An interesting post on Calculated Risk this morning points out a few notable near-term home price predictions:
Housing consultant Ivy Zelman via the New York Times:
…home prices are going back down.
Moody’s chief economist Mark Zandi via Bloomberg:
I think weβre going to see another leg down.
And Goldman Sachs chief economist Jan Hatzius:
Our current working assumption is a 5%-10% drop in home prices through the middle of 2010.
Note that these forecasts are all nationwide. In most parts of the country home prices began falling a good year before Seattle, and had fallen further than Seattle before the inefficient, expensive, and economically stupid tax credit put the brakes on the full return to affordable housing.
If nationwide average home prices do indeed drop another 5-10% in the coming year, I suspect that Seattle area home prices will probably be down 10-15%.
Oh and by the way, in case you didn’t see the news; as expected, a couple weeks ago Congress passed an extension and expansion of the idiotic tax credit. The move was tacked onto a completely unrelated extension of unemployment benefits to assure that no congressman could vote against it (crap like that should be illegal), and is estimated to cost another $10 billion that we don’t have (so you can expect it to cost at least $20 billion). Oh, and just for kicks they threw $33 billion in tax refunds to homebuilders into the bill, too. Because the national debt just wasn’t big enough already. Super!
Yes; they’ll continue to slide.
The Associated Press
Published: November 20, 2009
WASHINGTON – A rising number of fixed-rate home loans made to people with good credit are sinking into foreclosure, adding to concerns about the strength of the economic recovery.
Driven by rising unemployment, such loans accounted for nearly one-third of new foreclosures last quarter. That compares with 21 percent a year ago when high-risk subprime loans made during the housing boom were the main reason for default.
At the same time, the number of homeowners who were behind on their payments or in foreclosure hit a record high for the ninth-straight quarter.
The Mortgage Bankers Association’s report Thursday suggests that the housing market and the broader recovery are under pressure from the surge in home-loan defaults, especially as unemployment keeps rising. Lost jobs now are the main reason homeowners fall behind on mortgages. During the housing boom, dubious and risky loans were the leading cause.
After three years of plunging prices, the housing market started to rebound this summer. But analysts say there are too many foreclosed properties that have yet to be dumped on the market. That’s why they expect further price declines.
About 4 million homeowners were in foreclosure or at least three months behind on their mortgage payments as of September, according to the mortgage bankers group.
Even if one-quarter of those borrowers are able to stay in their homes, “there’s a lot of potential inventory coming into the market next year,” said Jay Brinkmann, a chief economist with the Mortgage Bankers Association.
Those foreclosures will push home prices down, especially in the hardest-hit California and Florida cities that are coping with soaring unemployment, he said.
With prime fixed-rate loans now accounting for nearly one-third of new foreclosures, subprime loans with adjustable rates have fallen to 16 percent of new foreclosures, down from 35 percent a year earlier.
Loans backed by the Federal Housing Administration also show increasing signs of trouble. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure.
Among states, the worst of the trouble still is concentrated in California, Nevada, Arizona and Florida, which accounted for 44 percent of new foreclosures in the country. Nearly 13 percent of all loans in Florida were in foreclosure, the highest in the United States, followed by Nevada at more than 9 percent.
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This posted over at the PI Blog this morning. Seems like we are already where the forecasters are predicting.
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And a Lot of You Guys Used to Call Me Dr. Doom a Couple Years Ago….LOL
Actually, the best economists change their tunes 180 degrees armed with new data, i.e., the horrifying unemployment surge in 2009.
Dr. Roubini isn’t talking possible “W” recession and recovery for 2010 anymore too, he’s talking horrifying unemployment and the worse is yet to come….he’s my kind of economist.
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Hey Tim, how do you really feel about the tax credit (I agree with you)?
There are also a lot of Alt-a and option-ARMs resetting into 2011, no? Personally, I’d only buy right now if I found someplace I absolutely loved and it was at least 20% below fair market price.
Gene
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[...] For those of you in this situation may I direct your attention to the following article [...]
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Wanna see Home prices stabilize?
Mtg Cramdown baby and the anarchy that comes with it!
Until then unprecedented short sales and foreclosures for many years.
People are NOT stupid and its just a matter of time until they walk.
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RE: Ray Pepper @ 5 – Who would pay for the cramdowns? The gov?
