brokedickdog
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Joined: 8/13/2010
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That is a good and reasonable question DYB. It is also an aspect of the mess I have not devoted much time to learning about, or understanding fully. My response here is of the "broad strokes" nature and comes from more generalized information I've encountered than it does any specific research.
Your question: "How the fuck does a house or property go from what was it...Mid 200's down to Mid 100's in three years?"
The simplest answer is this: There are way more houses on the market than there are buyers. The number of houses available continues to increase and the number of potential buyers continues to decrease. Look for significant continued downward pressure on home values, and that well into the future. I don't see this self perpetuating downward spiral changing before 2014.
What follows is information/opinion in support of the above. It isn't deeply researched and it isn't supported by a kabillion links to authoritative media sources or governmental statisitics.
Housing is subject to the laws of supply and demand, as is every other product or commodity. On any given day there are a number of houses that are available for sale, and a number of potential buyers for those houses. When one or the other of those numbers changes, or changes dramatically, the price of the houses also changes. More buyers than houses and the price goes up. More houses than buyers and the price goes down.
When properties become distressed, and are sold as a result of the distress, the price goes down sharply. A foreclosure and foreclosure auction is one example of distress. There are others.
For the past 3-4 years we have experienced near record numbers, and in many areas record numbers, of foreclosures. The number of available properties has increased dramatically AND most of those are also distressed properties. Thus we are seeing a dramatic decrease in the value of properties.
The "housing bubble," or the unwarranted increase in property values, was not evenly distributed. The sand states, as well as other vacation spots and some large metro areas, experienced the most radical increases. Some areas of the country were not affected as dramatically. The number of foreclosures is also not distributed evenly, and in the first years of the housing crisis were occurring primarily in the areas where the bubble was biggest. As the housing crisis drives the economic downturn, and that is spread more evenly, the regional nature of the housing crisis is changing and is also becoming more evenly distributed.
At present there is a significant shadow inventory. Shadow inventory includes a number of different types of properties, the most important of which are properties that have already been reclaimed by banks (referred to as REO, or real estate owned) and properties whose mortgages are in distress (seriously delinquent) and facing imminent foreclosure. This inventory is currently very large. It is estimated there is a shadow inventory that in ordinary circumstances would meet the needs of potential buyers for a period of about 3 years. That was the estimated inventory as of February of this year (at least according to this article: http://www.housingwire.com/2010/02/16/shadow-inventory-of-homes-to-take-nearly-3-years-to-clear-sp). If you poke around for material on this topic you'll turn up a variety numbers. As I said I haven't researched it enough to have what I consider to be an accurate or informed opinion. What is clear though is the overall reality that we have a large excess of properties in the shadow inventory.
The shadow inventory also continues to grow. Foreclosures nationally are still on the increase. I've seen numbers indicating a 12-17% increase occurring in almost all areas of the country (search for recent "RealyTrac" articles to confirm this). Though the crisis has largely fallen out of the mainstream consciousness the foreclosure train is still picking up speed.
Amidst this increase in foreclosures there are a significant number of properties that are not being foreclosed on but are seriously delinquent. Banks are not filing suit on properties that are as much as two years delinquent. Why? Because they don't want to further add to the reported numbers in the shadow inventory. Another tack banks have taken to artificially keep the shadow inventory numbers lower is not transferring title after they have repossessed a property. This also keeps the banks costs down because the prior owner, who has now been dispossessed, is still listed as owner of record and is thus responsible (in the eyes of the county) for maintenance and property taxes.
So we have an increase in the number of "widgets" available on the market. Now we need to see how many potential buyers of these "widgets" there are.
Since the crash of 2008 banks have greatly tightened their lending standards. As we ramped up to the housing crisis there were a number of, er, um, creative and exotic loans made. These have come to be known as "stated income" loans, or "no-doc" laons (in which the borrower was able to merely state a number for income and there was literally no research or confirmation by the lender [it is important here to state that there are Federal and State statutes that specifically prohibit making loans based solely on the value of the asset (or its foreclosure value), or without regard to repayment ability - in other words when lenders did this they were violating laws]). These types of loans have been given other names as well: liars loans, ninja loans (no job, no assets), neutron loans (they kill all the people but leave the buildings standing). It is clear that lenders were completely aware of what they were doing - making loans that they knew would fail and whose failure they were counting on and creating. Well, these type loans aren't being made in the same numbers they were previously (though there is an uptick of late).
In addition to the stated income loans not being made the qualifications for traditional or conventional loans have also risen. Ultimately this comes down to fewer loans being made. Fewer loans = fewer potential buyers.
The pool of FUTURE potential buyers has also been drained (for how long into the future is difficult to say but I expect 12-24 months). The first time home buyers credit, which was extended twice (or maybe thrice), was allowed to expire recently (in June I believe). The program was really ill-conceived as it merely encouraged people that were already planning to purchase in the near future to purchase now instead. It wholly failed to address any of the issues at the root of the crisis or effect any solutions to any of those issues. Housing sales plummeted in July after this credit expired (as a direct result I must add) as was reflected in many articles at the time. A 25% reduction over the same period last year. How poorly does this bode? Well, consider summer is when housing sales have historically been strongest. Ugh!
Unemployment numbers are not making significant improvements. How much we can trust the figures being reported remains to be seen. It is common for the numbers being reported for any given period to be adjusted later (30-60 days later), and these adjustments are usually negative. Many of the current articles refer BACK to previous numbers and adjust them unfavorably. Kirata recently made a post along such lines. In any case this also reduces the number of potential buyers. No job = no loan = no purchase.
Due to significant decreases in property value (estimates are that between 25-30% of homes are now underwater) we are seeing a number of people enter into strategic default. Understandable as there is no good financial reasoning in paying more for a property than it is worth. This is also the common "business" practice and behavior - if the asset has become a liability just cut it loose. It has been interesting to watch industry and media try to label those who strategically default as "bad, immoral, unpatriotic" people. Makes me laugh.
Have I answered your question DYB?
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RE: NYT on the Florida foreclosure "Rocket Docket&... - 
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