Monday, August 11, 2008

When will we hit bottom? Open thread.

I have received numerous emails on when I think we will hit the bottom of this housing bust. Right now prices have gone from a peak of $315,000 (median) to $190,000 (median) that is a drop of 40%. Add in inflation and selling expenses and the numbers look even worse. Remember all those realtors telling us in 2004-2007 that "now is the time to buy". Thanks for the good advice!


Questions for the readers -

How much lower will prices go?

When will we hit bottom?



(I am going to turn off the comment moderation for this)


Update:

Central Valley Business:

Pre-foreclosure filings set record in July

Pre-foreclosures hit record highs in July 2008 both nationally and in 14 states and the District of Columbia according to new figures from Foreclosures.com Inc., a Fair Oaks-based foreclosure information company.

“So far this year, more than 1.25 million Americans faced the risk of loosing their homes to foreclosure, up 7.3 percent from June 2008, and up 88.62 percent from July 2007,” says Alexis McGee, president of Foreclosures.com

38 comments:

Anonymous said...

I have been on this roller coaster for over 35 years. The highs are high and lows are low. However,I have never seen such a fast spiral. My own pridiction for a Kern recovery,is late summer 2009 to stabilize, then a slow upword trend in value...I beleive the rest of the nation will be a bit slower..

Anonymous said...

I believe we will drop another 15-20%, there is just too much shadow inventory. There are about 2,500 foreclosed homes that are not on the MLS yet. Once these homes and the next wave of foreclosures become saleable units the supply and demand will so out of whack that home prices will be forced lower




(former realtor)

Bakersfield Bubble said...

"I have never seen such a fast spiral"


We have never had a credit bubble of this magnitutude.

I think the median will drop to $160k by next summer and then stay around that level (plus or minus $20k) for 2-3 years. Then we will see appreciation.

Bakersfield Bubble said...

"there is just too much shadow inventory. There are about 2,500 foreclosed homes that are not on the MLS yet."


AGREE!!!!

This is what will drive prices down over the next 12 months and create a new wave of underwater homeowners and take us back to pre-bubble levels (2002 median plus inflation):

2002 125,000 (median)
2003 129,375
2004 133,903
2005 138,590
2006 143,440
2007 148,461
2008 153,657
2009 159,035

Cow_tipping said...

Bakersfield is a trucking hub, but other than that, its a cow town.
I'd expect a 1995 price adjusted for inflation in the next 2-3 years. More if the Down payments etc etc are stricter. More standards = lower $$$.
Cool.
Cow_tipping.

RealEstateEconomist said...

My estimate is prices will fall until they get to or close to their rental equivalent.

Today, sensible lenders will not permit a borrower to use more than 28% of their gross income for mortgage payments. When you do the math on this it works out to a maximum of a 4 to 1 home price to income ratio. Keep in mind, 80% of all homes are purchased with a mortgage, so lending criteria is a major factor.

During the boom, home prices when to 8 and as high as 10 times income levels. This was only possible because of the low interest rates and the exotic mortgage products enabling buyers with too much buying power.

Now that lending is back to reality, the limitation on ratios is going to have the affect of pushing down prices to be back their historical ratios before the bubble. You can type in your zip-code and see the historical, bubble and post bubble ratios and what it does to prices at www.UsHousingMeltdown.org. Look for the Ceiling fundamental.

Anonymous said...

I have been tracking the number of "pre foreclosures" aka Notices of Default compared to the actual number of foreclosure deeds. That gap is narrowing, concluding that we are in the beginning of a leveling off. With the July number of recorded Notices increasing, that COULD be that the banks have staffed up to accomodate the huge increase and backlog of filings. Just a thought.....
I believe in August we will see the number of foreclosure notices decline.
There is good activity in the resale market, and no one seems to acknowledge or comment on this.
Talk to the title companies or lenders, there is an increase in sales and loans.
Could this mean something positive?

TheFunSucker said...

the ability to obtain a mortgage is getting a bit more difficult due to the need of a sizable down payment...the vast majority of potential home buyers are strapped for cash, even with a FICO score of 700 or better you're going to need a decent down to get into a home and a lot of folks just don't have it.

I was a bit disturbed that our faithful Commander in Chief went back on his word and signed the housing bailout. But after looking into the details it looks like it's going to do more harm than good., right?

