Last week, I went to the dentist and told him about a possible abscessed tooth. He referred me to a specialist. Yesterday, I went in for an x-ray and consultation. The Doc looked at the x-ray and confirmed my worst suspicions and left the room. The receptionist came in and told me; “If I could wait 20 minutes, the doctor would fit me into his schedule.” (Usually after the consultation, you get an appointment a week away and suffer every night until the appointed day.) I nodded yes and gave her my credit card; I really wanted to run out to my car and escape!
45 minutes later, the root canal was done; I was finishing up my paperwork and talking to the Doc in the reception room. Another patient came in, and discussed his root canal problem with the doctor.
As I was just getting up to leave, I heard the receptionist say, “If you can wait 20 minutes the doctor can fit you into his schedule.” He too, said OK.
My wife pointed out, that this could have been a bad day with cancellations. But I was never offered same day service on a root canal before. Two people in a row? Talk about fast service and I wasn’t even ordering a hamburger!
Are people starting to tighten their belts? $900 dollars for a root canal could definitely make one pause for thought. I had to pay the $100 deductible with my insurance.
I could be way off the mark on this one, often times you see what you want to see and this could be just such a case. So, if anyone out there is going for a root canal consultation, be forewarned, have a good excuse ready, as to why you can’t wait around for 20 minutes.
Tuesday, March 13, 2007
Monday, March 12, 2007
What's in a Year?
This blog's title "the Great Depression of 2006," has come under some criticism from a few people who suggested that I change the year in the title, since it "Didn't happen in 2006."
Most of what I have been addressing, is what is not apparent at the present, but will be visible at a later time in history. The Depression or Severe Recession that we are entering is not an obvious place in time with an entry point and an exit point. If you buy the concept, we're IN and going DEEPER.
No one, in 1929 even knew they were in a depression. It's referred to as the depression of 1929 because of the stock market crash. From a historical point of view, it probably started with the hurricane season in 1928 that wiped out Florida's land speculators. It wasn't until 1931 and 1932 that people of the time saw the depression for what it was.
History never really repeats itself by going full circle, it more or less analogous to a spiral that when looked head on is a viewed as a circle but when viewed from the side it looks like a coiled spring. There is similarity to the past cycle but yet a little bit of difference. Time would represent the length component of the spring.
One gentleman suggested that I change the year on my blog every year until I get it right. I guess that perception is the real issue here, 2006 is where I peg it.
36 lenders have just bit the dust and the 100% loan is gone. Congress didn't have to act, investors just refused to buy the 100% loans. Isn't it a little like credit card debt? No questions asked just sign here and spend? They're probably the next problem child. We're at the top of the roller coaster and just beginning the first downward roll. Oh goodie!! I only told you when the ride started, so hold on!
What's in the drop on the way down? Maybe a bank failure from credit card debt, or a hedge fund collapse. Go out and shoot 36 lenders and claim no collateral damage, you're either blind or selling into this mess. We are well on our way to our California foreclosure prediction of 20,000 units for May 1. That would be a double from February 1. It could happen as early as April 1 with present data plotted.
It looks like a lot of what we are watching is accelerating. The speed is picking up. It doesn't quite give you that warm and fuzzy feeling (every muscle is taunt). Panic is in the air. Enjoy the ride!
Most of what I have been addressing, is what is not apparent at the present, but will be visible at a later time in history. The Depression or Severe Recession that we are entering is not an obvious place in time with an entry point and an exit point. If you buy the concept, we're IN and going DEEPER.
No one, in 1929 even knew they were in a depression. It's referred to as the depression of 1929 because of the stock market crash. From a historical point of view, it probably started with the hurricane season in 1928 that wiped out Florida's land speculators. It wasn't until 1931 and 1932 that people of the time saw the depression for what it was.
History never really repeats itself by going full circle, it more or less analogous to a spiral that when looked head on is a viewed as a circle but when viewed from the side it looks like a coiled spring. There is similarity to the past cycle but yet a little bit of difference. Time would represent the length component of the spring.
One gentleman suggested that I change the year on my blog every year until I get it right. I guess that perception is the real issue here, 2006 is where I peg it.
