we redeploy these workers that were based on the consumer economy? I am not sure and the big story will be what happens to these folks as they have tied a knot and hung on. Their resources are dwindling and the job opportunities for them are non-existent. At some point this situation needs to get resolved so the issue will be for 2010 how does this effect inventory and pricing. The story for 2008 was subprime, 2009 was the prime borrower going into foreclosure because of job loss and 2010 will be what happens to that sector of the economy based on consumer goods such as autos and houses redeploy workers. If it can’t be turned around the foreclosure rate will remain high but instead of the massive wave it will be a slow water torture as folks who have had the resources to hang on deplete them. Personally I think you will see the auto and housing industries return domestically to volume levels of only two thirds of their 2006 and 2007 highs.  This has profound long term implications.

2. There is a “Shift” in individual values – I see this all of the time. The “new economy”, buyer has a choice and that is to save and invest or to buy. A house is a top priority for many of these thirty somethings and they will buy what they need and will spend the money only if they can get a home at a price that is “obvious” value and serves their family needs. There are two hits here to the market overall. The first is that this buyer views a home as a some what discretionary item. Unless they get the deal they want they will sit tight and rent or remodel what they have. The second hit is that these buyers are “lifestyle buyers”. They are buying a home for a particular cycle in their life. Again many of these thirty somethings are looking at the home as a place to raise their family and do not consider moving even when they are upwardly mobile in their organizations. In addition most of these buyers are buying the home in anticipation of living in it till the mortgage is paid off. Again this trend has profound implications for home volumes overall and will be one of the key factors holding down long term demand for new homes. The big story here for 2010 is that sellers and home builders will be stymied because the normal cycle of inventory reduction and then increased demand goes out the window when you have the buyer demand being discretionary and hard to predict. 

3. There will be “alternate” unit creation – Again I see this antidotally. Some of the first time buyers, particularly those that are single, look at taking in room renters as a form of extra income; particularly in urban condominiums. This is a trend not seen since the Thirties. In general this can be a way of dealing with the declining salaries and wages in the consumer sector but also is more of a long term trend. You even see shows on HGTV that directly address this trend and the economics of a quicker pay down on your mortgage. Again profound implications for both new housing and apartment units.

4. Growth will stay stuck at 2 to 3 percent GDP and unemployment will be stuck at 10%.  In most recoveries things snap back much more quickly as credit becomes available and companies rehire but this time things will be different for the reasons discussed above because of the “shift” occurring in the economy and the consumer segment of the economy remaining in a semi-depression. These trends will be offset by the high growth rates of the “new economy”.

5. The Eastside will make the national news for its prosperity.   While condominiums will have a tough time selling all of the office space is leased. Thanks mainly to Microsoft and its subcontractors. The phone companies on the I-90 corridor are expanding and adding new jobs as well as other companies such as Google and Amazon. While they may be consolidating operations overall from other locations and the press overall will not be that great the implications for the Eastside will be significant but for the reasons discussed above these employment gains won’t necessarily translate into the usual rebound associated with other cycles. However it will mean that distressed inventory will be picked up in a timely manner and inventories should remain stable or shrink somewhat. It will also mean most of the “deals” will be gone by the end of 2010.

6. The Government will be withdrawing the stimulus money. The fed has about $300 billion left to buy mortgages and it will also be looking for TARP pay back by those banks such as CITI, Bank of America and GMAC. In order to replace this money rates will need to rise to attract other sources of funds. There is no long term plans for either direct stimulus or tax cuts to assist the overall economy. The only initiatives being proposed are those which tax jobs and will further encourage offshore outsourcing and promote disincentives to domestic employment. This is again another reason the unemployment rate will remain high and the economic growth sluggish.

