patrick.net

skibum -

During the housing downturn in the UK in the 90's, my mother wisely told my brothers that even though they would be selling their houses for a loss, they would be buying other houses that had also lost value for their owners, so there was no reason not to sell and feel like they had lost, because they "gained" on the ones they were buying.

Of course, here it is different as a lot of people are going to lose large sums if they are pushed out of their housing due to foreclosures. And there are huge price differences in different areas of the country.

svcausguy Says:
News from up north…at least the phantom bids are exposed in Canada.
Two years back it was exposed in Australia. Wonder how long it takes
to hit the US border.

good post, svcausguy -- it might have just been released because it had 2 links in it tho...

auctions are a popular practice selling real estate under normal circumstances in Oz, not just foreclosures, which 1) might explain why it is so expensive, and 2) how the market almost instantly absorbs any spare capital in the hands of buyers... there are a number of unethical tricks at auction which I won't detail here. So, once again, when compared with housing, the US isn't quite the free market, free-wheelin' model of capitalism we all believed when compared with other countries...

American in Canada:

http://www.stockmania.com/2007_09_24_archive.html

skibum - good post. I had, HAD, a nice little business buying/selling eletronic surplus. I can tell you that most people are indeed not "homo economicus" in fact the "a thing is worth what it's worth" worldview is in fact very rare.

What are the two main forces in the stock market? Greed and fear. And I'd say the same emotions govern why people sell something - greed since they're making money on it, and if they can't, then the only thing that can make 'em sell is fear - fear of being evicted, of not eating, of not getting their fix, etc. So, a normal person will try to hang onto something if it's gone down in dollar value unless they're forced to sell it - until fear makes 'em sell.

So, we'll see the FBs sell all right, but if they can put it off 6 months (and yes, lose even more money) that's exactly what they will do.

I swear, this human behavior could be modeled on a Commodore 64, why is this beyond economists?

@Claire,

Your family's scenario in the UK will work for those sellers (who then become buyers) who have enough equity in their homes to be able to leave the sales transaction with some cash, or at worst to break even. The millions of people who bought at or near the top of the market (2005-2007) don't have the luxury of accepting less than their purchase price + closing costs, as they would have to bring cash to the table to close. This IMO will be a huge disincentive to sell beyond the seller psychology referenced in that NYT article. These people will most likely hold on for dear life as long as possible, hoping beyond hope that prices will rebound, or now that the government will bail them out, until it's too late and they face foreclosure.

So, we’ll see the FBs sell all right, but if they can put it off 6 months (and yes, lose even more money) that’s exactly what they will do.

I swear, this human behavior could be modeled on a Commodore 64, why is this beyond economists?

That's exactly right. I do think sellers will hold on as long as possible. Especially because many Realtors (tm) are still whispering in their ears that the market will bounce back in a season or two. Granted, some savvier Realtors (tm) are telling potential sellers to sell now, before they "lose" even more money, but much of that is motivated by the Realtors (tm) trying to get transactions, ie, commissions in a stalled market.

"Granted, some savvier Realtors ™ are telling potential sellers to sell now, before they “lose” even more money"

And telling the buyers there are multiple offers, bid higher above asking!
I would say sleaze is rampant.

Different Sean - we certainly are not seeing a tranparent open market place where all the information are known.

Skibum

Great article. I can see this happening here but I doubt so many people will be able to hold out as in the past. With all the neg-am loans and whatnot, who's going to be able to sit on their overpriced $hitbox after the loan adjusts?

skibum said:
many Realtors â„¢ are still whispering in their ears that the market will bounce back in a season or two.

This is usually the newbie realtors who got into the game after 1999. These are your "eight year veterans", who only rode the boom years and have no idea what a housing slide looks like. They only know how to talk the happy talk - and are themselves hoping that everything will be booming again so they can keep up their own tasteless overconsumption.

The respectable, experienced realtors seem to be quietly telling sellers to sell now for 10% below peak, or wait and sell at 25% below peak in a year or two. Of course, they still maintain a cautiously upbeat tone in public, to avoid spooking the few buyers that are still out there.

