At least one Journalist understands

Here;s an article from Newsweek that pretty much sums up my feelings.

merica's housing market implosion was the epicenter of the Great Recession. It's hardly surprising that the federal government directed enormous resources at the market. Besides bailing out vulnerable banks, the federal government nationalized mortgage behemoths Fannie Mae and Freddie Mac, opened the lending spigot at the Federal Housing Administration (FHA), passed a first-time home buyers' tax credit, and established a mortgage modification program for troubled homeowners. The Federal Reserve embarked on a $1.25 trillion purchase of mortgage-backed securities in an effort to engineer lower mortgage rates.

The Herculean efforts may be understandable. But they were a mistake in the early months of the downturn—and now stand as a public policy blunder in the early months of a recovery. That's a harsh judgment, but it's way past the time for ending taxpayer support of the housing market.

These policies are geared toward propping up home prices, the definition of a perverse public policy. Artificially holding prices at above-market levels harms new potential buyers, from young adults starting their own households to immigrants putting down stakes in the American Dream. The subsidies wrongly delay the inevitable home market price adjustment to excess supply in many markets across the country.

"I don't see anything being gained by holding housing prices higher than the market rate," says Dean Baker, economist and co-director of the liberal Center for Economic & Policy Research in Washington. "It is difficult to see why the government would want to pursue policies that would encourage people to pay too much for homes."

Free housing, you thought it was a myth

we've all heard the stories about his person or that person living free in their home. A myth? Not so much. The LA times recently published an article about it.

It's been 16 months since Eugene and Patricia Harrison last paid the mortgage on their Perris home. Eleven months since the notice got slapped on their front door, warning that it would be sold at auction.

A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They're not planning on going anywhere.
Throughout the country, people continue to default on their home loans -- but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.

Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes.

And with a glut of inventory in places like Southern California's Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.

Finally, allowing borrowers to stay in their homes helps protect the bank's investment as it negotiates with the homeowners, said Gary Kirshner, a spokesman for Chase bank, a major lender.

"If the person's in the property, there's less chance for vandalism, and they're probably maintaining the house," he said. Economists say the situation won't last forever, but in the meantime the "amnesty" may allow at least some homeowners to regain their financial footing and avoid eviction.

In the Inland Empire, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts say it's difficult to say how many families are in that situation nationally because only banks know for sure how many customers have stopped paying entirely.
More evidence is provided by another firm, ForeclosureRadar, which says it now takes an average of 229 days for a bank to foreclose on a home in California after sending a notice of default, up from 146 days in August 2008.

"For some reason, banks are being more lenient with homeowners who are behind on their loans," Sharga said. "Whether it's a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure."

Lenders say the trend reflects their efforts to work with borrowers to modify loans to avoid foreclosure. Bank of America "continues to exhaust every possible option to qualify customers for modification or other solutions," spokeswoman Jumana Bauwens said.

Some lenders are making it a policy to partner with delinquent borrowers. Citibank said this month that it would let borrowers on the brink of foreclosure stay at their homes for six months, whether or not they make payments, if they turn over their property deed.
Such policies may partly reflect the fact that lenders can't keep up with all the foreclosures, some say.

"The mortgage lenders are so backlogged that some people are able to slip through the cracks," said Kathryn Davis, a real estate agent at America's Real Estate Advocates in Corona. That was apparently the case for the Harrisons, who were told at various times that their house had been sold, that it belonged to someone else and that it was empty.
"In many cases, particularly in California, people owe a boatload of payments, and no bank is going to forgive that," said Guy Cecala, editor of Inside Mortgage Finance, a trade publication.

In Diamond Bar, the Fraguere family is finally moving on after living rent-free for 18 months. Job loss and other setbacks prevented them from paying their mortgage, but they say they didn't hear anything from the bank, First Franklin, until a real estate agent showed up at their door last month saying she was going to sell their house.

Sandy Fraguere wasn't surprised that it had taken the bank so long to ask them to move. "I don't think they really knew what was going on or who was there," she said.

...................

I actually know a family that have not made a payment since Feb 2008!

news bit's and pieces

Lot's of news this week, most of it bad.

Let's start with the latest fannie default numbers. The 90 day default rate is shooting through the roof. It went up 4% in one month from 3.87% in Dec to 4.03% in January. Fannie also reported a 15.2 BILLION dollar loss for the 4th quarter, 72 Billion for the year!

We had a couple of banks fail today (one in California). That brings the total to 22 so far this year. The problem bank list (from Calculated Risk) is up to 644 banks. Lately this list has been growing by about 40 banks per week.