7. Locally foreclosures will rise the first half of the year. There are three factors which I see are contributing to this speculation. The first is that lenders have been floating foreclosures as they come to terms with the new requirements having to do with requiring the lenders to contact the borrower to see if there is an alternative to foreclosure. Statutorily this means 30 days has been added to the process but in reality it is a whole new layer of complication for the servicers who actually do the foreclosures. However they are getting their processes in place and you will see volumes rise. In July of 2009 prior to the enactment of the law there was a spike in foreclosures to avoid having to deal with this requirement. Now they are getting geared up for that back log which will be coming to the market. The second factor effecting foreclosures is that locally you will see some major state charted banks taken over or merged. This has two implications of forcing more product on the market but also for the Eastside many of these workers and executives live here and it will force distressed inventory on the market.  The third factor will be those who folks who have been hanging on may come to face reality as they find slim to no employment opportunities in the old consumer economy. In addition there are resets on a bunch of option arms occurring for the next two years which will contribute to the problem.

8. The inflation bogey will stay at bay for 2010. In order to have inflation you need to have money circulating, ie. being spent. That is not happening. The inflation now is occurring through a debased dollar and some rising commodity prices.  This trend of corrosive inflation will continue but wholesale inflation at the domestic level should be subdued. If you see spending increasing and banks extending easy credit again then the trend may reverse but for inflation money needs to be available.  

9. Rates will rise but not as much as everyone thinks. The effects of a rising dollar will cause the stock market to unwind and be very detrimental for those sectors of the “new economy” that are functioning from exports. It will make earnings go down. The effect of raising rates will make our dollar shoot up since other economies are in worse shape and dependent on ours. The Europeans do not want to see this since they already have very high debts and unemployment and floating their bonds will cost more.  The Chinese will have no choice other than to keep buying our bonds unless they want to burst their own bubble. In addition the 2010 elections will be coming up and I doubt any Democrat wants a slowing economy as they go into the med-terms.

10. Locally inventories will rise in the spring and prices will rise in the fall.  For the reasons discussed inventories will rise in the spring but will be reduced as prices stay soft and buyers stay opportunistic. Prices will firm up and maybe even rise somewhat in fall as distressed inventories finally start to show a significant decline and new construction inventory is fully depleted. Non-distressed sellers will refuse to bring homes to the market until prices rise and 2010 will end in a stand off as buyers demand the values of the past and the sellers refuse to participate at those values.

So there you have it. Very soft overall economic fundamentals coupled with a strong local economy and just for interest throw in a “values shift” and I will most likely be guaranteed to eat my words.

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2009 A Quick Review

What a year. We started the year with the markets in free fall and finally saw buyers start responding to lower prices and government stimulus in April. “Market Timing” became the big deal for buyers as they sat on the sidelines and saw average sale prices go down each month but the $8,000 tax credit and the government’s willingness to buy mortgages from FHA, FNMA and FHLMC pushed them off the side lines.  In my opinion the quick action to prop up the banks and put liquidity into the system kept this downturn from spiraling into a depression. This is the first true deflationary downturn I have experienced in my 30+ years in this business and it was ugly. The big question is by sub substituting public debt for private debt and socialized bank losses (not the profits) through the Treasury have we created an anchor so big will it just keep us in place and not allow us to move forward even as the tide and wind turns in a more favorable direction?

The upper end saw the return of the Jumbo Loan in March and that market saw volumes pick up. Some outstanding values were obtained with new homes over a $1,000,000 sale prices going for under the cost of construction without the land or financing cost. In Bellevue we saw a big pick up in sales volumes and more buyers entered the market in July as they had a good selection and the feeling the free fall in pricing was over.  However the big story as we close out the year is that pricing remains stuck. Effectively on a per sq. ft. basis it remains in a “trading range”.  In fact as the new construction inventory becomes depleted the averages are starting to fall again. The new construction homes tend to sell for a higher average price than the resales and pull the averages up overall. The best place to look for true pricing is to check the per. sq. ft. price as to the average home sale price.  The per sq. ft. price tends to show an overall average better indication of what a buyer will pay for a home in a particular area whether new or resale. A review of the Altos stats will show that pricing remains soft and the buyer is focused on value and is very discretionary. They will buy but only if the price is right. So what is in store for 2010?  Tomorrow I will identify what I think the big trends are that will effect 2010.

