Buying A House

On September 8, 2010, In Bubble, Foreclosures, Moving, Psychology, By Chuck Ponzi

As readers have no doubt noticed, my posting has become more and more erratic and eventually fallen off of a cliff.

Part of that is because my professional life has come to the forefront since it is firing on all cylinders; advancements in that area come with a price tag, and the other part is because I have been diligently seeking a home for my family.  With a third addition to our family, we have decided that while there is still a great deal of danger in the housing market, we have decided to purchase a home.  Make no mistake, I am not advocating buying a house at the present time for financial reasons, I think we have a lot of malaise at the present time, but after all is told, it is about the same price as renting, since interest rates are very low.  I intend to occupy the house for a long period of time, making my entry point less important to my longer-term emotional and psychological well being of my family.

If anyone wondered, yes the house is a foreclosure, and yes it requires a lot of work.  I highly recommend having a good agent in your corner, since negotiating without one doesn’t strengthen your position, and my agent, Brad Davidson offers a rebate of a portion of his commission to offset your efforts in finding the house.  If you’re in the market, I recommend contacting him at WeHelpUBuy Realty.  He’s a good friend and excellent agent.

In the end, we waited over 6 years before becoming homeowners again, we found that the emotional decision to buy a home is quite powerful for people that have already owned; it was for us.

Feel free to ask any questions that you might have in the comments; I will be as honest as I can, keeping my identity private.

Any thoughts?

 
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The Tan Man: Day of Reckoning

On June 4, 2009, In Foreclosures, By Chuck Ponzi

thetanmanMuch like California, it looks like our favorite Oompa Loompa of Calabasas riches is being charged with civil fraud.

The Tan Man sold somewhere near 300M of Countrywide stock, all the while reassuring investors that nothing was rotten in Denmark.

CNBC has a decent story, but Yahoo outlines it better:

Federal regulators on Thursday charged Angelo Mozilo, the former chief executive of mortgage lender Countrywide Financial Corp., and two other company executives with civil fraud.

The Securities and Exchange Commission’s civil lawsuit, filed in federal district court in Los Angeles, also accuses Mozilo of illegal insider trading.

Countrywide was a major player in the subprime mortgage market, the collapse of which in 2007 touched off the financial crisis that has gripped the U.S. and global economies.

…

Civil fraud charges also were filed against Countrywide’s former chief operating officer David Sambol, 49, and ex-chief financial officer Eric Sieracki, 52.

The trio “deliberately misled” Countrywide shareholders, SEC enforcement director Robert Khuzami said at a news conference at agency headquarters. While they painted a picture of robust performance, the real Countrywide was “buckling under the weight” of soured mortgage loans, he added.

Khuzami said Mozilo reaped nearly $140 million in illicit profits from his stock sales.

Housing Panic would be proud.  It looks like Keith finally got his request.

I have long said that the housing bubble would not be over until long after the perp walks have ended.

 
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More Mortgage Meltdown

On May 31, 2009, In Credit Bubble, Dead Cat Bounce, Foreclosures, Housing Crash, Investing, By Chuck Ponzi

MeltdownToday I came across a detailed analysis of the mortgage meltdown in California along with detailed graphs, long-term analysis, and an indepth look at where we are in the overall housing bubble.

The T2 Partners paper provided by More Mortgage Meltdown can be downloaded here:

I recommend looking over the entire presentation, as it provides a play by play of where we have come in the last 3 years, and what to expect for the coming 3 years.  I agree with the general assessment that we are in the middle innings of the overall price declines (perhaps in Inning 5 of 9), but the real movement is yet to come in the middle and high-end price tiers.  Of course, there is no way of accounting for significant outside involvement that might change that outcome, however any change must be structural and permanent (such as offering citizenship to anyone purchasing real estate, offering 20% of the purchase price, no questions asked by the government, or total global thermonuclear war.  I doubt many can understand what those outcomes would look like, so we’ll focus on the most likely scenarios.

The key is really what is happening and will continue to happen California. Their assesment, given by Mark Hanson, is in my opinion spot on to how I expect the next 2 years to play out:

California housing — at the low end — is ‘bottoming’ mostly because: a) median prices are down 55% from their peak over the past two years, thereby making the low end affordable; b) foreclosures have temporarily been cut by 66% through moratoriums reducing supply; and c) demand is picking up going into the busy season.
But the moratoriums are ending and the number of foreclosures in the pipeline is massive — they will start showing themselves as REO over the near to mid-term. The Obama plan held the foreclosure wave back, creating a huge backlog and now the servicers are testing hundreds of thousands of defaults against the new loss mitigation initiatives. We presently see the Notice of Defaults at record highs and Notice of Trustee Sales back up to 9 month highs — there is no reason for a loan to go to the Notice of Trustee Sale stage if indeed it wasn’t a foreclosure. However, the new ‘batch’ are not only from the low end but a wide mix all the way up to several million dollars in present value.
Because the majority of buyers are in ultra low and low-mid prices ranges, the supply-demand imbalance from foreclosures and organic supply will crush the mid-to-upper priced properties in 2009. We already have early seasonal hard data proving this. As the mid-to-upper end go through their respective implosions this year and the volume of sales in these bands increase as prices tumble, the mix shift will raise median and average house prices creating the ultimate in false bottoms. We also have data proving this phenomenon.