I'm sure by now you've heard about the new foreclosure prevention plan being touted by the FDIC for banks they've seized. They are actually talking about principal write downs. I don't know about you but that just pisses me off. Talk about a moral hazard. How many people will stop paying the mortgage if they start giving write downs. I sure as hell would!

Worst January in 40 years

The nation housing market is tanking big time. In SoCal we seem to be holding up a bit better. Here's the national report from MSN.com

The Commerce Department reported Wednesday that new home sales dropped 11.2 percent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century. The big drop was a surprise to economists who had expected sales would rise about 5 percent over December's pace.

While winter storms were partly to blame, home sales have fallen for three straight months despite sweeping government support. Economists were already worried that an improvement in sales in the second half of last year could falter as various government support programs are withdrawn.

"There is no doubt that January and February are going to be messy months for housing, given the severe weather conditions, but that doesn't take away from the fact that the housing sector has taken another big step back, even with the government aid," Jennifer Lee, a senior economist at BMO Capital Markets, said in a research note.

January's weakness was evident in all regions except the Midwest, where sales posted a 2.1 percent increase. Sales were down 35 percent in the Northeast, 12 percent in the West and almost 10 percent in the South.

The drop in sales pushed the median sales price down to $203.500. That was down 5.6 percent from December's median sales price of $215,600, and off 2.4 percent from year-ago prices.

New home sales for all of 2009 had fallen by almost 23 percent to 374,000, the worst year on record. The National Association of Home Builders is forecasting that sales will rise to more than 500,000 sales this year, an improvement from 2009 but still far below the boom years of 2003 through 2006 when builders clocked more than 1 million new home sales per year.

January's data will increase concerns that the housing rebound could falter in coming months as the government withdraws the support it has used to try to bolster the housing market, which stood at the epicenter of the country's overall recession, the worst downturn since the 1930s.

A $1.25 trillion program from the Federal Reserve which has held down mortgage rates is set to end March 31 and tax credits to bolster home buying are scheduled to expire at the end of April.

First-time home buyers could qualify for a credit of up to $8,000 while homeowners who have lived in their current properties for at least five years could claim a tax credit of up to $6,500 if they decided to move into another home.

Though the overall economy started growing again this past summer, economists are worried because unemployment remains high. This weakness is causing consumers to shy away from spending, especially on big-ticket items such as homes.

The Conference Board reported Tuesday that its Consumer Confidence Index fell almost 11 points to 46 in February, pushing the index down to its lowest reading since last April. At 46, the index is a long way from the 90 reading that economists generally view as depicting healthy consumer attitudes........................

So sales are dead, employment numbers are horrid, consumer confidence is in the toilet and the government support for housing is scaling back over the next few months. Yep, everything looks great, expect the stock market to go crazy.

Anyone else think the numbers would be a lot better if there were houses to buy? There's a million potential listings tied up in mortgage mods, most of which will fail in California and other super bubble areas. In my small group of friends I know 4 people that are looking for a house. I know 2 that just closed within the last couple of months (after looking for ever). We all havbe the same problem, there's just not that much to buy. The government needs to let the free market work so that the people that do want to buy, can.

edjumacation not required

It's been a while since I ran across a real gem of a listing. Here's a beaut. This has all the hallmarks of the stereotypical realtard.

This listing in The Retreat just hit the market. 22476 Quiet Bay is one of the big KB homes. These puppies were well over a million at the peak. This one sold for $971k in late 2007, so the prices had fallen a bit by then. Now it's a shorty listed for $600k. The price is probably about right, possibly just a wee bit high considering the lack of landscaping. Now, check out this listing description.....

BEAUTIFUL 5 BED 5.5 BATH OVER 5300 LIVING SPACE SITTING ON THE OVER 12000 SQFT LOT, IN THE BEAUTIFUL GOLF COMMUNITY OF RETREAT IN SOUTH CORONA. THIS CORNER HOUSE OFFERS EVERYTHING YOU NEED IN A HOUSE. BEAUTIFUL ENTRANCE DEN/ OFFICE GUEST ROOM WITH WALKIN CLOSET, 3 CAR GRAGE, BIG KITCHEN ALOOTS OF CABNITS WITH TERMADORE APPLIANCES GRANITE COUNTER TOPS SOURAND SOUND SPEAKER IN THE FAMILY ROOM FIRE PLACE. UPSATIRS LARGE MASTER BED WITH RETREAT AND FIREPLACE A LARGE BALCONY. A UPSTAIR FAMILY ROOM JACK AND JILL ROOM AND A SEPARATE ROOM WITH ATTACHED FULL BATH. 2ND FRENCH BALCONY. UPSTAIRE LAUNDRY ROOM. .. .. .MUCH MUCH MORE TO WRITE. .. . GOT TO SEE IT. .. ..

