A second foreclosure storm brewing?

It was only a matter of time, and anyone who follows the RE market knew this was coming. What will be intersting is what happens over the next 6-8 months when the housing market goes into it's slow cycle and forclosures start to hit.

Scott,
I believe that first line should read to the effect that June was 3.6% over May.
I think this happens every June compared to May:
2005 - up 12.7%
2006 - up 8.9%
2007 - up 4.9%
2008 - up 4.3%

I photograph and do video tours for real estate in the Boston area. I have shot millions and millions of dollars worth of homes in the past 4 months. High end homes have virtually sat untouched on the market since last November all over the country, yet so many more of these homes have been put on the market this spring and summer. Many of these homes were purchased within the past 5 years or less. Most are owned by young couples with small children.

My take: As bonuses dried up, jobs were lost, salaries were cut, coupled with many of these loans resetting, plus the difficulty in obtaining the jumbo loans in order to attract high end buyers - not to mention the fact that I'm sure many of these folks overextended themselves just a wee bit (!)....

Hopefully I'm wrong, but I have a funny feeling the foreclosures will be spreading to the high end this fall and winter. Big time.

Despite the headlines "Housing Sales UP" year over year sales were moderately worse. I think you may have been the only voice in the media that even alluded to that Scott - congrats.

Amazing how most people still don't get that year over year is what matters in a cyclical market. Though cynically, I think we'll be hearing a lot about year over year when july numbers start to plummet - as is normal.

And also ignored is that while sales were up, prices are down. For most people, price is what matters. Selling your house quickly at a massive loss is not exactly cause for celebration for most.

Fred is correct. The mass affluent "McMansion" market is already getting crushed. Buyers in this segment continue to disappear because ridiculously loose jumbo credit-- which in years past enabled buyers to make purchases grossly beyond their means and inflated home prices to absurd levels-- has completely evaporated. Prices will continue to fall to levels supported by incomes and responsible lending standards. Welcome to the new normal.

we haven't seen anything yet, especially in the Boston area...

Lets look at an avg couple age 30... Prolly make between $100k - $130k in the Greater Boston Market. 3.5 times = $350k -$455k that is with 20% as a down payment. TRUST ME 95% of couples this age group do not have anywhere near $70k - $90k in cash for a DP. its more like they have 3.5% - 5% for a DP proved by the enormous percentage in FHA loans. so subtract 60-80k off those prices and you get $290k - $350k as the price range for young couples in Boston to be buying in.
We have a lot more price corrections coming.

Excellent data Lama!

Heres your answer:
http://www.youtube.com/watch?v=iUuROWEMjm0

Note these are all "Prime" mortgages.

just did a quick look/see on where the soldiers and sailors were being filed in middlesex and suffolk counties. the notion that the the middle up towns are a significant source of the petitions really isn't supported. here are the # of petitions i found recorded in each town since april '08 - july '08 and april '09 - july '09.

2008 2009
chelsea 6 - 16
everett 63 - 51
malden 72 - 51
revere 104 - 59

arlington 3 - 3
burlington 7 - 5
groton 5 - 2
hopkinton 12 - 8
littleton 3 - 4
medford 36 - 36
natick 13 - 10
north reading 6 - 6
somerville 30 - 27
stoneham 12 - 8
wakefield 17- 9

acton 7 - 8
belmont 3 - 4
boxborough 4 - 4
concord 4 - 4
lexington 5 - 4
lincoln 1 - 0
newton 18 - 13
sherborn 0 - 0
sudbury 2 - 5
wayland 1 - 5
weston 4 - 4
winchester 2 - 9

Bloggers, writers of R.E. articles and readers, EVERYONE, please remember to keep in mind that for several years, the National Association of Realtors and your State Association of Realtors continue to revise and revise and revise down the seasonal and yearly forecast for the number of homes they say will sell.

When these continually revised and lower numbers are then reached, writers and reporters who are not in the Real Estate industry, together with those who are and the many people whose income depends on spinning any and all news and numbers in a positive way, shout from the roof tops that "the numbers have increased", blah blah blah. The dead cat bounce.

