10-24 Existing Home Sales Reality

October, 24 2009 | Mark

Yesterday’s Existing Home Sales number made for good headlines but there was little else to cheer about. In fact, sales once again are following a very predictable seasonal pattern despite massive stimuli being thrown at the market and were down 5.2% from August. This reality is in stark contrast to the “9.5% surge over August” and “sales are at highest rate in two years” plastered all over the headlines.

September’s not-seasonally adjusted results were also in contrast to the past couple months of significant headline press covering the ’30 offers on each foreclosure‘ and ‘buyer frenzy’ happening all over the nation. The headlines have painted a picture that seasonality is out of the window and it is a buyer’s horse race to the November tax credit sunset. This is just not the case. In fact, September sales in CA were LESS than a year ago, one of the worst years on record for housing.

The following chart shows the past five-year of sales — NOT seasonally adjusted unlike the popular reports yesterday. The seasonality of it all is obvious. In fact, taken in context the booming housing sales ‘surge’ and ‘recovery’ looks rather anemic especially considering a trillion dollars was thrown at the housing market through tax breaks, artificial historically low interest rates, and mortgage mod initiatives and foreclosure moratoriums meant to tip the supply/demand balance back in favor of housing. Additionally, new loan defaults are not following the same seasonal pattern, which means in the shadows, supply is building.

The next chart is the same as above but is a cut out of the past three years. The blue boxes represent that past few months when housing sales were actually stronger than the year prior.

In fact during the May to Sept selling season only 45k additional houses sold in total in the US. But when extending that out for the full year, sales are DOWN 20k sales in 2009 vs 2008, one of the worst years on record. In addition, Year-on-Year median prices were down yet again albeit at a slower pace.

The largest threat to a housing recovery is negative-equity…period. Remember, organic move-up/across/down buyers have always led the market. First timers and investors have always been the weakest segments and cannot carry the market for long. This highlights the most important factor plaguing the housing market — epidemic negative equity prohibiting the typical homeowner from selling and re-buying. Epidemic negative equity is only fixed by ‘years’.

Last but not least is a new phenomena that is also responsible for goosing reported sales this year – flip sales. Over the past year, investors have been very active in the foreclosure market with at least half intent upon fixing up and reselling the house within six months. These foreclosure resales are counted twice before an end user finally occupies the property. When backing out flip resales, September’s actual sales count was 418,859 (red), which was 53k below the not-seasonally adjusted sales print of 472k, and within a few thousand sales in September 2007 (yellow), the worst on record.

Yesterday’s headlines of a sales “surge of 9.5%” was based upon a Seasonally Adjusted Annualized pace, which uses historic data to smooth and report the data in a fashion that is consistent month over month.

But seasonal adjustments can’t pick up one-off events such as the present tax credit set to expire at the November. The tax credit essentially pushed out the purchase season a month into the month of September — a historically much weaker month than August. This goosed-up the Seasonally Adjusted number reported yesterday and headlines today are talking about a sales surge when in fact, sales fell Month-on-Month by 5.2%.

The sad part about this type of misinformation is that is sets the market up for a major disappointment when conditions reverse in the near term when it never had to happen if the Existing Home Sales report was portrayed for what it was in the first place. The association should have dedicated at least a paragraph explaining the September anomaly instead of going out with the ‘sales surge’ headline knowing full well how 99.9% of population would perceive it.

When seasonal sales go away suddenly for the season, which will happen in the near-term whether the tax credit is extended or not, it sets reported sales and prices up for the largest swing lower since all this began two years ago. This is because a) an extension of the credit buys buyers a lot of time to shop and spreads hasty purchases out of a longer period of time b) when the seasonal buyer goes away what remains are mostly distress buyers on much lower priced houses, which will swing the reported median and averages prices back to the distressed market price over a very short period of time.

Unintended Consequences on the Housing Market of Foreclosure Moratoriums & Mortgage Mods

So, on one hand the Gov’t through massive spending as managed to cause a rush to buy low-end houses by first-timers and investors. This was done at the right time and is a success, no doubt.

But on the other hand they put out HAMP, which prevents foreclosures and is keeping the very low-end supply that is in such high demand off of the market. In fact, the low foreclosure counts are undermining the housing market at this point in time, which is why house sales are falling at the same time you are hearing stories of 30 bidders for each foreclosure resale and sellers not dealing with buyers who require financing in favor of cash buyers, even at a lower price.