I just don’t see it happening, it would just encourage more people to default on their loans. The total US mortgage debt is around $12 Trillion, if the gov had to re-adjust all mortgages by 20-30% well…
Also I think cramming down loans would just cause housing prices to go down farther putting us in the same place.
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RE: cheapseats @ 6 –
I disagree. People do not give up anything if there is equity in it. As soon as the foreclosures and short sales stop prices will flat line then begin to escalate. Who will pay for it? You, I, and our great grand kids.
For Exp. Homeowners will sign and record agreements that if you sell in the 1st 10 years 50% will go to the backer of the loan. This has already been shot down in the house because of the anarchy that will result. The Fed will feed it to us Americans as your home will appreciate sooner when your neighbors home comes outta foreclosure…You catch my drift…Its all BS.
All this other crap is useless for loan mods. It just delays the inevitable and stretches this out longer and longer.
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Hey, I’ll bet most of you folks don’t know that now the Lisbon Treaty has passed, a Bilderberg friendly by the name of Herman Van Rompuy was elected the first president of the European Union this last week. Van Rompuy now wants to levy a green tax across Europe to help pay for declining social services.
The UN-fueled global green “sustainable development” Agenda 21 movement is worth watching as this is where the jobs will be created, after unemployment rises to levels never seen before. This will result from a collapsing US dollar and the further destruction of our economic backbone in this country, credit and home equity. The G20 met just a couple of weeks ago and they were discussing how to get Russia and China onboard with a controlled collapse of the US dollar, to help usher in a more stable world currency (probably not SDRs or special drawing rights, though you never know) to replace it.
Now, given all these factors alone, there’s nothing positive about the housing market anywhere, globally. There will be pockets, but most homeowners are going to take a royal screwing in the next couple of years.
Heck, even Deutsche Bank analysts last month said half of all US mortgages will be underwater in 2010.
I say get yer silver while it’s hot. It’s already nearly doubled gold’s gains for the year, and there’s a silver shortage expected right around the corner in a few short years. Central banks are now buying vast amounts of precious metals to hedge against an expected US dollar collapse. How else did you intend to preserve your wealth? By buying a “good deal” on property in the USA? LOL — god bless you if you take this path.
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RE: Ray Pepper @ 7 – Then we disagree,
On a different note, what type of TV were you looking for for Black Friday? Walmart is showing a Emerson 42″ 720p Plasma HDTV for $448…
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RE: Ray Pepper @ 7 – Ray — I agree with you that all of the loan mods that are out there are not going to amount to much. Many homeowners can’t afford their monthly payment even AFTER the mod. Inevitably, they too will default and foreclose.
And I agree that the only loan modification that will work is some form of cramdown, where either the note holder, the government, or a combination of the two, takes the loss and rewrites a much lower mortgage note to reflect the decline in property values.
I wholeheartedly DIS-agree with you that it will happen. Even if the politicians could pull it off, there would be such a backlash from the voters that the pols would think twice about doing it. Going forward, the government is going to need to continue to provide $$$ support for unemployment and the economy. It will be harder and harder for the federal government to spend money that does not have solid justification for it. And replacing lost equity for underwater homeowners (which in essence is what a cramdown does) will be seen as a total waste of money (except for those RECEIVING the cramdown). I just don’t think that it’s in the cards politically.
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the CRE bust that the bears are fretting over has already happened and is already priced in.
Moody’s: CRE Prices Off 43% from Peak
http://www.calculatedriskblog.com/2009/11/moodys-cre-prices-off-43-from-peak.html
REITs crashed, bottomed, raised capital when nobody thought they would and now they have risen a lot in price.
before people were scared because the stock market was going down, now they are afraid because it’s going up!
wall of worry.
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RE: pfft @ 11 –
Yup, I’d suggest you jump in now with both feet- good for 10,000, good for 20,000. That’s what I’ve heard anyway.
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RE: Scotsman @ 12 – are you denying that the bears are ignoring that REITS tanked and commercial property has tanked but they don’t realize it yet?
it’s funny how the people that looked like prophets(roubini, schiff and etc.) don’t look so smart now. now it’s the kudlows and etc. that look smart.