Oh yes, that is a gem. Some of the words are so badly butchered it's hard to tell what he really meant. It took me a minute to figure out what "sourand" was. Upstairs is spelled 3 different ways all of them wrong. All caps of course and no real sentence structure. This guy didn't use multiple exclamation marks though, he went with periods. I can only assume he doesn't know where the exclamation mark is on the keyboard.

The rate effect on prices

With the end of the Fed MBS purchase program the interest rate is expected to rise between .5% and 1.5% depending on which "expert" is flapping his lips. But what will that mean to prices? Let's face it, nearly every buyer is buying at their high end. Very few buyers are conservative. So what would a 1% rise in rates mean to the average buyer?

Lets say our average buyer is looking at a house and needs a $300k loan. If the interest rate goes from 5% to 6% the payment on that house would increase about $190/mo. That does not sound like a huge difference. However the buyer has to qualify for that additional $190/mo. With a 31% DTI requirement that means you need to make another $610 a month in order to qualify for that payment increase. If you wanted to keep your payment the same the loan would need to be for $268k instead of $300k. So our hypothetical buyer can afford $32k more house with a 5% interest rate versus a 6% rate. And lets not forget that even a 6% interest rate is much lower than the long term average (The long term average is closer to 8%).

Wait another 9 months?

Shopping for a house? Consider waiting 9 months

Buyers may score better deals by skipping out on the tax credit and waiting for home prices to fall.

House shoppers will have to buy soon to secure an ultracheap mortgage and collect an $8,000 tax credit. Both perks are expected to vanish in the coming months. However, some buyers might score better deals by waiting and missing the perks on purpose, precisely because so many others are buying now.

To see why, let’s first review the incentives. For about a year, the Federal Reserve has been aggressively buying mortgage securities at generous prices to drive down yields and, by extension, to reduce rates on new mortgages. Those purchases end in March. Most economists, including Boston Fed chief Eric S. Rosengren, reckon that rates on standard 30-year mortgages will rise about three-quarters of a percentage point thereafter.

Congress has been propping up the real-estate market, too. In November, lawmakers extended and expanded a refundable tax credit (a rebate, essentially) for buyers. Buyers are given 10% of the purchase price up to a maximum credit of $8,000 for first-time buyers and $6,500 for repeat buyers. They must sign a purchase agreement by April 30 and take ownership by June 30. Income limits apply. The credit is reduced for individuals who make more than $125,000 a year and couples who make more than $225,000, and it's eliminated for individuals making $145,000 and couples making $245,000.

Economics students know that subsidies increase demand and raise prices. Longstanding perks for buyers — like the mortgage interest write-off and the artificially reduced down payments for first-time buyers — were designed primarily to expand homeownership. If they increased prices, it was an accidental byproduct. But the two temporary perks were designed for the express purpose of supporting prices by attracting buyers.

They worked. Goldman Sachs reckons that government support boosted house prices by 5% last year — or rather, kept them from falling that much more. It seems reasonable to assume, then, that prices could lose 5% once the programs expire. And because economists believe the temporary incentives mostly persuaded people who were already considering buying to do so sooner rather than later, after the programs expire, buyers could disappear and prices could dip quickly. Potential buyers should consider whether they’re better off hurrying for the perks or waiting for the lower prices once houses lose their stimulus premium.

Suppose you buy a $300,000 house in February, and by doing so you forfeit a 5% price decline, or $15,000. You get the $8,000 credit, for a net forfeit of $7,000. Now suppose you put down 20% as a down payment and take out a mortgage for the $240,000 difference. The $7,000 you gave up was 2.93 points, when divided by the mortgage amount. In return, because you bought before the end of March, your interest rate is 5.16% (the current average) instead of 5.91% (the three-quarters of a point increase expected after March). Should you pay 2.93 points for a rate reduction of that size on a $240,000 mortgage? Use SmartMoney.com’s Points or No Points calculator to find out. You’ll have to assume a rate of return the buyer gets on investments under normal circumstances. I used 5%, and got a result of seven years. That’s the break-even point. If you plan to stay in the house for that long, you should pay the points — or in this case, you should buy sooner rather than later.

For a $500,000 house using the same methodology, buying early is like paying 4.25 points, which gives a break-even point of 11 years, 11 months. For a $700,000 house, it’s 4.82 points, which breaks even after 14 years, eight months. But things get tricky for pricier houses. The Fed’s buying of mortgage securities has mostly suppressed rates for what are called conforming mortgages. On single-family houses, these are loans of $417,000 or less in most areas and, for the moment, $729,750 or less in designated high-cost areas. For nonconforming loans, rates are already higher, so they might not rise much after March. Also, the $8,000 tax credit vanishes for houses that cost more than $800,000.