Keeping troubled borrowers in houses and good buyers away is a perfect example of an unintended consequence of government action that will push out a true recovery indefinitely. As a matter of fact, because of the neutralizing effect that housing market gov’t stimuli vs HAMP has, if hundred of billions were not thrown at the market, we would likely be sitting right where we are now anyway…tax payers would just be that much richer.

HAMP and the other mod initiatives and foreclosure moratoriums have effectively served as the longest foreclosure moratorium seen yet.
Millions of underwater, over-levered zombie renter-homeowners squatting in their house because of a loan mod simply ensure the housing market remains a heavy and volatile asset class for years.

Another unintended consequence of HAMP will be a foreclosure surge eventually. The in-process foreclosure pipeline has never been as full and the first wave of Obama-mod three month trials are expiring now. Those that don’t make the trial go directly to foreclosure.

The number of trial mods eclipsed 500k last month and because of the massive backlog that led to a large number of servicers now granting trial mods to virtually anybody that requests one — subject to missing documentation being submitted as of a condition to turning the trial mod into a permanent mod — monthly trial mod starts are likely well over 100k per month.

If the HAMP performs worlds better than other mods and only 33% fail their trial mod, then up to 100k additional monthly foreclosures could be coming soon. With foreclosures in the US average roughly 80k per month over the past 6 months — and most loan mods that fail being foreclosure-ready — this could double foreclosures over a very short period of time.

But the fact is that over the period of 9-12 months, most HAMP mods will fail based upon historic cure and re-default rates making HAMP the largest can-kicking experiment to date. When HAMP is acknowledged as a failure the only place left to go will be massive principal balance reductions, which will cause a whole new set of problems — about 3 trillion of them.

On a positive note, a HAMP failure will be the first step to a housing market recovery, as millions of qualified low-to-low mid price range house buyers who deserve a shot at home ownership will have their crack at a foreclosure resale. These are people who will ultimate own their home one day vs HAMP modifyees, many of whom still owe 100% more than the present value of the property and have no intention of staying around for the duration. To the majority, HAMP is way to get cheap rent while they hope that in the future their financial condition turns around.

Housing headlines are about to get very interesting.

Mark Hanson

Data source: National Association of Realtors

10-13 Inside Existing Home Sales

October, 13 2009 | Mark

This report was first published as part of The Mortgage Pages research series on 9/24/09.

In light of new housing reports coming out for September, which can have market-moving implications –and from early indications should be rather confusing to many — I thought it would be timely to publish my thoughts on last months results in order to give you an idea of what we consider most important on a go-forward basis. Mark Hanson

They missed.

Existing home sales (NSA) came in at 499k vs last month’s 532k and last year’s 489k. So, all that hullabaloo for 10k houses y-o-y. Below shows each of the past five August sales including what sales would have been without the stimulus to the far right. While this may be indeed a housing sales count bottom, it is a far stretch from the housing recovery that has become full blown consensus.

Once again seasonality fooled a lot of people, as hope springs eternal. But to get that seasonality to kick in this year it took a variety of influences all hitting at the same time — a) years of pent up demand for low priced houses by renters and investors b) historically low rates that cost over $1 trillion to getc) lots of foreclosure inventory d) the tax stimulus pulling forward demand e) prices nationally down 40% to 70% from peak levels

The chart below really tells the story of the housing bottom. Even with the stimulus, y-t-d 2009 sales are lower than 2008 by 54k sales in total. Without the incremental sales due to the stimulus, 2009 sales would have been 357k lower than 2008.

Some will view this as proof positive the stimulus was a success. Some will view at as proof of the true underlying fundamental weakness of the housing market today.

Stripping out condos the market is even weaker. The little red box on this 20-month chart is what has been portrayed as the housing bottom.

Here is another look at house (ex-condo) sales for the past three years — Jan through August. Even WITH stimulus single-family ex-condo sales are down 68k from 2008. Prices are down over 10% at the median.

Below is a chart of the past five years of sales with (green) and without (blue) the tax credit. Even with the stimulus, 2009 sales only beat 2008 sales from June through August for a total of 55k houses. If you back out the incremental sales due to the stimulus, June through August would have been lower than 2008 by 113,510 units.

Lastly, the chart below shows Existing Home Sales with foreclosure starts side by side. At the point of the Notice-of-Default, the majority is beyond cure even in the current pretend and extend environment. This shadow supply has to be considered when analyzing the housing market because it is constantly and quietly filling a pool that is trying to be drained.

