The good news, while Bay Area foreclosures (trustee deeds recorded) in the second quarter of 2008 were up over 314% on a year-over-year basis, actual foreclosures in San Francisco only increased 182% (up from 50 in Q2 2007 to 141 in 2008). Of course that’s the bad news as well.
In the Bay Area, the biggest increase in the rate of new foreclosures occurred in Santa Clara (up 511.8% from 255 to 1,560), while the biggest increase in volume occurred in Contra Costa (from 777 new foreclosures in Q2 2007 to 2,965 in 2008).
Statewide and in terms of new notice of default (NOD) activity (up 62.6% on a year-over-year basis in San Francisco): “Most of the loans that went into default last quarter were originated between September 2005 and November 2006. The median age was 26 months, up from 16 months a year earlier.”
In other words, the low lying foreclosure fruit has been picked and we’re now moving on to those who were better capitalized.
∙ Another Increase in California Foreclosure Activity [DQNews]
Yeah, yeah, sales down, foreclosures up … someone wake me up when it affects prices.
I don’t know about the bay area, but one problem for California foreclosures in general is that more NOD’s are ending up in foreclosure than the past, and they’re hitting more and more expensive properties.
Last year 52% of californian NOD’s emerged from the foreclosure process by selling the house, bringing their payments up to date, or refinancing. This year it’s only 22% that can escape foreclosure.
so it’s something to watch.
in some of the southern CA locales foreclosures make up 30-50%+ of the sales. could that happen in SF????? who knows. there aren’t that many sales in SF, so it wouldn’t take a lot of foreclosures to affect the market, or so one would think.
it all comes down to cash flow. can SF’ers really afford their houses, or are they overleveraged and over extended like many other communities across the nation? we’ll find out, but as I’ve said before, it’s gonna take some time.
the bulk of the PRIME ARMs just started to resent about 2-3 months ago. The bulk of Option ARMs are due to start resetting in 6 months. And the ALT A ARMs should be resetting as we speak and continue doing so for 2+ more years.
the loans from the “toxic” loan period of 2004-2007 don’t finish resetting until 2.5 years from now… so I’d guess we’ll have at least that much more time to wallow through.
that said, my figures are off, because the research is clearly showing that people are defaulting BEFORE their resets (we had record defaults in Jan/feb 2008, and that was a reset LULL period…) thus a lot of anticipated future reset-related NOD’s have already occured… so some of the “future pain” has already happened. but I still think it’s about 2.5 years before we can say we’re out of the woods.
I feel sorry for appraisers. They will be having a harder time finding non-foreclosed comps.
I thought Santa Clara was foreclosure proof because of dot com jobs?
Seriously though. It looks like our (bay area) YoY rate of increase in NoD versus the past quarter is now much higher than that of Southern California. That’s not a good sign.
It is interesting to note that the YoY rate of increase in NoD in SoCal is significantly lower than last quarter. So some day, the rate of increase will level off and then all the foreclosures will work themselves through the system and then the market will return to normal.
I suspect that the “true” foreclosure statistics for CA and the Bay Area are worse than these stats. We constantly hear references in the media stories to banks which are not beginning the foreclosure process with deadbeat borrowers. Alternate explanations are provided, most of which seem plausible, including (1) banks do not have the staff to process all the foreclosures, (2) banks are trying to forestall the foreclosure so that technically the loan will qualify for transfer to FHA or some other “bailout” toilout bowl provided gratis by the foolish taxpayers, and (3) banks do not want to have to classify a loan as nonperforming because that triggers a requirement to reserve against it. One could say that the regulators are in these banks every day, and that they wouldn’t allow these shenanigans, but come on…. is anyone silly enough to believe in that now? I for one believe that banks will play any games possible in order to forestall recognition of these losses, and if that involves “slowing” foreclsures, well, the regulators will look the other way – that is, if they are not directing the fraud themselves!
