patrick.net

It's human nature to think that the big jackpot is always "right around the corner". If not for this phenomenon, there would be no gamblers or Vegas. Take the hero huckster Peter Schiff, for example: his entire schtik is that his advice will pay off "right around the corner".

And I think the black swan will surface only when we stop looking for it.

Banks clearly have the ability to maintain large inventories. The billion dollar question is "for how long." As far as I can tell, it is indefinite as they still stand to lose a lot more by releasing gobs of inventory. As noted above, a black swan event could change that. The thing with black swan events is that you really don't see them coming. A bunch of people usually guess the initiating event in advance, but I think that it is often luck of the draw making them right more than sage wisdom.

so I guess the foreclosure tsunami is not coming after all... however I am sure bank savings interest rates and CD's will still drop from 0.nothing% to 0.even-more-nothing%

Where is that Tsunami of foreclosures?

About 5 years ago.

If banks are letting people squat and they are not selling inventory, more and more people are realizing that they can only gain from squatting. Basic queuing theory would tell you that there is more inventory coming in than going out, so inventory should be going up, not down. So, what's the catch here? Well, what the realtard is not showing you is the "real" shadow inventory, which is the number of deadbeat house owners which haven't yet received their NTS. This squatting inventory is many times bigger than the 20,000 that the realtard alleges, there is, and this is the inventory which is going up every month, month after month. So, the magician realtard is saying "see, there is no coin in my hand", but the coin is in his pocket. He is only showing you the tip of the iceberg, but there is a huge sheet of ice just under the surface. But, if you are really gullible enough to believe that there is only 20,000 inventory, then, even with 1.5 years of inventory, this is a sign of a very sick market, because, a healthy market is only 6 months of inventory, and with 1.5 years, prices should still be dropping.

We bought a fixer in February in Danville and already have 20% equity! No more PMI for us! Sweat equity and patience paid off! Now our house payment is lower than rent!

sheltielover1 says

We bought a fixer in February in Danville and already have 20% equity! No more PMI for us! Sweat equity and patience paid off! Now our house payment is lower than rent!

Keep dreaming, you cool-aid drinker. It's more like you have -20% equity.

dunnross says

If banks are letting people squat and they are not selling inventory, more and more people are realizing that they can only gain from squatting.

Are you suggesting that more and more people are squatting? What are people doing, "buying up" houses just to squat in them? I'm pretty sure the NINJA-loan gravy train dried up a long time ago.

dunnross says

sheltielover1 says

We bought a fixer in February in Danville and already have 20% equity! No more PMI for us! Sweat equity and patience paid off! Now our house payment is lower than rent!

Keep dreaming, you cool-aid drinker. It's more like you have -20% equity.

You're just jealous! The numbers do not lie and everyone needs to have a place to live! I can now look at my home and bank account and smile. No worries over a crappy landlord or having a place to live. Unless you just hit the lottery or inherited a large amount of money we all have a monthly payment for a roof over our heads!

wthrfrk80 says

Are you suggesting that more and more people are squatting

You wish! People are not "Buying up" any houses to squat in them. With more than half of mortgage holders in phoenix already under water, you don't need to buy, in order to squat. Just stop paying mortgage, that's all.

dunnross says

sheltielover1 says

We bought a fixer in February in Danville and already have 20% equity! No more PMI for us! Sweat equity and patience paid off! Now our house payment is lower than rent!

Keep dreaming, you cool-aid drinker. It's more like you have -20% equity.

I was a very active member of the Housing Bubble Blog for years and rented for almost 9 years.. I AM FAR from a koolaide drinker! Even fellow followers of the blog have seen my house and think we did the right thing.. Why do you have to tear people down and criticize? Be happy for once!

sheltielover1 says

No worries over a crappy landlord or having a place to live.

Yes, no worry about a crappy landlord. But you have to worry about a crappy boss who will fire your ass, and you will be back to renting faster than I can say "Negative Equity"!

dunnross says

With more than half of mortgage holders in phoenix already under water, you don't need to buy, in order to squat. Just stop paying mortgage, that's all.

Fair enough. But if the banks don't seem to mind people squatting, why would those houses ever hit the market?

sheltielover1 says

I was a very active member of the Housing Bubble Blog for years and rented for almost 9 years.. I AM FAR from a koolaide drinker!

Remember, the goal of the bubble is to pull in as many people in, as possible, both before and after it pops. If houses just kept on dropping in price, people would stay away, and nobody would be suckered in. So, that's why you have these, dead-cat bounces on the way down. You are just one of those cool-aid drinkers, who got sucked in on the way down, instead of way up. There is absolutely no difference, between a knife catcher, like you, and somebody who took the plunge back in 2006.

dunnross says

Remember, the goal of the bubble is to pull in as many people in, as possible, both before and after it pops.

Are you suggesting the bubble was somehow "engineered"?

As they say, never attribute to malice which can be adequately explained by stupidity.

dunnross says

sheltielover1 says

No worries over a crappy landlord or having a place to live.

