No Housing Bottom in Sight

Guest author: Keith Jurow is the author of the MVP Housing Market Report. This article was posted at Minyanville with the title “There Is No Housing Bottom in Sight”

At the end of June 2011, released the results of a poll in which 108 leading economists and housing market analysts were asked to predict the direction of home prices from now until 2015.

All except four of them predicted that housing markets around the country would hit bottom no later than the end of 2012 before climbing again. Only one of them thought that home prices would not bottom until the end of 2013.

By way of contrast, a survey of consumers released in May by and found that 54% thought that a housing market recovery would not occur until “2014 or later.”

My premise is simple: There is no housing bottom in sight. To test this assertion, let’s take a brief look at three major metro markets and see what I’ve found.


Speculative madness took over the Greater Phoenix market in 2004-2005. When the speculators tried to unload their properties en masse in 2006, the market collapsed and has never recovered. Take a good look at this revealing chart courtesy of

The chart is an index of sale prices only for single-family homes in Maricopa County (where Phoenix is situated) that had between 1,500 and 3,000 square feet of livable space. That is the heart of the Phoenix market. It reveals that there was no upturn in prices during the period of the first-time buyer tax credit until its expiration in the spring of 2010. This chart actually surprised me.

Since that expiration, the median price for all homes sold in Greater Phoenix in April of this year was down a whopping 13% from a year earlier. In spite of this, several Phoenix housing analysts whom I respect have declared that the Phoenix market hit bottom in the beginning of 2011.

These analysts also point out that sales to out-of-state investors paying cash are soaring. Many are bidding up prices at the trustee auctions. In June, prices paid at the auctions was nearly 60% higher than the overall median price for all Phoenix sales according to Are these all-cash investors overpaying? Why would a smart investor bid against other investors at these auctions when they can quietly buy a bank REO on the market?

What these analysts overlook is the “shadow inventory” which could be the key to understanding the direction of home prices. In early July, my data contact at CoreLogic provided me with the latest figures from their massive first lien database. It showed that roughly 60,000 first liens in Greater Phoenix were either in default with a notice of foreclosure sale date or seriously delinquent by more than 90 days but without a sale date yet. None of these properties has been foreclosed and repossessed by the banks.

My CoreLogic source has explained that their first lien database does not include the entire first mortgage universe in most metros. Thus the total number of seriously distressed properties not yet repossessed is higher than CoreLogic’s figure.

I have posted a cure rate chart in a few of my articles which shows that roughly 96-98% of these seriously delinquent properties will hit the market in the not-too-distant future either as foreclosures or short sales. Does anyone really think that the Phoenix market can accommodate that huge a number of distressed properties without a further decline in prices? I don’t.

Let’s not forget the matter of second liens. Last September, I wrote about the major problem of home equity lines of credit (HELOC) taken out during the bubble years of 2004-2006. Nationwide, roughly 13 million of them are still outstanding. (See also: Home Equity Lines of Credit: The Next Looming Disaster?)

The Wall Street Journal finally recognized the magnitude of this problem when it posted a front-page story on June 7 of this year about CoreLogic’s latest report on negative equity. It briefly noted that the percentage of homeowners with second liens who were “underwater” on their property was twice as high as those with only first liens.

In Maricopa County, there were more refinancings originated in 2004-2006 than the total number of first liens outstanding today in the county. I was puzzled until I figured out that most of these refinanced loans were second liens, not first mortgages. Homeowners could not resist the temptation to pull cash out of their “piggy-bank” home when prices were soaring. The banks were only too happy to accommodate them.

It is no exaggeration to say that more than 95% of properties in Phoenix with HELOCs are badly underwater. Because most negative equity reports do not include second liens, the percentage of Phoenix homeowners whose property is underwater is much higher than these reports indicate.

I have also written recently about strategic defaults (see Strategic Defaults Revisited: It Could Get Very Ugly). Two studies that I reviewed clearly showed that strategical defaults (“walkaways”) rise as home prices decline and homeowners go further underwater. That is what will undoubtedly happen in Greater Phoenix as prices erode further. It is a vicious circle. Talk of a housing bottom in Phoenix is very premature.