There may be higher sales one month over the prior month, but these numbers were revised downwards and more importantly, the prices for homes continue to slip. That is important.

What is also important - and I haven't seen any news to the contrary - there is a huge "shadow" inventory of foreclosed and short sale homes going to hit the market here and throughout the U.S. No one can deny that. Economics 101. Without rising employment and rising salaries, there is no and will be no home stabilization.

People jumped into the bubble and are now losing money if they need to sell. Just as many of us bought stock in Sun Micro at $80.00 and after 10 years it is still around $9.00. I need to sell this stock. Anyone want to buy it from me at $81.00 so that I can break even after paying my stockbroker! Sorry. I sound like more home sellers still in denial and living in fantasy land.

Thank you, one and all, for speaking the truth. This is the only place I can come to find out what's REALLY going on in real estate. Your knowledge & numbers are much appreciated!

The FDIC shutdown 7 banks last night, many, many more to come. One could easily follow this number as a leading indicator for the rate and volume of bank REO soon to be unloaded to the market....

@ Matt - The average couple age 30 is not typically the owner or buyer of a high end home. You have HH incomes in the $200K range or higher and it is a second home purchase. So let's be realistic on what market we are talking about. If you are a FTB with $100K in HH income with only $15K and want that $1M home, prices are never going to drop low enough for you to buy it.

@ still waiting - I think you also need to factor in #homes as towns are different sizes.

For the drop in foreclosure numbers from last year, everyone talks about the government intervention - which is a valid point. On that same note, if you have been following, the bail out attention is now being focused on those that are in crisis due to job loss. The government will continue to intervene and maintain "artificial" prices. it is what they do. So if you think the market will tank again through natural market forces and you'll scoop that high end home, think again. Obama is doing everything he can to see that this isn't going to happen - even if that means the country is mortgaged for the next 100 years.

mish,
thanks for the attention but i think it may have been a little presumptuous. we could scoop a high end home today. not sure why we would when based on most historic economic indicators it would be overpriced roughly 20%. sorry about the raw data. i looked quickly, calculated it roughly in my head and found it interesting so i shared it. my take on the data is that at this time distressed conforming does not equate to high end. take it for what it's worth.

regarding intervention, i have much less faith than you that the government has the capability of propping such massive overvaluation. my thoughts are they are attempting to soften the landing by improving perception and the 3 biggest weapons are rates, time and dispersing costs. i may be naive but the major bullet our elected officials have to combat job losses (aside from the cash infusions and lines of credit to otherwise insolvent industries) is extending jobless benefits. if you think a 6 month extension of the less than $2500/month pre-tax handout is going to support jumbo leverage, think again.

@ Mish I am not talking about $1M homes I am talking about a 3 bed 1.5 bath home in a decent town. Thats what my numbers were based on. I think the FTHB is in the 290k -350k range and that a lot of suburbs are in the 450-650k range.

$200K range? That isn't being realistic. Where can a couple find a decent home for around $200k that (a) doesn't require a bullet proof vest every time they walk out their front door or doesn't need $150K-$200K in repairs?

By the way, even with Obama and the admin trying to keep prices artificallly inflated, it hasn't worked yet. Prices are still falling in every corner of the country and the prime loan defaults have yet to come into play.

Mish,

What do these people who make $200K+ per year do and are they really numerous enough to prop up the entire ~$1M (and higher) Boston market? The income data that I've found for tony towns like Newton suggest that this belief that there is an abundance of rich people propping up prices is wishful thinking and simply wrong.

Mish and David: Compare median household income to median home price in any of the tonier towns around Boston. The ratio is way out of whack (often 5 to 1 or greater). Reckless and unsustainable jumbo lending enabled the price bubble in these markets. But the dumb money is gone. And it isn't coming back. Prices will continue falling AT LEAST until a household earning the median income can purchase a median-priced home with traditional financing. In the short term, prices will probably over-correct on the low side. End of story.

P.S. Yes, this means a peak-to-trough correction of around 50%... Fasten your seatbelts... It's going to be a rough ride.