SP

Claire,

As far as I can tell, the elapsed time between reset and a given property coming to market as REO is shaped by too many variables to submit to a good estimate.

We're fond of presenting the delinquency, default, foreclosure, REO scenario here, but there's also workouts, short sale, bankruptcy and jingle mail to consider, any combination of which can screw up your time line.

Six months sounds as good an estimate as any, I guess, but I'm not sure I expect that March spike to show up intact in October - it may be somewhat diffused by then.

svcausguy Says:
Different Sean - we certainly are not seeing a tranparent open market place where all the information are known.

well, not that, no, but there can be more to creating a stable social settlement than transparent markets -- the stock market is reasonably transparent but regularly booms and busts. Housing is being exploited too much as a commodity or income-producing asset these days, in my book. It's not illegal, of course -- altho it would be in my workers paradise...

e.g.

The New Money Pit: Housing Bust Gets Worse
It started with subprime mortgages. Now owners of McMansions are defaulting, and the effects of the housing bust are beginning to ripple through the economy.

By Daniel Gross
Newsweek
Sept. 10, 2007 issue - Walking through the gated community of Black Mountain Vista on a hill in Henderson, Nev., Thomas Blanchard offers a guided tour of real-estate woe. A row of stucco duplexes that recently sold for as much as $500,000 sit empty. "That's a repo," the real-estate agent says as he stands in front of 678 Solitude Point Avenue. Then he points to the adjacent houses, where yellow patches blot the spartan lawns and phone books lie on front porches, their covers bleached from weeks under the desert sun. "No. 680, repo; 684, repo. Those two at the end, repo."

Three years ago, this Las Vegas suburb was teeming with modern-day prospectors armed with low-interest mortgages, all hoping to strike it rich in real estate. Now, what started with the subprime-mortgage mess and subsequent credit crunch are turning communities like Black Mountain Vista into luxury ghost towns. Buyers who got in over their heads are being forced to abandon their homes, leaving behind empty McMansions on the California coast and see-through condominium towers on Miami Beach. Real estate is turning into a money pit, sapping the fortunes of home buyers, hedge-fund managers and house painters alike. The really bad news? This is only the beginning. [...]

http://www.mercurynews.com/ci_6982565?nclick_check=1

Tax perk costs Santa Clara County
ENDING PROPERTY TAX BREAK CONSIDERED

Bruce,

I was also thinking that the pain from Feb, March, April and May's resets would all be coming into play in September 08. I guess maybe Jan 09 might be the time to start thinking about buying a house, but I'm wondering if the goverment/market will have come up with another solution that will help the poor FB's by then and ruin our chances.

Claire,

I think I prefer watching the builders' monthly opinion poll. It's been a good leading indicator, perhaps one of the best. No false signals so far and a five to six month lead in the bargain.

If we find ourselves in a Japan-style deflation, however, all bets are off for my plan and back to the drawing board.

BA Craigslist ShortSaleOMeter rises to 80 listings for Sept. 21&22. On the other hand, I finally ventured out to an open house this weekend, and it was hopping.

I was also thinking that the pain from Feb, March, April and May’s resets would all be coming into play in September 08.
The Presidential election is going to be wild. I am predict that the first candidate to recommend public floggings for specuvestors that owned four or more "primary residences" will win...

The Presidential election is going to be wild. I am predict that the first candidate to recommend public floggings for specuvestors that owned four or more “primary residences” will win…

This is America. And speculation is not a crime here.

Losing speculators should be allowed to fail. That's it.

And speculation is not a crime here.
Peter, there may be a little bit of fraud involved if the specuvestor owned four or more "primary residences" (see Casey Serin)...

Peter, there may be a little bit of fraud involved if the specuvestor owned four or more “primary residences” (see Casey Serin)…

Me bad.

Juggling (3) "primary residences" is perfectly fine. (I'm doing so myself) BUT... 4 or more might be pushing it a tad. I mean, c'mon let's not get greedy here!