..................................

(thanks Shane for the heads up on this one)

I am in agreement with this article. Right now the home prices are being propped up by the intervention. Goldman Sachs recently put out a report indicating that they feel the intervention is adding about 5% to housing prices. But what will happen when it ends and rates go up. What kind of effect will that have? Initially I don't think much will change. The current crop of buyers will still want a house and with inventory low that should keep prices steady. But it's not going to take a big drop in the number of buyers to swell the inventory. REOs are hitting the market at a increasing rate. If a percentage of the buyers drop out the inventory should creep up. But it will take time. Of course I fully expect another round of government intervention if the market starts to peter out again.

Shocking number

I read the trans union report on mortgage delinquencies and ran across a shocking number in it (actually there were a lot of them).

What percentage of mortgages in Riverside county are at least 60 days behind on their payments? a) 6.2% b) 8.6% c) 12.8% d) 18.5%


Answer d, 18.5% Nearly 1 in 5 homes are at least 60 days late. WOW!!

Riverside’s 18.5% delinquency rate was 6 percentage points higher than the 12.5% recorded in the fourth quarter of 2009. In San Bernardino, the rate increased from 11.2% to 17.2% year over year, TransUnion said. California as a whole went from 6.9% to 11% year over year; Los Angeles County jumped from 6.8% to 11.4%; and Orange County rose from 5.3% to 8.9%.

January numbers

DQ has release the January numbers. No much change, Riverside lost .6% and San Berdu lost 2.6% from December to Jan. The number of sales plummeted from Dec, although that is fairly normal. The sales numbers dropped 1800 from Dec to Jan. We even lost ground to last year in sales numbers. That's really not a good sign considering all the incentives to buy and the low interest rates. It is interesting to note how many cash buyers and investors there were. in San berdu 30% of the homes were sold to absentee buyers (investors) and it Riverside 36% of sales were to cash buyers many of whom are investors. There's your market in a nutshell!

Here's the good bits.

A total of 15,361 new and resale homes closed escrow last month in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. That was down 31.2 percent from December’s 22,328, but up 0.9 percent from 15,227 in January 2009, according to MDA DataQuick of San Diego.

A decline in sales between December and January is normal for the season. On average, sales have fallen 28.4 percent between those two months since 1988, when DataQuick’s statistics begin.

January’s 15,361 sales mark the highest total for that month since 18,128 sales in January 2007. However, last month’s tally was 14.4 percent below the average number of sales for a January – 17,938 – since 1988.

Last month the sales pattern shifted a bit, with a greater portion of transactions involving distressed properties and lower-cost inland homes. Meanwhile, sales in many pricier areas lost some of the steam they had built in recent months, though high-end sales still outpaced the year-ago level.

The median paid for all Southland houses and condos sold in January was $271,500, down 6.1 percent from $289,000 in December but up 8.6 percent from $250,000 a year earlier. It was the median’s second consecutive year-over-year increase. In December 2009 the median rose 4 percent from a year earlier, marking the first time the median had increased year-over-year since August 2007, when it rose 2.7 percent to $500,000, near its all-time peak. In late 2008 and early 2009, the year-over-year declines in the median ranged from 30 to 40 percent.

On a month-to-month basis, the median had increased or held steady for eight consecutive months before dropping 6 percent in January compared with December. January’s median was 46.2 percent lower than the peak Southland median of $505,000 reached during several months in early and mid 2007.

Part of the January median’s drop from December can be explained by the shift toward a higher portion of Southland sales occurring inland: The percentage of sales that were in the Inland Empire (Riverside and San Bernardino counties) rose to 35.2 percent, up from 32.3 percent in December and the highest since it was 36.3 percent in May 2009.

Last month offered no signs of improvement in the jumbo mortgage market, which fuels sales in the higher-cost coastal areas. Mortgages above $417,000 – formerly the definition of a jumbo loan – accounted for 14.2 percent of all home purchase loans, down from a 13-month high of 16.7 percent in December 2009. Such jumbo loans made up nearly 40 percent of purchase loans before the August 2007 credit crunch.

Another gauge on the state of financing for high-end sales showed no change last month from December: 4.4 percent of purchase loans had an adjustable rate, the same as in December but up from 2.2 percent a year earlier. Use of adjustable-rate mortgages (ARMs) remains extremely low in an historical context. Over the last decade, ARMs averaged 40 percent of monthly purchase loans.