One anecdote from my personal experience. About 6-8 months ago, I spent a lot of time talking with a friend of a friend’s wife about her house in Novato, which was purchased for about $800K and now was worth less than $550K. She finally got the message and stopped paying anything towards the mortgage. Not a cent, just stopped sending in $$ cold turkey. It’s been 5 months of nonpayment already, and no letter, no phone message, no threat, in fact…. no contact at all! … from the banks (WAMU and Countrywide on the notes). Just sit back and enjoy the free rent! I’ll bet anything this is happening all over the high dollar value loan regions. Once the taxpayer bailout is in place and the bad loans have been passed to the taxpayer, watch the foreclosures mount, and the values crumble some more!
Please, Santa Clara a prime location? I work there. Wouldn’t live there in a million years. Come back when PA, San Carlos, Atherton, Hillsborough, Burlingame are in trouble. More fear mongering…
Satchel,
Didn’t you also say in another thread that someone like this – even with the new Federal law -will have tax consequences on the implied gain 1) if the banks don’t agree to a short sale and 2) you don’t forget about state taxes?
This may be the most rational solution to her situation but I think there will be another layer of consequences other than the credit score hit.
Come back when PA, San Carlos, Atherton, Hillsborough, Burlingame are in trouble. More fear mongering…
The absolute numbers of NOD’s and foreclosure are still low in San Mateo County, but they are also increasing at an alarming rate. Foreclosures up 257% in San Mateo County, and NOD’s up 130%?
I don’t call that “fear mongering”, I call it data. Or I guess it only “counts” if rich people are affected? who cares if poor people get foreclosed upon, or if poor people run into problems, as long as it doesn’t affect Atherton and Pacific Heights?
michiko,
I did say that, and yes, at the time that is what the USG was saying. I even cited to a White House press release to that effect. But it appears that that was just for public consumption – to make it *look* like deadbeats weren’t being let off the hook. But when the IRS guidelines were published, it turned out that even in the case of foreclosures where the banks didn’t “consent” to a short sale, the borrower would NOT be liable for tax. (A friend of mine – tax guy – told me about this, but I haven’t done any independent research, so I can’t say for sure – but see http://www.irs.gov/individuals/article/0,,id=179414,00.html). I’m actually a little surprised that the banks let this provision get by them when they wrote the law! Probably some overworked junior associate at the law firm that wrote the bill didn’t notice when some do-gooder congresscritter inserted the language…
About the CA tax hit, well, it’s a risk. I strongly suspect that CA will ultimately let all the “poor victims” off the hook as well. Foreclosures are already something like 40% of all sales. The numbers of people who are going to be affected will be astronomical. I’ll bet anything the politicos will “help” all these poor fools as well. Still, in the case of the woman in Novato, that house is ultimately going to go to around $300K. Even if she gets hit for the 9% tax hit between the loan value (around $700K and the foreclosure recovery – if they ever get around to it, LOL! – of approximately $450K after fees, penalties, etc.) that is infinitely preferable to having one’s labor wealth siphoned off by paying a mortgage on an asset that will be mispriced for at least a decade or more…
Satchel is back!!!
There is a lot of scrambling going on in San Mateo County. In the richer areas people were more aware and better prepared to just write off their mistakes like any other error in portfolio building. It is hard to get real data for a number of reasons. Sometimes mansions are held by trusts which get transferred whole. New rich who have been banging on the gate think they are getting a good deal on the classic properties that the old rich are jettisoning, and these deals are likely to be made with a handshake at the Circus Club.
If only there were better ways of expressing what can be seen from the street using public numbers, but there appears to be a lot of churn in Menlo-Atherton even with the finest properties. Several major recent constructions in Lindenwood were sold for much less than developers had hoped for. That may seem like a minor thing, and how could this be documented with hard numbers, yet the effect on the market is palpable as if a great stink bomb had gone off in the area.
“Still, in the case of the woman in Novato, that house is ultimately going to go to around $300K.”
I have been waiting a long time for prices to go down in the Bay Area, but I’d hate to see things get that bad.
Again,
A lot of people have had their ARMs adjust downward over the past year or so. You might want to tack another year onto your tsunami predix.
Umm, fluj it was my (or at least the data was posted by me) tusnami comment.
don’t go crediting/blaming people for things they never actually said. We all know how you feel about it.
Correct fluj, for the standard ARMs. But it won’t save the option ARMS.
My god, 0.1% of homes in San Francisco are in forclosure.
