Market Conditions in Newark>Question Details

Brian G. Pat…, Real Estate Pro in Fremont, CA

Cash For Clunkers VS First Time Home Buyer Credit

Asked by Brian G. Patnode, Fremont, CA Thu Sep 10, 2009

I have heard chatter over how the CFC program drastically effected the auto industry and how it is comparable to our HBC.

Example: Before, auto dealers were begging for a car to be sold and when the CFC hit, they were rolling off the lot.

Some Realtors compare how our housing market is being squeezed dry of properties and how listing agents are becoming dictators on who buyers "their" listing (typically/coincidentally it is themselves aka "double-ending"). My question is, seeing our past market fluctuation in the past two years; what is your prediction of Post-HBC and is it going to be similar to PRE-CFC where inventory is high (bank-owned properties) and buyers are scarce?My opinion is that eventually REOs going going to be more prevalent on the MLS and it is only a matter of time.

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Banks are going to sit on inventory (whether actual 'shadow inventory' or the flood of pre-foreclosures out there that the banks are effectively ignoring) until they believe they're truly stuck with the losses. They won't be. Odds are the gov will assume a huge chunk of this debt from our bank overlords -- deja vu. Next month's first released funds for the PPIP scam will be the start. Once these notes are owned by private investors, I highly doubt non-paying mortgagees will be able to sit in these homes for 14 months. Surging unemployment, grossly underwater owners and sky-high re-default rates on loan mods guarantee a flood of mortgage defaults. These WILL turn into a flood of foreclosures. No way around it.

As to the cash for clunker's effect, I'd say it's a very real risk. These cashback and financing deals (Fed mortgage purchases to lower interest rates) are stimulus. By design they simply pull demand forward. "We know you'll be looking to purchase in the x to 4x timeframe. The Gov will cut you a deal to purchase in this x period to get things moving." There is no fundamental shift in the market, it's simply incentive to buy now rather than later. Good for the 'now' at the expense of the 'later'.

Take a look at Google's stats for vehicle shopping interest on the internet to see the forward-demand effect (ignore the forecast... it assumes no contrived anomalies, which obviously isn't the case)
http://www.google.com/insights/search/#cat=473&geo=US&am…

In my own real-world experience, in the last nine months I know seven households in my area that purchased their first home. That includes four that had been waiting and price drops/financing finally got them into the market, two couples that likely should have waited until they had a bit more job stability or cash buffer, and one couple that -- honestly -- were fiscal idiots for assuming that sort of debt given their circumstances (however, I nodded and congratulated all of them). I also know two households that walked away for their mortgage in that timeframe, and one more considering/planning it.

The interesting thing I've noticed is, aside from one couple who could arguably make a purchase (wife a recently laid-off teacher, but will likely find work somewhere), I now have exactly ZERO friends in my area who I'd consider viable buyers. Seriously, there are none left. No one I know with a stable household income of, say, $75K+ is currently renting except for the two walk-aways. A year ago a common discussion at dinners and parties was timeframe to buy. That's no longer the case -- they all have bought since then.

Now obviously my network of friends is a tiny fraction of Sonoma county, but from what I can see it's clear this market is burning through the first-time buyer inventory rapidly. The only way to replenish that first-time buyer pool is the addition of well-paying jobs. The inverse is occurring.
0 votes Thank Flag Link Fri Sep 11, 2009
I understand how many Realtors feel that REO listing agents are double-ending their own inventory, thus squeezing the majority of Realtors out of the opportunity to sell REOs. Problem is, the actual data (in this case, from BAY East) does not support this theory. Truth is, the top REO agents ALL have VERY small buyer numbers compared to their listing numbers. Having done a high volume of REO sales representing buyers, I know another important fact as well: buyers are not being successful in contacting the REO listing agents to buy their listings. In fact, most leading REO agents are impossible to communicate with – buyer’s agents can’t get to them let alone buyers. This has been a VERY frustrating fact for many buyers who’ve tried to cut buyer’s agents out of the loop to “cut a deal” direct with the source. They’ve been forced to go with buyer’s agents because REO agents typically won’t give them the time of day.

A final issue to consider here is this: it is not the REO listing agent who decides which offer to accept: it’s the asset managers who are making the decisions.

Traditional Realtors are not seeing many REO sales for one simple fact: there are currently not a lot of REOs on the market. It’s not that they don’t exist – quite the opposite is true (Google “shadow inventory”). However, banks have learned how to meter out their inventory so that they are now in control of the market. Here are a few posts that may help to clarify this:

Mad Dash To The Finish Line: $8,000 Tax Credit Soon To Be Gone
http://www.trulia.com/blog/carl_medford/2009/09/mad_dash_to_…

Bank Tactics Causing Repeat Of Crash Conditions in San Francisco Bay Area
http://www.trulia.com/blog/carl_medford/2009/08/bank_tactics…

Top 10 Things I HATE About REOs: AND 3 Startling Consequences
http://www.trulia.com/blog/carl_medford/2009/07/top_10_thing…

Artificially Low List Prices Are Wreaking Market Havoc: 6 MAJOR Emerging Problems
http://www.trulia.com/blog/carl_medford/2009/07/artificially…

MARKET ALERT: Starter Home Prices Rising Out Of Reach?
http://www.trulia.com/blog/carl_medford/2009/06/market_alert…


Lastly, I don’t believe we are going to see a surge of foreclosures to the market any time soon. A quick look at this past bear supports my beliefs. The national foreclosure moratorium was lifted on April 1, 2009. Many, myself included, thought banks would be flooding the market with their pent up foreclosure inventory. Unfortunately, that flood has so far only been a trickle. A very slow trickle, in fact. In the meantime, available inventory has been running out, placing remaining homes at a premium. I believe the exact same pattern will continue through the fall. Banks have learned it is in their best interest to regulate the flow of REOs to the market. If they flood the market now, they will lose their hard-fought gains made over the last few months.

As for the scarcity of buyers after the tax credit, I again do not believe this will be the case. There are simply too many buyers out there right now due to low prices and low interest rates. I personally know many buyers who are in the market but not counting on securing the tax credit. They realize it’s silly to spend an additional $30-40,000 to gain a credit of $8,000.00. They are patiently looking for a home that meets their criteria and will wait into next year if necessary. I DO believe we are going to see a very minor market correction early in the New Year, followed by sustained low inventory and slowly increasing prices.
0 votes Thank Flag Link Fri Sep 11, 2009
Double ending is more a function of the internet. Buyers shop online then call on the listing.
Web Reference: http://bob2sell.com
0 votes Thank Flag Link Thu Sep 10, 2009
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