Government-insured FHA loans, a popular choice among first-time buyers, accounted for 36.9 percent of all home purchase mortgages in January. That’s down from 42.2 percent a year ago but up from 5.7 percent two years ago and up from 0.4 percent three years ago.

Absentee buyers – mostly investors and some second-home purchasers – bought 22.3 percent of the homes sold in January. That was up from 19.8 percent in December and up from 16.6 percent a year earlier. It was the highest for any month since at least 2000. San Bernardino County saw the highest percentage – 30.2 percent – sold to absentee buyers last month.

Buyers who appeared to have paid all cash – meaning there was no indication of a corresponding purchase loan being recorded – accounted for 28.9 percent of January sales, based on an analysis of public records. That’s up from 25.7 percent in December and up from 22 percent in January 2009. January’s figure was the highest since at least 1988. The 22-year monthly average for Southland homes purchased with cash is 13.9 percent.

Home “flipping” also trended higher in January, when 3.5 percent of the homes sold were ones that had previously sold between three weeks and six months prior. January’s flipping rate varied from as little as 2.3 percent of all sales in San Diego County to as much as 4.5 percent in Ventura County. A year ago no Southland county had a flipping rate over 2.1 percent.

Sales Volume			Median Price
All homes	Jan-09	Jan-10	%Chng	Jan-09	Jan-10	%Chng
Los Angeles	4,532	5,228	15.40%	$300,000	$325,000	8.30%
Orange	1,806	1,867	3.40%	$370,000	$425,000	14.90%
Riverside	3,320	3,162	-4.80%	$195,000	$195,000	0.00%
San Bernardino	2,532	2,252	-11.10%	$162,000	$150,000	-7.40%
San Diego	2,459	2,322	-5.60%	$280,000	$305,000	8.90%
Ventura	578	530	-8.30%	$335,000	$360,000	7.50%
SoCal	15,227	15,361	0.90%	$250,000	$271,500	8.60%

Doom it's not just a video game

Lots of doom and gloom in the news this week. With the unwinding of the government support lots of stories are popping up with all kinds of predictions. In addition there is the normal crop of terrible numbers reported regarding defaults and mod rates. Here's a few gems.

Mortgage delinquencies hit another all time high. (they hit a new high each month).

TransUnion's quarterly analysis of trends in the mortgage industry found that mortgage loan delinquency (the ratio of borrowers 60 or more days past due) increased for the 12th straight quarter, hitting an all-time national average high of 6.89 percent for the fourth quarter of 2009. This quarter marks the first time the mortgage delinquency rate increase did not decelerate after doing so for three consecutive periods.

This statistic, which is traditionally seen as a precursor to foreclosure, increased 10.24 (to 6.9% percent from the previous quarter's 6.25 percent average. Year-over-year, mortgage borrower delinquency is up approximately 50 percent (from 4.58 percent).

The area with the highest average mortgage debt per borrower was the District of Columbia at $372,869, followed by California at $352,688 and Hawaii at $317,599.

"We believe that the 60-day mortgage delinquency rate will peak between 7.5 and 8 percent over the course of 2010, depending on the prevailing economic conditions associated with the housing market," said Guarrera. (so it has more to go, currently at 6.9%)......

Treasury officials today said they are still concerned about a coming wave of foreclosures, many from pay option ARMs and many from the prime jumbo basket, particularly hard hit by unemployment. Only 2/3 of borrowers in the HAMP program are current on their payments. That's why officials now say they are looking at unemployment options and more incentives to borrowers to keep paying on trial modifications and on loans that are significantly "underwater" with respect to the property value........

More waves of foreclosures will keep downward pressure on home prices in parts of the U.S. over the next several years, two new studies project. The studies—by John Burns Real Estate Consulting Inc. and Standard & Poor's Financial Services LLC—both conclude that most efforts to modify loans with easier terms will delay, not prevent, the loss of homes to foreclosure.

Loan modifications "may be helping marginally, but they are not going to solve the whole problem," said Diane Westerback, a managing director at S&P. Loan servicers, firms that collect payments and handle foreclosures, seem to have "nearly exhausted the supply of plausible candidates for loan modifications" and will find that many loans are "unredeemable," the S&P study says........ (duh!)

Regarding the upcoming end of the tax credit and the MBS program you would think that both the banks and the short sellers would be scrambling to get thier homes on the market. There's sure to be another rush of buyers as the tax credit ends and there's only another month before the MBS program ends and the rates go up (anywhere from 1/3% to 1% rise is expected). If I had to sell I would want to do it now. Lot's of buyers, little inventory and incentives to buy. By the end of April that all goes away.

