Does this appear to be the exact same market changes or manipulations as in Pasadena? You can tell me. I’m just citing some news from outside the city.

I have also noted that prior loan modification clients are falling behind on their agreements and may be forced into foreclosure in the next 3- 6 months as they race to keep up with their payments, yet their incomes have been either cut by 50% or decreased by 20-30%, with state and corporate budget cuts. If they default on their loan modification, then add that inventory to the list.
I have heard of other loan modification and short sale clients who are into the process about 6 – 9 months now, and some with no concrete answer from their lender. They are, in essence, on hold until further notice. In fact, I have one client who was denied for a loan modification due to lack of income for a new lower payment two times, and Bank of America issued another letter asking him to try again. He is, this time with another family member to bump his income up more to qualify. Yes, this is a strange one but they have asked him to reapply. No foreclosure yet. In all these cases, I have noted a backlog of short sales, and loan mods, that will come due soon — the concern is when will this actually happen, after Sept 2009, as indicated by the agents posting the NODs?

Then, add the Alt A and Option Arm loans that will come due. That is a fact. IndyMac Bank not only issued billions of Option Arms, but they also issued Stated Income loans on commercial and multi-family properties. That sector of the market will soon be hit hard from defaulting owners. But that is another topic for another day.

So, as I see it, the inventory of soon-to-be-foreclosure will hit the bank and filter back onto the streets as REO. The question will be how will this pending build up of REO inventory aid in supporting higher prices in homes in Pasadena or Beverly Hills? This question is based on the assumption that the same fact patterns are evident in Pasadena. Posters can inform me if you have REO pulled off the MLS, slight bump in prices, a bidding war on homes, loan mods that are taking 6-9 months for any type of answer, declining income, longer short sale deals, and people who bought homes based on a 1% teaser rate that will soon find themselves way under water, and with a payment 3x the basic interest only payment?

If a portion of these issues are true, then you should see an increase in REO in the next 6-12 months. That appears to be correct, from what I have outlined. I may venture that the Banks/Lenders will manipulate the market once again (and they do since they are the dominant seller at the moment)for another bump in prices for the Summer of 2010 if they hold back inventory in March-April in preparation for the Summer selling season.

Thus,I may be way outside Pasadena ( and I admit it) yet some of these patterns are evident all over the state if you talk to enough agents/brokers, appraisers and, most especially, the person who posts all those NODs and NOTS on the doors.

I’ve never suggested this and would never infer this, to me it’s an illogical assumption. I realize cost of living is higher and wages are not. My point in the multiplier was to agree with your earlier point that many Southern California areas will always be more expensive than elsewhere, however, I disagree that they will remain as expensive as they currently are.

As for considering many other variables, I agree with that and I’ve advocated it here many times. I remember back when you questioned my statement as to why unemployment or underemployment should be a factor in home prices. As for right now, considering how California’s and Los Angeles’ unemployment rate is among the highest in the nation, I don’t see how that will be a positive indicator for home prices for many years to come.

No matter what cities we’d choose to name, the L.A. Times said it best, it’s a “Tale of Two Markets”. There are always going to be lower, middle, and upper class divisions, but the problem is that there isn’t much of a middle class right now. It’s either lower or upper class which is why there needs to be a gap closed. I know there are homes valued in the “middle”, but I don’t think they’re valued properly either.

I agree to a point when you say, “unless someone’s crystal ball is any clearer than anyone else’s, its all opinion”. Unfortunately, there is so much instability and risk, I can’t see the sense in buying anything right now (in the higher end). Unfortunately we’ll only know the facts when it’s all history. You mentioned sales for May and I neglected to see that your chart shows 3 months of data (increasing). However I do see inventory on the rise again. I have also noticed the price jump in Pasadena, I don’t think it’s justified but we’ll see if they can be sustained.

As for “2007 & 2008″ May selling seasons, those are the exceptions as the bubble reached it’s peak and sales across the board plummeted. Although sales are “up” now, I can also argue that they’re no where near 2005 & 2006 numbers. But like you said, we’d be quoting history all day.

No matter what someone’s perspective or opinion, you can’t but be a little curious as to what happens to the rest of the housing market with those record breaking NOD’s for potential foreclosure.

-David

Regarding your multiplier of median income. I think there are probably many other variables that would have to be considered such as population growth compared to other states along with employment opportunities. But to suggest that prices and incomes are not equivalent by some multiplier would also suggest that someone moving to California, from some other state in the southeast would expect to earn “x” amount more money would be false. Typically salaries in California do not adequately adjust for the increased cost of living. When you come here you better be prepared to lower your standard of living for the tradeoff you perceive as quality of life. Which seems somewhat oxymoronic.

I am not wishing for anything as you refer to “Beverly Hills”. I was merely addressing the two groups we have in the housing market. The ones that are optimistic who are buying houses and the ones who are pessimistic and who are also much more vocal in expressing their opinion that we are headed for another meltdown.

The pessimists have always referred to unsustainable levels of buying activity by referring back to the inequity that exists between incomes and home prices. My point is that Southern California being a very expensive housing market will always have the disparity known as income and affordability. Also if you look on the charts in which I track Pasadena home prices, you will see that the increase is not limited to one month.

Furthermore you state that a price going up is typical for the May selling season. Where were you in 2007 & 2008? That certainly did not happen then. That is why I am more optimistic, because recent events have reversed two year trends. And the fact is, we can quote previous history all day long, but unless someone’s crystal ball is any clearer than anyone else’s, its all opinion.

Here’s a link to his prediction: http://nymag.com/news/businessfinance/bottomline/49938/

In fairness, Dr. Housing Bubble’s post is missing (though he says it elsewhere) high unemployment, high DTI and low availability of qualified buyers or jumbo loans, which is a problem for your argument that income/price ratio is not a reliable home price indicator. Considering most people are not cash buyers, not to mention most still don’t have sufficient down payments, I assure you banks do care about income and debt in relation to home price.

As for your bailout idea, I worry that something like that may happen. The problem I see with that is that low interest rates and/or favorable payment terms is essentially kicking the can down the road. Many people got into problems with teaser rates and 40 and 50 year loans were just starting to get popular at the end of the bubble. There is a huge risk of re-default and/or the “homeowner” being a perpetual renter.