I was out to Meritage Homes on Heath and Hageman and the sales lady couldn't stress enough that time was not on my side and that I needed to buy now and close before the end of October...didn't really get it until I thought of the bail out....she then explained that the days of down payment and closing cost 'assistance' are over due to the new law...LOL...they can't sell a house with the zero down, what's going to happen when that's gone??

What the hell were they (congress) thinking?? This will further depress new construction and trickle through existing (good for me bad for the business). that said new construction is now significantly higher than existing...

I say why stop at a median of 160K? it could and very well may go well below that....especially if oil pops.

Bakersfield Bubble said...

"I say why stop at a median of 160K? it could and very well may go well below that....especially if oil pops."


I could very very easily be wrong. $160k has been my amount for a few years...but the market sometimes shoots way below

Rob Dawg said...

Am was one of the internet's strongest advocates of a rapid reversion. This is almost beyond my most extreme model. There was supposed to be a "stairstep" this last quarter but there doesn't seem yet to be a tread on this stair.

Still sticking to my assertion that we cannot make informed decisions for at least another few months.

Anonymous said...

"She then explained that the days of down payment and closing cost 'assistance' are over due to the new law...LOL...they can't sell a house with the zero down, what's going to happen when that's gone??"

I guess builders will need to take it in the teeth. They won't be able to hide their price reductions in freebies. Now they will need to drop the price of the house and let everyone know what the real prices are.
It may be harder for people to get into houses with these new laws and I think the gov't was WAAAAYYYYY too late in doing something. But I am all for flushing these "d grade" buyers out of the pool and getting back to a normal market. (ie, people who don't have money or don't have incomes should not own homes)
I have been shopping for a house and I am tired of the builder's games. I don't want them to pay my down, I don't want a free pool, I just want to get the BEST price on the house and I'll do the rest.
I don't see an end to this until the NOD's stop. As prices go lower, NODs will increase. As the prices drop, more people will bail. (who is going ot keep a house with a $600k mortgage when you can buy the same one for $350k? Add in the fact that these buyers have zero of their own money into the deal and it is a no brainer... pay off an additional $250k or bail out and make no payments for 6+ months? (that alone is $10k-$15k they can save and put toward another home, plus what they can extort from the bank to leave the house intact.)
No, I don't think we have seen enough yet to know what the bottom will look like. It may become a vicious cirle, price drops = more defaults, more defaults = more price drops, more price drops get more people to default... on and on. I think there might be a little upward bump after the bottom, that will level or even dip and then years before the market makes any real climb. Kern is not Orange County, there is no industry here but hard, dirty jobs done in the sun.
With low incomes and no reason to stay in a home that is upside down I think this may end up being deeper than it first seemed.

Anonymous said...

"Kern is not Orange County"


And the OC has been hammered as well, down 30% from the peak, no area has been spared

Bakersfield Bubble said...

One thing to note, as we enter a period of serious deflation (see the Fed Bank survey out today) - If Kern River Crude drops below $30, then ALL bets are off...TIMBERRRRRRRRRR

RealEstateEconomist said...

Regarding the new housing law, it's doubtful it will have much impact. What it gives, it also takes, so on balance it's not a miracle, nor should it be.

For those interested in reading a page or two check out this handy online directory at
UsHousingMeltdown.org/2008-housing-law.asp

The end of down payment assistance can be found on pages 479-480. Changes in underwriting criteria can be found on page 521.

OtherSideofBellCurve said...

I agree with BB. I think the price will eventually return to what it should be based on fundamentals. Housing has historically followed inflation and BB's calculation of around the $160,000 range in 2009 seems about right. I would put my guess in a little under that. I think it will over-correct and end up around the $140,000 range.

This number is appropriate only if you assume that the credit market will ease up and return to what has historically been considered normal. I believe right now it has swung the other way. Jumbo loans are now requiring 30% down no matter how good your credit. If credit stays as tight as it is now for more than a year or two then we will have artificial pressure on prices going the other way. We could easily go below the $140,000 mark in the right conditions.

One poster on here mentioned that the resale market is heating up and local title companies can attest. I was just at a local title company the other day and they were laying off another round of employees. It was strange in there to say the least. I counted 6people in the entire office. At one point there would have been at least 50.

If you look at the economy of Bakersfield, I think we will fare a little better than the coastal areas such as the O.C. In Bakersfield we produce oil and have agriculture. Both of these are massive industries and are doing well despite the poor economy. Places like the O.C. are service oriented economies which produce very little of anything but lawyers and consultants.

Perfect Storm said...

Oil in Kern will dry up in seven years and the median price in Bako will $110,000 by 2015.