Shuttered developments

Anyone else noticed how many tracts have closed up shop half built (or less). Driving up La Sierra Blvd it's hard to miss the Riverwalk Vista development. They built the streets, the clubhouse, the models and phase 1. Then they boarded it all up. Now all the homes have plywood over the windows. It's like a new home boneyard. Of course Lake Hills (Brehm) has closed up shop and stopped building. Lots of empty pads up there. Across the 91 is the Highlands, lots of empty lots there too.

The Retreat in South Corona went bust. I'm not sure what the total number of lots are that were left but they were trying to sell them a few months ago as a package deal after the developer went BK.

Stellan Rigde in Riverside is closing up shop. It seems like it's still in business but they have been trying to unload the last few homes for ages (Some are still under construction too). However the development is not built out. They sold all the remaining lots to the owner of the mission inn. He will probably sit on them for a few years at least. How would you like to pay $700k or more for a home and find out that the lots across the street might be weed filled fire hazzards for the next 5 years. I'd be a little pissed off. It also means the HOA isn't coming down to the level promised at build out ($180/mo) it's currently nearly $300/mo.

There are quite fea in MoVal. One tract up near the golf course (Pacific Eagle?) has shuttered up. Although I hear they may start up again. The Beazer development near Nason Street is closing, There's another development of the east end of the city that has been trying to unload its last few homes for 2 years.

Post more if you know em!

Mortgage mods, they're not what people think

Anyone that has been looking to buy a home in the last 6 months knows how screwed up this market is. There's not much to buy, much of what is for sale is either trash or priced in fantasyland. Most of that so called "phantom inventory" is tied up in mortgage mod purgatory. Will it ever hit the market? I'm confident much of it will especially homes that were purchased or refi'd after 2004. What really kills me though is the lack of clarity people show in understanding the whole mortgage mod process.

First of all, lets get one thing straight. The mortgage mod program isn't meant to help homeowners. It's meant to help banks. The banks loaned over 7 TRILLION dollars between '99 and 2007 much of that was mortgage debt and much of that was incredibly bad. The banks gambled that enough people would pay back that debt and they would make billions if not trillions. But their gamble crapped out. Possibly they didn't understand just how bad these loans were (doubtful) or maybe they got caught by the speed of the collapse. Who knows but the cold hard facts are that the banks are insolvent and all these so called bailouts are intended to stop the banks from failing, not the homeowners.

The homeowners are either blinded by embarrassment or stupidity or the "American Dream". It's probably a combination of all three depending on the homeowner. It doesn't really matter though. They are falling into a debt trap, and in the process helping to save the very institution that caused the problem. The homeowners are turned into perpetual renters. But renters with a ball and chain attached to their ankle, their homes. Unless there is some divine miracle that brings back home prices those people are future foreclosures waiting to happen. If you bought after 2004 you should be asking how to I get out, not how do I keep my home.

It will be interesting to see what program the government comes up with next. The end of the tax credit and the MBS purchase program should have a considerable affect on sales. It will probably take a few months to sink in but by late fall I think the market will be a mess again and we will see another round of meddling by Uncle Sam.

Median prices for the last 5 years

Here's the median prices for the last 5 years, starting with 2004 and ending with 2009. You can easily see from this chart that the correction in prices does not happen evenly across the board. Some cities are back to 1998 prices and others are still at 2003 prices. But pretty much every city in the IE is back to at least 2002 pricing.