“I have been waiting a long time for prices to go down in the Bay Area, but I’d hate to see things get that bad.”
Why are normal, affordable housing prices “bad” again? I must be thick…
and as far am my predictions went …
1. The ARM will reset upwards and the consumer will have to cut back on discretionary spending thus slowing the economy. I think American Express’s earnings and guidance yesterday pretty much confirms that.
2. The ARM will reset and the mortgage holder will refi into a new mortgage likely with a higher payment therefore cutting back on other spending and slowing the economy. Again, the Amex data and guidance yesterday would seem to support this.
3. The ARM will reset and the mortgage holder will not be able to make the new payment and will not be able to refi due to falling prices and go into foreclosure. The record number of foreclosures in the US, CA, and Nor Cal all seem to support that this is, in fact, what is happening.
Now as far as ARMs resetting lower, well if that’s the case for some mortgage owners, lucky them. However, the negative effects of the “reset tsunami” seem to be occurring regardless.
A possible explanation would seem to be the number of I/O mortgages that were also ARMs. Meaning even if the Mortgage resets to a lower interest rate the borrower must now pay principle as well as interest, because the I/O period is over and/or they couldn’t refi into another I/O due to tighter lending, which could result in a higher overall monthly payment. But that’s just a theory.
Regardless the end result to the economy and housing prices seems to be the same.
Normal, affordable housing prices are bad when people lose their life savings.
Jimmy, this is ALREADY affecting prices, it’s just that it’s affecting prices in the areas in which the numbers of foreclosures are large enough in relation to sales. Because the sub prime loans have shorter resets, those areas are getting hit first. Namely, district 10, where prices are falling at a very good clip.
We are obviously not going to worry about loans without teaser rates or those that were not option ARMs, or interest only at this point. But the number of loans that will reset higher is large enough.
The vast majority of the option ARMs will of course, default. Same with interest only: you can refinance, but you can’t qualify any more on a wink and some false income statements: the vast majority of those will be history.
The numbers, though small, are growing larger each month. They will likely continue to do so for several more years.
Satchel – Do you think the sky is falling? The anecdotal example you gave is rather scary. A house that sold for $800K, going for $300K? Is this what is thought to shake out in the whole market in the SF Bay Area? Do you think SF as a whole will be hit this hard too? I have seen people on this site say that prices will go back to the levels in 2000. Do you think they will drop that far? If so, why are people still paying lots of money for nicer places in SF (not huge, just nice) at this time? Thanks.
Shocked, the house in question was purchased for $800K, so we’re talking over 60% loss in value. It’s hard to cheer for that.
Normal, people need to understand that houses, like any other investments, can go down as well up.
Normal, people should understand that home ownership is not an entitlement. The housing market works within the laws of supply and demand – both in periods of easy money and tight money.
Normal, people should understand that in the Bay Area – they are competing with other people that abnormal amounts of wealth for a limited amount of real estate. Refer back to the point that home ownership is not an entitlement.
Normal, people should understand if they ignore these basic premises… the foreclosure-, taxman-, and bankruptcy lawyer cometh.
Normal, people need to understand they are responsible for their actions. Investments have risk. Ignorance is not an excuse.
majr,
I don’t really think the sky is falling, but I also don’t think a return to 2000 prices would be very bad for the economy. I actually think 2000/2001 pricing (in nominal terms) is a reasonable approximation of where the whole area is heading. That will be very bad for some, whose financial security will “wash out”, but for most in the area it will in the end not be a huge deal. And, of course, some will benefit dramatically. Think of SF’s economy, in particular, as regards housing values. The first-order effects of a dramatic fall wouldn’t even affect 60-70% of the population (renters), although there may be follow-on second order effects later. Of the remaining 30-40%, how many bought after 2000 and/or are leveraged to the extreme? How many are wealthy enough that a siginificant fall in the value of their real estate would not be a huge hit? We’re all just guessing, but I bet that a 30% fall on average in SF would only severely negatively impact at most 5% of the population. A big deal for those individuals, but no big deal for the economy generally. Actually, I think it would be a net positive.