Realestateslasher said...

Yes Yes this is what it's all about
Buy Low Sell High
Anonymous in 35 years did you ?

Anonymous said...

"Oil in Kern will dry up in seven years"

LMAO!!!!! That's funny!

We are decades away from any oil drying up in Kern County. I know cause I'm in the industry. There are still untapped areas out here and new wells being drilled. Also our oil recovery technology is always getting better. Another resource here in Kern that one talks about is our huge natural gas fields.

Anonymous said...

I have weathered the storms, hung onto my home regardless of the "value", it is not just an investment, it is a home. I have never sold at a loss. It is all timing, just like the stock market. There are still people that will not conform to the "it's okay to bail". We have more integrity and wisdom, acknowledging the devistating effects this can have. We believe that bailing out is not an accepted option, unless faced with no other alterntive. I purchase a home in 1991, in 1993 I was upside (no 2nd) $35,000. Eight years later, I sold for $120 profit. Timing....real estate runs in 10 year cycles. Seems like if you can wait out the cycle you win! As far as those "poor" people that have lost their home due to the "bad" loan. What did they loose? They did not have anything in it to begin with... they lied to get the loan, and are faced with the consequence...GREED. These poeple were not Forced to anything....they were banking on the come and lost. GREED
I am sick of all the finger pointing. Noting that there are exceptions and some were incapible of understanding, but not thousands...come on people. It was pure GREED.
It's all timing and choices that we make.

Anonymous said...

Title companies that are laying off now, are probably not going to be around for long. Did you know that there is a new title company that opened this year? Alot of the flex in the market is because of the FHA market. It is like business was in the '80's and 90's.

Anonymous said...

Any Real Estate Agents out there?
I have to ask what do you tell your clients when you sell them a home and they ask if the market is near the bottom? I just do not understand why so many have been buying as the market is falling so fast? Can a Real Estate Agent help me understand. Why would I buy today and loose another 10-20% or more in the next 12 months?

Anonymous said...

I agree, I really, really want to buy another house. I HATE renting. But the way I see it, the size and quality of house I can/will buy just keeps getting better.
Every agent I have talked to in Bako still tells me to hurry up and buy. The bottom is always at hand and I need to jump in NOW! I still get calls from agents that told me that a year ago, they still have the nerve to tell me the same crap. (good think I did not listen to them, I'd be $150k upside down)
I assume people are buying now because they think the deals are good and can't get any better? I always hear the "buy now and get a low rate" song and dance.
I am finally seeing some price that seem like deals, at least in today's market they do. I am sure in a few months the buyers won't be so happy about their deals.
I was an agent (out of state) up until 9 months ago. I spent the last year telling people not to buy and to wait. Didn't make me much money but did make me a hero with my clients.

Anonymous said...

First American Title probably has around 20% of it's peak work force. As far as I know they aren't hiring.

Stewart Title just finished another round of layoffs. I was in there recently and I counted a total of 7 people in the entire office (there were probably at about 50 when it was hot). It was dead.

There were a number of title companies that sprung up when things were hot. Almost every single one has closed down.

There is a new title company in town and they were able to secure quite a bit of local talent. It was shocking to everyone in the industry when they opened. It makes no sense at all. I would expect they may do okay if they keep their staff small and run a tight ship.

Yes, the resale market is getting a little better, but even at this rate it is going to take more than a year to clear the inventory and that doesn't include the shadow inventory or the inventory that will be added when the next few waves of mortgage adjustments takes hold. This is going to be a long protracted correction with a number of false bottoms.

Bakersfield Bubble said...

SHADOW inventory exposed!

Max's shadow inventory post

By my calculations our inventory is understated by 69%. Not good news for the Perma-Bulls!

Perfect Storm said...

Here is my data, show me your data anonymous.

How much oil does Kern have left? I am taking just a quick shot at this, but I am guessing at current production seven years.

South Belridge Oil Field - reserves520 million barrels in 2006, annual production 35.5 million barrels a year so in ten years oil reserves will get small

Mount Poso Oil Field - small potatoes

Midway-Sunset Oil Field - reserves 580 million barrels in 2006 annual production a 39.7 million barrels a year so in ten years oil reserves will get small.

McKittrick Oil Field - small potatoes

Lost Hills Oil Field - reserves 110million barrels in 2006 annual production 11.9 million barrels a years so in ten years oil reserves will get small.

Kern River Oil Field - reserves 476million barrels in 2006 annual production 31.2 million barrels a years so in ten years oil reserves will get small.

