Foreclosure Wave Coming – Prices Expected to Continue Downward

I'm afraid it's going to get a lot worse before things get better again. The states with judicial foreclosures (like Florida) have some of the worst numbers!

.. a lot more!

there are many homeowners who are not yet in default, but because their houses have lost so much value, and their mortgages to the banks are still higher than the value of the properties, many homeowners have, are, and will continue walking away from their homes...

link to article below if you want to read more... very interesting...

http://bottomline.msnbc.msn.com/_news/2011/12/21/9614305-as-home-prices-...

With the numbers provided from the headlines cited in the original post, home prices should be falling like a rock. But they aren't. We've been hearing about a wave of foreclosures coming every year for the past 3 years. Prices seem to have stabilized for the most part. When you have a fiat based monetary system, it's easy to manipulate. The FED has done a masterful job of propping this thing up with it's quantitative easing. They have even rewritten generally accepted accounting principles to keep what are by all rights insolvent banks solvent by definition only, certainly not by their assets. I posted a link under "Not your typical recession" which explains our situation a little better. The bottom line is, if we have a significant drop in housing prices, the whole system will go down. By whole, I mean global. A while back, in my area, there were 3800 REO's in the county and only 720 were in the MLS. As long as the FED let's banks sit on that high a percentage of REO's and not declare them insolvent, they will be able to prop up the pricing. Another element of support is employment and rents. Market rent will provide a floor for pricing. When prices fall to a level where properties will cash flow, investors will buy all day long. We see that today. With so many people unable to buy today, there is increased demand for rental properties. Students of Economics 101, what happens when demand increases? Prices go up. We see rent rates rising across the U.S. This further props up pricing. It will take time for all this to work through the system as banks repair their balance sheets. It will be a while before we see the customary appreciation in real estate, but once this works thru the system, real estate prices will pop like a cork on a champagne bottle on new year's eve. But then again, what do I know. This is just my opinion and I may be wrong.

that's why most new investors will fail with real estate right now as they are swimming upstream. If you don't have the experience, how do you know what a "good buy" is right now? After all, with a declining market, I can always buy it cheaper tomorrow. At some point that will change, but we are far from that point today.

The present market lacks the animal instincts of fear or greed. No one feels like they are missing anything. Today's interest rates are very accomadative. Not much is changing in the stagnant real estate market. But what happens when interest rates start to rise? Will that be the fear factor that gets people off the fence, fearing a revisit of 18% mortgage rates of the early 80's?

The housing market is not fixed and the wave of new foreclosures that is going to hit the market is unbelievable, if you look at all the banks balance sheet, every single bank is insolvent!! The job market is not getting better, I talk to at least 50 people a day and every one knows at least two individuals that have been unemployed for more than one year. If you are over forty-five it is extremely difficult to find employment. The numbers that the government reports of how the economy is doing is a bunch of lies and more lies! Nothing is getting done to help main street, the policies in effect are not producing any results, its masking the problems which the government hopes that it will fix itself. Since the United States is the only country that can print money we are making our currency worth less and less every single day. I feel that a civil revolution or some kind of civil unrest is not to far. Printing more money and intervening in the public sector is not making things better in this country but forcing individuals and companies to leave this country. Look what China and Japan and other countries are doing, they are buying less and less of our bonds. Other countries are losing faith in our monetary policies. We need a change because I don't see us heading in the right direction, I only see things getting worse and worse. This is not me talking, I am only reporting what people are telling me! Ask your friend or neighbor or a stranger if they are better off than they were 3 years ago or even 5years ago and people are scared! We need to open our eyes and face reality. The individuals on Wall Street that caused this mess are getting more greedy than before and individuals that caused this mess is not getting justice! How come no one from Wall Street is going to jail? Goldman Sachs is getting away with everything that is illegal and thats not me saying it it's coming from employees of Goldman Sachs. The real reason why AIG was saved was because our government employees pension was being held on the books of AIG! The majority of the European banks received money from AIG, so that money that we tax payers are paying to save AIG went to Europe and government employees. Ask yourself, as a real estate investor is it easier for me to operate by business every day? Every one feels or is blaming the housing crisis on real estate flippers! We are only in the fourth inning of a nine inning game. It's not over!!

