Thursday, February 02, 2006

The Beginnings of Financial Distress

Are we seeing the beginnings of financial distress (and here)? Right now the absolute numbers are small but the percentages are high. Will the absolute number of default notices increase significantly? Many ARMs and their variants are resetting this year; far more next year -- this year approximately 335 billion dollars worth of ARMs are set to adjust; in 2007 1.2 trillion dollars worth of ARMs will adjust. Add on top of that a flattening or negative appreciation and we may see more default notices.
Across the state, the number of default notices sent by lenders [in 2005] to borrowers was 14,999, up 19% from the prior quarter and up 15.6% from the fourth quarter of 2004, DataQuick Information Systems said on Thursday.

The company attributed the rise in foreclosure activity to slowing appreciation rates, which dropped from a high of 22.8% in the second quarter of 2004 to 14.5% in the last quarter of 2005 and are expected to decline further this year.

In Los Angeles, default notices are up 10.7%; in San Francisco, they are up 45.2%; in Napa, they are up a whopping 175%.
From Inman News:
All regions of the state saw an increase in foreclosure activity, ranging from 10.5 percent in the Bay Area to 19.6 percent in Southern California.

The number of notices of default dropped 48.5 percent in Stanislaus County – from 309 notices in fourth-quarter 2004 to 159 notices in fourth-quarter 2005.

In Southern California, the number of notices jumped from 1,123 to 1,607 (43.1 percent) in Riverside County; from 872 to 1,173 (34.5 percent) in San Diego; from 684 to 918 (34.2 percent) in Orange County.

In Northern California, the number of notices increases from 636 to 849 (31.4 percent) in Sacramento County and from 73 to 106 (45.2 percent) in San Francisco.

On a loan-by-loan basis, mortgages are least likely to go into default in Marin County. The likelihood is highest in the Central Valley and Inland Empire.
Is Marin's higher median income for now forestalling an increase in default notices? Is that why Napa's increase is so high...because the median income is lower there yet house prices are stratospheric?

Lereah first claimed that the housing bubble isn't a bubble, it's a balloon. Now he says it is a ship. Another blogger says that ship is the Titanic. So has the iceberg just come into view and the ship is too slow to respond to get out of the way in time? Time will tell.

18 Comments:

Anonymous caddis said...

One thing they don't speak too is the significance of this adjustment. Each time in the last 30 years after our low affordabiltiy of 17% ( as a state ) we have increased in Foreclosures. Specifically a 981% increase. This happend in both 1980 and in 1990. Investors who study this information such as Bruce Norris predict that this increase will be over 1500% due to the easy loan product that has flooeded the market.

Feb 2, 2006, 6:03:00 PM  
Blogger fredtobik said...

Do you have a happy life? All this doom and gloom makes me want to hit the Malt Liqour. You should run for public office Marinite, I cannot imagine anyone being more concerned about their community. I bet you like Stephen King novels.

Feb 2, 2006, 6:58:00 PM  
Blogger Marinite said...

HP Lovecraft...that's pretty dark.

Feb 2, 2006, 8:22:00 PM  
Anonymous Anonymous said...

Speaking of DataQuick. Has anybody else notice that the price per sq foot calculation has change from 2004? All of 2004, dataquick used a typical square footage of a house say 1500 divided into the median price to come up with the price per sq foot. Now if you take the median price and divide by the price per sq foot the typical house is all over the map each month, but trending downward. So the price per sq footage is going higher but the house sq footage is shrinking. Is this another way for them to hide declines of the median price?

Feb 2, 2006, 8:35:00 PM  
Blogger fredtobik said...

"Is this another way for them to hide declines of the median price"

What? You mean Statistics can be misrepresented? Noway!??!

Feb 2, 2006, 9:55:00 PM  
Blogger fredtobik said...

HP Lovecraft... huh..? I'll have to check him out. I just picked up a collection of Poe stories haven't read those in 10 years.

Feb 2, 2006, 10:15:00 PM  
Blogger David said...

