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After moderating 3 foreclosure related panel discussions at the Inman Real Estate Connect conference in New York yesterday, I sat down with Rick Sharga of RealtyTrac (who was one of my panelists) to discuss their foreclosure business and the trends they are observing. I interviewed Rick last fall and always find him to be an endless source of insight and clarity on the distressed asset market. RealtyTrac released their most recent report yesterday so the timing was perfect.

Hint: 2010-2011 = Peak Foreclosure

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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RealtyTrac has released their monthly US Foreclosure Market Report today and its a mixed bag of results. In other words, its like unemployment. Its at a high level but the pace of increase seems to be abating. In other words, with 3.9 million notices sent to homeowners in default, it is going to take a while for this inventory to clear out.

Here are the foreclosure metrics by state.

And a news recap:

foreclosure filings — default notices, scheduled foreclosure auctions and bank repossessions — were reported on 306,627 U.S. properties during the month, a decrease of nearly 8 percent from the previous month but still up 18 percent from November 2008. The report also shows one in every 417 U.S. housing units received a foreclosure filing in November.

Phyllis Furman over at The Daily News does a nice NYC-centric analysis of the results.

While foreclosure activity is rising, the percentage of homes at risk here – one in every 1,706 – is small relative to the rest of the country. In November, 306,627 U.S. homes – one in every 417 – received a foreclosure filing. That was up 18.4% from last year, but down 7.7% from October.

And Dan Levy at Bloomberg does a nice US foreclosure recap

Dec. 10 (Bloomberg) — Foreclosure filings in the U.S. will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc. said.

This year’s filings will surpass 2008’s total of 3.2 million as record unemployment and price erosion batter the housing market, the Irvine, California-based company said.

“We are a long way from a recovery,” John Quigley, economics professor at the University of California, Berkeley, said in an interview. “You can’t start to see improvement in the housing market until after unemployment peaks.”:

Statistical nirvana by default (sorry for the pun)

• One in every 417 U.S. housing units received a foreclosure filing in November
• Default notices nationwide were down 8 percent from the previous month but still up 22 percent from November 2008
• Nevada, Florida, California post top state foreclosure rates
• Nevada foreclosure activity – one in every 119 housing units receiving a foreclosure filing in November — 3.5 times the national average.
• Four states account for more than 50 percent of national total: For the second month in a row, the same four states accounted for 52 percent of the nation’s total foreclosure activity: California, Florida, Illinois and Michigan
• Las Vegas drops out of top spot among 10 highest metro foreclosure rates. After four straight months with the nation’s top foreclosure rate among metropolitan areas with a population of at least 200,000, Las Vegas dropped to No. 5 thanks to a 33 percent decrease in foreclosure activity from the previous month. One in every 102 Las Vegas housing units received a foreclosure filing in November — still more than four times the national average.

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I really enjoyed my interview with Rick Sharga, Senior Vice President of RealtyTrac who was very gracious in accommodating me despite a packed schedule during his New York stay.

Rick is the foremost expert on the state of the US foreclosure market. I have been a long time reader of their blog ForeclosurePulse.

He was able to keep on topic despite the din of jackhammers outside our building and a few digital squelches. I hope you enjoy the conversation.

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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One of the success stories of the housing market malaise has been the California real estate recovery, in terms of transactions. Prices are down 30 to 40% on average, depending on the source, and transactions are up 55% over last year.

Why?

Southern California home sales outpaced last year for the fifth consecutive month in November, when 55 percent of buyers in the resale market chose repossessed homes. The abundance of discounted foreclosures helped push the median sale price down a record 35 percent from a year ago, a real estate information service reported.

A colleague of mine, who is a senior executive at a real estate brokerage company in California quipped “nearly 60% are foreclosures?…I’ll bet the other 40% are short sales.”

California lenders have had two years to come to terms with the market and are pricing properties at market levels.

Houses in certain markets in other markets like Detroit and Cleveland can be purchased for a $1,000.

Here’s the problem.

Much of the purchase activity is believed to be by speculators.