Las Vegas

Like Phoenix, Las Vegas was a hotbed of speculative excesses in 2003-2004. Take a look at this little-known chart from CoreLogic.

The chart shows what percentage of all sales were by flippers who had purchased the property within the previous two years. Look at the percentage for flips in Clark County (where Las Vegas is situated). When speculators unloaded their properties in large numbers, the bubble burst and the market collapsed. It has not recovered.

As with Phoenix, the housing market in Greater Las Vegas has been kept from collapsing by the influx of cash investors who have focused on the thousands of low-priced foreclosure properties. Can these cash investors help to support prices? It’s extremely unlikely. In May, the Greater Las Vegas Association of Realtors reported that the median price per square foot was actually down to the lowest level since 1995.

What about the shadow inventory in Las Vegas? At the end of April, CoreLogic counted more than 50,000 properties in Clark County which were either in default with a notice of default (NOD) recorded or delinquent by more than 90 days without an NOD yet. As with Phoenix, that is not the complete total of seriously delinquent properties in Clark County. Practically all of them will be thrown onto the market over the next few years.

Let’s not forget the huge number of REOs owned or serviced by the banks. They will also be coming onto the market at some time in the not-to-distant future.

Like Phoenix, there are also a massive number of second liens in Greater Las Vegas which were originated in 2004-2006. Many of them were refinanced so the owner could tap the “piggy-bank” home for cash. Similar to Phoenix, 95-98% of these homes with second liens are badly underwater now.

With this massive shadow inventory and REOs overhanging the Las Vegas Market, any talk of a bottom for the housing market is little more than wishful thinking.


As the flippers chart makes clear, speculative madness dominated Miami-Dade County as well. When the speculators tried to unload their properties en masse, sales and prices collapsed as they had done in Phoenix and Las Vegas.

Like Phoenix and Las Vegas, the median price per square foot for resale houses in Greater Miami has plunged by more than 50% from the peak in 2006. In April 2011, it was down by 8.5% over a year earlier. How much lower can it possibly go?

As with the other two metros, the shadow inventory in Miami may provide the answer to where prices are headed. Once again, I turned to CoreLogic and its massive first lien database. My data contact informed me that the number of first liens either in default or seriously delinquent by more than 90 days is larger than that of Greater Phoenix even though Miami-Dade County has only half the number of first liens. Greater Miami’s shadow inventory as a percentage of all first mortgages is the highest in the nation.

When you add in the huge number of second liens taken out by homeowners during the bubble years, the percentage of underwater homeowners whose property has not yet been foreclosed is almost beyond comprehension.

Adding to the problem, servicing banks are keeping nearly all REOs off the market. Can these servicing banks continue to hold these repossessed homes off the market indefinitely? I doubt it.

When the seriously delinquent properties begin to be repossessed in larger numbers and the banks start to work off their REO inventory, prices will be devastated.


As I’ve delved deeper into the “shadow inventory” for the markets I cover in my Housing Market Report, it has become increasingly clear that this huge and growing number of seriously delinquent homeowners may be the key to understanding where nearly every major housing market will be heading. It is not a pretty picture to contemplate. But ignoring it is no way to prepare for what is coming.

Editor’s Note: In his Housing Market Report, Keith provides actionable data, charts, in-depth analysis and specific advice to help buyers and sellers make better property decisions. Learn more to find out if a Housing Market Report is available for your area.

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4 replies on “No Housing Bottom in Sight”

  1. Exceptional, Keith; all five articles.

    However, as Max (well, Smart) told Agent 99 each and every program:
    “We told you not to tell U.S.!”

    However, two, too: What you did not see is not what you were getting. Permit me, briefly, to explain.

    When we looked more closely recently at the monthly sales stats for Seattle, Portland, Phoenix and Loss Vegas, we discovered something VERY interesting – there were seasons in Seattle and Portland. There were NOT, exactly, in Phoenix and LostV.