36 lenders have just bit the dust and the 100% loan is gone. Congress didn't have to act, investors just refused to buy the 100% loans. Isn't it a little like credit card debt? No questions asked just sign here and spend? They're probably the next problem child. We're at the top of the roller coaster and just beginning the first downward roll. Oh goodie!! I only told you when the ride started, so hold on!
What's in the drop on the way down? Maybe a bank failure from credit card debt, or a hedge fund collapse. Go out and shoot 36 lenders and claim no collateral damage, you're either blind or selling into this mess. We are well on our way to our California foreclosure prediction of 20,000 units for May 1. That would be a double from February 1. It could happen as early as April 1 with present data plotted.
It looks like a lot of what we are watching is accelerating. The speed is picking up. It doesn't quite give you that warm and fuzzy feeling (every muscle is taunt). Panic is in the air. Enjoy the ride!
Saturday, March 10, 2007
Simple Math
You have no savings and buy a house with 100% financing. Investors have money to invest and want a good return. Who gets burned? Who has a chance to lose money? It doesn't seem to be the home buyer, does it?
Loan qualifications are changing and it's a little too late. The damage has been done. If you have nothing, and borrow 100%, you still have nothing. At this point, if facing foreclosure, you the home owner might wonder, why not just wander away, what can they possibly get out of me?
The real question,if you are an investor, is, "Whose money was that?" The irritating part of that sentence is the verb "Was."
There were winners in this fiasco and they were probably on commission. The losers are beginning to understand the math. The only trouble here, is that a lot of people don't even know that they were in the game---yet.
Loan qualifications are changing and it's a little too late. The damage has been done. If you have nothing, and borrow 100%, you still have nothing. At this point, if facing foreclosure, you the home owner might wonder, why not just wander away, what can they possibly get out of me?
The real question,if you are an investor, is, "Whose money was that?" The irritating part of that sentence is the verb "Was."
There were winners in this fiasco and they were probably on commission. The losers are beginning to understand the math. The only trouble here, is that a lot of people don't even know that they were in the game---yet.
Tuesday, March 06, 2007
You though it couldn't get worse!
We can’t help but notice, the lenders that are biting the dust, are in sort of a rush to jump off a cliff. There is the Bakersfield Bubble blog and the Implode-O-Meter blog that have been covering it.
What is not really being thought through, is the idea that each lender had a pretty good idea of what was going to happen 3 to 5 months out. The problem is, the loan manager is out of the loop at this point. The loan has been packaged and shipped to an investor. It’s only when the investors start returning the packaged loans that the problem is perceived and enjoyed for what it is; a bad loan, a survival problem.
If you take a lender like HSBC and realize that they are writing off 10 billion this year, it makes you pause. If this is the tip of an iceberg, they’re already compromised in a bad way. Probably the most commonly heard phrase in HSBC right now is, “I don’t know how bad it is, we are trying to determine if our situation is survivable.” Just wait until the loans from 2006 reset. Most of the damage that they are trying to recover from is probably from 2004 and 2005. The big stuff from 2006 is still “floating around.”
The loan market is winding down. There are fewer people that can qualify for a loan. The loan requirements are getting stricter, and the amount you can borrow is decreasing. There aren’t too many people that can afford a house at these prices.
What investors don’t realize is that the bond market is 10 times the size of the stock market. If you can envision the collapse of major market makers in the bond market, it doesn’t take much to connect the dots and figure that the stock market has a problem that won't go away.
What is not really being thought through, is the idea that each lender had a pretty good idea of what was going to happen 3 to 5 months out. The problem is, the loan manager is out of the loop at this point. The loan has been packaged and shipped to an investor. It’s only when the investors start returning the packaged loans that the problem is perceived and enjoyed for what it is; a bad loan, a survival problem.
If you take a lender like HSBC and realize that they are writing off 10 billion this year, it makes you pause. If this is the tip of an iceberg, they’re already compromised in a bad way. Probably the most commonly heard phrase in HSBC right now is, “I don’t know how bad it is, we are trying to determine if our situation is survivable.” Just wait until the loans from 2006 reset. Most of the damage that they are trying to recover from is probably from 2004 and 2005. The big stuff from 2006 is still “floating around.”