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RE: pfft @ 13 –
I don’t know any bears who are denying that CR and REITs have tanked. Housing has tanked. The markets have tanked. And in case you missed it none of those “indicators” have recovered. In fact, they’ve at best stabilized and most seem to feel they’re headed for another drop. But if you think this is a solid bottom, jump back in and good luck!
As for Kudlow, let’s check back in a year and see where we are. It’s only the third inning.
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RE: pfft @ 13 –
Pfft, as you may or may not know, I’m not as much of a doom sayer as a lot of the people here. I side with Ira and others (I think including Zandi) that think residential real estate prices in Seattle may bottom at the end of this winter although I have little conviction in that prognostication.
But even assuming CRE prices have stabilized and REIT prices are realistic, there isn’t a lot of reason to think that CRE prices will rise any time soon. Businesses aren’t expanding and there isn’t much demand. And lending standards have tightened requiring more equity thus putting pressure to raise and invest additional capital on owners of properties that were bought 4 or 5 years ago, many of which must be refinanced in the next few years.
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RE: cheapseats @ 9 –
Actually I don’t need a TV but if I did I would buy the:
Target 32 inch Westinghouse LCD for 246.00 I MEAN COME ON! Thats a SMOKING GREAT DEAL! (1 per customer)
and the Walmart 50 in Sanyo Plasma for 599.00
http://www.blackfriday.info/sales/target-black-friday-ad.html
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RE: WestSeattleDave @ 10 –
I wholeheartedly DIS-agree with you that it will happen***
Never underestimate the FED. Nothing shocks me anymore. Some form of Cram Down is coming.
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RE: One Eyed Man @ 15 –
I don’t think I even agree with myself at this point. I no longer believe we’re going to see a bottom in home prices locally by the end of this winter., There are just way too many foreclosures and short sales out there to see any kind of reversal that quickly.
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RE: Ira Sacharoff @ 18 – Ira, thank you for adding some humor with your insight to these topics.
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I think if the govt does not want any more slides – THEN it can pass a Home Owner Act. It will basically stipulate that the gov co-pays 10%-20% of the value of the house. So you buy a house for 400K and the govt gives you 80K + 8K tax credit + IRS deductions etc. Or maybe to spur demand for automobiles – the Home Owner Act could stipulate that the govt buys a GM, Chrylser or Ford for you if you buy a house.
Then this can be financed simply by printing some cash to cover the costs. And maybe asking China for a new reload – they will not mind.
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By Scotsman @ 14:
oh yeah the indicators have recovered. in march people didn’t even think reits would survive. people didn’t even know how they would raise money and they did reits bottomed BEFORE the GGP mess and BEFORE the peter stuyvesant apartments ran into mortgage trouble in NY. the bears do say that CRE is the next shoe to drop. i hear and read it all the time.
“It’s only the third inning.”
only the 3rd inning? how? stocks declined the most in one year as they ever have in decades. we had one of the longest recessions in decades that we are now out of. 3rd inning?
“And in case you missed it none of those “indicators” have recovered. In fact, they’ve at best stabilized and most seem to feel they’re headed for another drop.”
wall of worry.
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By One Eyed Man @ 15:
I am not saying that seattle RE and CRE have bottomed, just nationally that RE and CRE sectors of the market have probably bottomed and that that shows the economy is improving.
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What’s with all the political opinions?
The website is Seattle Bubble — it’s about real estate valuations. Please stick to the subject.
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Hi George,
Sometimes we think it’s okay mix in politics when it’s related to real estate and mortgage lending.
For example, right now the winds of change are blowing in favor of the consumer.
This is VERY similar to what happened in the 1970s when the mortgage/real estate industries were handed a slew of new federal regulations like RESPA, TILA, ECOA, and so forth.
I agree with Ray, that the political climate is right for Barney Frank and the consumer advocate oriented politicians to pass cramdown legislation.
But first the politicians need the data that they’re craving and they will get it. In 07 and 08, mortgage brokers were on the hot seat. This year, bankers are on the hot seat. If they can’t prove to the government that their loan modification programs and short sale loss mitigation programs are “helping” homeowners, then the politicians can force the banks to do BK principal balance cram downs. BUT this means the homeowner has to give a little.
In order to get that BK cramdown, the homeowner has to go through chapter 13 which means they sign on the dotted line for a repayment plan that lasts several years and they have a BK on their credit record for 10 years. Not everyone will chose this route. The people who will walk (that Ray keeps referring to) are people with other assets.