    What we did see was that in both Seattle and Portland there was the normal “selling season” bump. But, each year the whole season was at a new market YoY low. Why did they “bid” up the prices when they knew they were gonna fall again in the fall? Bcuz they “believed”; and liked the home, and had to live somewhere? Or, simply did not want to wait another year?

    Not so in those Other Two Places. Each month, for about the last 5 years, the sales prices dropped, again, and again. However, interestingly what you could see, if you looked VERY closely, carefully, is that the declines moderated during the usual selling seasons. So, it WAS there, but not obviously so.

    While that might explain part of what you did not see, there is something else. What types of homes were those “new home buyers” buying. In Phoenix it was from the existing supply of “speculative” homes and/or on fully developed lots.

    First, the “repeat sales” reports – Case-Shiller, NARs and ASUs – would not show any increase or decrease – there was no prior sales price.

    Second, in Phoenix they did NOT buy “foreclosures” or short sales. The only buyers of foreclosures, at that time (and still), were all cash investor buyers – bidNclose, bidNclose. They could not “buy” a short sale – not enough time to do it, and the banks simply were not doing them.

    Third, the builders were under enormous pressure, from their construction lender banks to clear those home off both of their books. The discounts, and losses, were horrendous. True, all written off, that year; then used backwards to get prior years taxes paid refunds. They had a very good reason to sell LOW! They got most, if not all of the money back – from U.S.

    And, their construction loans – that they had to sign personally for – paid off. And, they paid the IRS all of their 100% penalty employment debts – you know “the ones” – that cannot be BKed, and forever follow you worse than a divorced spouse – look’n for the alley-moan-me!

    Fourth, even with those huge “discounts” the size of all those sales was still being dwarfed by the much lower foreclosure numbers.

    Keith, we were @ that football game. True, your team gained over 401K yards! In the 2nd half – after you were down in a “69” to nothing position.

  2. Keith, while your Californicator’s heloc numbers match what we have seen/read elsewhere, your Arid-zone-Ah numbers may not.

    What many of those Calif’s were doing is using multiple/yearly helocs, as opposed to full REFIs, to extricate their equities. We have been told that AZers did less of the helocs and more of the REFIs. But, what are the real numbers down here?

    Bcuz, as you point out, HELOCs are 2nd mortgages! That is, for Phoenix, a very different kettle of fish. Bcuz, that means that those that we thought had only lost “paper profits” on their homes, in FACT, lost real equity/debt values.

    What is not talked about is the legal difference between a 1st mortgage and a REFI and/or a HELOC. They are treated quite differently in Cal, Nev and AZ. And, that severely impacts the BK and deficiency implications too.

    And, that might explain, better than anything else why those who did NOT buy during the “Dead years” still refuse to list or sell their homes – they already have taken their profits, and are GD well not quite ready to give them back – to the bank OR the govt.

    Bcuz, IF there really ARE a significant number of AZ helocs, that throws all of the so-called “experts” opinions you refer to, completely out the open window. Have you ever left your windows open in Phoenix in July – UgoFry!

    We “call”, Keith. Show us the numbers, or tell U.S. to go to another Hell than Phoenix, and look them up there.

  3. We trust, rather than assume, that you too see the Comford Reports for AZ. We have noted and pointed out elsewhere the extreme gap between the price per sq ft for current “listed” homes and for the home that actually sell – almost double.

    Understand that the “assessed values” in Maricopa have been cut by, on average, over 62%. And, as you point out, current prices are now down by another 10+%. Even so, the “asking price” for resale homes that are listed with the MLS is twice the sq ft price of foreclosures and all other homes that sell.


    Some assume that people simply do not want to take the “paper loss”. What you are suggesting, however, is that having used HELOCs to pull out their profits, they CAN not sell, unless they are ready to pony up the cash. If that is true, then the scarcity of cheap listings is not going to be solved, soon. Some assume that means either that those asking prices will fall, dramatically; OR that the prices for homes that do sell are about to explode up.

    Keith, if your “hidden inventory” numbers for Phoenix are correct, and we believe from all we can find and learn that they are, “none of the above” assumptions are correct.

    ASU will will the BLS title game before this mess is resolved.

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