Matrix Blog

Distressed Housing

Low Housing Inventory Is NOT A Sign of Housing Recovery

July 9, 2012 | 10:49 am | |

I wrote “The Decline In Inventory Right Now is NOT a Good Sign” back in February, but there has been a more refined discussion about low inventory recently. Back then my orientation was more about the “robo-signing” scandal causing a drop in distressed listings as servicers held back supply – as well as the lack of confidence by sellers over whether they can achieve their price.

Stan Humphries, chief economist of Zillow has been a guest on my podcast and penned a great piece about it a few weeks ago called “The Connection Between Negative Equity, Inventory Shortage and Increasing Home Values: Why the Bottom Won’t Be as Boring as We Expected” tackling the impact of negative equity on inventory.

CoreLogic reported (via Nick Timiraos/WSJ) that the supply of homes for sale declines as negative equity increases.

David Rosenberg, chief economist as Gluskin-Sheff, and whom I had the pleasure of meeting with for dinner a few months ago, presented a great series of charts in his newsletter (via ZeroHedge).

It basically presents the idea that “upside-downers” ie those with negative equity, can’t list their homes for sale because they don’t have equity (or enough equity) for the next one.

Here’s the most compelling excerpt:

According to data cited by the USA Today, the supply backlog where over half of homeowners are “upside down” on their mortgage is at 4.7 months’; in areas where “upside down” borrowers make up less than 10% of the market, the listed inventory is closer to 8.3 months’ supply.

In other words, in markets with unusually tight inventory, prices are being “goosed” higher, not because the housing market is improving, but because there are fewer houses in the game. Low mortgage rates are artificially creating excess demand, with those buyers fighting over the slim pickings of sellers who can actually sell.

That, my friends, is NOT a housing recovery.

More visuals:



The Decline In Inventory Right Now is NOT a Good Sign [Matrix]
David Rosenberg Explains The Housing “Recovery” [Zero Hedge]
The Connection Between Negative Equity, Inventory Shortage and Increasing Home Values: Why the Bottom Won’t Be as Boring as We Expected [Zillow Real Estate Research]
Why Aren’t There More Homes for Sale? [WSJ Developments Blog/Nick Timiraos]

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Visualizing US Distressed Sales – Katrina Edition

June 7, 2012 | 2:28 pm | |

The WSJ presented a series of charts on US distressed properties based on information from the St. Louis Fed (most proficient data generators of all Fed banks) and LPS.

Here are the first and last maps of the series. To see all of them, go to the post over at Real Time Economics Blog at WSJ.

A few thoughts:

  • The distress radiates out from New Orleans 7 months after Hurricane Katrina hit. There was relatively tame distressed sales activity in the US in 2006, the peak of the US housing boom.
  • The article makes the observation that distressed activity is seeing some improvement in 2010. However the “robo-signing” scandal hit (late summer 2010) and distressed activity entering the market fell for the next 18 months as servicers restrained foreclosure activity until the servicer settlement agreement was reached in early 2012. This is likely why the distressed heat maps show some improvement.
  • The music stopped when people couldn’t make their payments en mass circa 2006, the US national housing market peak. It’s quite astounding how quickly credit-fueled conditions collapsed across the US.

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[The BBQ Interview] Rick Sharga of Carrington Mortgage Holdings – “Why is REO Volume Down?”

May 30, 2012 | 3:24 pm | |

I was looking for guidance/insight on the issue of future REO volume because I had anticipated a faster pickup in REO volume once the state AG agreement was signed with the major servicers (ie being held back after robo signing scandal) but that is yet the case.

One of the most knowledgeable people in the business and a good friend (as well as an expert in the field of the BBQ) is Rick Sharga, Executive Vice President of Carrington Mortgage Holdings so I traded emails with him, compiled it and received a great overview of the topic:


Miller: Most pundits are looking at all the price metrics saying things are improving and inventory is low. To me it feels like there is an essential component not being factored in and that is foreclosure shadow. Am I overly concerned about it? I thought we were looking at several years of heavy volume. In fact S&P says 48 months of heavy REO volume.

Sharga: I break REO into two distinct phases: activity and inventory. Both have been falling. Inventory levels have been falling largely because of an unexpected drop-off in activity levels. That drop-off has slowed down the pipeline of new REO inventory, and the market has gradually been whittling away at the existing inventory. We seem to have reached a plateau of about 500,000 REO sales a year, and the question of how long it will take to clear the market is a good one. I don’t think we’ve peaked yet in terms of inventory (LPS believes that REO inventory levels will peak in 2015, and they may be right, based on how many seriously delinquent loans there are, and how long it takes to execute a foreclosure).


Miller: But why is volume down?

Sharga: The activity levels being down is a bit of a surprise, but in hindsight probably shouldn’t be. There are several factors at play here. First, from a positive perspective, we’re seeing dramatic increases in short sales. That’s a good trend for everybody – lenders lose less, buyers get a good deal, borrowers take less of a credit hit, properties don’t deteriorate as much and prices don’t drop as far. Every short sale essentially means one less REO, so they’re definitely a factor to consider.

