The number of “Notices of Default” has increased significantly as shown in the following chart (source: Realtytrac.com):
In just two months, Notices of Default have increased in the four-county area by an amazing 56%. There are now 45,566 homes in this status and that number has been increasing steadily.
Keep in mind that, in most cases, it takes a home at least 120 days to hit the market as a REO after receiving its first Notice of Default. This means that a decent portion of these 45,566 homes that are currently in default will added to our already bloated inventory in February 2008.
Of course, some of these homes in default are already on the market being offered as short sales. However, based on my anecdotal observation, REOs are typically offered at significant discounts over similar short sale listings.
The downward price pressure of REOs is just starting. It will accelerate significantly next year and will continue into 2009.
Stumble It!
12 comments:
I should take this chart with me to all the Fisbo's I'm going to start visiting soon. :D
Do the math.
Broward has approx an 18 month supply of defaults if they all went repo.
Let's say they can save 70% of them from going under (a rosy estimate I say).
That still adds a five month supply (5400) to an already severly bloated market. Not to mention these will be fire sale price.
And the numbers will grow exponentially for years to come.
Broward increased 83% from August till Sept.
Okay, now I'm getting pissed.
We've owned our house since 95. As the boom was taking place a few years ago, we shopped around for a bigger place, but found the prices to be outrageous.
So we decided to wait on the sidelines with our low mortgage and taxes.
Now, when prices are coming down, we can't sell our place because of the glut of houses on the market caused by the same fools who priced us out of the market three years ago.
Those fools have managed to screw me twice.
My wife constantly asked "Who can afford the prices in these new developments? How many people can there be in South Florida making the kind of money you need to afford a $600,00 house?"
I just told her that in a few years she would see how few really could afford it.
Robert,
Needless to say, I follow the market closely. Despite some of the stuff you may be reading (including some of the stuff you read here), homes are still selling in our local market.
The key to selling is to simply price it 5% below any similar properties that are listed. Many of the folks that I see taking that strategy are selling quickly, usually within 60 days. It is the sellers who are still trying to get 2006 prices (or even early 2007 prices) that end up with their homes on the market for months.
I still think selling now, 5% below the current market is a smart move. If prices continue to drop the 30% or more that I expect, you'd still end up selling at prices far above the eventual bottom.
$140,
The vast majority of those receiving Notices of Defaults are buyers who used 100% financing.
I would argue that most of those buyers do not want to be save from going under.
For instance, supposed someone they purchased a home $500,000 in 2005 and used 100% financing. Now, that home is worth less than $400,000. Two years from now, I suspect it will be worth less than $300,000.
Even if the government (or lenders) offered to restruct the loan from a high-interest rate ARM to a 6%, 30-year conventional, do you think most of these buyers will be willing to continue servicing those loans?
Sure, some will take the restructure and continue paying on the loans. However, most of the smart ones will simply take the one-time hit and go into foreclosure/short sale -- especially once there is no tax consequences associated with the transaction.
I think once the market really starts to drop, we going to see a second wave of foreclosures -- foreclosures by choice. These are buyers who DO have the means to service their loans, but choose to go into foreclosure because they don't want to continue paying on a note that has 150% LTV or more.
SFHB,
You're assuming that most of these buyers are smart and make intelligent financial choices. However, keep in mind, that all these F@cked Buyers are not smart, especially when it comes to finances. That's why they're facing foreclosure in the first place.
If lenders of the gov'ment offer them a deal where they can afford the monthly payments, they'll take it even they end up paying on a loan that is 200% LTV.
I bet if you ask the average homeowner in South Florida about the terms of their mortgage or the balance of their mortgage, very few would be able to tell you. They all know how much they pay each month, but they won't know much more.
This is especially true of the people receiving notices of default right now.
A fitting "cartoon" for this website
it is real said...,
Thanks!
I added it to the post.
Foreclosures are everywhere. Half of the condos in my building are empty. I see foreclosure notices all the time.
It's a good time to be a renter.
SFHB said: "most of the smart ones will simply take the one-time hit and go into foreclosure/short sale"
I agree with you as to what most people who are underwater would do--smart or not.
In fact, I don't know if you've been looking closely at the foreclosures we've been listing on the site, but MOST of the ones I've looked at were in foreclosure WELL before their ARMs reset.
So, the issue really isn't the interest rate. They stopped paying presumably because they realized they were underwater. They understandably didn't want to keep putting more money in the hole.
Sure, ARM resets will force foreclosure on many people, but far more will voluntarily give up paying on their mortgage simply because it would be a bad investment.
I mean, if I bought a property for $500k and after a while it's only worth $300k, I don't care if the bank restructures my loan to make the payments affordable. Either way, I'm $200k in the hole and every dollar I spent puts me deeper into it.
SFHB,
I also think we will start seeing another wave of homeowners maxed out on HELOC's tied to prime.
My heloc is up to 9.25%.
Once we get past the Wall Street Spook, rates will continue going up.
Homeowners are going to wake up owing $500k on homes that are worth $300k with outrageous terms on helocs.
Top of my to do list is to restructure my debt load to brace myself for higher rates in coming years.
I wonder how many of those folks with huge HELOCs will also start mailing in their keys, even those that can afford to service their loans.
It will be an easy way for the CDO holders to pay for their Hummers and BMWs.
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