Wednesday, November 11, 2009

Ready set, don't go....

Well, I fell for the propaganda about the coming foreclosure wave. I did expect a bunch more inventory once we got past Sept. My buddy at the bank told me, my agent friend told me and I kept reading about it. So I got all my paperwork together, got my a new pre-approval and was anticipating looking at some houses. But Nooooooo, there is nothing but trash and a few numbskulls trying to get bubble prices on the market these days.

Now I am hearing that the government is actually asking the lenders to keep the inventory thin and now we have Fannie renting homes back to people. The Mortgage mod plan is still putting a kink in the inventory by letting these people live in the houses a little longer. The latest news on the mortgage modification scheme isn't good (as we expected). Very few of the people are actually qualifying or even applying for a permanent mod. Most of them seem to be using this as a way of getting a few more months out of their house.

It just sucks right now. The government has got this market screwed up worse than ever. I can't imagine what they are going to do to healthcare after this fiasco. The really sad part is that there are a lot of buyers out there. If the inventory was there (and the prices right) they would probably sell a lot more houses. Those sales would drive the economy as those people bought furniture and other trinkets for their new homes.


doghouse said...

wow, I sure hate to say...
but it's your blog and you get to insert your foot in your mouth when ever you want,
look around, there just isn't as many houses empty, or neglected looking.
Yes this market is screwed up big time, no idea when,if ever, that it will recover.
best of luck in your search.

Sara said...

I don't know about that. In the past few days I've seen them reduce many houses and list a sh*t load of houses in Eastvale-no pun. Because it's a crazy market, no one can predict anything. But there's an unprecedented number of houses awaiting update on RealtyTrac. Where are these going to go? Many of those who will have bought next year already bought in the summer because of the tax credit. I think conditions will be good for buyers come Dec. Jan.

golfer_X said...

Sara, I have seen a crap load of houses listing in eastvale too. But all the areas I am looking at are pretty dry at the moment. The Retreat is stacking them up again but that's just because the listing prices on most of them are back up to where they were a year ago. No surprise they stopped selling.

I don't know if I agree with Doghouse about there being fewer neglected houses. I still see plenty, maybe not as many as a year ago but that's hard to quantify. There are still loads of them. We are still setting records as far as the amount of homes in default. Unemployment is higher than it's been for many decades. I still believe those homes will eventually be lost to the lenders but as to when I have no idea any more. It's obvious the government is really trying to keep the foreclosures under control.

Health and Beauty Care said...

This situation is like heck. Government is trying to control foreclosure, this results in low inventory. Low inventory results in low property sales. So finally everything comes again, to put real estate market is pressure and losses.
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www.OrientalPearls.Net said...

From the few friends that I have, I already know quite a few of them sold their rental properties in other countries, especially Asia, either bought or are trying to buy one in the USA right now.

Ghost Inventory said...

Here's the real problem. Billions of dollars have come into the distressed real estate market since March. Multiple, bulk scratch and dent companies have been established to buy these assets. In March they could buy the "notes" at 30-35 cents on the dollar. These companies would then offer cash for keys, foreclose, sell the property or sell the mortgage note to smaller investors. The banks off loaded more than a million properties so far to these liquidators. Because of all the "new" investors coming to the table and buying 20-500 million dollar bulks from the banks, the so called "Ghost Inventory" will not transpire the way most thought. The mortgage servicers have entered this business also with their investors and are doing loan modifications in house. There's so much money chasing these non performing assets that the cost has risen to 65-70 cents on the dollar. This will slow down investors by February. If we see a double dip in the housing, you will see inventory show up, because these investor funds will slow down on purchases until the bulk price drops back down to the March level. Once the bulk price drops, they will scoop up bulks of REO's and notes again, therefore cutting off the inventory again. These asset companies are much more attractive to the bank than selling 1 property at a time retail. Most banks have already marked down these assets and were covered by TARP funds. This is why the banks balance sheets have looked good since? Yep, around March. When you mark the asset down to zero and sell it for 35%-65% of value, it is the illusion of huge profits for the bank. With this in mind, the real blood on the streets for the west coast is prolonged for 2 more years. In 2 years when the banks "new foreclosure" inventory shows up, is when they will be stuck with the losses, unless TARP shows up again and bails these insolvent banks out. Remember, many called the housing top in 2004-2006. It went an additional 16 months. Excitement and or chaos can keep a market going up-or down much longer than expected.
The stock market is a perfect example. Unemployment at levels not seen since the 40's? Yet the market continues to rise? I use the DOW to determine the unemployment rate. 11k DOW= 11% unemployed. This is a double head fake folks. Don't buy into the excitement.
The safest time to buy real estate is when you can go see a home, go home and think about it, and when you call the realtor back 2 weeks later and they say the home is still available, you know for certain that the blood is on the streets. Until then, all I do is buy discounted mortgage notes in the states that no one else wants.(I still need to protect myself from future inflation)I then modify the payments to rent levels. This way the owner stays, I get double digit returns, I have equity in the property (I don't pay more than 55% of current market value),and I offer to reduce the payoff (from the unpaid note balance to current value) so the homeowner can refinance in the future. Everyone wins.

So, if you guys want to get into real estate and be safe, buy notes. There's plenty for sale in Michigan,PA,OH,WV,SC,NC,NJ,RI,WI. Also you can buy many for $5,000 to $10,000, returning you monthly income (after you give them a modification) of 12%-25% on your money. It hedges you against future inflation, the values have already been decimated by 50% or more and you know for certain it's a deal because you will earn double digit returns after you reduce the homeowners payment.

Help yourself and help a homeowner.

Oldtimer said...

Nobody can know the future, but I've believed for more than a year that talk of a coming wave was akin to Charlie Brown waiting for the Great Pumpkin.

The initial wave of foreclosures that crested in 2008/early 2009 included lots of ill-conceived speculations, where people had bought homes they had no need for, but hoped to profit from rising values. Once it became clear these investments were losers, the specuvestors quickly gave up the ghost.

The current crop of foreclosures is mostly homes people have realized they cannot afford due to lost jobs, payments resetting to realistic levels, savings being exhausted, etc. The big difference is that most of todays foreclosures are homes that people still want to live in.

In the IE, prices have corrected from roughly $200/sf to $100/sf, and most folks will find a way to get their housing costs down to $100/sf or less (buy and bail, renegotiate principal, lease back from investors, etc.).

With the lousy economy and anemic recovery, I'd guess that foreclosures will remain elevated at way-above-normal rates for several more quarters, but I don't see a wave on the horizon.

The one exception is the higher-end markets where people took out jumbo loans ($750K+). Distress in these areas seem to be still growing.

VectorzSigma said...

What inflation? Other countries furiously trying to keep their currency from appreciating against the dollar (propping up the dollar and keeping it from crashing) by increasing their foreign currency reserves.

Keep in mind, this is less than a month after we started the discussion on inflation. The projection was massive inflation after 5-10 years. It's been A MONTH.

Jay & Christina said...

Ghost Inventory, where can you buy these mortgage notes for a decent price? I've only seen them on and they tend to go for 50-60% or more of loan value. Sounds like a great investment opportunity. If you'd rather not broadcast where you buy these notes, please email me at karolyi74 AT