"luxury ghost towns"

"see-through condominiums"

Good. Good stuff.

This is WAY OT here, but does anyone else find the UAW impending strike against GM completely asinine? So we have US automakers tanking, doing the worst they've done in history, barely able to stay afloat. Then we have the UAW union pushing for more more more and planning a massive strike. I have no love for the GM (or other US automaker's) management at all, but I find this whole move completely suicidal. So, let's watch the UAW bring down the last legs holding up the US auto industry. We will finally no longer be able to buy US autos. Good riddance.

BTW, isn't one of the major reasons the US automakers are in such dire straits precisely because they've given too much to unions already? The employee buyouts, pensions, health coverage, etc etc.

Okay, now I'll duck before DS posts...

This is America. And speculation is not a crime here.

Quite the opposite. Speculation has come to be viewed as one of the highest callings in the land. After all, money made on the value created by others is certainly an easier and faster route than creating it yourself. The best buck is a fast buck!

And, once you have bet your way to the top, you can play on America's historical deference to the wealthy. We as a culture are not concerned how you made your fortune. Our, my, personal desire to climb in the moneyed ranks, to be viewed in a positive light from those above, this will drive me toward your goals. The fruit of our relationship does not need to address the difficult questions regarding the populace and how to create long term value. (Well of course your fortune was built upon them, but you left their ranks long ago and I shall be leaving soon too.) Those concerns are important, but only so much as you and I can continue to accumulate wealth. And we deserve this, for we are the root of all great things in the modern age, we are Investors.

Ghosts never had it so good! No more dank haunts for me!

DinOR -

Just think of all the shoddy cosntruction the ghosts will have to put up with though!

So we have US automakers tanking, doing the worst they’ve done in history, barely able to stay afloat.

I am a fan of Alan Mulally, Ford will be great!

@DinOR,

That gives me a great idea for the next great reality TV show:

Ghost Hunters meets Flip that House --> you get,

Ghost Flippers.

Claire,

LOL! I can't imagine it will be all that long before they are unfit for this life OR the next?

Skibum,

I don't think your post is too far off topic. Homeowners, management and unions all share one thing, human psychology. It's hoarding behavior, pure and simple. In times of perceived scarcity people tend to hold out for the most they can get, even at their own expense, and they will do so until their internal logic has completely and totally collapsed.

The "fraud" aspect may prove interesting:

Many people in areas where the FHA relief loans are feasible may not apply because applying will reveal the fraud from the prior loan

Some lenders may be very willing to reshedule debt or cooperate in a short sale to dissolve a fraud tainted loan

We may see lawsuits from FBs who fork-tongued their loan apps, claiming that the lender was negligent for granting the loan without proper proof.

does anyone else find the UAW impending strike against GM completely asinine?

Yep

"Ghost Flippers"! Love it!

Tune in as our paranormal research team attempts to update this 2006 "vintage" McMansion!

Seriously though, there are a few web sites that seem to specialize in abandoned/neglected flips and that are already looking scary.

Btw, UAW always goes on strike when the company can least afford it.

Headset,

But who would they bring the class action suit against? Many of those guys are already belly up. Then again that hasn't stopped anyone before!

So, DinOR

Are you going to add a 4th to your 3 stages of house? You know, your "starter", "dream," and "final?" Perhaps you can put "forclosed" after dream, but before final?

But who would they bring the class action suit against?

Whoever is currently servicing the load. Some are trying to hold Wachovia responsible because assets they purchased were from companies old enough tp have profited from slavery.

Headset,

Absolutely! As ColoradoBear points out, it no longer matters "how" you get there at all! I think I shall call this phase... the "walk away and start over" home?

DinOR - Sorry, for the curiosity, but did your daughter go ahead and buy the in-laws house?

If people walk away from their mortgage obligations, how long is it until they can buy another house currently - and do you think that tiem lag will get shorter or longer?

"Whoever"

Whoever indeed. I worked at FleetBoston during what Savage described as "rape-a-nation". Problem solved. Proceed.