Housing Doom Housing Bubble Blog

The Fed Chairman, Ben Bernanke, had an idea for lenders this morning:

“Lenders tell us that they are reluctant to write down principal,” Bernanke said. “They say that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again.”

The Fed chairman countered that by reducing the amount of the loan, this “may increase the expected payoff by reducing the risk of default and foreclosure.”

Bernanke also urged investors in mortgage bonds to accept “short payoffs” of loans by allowing borrowers to refinance at a lower principal.

For investors, a reduction in principal that’s “sufficient to make borrowers eligible for a new loan would remove the downside risk” of further writedowns or defaults, Bernanke said.

Bernanke is wrong about that downside risk.  Take a look at these numbers that M pulled for us this morning:

Active listings:                            55,661
Active listings that are vacant:      27,414
Active listings tenant occupied:       4,376
Listed as short short sales              4,615
 

So 49% of homes for sale in Phoenix are currently vacant, and only 43% of homes for sale are owner occupied.  Most homes currently for sale in Phoenix are not lived in by their owners.
 
ARMLS is reporting 3830 sales for the month of January- a 14.5 month supply of homes.  You can see that at that rate, a lot of people would have to carry those empty houses a long time as the prices fall.  They won’t do it, they will turn them back over to the bank. How do you keep people in their homes WHEN THE HOMES ARE EMPTY?
 
This isn’t the only issue- of the 27,414 vacant listings, 4,265 of them are listed as "lender owned". Lender owned sales are disproportionately more of the market than resales as they are in a position to be more aggressive in their price cuts than the resellers are.  As M told me:

Lenders and homebuilders are setting the direction of home prices in Phoenix.  The reseller [the guy who make prices "sticky"]  is almost irrelevant at this point.

Then there is the downside risk that Bernanke’s plan brings to the table.  Consider this scenario:

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On February 27 the Arizona Republic ran an article entitled "Home market under $200K Super Hot"  The Republic stated:

Homebuyers [are] fighting over a growing inventory of homes in the Valley’s super hot sub-$200,000 market. The sub-prime debacle, foreclosures and short sales are continuing to drive Valley real estate prices down, making more homes than ever affordable for first-time homebuyers and investors.

But those who want to get the deals face:

• Competition from investors.

• Bidding wars on "short sale" homes.

• Waiting games for lenders to respond to "short sale" offers.

I wondered when I read it why if homebuyers are fighting over the inventory, how the inventory could be growing. M checked the numbers on this "hot" market segment for us yesterday:

Actives Less than $200K       17,385
Sold Feb 08                         1,146
 
15.17 months of inventory in the sub $200K market.  In reality the numbers are worse; 129 sales were included that had list prices above 200K yet sold below 200K.  This is the result of "bidding wars"?
 
FYI, 50% of active listings are priced below $262,500.

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