The loan market is winding down. There are fewer people that can qualify for a loan. The loan requirements are getting stricter, and the amount you can borrow is decreasing. There aren’t too many people that can afford a house at these prices.
What investors don’t realize is that the bond market is 10 times the size of the stock market. If you can envision the collapse of major market makers in the bond market, it doesn’t take much to connect the dots and figure that the stock market has a problem that won't go away.
Sunday, March 04, 2007
Credit Card Looting
When you examine our markets, you’ll notice two types of clients, market investors and consumer borrowers. These two groups are at odds with each other (you could be in both groups at the same time).
The Market investors are looking for investment return on their capital. Consumer borrowers’ are looking for a way to consume and consider paying back what is borrowed at a much later date
The investor is willing to take more risk for higher returns; the investment plans are many and quite structured. The borrower on the other hand is consuming at a rate that is often higher than earned income. No Structure, forget the interest and spend until they cut you off.
On a micro level example, we have a consumer in bankruptcy and/or foreclosure with 5 to 10 credit cards maxed out. The consumers’ plight is very visible and as layoffs increase, the group is going to get bigger. Use that plastic while you can! It’s only money (somebody else’s).
The investor has been removed from the reality of all of this. That is, until a month ago. The Alt-A and sub prime market started to implode, triggered by real estate. No worry there, the hedge funds are coming to the rescue. The tooth fairy might also make an appearance.
So what’s the consumer to do? If bankruptcy is the final play, then why not max out the cards? That can give you and extra 3 to 6 months of the good life. So, the credit card companies are doing great. Two trillion in accounts payable with an average amount owed of $9,149 at 18% interest. This gives new meaning to “Creative Financing.” Two trillion of unsecured debt; it’s a bad joke when you realize the size of it.
Thinking of filing for Bankruptcy? The question arises, why bother? Bankruptcy lawyers cost money. Just write the credit card company and tell them you are broke and to go fly a kite (the kite part is optional). You can’t squeeze blood out of a turnip and debtors don’t go to jail.
What’s the investor doing? They’re probably sitting at Starbucks having a cup of Moca, reading the Wall Street Journal on their laptop. No problems, everything is under control.
They haven’t got a clue!
It will be interesting to see how the DOW holds up this week with the Asian markets in free fall.
The Market investors are looking for investment return on their capital. Consumer borrowers’ are looking for a way to consume and consider paying back what is borrowed at a much later date
The investor is willing to take more risk for higher returns; the investment plans are many and quite structured. The borrower on the other hand is consuming at a rate that is often higher than earned income. No Structure, forget the interest and spend until they cut you off.
On a micro level example, we have a consumer in bankruptcy and/or foreclosure with 5 to 10 credit cards maxed out. The consumers’ plight is very visible and as layoffs increase, the group is going to get bigger. Use that plastic while you can! It’s only money (somebody else’s).
The investor has been removed from the reality of all of this. That is, until a month ago. The Alt-A and sub prime market started to implode, triggered by real estate. No worry there, the hedge funds are coming to the rescue. The tooth fairy might also make an appearance.
So what’s the consumer to do? If bankruptcy is the final play, then why not max out the cards? That can give you and extra 3 to 6 months of the good life. So, the credit card companies are doing great. Two trillion in accounts payable with an average amount owed of $9,149 at 18% interest. This gives new meaning to “Creative Financing.” Two trillion of unsecured debt; it’s a bad joke when you realize the size of it.
Thinking of filing for Bankruptcy? The question arises, why bother? Bankruptcy lawyers cost money. Just write the credit card company and tell them you are broke and to go fly a kite (the kite part is optional). You can’t squeeze blood out of a turnip and debtors don’t go to jail.
What’s the investor doing? They’re probably sitting at Starbucks having a cup of Moca, reading the Wall Street Journal on their laptop. No problems, everything is under control.
They haven’t got a clue!
It will be interesting to see how the DOW holds up this week with the Asian markets in free fall.