Unintended Consequences of Foreclosure Moratoria & Mortgage Mods

The low foreclosure counts that are presently undermining the housing market — keeping troubled borrowers in houses and good buyers away — are an unintended consequence of the mortgage modification initiatives such as HAMP.

HAMP — and other mod initiatives and foreclosure moratoria — have effectively served as the longest foreclosure moratorium seen yet. Reducing the low-end foreclosures through mods has absolutely undermined the entire housing market because they are what are in demand.

Millions of underwater, over-levered zombie renter-homeowners squatting in their house because of a loan mod simply ensure the housing market remains a heavy and volatile asset class for years.

Another unintended consequence of HAMP will be a foreclosure surge eventually. The in-process foreclosure pipeline has never been as full and the first wave of Obama-mod three month trials are expiring now. Those that don’t make the trial go directly to foreclosure.

The number of trial mods is quickly approaching 500k. If the HAMP performs worlds better than other mods and only 33% fail their trial mod, then up to 166k foreclosures are coming soon. With foreclosures in the US average roughly 75k per month over the past 6 months — and most loan mods that fail being foreclosure-ready — this could double foreclosures over a very short period of time.

But the fact is that over the period of 9-12 months, most HAMP mods will fail based upon historic cure and re-default rates making HAMP the largest can-kicking experiment to date. When HAMP is acknowledged as a failure the only place left to go will be massive principal balance reductions, which will cause a whole new set of problems — about 3 trillion of them.

Tax Credit Does Not Create Supply – Increased Foreclosures and Short Sales Do

Bringing back the $8k does not create low-end supply, which is what is needed to sell houses. There is a ton of supply in the mid-to-upper end price bands — years of it. But the first timer and investor buyers who make up the majority of the demand are not playing in those price bands. And without exotic financing individual buyers are unable to reach out of their present affordability bands. Investors won’t reach out of their target cap return needs.

At this point in time a tax credit extension simply takes away the sense of urgency that is keeping the sales up and will likely do so again in September against seasonality trends.

The only way to get the low-end inventory needed to keep this housing market afloat is to build it or create it through foreclosure or increased short-sale activity. Building all the shelter-house supply needed to keep wind under this housing market in time is an impossible task.

Enough supply will not be found through organic resales either because the move-up buyer is by and large gone…due to epidemic negative equity most can’t sell for what is needed to pay the Realtor and put a down payment on the new house. The tax credit may prompt some to sell and move-up but not enough to make the difference.

Increased foreclosures and short-sales are a much easier way to get supply, but that presents all the same risks as when foreclosures first surged in 2008 — bank and financial system losses, major house price depreciation, negative sentiment etc.

Affordability is Terrible Relative to the Bubble Years

Before you get too excited about the current low supply environment…low supply and increased demand does not mean what it did from 2002-2007 for the housing market. This is because outside of the low-end sweet spot, affordability is terrible relative to the exotic loan bubble years. For more detail on this, please see my 8-11 report entitled Affordability — Housing’s Red Herring.

In a nutshell, loan types such as zero to 5% down $500k Pay Option ARMs with a payment rate of 1% and loan features such as stated income made houses very affordable. Houses were so affordable due to leverage in finance that if a buyer could only afford a $300k house on a 30-year fixed, a quick loan type change would double his buying power. This is not the case any longer — today, buyers can only buy what they can afford and qualify for based upon income, assets, debt load and credit. They can’t reach outside of their affordability bands any longer.

Most Important – It is always important to remember that the house price crash is only a symptom of losing all of the exotic loans and leverage that enabled housing to run so far so fast from 2002-2007.

Without increasingly exotic loans that allowed homeowners to easily move up, down and across or extract equity to cover the debt service, the entire country hit their debt service ceiling at once. From there, house prices quickly gravitated to what buyers could afford using new vintage, low-leverage financing. The problem is that all of the leveraged debt incurred during that time still exists but the equity is gone.

With all exotic loans gone the housing market is essentially starting over, which is what we are seeing with first timers and investors making up the majority of sales primarily at the low-end. Over a number of years, as incomes and house prices hopefully rise, first-timers will become move-up buyers and so will today’s underwater owners.

But we will never find a true bottom in the market until the 10s of millions of over-levered, underwater homeowners are adequately de-levered and are no longer a drag on the market — existing home owners have always been the driver of existing and new house sales. The only present cure for the terminally over-levered is lots of time.

