Housing Bubble

A few years ago, people were using their homes as ATMs to purchase all sorts of consumer goods including cars. More recently, desperate home sellers were offering to throw in a “free” car with the purchase of a house. Now at least one auto dealer is offering to pay your mortgage. This morning I heard a commercial for one of the local Phoenix Nissan dealers (one that receives frequent complaints from people who appear to not pay very close attention to what they are purchasing). The ad offers to make your mortgage payments for the rest of the year when you buy a car from them, even if your mortgage is as much as $2,000, without changing the sale price of the car. I suspect that means without lowering the sale price of the car below the point of profit. It doesn’t strike me as a sensible way to avoid foreclosure.

The Arizona Republic is catching up with reality: Foreclosures across metro Phoenix number 16,647 for the first half of the year compared with 9,966 during all of 2007 and 1,070 in 2006. … “It has become more of an equity problem than a subprime problem,” said Tom Ruff, a real-estate analyst with Information Market. … Notice of trustee sales, or pre-foreclosures, also continue to climb. There were 35,111 pre-foreclosures filed in Maricopa County through July. That compares with 30,166 for all of 2007.The article also notes that the median resale price for a home in Phoenix is now $210,000, down 30% from the peak in 2006. More people are speculating about reaching a bottom. That would be nice, but we’ve still not seen a peak on preforeclosures, which set another record in June (6929, vs. 6416 in May). For comparison, the total sales volume in June was 5748 (and 5656 in May), according to the Arizona Realtor’s Association. (These stats via Einzige, thanks!)

After I counted up May’s 6416 notices of trustee’s sales in Maricopa county I took a look at the graph for May of 2007 and I just had to laugh. If you’ll recall, May of 2007 was Phoenix’s break-out month for pre-foreclosures. It was the month when the real estate bubble showed us that it wasn’t an also-ran, trouncing the dot bomb’s NTR record by almost 300. Yet here we are a year later and last May’s 2009 notices seem almost like something to pine for. Notice also the Gaussian descriptive statistics I was naïvely including with my posts back then. If we were to take those number seriously - in particular the standard deviation - then we’d be forced to conclude that May 2008’s number should essentially be impossible. Clearly foreclosure statistics are not Gaussian. <img style=“display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;” src="/images/08MayNTR.jpg" border=“0” alt=“Click for large version"id=“BLOGGER_PHOTO_ID_5209193472323903762” />

The Arizona Republic reports today that Arizona State University’s director of real estate studies at the Morrison School of Management and Agribusiness has been presenting an unrealistically rosy picture of home resales in Maricopa County by including trustee sales as resales. Trustee’s sales are when banks take possession of a property from a borrower in default. As readers of this blog are aware, trustee’s sales have been going through the roof–Einzige has been reporting notices of trustee’s sales, issued when borrowers fall 90 days past due on their mortgages. The most recent such report was for April. By including trustee’s sales, Butler’s numbers showed home resales up 15 percent in April 2008, year over year, the first uptick for year-over-year resales since July 2005. The Arizona Regional Multiple Listing Service, on the other hand, showed a 12 percent decrease. Apparently Butler failed to notice–or didn’t see the point in telling–that over a third of his reported resales were trustee’s sales (2,025 of 5,585). The corrected number for actual sales was 3,565 (lower than ARMLS’s number of 4,874). Compare that to April’s notices of trustee’s sales–6,184–and you see the the immediate future prospects are bleak, not rosy. Homes are going on the resale market much faster than they are selling, which means further inventory growth and home prices have farther to fall. Butler has agreed that he made a mistake and will report trustee’s sales separately from now on.

<img style=“display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;” src="/images/08AprNTR.jpg" border=“0” alt=““id=“BLOGGER_PHOTO_ID_5196577505470399650” />Based on this chart, Ray Kurzweil would undoubtedly predict that in late 2009 or early 2010, Maricopa County will reach its foreclosure singularity - the moment at which all homes will simultaneously be served notices of foreclosure and beyond which it is impossible to predict what will happen. April’s 6184 notices were yet another unprecedented high. Historical Comments Michael Norton (2008-05-05): Perhaps Doug Adams would call it the "trustee sale event horizon"? ...

Last November, I reported that year-over-year foreclosure rates had doubled and Arizona ranked #7 in the nation for foreclosures. Reuters reports that national foreclosure filings have gone up another 57% for the twelve-month period ending in March 2008. Arizona has been in fourth place for each of the first three months of 2008, despite foreclosures falling by 5% in March, and remains at the #7 position for overall number of foreclosures. The twelve-month total foreclosure rankings: 1. California 2. Florida 3. Ohio 4. Georgia 5. Texas 6. Michigan 7. Arizona 8. Illinois 9. Nevada 10. Colorado The March 2008 foreclosure rankings: 1. Nevada (1 in 139 homes) 2. California (1 in 204 homes) 3. Florida (1 in 282 homes) 4. Arizona (1 in 283 homes) 5. Colorado (1 in 339 homes) 6. Georgia (1 in 351 homes) 7. Ohio (1 in 448 homes) 8. Michigan (1 in 475 homes) 9. Massachusetts (1 in 486 homes) 10. Maryland (1 in 538 homes)

Arizona ranked #11 for income growth among the states in 2006, but dropped to dead last in 2007, primarily due to the fact that so many jobs in the state have been dependent upon real estate. Note that one economist quoted in the cited article expressed skepticism about this result, and attributes it instead to an overestimate of Arizona population growth by the Bureau of Economic Analysis.

Maricopa County had another record month for notices of trustee’s sales. 5370 pre-foreclosure notices sent out to Phoenix area home owners… Remember that last month’s figure was 5048 notices, while the number of homes sold in February was only 3448… These numbers, not surprisingly, continue to exert downward pressure on home prices in the valley. January’s median price of $220,000 fell to $213,800 in February…

It looks like I picked the wrong month to slack on an update to my graph of Phoenix area pre-foreclosures, as January’s notices of trustee’s sales climbed to an amazing 5336! That’s 1461 higher than December’s number, and when you consider that last January’s number was 1623, and that the peak seen by the bursting of the Tech bubble (which, by the way, is hardly noticeable in this graph), in January, 2003, was 1738 I think it becomes clear that we are witness to something rather scary. February’s number dropped to a measly 5048. <img style=“display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;” src="/images/0802NTR.jpg" border=“0” alt=“Click for full size"id=“BLOGGER_PHOTO_ID_5174474898444172498” /> ...

I’d seen similar blogs for California cities, now I’m glad to see there’s one for Phoenix. The site lists homes currently for sale at a loss, ordered from greatest total loss to least. Most of these homes have been flipped multiple times before the current flipper got stuck with it. Despite what a realtor might tell you, when you see homeowners repeatedly reducing prices like this, it is not a good time to buy. It’s a good time to wait and watch prices continue to drop. When you start seeing prices go back up for a while, then it might be a good time to buy–it’s much better to buy after things have bottomed out and started to increase again than it is to buy on the way down. That’s sometimes referred to as “catching a falling knife." I wouldn’t consider buying anything until 2010 at the earliest. We haven’t yet even seen the peak of subprime ARM resets, which should hit in the next few months. Then we still have Alt-A ARM resets to peak after that. ...