BTW, I do not think SF proper would see a 60% decline, although some specific properties in SF no doubt will. The runup in SF was nothing like that in Novato or even Daly City or Brentwood (or even Tracy or Molesto further out, etc.). On average, I am thinking a 30% fall in SF from peak, and probably 1/3rd of that fall has already occured (very rough guess). It is not difficult now to find examples in nondistressed neighborhoods showing greater than 20% declines (e.g., my favorite little foreclosure, 414 Foerster or the condos at 1150 Folsom) and greater than 10% declines in nice neighborhoods (10 Fernwood in Monterey Heights comes to mind). Anyway, you’ll see, 30% average declines won’t be a very big deal in the end….. unless you were counting on retiring off the equity in your home, or you bought a crappy condo thinking you would “trade up” later….
About why people are still paying those prices today, well, it takes all kinds to make a society. Neither economic intuition nor intelligence is evenly distributed throughout the population, and after the secular rise of California post-WWII and after the greatest credit inflation/boom the world has ever known, it is not surprising that a large number of fools in the Bay Area nevertheless retain access to the “noose” with which they will hang themselves. Remember, many of those houses in Merced, Stockton, etc. – the ones that are now seeing up to 50% declines – were bought by Bay Area “infestors” (I know a few of them). LOL, they actually thought a tract house in Bakersfried was “worth” $400K+! Do you think ALL of these types suddenly sprouted 40 IQ points?!
I love these long answers. Many thanks for the deeper explanation. I know there are fools born every minute. I just didn’t realize they would have so much money and be able to buy in SF. 🙂
Why so defensive? What I said is true. (And I said it in a very flat manner?) Weird. Anyway, I guess my point was directed more toward Ex-SFer anyway.
I agree with Satchel about runup. The insane 250-300 to even 400 percent runups pretty much exclusively happened in District 10. So you can say that they’re getting hit by a double whammy. And again, plug in how many SFRs are for sale in the entire city right now — there are 604. Take away District 10 and the number goes down to 374.
fluj
I won’t be tacking anything on to my 2.5 year prediction. In fact, if you read and understood my comment, I said that I anticipate foreclosure pressure for 2.5 years, but that it could very well last LESS long than that because people are defaulting faster than the models predicted.
so if I revise anything I will likely revise the foreclosure duration LOWER. There are two reasons why I would consider revising my prediction longer, and they haven’t happened yet.
1) if we go into a long deep recession (very possible, but has not occured yet)
2) if the govt intervenes in certain ways. it’s hard to make predictions when the govt intervenenes the way it does.
I have reasons for why I state the things I state. I don’t just pull them out of my butt you know. and so far my predictions stand on their own and have been quite accurate.
The resets aren’t causing foreclosures because because the interest rate is resetting. They’re causing foreclosures because people couldn’t afford the TEASER rates, and/or because they were overleveraged, and/or because they had to start paying principal in addition to interest. Most of these loans AREN’T EVEN MAKING IT TO THE RESET before defaulting. Thus, resetting into a lower interest rate may not help as much as you hope.
from DQ:
“Most of the loans that went into default last quarter were originated between September 2005 and November 2006. The median age was 26 months, up from 16 months a year earlier.”
so most of these people aren’t even making it to their reset date before getting an NOD. I will note, FYI that November 2006 was only 22 months ago so we’re not even done eith that wave of loans yet. And the loans done in 2007 are perforiming WORSE than the 2006 vintage by the way.
we are nowhere out of the woods fluj. You don’t even understand what you’re talking about. You just make silly quips that make no sense whatsoever, trying to paint me into a thoughtless-bear position, and you consistently do to me what you whine about to others: you put words in my mouth that I did not say.
Oh jeez, Satchel is back. Now we’ll have to listen to him endlessly pontificate about how the “smart money” (meaning him) is making 20% risk free while suckers are stuck in houses they can’t afford and how the world will end in 6 months.
And maybe it’s just me, but I don’t buy a word of Satchel’s “anecdote.”
1. That someone could just stop paying their mortgage with no contact whatsoever from the lender doesn’t pass the smell test for me. And even if it did, one case does not a trend make.
2. That a decent 800K house in Novato will go down to 300K is not going to happen (unless it’s trashed, or was a fraud to begin with).