“Regular homebuyers are excluded from the foreclosure market because the rules favor professional investors and that lack of competition is driving down prices,” Baker said. “This is a place where the government could step in and stop housing’s downward spiral by encouraging a more user-friendly process.”

Banks that have received federal bailout funds should be forced to sell foreclosures in a way that gives homebuyers a fair chance, said Stiglitz. Lenders repossessed about 850,000 properties in 2008, according to RealtyTrac.

“In past housing recessions, we didn’t see as many mortgages under water, so it didn’t matter if the focus was on speed and not on maximizing value,” Stiglitz said. “Now, the same banks that created the problems by mismanaging their risk are mismanaging the disposal of their assets.”

Deja vu all over again.

Once the housing market begins to recover, these investor units will enter the market as flips and may keep prices suppressed by competing with owner occupied units. If mortgage rates rise, the problem is exaggerated because the investors are, in theory anyway, less financially solid.

Investment in housing properties is not a bad thing – it’s only bad when there is a disproportional amount of it…and a 55% foreclosure market share in California is too much of a good thing.

Note: a math-related bonus by my recently discovered fav musician.

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One of the techniques employed to delay or ease the foreclosure problem has been to place a moratorium on foreclosures. I for one didn’t understand the concept. I still don’t. Usually the delay is 3 to 9 months.

Is that enough time to allow the homeowner to get back on their feet and start making payments again?

The economy is eroding (and now officially a 1-year recession), unemployment is still rising and credit is still frozen. For many it would seem to be an illusion or false hope. To some of course, the delay to keep lenders at bay is helpful and effective.

It is sort of ironic (I am seeing irony in just about everything these days) that delaying the foreclosure process was necessary by many who delayed the process (of paying for things).

Julie Satow at The Daily Beast (a terrific new Tina Brown – created site) brings us evidence of the false-positive that is foreclosure moratoriums in her article: New York’s Impending Real Estate Doom.

Back in August, state legislators in Albany set a 90-day freeze on foreclosures that’s created a backlog of foreclosure filings. The 90-days are up next month. Banks will be bringing foreclosure filings “by the wheelbarrow,” said one court officer in Queens, where the number of filings dropped to just 60 per week from a rate of 150 per week before the law took effect.

California, Florida and Connecticut are proposing moratoriums while Massachusetts already has one.

One of the first to enact a foreclosure delay was Massachusetts. It set a three-month freeze in May, creating a backlog in foreclosures that built up to August. In the end, foreclosure filings ballooned 456% between August and September, according to RealtyTrac, a site that tracks foreclosures nationally.

It seems to me that a delay, while well-intentioned, doesn’t do anything but compress more properties into foreclosure at the end of the moratorium, ultimately creating more listing inventory at the same time, placing even more distress, ultimately, on property values.

There is some speculation that the foreclosure phenomenon in California is starting to ebb, perhaps because they have been seeing heavy activity for nearly two years.

And yes, like construction permits, demolition permits are plummeting in New York.

And yes, we are now realizing that we have been in a recession for a full year (one of the longest since the Great Depression) and we haven’t yet seen two consecutive quarters of negative GDP growth. Apparently rising unemployment, falling real personal income, falling industrial production as well as falling wholesale and retail sales declines somehow reflected a weaker economy. Call me crazy.

Aside: Noted economics blogger Tanta passed away on Sunday. She was a terrific writer for one of the best financial/econ blogs out there, Calculated Risk. Cancer has hit close to home in my family and it is never fair. In fact, it sucks.

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Last week I was attending the Inman Real Estate Connect in San Francisco and was contacted by Fox to discuss the latest RealtyTrac foreclosure numbers just released that day and the conversation spilled over into other related topics such as the Housing bill.

The segment was to air live at 7am EST time, 4am in San Francisco, and I had to get there by 3:30am, meaning I got up at 2:45am. Well, sleep is overrated anyway.

Alexis Glick was the host – she’s sharp and thinks at 100mph. Always a pleasure. Here’s her blog post on the segment. She seemed pretty excited about the foreclosure features on Hotpads.com.

