I was just mentioning in a blog yesterday how Realtors are monkeying with the MLS so as to keep prices artificially high as long as they can while hoping at the same time Housing will return to what it was in the past.
The video carries the headline of Real Estate Time BOMB. Foreclosures and the Collapse of the Real Estate Market.
The narrator of this video, a guy with a handle Growby10 on youtube, tells us that he read a CNBC writer's blog, Diane Olick's, back on January 30th. Growby10 mentioned the folllowing tidbits which he gleaned from Olig's post on her CNBC blog:
1. She got an interesting factoid from Realty Trac in which they found 70% of all Foreclosures are not listed on MLS rolls for sale.
2. That led Olick to consider the question "Why are these banks not listing these distressed properties for sale?"
Growby10 says we know these banks are getting hundreds of billions of dollars of bailout money, and banks want and need more cash. Why would the banks, he asks, then sit on these foreclosed homes when they could and should be selling them to generate some much needed capital?
Olick answers Growby10s questions by further postulating:
3. Banks cannot keep up the explosion of Foreclosures. The paperwork is overwhelming them.
4. Another reason is since these Foreclosures are taking longer to process, the homes have more time to be trashed, vandalized and looted.
5. Hence, before banks can put damaged homes up for sale, they have to spend even more money to repair the homes to make them salable. Thus it takes more time for banks to repair the home and do "minimal staging" so as to attract buyers.
Growby says Olick's thinking is fine and daddy, but he detects an even more ominous message in this large unaccounted for Foreclosures not being listed on the MLS:
* Growby10 quotes Rick Sharga, a Realty Trac Senior Vice President, who says he cannot get anyone to admit . . . yet no one can deny it . . . that "lenders are simply trying to defer losses to a later date because having to recognize the losses short term might pose severe risks to the banks in question."
* Sharga goes on to say "Untold numbers of these properties are sitting on these banks' accounting ledgers where the imputed value is considerably higher than the market value, and unfortunately, no one knows what the market value really is . . . but it is much lower than the value sitting on the banks' books....."
Growby then goes on to say (remember this was in January before January housing figures had been tabulated) that half of California home sales in the past 2 or 3 months were forelcosures.
This made me smile because just this weekend on my A1A News website I linked to the January numbers from Data Quick with a headline reading: California median prices drop 10% in one month and 41.5% in one year while 60.4% of those selling last month had been foreclosed upon in the past 12 months
Hence, foreclosure sales are spiking ever upward in California. In turn, these growing Foreclosure sales are putting further pressure on prices to continue their nosedive downward. Thus, both new and exisiting home sellers MUST drop their prices to homes selling in Foreclosures. To not do so means they will not be able to sell their homes at a price where they can extract some equity earned.
In turn, the downward pressure on pricing means even more homes will go into Foreclosure, further decimating prices down the road as a vicious cycle of deflation of durable asset prices sets in.
This is going to kill off many more banks. It will lead to further unemployment. This will place more pressure on the stock market to dive even further down.
Current Foreclosures will take 12.9 months to sell off at current prices. And we're only talking Foreclosures, not all the homes listed on the MLS.
As these Foreclosures enter the market, be it slowly or all at one time, they will continue to place pressure on downward sustained prices for homes for many years to come.
We are in for a long Recession. Or something much worse...
As Always, Caveat Emptor,
Rock in Key West
10 comments:
Good analysis! But it is not a surprise to me. I tried to buy a house several times, but the prices are extremely much higher than the price to build. A huge factor is the Option Arm scam. March 2009, is the next big reset date. In states that have tried to slow the rate of foreclosure such as California, this means if the March 09 mortgage payment is missed, the bank may not foreclose on the property for an additional 90 days. Does anyone really believe that Option Arm mortgage debtors once behind, will be able to catch up or cure the debt within 90 days? I seriously doubt it. If they had enough income to pay the increased mortgage paymnent, they would quickly realize that their palace that HAS NO EQUITY in it, is still dropping in value EVERY DAY at an increasing rate. Once they figure out that they are paying increasing INTEREST, and virtually NO principal for a seriously declining asset, they will either walk or squat. I predict that these gas pains and gut grumbling will be hidden by the main stream press while they are also waiting for the mortgage Easter Bunny to make things better. If even only ten percent default, by the end of June 2009 (3 months later) we will have literally hundreds of thousands of more usually higher end houses in the first stages of foreclosure. Banks refuse to let prices drop, so these houses will be added to the bank owned but NOT LISTED inventory. In April May and June 2009, three more reset dates for these EXPLODING ARMS will be added to the hidden unlisted not yet foreclosed market and prices will start bleeding even more. If you are in the market to buy, now DON'T BUY NOW, UNLESS the house is in excellent move-in condition, its in a neighborhood of NO FORECLOSURES AND IT IS FOR SALE AT 1991 prices. Pay more than that, and YOU will be bleeding next year. ASLo, why pay STILL top dollar for an older house (mostly junk on the public listed MLS market) when you can buy NEW AT A LOWER PRICE. TODAY, I have found production tract houses under construction in OAKDALE, California for less than $190,000 and falling. The same houses were selling for $550-600K just a few years ago. These houses are still too high because my developer and builder friends have informed me that the costs of building materials and labor is now $60-$75/sq ft! Don't BUY NOW EVEN IF YOU CAN "AFFORD IT" because NO ONE CAN "afford" to throw away hard earned cash.