“we are nowhere out of the woods fluj. You don’t even understand what you’re talking about. You just make silly quips that make no sense whatsoever, trying to paint me into a thoughtless-bear position, and you consistently do to me what you whine about to others: you put words in my mouth that I did not say”
Sure I do. None of this is very difficult to understand, guy. If I touched a nerve I don’t know why and I’m sorry.
All I did was disagree and said, “again, many have seen rates drop so maybe another year to the predix” — and both you and bdb got mad.
I speak from experience. Many people who took out adjustable ARMs, with home equity seconds, have seen both LIBOR and prime go down.
jeez.
In order to show my consistency
(unlike Ben Bernanke or Hank Paulson or any of the other economic “gurus” out there who change their forecasts from “there is no bubble” to “we’ll have a soft landing” to “it’s only subprime” to “it’s all contained” to “there are no banks in trouble” to “Fannie and Freddie are wonderful” to “we need a bailout!)
here is again where I elucidated why I think the foreclosure pressure will go until December 2011. Ironically, that is 2.5 years from now… and wow… about 2.75 years from when I posted this 3 months ago… and about 3.5 years from when I posted about this last year… there seems to be a pattern about December 2011 in my analysis. what could it be????
Posted by ex SF-er at March 13, 2008 10:43 AM
but like I have said many times, this is unravelling faster than I thought it would. I’m not sure if that is a good thing or not. it certainly is not what the govt or the financial markets want.
my typical statement, which I’ve said over and over and over again:
-watching this downturn will be like watching the paint dry of a painting of grass growing. It will take years to play out
and
-most of the Real Estate losses will occur through inflation, and not through nominal price drops. Thus, as example, we may see RE drop 5-10% over 5 years, but have inflation of 4% per year. This would achieve a 30% drop in REAL RE values, but the masses would likely only notice a mild 10% drop.
ok… sorry I flew off the handle.
I’m pretty negative on SF real estate overall– more of a very slow sideways lower leak that is unsatisfying to both sellers and buyers. But, as much as I disagree many times with fluj, I kind of agree with him on foreclosures. Foreclosures may increase dramatically in percentage terms, but I don’t feel like the total numbers are going to be that great.
This is strictly anecdotal– mostly from friends or friends of friends who have used various types of arms for 2BR and 3BR condos. Depending on the individual and type of mtge, they may or may not have had resets yet, but even those who have who are feeling squeezed financially aren’t in any danger of foreclosure. Banking and wall street have lost lots of jobs, but overall, people in SF are still employed, and in terms of the mentality, it seems like cutbacks are in order, but housing is the last thing to go for people.
I think there are plenty of reasons to be negative and to not buy right now and for a while– but I’m not sure I see the rationale for big foreclosure numbers nor for very much forced selling.
i think a big part of the perception of the variance is caused by the types of housing we have in the city and the fact that most of the units are held by people in the business of operating rental housing (as opposed to occupying or flipping them).
this has the effect of constraining supply (along with the difficulty of building more units). i think it puts a floor on the amount that prices for many units can fall.
so, can million dollar condos fall to $700k? i think its possible.
can six unit rental properties go from $300k/unit to $200k/unit? i think that is much less likely.
both are housing but the ownership/financing profiles are quite different.
“Normal, affordable housing prices are bad when people lose their life savings. ”
Yeah, but these are minority and the majority can now use their life savings to buy more affordables housing. Affordable housing is better for the greater good and would help the economy in the long term. However, it is clear that our govt never thinks about the long term.
One thing I think I can be reasonably sure of: those who predict the size of market swings are typically wrong.
This is a credit crunch. Do people really think those who buy in high end neighborhoods of San Francisco really care about their ability to get a mortgage? It’s primarily a cash market for places like Pacific Heights and Russian Hill.
Alas – the real estate downturn is primarily a problem for the 0-20% down crowd. Cash remains king – and the rich have lots of it.
It would be interesting to see how the $2m plus market does.
actual foreclosures in San Francisco only increased 182% (up from 50 in Q2 2007 to 141 in 2008.
San Francisco Population: 776733
Foreclosures across metro Phoenix number 16,647 for the first half of the year.