After the segment, I teased my colleague at RealtyTrac, thanking them for giving me content and for giving me a reason to wake up at 2:45am.

What’s particularly interesting about the foreclosure numbers is that 16 of the 20 major metro areas tracked were located in California and Florida. I think that the average consumer thinks half of all sales in their locale are foreclosures which is simply not true, however, it is a serious concern. I keep harping on the lack of activity in the MBS markets and lack of liquidity out there.

All else feels like “cart before the horse.” Until financing is more readily available I find it hard to see much of an end to this mess in the near future.

Here’s the clip

Tags: Fox, Television

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One of the things I have found particularly aggravating during the past two years has been all the coverage on foreclosure stats. I don’t think consumers (or the media) have much perspective on the stats being produced, mainly by RealtyTrac and their competitor Foreclosure.com It’s been a groundbreaking effort on their part to collect this data but here’s a sample representing my issue with all this. I actually posted about the foreclosure data perspective problem back in September2006 (I just re-read it and it is relatively coherent) but the communication problem remains.

We see huge percentage increases every single month and yet the typical reader doesn’t really know what these stats mean in the context of all mortgages outstanding other than…it’s getting worse. I don’t think I am alone in getting the feeling that 87.4% of all houses are under foreclosure (left-handed people only, while it’s 92.3% if you include right-handed people).

Here are some examples…

From the New York Times

Statistics on foreclosure are snapshots of a moving phenomenon, and data from the state labor department show 174 foreclosures in Belair-Edison last year, while the Community Law Center, a nonprofit public service group, counted 181; both figures are well below the more than 275 foreclosures in 2001 and in 2002.

From Forbes

In February, Florida trailed only Nevada and California in the percentage of homes in foreclosure. RealtyTrac Inc. said 32,447 homes were in foreclosure statewide in February, up more than 69 percent from February of last year and up more than 7 percent from January.

Back in October 2007, the OTS released the first Monthly Market Monitor (creatively called MMM). It referred to the mortgage problem as the “Mortgage Malaise” (2 M’s if you were wondering) The most recent issue was released on wednesday referring to the mortgage markets in “disarray”. The MMM charts are really useful because they show the pace of foreclosures in an historical context and the amount of foreclosures relative to the amount of mortgages outstanding. The info on these charts are what we need to see more of.

Here’s a housing summary from the March 2008 report:

The slump in the housing market has not only impacted residential construction, but lending and loan performance have deteriorated in concert. Non‐conforming loan originations fell 49 percent in the fourth quarter, as the secondary market for bonds backed by the collateral is still shuttered. According to data collected by Inside Mortgage Finance, approximately $84.5 billion of non‐conforming loans were originated in the quarter ending in December 2007, comprising just 19.9 percent of total loan production. This is the lowest volume of originations ever, and is a far cry from the peak origination period of 2005, when the total reached $1.58 trillion, or 50.4 percent of all production.6 By loan type, jumbo production fell 47 percent in the fourth quarter, plummeting to $44 billion, or less than 10% of all originations. The downturn in Alt‐A and subprime loan production persist, with fourth quarter volume at $27 billion and $13.5 billion, respectively.

In contrast to non‐conforming product, FHA/VA loan production rose steadily in 2007, from a low of $19.0 billion in the first quarter to $31.0 billion at the end of the year. Activity in government‐insured lending was twice that of subprime.

Even Treasury Secretary Paulson is giving us better perspective of foreclosure stats in his speech to the US Chamber of Commerce on Wednesday:

Home foreclosures are also a significant issue today. Foreclosures are painful and costly to homeowners and, neighborhoods. They also prolong the housing correction by adding to the inventory of unsold homes. Before quickly reviewing our initiatives to prevent avoidable foreclosures, let me observe that some current headlines make it difficult to put foreclosure rates in perspective. So let me try to do so.