Monday, February 26, 2007
Loan Sharks
Here is a quote from Kipplinger.com
"The shifting market is prompting investors to demand higher standards for loan approvals. Loans for 100 percent of a property's value required a minimum credit score of 580 last year, but now require at least a 600 score, said David Zionts, owner of Connecticut Mortgage Lenders LLC.
A high-value loan with no income verification could be had last year with a credit score of 620 a year ago but now needs a minimum score of 640, he said."
Let's see, a 100% loan, if the house value drops the bank gets to keep it, if it goes up the owner sells it and makes a profit.
This is a loan that has done considerable damage to our economy. The sharks writing these loans have no scruples. By increasing the credit scores to qualify, they're doing the same old thing to people with a higher rating. A 100% loan is gambling with other people's money.
When Wall Street decides not to insure the Sub Prime and Alt-A stuff, who do you have left to sell it to? The bad thing about the 100% loan disappearing in the next couple of weeks, is that it virtually eliminates a lot of the potential California home buyers (at current prices). That's going to smart a bit!
Forget the phrase "Soft Landing." Consider the phrase "Hit the Fan!"
After some of this stuff works its way through the courts you're going to hear these lenders being charged with "Financial Turpitude." Lets face it, "Responsibility" left the building, the minute that it became a 100% loan.
"The shifting market is prompting investors to demand higher standards for loan approvals. Loans for 100 percent of a property's value required a minimum credit score of 580 last year, but now require at least a 600 score, said David Zionts, owner of Connecticut Mortgage Lenders LLC.
A high-value loan with no income verification could be had last year with a credit score of 620 a year ago but now needs a minimum score of 640, he said."
Let's see, a 100% loan, if the house value drops the bank gets to keep it, if it goes up the owner sells it and makes a profit.
This is a loan that has done considerable damage to our economy. The sharks writing these loans have no scruples. By increasing the credit scores to qualify, they're doing the same old thing to people with a higher rating. A 100% loan is gambling with other people's money.
When Wall Street decides not to insure the Sub Prime and Alt-A stuff, who do you have left to sell it to? The bad thing about the 100% loan disappearing in the next couple of weeks, is that it virtually eliminates a lot of the potential California home buyers (at current prices). That's going to smart a bit!
Forget the phrase "Soft Landing." Consider the phrase "Hit the Fan!"
After some of this stuff works its way through the courts you're going to hear these lenders being charged with "Financial Turpitude." Lets face it, "Responsibility" left the building, the minute that it became a 100% loan.
Do You Know Where Your Money Is?
The question has to come up sooner or later. Why put money in the bank with these lousy interest rates?? Using the rule of 72, when you divide the savings rate into it (3%), you get the number of years for your money to double. In this case, it's 24 years. The inflation will eat you alive. A $100,000 in 1964 dollars is equivalent to $1,000,000 in purchasing power by today’s standards. So, to make it simple, over the last 44 years, we have had 90% inflation. The decimal point has been moved one space to the right. In 1964 gas was 30 cents a gallon and a house cost $20,000. Today gas is $2.65 a gallon and a house is around $200,000 (definitely not California!).
Examine a concept that is being glossed over and not taken at face value. Every house, stock, bond or mutual fund share has an owner at every instant in time. The certainty is, selling at the top is good and buying at the top is bad. Every dead horse has an owner (owning one is not a desirable thing unless you process dog food).
So let’s see, we have a zillion houses out there that are empty. We have 424,805 bankruptcies and 154,910 foreclosures nation wide according to foreclosure.com. The question comes to mind, who’s footing the bill? The money has been spent, just whose money was it?
It looks like the next thing to drop dead is going to be a credit card company. Wouldn't that be a real mess! Every layoff is a potential no pay. How many credit cards do you have in your wallet??
Any way you look at it, somebody OWNS all of this junk that is going bad. Its almost a forgone conclusion that whoever it is, has no idea of their vulnerability or their potential liability. Naturally this will all go away if we just close our eyes. My retirement fund or mutual fund couldn’t be that stupid or could it?