Second, we’re (finally) starting to see some sales of non-performing loans (NPLs) by the major lenders; we’ve purchased two portfolios worth between $150-250 million in the last few months. Those sales at the very least delay REO actions while the notes are being transferred. Then, in cases such as ours where our mortgage servicing unit starts contacting the delinquent borrowers, a lot of loans are modified and taken out of foreclosure. Those that can’t be modified are typically offered the option of a short sale. So foreclosure actions actually are reduced by NPL sales.

Third, the long-awaited AG settlement has had a bit of an unintended consequence in this area. While we anticipated – and have seen – the return of foreclosure processing in some of the judicial states where the engines had seized up during the AG negotiations, we’ve also seen an unexpected drop in activity in the non-judicial states. Part of this is due to the terms of the settlement. The five largest servicers have agreed to write off about $20 billion in principal balance on their delinquent loans. A high percentage of these loans are in the Southwest, in non-judicial states like CA and NV. These states also had some of the largest price declines from peak to trough. The servicers have financial incentives to meet their $20 billion amount as quickly as possible (one servicer, for example, is believed to have a “dollar for dollar” incentive on anything it writes down this year). So, the quickest way to meet the write down requirement is to target delinquent loans in the Western non-judicial states. “Dual tracking” is now illegal. Therefore, it makes sense for the servicers to halt foreclosure actions on these properties and see if the borrowers qualify for the write downs. How big is this? BofA announced that it had already made offers to 200,000 borrowers. The huge drop off in REO activity in these states won’t be offset by increases in the judicial states; even though they’re starting to execute foreclosures again, it will take time to unclog the system in those states and get through the processes.

Finally, some of this is localized (Nevada has some new laws that make it difficult to execute a foreclosure without the original mortgage note); and some of it is due to pending Federal programs (HAMP Tier 2 is scheduled to launch next month, which will require servicers to see which of their previously un-modified loans will qualify for the latest government program).


Miller: What about that shadow inventory we’ve all been hearing about, and the several million seriously delinquent loans not yet in foreclosure?

Sharga: It probably means that fewer of them will make it through to REO status, and that the ones that do will get there in a very measured, controlled manner. This makes the LPS scenario believable: all those delinquent loans gradually working their way through the foreclosure process over the next 2-3 years but not creating a flood of REO inventory; peaking sometime in 2015, and falling pretty dramatically after that.


Miller: This is very helpful, thanks. Another important topic of the day is BBQing. Any sage advice for a novice?

Sharga: Always remember my “never fails,” three step grilling mantra:
1. Buy the best food you can find
2. Use 100% hardwood chunk coal
3. Stay out of the way and try your best not to screw anything up

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[Interview PART II] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

October 6, 2011 | 8:21 am | Podcasts |

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[Interview] Rick Sharga, Senior Vice President, RealtyTrac

December 12, 2010 | 7:00 pm | | Podcasts |

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[Interview] Orest Tomaselli, CEO, National Condo Advisors, LLC, National Condo Inspections, LLC

June 30, 2010 | 12:06 am | Podcasts |

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[NAR] Existing Home Sales Decline 2.2%, But a ‘Northeaster’ Weighed Down the Results

June 22, 2010 | 12:55 pm | |


[click to expand]

NAR released its May existing home sales report today. This was one of the most bizarre existing home sale reports I can recall.

First of all, the expectation of a drop in sales activity was widely expected due to the end of the federal tax credit, yet economists surveyed were anticipating an increase in sales in May? Real estate professionals were bracing themselves for a decline in sales in May.

Economists surveyed by Dow Jones Newswires expected existing-home sales to climb by 5.0%, to a rate of 6.06 million. The surprise decline followed two increases driven by a tax incentive for first-time buyers that the government enacted to spur a housing sector recovery.

I viewed the impact of the tax credit as “poaching” sales from the next 60-90 days rather than a vehicle to jump start the housing market. We really need jobs first.

But if you look closely at the data, M-O-M sales were up or flat in each of the 3 regions except the northeast, which posted an 18.3% seasonally adjusted decline.

The report headline was generally accurate “May Shows a Continued Strong Pace for Existing-Home Sales” if you remove the northeast from consideration.

Sales price showed the same pattern. While US prices were up 2.7% M-O-M, the northeast prices declined 2.2%.


[click to expand]

My interpretation of this “Northeaster” centers around foreclosures. The south and west posted significant foreclosure activity and price declines nearly 2 years ahead of the northeast. The midwest hasn’t seen the same volatility as the other regions. Perhaps the west and south have been pummeled enough that they are actually seeing a bottom in both sales and prices trends. Foreclosure activity is flowing freely while the northeast seems to be lagging in that regard.

Ok, I’m reaching through generalizations but why the disparity by region?