First, 92 percent of all homeowners with mortgages pay that mortgage every month right on time. Roughly 2 percent of mortgages are in foreclosure. Even from 2001 to 2005, a time of solid U.S. economic growth and high home price appreciation, foreclosure starts averaged more than 650,000 per year.

Last year there were about 1.5 million foreclosures started and estimates are that foreclosure starts might be as high as 2 million in 2008. These foreclosures are highly concentrated – subprime mortgages account for 50 percent of foreclosure starts, even though they are only 13 percent of all mortgages outstanding. Adjustable rate subprime mortgages account for only 6 percent of all mortgages but 40 percent of the foreclosures. So we are right to focus many of our policies on subprime borrowers.

There are approximately 7 million outstanding subprime mortgage loans. Available data suggests that 10 percent of subprime borrowers were investors or speculators. This figure is likely higher, as some investors misrepresented themselves to take advantage of a cheaper rate, and others speculated on a primary residence, expecting prices to continue going up.

And if you can’t keep track of foreclosures because it’s too confusing, try something simple like converting your phone number into words.

Tags: Jumbo Mortgage, Conforming Mortgage, FHA, Forbes, Sub-Prime

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Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for full sized graphic.

The evolving story in the state of the housing market is the growth in foreclosures, to the point where some markets have more foreclosure sales than normal sales. I remember markets in the early 1990s when foreclosure sales were the market.

Floyd Norris covers the trend in his article In Parts of U.S., Foreclosures Top Sales.

There were 153,745 initial foreclosure notices sent out in the United States in January, according to RealtyTrac.

I suspect the next 24 months will see larger foreclosure numbers as mortgage rate resets reach their peak for the next 2 years. RealtyTrac must be pretty excited to be at the right place at the right time with the right data.

So much for a market on fire.

Tags: Getting Graphic

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One of the things that has always bugged me about the way many analyze real estate markets is the prevailing wisdom that foreclosure properties are not relevant to understanding the market…that foreclosure sales are “tainted.”

A sale coming out of foreclosure is a sale anyway you slice it. It represents competition for existing listings. If foreclosure list prices happen to be lower, they will influence non-foreclosure listing prices and time on the market for all properties. Foreclosure listings or sales are not some special transaction in a vacuum. The decision to include them should not be affected by whether the market is rising, falling or stable.

So I thought it was pretty cool to see the announcement of Trulia’s partnership with RealtyTrac and the addition of 400,000 foreclosure listings to the more than 2,000,000 listings that are currently available on Trulia.com

Coincidentally [wink], this month’s Trulia Trends Report spotlights foreclosure listings. The report is based on a continuing evolution of ideas that has come as a result of the collaboration between [Trulia](http://www.trulia.com) and my appraisal firm [Miller Samuel](https://www.millersamuel.com).

Trulia understands how important it is not to arbitrarily filter out content.

Disclosure: I am a member of the Trulia Industry Advisory Board so I may have been temporarily insane when I wrote this post.

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While I am not arguing about the fact that the subprime mortgage situation is played havoc on many Americans personal financial situation and the net effect has not been good, I have been questioning the overall way the situation has been portrayed. I did this last year and again here.

Kenneth Harney’s The Nation’s Housing addresses this topic quite well in: Finding Bright Spots Among the Dark Clouds were he provides greater insight than the press releases dished out by the Mortgage Bankers Association and RealtyTrac whenever foreclosure numbers are released.

Harvey has a bunch of foreclosure stats, good and bad, crammed in the article. For sake of argument, I cherry-picked the positive stats.

• 97.4 percent of mortgage payments are paid on time.
  
• 2% of prime-credit borrowers with fixed rate loans are paying late.
  
• In 34 states, the rate of new foreclosures actually decreased.
  
• Without California, Florida, Nevada and Arizona, foreclosure filings would actually be falling.
  

Its all about the mix right now. There are four states that are skewing the foreclosure mix and these locations were characterized by significant investor speculation during the housing boom. The foreclosure situation will likely erode further before it gets better, especially if we slip into a recession in early ’08

Tags: Sub-Prime

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