Examine a concept that is being glossed over and not taken at face value. Every house, stock, bond or mutual fund share has an owner at every instant in time. The certainty is, selling at the top is good and buying at the top is bad. Every dead horse has an owner (owning one is not a desirable thing unless you process dog food).
So let’s see, we have a zillion houses out there that are empty. We have 424,805 bankruptcies and 154,910 foreclosures nation wide according to foreclosure.com. The question comes to mind, who’s footing the bill? The money has been spent, just whose money was it?
It looks like the next thing to drop dead is going to be a credit card company. Wouldn't that be a real mess! Every layoff is a potential no pay. How many credit cards do you have in your wallet??
Any way you look at it, somebody OWNS all of this junk that is going bad. Its almost a forgone conclusion that whoever it is, has no idea of their vulnerability or their potential liability. Naturally this will all go away if we just close our eyes. My retirement fund or mutual fund couldn’t be that stupid or could it?
Friday, February 23, 2007
The Funnel Effect.
A lot of bloggers are waiting for real estate to fall flat, and I think that there is going to be a long wait for them. Not that it won’t happen, it’s almost a certainty that it will. But by the time it does come to fruition, it will be a moot point.
Here is a concept, let's call it the "Funnel Effect." Individual items drop into the funnel and combine with others. As they drop through the funnel as a group they become more concentrated.
The easiest way to view the funnel effect is from bad housing loans and Visa and Master Card accounts. If you are a credit card company or a real estate lender, these problems are quite apparent; they could have hundreds if not thousands of people in a distressed state. This funneling effect of each individual, demonstrates what happens higher up in the retail/wholesale chain. We have consumers all over the world that purchase goods and carry on with their lives. When the economy starts to go bad, we have a situation where many people cannot manage to live in their accustomed manner and cut back on consumption in some form or manner.
Using a Starbucks Coffee Shop or Home Depot, the funnel effect (lack of consumption) would be reflected as a drop in sales. Individuals decide to spend less or not pay for an item like real estate taxes. Notice, that these choices of not to consume or pay a bill, converge into a group category. Housing funnels into lenders who made the loan. Bankruptcy’s funnel into credit card losses for the card issuer. The real estate tax base funnels into County Governments and School Districts.
Each home owner facing foreclosure will fight hard to survive and keep his house. What will happen, will be the Funneling effect of their lack of consumption. They may go into foreclosure, but the lender's pain is far more evident earlier on, than the individual homeowner.
The thing that is not realized until it’s too late is that government expected receipts are projected out several years. In a declining market, this optimistic view of the future can lead to severe cutbacks in government spending. It's kind of like hitting a brick wall at 20 miles an hour. The wall wasn't there a minute ago.
The government is the ultimate “Canary in the Coal Mine.”
The City of San Diego is a deer in the headlights!
Here is a concept, let's call it the "Funnel Effect." Individual items drop into the funnel and combine with others. As they drop through the funnel as a group they become more concentrated.
The easiest way to view the funnel effect is from bad housing loans and Visa and Master Card accounts. If you are a credit card company or a real estate lender, these problems are quite apparent; they could have hundreds if not thousands of people in a distressed state. This funneling effect of each individual, demonstrates what happens higher up in the retail/wholesale chain. We have consumers all over the world that purchase goods and carry on with their lives. When the economy starts to go bad, we have a situation where many people cannot manage to live in their accustomed manner and cut back on consumption in some form or manner.
Using a Starbucks Coffee Shop or Home Depot, the funnel effect (lack of consumption) would be reflected as a drop in sales. Individuals decide to spend less or not pay for an item like real estate taxes. Notice, that these choices of not to consume or pay a bill, converge into a group category. Housing funnels into lenders who made the loan. Bankruptcy’s funnel into credit card losses for the card issuer. The real estate tax base funnels into County Governments and School Districts.
Each home owner facing foreclosure will fight hard to survive and keep his house. What will happen, will be the Funneling effect of their lack of consumption. They may go into foreclosure, but the lender's pain is far more evident earlier on, than the individual homeowner.