Thanks so much for bringing us up-to-date. I've been hearing and reading that the banks will soon be processing more foreclosures..but haven't heard..when..or if it had already begun. Since I live in FL I was particularly interested in your stats re Tampa and Miami. The input from dgadmin is always especially helpful with timely, invaluable info we can apply in our rei business. Thanks again. You ARE appreciated by us all. Semper Fi D-LO

I don't think so... I know plenty of people who are standing on the fence, who cannot refinance their homes, but haven't walked out because they are on adjustable rate loans, and because the rates are so low, they can stay in their homes for another year, until their loans adjust again and again, until they can no longer afford the payment... I also know many who have walked away from their homes because they can buy another one at almost half price of what they owe on their current homes...
Apparently there is a big problem going on in Beverly Hills with the mansions... read article below...

"Defaults of the Rich:Walking Away from the McMansions"
by D. J. Waldie

on February 20, 2012 2:00 PM

"Moneyed homeowners with huge loans are walking away from mansions in some of L.A.'s priciest neighborhoods, even if the owner can afford the mortgage payments. Who wants to be known as a "sucker and fool," one homeowner complained as he contemplated defaulting on a big mortgage based on an inflated past.

A typical case is the $4 million house - purchased around 2008 with nearly $4 million in loans - that's now worth less than $2.5 million.

In Beverly Hills alone, according to this Reuters report, at least 180 homes in recent months have been foreclosed, scheduled for auction, or served with a notice of default.

Nationwide, foreclosures on loans over $1 million are up nearly 600 percent since 2008.

Walking away from an "underwater" real estate deal is a national trend among the more-or-less-rich who bought big at the height of the real estate bubble but whose houses are now worth far less than they owe. It's estimated that 40% of the owners who lost their house looked at their massive debt and calculated that a "strategic default" would get them out of a bad investment.

Walking away has even become something of a boast among the more-or-less wealthy - a solution with few downside risks that also marks the walker as a smart player.

That's because California is one of a small number of "non-recourse" states. Here, the mortgage lender cannot recover the full value of the loan if the homeowner defaults; the lender can only recover the house, not the owner's other assets.

The effect is producing a death spiral for loaded McMansions in some upscale neighborhoods. When owners default, they expand the inventory of over-priced houses, undercutting the value of similar homes in the neighborhood, lowering their resale value and prompting a new round of "strategic defaults" by other owners.

(For a daily dose of price chopping, go to Curbed Los Angeles where the overpriced homes of the almost rich and nearly famous are gleefully considered.)

Lest we be too amused at the troubles of the sort-of-rich, the unsold inventory of mansions they leave behind drives down property tax revenues, too, putting further pressure on city and county services.

Walking away - particularly for multi-million-dollar loans - may not be so cost-free in the future. A House subcommittee has begun work on a Federal Housing Administration bill that would establish, among other reforms, a minimum annual mortgage insurance requirement for loan recipients.

D. J. Waldie, author, historian, and as the New York Times said in 2007, "a gorgeous distiller of architectural and social history," writes about Los Angeles on KCET's SoCal Focus blog.

Let's all hope that the banks are more realistic with their expectations with this 2nd wave of foreclosures coming....I have seen many banks in Texas not want to discount REO properties much below 70 - 80% of ARV *before* repairs are considered.

As investors, we must be careful to always utilize the MAO formula correctly:

MAO = ARV X .60 (this percentage will vary depending on the local market conditions) - Repairs - Wholesale fee.

Keep in mind that this is the MAO and not your initial offer to the bank or seller of the property (your initial offer should be less to leave some room for negotiating). I am finding that many banks are being stubborn and not wanting to negotiate very much. Do they not realize that this is a BUYERS MARKET and not a sellers market?? ....just saying'.

Livingonrealestate
The housing market is not fixed and the wave of new foreclosures that is going to hit the market is unbelievable, if you look at all the banks balance sheet, every single bank is insolvent!!

Lonestargumby
I am finding that many banks are being stubborn and not wanting to negotiate very much. Do they not realize that this is a BUYERS MARKET and not a sellers market??