Yes, no worry about a crappy landlord. But you have to worry about a crappy boss who will fire your ass, and you will be back to renting faster than I can say "Negative Equity"!

Luckily I am a highly educated and credentialed IT worker who has skills which are in high demand. I do not think finding a new job would be a problem for me.. In fact I'd probably get a $20 - $30k raise leaving my current job...

dunnross says

sheltielover1 says

I was a very active member of the Housing Bubble Blog for years and rented for almost 9 years.. I AM FAR from a koolaide drinker!

Remember, the goal of the bubble is to pull in as many people in, as possible, both before and after it pops. If houses just kept on dropping in price, people would stay away, and nobody would be suckered in. So, that's why you have these, dead-cat bounces on the way down. You are just one of those cool-aid drinkers, who got sucked in on the way down, instead of way up. There is absolutely no difference, between a knife catcher, like you, and somebody who took the plunge back in 2006.

So you're saying rents are going to plunge as well?? I think not.. I have a fixed 30 year mortgage we will pay off in 10 years and I don't think of a house as an "investment." It is a place to live.. I am happy... Payment is cheaper than rent and a much nicer house in a great area...

wthrfrk80 says

Fair enough. But if the banks don't seem to mind people squatting, why would those houses ever hit the market?

You're making a big assumption there, that banks like to be in the 0 revenue landlording business. But reality is quite opposite of perception. Banks are not landlords, and houses are hitting the market, eventually. The average time for squatting is about 15 months in California (more in judicial states). You see, squatting deadbeats are costing these banks lots of money, because they are not just paying the mortgage, they are not paying their taxes, either, and the longer they squat, the larger is the tax liability for the bank. Furthermore, squatting deadbeats are not very handy around the house, and they let these houses deteriorate. So, the houses are just sitting there, losing value, losing equity, and banks are just going to let this happen, in front of their eyes. Is that what you think?

sheltielover1 says

In fact I'd probably get a $20 - $30k raise leaving my current job...

Yes, just like you already have 20% equity in your house, which you bought in February. Heck, if making money was so easy as you think it is, maybe we should all, just quit our jobs, and start flipping houses for a living. Wait, that already happened, and most of those flippers got burned. Oh, sorry, I got carried away with all that "positive attitude" aura which seems to be contagious on this blog.

wthrfrk80 says

Are you suggesting the bubble was somehow "engineered"?

Yes, the bubble was engineered by the FED, wouldn't you say so? Most bubbles are engineered because they don't naturally happen. Problem, is, most people lose money on bubbles.

sheltielover1 says

So you're saying rents are going to plunge as well??

Yes, that's exactly what I am saying. It happened before, even in the Bay Area, and it will happen again. As it is, already, you can't find any nice places in the Bay Area right now, where mortgage is lower than rent, and if you think you can, you are fooling yourself.

wthrfrk80 says

Fair enough. But if the banks don't seem to mind people squatting, why would those houses ever hit the market?

The only way banks would not sell these houses, is if they really thought that prices were going to go up, in the future. But, reality is, prices are dropping, and, soon, will be dropping even faster.

There IS a massive inventory of delinquent mortgages. However, lenders have very little reason to bring them to market, so they just let the existing deadbeat owners continue living in them indefinitely.

The simple fact is that banks will drag their feet on foreclosure almost indefinitely if the home is under-water. The greater the negative equity the less willing the lender will be to foreclose.

To put it another way, it is better for banks to let deadbeats slide and keep the mortgage on the books at an unrealistic valuation rather than start foreclosure proceedings and have to book a loss. Most banks are so capital impaired that recognizing the losses these delinquent mortgages represent would make them insolvent (i.e. bankrupt). When the choice comes down to going out of business or letting deadbeats squat in homes the bankers will ALWAYS choose stay in business (and keep those bonuses coming).

The implication is that we are going to be facing a situation with undercapitalized banks with hidden mine-fields on their balance sheets for 10 or 20 years, as the system slowly works off the bad debt.

No one should expect any kind of "Tsunami" of foreclosures. It is in NO ONE'S interest to see a flood of foreclosures hit the market, so we won't.

The regulators will NEVER pass rules forcing true accounting valuations (which would force half the US lenders into insolvency), and the banks certainly aren't going to voluntarily admit the truth (i.e. by writing down bad debt). The result is a LONG period of a zombified economy with banks, businesses, and borrowers who look like the real thing but are really dead and rotting on the inside.

Ironically, this whole phenomena of zombie banks and companies is EXACTLY what has been playing out in Japan for the last 22 years. Japanese banks and regulators refused to write down bad debt too, and just look where that's led them.

ATK says

however I am sure bank savings interest rates and CD's will still drop from 0.nothing% to 0.even-more-nothing%

Which is a real interest rate of about negative 2.5%, thanks to inflation.

The ONE thing, at least in CA, limiting squatters is adverse possession laws. If banks let it go for 5+ years and the squatters paid all the bills and taxes, the squatters fully own the hose and the bank loses any stake in it. I would be VERY surprised if banks let that happen to even a single house. Maybe they have worked out some strategy to mitigate this with the slowest possible trickle of foreclosure activity, I don't know. Maybe they are just getting ready to sell all of the properties to institutional investors instead.