Kern Front Oil Field - small potatoes

Fruitvale Oil Field - small potatoes

Elk Hills Oil Field - reserves 107million barrels in 2006 annual production 17.2 million barrels a years so in four years oil reserves will get small.

Cymric Oil Field - reserves 119million barrels in 2006 annual production 18.4 million barrels a years so in four years oil reserves will get small.

Buena Vista Oil Field - exhausted

So that puts Kern final production of oil and when the lights go off by this crude analysis around 2015, but with next three years being really good.

I would not buy investment property in Kern County.

Mon Aug 04, 08:04:00 PM PDT

Perfect Storm said...

Shadow REO inventory is huge Crispy, unbelivable for most, but not for bubbleheads.

Bakersfield Bubble said...

Perfect Storm - This will surface in the MSM in 6-12 months. Look at all the media talking about Alt-A as the next time bomb...LOL. That is old news.

Sherry said...

I suspect the house values will decline well into 2009 as more and more current homeowners simply walk away from their homes for good.

People are walking away from their homes for 2 main reasons. The first one is the fact that they do not wish to continue making payments on a property that is worth $50,000 to $100,000 less than they paid for it. Many of the people who bought houses at the height of the bubble in 2004 and 2005 are in this horrible predicament.

The second reason is that people are no longer able to afford their mortgage payments once their ARM loans reset into higher interest rates. People who bought in 2004 using 5-year ARM loans will see their rates adjust upward in 2009, and those who used the same loan to buy in 2005 will see a rate increase in 2010. To me, this indicates that more foreclosures are on the way, and the new housing bailout bill isn't going to save many people.

In addition the people who used 3-year ARM loans to make home purchases in 2004 saw their rates reset last year, which lead to the surge of 2007 foreclosures since these homeowners could no longer afford their payments. The people who bought houses with 3-year ARM loans in 2005 are seeing their payments skyrocket this year, and are defaulting at record rates. Folks who used 3-year ARM loans to buy property in 2006 will see their payments increase in 2009.

Anonymous said...

LAST YEAR

Home Price $250,000/50,000 down
Loan $200,000, 5.5% 30 year loan

Payment (P&I) $1136

THIS YEAR

Home Price $230,000/50,000 down
Loan $180,000, 6.5% 30 year loan

Payment (P&I) $1137

Timing..........watch the rates.

Lone Ranger said...

The Kern River Field already has “small” reserves remaining. Over 2/3rds of the original oil in place has been recovered. Half of that in the last 25 years. Production is down over 40% from the mid 80’s peak, yet profits have never been higher.

In an aging oil field, production does not remain constant, but declines over time. Using present production rates to calculate depletion doesn't take the gradual production decline into account.

In addition, long term oil prices will continue to increase. As a result, gross revenues will decline at a much slower pace than actual production, and could remain flat for many years.

Chevron , at the present time, estimates an additional 20 year economic life for the old Kern River field.

15 years from now, Kern River crude could easily be selling for well over $ 250 per barrel.

Assuming a 10 year economic life remaining is overly pessimistic.

Perfect Storm said...

Good input on Kern River, what about the other fields? If were banking on Bakersfield's economic future on just Kern River, well lets just say that we all hope Kern becomes the next Silicon Valley and we all know that is not going to happen.

Anonymous said...

Home prices will decline until renting is no longer cheaper, which is as it should be.

I have a chart showing upcoming Alt-A adjustments rising into 2011. It's very scary. Probably not much of an issue for you folks in Kern, but I'm in SD where more than 60% of loans in 2006 were Alt-A Option ARMs. On the CA coast, the crash will get worse before it gets better.

Ichabod said...

SOMEONE SAID...

I have been tracking the number of "pre foreclosures" aka Notices of Default compared to the actual number of foreclosure deeds. That gap is narrowing, concluding that we are in the beginning of a leveling off. With the July number of recorded Notices increasing, that COULD be that the banks have staffed up to accomodate the huge increase and backlog of filings. Just a thought.....
I believe in August we will see the number of foreclosure notices decline.
There is good activity in the resale market, and no one seems to acknowledge or comment on this.
Talk to the title companies or lenders, there is an increase in sales and loans.
Could this mean something positive?

~~~

Per the assessor's office, we are on track for 1500 NOD's in August and 1,000 NOT's. That is NOT positive!!!

Hey Crispy,

Things will start moving on upward January 1, 2011. :-)

Anonymous said...

Icabod......

"Per the assessor's office, we are on track for 1500 NOD's in August and 1,000 NOT's. That is NOT positive!!!"

So, since when does the assessor's office tract notices of default???

If your information comes from the recorders office or a title company that would be relvant information......the numbers will be interesting. I hope that you will not be to dissapointed when things start looking up.

Ichabod said...

Anon said...

So, since when does the assessor's office tract notices of default???

If your information comes from the recorders office or a title company that would be relvant information......the numbers will be interesting. I hope that you will not be to dissapointed when things start looking up.

