Excessive Inventory to Increase Foreclosures on the Westside
Notice of Defaults and Foreclosures in the Alt-A and Jumbo arenas are increasing faster than Subprime now. As most of the subprime properties have corrected 50% or more, Westside properties at 25% off are next in the pipeline. With price resistance in the Jumbo Market, here are reasons why price cuts should occur:
1) Excessive Inventory
2) Extremely Low Sales Volume
3) Loan Resets and Recasts
4) Organic Sales vs Foreclosure Sales
5) Underwater Homeowners
6) "One and Done" Foreclosure Sales
7) 20-25% Down Payments Required
8) Job Layoffs
It really comes down to market turnover. The amount of homes for sale divided by the total number of houses sold. With some areas such as Pacific Palisades having 20 months or more of inventory, something has to budge. Underwater homeowners who bought from 2004 - 2007 may have to sell, before their Option ARM Loan explodes. Too many people have toxic loans with little or nothing down and will need to sell or walkaway.
Also, if you look at the recent first time buyer sales occurring, most are distress (short sale, auction, foreclosure) as opposed to organic (normal) sales. This gives a "One and Done" scenario, which means there's no move-up buyer for the next transaction. As the real estate chain is choked off, it could effect 4 or 5 other transactions up the line.
Now, some say the banks are lending, if you have 20-25% down. True, because they expect the added price cut will eat up your money and not theirs. In addition, you'll need excellent income and pristine credit to get a good loan.
Last but not least is the job picture. Despite all the talk about "green shoots" and the economy being "less bad", people are unemployed on the order of 1/2 million more each month. Throw in the underemployed and people who have given up looking for work and you get a record number of people without jobs. The bottom line is without decent jobs, the real estate market will continue floundering.
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15 comments:
By knowing your local real estate investing market, you're able to keep your finger on the pulse of your local community and to stay abreast of changes in trends, sales prices and rental rates. Knowing immediately about these changes is critical to your investing future.
I believe you are giving too much hysteria to the 'Option ARM reset' scenario. It WILL NOT be crazy now that the feds are all over the situation...
You won't see the problems that you are predicting on the highly educated Westside.....smarter people and deeper pockets....
9:42 that is very funny. If the 'highly educated westside' was so smart, then nobody should have purchased as the bubble peak approached. Deeper pockets do mitigate distress, but plenty of Westsiders drank the Koolaid and bought more house than they could afford, at a time when homes were grossly overpriced. The train is going to crash... just a matter of time.
Anon 9:42,
Regarding your "highly educated" theory:
a) even those with advanced degrees are not immune to job layoff (perhaps buffered, but not immune)
b)once under water, maybe these highly educated people will use their brain power to realize that they made huge mistakes, and to escape from their financial crisis (i.e. ARM resets/underwater home values; no more dual income due to job loss) they will need to sell fast or walk away from their home.
I've read other posts about "the highly educated nature of the West Side," and they all seem based on the premise that the banks will keep lending b/c someone has a law degree, PhD, MD, MBA,etc. I don't believe that will be the case but, more importantly, I think many of these people will not longer want to bear the stress of (adjusted-up) high mortgages, or re-finance on a property they will sink with even after many years.
As highly educated as bankers, Wall St. CEOs, and former Bush Administration Officials... and here we are, the entire U.S. economy (and the world economy) in the ditch.
I think you need a different argument.
I'm with 9:42 - these predictions of the West Side ARM resets have been forecasted for 1- 2 years now! There is no doubt that prices need to come down, but there are buyers out there. And sellers are just not budging. Yesterday a house down our street in Venice (on crestmore) had an open house, so I popped in out of curiosity ---they're asking 1.059,000 for a ONE bed, ONE bath cottage!! on a 4,000 sq ft lot. And another one around the corner listed at 950,000 for a 3 bath totally outdated...
Sellers are so far, not budging! What's going to make them?
They can ask whatever price they want, but will it sell? I doubt it. At last look, there were 161 houses and condos for sale as per Redfin in Venice. And how many sold last month? 7 according to Melissa Data.
That works out to 23 months of inventory. Best of luck to the sellers.....
That's interesting data. A neighbor who is a realtor told me there has been a lot of movement/sales in Venice in the last 2 weeks. (And NO new foreclosures in about a month....) Not sure if that's true, but maybe there is some stabilization happening.
To anon 2:33- I would tend to believe the data from Redfin and Melissa over some anecdote from a realtor...
Our realtor has been telling us things are "moving fast" for two months now. Week after week, she has also been sending us the same Westside homes on the MLS listings with price reductions.
For those who believe that education breeds success in buying a home, please read last Sunday's New York Times piece by one of their own economics reporters (for over a decade) who git trapped way over his head, and this poor guy and his new wife and family are in deep financial trouble. His new book about this will make anyone cry for them and for all of us.
Being over one's head happens to PHS's as well as the new immigrant who speaks no English. And it's happening all over the USA...and Spain and the UK and many other countries.
9:42- best (only) laugh i've had today, thanks!
12:38- be patient, the recast payments won't truly kick-in until next year. then 2 years of forced selling will come into full effect....
I hate to say it but I think you are wrong.....
I too doubt that "highly educated" people act with any more wisdom than the "Cal State educated" folks in the I.E.
The current and previous Secretaries of Treasury both went to the same "elite" college, and look where they've managed to lead the economy. (I went to the same place, and, trust me, you don't want me making your financial decisions for you!)
And while the Option-ARM recasts have indeed been "predicted" for a number of years, it's not like they are either imaginary or difficult to track. Of course, you might choose to ignore the statistics and base your decisions on emotion or hearsay. After all, nobody's forcing you to behave rationally.
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