The thing that is not realized until it’s too late is that government expected receipts are projected out several years. In a declining market, this optimistic view of the future can lead to severe cutbacks in government spending. It's kind of like hitting a brick wall at 20 miles an hour. The wall wasn't there a minute ago.
The government is the ultimate “Canary in the Coal Mine.”
The City of San Diego is a deer in the headlights!
Wednesday, February 21, 2007
The Stealth of Inflation
A while back I decided to collect the American State Quarters. Every time I got a newly issued coin, I would press it into the coin book and the thought would run through my mind, these coins look kind of cheap. No quality or high relief in the coin (Chucky Cheese has better looking play tokens). Compared to a 1995 quarter, quality is very apparent, the new ones look phony.
A 1964 quarter made of Silver looks quite impressive. These coins are different; you don’t see them in circulation any more, they are worth a lot more than their face value.
It really strikes me as funny, here I am complaining about the difference in quality of two quarters produced 5 years a part 1995 vs. 2000. But think about it. The 1964 quarter won’t see the light of day unless it’s in a coin shop. Your government has found a way to produce coins of lower quality even cheaper. It’s kind of on the level of using butcher block paper for toilet paper. It works but yet it doesn’t.
So if the Silver quarter represented value, the non Silver quarter (before 2000) represented quality, and the present one represents what ever you have left after you take away VALUE and QUALITY.
A $10 bill in 1964 would buy 40 packs of cigarettes. A hundred dollar bill today will buy 30 packs of cigarettes. So when you see that Silver has climbed to $13.50 per ounce, ask just one question; How can an ounce of Silver still buy the same amount of cigarettes as it did 44 years ago?
Silver didn’t jump in price, the dollar fell in value. Perspective is the issue here. Our perceived concept of inflation is measured from year to year. It’s gradual and not really noticed.
So you want to put your money in a bank and collect interest? Well, 3% isn’t much of a deal. Why not spend it and buy something? A lot of people are doing just that. When they wave that card and say “Charge It,” my mind thinks inflation.
Why not give Gold and Silver a shot? Three percent from the bank is chump change. The thing to think about is the rest of the world. A world wide depression would wreck some governments financially and their citizens would try to secure their assets by purchasing Gold and Silver. It never hurts to be first in line and buy before it becomes popular. The demand for the time tested store of value that Gold and Silver have to offer could become quite pronounced.
The real question you have to ask yourself, is the real world rational with Google at $475 per share? If you smell smoke, move towards an exit. Under no circumstances yell the word “FIRE.”
A 1964 quarter made of Silver looks quite impressive. These coins are different; you don’t see them in circulation any more, they are worth a lot more than their face value.
It really strikes me as funny, here I am complaining about the difference in quality of two quarters produced 5 years a part 1995 vs. 2000. But think about it. The 1964 quarter won’t see the light of day unless it’s in a coin shop. Your government has found a way to produce coins of lower quality even cheaper. It’s kind of on the level of using butcher block paper for toilet paper. It works but yet it doesn’t.
So if the Silver quarter represented value, the non Silver quarter (before 2000) represented quality, and the present one represents what ever you have left after you take away VALUE and QUALITY.
A $10 bill in 1964 would buy 40 packs of cigarettes. A hundred dollar bill today will buy 30 packs of cigarettes. So when you see that Silver has climbed to $13.50 per ounce, ask just one question; How can an ounce of Silver still buy the same amount of cigarettes as it did 44 years ago?
Silver didn’t jump in price, the dollar fell in value. Perspective is the issue here. Our perceived concept of inflation is measured from year to year. It’s gradual and not really noticed.
So you want to put your money in a bank and collect interest? Well, 3% isn’t much of a deal. Why not spend it and buy something? A lot of people are doing just that. When they wave that card and say “Charge It,” my mind thinks inflation.
Why not give Gold and Silver a shot? Three percent from the bank is chump change. The thing to think about is the rest of the world. A world wide depression would wreck some governments financially and their citizens would try to secure their assets by purchasing Gold and Silver. It never hurts to be first in line and buy before it becomes popular. The demand for the time tested store of value that Gold and Silver have to offer could become quite pronounced.