~~~

A rep from the assessor's office mentioned that in a presentation. Sure they track that- it is a big deal in reassessing the values of homes for property taxes.

I pull NODs weekly. A couple of months ago, it was almost 260. Today, for this week of Notices of Default in Kern County... 459!

I won't be disappointed when things look up. I am not disappointed now. Don't tell Crispy, he might beat me up, but I feel right now is a great time to buy real estate. I know people who are buying houses that other people "paid" $455,000 a couple of years ago- that are paying $250,000 today.

Ichabod said...

349 NODs not 459!

Sorry. Can't multiply today.

Anonymous said...

Hey- I was wondering if some of you guys in "the know" could help me out?
I am looking to buy a house NOW! I need my wife's income to qualify for a loan. (I am waiting on the sheriff's academy in Jan) She is going to have a baby soon so I have to continue to rent or step up and buy NOW. (no income for 4+ months after the baby, then I'll be in the academy and won't have time to house shop)
The plan is to buy a decent home in the low $200's. We'll live there for a year or so and then buy our "real" house in late summer 2009. (when I am out of the academy and we are sure that we are staying in BK) Then we will have a nice rental with a good rate and a new, larger primary res. Make sense?
The trouble is that the market is starting to really drop. I'd rather wait until Nov or so to buy but that means we'll have no income. (not a big deal for us as we have really good reserves and could cash out a home if need be)

I need a bank owned, as short sales will take too long. I would prefer to get some of this "shadow" inventory from the bank. I'd rather buy it "as is" with no appliances, green pool, yellow lawn, etc. (buy it just how they left it) I keep seeing houses on the market the are REO but have new paint, flooring, etc. I'd also rather do it without an agent and save the bank the commission. (I was an agent in another state so I am not worried about doing a transaction between me and the bank)
I am looking for a screaming deal, done FAST!
Should be easy to find in this market right? Well, not so far.
How should I go about this? How to get info on bank owned that are not on the market yet? Anyone have any contacts?
Any help would be great!

Ichabod said...

Hey house buying anonymous deputy-to-be dude...

The best way to do what you want is to let the REO agents know you are interested in prelisted properties. They are assigned propeties and have to prepare them before listing. They won't know the price, but at least you'll know the properties available and have first dibs. You can do this one of two ways.
1.) Drive around town looking for signs on the garage door or inside the front window. Signs i.e.- piece of paper with a notice printed on them. Something to the effect of: "No trespassing. In case of emergency, please contact Agent X @ 555-1212."

2.) Or, send me an e-mail and I can e-mail you with many REO agents and contact numbers. Some "specialize" in rough properties (the bank or the agent don't want to take care of the repairs!). bakorealestate@hotmail.com

Please understand, though,

-By doing it "yourself" you will not be saving the commission for the bank. The commission is set up in advance and the listing agent will simply represent you and pocket all of it. However, if you choose not to have an agent, you will have no protection legally. I.E.- Major BUYER BEWARE with that. So I recommend using an agent- I promise you... not all of us are evil crooked good for nothin's.

-The banks usually have protocols regarding fixing up the property. They have to prepare it to sell as quickly as possible, and they can't wait for just one guy. No offense to you- it's just in case for some reason you are no longer able to purchase. One REO property this week has been listed, pending, back on market, and pending again in less than three days!

Oh, one more thing. Some guys are out there who want "deals." So they see an REO house just listed at $250,000 and offer $200,000, thinking they are doing the bank a favor. Right now, REOs are listed at such good deals, they are going pending in the first few days after multiple offers and are selling at or above listed price. The bank also has guidelines in place. Some won't take an offer unless the property has been on the market for at least 5 days. Some want multiple offers, than highest and best. Some banks will take the best offer, reject the rest and not let the buyers have a chance to raise their offer. If you want a deal, don't make those deals the first few weeks an REO is listed. Find REOs that have been listed by the bank for a couple of months. They you may have a deal!

Hope this info helps.