Mikhail says

Ironically, this whole phenomena of zombie banks and companies is EXACTLY what has been playing out in Japan for the last 22 years. Japanese banks and regulators refused to write down bad debt too, and just look where that's led them.

Sick isn't it? Our futures have been stolen from us. Then again, it's our fault we elect politicians that promise us a "free lunch"...even though that's a violiation of the First Law of economics.

Just think what the unintended consequences of ObamaCare will be.

Mikhail says

However, lenders have very little reason to bring them to market, so they just let the existing deadbeat owners continue living in them indefinitely.

But nobody is living indefinitely. Banks do foreclose, soon or later.

Tim Aurora says

Limited Recovery is taking place. Here in Johns Creek Georgia, the prices never plunged more than 20% and now with the foreclosures out of the way we are recovering nicely.

Here, in the Bay Area, the annual spring dead-cat bounce is definitely over. Asking prices have started heading down, and selling price are soon to follow.

So, we end the month with 500 LESS homes in foreclosure than we started. there were about 20,000 in the pipeline at the beginning of the month, so instead of ramping up, they are actually shrinking? [even in the best of times, there are always a few thousand homes under the threat of foreclosure, at the current pace in a year and half or so, we'd be back to a market with normal foreclosure rates...]

I can sort of see the logic behind the "Mark to Model" valuation scheme, since houses are not assets you sell like cans of soda. (The assumptions used by banks to derive the valuations they come up with are a different kettle of fish. I don't even think they're fully disclosed, but I could be wrong.)

But wouldn't it be nice if somewhere in the 50,000 pages of crap in today's 10-Ks and annual reports there was a requirement that banks at least take a crack at a "Mark to Market" figure in the Notes to the financials?

Anyhow, if we had numbers like that maybe we could get a feel for things. Personally, I think it would be pretty awful, but you must think differently, I guess, that the writedowns banks have already taken have left the real estate on their books at something close to fair value. Is that a reasonable take on your views?

But, what I'm really curious about is why you think it is reasonable to assume that the data for one month can be extrapolated out to each month for the next 18 months? That I'm mystified over. Can you explain how you arrived at such a conclusion? Thanks.

I don't know about Phoenix. But when I see someone who is making 30,000 to 40,000 a year think their old rotting shack is worth 449,000 or more, while in an area where family incomes are not breaking 40,000/year. I'm pretty sure it's a crash waiting to happen.

robertoaribas says

bitter and pissed off, because you screwed up in your timing!

No, I think your mother screwed up in her timing.

Dunross seems to be arguing that a forclosure tsunami is coming because:

1) Banks DON'T want to put houses on the market (because then they would lose money)

2) Banks DO want to put houses on the market (because otherwise they would lose money)

Needless to say, I don't follow the argument...

wthrfrk80 says

Dunross seems to be arguing that a forclosure tsunami is coming because:

I never said that a tsunami of houses on the MLS is coming. I simply said that the shadow inventory is growing, not shrinking, like the realtard tries you to believe. The tsunami is in the shadow, not out in the open, but this shadow is what is going to keep the prices going down for decades.

dunnross says

No, I think your mother screwed up in her timing.

My goodness. How does speculation on future price movements become personal? Wall Street guys might be ruthless scumbags but they probably don't have time to engage in personal attacks with other speculators. They place their bets on computer screens and let the chips fall where they may.

Bulls: place your bets
Bears: place your bets

Only time will tell who is correct.

dunnross says

I simply said that the shadow inventory is growing, not shrinking, like the realtard tries you to believe. The tsunami is in the shadow, not out in the open, but this shadow is what is going to keep the prices going down for decades.

Don't get me wrong. I'm not trying to defend Realtors and their shenanigans. But how do you know the shadow inventory is growing? Is there evidence/data to show this?

wthrfrk80 says

But how do you know the shadow inventory is growing? Is there evidence/data to show this?

Let me ask you this question: if you see more cars coming into the tunnel, but less cars coming out, do you actually have to walk into the tunnel to say that the number of cars in the tunnel is piling up? No, you don't, because, unlike our friend, the wannabe mathematician, you have grasped the basic concept of queuing theory.

I've heard that the SF light rail is significantly slower than the old street cars of 100 years ago. That's not very good progress.

Mark Hansen has a pretty good recount of the current status quo, and what's to come in the pipeline. In fact, Mark confirms exactly what I was trying to tell you people for over 4 months, now. Basically, the market has come to a halt. This is a very very sick market, and the shadow inventory is going to continue to bloat, prices will continue to sink, and housing recession is here to stay for a very long time:

http://mhanson.com/archives/839

dunnross says

Let me ask you this question: if you see more cars coming into the tunnel, but less cars coming out, do you actually have to walk into the tunnel to say that the number of cars in the tunnel is piling up?

No. In fluid dynamics, they call that the Continuity Equation.

Do you have data that shows there are more houses being sold than bought or something?