Tags: 2009, commentary, downturn, stats
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Weekly Scorecard 12-28-09

Here is the report for the Weekly Scorecard from the “Nothern International Office” of  East Bellevue Real Estate.  Overall the same trends continue declining inventories, soft pricing and homes priced at or below the market are seeing multiple offers and sale prices over the list price.  The sales volume is good for this time of year. Sellers seem more willing to accept the market realities and list closer to where the buyers think the market is at. As a result we see increasing sales volumes, declining inventory and flat pricing. However it appears if the seller is willing to list at the market price a number of buyers are willing to make offers.

The big issue is to see what happens the first part of the year and how the new Washington State Foreclosure Laws will affect the amount of bank owned inventory.

Here is the link for the spreadsheet: Bellevue Weekly Scorecard 12-28-09

Tags: inventory, pending, sales, Scorecard, Weekly
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Distressed Inventory Report 12-26-09

This weeks Distressed Inventory Report will be a bit of a cut and paste job since I forgot to get the files from my computer at home. I am enjoying a little skiing and winter activity for this week.  However I did do some cutting and pasting and did put last week’s numbers with this week’s numbers along with the numbers for October 17^th for contrast. You can see the trend of the foreclosures peaking last week. However in October you can see lower inventories but the NTS/Foreclosed ratio was much higher showing an accurate predictor of increasing distressed inventory.

However the next four weeks will be critical. The numbers for foreclosed homes lag by two to three weeks for foreclosed homes since the service I use only shows the foreclosures after the Trustee Deed’s records. That can take two to three weeks from the time the Trustee sale actually occurs. The reason this is important is that the Trustee sales occur on Friday. This last Friday and this coming Friday there were no Trustee sales due to the Christmas and New Years holidays occurring on Fridays. The result will be that you will probably see the number of foreclosed homes going down in the first part of January and then a spike in the first part of February. However in the immediate term it looks like the amount of distressed inventory is in a “trading range”. Sales remain robust and it needs to be seen next year if the rate of sales can keep pace with the rate of foreclosures.

 Click here for the spreadsheet: Bellevue Foreclosure Report 12-26-09

Tags: Distressed Inventory, Foreclosed, notice of trustee sale, NTS/Foreclosed Ratio, report, Weekly
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Credit Scoring

Here are some links regarding credit scoring. These links are courtesy of Jillayne Schlicke at www.ceforward.com. Jillayne is a great real estate instructor and keeps this blog to keep her students and also the general public informed about matters regarding foreclosure and lender law. She familiar with all of the backroom bank operations especially the those regarding “Special Assets”, i.e.  bank owned properties.

The links are below.  Ardell’s post describes that the higher your credit score the more a “deragatory” entry such as a late payment affects your credit. The Washington Post article gives insights how the credit scoring companies regard a short sale or a foreclosure in calculating your credit score.  Recently thet have been feeling the heat to have more openess about the process. It used to be top secret the methodolgy. I am not sure why, an open system gives consumers a much better picture of what is important in their credit and it will give the companies valuable feedback about how their process needs to be adjusted as borrowers and consumers respond. General information like this is great it is not necessary to post the logiryhtmd used to produce the mathematical models that will cause people to game the system and produce unreliable results. Like all mathematical functions that represent themselves as being predictors of human behavior they need to be revised as that behavior behavior can be unpredicatble and often self adjust to the models so as to be useless. Just ask the folks who thought they had it figurd out the with Gaussian copula function.  Below are three links. One to the Washington Post article, one to the RCG comments by Ardell that are instructive and also a link to Wired Magazine article about what happens about when you think you have it al figured out.

Everyone have a great Holiday.

http://www.washingtonpost.com/wp-dyn/content/article/2009/09/10/AR2009091004532.html 

http://raincityguide.com/2009/12/04/how-much-is-your-credit-score-damaged-by/ 

http://www.colorado.edu/AmStudies/lewis/issues/wallkilled.pdf

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