S&P Chimes In On Foreclosure Fraud, Expects 6-8% Home Price Decline Through November 2011

Tyler Durden's picture Submitted by Tyler Durden on 10/12/2010 10:13 -0500

Case-ShillerDetroitFannie MaeFreddie MacHousing InventoryHousing MarketJim CramerNew Home SalesrecoveryUnemploymentVolatility

S&P finally chimes in on fraudclosure, and in combination with other recent weak data out of the home segment, now sees an additional 6-8% decline in prices through November 2011. “U.S. home sales and home prices aren’t likely to improve as we move into the seasonally sluggish fall and winter months. Although the latest pending home sales, reported last week, showed a modest increase, generally slowing new and existing home sales in recent months, combined with declining mortgage purchase applications after the government’s temporary tax credit for homebuyers expired at the end of April, lead us to expect the housing inventory to grow and home prices to fall in the months ahead. A range of other key factors are also weakening the housing market: An elevated level of short sales and distressed asset sales; a large backlog of shadow inventory that have yet to be brought to market; and a high national unemployment rate. The recent news that several major banks will delay foreclosures due to documentation issues may postpone the arrival of the backlog of distressed inventory to the market anytime soon. The foreclosure delay also supports our expectation that the housing recovery will be a slow one. Additionally, the latest U.S. housing futures suggest that home prices will decline another 6% through November 2011. Standard & Poor’s economists expect similar price declines over the same period.” And if you read through the end of the post, you will see that broad consensus among various sources is that over the next 12 months, home prices will decline by an addition 5.7-10.8%. So much for that “official housing bottom” in July 2008. Too bad QE2 can’t inflate home prices as effectively as it can the price of NFLX, which is as the very heart of the problem.

Before we get into why slowing home sales are not, as Cramer predicts, bullish for prices, here is the summary of July home price data. Alas, it is all downhill from here:

Key highlights of the July 2010 home price data include these findings:

U.S. home prices increased in July on a seasonally unadjusted basis as month-over-month home price increases
were 0.8% and 0.6% for the S&P/Case-Shiller 10- and 20-City Composite indices, respectively.LoanPerformance’s seasonally unadjusted price index decreased 0.6% in July when both distressed and market
sales are considered. Excluding distressed sales, the increase was 0.8%.The FHFA home price index reached its seasonally unadjusted peak in June 2007. In July 2010, the nonseasonally
adjusted FHFA home price index decreased 0.7%.Home prices in Washington, New York, Detroit, and Chicago increased at least 1% on a seasonally unadjusted
basis in July in the S&P/Case-Shiller index. Home prices declined in seven out of 20 metro areas and the decline
was less than 1% on a seasonally unadjusted basis.On a year-over-year basis, the S&P/Case-Shiller 10-City index increased 4.1% in July and the 20-City index
increased 3.2%. This trend marks a significant improvement from early 2009, when declines were 18% or more.Our analysis of home price tiers suggests that low-price homes have experienced more significant price declines
since mid-2006 than mid- and higher-priced homes.The values of the S&P/Case-Shiller 10- and 20-City composite indices are currently near their fall 2003 levels.These indices peaked around mid-2006 and have since lost slightly below 30% of their values, which translates to an aggregate decline of roughly $571 billion in the original appraisal values of homes across all regions.

Below is one of the most indicative monthly home price change charts:

S&P on the all important distressed properties, which will now be backlogged for months if not longer:

The volume of distressed residential mortgage properties in the U.S. is another factor reminding the market that the fledgling recovery has yet to have a meaningful impact on the housing market. The growing volume of
yet-to-be-liquidated properties has created a large “shadow inventory” of distressed properties–which we define as outstanding properties whose borrowers are (or recently were) 90 days or more delinquent on their mortgage payments, properties currently or recently in foreclosure, or properties that are REO. While the flow of distressed properties entering the market has been relatively even to date, home prices could drop further if those properties come to market over the coming several quarters because distressed sales usually involve significant price discounts. In terms of price impact, various reports are indicating that distressed properties are currently selling for an average of 25% to 30% less than non-distressed properties. However, we believe the impact of the shadow inventory coming to market may be moderate because the government has put various programs in place to help keep homeowners in their homes whenever possible.

The market’s anticipation that prices will continue to decline into 2011 will likely keep potential buyers on the sidelines until prices appear to stabilize. Consequently, home sales have slowed in recent months. New and  pending home sales in May and existing home sales in July dropped significantly after the homebuyer tax credit expired in April. Given the difference between how new and existing homes sales are calculated, new home sales usually lead existing home sales in the residential market by a month or two; pending home sales also lead existing home sales. While the home sales improved in August to an extent, sales are generally slowing and demand is not there.

The U.S. housing market is likely to play a key role in the recovery of the financial markets, and we are carefully watching the direction and movement of home prices as key economic trends. The latest S&P/Case-Shiller home price indices, published on Sept. 28 (including data through July), the FHFA home price indices, published Sept. 22 (also for July), as well as First American CoreLogic’s LoanPerformance home price indices, published Sept. 15 (for July), all provide market participants with insights on the overall health of the housing market and highlight trends that help shape expectations regarding future price movements.