Best Regards,

Mark Hanson

www.MHanson.com

Data provided by M Hanson Adv, ForeclosureRadar.com, RealtyTrac, NAR, DataQuick, and Campbell Surveys

This document is for your private information only. In publishing research, Mark Hanson and M Hanson Advisors are not soliciting any action based upon it. Mark Hanson and M Hanson Advisors publications contain material based upon publicly available information, obtained from sources that we consider reliable. However, Mark Hanson and M Hanson Advisors does not represent that it is accurate and it should not be relied on as such. Opinions expressed are current opinions as of the date appearing on Mark Hanson and M Hanson Advisors publications only. Mark Hanson and M Hanson Advisors are not liable for any loss or damage resulting from the use of its product. Mark Hanson and M Hanson Advisors are Limited Liability Corp registered in CA.

9-26 – Shadow Inventory has a Whole New Meaning

September, 26 2009 | Mark

Dear Readers,

This report was first published as part of the Mortgage Pages research series on 9/13/09. I have researched and written about the new-era housing market and its unprecedented dynamics since mid-2006. Many of you know, I have done extensive reports on shadow inventory the entire time because it is such a significant and disruptive factor for the market. However, this year shadow inventory evolved and its potential for destruction became much greater. This report highlights what shadow inventory is today and what that means for tomorrow. Mark Hanson

HAMP has Effectively Served as a Long-Term Foreclosure Moratorium Soon to End

A Second Stream of Foreclosures Will Emerge from Failed HAMP Trial Mods

Mods Made This – Shadow Inventory has a Whole New Meaning

CA Foreclosures and Shadow Inventory

The foreclosure wave is still out there…but it is more of a tsunami now. When tsunami’s build the tide (foreclosures) rolls out for a protracted period of time while the sea (foreclosures in process) swells. Due to foreclosure prevention efforts the sea of foreclosures in process has swollen larger than ever before. In the end these efforts will only serve to make the wave larger and the hit, longer in duration.

A wave actually began to come ashore in Spring. In CA in March foreclosures hit a low of around 9k. In the subsequent three months they jumped to 22.5k. On a national level, they went from 64k in April to 87k in July as shown in the images below. It is important to note how quickly this wave began to ramp.

But then the President rounded up all the servicers to DC for the July 28th come to God meeting and immediately foreclosures dropped again. About the same time FHA-HAMP, which went into effect mid-August, was detailed. FHA-HAMP clearly stated that ‘loans in the process of foreclosure must be considered for FHA-HAMP before a foreclosure sale can be made’. Back to sea they went.

But actual foreclosures are a byproduct of a loan defaults and lagging indicator of the wave. Loans in the delinquency and default pipeline are the leading indicator, which is why our default and foreclosure research has always centers around the Notice-of-Default stage as a leading indicator to everything foreclosure, housing and balance sheet related. Through all the national and statewide moratoriums except SB1137 in CA in Sept 2008, the servicers kept filing Notices of Default and Trustee Sale in order to get borrowers on legal record for action in the future.

The bottom line is that the number of loans in the foreclosure pipeline — post NOD and NTS (image 1 and 2) — have never been greater. This all is future housing market supply that must be considered.

Of the four charts below, image ‘2’ represents ready-to-go second stage foreclosures — this bucket is full like never before. This is the bucket that has been held back due to the HAMP’s that could spill foreclosures at any time.

After an NTS/NFS has been filed and a few months have passed the trustee can take the house to foreclosure immediately – even 6 months or a year down the road after a failed trial mod the house can go to sale immediately in most cases. All of the other charts of the various foreclosure stages show activity at or near peak levels, other than the actual foreclosures, which dropped slightly last month.

HAMP has Effectively Served as a Long-Term Foreclosure Moratorium Soon to End

HAMP has effectively served as a long-term foreclosure moratorium. The lack of foreclosures while servicers retool their systems for HAMP, which really didn’t get rolled out until April, has created quite a back-log as the charts above show. In fact, the President first announced his foreclosure ‘plan’ in February, which is really when HAMP began interfering with the numbers. Additionally, FHA-HAMP was made known in May and recently rolled out at the beginning of August. The past six months have been a big HAMP can kicking game.