The real question you have to ask yourself, is the real world rational with Google at $475 per share? If you smell smoke, move towards an exit. Under no circumstances yell the word “FIRE.”
Wednesday, February 14, 2007
Lies, Damn Lies and Statistics
Mark Twain had a way with words and humor, the title is a quote of his.
Lately we have been watching the real estate collapse and things are not as they appear. A lot of us have been following Bubble Markets Inventory Tracker with baited breath. The numbers don’t seem to support the collapse or do they?
One item not really examined for its full import is REO’s (real estate acquired by a bank through foreclosure). When we look at the statistic for homes sold during the month, we make the assumption that these people are new buyers. In a collapsing market this is not a valid assumption. The lender acquiring an REO on the court house steps is considered a “new buyer”. Their bid is the value of the first trust deed (we know the second is toast). So if they held a 100% loan for $800,000 on the house and its now valued at $600,000, there will be no bids to buy the house at the Trustee Sale. Notice what happens here. This house will be listed in the statistics as a new sale at the loan discharge price of 800K.
Let’s pick the San Diego area. December sales were 3,613 units. Realty Trac showed and increase of REO's for the month of about 500 units (I could be off a bit on this, up or down, I wasn’t writing the figures down until now). So instead of 3,613 sales, subtract the REO’s and we have 3,113 sales.
Now if you have followed this far, notice that with the REO’s, the sales price is not determined by present perceive value, but rather by the amount owed the lender. There is no one waiting in line to buy the house, the sale will take place. The lender gets it for the amount due on the note, and the sales price gets recorded. The price has no relationship to current market sales data.
Common sense says that the median price should rise with this sort of book keeping and yet the San Diego Union Tribune today announced that the median housing values had dropped $20,000. The only conclusion to come to here is that the drop could be a tad bit more than stated with all of the "Creative Bean Counting."
Let’s take the worst case scenario. San Diego has run out of "Loons" wanting to buy houses. Let’s say that we have 3,000 foreclosures in the month. This would be counted as 3,000 sales at pre 2007 prices (full retail less the second trust deed). The statistics would indicate that its time to buy into this "Rising Market." I think that Mark Twain was right. Statistics can distort reality, Caveat Emptor.
Lately we have been watching the real estate collapse and things are not as they appear. A lot of us have been following Bubble Markets Inventory Tracker with baited breath. The numbers don’t seem to support the collapse or do they?
One item not really examined for its full import is REO’s (real estate acquired by a bank through foreclosure). When we look at the statistic for homes sold during the month, we make the assumption that these people are new buyers. In a collapsing market this is not a valid assumption. The lender acquiring an REO on the court house steps is considered a “new buyer”. Their bid is the value of the first trust deed (we know the second is toast). So if they held a 100% loan for $800,000 on the house and its now valued at $600,000, there will be no bids to buy the house at the Trustee Sale. Notice what happens here. This house will be listed in the statistics as a new sale at the loan discharge price of 800K.
Let’s pick the San Diego area. December sales were 3,613 units. Realty Trac showed and increase of REO's for the month of about 500 units (I could be off a bit on this, up or down, I wasn’t writing the figures down until now). So instead of 3,613 sales, subtract the REO’s and we have 3,113 sales.
Now if you have followed this far, notice that with the REO’s, the sales price is not determined by present perceive value, but rather by the amount owed the lender. There is no one waiting in line to buy the house, the sale will take place. The lender gets it for the amount due on the note, and the sales price gets recorded. The price has no relationship to current market sales data.
Common sense says that the median price should rise with this sort of book keeping and yet the San Diego Union Tribune today announced that the median housing values had dropped $20,000. The only conclusion to come to here is that the drop could be a tad bit more than stated with all of the "Creative Bean Counting."
Let’s take the worst case scenario. San Diego has run out of "Loons" wanting to buy houses. Let’s say that we have 3,000 foreclosures in the month. This would be counted as 3,000 sales at pre 2007 prices (full retail less the second trust deed). The statistics would indicate that its time to buy into this "Rising Market." I think that Mark Twain was right. Statistics can distort reality, Caveat Emptor.
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