Some would say that warning about inevitable declines from a speculative episode is 'doom and gloom.' No. It is realism.

David
Bubble Meter Blog

Feb 3, 2006, 7:37:00 AM  
Blogger fredtobik said...

"Some would say that warning about inevitable declines from a speculative episode is 'doom and gloom.' No. It is realism. "

Ya ok, that is all that is posted here warnings about inevitable declines, never a mention of government conspiracies, worldwide economic depression, war, mass panic etc...

Feb 3, 2006, 8:42:00 AM  
Anonymous California gold said...

Great post...yes the real estate decline is really well underway.

I just read another very insighful article by a San Diego real estate broker, it too is MUST READ. It is located at:
http://www.downtown-san-diego-real-estate.com/san-diego-real-estate-article-index.htm

Feb 3, 2006, 9:00:00 AM  
Blogger Marinite said...

HP Lovecraft... huh..?

You just dated yourself dude or I just dated myself.

Does Cthulu riing any bells?

Feb 3, 2006, 9:29:00 AM  
Blogger Marinite said...

Ya ok, that is all that is posted here warnings about inevitable declines, never a mention of government conspiracies, worldwide economic depression, war, mass panic etc...

You want conspiracy theories, why we are headed to a global depression, etc? I can do that. That stuff is "out there" though (image: Kramer doing that wavy hand gesture).

Feb 3, 2006, 9:41:00 AM  
Blogger Rob Dawg said...

http://exurbannation.blogspot.com/2006/02/raising-dead.html

Feb 3, 2006, 10:03:00 AM  
Blogger Marinite said...

Please use www.tinyurl.com when you want to post a long url. Thanks.

Feb 3, 2006, 10:16:00 AM  
Blogger Marinite said...

robert -

That's awesome

Feb 3, 2006, 10:19:00 AM  
Anonymous Anonymous said...

To be fair, you have to divide the number of bankruptcies by the total number of houses owned to get a ratio.

You can expect bankruptcies to be higher if number of houses is higher without any financial stress having increased.

In the early 90s my wife and I were making money hand over fist and out of choice, we refused to put more than 5% down on a house. At first the lender refused us and we walked away from the deal. I knew at heart they were more desperate to lend than we were desperate for a house (not at all). They called back 2 weeks later and approved it.

The laws of transactions are "he who is more desperate loses". People who are desperate enough to pay 800,000 for a house that cost 100,000 to build are in for a very rude awakening. Builders are going to keep building, and building and building as long as they can make a profit. So in reality, the bubble will pop down to the level where the cost of the house is what determines its sale value. Builders are people too and must eat so they must keep building as long as it's profitable. I'm pretty sure a lot of the construction workers in Southern Californa are undocumented aliens anyway, even cheaper.

During the .com bubble I remember thinking to myself "has the world gone mad?" as I watched worthless stocks rise in value. But eventually the laws of the universe exert their uncompromising grasp and the piper gets paid.

My salary hasn't changed significantly for 15 years. There is no reason for the increase in housing except speculation.

I know it's not a shortage of housin g because in Los Angeles, apartment renters are getting more desperate. In the early 90s it required first and last months rent PLUS a month's rent security deposit to move into a place. That's THREE TIMES the rent. Nowdays, they only want $300 security deposit. They are desperate to rent because there are plenty of apartments around.

Feb 5, 2006, 12:53:00 PM  
Anonymous Anonymous said...

You can expect bankruptcies to be higher if number of houses is higher without any financial stress having increased.

Uh, thats why its expressed as a peercentage

Feb 5, 2006, 10:24:00 PM  
Anonymous Anonymous said...

What is the source of the ARM readjustment rate? Not that I doubt you... Fishing through Freddie mac records kinda hint at the same thing. I'd love to see a regional breakdown of ARM adjustments. I bet there is a bigger ARM hit, bi-coastal, than central (or Blue VS Red if you wish)
Regards,
Shirt

Feb 8, 2006, 4:15:00 PM  
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Feb 5, 2009, 12:35:00 AM  

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