Phoenix is currently the fifth largest city in the United States[2] in terms of population with a 2007 estimated population of 1,512,986
whoa, sorry ’bout that.
” Phoenix Metropolitan Statistical Area (MSA) was the thirteenth largest in the United States, with an estimated population of 4,179,427.[5]”
Hey, way to have fun with numbers!!
You guys should compare the number of foreclosures to the number of miles to the sun and say it’s not that bad!
It would make about as much sense as the numbers you are posting and comparing to the numbers here.
First, stating that the city of Phoenix has twice the population of SF, but that the number of foreclosures in the Phoenix METRO area (e.g. encompassing Scottsdale, Tempe, Chandler, etc.) is much larger than foreclosures in the 7×7 city of SF is ridiculous.
Just in sheer size, the Phoenix metro area is 475 square miles, and the subprime portion of it is probably 90% of it. I’d be shocked if the subprime portion of SF is more than 4 square miles. That makes it about 100 to 1, and so the 100 to 1 foreclosures in SF put the number of foreclosures per square mile about even. The densities are probably higher in SF, so we’re a little better off, but not by much. Thus far, the problem loans have been largely subprime. That’s about to change.
And comparing the number of foreclosures to all houses in SF is just as dumb. All houses don’t get sold every year. What matter is the increased inventory. And I can tell you that the increased inventory in district 10 is absolutely affecting prices there.
Not a lot of houses sold in SF in 2005-2006, but a lot more people refinanced in 2005-2006, and a good chunk of them got an option ARM. If you are in one of those, you actually have a disincentive to move, so the normal inventory in those places is being holed up by people who may as well just continue to pay the minimum payment until they get kicked out. It’s been too cheap for them to leave (much cheaper than renting), and it is absolutely distorting the inventory DOWN in the the higher end. That will start to unravel in about a year.
Subprime was just not a big part of SF. Where it was, those places are getting clobbered just as bad as anywhere else in the country.
tipster,
i agree. that was a bad comp.
Bay Area. Am I the only one who feels this is a phrase without any real cohesive meaning?
I don’t think I live in the bay area, anymore than I think I live in California, I live in SF.
I was suprised I did not need a passport to visit Fremont. I did send postcards. Lovely town.
Primarily a cash market in Pacific Heights? Any facts to back that up, or is it another rumor?
“It would be interesting to see how the $2m plus market does.”
Interesting but less than 10% of the entire SF market.
“Primarily a cash market in Pacific Heights? Any facts to back that up, or is it another rumor?”
True for $5M+ but more urban legand than anything else.
NODs and Foreclosures in SF appear to be very neighborhood specific. Does anyone know of a source that maps out discosure on a SF District basis?
Foreclosureradar.com sort of does but it’s just the map of SF. You have to know which districts are where.
Re: Novato homeowner. I hope she’s barred from ever buying a home with a mortgage, which isn’t likley since she’s just acting as irresponsibly as the Federal Govt.
Re: Taxholder bailout. The way I read it, the govt. funds incentives for lenders to refinance the loans rather than foreclose on them. Every loan refinanced is penalized 1.5% per year of the balance and if the homeowner digs themselves out of their valuation hole, they share 50% of future gains with the govt. Translation, most of these problem homeowners were either a) stupid, b) greedy, or c) unethical and therefore will not refinance under these terms and will rather take the hit to their FICO score. Bureaus have been quoted in the press (very stupidly I may add) as stating that anyone can bring their FICO back into the 700 range after 5 years, even if they declare bankruptcy.
That ahole navato homeowner DESERVES TO ROT IN JAIL!!!! you fn piece of trash, you are the reason why we are in this mess. I hope she goes to hell at the very least and has the fiery existence that greedy idiot deserves. and the poster is an evil piece of trash as well to gloat about this immorality. both burn in hell please.
Ah, we seem to have moved from denial to anger. As I recall the next stage is bargaining.
Bargaining: isn’t that what we’ve been doing with respect to the bailout plans?
I would guess that the more classical bargaining that we’ve been seeing here has been of the form:
“Ok, I accept that everyone ELSE’s house can go down as long as mine stays up.”