Riverside Co.	$324,k	$387,000	$420,000	$395,000	$260,000	$187,000
AGUANGA	$373,k	$190,000	$405,250	$200,000	$260,000	$195,000
ANZA	$187,k	$250,000	$309,000	$320,000	$185,000	$167,500
BANNING	$190,k	$260,000	$300,000	$270,000	$167,000	$110,000
BEAUMONT	$260,k	$362,500	$398,000	$362,500	$270,000	$211,250
BLYTHE	$115k	$165,000	$193,000	$223,500	$198,500	$135,500
CABAZON	$145k	$207,000	$260,000	$230,000	$125,000	$58,000
CALIMESA	$258k	$330,000	$337,000	$314,000	$237,500	$158,000
CATHEDRAL CITY	$265k	$340,000	$369,000	$340,000	$218,000	$155,000
COACHELLA	$164k	$298,000	$350,000	$314,000	$202,000	$145,000
CORONA	$435k	$512,000	$578,000	$539,500	$365,000	$315,000
DESERT CENTER	$117k	$123,750	$167,500	$180,000	$105,000	$60,000
DESERT HOT SPRINGS	$175k	$257,250	$299,000	$281,250	$131,750	$89,500
HEMET	$239k	$293,000	$330,000	$300,000	$172,000	$120,000
HOMELAND	$229k	$297,000	$350,000	$387,000	$200,000	$139,500
IDYLLWILD	$252k	$309,750	$320,000	$310,000	$271,000	$195,000
INDIAN WELLS	$560k	$750,000	$840,000	$800,000	$743,409	$502,500
INDIO	$262k	$355,000	$381,500	$355,000	$250,500	$182,000
LA QUINTA	$399k	$500,000	$595,000	$560,000	$425,000	$325,000
LAKE ELSINORE	$330k	$389,250	$423,000	$380,000	$234,500	$180,000
MECCA	$97k	$151,000	$215,000	$59,000	$120,363	$70,000
MENIFEE	$347k	$408,000	$428,500	$389,000	$260,000	$205,000
MIRA LOMA	$394k	$499,000	$565,000	$456,000	$345,000	$280,000
MORENO VALLEY	$275k	$345,000	$385,000	$370,000	$190,000	$140,000
MOUNTAIN CENTER	$279k	$500,000	$440,000	$545,000	$234,000	$217,750
MURRIETA	$410k	$453,500	$473,000	$416,000	$285,000	$235,500
NORCO	$480k	$620,000	$625,000	$605,000	$425,000	$350,000
NORTH PALM SPRINGS	$50k	$82,500	$77,000	$170,200	$50,000	$50,000
NUEVO	$313k	$383,250	$425,000	$466,500	$215,500	$150,000
PALM DESERT	$340k	$400,000	$425,000	$395,000	$352,500	$280,000
PALM SPRINGS	$280k	$349,000	$397,500	$375,000	$285,000	$200,000
PERRIS	$265k	$345,000	$396,000	$358,500	$195,000	$145,000
RANCHO MIRAGE	$460k	$587,750	$660,000	$610,000	$500,000	$425,000
RIVERSIDE	$308k	$385,000	$420,000	$410,000	$256,000	$181,000
SAN JACINTO	$245k	$314,000	$359,000	$340,000	$186,000	$138,000
SUN CITY	$260k	$329,500	$374,000	$338,000	$220,000	$159,000
TEMECULA	$406k	$470,000	$489,000	$439,000	$320,000	$258,000
THERMAL	$240k	$310,000	$372,000	$326,500	$217,500	$153,750
THOUSAND PALMS	$223k	$300,000	$330,750	$285,000	$174,000	$114,000
WHITE WATER	$152k	$263,000	$289,000	$285,000	$165,000	$93,000
WILDOMAR	$364k	$439,000	$480,000	$433,000	$300,000	$235,000
WINCHESTER	$393k	$438,000	$481,500	$420,000	$295,000	$241,000

Jumped in WAY too early

Back in 2007 the real estate market was just starting to crash. There were those that believed the hype spewed out by the NAR and Greenspan about a minor correction. The froth was settling according to Greenspan. So they jumped at the first wave of foreclosures, thinking this was their chance to finally get that house. We know how that worked out......

Here's an example of one of those sales. 17179 Ironridge in Riverside is a home in the Bridle Creek tract up in Woodcrest. This is the smallest home in the tract at just under 3000 s/f. It's a nice floorplan but it is small for the area. This particular home sold new in 2005 for $660k. At the peak in late 06 they were asking close to $800k for this model but no one was buying. This home sold to the current aqua-owner in mid 2007 for $640k. I'm sure he thought he got a steal, after all that was nearly $150k less than the builder was asking. Here we are 2 and a holf years later and the current owner needs out. His current asking price probably qualifies him for a delusional seller award. But hey, might as well try to save your ass, right? His asking price is $599k. He is probably hoping to break even after costs as it says it's a standard sale. His problem of course, is that the house isn't worth any where near that much. Based on sold comps his place is worth $400k tops and I doubt he would get that as most of the homes that sold for $400k had pool and upgraded interiors. He doesn't even have a patio in the back and his counters are white tile. The interior is LOW END and the outside is just grass. There's no hope this home will sell anywhere near $600k or $500k and I think he'd have a hard time getting $400k. Makes you wonder how many more of these there are. How many of those 2007 sales or even early 2008 sales will we see going bad.

Hows this for a typical "builder basic" kitchen. No upgrades here folks!

Get a clue people, prices ain't coming back!

I've had 2 very irritating conversations in the last couple of weeks regarding prices. The first was with a realtor at an open house. He tells me this house was appraised 3 years ago for a million dollars, and now that the recession is over it will be worth that again in 5 to 10 years. Oh really? Tell me more, oh enlightened one..... Of course, this was more than I could take and the fight was on (much to the dismay of my wife).

I asked him if he expected salaries to triple or quintuple over the next 10 years?

He said "well, probably not".