That's my point. The banks are insolvent and the FED is letting them conduct business as usual. They don't have to sell. That's why they can sit on 75% of the inventory and let it trickle out. In the past, if they had to deal with the number of foreclosures they have on their books, prices would drop like a rock. The FED is keeping interest rates low so banks can recapitalize and repair their balance sheets. The banksters always win. Some smaller banks were shut down, but the big banks are immune,too big to fail. Did the banks get nailed for the robo signing fiasco? Not really. They got a slap on the wrist. Had any other citizen done the same, they would be in jail for forgery and fraud. The banks play by a different set of rules. Normally one would expect housing prices to continue to fall but there is too much govt intervention in the market for traditional market forces to play out.

"that's why most new investors will fail with real estate right now as they are swimming upstream. If you don't have the experience, how do you know what a "good buy" is right now? After all, with a declining market, I can always buy it cheaper tomorrow. At some point that will change, but we are far from that point today." Is there any hope for us newbies? and reading all of these great posts I am wondering where are the buyers?? How can I start my real estate empire with all this doom and gloom? Thoughts & Advice Welcome

How can it get any better? What else is possible?

They are starting to build a new development in my area. Entry level is $600K. That tells me the developers think there are retail buyers for $600k.

The link below will provide a graph which shows inventory peaked during 2006 - 2008, and how we are approaching 2004 - 2005 levels in spite of all the annual headlines of a wave of foreclosures about to hit. This tells me that the banks are sitting on a ton of inventory propping up prices. What does it say to you?

http://www.calculatedriskblog.com/2012/03/existing-home-sales-inventory-...

"There are probably a large number of sellers "waiting for a better market", and we could call this pent-up supply. When the market eventually improves, this pent-up supply will come on the market and probably keep prices from rising - but having less listed inventory now means less downward pressure on prices now."

Just as the banks were having problems producing documentation for foreclosure proceedings, I feel there will be a wave of tax lien foreclosures due to the banks improper management and failure to make sure taxes are paid on their assets.
Mossyoak

My research at the recorder's office showed me that every REO is delinquent on taxes. I checked with the tax assessor and found that in my area, the county doesn't take any action until the taxes are 5 years past due. So the banks can basically sit on the property for 5 years and will get a notice the property will be auctioned off for back taxes and then move it.

My research at the recorder's office in my area reveals that all REO's are delinquent in payment of taxes. I checked with the Tax Assessor and found that the county takes no action for 5 years. Banks don't have to pay taxes for 5 years, so they don't. Chances are, the property will be sold and the back taxes paid before a property goes to auction. Just what's happening in my area, yours may be different.

Every day we hear "Foreclosure wave coming", then its "Foreclosures down". Price up, Prices down. I'm so sick of the media. They can't make up their minds. I only trust investor sources.

First of all, you need to see where we are economically. The link below will show you that we are not in a typical recession caused by inflation or over production.

http://www.youtube.com/watch?v=HaNxAzLKegU

Now that you have a picture of the economy, where it is, what needs to happen to get it back on track, and how it is being orchestrated, you can then deal with the media accordingly. When you hear the media, you have to ask yourself "Does this make sense?". Also, factor in that this is an election year.

With all the REO's available but the banks not listing them. Are there alternative ways to find out about the unlisted properties.

Thanks,

Sidney

"With all the REO's available but the banks not listing them. Are there alternative ways to find out about the unlisted properties."

You may have luck with smaller community banks, but unless you have a relationship with a realtor, forget about dealing with the "too big to fail" banks. go to www.totalviewrealestate.com and check out video #2

"What are important are sales and inventory, and those are pointing in the right direction," said Christopher Thornberg, a principal at Beacon Economics who was one of the early callers of the housing crash. "I would say that by the end of the year, they should translate into better prices."

Thornberg added, "The recovery is here."

http://www.latimes.com/business/realestate/la-fi-housing-forecast-201204...

"Banks still retain many foreclosed properties on their books, and some analysts have predicted that housing prices could weaken again if lenders dump these properties into the recovering market. But O'Toole and other analysts see that long-feared "second wave" as increasingly unlikely, pointing out that the banks would be acting against their own interests by undercutting prices through a fire sale."

Real House Prices and Price-to-Rent Ratio at late '90s Levels

On a price-to-rent basis, the Case-Shiller National index is back to October 1998 levels, the Composite 20 index is back to February 2000 levels, and the CoreLogic index is back to June 1999.

http://www.calculatedriskblog.com/2012/04/real-house-prices-and-price-to...

Thanks for the information. It helped greatly.