Scary 1990s v. 2000s Foreclosure comparison

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optimusprime_IHB

optimusprime_IHB

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This is from Matt Padilla's blog on OC Register....looks like 2010 will be fun!!



<a href="http://mortgage.freedomblogging.com/">http://mortgage.freedomblogging.com/</a>



Crunching stats from DataQuick shows foreclosures rising at an annual clip of more than 300%, while during a similar period in the ?90s they rose at a pace of more than 100%.



Let me explain. As I said in a previous post, the first quarter to see at least 100 foreclosures in each month was Q4 1991 in the ?90s downturn and Q4 2006 in this one. That gives us a convenient starting point (in other words the first data point in my chart above) to track how fast foreclosures increased on a quarterly basis then and now. The chart ends with Q1 1993/2008.



Mark Boud, owner of Real Estate Economics in Irvine, said foreclosures have risen so quickly this time around because speculators defaulted on loans as soon as home prices fell. He expects foreclosures to peak in Q2 and then taper off, though they will continue to depress home prices at least until 2009 by his reckoning.



Walter Hahn, a real estate economist in Irvine, also told me foreclosures either peaked during January?s record high of 802 foreclosures, or they will by June. <strong>But it?s not straight down from here, since resets on adjustable-rate loans are not only peaking right now, but are predicted to peak again in 2010 and 2011, Hahn said.</strong>



<img src="http://mortgage.freedomblogging.com/files/2008/04/foreclosure-chart-q12008.jpg" alt="" />
 
Yeah... that chart is ugly. Hopefully later today I will be able to throw in the sales numbers to my foreclosure chart.



The comments from Mark Boud and Walter Hahn drive me nuts. Both of them saw blue skies and sunshine in Q4 2006. So, are you really going to believe that foreclosures will peak in Q2 of 2008, from someone who has been consistently wrong? Or are you going to believe a nutter, who has been consistently underestimating how bad the foreclosures have been? Q3 and Q4 will be the two worst quarters of 2008.
 
[quote author="graphrix" date=1208393343]Yeah... that chart is ugly. Hopefully later today I will be able to throw in the sales numbers to my foreclosure chart.



The comments from Mark Boud and Walter Hahn drive me nuts. Both of them saw blue skies and sunshine in Q4 2006. So, are you really going to believe that foreclosures will peak in Q2 of 2008, from someone who has been consistently wrong? Or are you going to believe a nutter, who has been consistently underestimating how bad the foreclosures have been? Q3 and Q4 will be the two worst quarters of 2008.</blockquote>


Graphix..seems like the 2010 ARM reset story is suddenly "coming back" into the fold. Read the next Mortgage Crisis is going to be with Prime Borrowers who decided on the 2/28 deals.



I can see a "pre-emptive" selling move by the buyers who realized they are royally screwed in 2010 trying to dump their homes in 2009 and avoid the stampede.
 
[quote author="optimusprime" date=1208385202]Mark Boud, owner of Real Estate Economics in Irvine, said foreclosures have risen so quickly this time around because speculators defaulted on loans as soon as home prices fell. He expects foreclosures to peak in Q2 and then taper off, though they will continue to depress home prices at least until 2009 by his reckoning.



Walter Hahn, a real estate economist in Irvine, also told me foreclosures either peaked during January?s record high of 802 foreclosures, or they will by June. <strong>But it?s not straight down from here, since resets on adjustable-rate loans are not only peaking right now, but are predicted to peak again in 2010 and 2011, Hahn said.</strong></blockquote>


Real estate "economists," whatever that means, are not helping their credibility by making these kind of ridiculous claims. There is no way we are anywhere near the peak in foreclosures. The downward spiral is just beginning. The price declines have put many, many homeowners underwater, and all of those who have to refinance are going to become more foreclosures.
 
"I can see a ?pre-emptive? selling move by the buyers who realized they are royally screwed in 2010 trying to dump their homes in 2009 and avoid the stampede. "



I think that is the big unkown in all of this. If there is a giant stampede of "owners" who hand their houses back to the lenders all at once, then the "return to fundamentals" projection charts will need to be completely redrawn. Declining house prices will not adhere to their characteristic "stickiness".
 