Many readers have asked for a chart form of home prices from the bottom to the peak and now back. Now, courtesy of S&P we have it: much more pain lies ahead.

And here is S&P’s unpleasant outlook for Jim Cramer who OFFICIALLY called the housing “bottom” last July.

Housing Futures Point To A 6% Price Decline

The home price indices and the S&P 500 index tend to move in the same direction, but at different paces. U.S. home prices dropped more slowly than U.S. equities, and have also recovered more slowly. Through July 2010, the S&P/Case-Shiller 10- and 20-City indices and LoanPerformance’s index (including distressed assets) were slightly under 30% from mid-2006, the value of the FHFA purchase-only index was down 13%, and the value of the S&P 500 was down 14% during the same period. However, the S&P 500 turned negative in August and positive in September 2010. The cumulative decline for the period between mid-2006 and September 2010 stands at 11%.

Homebuilder stocks in the S&P 500 Homebuilding Index have performed poorly since July 2005, when the index reached its peak for the current cycle–almost one year before home prices started to weaken. Because homebuilder stocks tend to be highly sensitive to changes in home prices and associated inventory levels, this index is a leading indicator for the market’s sentiment on home price volatility and the potential for recovery in the housing market. Homebuilder stocks responded to the deterioration in the housing market about 11 months ahead of the actual decline in the S&P/Case-Shiller home price indices.

Charts 11 and 12 show the relative performance of the homebuilding sector and the S&P 500, which is a broad-based equity index. Again, using equity market behavior to test this relationship and the market’s interpretation of the current data, the homebuilding equity index seems to be showing slow recovery since early 2009.

The S&P/Case-Shiller housing futures contracts traded on the Chicago Mercantile Exchange are pointing to a decline of 6% in home prices through November 2011. Table 4 compares the July 2010 S&P/Case-Shiller Index levels with the settlements of the housing futures contracts and calculates the implied price changes. While the trading volume is light among housing futures contracts, we believe that the trend still provides an additional indication that home prices might be near bottom.

Finally, table 5 summarizes home price forecasts from various sources. Overall, Standard & Poor’s and other market participants expect an additional single-digit decline in the S&P/Case-Shiller Composite Indices early 2011. The anticipated decline in the FHFA index tends to be lower because this index includes only conforming loans issued through Fannie Mae or Freddie Mac; in other words, it excludes higher-priced houses and subprime lending, but covers more cities. Typically, the FHFA home price index has only half the volatility of the S&P/Case-Shiller Composite Indices.

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by wiskeyrunner
on Tue, 10/12/2010 – 10:15

I think the FOMC minutes might talk at QE2 this afternoon. This will shoot stock up, a small leak from inside HQ.

Login or register to post comments by Confused Indian
on Tue, 10/12/2010 – 10:23

Come on…..

This comes from common sense. You need insiders to learn this. 😉

Buy the rumor, sell the news…..

Login or register to post comments by traderjoe
on Tue, 10/12/2010 – 10:18

Are they going to take a look at the collateral/security positions on all of those ’empty box’ REMIC’s, RMBS, and CMBS?

Login or register to post comments by Everyman
on Tue, 10/12/2010 – 10:22

Shouldn’t this be reverberating through the market as another additional 6% down on house sales?  Doesn’t that mean the banks that hold REO, the finance companies, and mortgage lenders are all losing even more money?  DOesn’t that reduce the “profit and earnings” that JPM, GS, GMAC/ALLY, WFC, BAC, C report?  Doesn’t that meand their share prices should be dropping?

I tell you this “financial industry” and “banking industry” is a bunch of shit.  There is NOTHING that even closely resembles reality.  You can’t analyze this stuff, so the only way anyone is making money is by cheating, lying or stealing.

That is nothing professional there.  Financial and banking is no more ethical than theives.

Login or register to post comments by Saxxon
on Tue, 10/12/2010 – 12:29


Login or register to post comments by Mako
on Tue, 10/12/2010 – 10:25

“The recent news that several major banks will delay foreclosures due to documentation issues may postpone the arrival of the backlog of distressed inventory to the market anytime soon.”

No, the banks are stopping foreclosures because they lack “standing” and people are figuring it out slowly.  Matter of fact, there will be years of people that were foreclosed on that will be litigating to get their house back or damages.

There is no documentation issue, you have a “standing” issue that is nearly impossible to overcome if the defendants knows what is going on.  The plaintiff’s lack “standing” in nearly all of these cases to start foreclosure. 


Login or register to post comments by RobotTrader
on Tue, 10/12/2010 – 10:23

Tough to take any bad news about housing seriously….

Not when Starbucks is outperforming on a down day for stocks..

And Home Depot refuses to sell off despite the horrible news that has rocked the mortgage industry the last 7 days:

Login or register to post comments by UncleBen
on Tue, 10/12/2010 – 10:34

RobotHomo you are the GAYest !

Login or register to post comments by Everyman
on Tue, 10/12/2010 – 10:42

Thanks for the charts Robo.  I am going to go get a starbucks Latte, and a hammer and just “go with it”.  I give up.

You need to post that ladies though!