I then asked him, who will be able to afford it then?

He replied, "If the home appraises for a million banks will easily loan $800k"

I ask, who in the IE that can qualify for an $800k loan wants to live in this tract?

He ended the debate with "oh, there's plenty of people out here that can qualify"

I'm sure there are, but how many of them want to live in a KB tract home in Riverside? It just amazes me how many people really do beleive prices are going to shoot right back up again. They are convinced the bubble prices were normal and that the current price point is the aberration.

The second conversation was with a person a friend introduced to me to talk about his loan mod. I'm no financial guru but I still get asked for advice. I tell em my advice is free and worth every penny!

On the surface this loan mod sounded golden. Their current loan was for for roughly $600k, an Option Arm of course. They also had a heloc for $100k that they used to pay bills, buy a car and put a back yard in (so it's all gone). They have not made a payment on the heloc in 2 years. He works in a distribution center driving a forklift, his wife is a admin assist (whatever that is). Together they make$84k (seems like a lot for those jobs but that's what he told me they made). BTW, the house is worth approx $280k, he thinks.

The original loan was a option ARM and of course they are making the min payment of $1800/mo, the payment on the heloc was $1200 but since they are not paying it I guess it doesn't matter. The only other debt payment they have is a $400/mo car payment.

Check out this loan mod offer. He gets a 25yr fixed with a payment roughly equal to his $1800/mo (before taxes). His taxes are $480/mo. So his total nut is $2280/mo or roughly 32% of his gross. Here's the kicker though, in order to make that happen they stuck a $420k forbearance on to the end of the loan (balance of the original loan, plus the reverse arm amount, plus fees and late payments). He's happy as a pig in shit. I've never seen a mod like this one and it's from some lender I've never heard of. I'm wondering if this mod is a one in a million or if they are offering up mods like this on a regular basis. If this is common then this crisis will drag on for decades as these folks default when they need to move.

I asked about what he will do if he needs or wants to move. "Oh, that will not be a problem, prices will have recovered in a few years and we will be fine". WHAT?? Are you freeking kidding me. You think a tract home in So. Corona on a postage stamps sized lot will be worth $700k in a few years. His new total loan amount is for $100k more than peak prices AND he still owes the heloc. He is trapped in a cave of debt and the foreclosure monster is just waiting for him to pop his head out.

I did not know this guy so I didn't want to argue (much), besides he seemed thrilled that he had "saved his house". I simply asked him to think about who would be able to buy a $700k house. How would they get a loan. I asked him to consider the possibility that his house would be worth about the same in 5 or even 10 years and left it at that.

For all those people out there that think prices are coming back I would offer up this nugget. House prices follow incomes. The first 7 years of the century they didn't because banks removed just about every normal requirement for loaning out money. We are back to normal (if you can call this normal). That means homes will only be worth what people can pay for them. And what should people pay? Depending on the interest rates anywhere between 2 and 4 times their gross annual incomes is the normal range.

Stopping the life support

Most bubble heads know the current real estate market is being kept alive through massive amounts of "life support" from the government. Everything from tax credits, to nearly no money FHA loans, and lets not forget that the government is purchasing the MBS's which is keeping interest rates quite a bit lower than they would other wise be.

What happens when these programs end? The first to go will be the MBS purchase program. Will Wall St. start buying these things again? With the interest rates many of these things have it's hard to say. There's also a great deal of risk in these securities. Sure they are better than the junk they were buying a few years ago, but what happens if the prices ratched down again? This program is due to end in March. The current estimates are for the interest rates to go up anywhere from .5% to 1.5% when the gov pulls the plug. When the governments stops buying these the banks have two option's, sell the loans or keep them. They can't really afford to keep them. They would quickly run out of money to lend if they had to keep the loans. But can they sell them?

Problem 2 for the market is the looming end for the Tax Credit. They have already come out and said "this is it, no more extensions to the credit". How many buyers will this kick out of the market. Personally I don't think it will stop anyone from buying that wants to buy, however I do think they are going to be pulling in some buyers that may have waited till next year. Like the cash for clunkers, we may are probably stealing tomorrows buyers. This could mean a drop off in sales as the credit ends. Another consequence is going to be a drop in spending by new buyers. Most new buyers are taking that $8k and buying new stuff for the new house. They are pouring patios, buying furniture etc. That's $8k less they will be spending. What will that mean for the furniture stores and the home improvement stores?

The credit basically ends in April. You have to have a signed contract by the end of April and you need to close by the end of June. By July most of the government support should be gone. That should make for an iteresting fall. Of course should the preverbiale turd hit the fan the government will either reinstate these programs or come up with new ones.