Uh... how many times so far have people called a “bottom” to the housing deflation and the attending bank problems?
One of these days, such people will be right, simply because housing prices won’t go to zero, but to call a bottom now ignores the wave of Option-ARM loans which are just starting to reset.
We’re mostly done with the sub-prime problems, which might lead to a temporary situation of relative stability, but to look at the situation from the credit/bond side of things, we’re just about to the halfway point.
There’s now a whole new set of problems that will be a drag on California housing: banks, now suffering third degree burns, are going to actually require such old-fashioned and outdated nostrums as actual down payments (gasp!), real credit checks (the horror!), appraisals that are done by people not involved with making the loan, etc.
Oh, and banks might actually stop lending to people who have a history of not paying loans back. What a business plan!
This is going to slow down any recovery to previous levels.
I don't know but there's going to be another round of foreclosures next year when a host of option ARMs get reset. That means another glut on the market. If I were looking to buy I might want to wait and save for another year and pounce next Spring
This article is great news and suggests a bottom now or in the near future — near being, a year or two, not five. I’ve been assuming a bottom before 2010. Even I have to admit that California house selling prices have fallen WAY faster than I had anticipated. I am familiar with Sacramento, so I’ll speak to that.
Sacramento area house prices have fallen to August 2002 levels, down about 37% from peak. Of course, a drop of 37% of peak value wipes out a gain of 60% on the way up.
$220,000 x 1.6 = $320,000
$320,000 x 0.63 = $222,000
My point being, the meteoric collapse of house selling prices around Sacramento at least is steering us to the bottom much sooner than would otherwise be the case. If a bottom came soon, I would not be overwhelmingly surprised. The prices can’t fall forever. At least, I don’t think they can.
You have brought up the single best point why we may be at a bottom and the bottom. With most sub-prime foreclosures in the bag, and with the government pulling out all the stop to bailout the banks, we are at a calm point. A bottom. But we have yet to work through all the Option ARM and Alt-A loans yet, and that could start a new wave of foreclosures.
I’ll add 2 anecdotes to your valid prediction that a bottom can’t come in until we worth through Alt-As and Option ARMs.
The first is: All of the inventory is CLEARLY not on the market. On my way home from Sacramento to Yuba City, a little cowtown north of Sacramento, I stopped in at the “Plumas Lake” development because I had never seen it. In one upscale subdivision by KB home of perhaps 300 homes, I counted 12 homes for sale. But there were another 25 vacant homes with completely burned lawns overgrown with weeds and NO for sale sign. These were all bank owned or jingle mail that the banks haven’t bothered to list or gotten around to listing because repossessed foreclosures are occuring faster than they can process. This is Shadow Inventory.
I can’t possibly know how many other homes in this subdivision were occupied by people who are in default but have not yet been evicted, so they are living their merry lives with nice green lawns until they get a bank’s lock put on their front door.
Still, two out of 3 vacant homes in the subdivision were not yet listed among the MLS homes. So the inventory stated in this article, while perfectly accurate, is still vastly under-reporting the number of vacant homes that need to be sold before we bottom out.
The second anecdote is a study in pure madness...
I was listening to a finacial program today, might have O’Donnel? A woman called in to ask how the new Housing Rescue Bailout might help her save her home. You are not going to believe there are people on earth this stupid.
This woman bought a home with her daugher in 2006 in a nice older part of downtown Sacramento called “Curtis Park”, in the Land Park area of town.
She paid $530,000. The entire 1st loan was Option ARM and the downpayment came from a second on the home. In other words, $0 down, with an Option ARM and a second. Naturally she paid only the minimum required. The house is now worth $450,000. The loan is more than $530,000 since she was not even covering principal. Now that she lost her job from a physical disability, she is wondering if the housing bailout bill will help save her in her $450,000 home with the $550,000 loan that is being serviced ONLY by her daughter’s $60,000 salary.
I laughed until I cried and then I felt like crying in earnest.
These are the types of morons who have no financial sense whatsoever, who are going to drive the next wave of foreclosures and home inventory escalation when the Option ARM and Alt-A loans blow up. They will generate again as many foreclosures as sub-prime did.
This article is not lying about a thing. California home sales are up over last year and stabilizing. But the article completely ignores shadow inventory and the huge wave of defaults to come from Alt-A and Option ARM.
I don’t suppose we are near a bottom, despite the relative affordability of California homes. Sacramento area homes are at August 2002 levels. I expect to see 1999 prices or below by the time we hit bottom after all the Alt-A and Option ARM loan foreclosures are through.
It is not a bad time to buy a California home. I don’t think it will crash from here. I don’t think Sacramento home selling prices will drop another 38%. But they will go down at least 10%. And they could go down 20%. And they should not but may go down 25% if there is a perfect storm of tight credit and massive foreclosures and job layoffs and hits to income.
I don’t see a bottom before 2010 with all this to come. I hope and pray I’m wrong. I really hope this is nearing a bottom and that the numbers of Option ARM and Alt-A loans heading for default is minor.
Good lord, we haven’t even considered the impact of credit card debt or debt on trucks and SUVs that have plunged in street value.
Bad typo. Should have been "at a bottom and NOT THE bottom..."
I called a "bottom" last year in January, and subsequently bought a home in Ohio. I relocated this spring, and called a new "bottom" when I sold my house in Ohio. Timing is everything, and mine was rather poor. Still, priced right, houses will sell. Mine was on the market for about 3 months, which was pretty good for Northern Ohio right now. It's a bit of a depressed area compared to here in Tennessee.
One of these days, such people will be right, simply because housing prices won’t go to zero, but to call a bottom now ignores the wave of Option-ARM loans which are just starting to reset.
Just to note - not all ARM loans are bad credit risks. People have been using them for years. It's just the recent few years of relaxed requirements and ultra-low interest rates have brought the deadbeats into the housing market. I believe that you're right in that banks are actually starting to clamp down on poor lending practices. It's something that they should never have given up, regardless of the political pressure from the left (and yes, there was significant pressure to lend to high-risk borrowers over the last decade or so).