In the aftermath of the last California housing bubble, the apex of recorded trustee deeds occurred in Q3 of 1996. At that time, 15,418 foreclosures were actually recorded. In Q2 of 2010 we actually recorded some 47,669 foreclosures. So we are foreclosing at a rate of 3 times what was being experienced at the peak point of the last real estate crisis. Yet this is somehow good? For absurdity purposes, look at how low things got in Q2 of 2005 at the height of insanity. Only 637 foreclosures were recorded during the entire quarter! This is absolute insanity. I mean think of how out of sync things had to be. People always lose homes for a variety of reasons including divorce, loss of job, or medical illnesses. Did life suddenly come to a pause in this quarter? Actually, anyone and everyone could qualify for a loan so it is surprising that we even had 637 foreclosures.
There is still a large contingent that thinks housing is all of a sudden gearing up for housing boom 2.0. Keep in mind that we are only tasting a tiny respite thanks to the Federal Reserve flushing over a trillion dollars down the toilet to buy mortgage backed securities and has also artificially kept the interest rate low. Add to this the expensive and horrible policy blunder of the home buyer tax credit and the market was juiced on easy money steroids. What more can we do? Give homes away? As absurd as that sounds, not really because the big gimmick is that banks need to keep homes valued at bubble levels and have home borrower suckers making their payments to keep the massive debt current. Banks need an army of debt slaves. So what if you stop paying on a $500,000 loan even though the home is valued at $250,000? The bank still pretends the loan is valued at that level and this is where the gigantic gap appears:
Source: MLS, MBA
This is where the excitement over the drop in NODs is basically hot air. Currently on the MLS California has 137,000+ homes for sale. This is what the public can see. This does include some distressed properties but not many. If we look at distressed properties including those currently in foreclosure, we find that the market has 255,000+ homes. Some of these appear on the MLS, most clearly do not. Yet the next column is where the sham is really happening. Nearly 800,000 loans are 1 payment behind or even worse, already in foreclosure. Naively some think that many of these won’t enter into foreclosure. Actually, recent data shows otherwise. Of loans that get behind one payment roughly 90 percent enter into foreclosure. But let us be generous and say that only 80 percent will go into foreclosure. We are talking about 640,000 properties here. So much for the drop in NODs (it was a drop of roughly 11,000 from Q1 to Q2 of 2010).
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