You can find this narrative (and much more) on slide 62.

 
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April was a Shocker!

On May 13, 2009, In Dead Cat Bounce, Deflation, Foreclosures, By Chuck Ponzi

CNN Money today gives us our money shot for the day while interviewing Realty Trac for insight into the April foreclosure numbers:

Foreclosures in April exceeded even March’s blistering pace with a record 342,000 homes receiving notices of default, auction notices or undergoing bank repossessions, according to a regular industry report.

One of every 374 U.S. homes received a filing during the month, the highest monthly rate that RealtyTrac, an online marketer of foreclosed properties, has recorded in four-plus years of record keeping.

“April was a shocker,” said Rick Sharga, a spokesman for RealtyTrac. “I would have bet on a dip because March foreclosures were so high.

Instead, filings inched up 1% from March and rose 32% compared with April 2008.

Indeed, for those who do not keep up with the lingo, you may want to google what a shocker is.

For those wondering, I’ll give a visual:

Shocker!

Shocker!

If this is in bad taste, let me know, but the foreclosure numbers are definitely a surprise.  Sometimes, I’m not sure if living in SoCal has warped my sense of humor.

And, for those seeing green shoots in the economy, I doubt you”ll be seeing a corresponding positive report out of housing.  We may very well be in a strong dead cat bounce this year (much like California experienced in 1993) as housing prices realign themselves.

There were 63,900 bank repossessions, the last stop in the foreclosure process. More than 1.3 million homes have now been lost to foreclosure since the market meltdown began in August 2007.

The increasing foreclosures will force RealtyTrac to rethink its forecasts, according to Sharga. “We had been predicting 3.4 million filings for the year,” he said, “but we’ll blow those numbers out of the water.”

With so much uncertainty, I can only stand by my predictions for 2009.  There will be some up and some down areas.  Overall, the direction is down.

 
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Hope: Population 1

On March 25, 2009, In Bubble, Foreclosures, By Chuck Ponzi

CNN Money provides an insight into just how much our tax dollars are doing to help people avoid foreclosure

If HOPE for Homeowners, the foreclosure-prevention plan passed last summer, was a soft drink, it would be New Coke. If it was an automobile, it would be an Edsel. A movie? Howard the Duck.

In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.

This is no surprise to me or most readers.  We cannot fix the fundamental problem of too much household debt when the reason for foreclosure is simply an upside-down house.

I predict that even if we took the ludicrous action of simply depositing money into the bank accounts of those in foreclosure, they would rather spend that money on consumer products or pay off non-house debt because the asset the loan is secured against is worth less to than what they owe on it for the forseeable future; in SoCal possibly decades absent significant price, income, and asset inflation; something that seems unlikely for a while in the midst of a generational deleveraging and rising taxes at the present time.

 
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Bill Poole – Contrarian in a Sea of Stupidity

On March 5, 2009, In Debt, Deflation, Foreclosures, By Chuck Ponzi

While our government is busy running around wondering how much money should be given to whom, and how we can change the rules of engagement in business, Bill Poole, (yes, shameful, shameful) makes a very straightforward argument that all of this intervention is actually a bad thing in a NY Times Op-ed piece.

THE fundamental causes of this recession, unique in the experience of the United States, were mortgage defaults and the consequent insolvency of major financial firms. These insolvencies, and especially fear of them, damaged normal credit mechanisms.

The self-correcting nature of markets will ultimately prevail. We should not underestimate the power of monetary policy; with the sharp increase in the nation’s money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year.

Federal policy is damaging the economy’s prospects. It fails to provide the needed tax incentives for investment in factories and equipment, incentives that were central to efforts to revive the economy during the Kennedy-Johnson era and under Ronald Reagan. But government spending can’t lead the way to sustained recovery, because its stimulating effect will be offset by anticipated higher taxes and the need to finance the deficit.

I, of course, agree with this assessment (although I believe the recession could linger quite a bit longer due to the current political response). There are 2 fundamental problems with the current administration’s approach:

1. Changing the rules of the game only makes sure players will wait until they are clear on what the new rules are before they begin playing again.

2. History has told us (even though we have deflation now) that a strong increase in the money supply is inflationary. The lag time between the money creation and the effects to rising prices is measured in years, not months.

In the end, a more moderate monetary approach, with the INCREASE in foreclosures, and expedition of foreclosures and bankruptcy will speed the recovery that much faster. It’s the difference between ripping the bandaid off (which is what free markets do to minimize pain) and slowly pulling it off.

We can’t forget that FORECLOSURE AND BANKRUPTCY ARE THE SOLUTIONS, NOT THE PROBLEM.  The problem is too much debt, and the only way it can be resolved is the legal resolution as quickly as possible.  All attempts to forestall the solution are forestalling the recovery in our economy.  Once people are no longer held captive to bad bets, their discretionary income can once again be released and well-run businesses can capitalize on the demand.