The bankers will try to lobby their way out of this but they won’t win.
This will force home values lower because banks will then tighten underwriting guidelines even further. More money down, higher credit scores, longer time on the job, and so forth, leaving fewer who qualify to buy all those vacant housing units.
…Insane underwriting guidelines is one of the many problems that led to the present housing crisis. Bankers knew they wouldn’t have to face BK cramdowns when they made those loans…..and….if….you….think about it, they’re making loans today under the same assumption.
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By Jillayne @ 25:
Excellent points. What I don’t hear talked about enough is where are the buyers coming from to prop up the even the current prices?
With FHA currently supporting 40% of all mortgage activity, when they are forced to tighten their standards, the downward pricing pressure will continue.
As for the cram downs, I don’t know. I think the BK portion of it makes sense as I don’t think there’s a political will to let everyone off the hook.
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RE: Scott is Rad @ 26 – Calculated Risk has a chart showing home financing methods used in October. Between FHA and Fannie / Freddie, they’re over half the market.
As far as the FHA being “forced to tighten their lending standards,” I wouldn’t count on that. Making bad loans is a matter of intentional policy.
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RE: The Tim @ 27 – RE: Jillayne @ 25 –
The BK cram down should be a part of an over all repayment plan. It can work if, that’s a big if, banks cooperate to unwind a lot of bad loans they have on the books.
More plainly, in my opinion, it’s cheaper to work out a feasible repayment plan as an entire package rather than just take one thing, like the mortgage, modify that, and leave the rest of the debt structure hanging.
Also I think making loans assumable again will help tremedously in clearing out bad debt. I realize that loan originators may not like that, but they are usually tied to companies that also do loan servicing. I think it could work better as we get further along the aomortization schedule.
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Are people here that think cramdowns are going to happen also saying that they think cramdowns will work? I guess that is an unanswerable question depending on what “work” means.
Personally I think that cramdowns will bring housing prices down even further. Which is not a bad thing to me (except for the new fed debt), though I am not certain at this point when I will start thinking seriously again of buying a house.
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David, FHA loans are fully assumable.
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The Tim,
I read that report, too. Today, FHA has to tighten UW guidelines to slow the delinquencies.
Here’s something that hasn’t been mentioned recently regarding FHA: When the FHA loan limits were raised, we basically sent FHA into insolvency.
FHA was not created to help prop up home prices but that’s what we did when we raised the FHA loan limits to allow people to buy or refi a half-million dollar home (in some markets.)
The politicians used FHA as a way to save their banker friends by allowing these high balance loans to be unloaded into the FHA program.
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RE: Jillayne @ 31 –
So if the FHA was used by politicians as a way to save their banker friends, has the political landscape changed so much that BK cramdowns are now likely, despite the opposition of the bankers?
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RE: Jillayne @ 30 –
When did that happen? I think you mean you can qualify to assume an FHA loan, and that is much different.
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RE: David Losh @ 33 – I think she said that the FHA loans are assumable, not that she could qualify to assume one.
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FHA program began in 1934 and has evolved. I have no idea what date the loans became assumable without doing some research. I started in mortgage lending in the mid 1980s and FHA loans have been fully assumable since then. Borrower must qualify to repay the loan, of course.
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Ira, the waves of change are blowing in favor of consumers. Bankers are on the hot seat this year. Even with all the political dollars they spend, I still believe chances are better to get BK cramdown legislation passed. But the consumer advocacy groups need time and time WILL give them the ammunition they need when so many of these loan mods go into re-default. Ray is right in that regard; those underwater homeowners will eventually walk, at all price levels not just the lower end. This is a slow moving train wreck.
BK cramdowns in Chapter 13 means the pain is equal: Consumer has to go through the chapter 13 process and then the lender has to take a cram down for their risk taking.
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RE: Jillayne @ 36 –
I sure hope you’re right, Jillayne. Banks and brokerages and insurance companies have had far too much influence on the economy, not often for the betterment of the consumer.
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RE: Jillayne @ 35 –
FHA and VA loans were fully assumable by any one before 1989. Now you have to qualify to repay the loan. That is a big difference.
If loans are going into default anyway why not let some one else try? There should be some program that allows loans to be more assumable than they are now.
In the 1980s many people with bad credit took over loan payments and paid houses off. Many families who didn’t qualify found a partially amortized loan to be a leg up.