Another factor. Inflation has taken hold, and is increasing. this means that mortgage interest can not stay in the hole forever. When mortgage interest increases, house prices decrease---ALWAYS. A house price is always about AFFORDABILITY---the low interst and no underwriting added gaoline to the forest fire housing bubble from 1998- TODAY---we are still in the bubble folks. You can't see it because WE ARE STILL IN IT. SO add this factor to rising unemployment, increasing taxes to pay off the bankers, developers and Realtors and we face a greater economic depression that expected. I forgot, those who are still working, are not throwing away money on more electronic toys---they are saving again---even at zero savings interest---you are NOT throwing it at the bankers.
Good article, but I expect rebellions, riots, and civil unrest as criminal groups re-emerge because of the fact that cities, counties and states are pink slipping police officers. I know many will want to invest in Gold Bullion with this bad news. I recommend investing in simple hand tools, power tools, fix it yourself books, and plenty of ammunition. These items will be more valuable than gold.
You can also add non-perishable food and drinking water to the list. The bums and street crooks will only increase their adventures with the decline of law enforcement. Hold on tight, this depression will be a doozy. Instead of marginal literacy as in the 1930's, we will have smarter more educated people with NO MONEY, NO JOBS, NO FOOD and NO HOUSES. I suggest stocking up on medical supplies as well. Make friends with a doctor or nurse and good luck.
Hey Rock,
I missed this video yesterday but saw it posted on partrick.net this morning.
What I don't get is how Realtors hope to stem the collapse of Housing prices by keeping foreclosures off the MLS rolls. Banks can't keep foreclosures on their books forever, especially with the Obama Adminstration hiring so many new regulators to pour over banks books (especially those banks which took bailout money).
Lastly, Realty Trac should get ahead of the curve and open their own real estate brokerage business on the net and charge only 1 to 1.5% as a commission. There is no need for Reatltors any longer. They've outlived their usefulness and they've shown the country they lie about the future when it comes to lining their pockets.
I believe Housing is going to fall another 50% from here.
- Sarah
hey anonymous,
when you said " I expect rebellions, riots, and civil unrest as criminal groups re-emerge because of the fact that cities, counties and states are pink slipping police officers" you should study that out more. Towns are hireing more then ever because they pay for themselves and provide revenue for the town with all the tickets they give out. It's becoming another tax, quotas are more alive then the've ever been.
JP- It's simple! In California, county tax revenue mainly comes from resal estate assessments. WEHn hopuses are vacant, there is no tax to collect. The result is that many cities are going bankrupt. The first to go are fire and police services, the city bureaucrats claim that THEY are more important. In the city of Stockton, CA with only a population of 250,000 many of whom are illegal aliens, violent crimes are out of control especially gang crime. Last week twenty patrolman were fired, yet the welfare recipients find a way for the government to pay them first. The city is now seriously considering filing bankruptcy as several California cities have recently done (Vallejo pop 118,000, Alameda, California City). Also Orange county and other counties are talking about it.
It may be different in your state, but California is sensitive to loacl tax hikes, becaude of government abuses of the past. The latest scam are RDA or local Redevelopment agencies which go deep into debt, so they can sell municipal bonds---that have no ratings. LOL
Criminals in California are getting ready for a party.
FYI, the US federal government brought in troops - the 1st BCT from Iraq to back up the National Guard here. They are now called CCMRF.
see http://www.cnn.com/2008/US/10/03/army.unit/
and see http://www.northcom.mil/news/2008/091908_a.html
Its real and they are preparing for the worst. Like I said, ammunition will be worth more than gold when rebellions and riots break out.
I can confirm that. There was one house in foreclosure that I looked at and it was being listed still after a few weeks since I saw it and decided not to pursue. I understand that it takes about 6 months to purchase a foreclosed home. But suddenly yesterday the house was no longer on MLS. There is no way they could have sold it. I also checked my local government sales stats published every month, and the house is not in there for any month in the past year. So they RE just took it off the market and not listing. But it is in foreclosure and just sitting empty waiting for price to drop.
In my area, Realtors play the following game:
They put a house on the market for say $500,000 a year ago. No bites. So they drop the price to $475,000 then $450,000 and there's still no bites.
The take the house off the market.
A few months pass.
They bring the same house back on the market for $400,000. This is the new "Original price". There is no mention of the old "Original Price" The Realtors keep all the old listing blocked by taking a house off the market. So, in essence, if you are shopping the market, you have have no idea just how fast the homeseller is dropping the price. When they drop the price to $375,000 and $350,000, it looks like a tiny reduction compared to this new "Original Price" of $400,000.
But if you were to have know the price was really $500,000 some months ago, you'd then have a better feel for how crazy the market is.
By hiding this info, Realtors invite the public to scorn them.
I will never use a Realtor again. Never. From now on, it's all redfin, craigslist, or any of the other myriad internet RE sales where you don't have to give up 6% to someone who shuffles papers and lies to you.
For that matter, my bank sends me a weekly list of homes which is in their REO inventory. They don't need a Realtor to publish an email list.
Marcus V. It should be a CLASS A felony for any realtor to lie or cheat. We should have Death penalties for repeat offenders.
you need to work on better audio! you are speaking to close to the mic likely. you raise the volume of your voice drastically at times, and it actually hurts my ears, even with headphones on low!
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