When the HAMPs were finally rolled out servicers essentially had to put hundreds of thousands of foreclosures in process on hold while they went through the entire process of contacting borrowers, aggregating paperwork, re-qualifying the borrowers under HAMP’s incredibly detailed guidelines, making a new offers, getting borrowers acceptance, signing and moving paperwork etc. This can take months – HAMP has only been around about six months.

Many HAMP-eligible borrowers may have been mostly done with an old-vintage mod and were stopped in their tracks in April. When you factor in the servicer retooling time, the couple of months for mod processing, and the new 3-month trial period before a mod is made permanent, it is obvious why foreclosures have been lower that last years peak despite defaults averaging well above. But we have an end game that has not been present in the past — borrowers are ineligible for another HAMP mod if they fail their trial. The only place to go is directly to foreclosure.

A Second Stream of Foreclosures Will Emerge from Failed HAMP Trial Mods

At present there is only one stream of foreclosures, which is why they are so low. Most foreclosures coming through now are from a) borrowers who don’t qualify for a mod b) borrowers who know they are better off losing the house and renting c) vacant houses. Very few are coming from failed HAMP 3-month trial mods because of the time line.

But when borrowers begin to come off 3-month trial periods, a second stream of foreclosures will emerge from those who don’t make it. We know that re-default rates for borrowers in default prior to getting a mod is as high as 70%. Even if HAMP performs better than any other program ever has and only 40%-50% re-default, that will mean a quick surge in monthly foreclosures. Remember, after a failed trial the borrower is no longer eligible for a HAMP mod.

The chart below shows the national monthly Notice-of-Trustee Sales (late stage) vs Foreclosures (last stage) counts from March through August. In that short 6-month period, there have been 390k NTS’s that have not resulted in a foreclosure (circled in red). Many are on trial mods.

If we assume that 250k of the 390k are presently on a trial and 40% fail, then beginning shortly 100k new foreclosures will spit out over a short period of time that will be added to the foreclosures that will occur naturally for reasons mentioned previously. If 60% fail, then the number goes to 150k. With foreclosures only averaging 73k over the past six months, this new stream of foreclosures is significant — it has the potential to double foreclosures over a single month.

The bottom line is that there simply has not been enough time from April through August to incorporate HAMP and have failed trial mods spit out the other side. But this is exactly why the foreclosure wave will still happen. It is important to note, when I refer to a ‘wave’ I am simply talking getting back to levels at or above the peak and staying there for an extended period of time — exactly like we have seen with Notice-of-Defaults and Notice-of-Trustee Sales in the bubble states and nationally.

Mods Made This – Shadow Inventory has a Whole New Meeting

Shadow inventory is no longer just the foreclosures taken back by the servicer and sitting on the shelf unsold. This is because of the artificial decrease in monthly foreclosures and high demand for low end properties by first timers and investors this year. The pending foreclosures hung up due to HAMP and other initiatives are also a form of shadow inventory that must be added to the mix.

The chart below really highlights the growing spread between late stage foreclosures (blue) and actual foreclosures (red). Unless all those loans that make up the spread result in a successful mods, foreclosures will jump again in the near-term.

The gap between late stage (NTS) and actual foreclosures (highlighted in red circle) represents almost a half million foreclosures ready to go. This foreclosure-ready inventory, much of which is on HAMP trial, represents a clear and present danger to the housing market at any time. Obviously, loans at the Notice-of-Default stage that happens months before Notice-of-Trustee Sale can also be viewed as future supply, but for the purpose of this report, I chose the second stage because they are the here and now.

CA Foreclosures and Shadow Inventory

The chart below shows CA foreclosures vs. foreclosure resales for the past 20 months. There have been 364k foreclosures and 318k resales. The 46k difference is what shadow inventory used to be. Where are these houses? The shadow knows.

In the past year, approx 20k monthly foreclosure resales have occurred making for a little less than 2.5 months supply. The CA low-end housing market can handle this right now.

However, when add to the shadow inventory pool the jam-packed late-stage foreclosure pipeline things change considerably. The chart below shows that over the past 12-months, 458k NOD’s have turned into 356k NTS and only 238k foreclosures. The difference between the foreclosure-ready NTS stage and the foreclosure stage is huge at 118k.

If only 50% of those late stage foreclosures come through as foreclosures because of failed mods, then three additional months of supply appear from the shadows hanging over the market’s head at any given time. If these would have come out during the busy season with stimuli was on they may have sold but it would have made for a much sloppier market than what we saw during the season. Now we enter the slow season and an extra 60k foreclosures hitting over a short period of time on top of the average 17,500 foreclosures over the past year could seriously impact this housing market.