Here are this month’s metrics:

  • existing-home sales fell 2.2 percent to a seasonally adjusted annual rate of 5.66 million units in May down from a revised 5.790 million in April
  • existing-home sales are 19.2 percent higher than the 5.1 million-unit pace in May 2009.
  • housing inventory fell 3.4 percent to 3.89 million existing homes available for sale from April 10 but is 1.1% above last year
  • there is an 8.3-month supply down from an 8.4-month supply in April and down from a 9.7 month supply last year.
  • national median existing-home price was $179,600 in May, up 2.7 percent from May 2009.
  • distressed homes accounted for 31 percent of sales last month, compared with 33 percent in April 10 and 33 percent in May 09.


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[The Housing Helix Podcast] Travis Waller, CDPE, CRS, RE/MAX, Distressed Property Realtor

June 11, 2010 | 2:33 pm | | Podcasts |

Last January I moderated a distressed property panel at the Inman Real Estate conference in New York.  One of the panelists was Travis Waller, a sharp real estate agent from New Jersey who spoke with great clarity on his specialty, distressed real estate.  In this podcast we have a great conversation via Skype on what life will be like after the end of the federal tax credit for first time and existing home buyers, how banks are coming to grips with property disposition, differences between short sale and foreclosure transactions, marketing distressed property, to name a few.

It’s great insight from someone who deals with distressed property first hand.  Follow Travis on Twitter.

Check out the podcast.

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


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[Interview] Travis Waller, CDPE, CRS, RE/MAX, Distressed Property Realtor

June 11, 2010 | 2:24 pm | | Podcasts |

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[RealtyTrac] Overall Foreclosure Activity Surpasses 300,000 For 15th Straight Month

June 10, 2010 | 12:17 pm | |


[click to open report]

While the headline of RealtyTrac’s May 2010 US Foreclosure Activity report indicates foreclosures fell 3% in May (322,920).

The numbers in May continued and confirmed the trends we noticed in April: overall foreclosure activity leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months,” said James J. Saccacio, chief executive officer of RealtyTrac. “Defaults and scheduled auctions combined increased by 28 percent from 2007 to 2008 and another 32 percent from 2008 to 2009 — creating a build-up of delayed bank repossessions. Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed.


[click to open report]

The press release headline suggests some modest improvement, but when its bad, a little less bad is not really better, its just less bad. The numbers are still huge. 15th month in a row with filings in excess of 300,000.

I dubbed 2010 as the “Year of the Short Sale” because lenders will find this alternative cheaper than actual foreclosure.

Here are some of the metrics of the report:

  • Nevada (1 in every 79 housing units receiving a foreclosure notice), Arizona (1 in every 169 properties received a foreclosure notice), Florida (1 in every 174 Florida properties received a foreclosure notice) post top state foreclosure rates
  • 10 states account for more than 70 percent of national total
  • 22% of filings are in California

Here’s the master table:


[click to open report]



[Trulia/RealtyTrac Survey] Attitudes Get Hammered

May 20, 2010 | 11:02 pm | |

Today I Iistened in to an informative conference call hosted by Trulia’s co-founder and CEO Pete Flint and RealtyTrac‘s Rick Sharga. As always great stuff, and I got to act like a reporter and ask a question – lots of reporters were on the line. More on my question in a later post.

Pete commented that as we go into a housing market of declining government support, foreclosures will continue to become an integral part of the housing market – loan mod programs were not making an impact on foreclosure volume. Rick suggested the “short sale” phenomenon was over hyped because it will not solve the significant foreclosure problem. Foreclosures will peak in 2011 and then return to normal levels by 2013. 5.5M properties in serious delinquncy, 100k new foreclosures per month with a 55 month supply.

Interesting survey results (press release or on Trulia Blog)

  • 59 Percent of homewoners with a mortgage would not consider walking away from their home no matter how much their home is “underwater”.
  • 1 Percent of Homeowners With A Mortgage Say Walking Away Is Their First Choice If Unable To Pay; 69 Percent Say Modifying Their Loan is Their First Choice
  • While the stigma around owning a foreclosure has subsided, interest in purchasing a foreclosure is significantly down year-over-year
  • For every borrower who avoided foreclosure through HAMP last year, another 10 families lost their homes. It now seems clear that government programs will not reach the overwhelming majority of homeowners in trouble
  • 18 percent of U.S. adults expect bank-owned homes to offer a realistic price discount of less than 25 percent off the value of a similar home that was not in foreclosure
  • 36 percent saying that they expect to receive a discount of 50 percent or more when purchasing a bank-owned property
  • 78 percent of U.S. adults believing there are downsides to buying foreclosed properties compared to 85 percent in May 2009
  • The majority of U.S. adults (92 percent) said they would be willing to invest in improvements such as renovations and remodeling if they purchased a foreclosed home
  • Renters are showing strong interest in buying foreclosed properties, with 57 percent at least somewhat likely to purchase a foreclosed home in the future



[The Housing Helix Podcast] Steven Einig, Esq, Einig & Bush LLP, Mortgage Foreclosures and Workouts

April 25, 2010 | 6:16 pm | Podcasts |

Last month I was a panelist at an Institute of Real Estate Management (IREM) conference covering lending trends. I was matched up with 2 lenders and attorney Steven Einig. I appreciated his take on the escalating foreclosure situation and his ability to articulate it.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


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