Monday, August 10, 2009

August 2009 Market Stress Update - El Dorado Hills & Folsom

At first I thought stress indicators might be leveling off....but, as of the last two weeks or so, they don't appear to be.

At this point, all the local homeowner/investors I figured would end up in foreclosure, are somewhere on the list. In some small way, I find this encouraging, as I am hoping most of the troubled mortgages have been recognized, and no longer lurk ahead.


sacramentia said...

wow - it looks like there are going to be some deals around here.

Giacomo said...

I think we are just starting to see capitulation in the nicer neighborhoods. Unfortunately for these higher-end sellers, they waited too long, and are now too far underwater to make a clean escape.

Next stop: strategic default-- lots of apparently prosperous people electing to stop paying on their loans. At first, they will think of it as a tactic to try and force a loan modification with principal reduction, but when that fails, they will take the next step and walk away.

I found this interesting.

Paul said...

Giacomo: Very interesting! I only monitor 95682, but have wondered why defaults seem to come in geographic clusters (aside from newer developments that are clearly a function of when the loan was written). Coincidence or following someone else's example? This is the first I have read where others support the belief that foreclosures in a given area, might indirectly make it more "morally acceptable" for others in the area to walk on their mortgages.

And to my knowledge, no study that I have seen predicting defaults, has taken into consideration the number of potential defaults that may occur just because the owner is substantially underwater. With many pols and talking heads demonizing the banks, I'm also wondering if that contributes to the mindset that it is morally acceptable to walk when it will only hurt the "evil banks."

RV6Flyer said...

"With many pols and talking heads demonizing the banks, I'm also wondering if that contributes to the mindset that it is morally acceptable to walk when it will only hurt the "evil banks."

Yes, I think personal responsibility and acceptance has gone out the door in our society. I hear many people gloat about how they "screwed the bank" because the bank supposedly "screwed them." Nobody made them buy the house at an inflated price or take gobs of equity out. My brother in law just purchased a new construction home with zero down using a USDA loan. I asked him why he would not put something down as he has the means to do so--it would lead to better terms and a lower rate. He responds with, "Why would I risk MY money in this market? If prices continue to decline, I will just stop making payments for a year and walk away." Followed by harassing for putting a six figure down payment on my home and how I am the irresponsible one for wasting my money like that. I tried to explain how he is risking every tax-payers' dollar, but it falls on deaf ears.

Giacomo said...

Yeah, I'm tempted like everyone else to make moral judgments, but anticipating the effect is the most important thing.

My landlord seems to me to be a fine human being but he's having to consider the strategic default option.
He's too far underwater (on this house) to refinance; he's probably not going to qualify for a modification; he's bleeding money every month WHILE watching the value of the property go south. Really, it has the potential to drag his family into insolvency. At some point he's going to untie the anchor around his neck and swim for the surface. I can't say I blame him.

sacramentia said...

Who is buying in EDH right now? Among the people I know, the renters seem to be holding out, the first wave of buyers already bought and are now in the same boat watching the prices fall. Those that I know selling are planning to rent. Do you guys know any buyers right now?

Buying Time said...

Sactia -

I know of at least three who follow this blog that are actively making offers this month. Some frustrated renters, others tired of waiting, others finding the area they want is finally affordable etc.

Not all buying in EDH itself, but in the general area (Folsom, EDH, CP, Shingle Springs).

Giacomo said...

I'm tired of waiting too.

Unfortunately I can"t afford to lose 50-100K of equity in the space of a year or two, so I keep renting. I think of it as being paid to be patient.

I think by Christmas the current PR campaign to call a housing bottom/rebound will be behind us and we can continue down the road to Reality.

husmanen said...

Sacramentia ...

I know of a mix that falls into two categories

(1) renters that are informed and are waiting it out, understand rental parity, watch macro economic metrics and follow various blogs.
(2) renters that want to buy ASAP because they are tired of renting. To justify their intentions they ignore macro/micro economic indicators, rental parity, historical norms and listen to mortgage brokers/real estate agents.