Because Notice-of-Defaults have not backed off from their peak levels this year, the foreclosure pipe line will remain full through early next year even if all NOD’s stopped today.

Best Regards,
Mark Hanson

9-17 Ominous Mid-to-High End Housing Data Point

September, 17 2009 | Mark

this report was first published as part of the Mortgage Pages research series on 9/3/09

A reporter from the Journal called me yesterday with a single housing data point about the July Existing Home Sales report that puts the mid-to-high end market into absolute perspective.

Let me frame this…in the bubble years existing sales $500k and over were common. In CA alone, from early 2005 to late 2007, the average house price was over $450k. Total sales were huge then too…over 700k nationally in many summer months.

In July 2009 there were only 460k single family (ex-condo) sales – by the way that was down from June’s 465k, but that got lost in the housing bottom headlines. Of the 460k houses sold, only 12k or roughly 2.5% had a purchase price over $500k. I don’t have inventory numbers on houses for sale over $500k but even at 5% of the total inventory that is 1.75 years of supply. Oh, and by the way in CA alone last month there was close to 12k NODs on props over $500k.

This 2.5% sales rate goes to underscore how insignificant (and ruined in many cases) the organic move-up/across buyer has become due to epidemic negative equity and absolute lack of affordability through exotic finance. Unless he can sell and re-buy he will remain gone.

But what really is negative equity? Unlike the bubble years when zero down or a 100% HELOC after the purchase in order to replenish savings was the norm, today’s buyer has to sell for enough to cover the Realtor cost and the 20% down needed to buy most mid-to-high end houses using new vintage loans. Most analysts look at the reported negative-equity figures as the tipping point — it’s not.

If homeowners can’t sell for enough to pay a Realtor 6%, extract the down on the new property, and pay for moving costs they are effectively in a negative equity position. Homeowners know this — a homeowner that has only 15% equity knows they are trapped in their house. We are still learning what this realization does to spending habits, as the focus for many becomes ‘how do I earn or save my way out of this’.

When looking at neg-equity if you move the bar down to 90%, 80%, or even 74% (6% Realtor fee + 20% down) then it changes everything. The vast majority of homeowners in the nation become stuck (see chart below). Without these existing homeowners active in the real estate market, we will never find a true bottom.

The 2.5% sales number also highlights how devastating the Jumbo Prime, Pay Option and Alt-A implosions and subsequent foreclosure waves will be on the market even if it is kicked down the road through mortgage mod initiatives. Where are the buyers going to come from? Supply is already out of control in the mid-to-upper price bands. Unlike the low end of the market that is so hot today, investors won’t be in there buying a $600k house because they know the buyers are far and few in between. In addition, with mid-to-high end rents tumbling the cap rates make it prohibitive. You can also scratch off the list most first-time buyers.

That leaves a few different directions the mid-to-high end can go...which one sounds the most logical to you? 1) even more exotic purchase loans than we saw during the bubble — that allow over 100% LTVs and do not verify income — are created that essentially allow for easy house swapping 2) banks just never foreclose and kick the can down the road until the majority of homeowners earn their way out of their neg-equity hole 3) millions of foreigners are given immediate citizenship for a resi real estate investment over $500k 4) principal balances are forgiven allowing people without damaged credit and too much other debt to sell and rebuy 5) everyone gets a 100% raise 6) massive inflation takes the values of real property back through the roof allowing those without damaged credit and too much other debt to sell and rebuy 7) prices fall in line with the most readily available financing ($417k and below) and to levels at which the majority can afford (and at which they are buying right now).

I am sure there are others or a combination of many that could have been on the list but the most obvious is #7 — that is exactly what we have seen since 2007. This is why at the end of the day — when gov’t is gone and the ‘new normal’ can be found — a $1 million house will be the home of a millionaire — someone that can afford the $270k cash down and that has the $200k fully documented annual income needed to qualify. Most other houses will fall in the middle somewhere.

The chart below is from First American’s recent Negative Equity report. The states with stars next to them have an average LTV that is higher than the point needed to pay a Realtor and put 20% on a new house. The states with boxes to the right — the most heavily populated — are at the next level of pain. Nevada needs bulldozers, gasoline and torches.

Best,

Mark Hanson