Comments on: Shadow inventory and price declines

By: Darius Wells

Darius Wells — Sun, 09 May 2010 23:26:55 +0000

The home was just so overpriced in California, that most of the home buyers had to get a interest only loan just to be able to afford the payments. California is not going to stop seeing big foreclosure until the lenders or the government help with principal balance reduction. A Loan Modification will only be a short time resolution, which homeowners will still re default in the future.

By: Will There Be a Costa Mesa Short Sale Shadow? « COSTA MESA SHORT SALES

Will There Be a Costa Mesa Short Sale Shadow? « COSTA MESA SHORT SALES — Tue, 04 May 2010 23:08:36 +0000

[...] about the possibility of a Costa Mesa short sale shadow? Sean O’Toole with Foreclosure Radar points out that there is still a heavy backlog of distressed mortgages. If these homes are unable to [...]

By: Toni Dalrymple

Toni Dalrymple — Fri, 16 Apr 2010 15:03:28 +0000

Great Statistics. California has all kinds of micro-markets. Bottom line is that in some communities the home prices are at or close to the cost to build point. With these communities being close to business cities I think that these are key places to invest. The prices are not going to fall much more and when jobs return so will the commuters and the home prices.

By: Shelley

Shelley — Tue, 23 Mar 2010 18:22:50 +0000

I would love to see statistics showing purchase price and average income per zip code. I think this would be a very good indicator of “who” can afford the prices. Regardless of the amount of homes that are trickled out or held back, if homes are not priced to match the economic environment, they will sit there. This can see this very clearly on the MLS for homes above say $600.000.

By: Shadow Inventory, to stay a while? | Build Bankroll

Shadow Inventory, to stay a while? | Build Bankroll — Tue, 16 Mar 2010 21:09:03 +0000

[...] no responses Sean O’Toole is the creator of Foreclosure Radar and just published a very interesting article on his blog. Here in CA we have one million homeowners who are already delinquent, and we seem to [...]

By: Tracy King

Tracy King — Tue, 16 Mar 2010 18:52:19 +0000

I completely agree with you that the decline of prices is causing foreclosures. And it’s affecting many more than those that bought with the crazy loan products. I have talked to many people who bought with 20% down or had refinanced with 80% loan to value, but the downturn in the economy first wiped out their equity and then cost them their jobs, making them unable to continue to make payments that they had formerly been able to afford. If they can’t manage to negotiate a loan modification (and does anyone know anyone who has?), they are fodder for the foreclosure mill.
But in our Northeast Los Angeles and San Gabriel valley markets, the inventory has been so low that any decent property that is well priced is going in multiple offers. Smart REO owners drip their foreclosures into the market and get better prices than they would have if they had dumped them on the market in a pile as everyone keeps saying they will. Why would they? They are not that stupid.
Also, I see a number of properties in Eagle Rock that are scheduled to go to Trustee’s Sale and they have been on and off the schedule for the last couple of years. Some of these people might be able to sell for enough to pay off their mortgage if they can hang on a few more years. Or sell short in this more favorable environment. At this rate, they might pull it off.

By: Sean O'Toole

Sean O'Toole — Tue, 16 Mar 2010 05:16:41 +0000

Hi David – When the fed puts in place a zero interest rate policy (ZIRP) like we are presently under it forces investors to take greater risks then they normally would to find reasonable returns on their capital. Until and unless that policy changes I think we’ll find that housing has a reasonable floor in the 5-12% return on investment range depending on the quality of the housing. One exception, though unlikely in CA, would be areas where you have a net loss of population – in those areas only population growth or a bulldozer can restore home prices.

By: David Brian

David Brian — Tue, 16 Mar 2010 04:51:03 +0000

Sean,

Thanks for all of the great data and insight you provide on your sites.

In the last sentence of this post you say that ‘investors are too desperate for reasonable returns’. Can you provide some clarification on that statement? I am not certain I understand who you are referring to as the ‘investors’ and I am really lost on the ‘too desperate for reasonable returns’ part.

Thanks a bunch!

By: Sean O'Toole

Sean O'Toole — Tue, 16 Mar 2010 00:11:22 +0000

Credible demand sounds “nifty” to me.

I certainly don’t disagree that supply and demand play a role. Your example of constrained supply at the low end causing an increase in prices is a clear example of the fact that it does play a role. I’d simply argue that supply/demand is a distant second to base affordability (ability to pay a given price at a given income based on given loan terms).

Bottom line, is that no matter how tightly supply is constrained we can’t get back to 2006 prices without doubling incomes or going pack to 1% teaser rates.

By: Robert

Robert — Mon, 15 Mar 2010 23:45:32 +0000

Sean,

Great points. I think there has long been confusion between “demand” and “credible demand”. Sorry, I haven’t come up with a nifty term but you touched on it. Demand simply being all the people who _want_ a home and what I’ve called “credible demand” as the number who can actually afford a home (that they’d be willing to live in).

This is where the lax vs strict lending critera make all the difference.

From the front lines in San Diego, my observation is that limiting the housing supply is in fact driving up prices. However, it should be noted that here I am referring _only_ to the entry level housing market, where a conforming loan will get you into the house. That being said, no, prices are not rising so fast we will get to bubble prices any time soon.