Saturday, October 23, 2010

CNBC: Emergency Alert on Home Prices

Here's a short video report from CNBC yesterday about falling home prices:






The firm that is the source of the price data is reporting a 6% drop over the last few months and projects another 10% drop over the winter months. This de-flationary development will make it more difficult for banks to sell any foreclosed homes they may have in inventory, as it would make any loss they were previously estimating that much worse.

Is this the start of some serious deflation?

Related observation: CNBC reporter Olick makes a statement at the end of the video to the effect that "on Monday GMAC and Bank of America said that they will start some of the sales again and that will just add to the inventory..." This statement does not make sense. Foreclosures will add to inventories, sales will subtract form inventories. I've noticed that some of the mainstream reporting around this "foreclosure" issue is not differentiating between foreclosures and foreclosure sales. These banks I believe have stated that they will proceed with foreclosures as they need to press their legal rights, but I do not think that they are intending to proceed with foreclosure sales in light of the actual capital losses that they will have to realize upon the sale of a home at a price that is less than the loan amount.

6 comments:

Ryan Harris said...
This comment has been removed by the author.
etfguy said...

Mike isn't this really beneficial to banks? They can delay selling these homes and thus delay taking the loss.

Matt Franko said...

etf,

Yes sort of as long as regulators dont make the banks sell, which i cannot imagine they will.

right now if you or someone you know is house shopping, suggest they definitely look at new construction....I think the better deals will be there, as REO owners are in denial on prices and there are no regulators that will make them have to sell for now.

bubbleRefuge said...

Matt, Warren, who owns a small bank has written that regulators do press banks into moving REO's quickly.

Matt Franko said...

JC,

Yes Im not sure how much is with "the banks" vice Fannie or tied up in a securitzation, etc.....

But I did note that BofA stopped foreclosure sales nationwide a few weeks ago...

Resp,

Matt Franko said...

JC,
anecdotal:

Short sale in my area: bank reo price at 300k, someone puts in an offer of 280k, my realtor friend has client that really wants it so they quickly offer 310k, topping the offer and the price...no response going on 3 months...

looks to me that they do not want to sell right now.

resp,