[quote author="Major Schadenfreude" date=1208400575]"I can see a ?pre-emptive? sellingquote]



This is called market capitulation and happens in the late stages of a bubble burst. I don't see this happening as people will give the keys back to the bank first. I see a continued nonlinear downtrend in prices market by periods of relative price stability and possible brief raises before dropping again. Most selling pressure will continue to come from the foreclosures, REO's. At least that's what happened in the last bubble in the 90's.
 
[quote author="alan" date=1208401537][quote author="Major Schadenfreude" date=1208400575]"I can see a ?pre-emptive? sellingquote]



This is called market capitulation and happens in the late stages of a bubble burst. I don't see this happening as people will give the keys back to the bank first. I see a continued nonlinear downtrend in prices market by periods of relative price stability and possible brief raises before dropping again. Most selling pressure will continue to come from the foreclosures, REO's. At least that's what happened in the last bubble in the 90's.</blockquote>


Alan,



It will be interesting to see if you are correct. All my projections have been based on the idea that there will not be true capitulation in the real estate market. There has never been a bout of capitulatory selling in any residential real estate market that I am aware of. Of course, nothing about this bubble has precedence, so me may yet see panic selling in the market. Right now, the market psychology does not support it. Most people are still in denial, although the transition to fear is looming. After about a year of real fear and a complete rejection of kool-aid thinking, we might see capitulation.
 
I wouldn't describe the emotion as fear. I have felt fear watching my tech stocks go down and the need to sell and sometimes lost sleep. Fear is not what I felt when home values dropped in the 90's.



When my house dropped in the 90's I was just depressed and disgusted. I continued to make payments, never thought of selling but put off plans for any future upgrades and hunkered down and felt less wealthy. Of course, back then my payments were never more than I could easily afford so other than bragging rights, the only effect of the downturn was that I got my property taxes lowered.



I expect the same this time. People will be depressed. Those who can't afford their property will just walk, the rest will hunker down and cut back on discretionary spending. It will be a good time to be a bankruptcy lawyer or a psychiatrist.
 
[quote author="alan" date=1208406474]I Of course, back then my payments were never more than I could easily afford so other than bragging rights, the only effect of the downturn was that I got my property taxes lowered.</blockquote>




I wasn't here back in the early 90s, but looking at historical charts, it seems as if the average (house/wage) then was about 3-3.5. Is this your impression too?



Currently, my impression is that for many (what percent???) houses sold in the 2000s, the (house/wage) was 6-8x.



I suspect that they will not be able to/want to "buckle down and make the payments". I just don't have a good grasp of whether this is 10%, or 80% of the people who bought homes in the past 6 years.



Any thought?
 
[quote author="freedomCM" date=1208419352][quote author="alan" date=1208406474]I Of course, back then my payments were never more than I could easily afford so other than bragging rights, the only effect of the downturn was that I got my property taxes lowered.</blockquote>




I wasn't here back in the early 90s, but looking at historical charts, it seems as if the average (house/wage) then was about 3-3.5. Is this your impression too?



Currently, my impression is that for many (what percent???) houses sold in the 2000s, the (house/wage) was 6-8x.



I suspect that they will not be able to/want to "buckle down and make the payments". I just don't have a good grasp of whether this is 10%, or 80% of the people who bought homes in the past 6 years.



Any thought?</blockquote>


Just one. We're headed back to 2.5-3.5x earnings - kicking and screaming.
 
[quote author="freedomCM" date=1208419352]



I wasn't here back in the early 90s, but looking at historical charts, it seems as if the average (house/wage) then was about 3-3.5. Is this your impression too?



Currently, my impression is that for many (what percent???) houses sold in the 2000s, the (house/wage) was 6-8x.





Any thought?</blockquote>


Before this current bubble house/wage ratios of 6 or more were unthinkable. Unless you won the lottery or married into money, your max ratio was 3 - 3.5. It was only the exotic loans with impossibly low interest rates that allowed these astronomical house/wage ratios to become possible. They are not the norm and not what you should expect, they were a one time phenomena that will not be repeated.
 
<blockquote>They are not the norm and not what you should expect, they were a one time phenomena that will not be repeated. </blockquote>


Somehow, I'm sure they will be repeated in the future. Everything is cyclicle.
 
No they wouldn't.



These loans were only made possible by wall street's ability to package loans together and resell troughs of income streams (SIVs) as AAA rated securities to unsuspecting investors. This path is over now, gone, good riddance.



Were back to bank financing and banks wouldn't put you in a home more than 31/2x your income.
 
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