 
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Map of Misery: Option Arm Debacle as a Short Pictorial

On February 20, 2009, In Foreclosures, By Chuck Ponzi

A short pictorial of the coming pain.

This is why there is no bottom in Southern California in 2009 or 2010:

Reason 1:

map_of_misery

Reason 2:

fitch_recasts_optionarm

Reason 3:

0604_arm_reset

Reason 4:

imfresets

We haven’t even seen the worst of what is to come here.  Coastal areas are the next to be hit; look at the map of misery.

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Bailout Plans Stink to High Heaven

On June 21, 2008, In Credit Bubble, Debt, Foreclosures, By Chuck Ponzi

If you’re not in the know on the recent bailout news, there are 3 main points to be aware of:

1. It seems that Bank of America essentially wrote the Dodd Bailout Bill along with Countrywide (merger expected soon). They have probably the most to gain with a generous bailout bill. It helps noone since it doesn’t resolve the fundamental problem of affordability in house, in fact it makes the problem worse. Ever wonder why the 90′s in Japan were referred to as the “lost decade”? It’s because their banking system did the same thing we’re trying to do here. Anyone else see the problem with not punishing gambling banks and housing speculators?

2. The “Subprime Six” were a group of lawmakers given special treatment in exchange for what? What exactly did Senator Dodd besides favorable treatment in his housing financing? What else could be lurking in his past? If you haven’t read about the “Subprime Six”, follow the link. Investor Business Daily, the Wall Street Journal, and the LA times have picked up the story. It’s a story of insider grift and political pandering. If it weren’t so real and true, it might remind me of one of my favorite film lines:

Stuart: Well, it’s a well-known fact, Sunny Jim, that there’s a secret society of the five wealthiest people in the world, known as “The Pentavret.” Who run everything in the world, including the newspapers, and meet tri-annually at a secret country mansion in Colorado known as “The Meadows.”
Tony: So, who’s in this “Pentavret?”
Stuart: The Queen, the Vatican, the Gettys, the Rothschilds, and Colonel Sanders before he went tits up. Oooh, I hated the Colonel, with his wee beady eyes and that smug look on his face. “Oooh you’re gonna buy my chicken, oooh…”
Charlie: Dad? How can you hate the Colonel?
Stuart: Because he puts an addictive chemical in his chicken that makes you crave it fortnightly, smartass.

3. For all of the crap that our President Bush gets, at least he has the foresight to threaten a veto to said bill. There should be no bailout, not just because it’s not fair and would embolden speculators, but because it’s destined to put our banking system in jeapordy for the forseeable future with taxpayers footing the bill. It’s generally understood that this bill has to be done and voted on by July 4th if it is to carry. Any senator that signs this (if it passes) is hopefully going to be thoroughly trounced in the upcoming elections. This is not only unreasonable, it’s unamerican. This place is going to hell in a handbasket. If something like that goes through, I’ll be posting a list of every person that voted for it and their political affiliation here as a feature story.

So, what do I recommend? I’d say get a year’s worth of food and 6 month’s worth of remaining expenses together, if our politicians have any say in it, this is going to be one whopper of a crash and accompanying recession. On the lighter side of things, our grandchildren will be still paying so that people like this can “keep” their homes (and by homes, I mean plural, because, isn’t every good American not just entitled, but guaranteed to own more than one house?).

 
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California Foreclosures are Ramping

On May 13, 2008, In Foreclosures, Speculation, Unintended Consequences, By Chuck Ponzi

There are 2 must-reads for the future of foreclosures:

1. Calculated Risk has a great visual of projected 2008 foreclosures in “1000 Foreclosures per Day in California”

Calc Risk

2008 is off the charts. Anyone calling a bottom at this point doesn’t have the facts straight. Notice of Defaults are projected at over 450K based on Q1 data. You may start to see some houses make sense in pricing, but there’s no doubt we’re going to overshoot fair valuation on the way down this time. No doubt at all.

2. The second one is Mr. Mortgage’s videolog and blog where he recieved California Foreclosure stats from Foreclosure Radar 2 days early. You can alternatively read it here
if you cannot access youtube. (at work, anyone?)

Some great excerpts:

we will have approx 122,000 units slamming the CA auctions over the next 4 months.

That’s over 1000 per day. That’s making the 90′s bust look like a walk in the park. However, when one considers that it is likely that more than half of all purchases within the last 3 years were speculative, the toll is likely largely hitting only those who took excessive risk. Boo Hoo.

Remember to visit Angry Renter. Please be sure to check out ways to contact your local representative to voice your opinion against any kind of government intervention. The invisible hand of the market is in the process of sifting the wheat from the chaff.

In California, renters and homeowners with no mortgage outnumber by a wide margin the number of reckless individuals who overextended themselves. Don’t let yourself be duped into inaction. I’ll post more on specifics later.

 
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