Having said the above though, there are a few homes that are in the "zone" in the mid and upper tiers in EDH/Folsom, but they go fast.

No need to rush, looking at the graph you can see the backlog in the pipeline is getting pretty large, and increasing.

husmanen said...

Giacomo ...

Excellent point. Another antidote from my point 2 above. I know a PhD i Economics that weights the $8,000 more than a potential downside. He knows the data, understands markets etc.


He is having a child and his wife has massive pressure on him.

I try to stay out of it, but I had to say that kids don't care if you own or rent... they need you...

Paul said...

As a long time real estate bear (and still one but to a lesser extent), we are nonetheless under contract to attempt to buy a short sale. Our motivation is: interest rates; price/condition of the property; size (exactly to our standards); location, location, location (limited total inventory in a particular small geographic area); features we have sought out (pool and single level); lot size and features (unique and ideal for our needs). And I'm really tired of renting!

As to where real estate prices are going and how "wise" our decision is, all I can opine with confidence is that we are closer to the bottom now, than we are to the previous top, which is probably not news to anyone who reads BT's blog regularly.

Giacomo said...

All excellent points, husmanen.

Emotions often rule the day on these decisions, completely overwhelming the facts in evidence.

I also wonder if, as a culture, we have been raising generations of adults who lack the ability to delay gratification.

husmanen said...

Paul, very true.

I too am sick of renting.

If I were to find the perfect place in EDH / Folsom that was within 10% of what I think the bottom would be given my metrics we would submit an offer and see what happens.

Funny your criteria sound exactly like mine, glad you are not looking over here :-)

sacramentia said...

Tired of renting sounds like the lever point to me. I wouldn't want to rent either.

Good luck finding that house you're looking for.

Buying Time said...

To use an economic term (one your PhD friend probably chocked his decision up to), there is an opportunity cost to renting. For some of us that opportunity cost is really high, which makes buying more attractive, for others, it may not be that high.

For instance, I highly valued the fact that we wouldn't have to change school districts if we purchased (as opposed to being forced to move by a LL in foreclosure...our old rental is on the list of NODs).

In this market, there is a high probablility that waiting will eventually get you what you want at a lower price. But there is also a value to be placed on having what you want right away. We all value things differently. That is the beauty of a properly functioning market economy.

RV6Flyer said...

Going back to Giacomo comments, do you think the divergence between NOD and REO is being aggravated by a large increase of owners seeking loan modifications?
I was talking with another gainfully employed person who can easily afford his current payments, but is upside down by $300,000 and wants his lender to give him a principal reduction. The lender said no, so he stopped paying to get their "attention."

Giacomo said...

I get it, so "opportunity cost" is the ultimate variable, and has the ability to change the result of any calculation.

That's handy. Especially if you're tired of waiting to buy a house.

Giacomo said...

My LL was planning to stop payments to "get attention" also. Not surprising, since he was told point-blank that they were only negotiating with people who had NODs.

Buying Time said...

You don't have to be snarky about it Giacomo.

Why do some people buy new cars, which lose value right off the lot, while others wait to buy the same model a couple years later?

If it were purely a dollars and cents decision, people would never purchase new cars.

husmanen said...

Opportunity cost involves risk and choice, both have value which can ultimately be quantified, e.g. mine is approx 10% of what I calculate as bottom using my metrics.

It is different for everyone and the more info you have in any market the better you are at identifying your true costs.

The current housing market is by no means a 'normal' market as it lacks transparency, organic sellers and has a few players exercising market power by very resticting supply as demand deminishes.

Giacomo said...

I guess for purposes of polite discussion no-one's "personal" valuations of intangibles should be questioned, eh?

I know that the young family who bought my last house, in 2006, placed great value on getting their 2 preschoolers "settled" ASAP, so much so that they quickly agreed to the asking price and waived the recommended repairs.