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RE: David Losh @ 38 – There were also high rates of (re-)failure with the unqualified assumed mortgage.
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no David, that’s not correct. People still had to qualify to assume an FHA OR a VA loan back then as they do now.
Instead of working with a retail level loan officer, you worked through the loan servicing department and had to submit a full credit package back then, as is now.
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RE: Jillayne @ 40 –
Holy Cow!
Loans insured by FHA or guaranteed by VA have always been assumable. During periods when borrowers are concerned about future rate increases, this gives them an edge.
FHA loans closed before December 14, 1989, and VA loans closed before March 1, 1988 are assumable by anyone. Buyers who assume these mortgages donβt have to meet any requirements at all, but the seller remains responsible for the mortgage if the buyer doesnβt pay.
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http://www.mtgprofessor.com/A%20-%20Options/are_assumptions_a_good_deal.htm
This is how I got my start.
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RE: Jillayne @ 40 –
David, is correct.
I, and associates of mine, accumulated nearly 200 houses thru the mid 80′s by searching for fixers that were encumbered by FHA fully assumable, non qualifying loans.
All we did was write a Purchase and Sales agreement that said we were offering to purchase and assume the loan. Escrow closed the deals and made the transfers.
No bank credit check or qualifying.
Of course that lead to some scammers taking advantage and eventually rules were put in place stopping the practice.
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Hi Haybayler,
Thanks for the info. Well, I guess at the bank where I worked, we put that into place beforehand. FHA sets minimum guidelines but lender guidelines can be stronger than FHA’s.
So David, you are arguing to go back to the way it was?
Yeah, that will end well.
All the predatory lenders who are now hawking loan mods will be all over that.
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It’s not all doom and gloom out there.
The First American report predicts 1.1% appreciation with the Seattle area being about 5% below that.
http://blog.seattlepi.com/realestatenews/archives/185783.asp?source=rss
The NABE survey estimates 2% appreciation.
http://www.huffingtonpost.com/2009/11/23/economists-predict-job-lo_n_367246.html
@3 – That is not what Roubini has been saying. He said unemployment will bottom out in 2010 and remain there for 2 years.
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RE: Jillayne @ 44 –
It wasn’t like that, remember the bank is the enemy. No one wanted to go to a bank. Banks have insinuated themselves into the Real Estate business. We don’t want them.
Financing has driven up the price of housing, nothing more than a grand financing scheme. It’s like the 0% rent to own. You pay twice, three times, four times the price of a house just because of easy credit terms? Please.
Fully assumable loans will wind down into an amorized schedule where the loans in place the longest will be the most desirable.
You’re forgetting that quick and easy foreclosure was what banks wanted when Real Estate prices were going up, but now, what are they going to do? Lease back? Let them sit? Sell for half the Note Value? Any way you slice it, it’s best to have the loans amortize out.
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By mydquin @ 45:
SoftwareEngineer is correct. Roubini is advising people to hunker down because “the worst is yet to come.”
http://www.nydailynews.com/opinions/2009/11/15/2009-11-15_the_worst_is_yet_to_come_unemployed_americans_should_hunker_down_for_more_job_lo.html
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RE: Jonness @ 47 – LOL… Did you read the article or just the sensationalistic headline written by a NY Daily News editor?
Roubini said unemployment would peak at 11% in late 2010 and stay relatively high for 2 years UNLESS another stimulus plan can be passed.
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What better way to leach more money out of the average citizen and put it into the pockets of bankers and investors than a sucker home loan? People buy a garbage home under 300k, then they eiother end up overpaying for it, or better yet, they lose it, and their down and payments are consumed, and the garbage home goes back on the market looking for a new sucker to kill. Don’t forget folks, we’re entering demographic oblivion soon, and boomers are scared witless about their futures. Of course, they own some of the best houses. What are the stats on homes over 500k? Are they just all sitting? Maybe foreigners are buying them all. That will be a pleasant society.
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I have been faxing my senators regarding the Mtg Cram Down legislation every week. I need help. Send these articles to your senators. Get them to see what problems are happening. They might listen.
Ultimately, let them know that you will be voting accordingly to their votes on capital hill.
You own this congress, they owe us. They bailed out the banks, now it is time for us to be bailed out.
Good luck.
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