Login or register to post comments by Skeebo
on Tue, 10/12/2010 – 12:00

Funny, was just thinking about how it stinks to be a Starbucks employee when they are closing stores left and right…

Login or register to post comments by VWbug
on Tue, 10/12/2010 – 12:30

they are opening them up like crazy down here in SA. They have barely scratched the surface.

Closing in the old world and opening in the new one I guess.

Login or register to post comments by Confused Indian
on Tue, 10/12/2010 – 10:27

Its surely the banks and governments win and everybody lose markets….

Surely chaos is about to follow….. 😦

Login or register to post comments by wiskeyrunner
on Tue, 10/12/2010 – 10:30

Buy any dip in SP500 futures heading into fall election….make free money $$$$$$$$$ it’s all rigged to the upside……ZERO RISK********

Login or register to post comments by Mako
on Tue, 10/12/2010 – 10:33

Zero risk = zero reward

Sorry buddy. 

Login or register to post comments by wiskeyrunner
on Tue, 10/12/2010 – 10:40

Thats like saying this is a free market hahaha good one.

Login or register to post comments by Mako
on Tue, 10/12/2010 – 11:04

Zero risk = zero reward

I laugh when people talk about free market.  I have no idea what people are even talking about when they say that.  There is nothing even in life. 


Login or register to post comments by wiskeyrunner
on Tue, 10/12/2010 – 10:32

Do you want to make money $$$$$$ or stand around kicking the dirt an mumbling under your breath.

Login or register to post comments by E pluribus unum
on Tue, 10/12/2010 – 10:37

I’ll stand on the sidelines of the casino and watch the fun without investing any of my money. But thanks for the offer. The game is rigged and I am too small a fish to know which way.

Login or register to post comments by frankTHE COIN
on Tue, 10/12/2010 – 11:25

Login or register to post comments by the not so migh…
on Tue, 10/12/2010 – 10:35

26-28% seems more real for price decreases. 

Login or register to post comments by tom
on Tue, 10/12/2010 – 10:48

If the “consensus” is 6%, then you’re probably right.

Login or register to post comments by spartan117
on Tue, 10/12/2010 – 10:52

Absolutely agree.  I’ve already witnessed firsthand a 5% drop from April 2010 to October 2010.  A home across the street here in Los Angeles County, CA sold in April for $342k.  It’s now listed for $319k.  They’ll be lucky to get $310k for it which is a 10% drop in six months.  2011 should not be pretty for anyone wanting to sell their home. 

Login or register to post comments by Cynical Esquire
on Tue, 10/12/2010 – 13:14

In the current environment does it make sense to refinance from a 30 year conventional fixed with PMI at 5.625% into a 20 year conventional fixed with PMI at 4.25%. I am around 2.5 years into the 30 year. In short, does it make sense to refinance what i believe is a depreciating asset?

Login or register to post comments by wiskeyrunner
on Tue, 10/12/2010 – 10:35

Tomorrow mornings headlines ***** JP Morgan Chase record profits ******* Jamie Diamon salary 60million

Login or register to post comments by Confused Indian
on Tue, 10/12/2010 – 10:39

No tomorrow’s headlines will be


Fed manages to get the V shaped recovery… in Dow intraday..

Login or register to post comments by Atomizer
on Tue, 10/12/2010 – 10:38

With a 6-8% haircut, does this mean Home Depot will lay off their day laborer staff?

Home Depot Day Laborer Aisle


Login or register to post comments by beastie
on Tue, 10/12/2010 – 10:44

In a scenario where the banks get shafted / just deserts we lose because it will drag the whole system down.

In a scenario where the banks win we lose because that means they can take any assets that suits their needs with no paperwork, no standing or just for the sheer hell of it. That and we are talking TARP 2 which puts the citizens of the USA in the same position as the Greeks or Irish.

The only scenario where we win is to hit the exits before they do. In other words stop paying credit cards, mortgages today. 

Take a look at ebay real estate and some Florida and Ohio real estate and that is the future valuation of your home. 


Chumbawabumba or whatever his name was just a little too early. 


Login or register to post comments by LowProfile
on Tue, 10/12/2010 – 10:58

It’s already happening.  I give it 6-12 months to really catch fire.


Login or register to post comments by TideFighter
on Tue, 10/12/2010 – 11:20

Properties in the panhandle of Florida will now experience the third and fourth round of real estate defaltion. The first round was due to hyperinfalation beach-are homes, then losing insurance companies (low premiums) due to Katrina, The GoM mess, and now dubious claims to title. We have already gone through two rounds of dubious title with house flipping and fast titles. A property is now worth what it cost, i.e., the price of lumber at Lowes or Home Depot. $90 a foot, period (and that’s generous). If you use marble and granite, maybe $110 a foot, tops. Thus a 2500 sq. ft. beach home is worth around $250,000 plus the land, which has devalued 80% from it’s 2005 highs. Add the pressure of high bank inventory, slowdown in closings, nobody willing to pay rent, etc., and these houses are worth $60-70 per foot (less than cost). The “true” market is down 80%. Regionals are having emergency sessions daily. BXS, RF, TRMK, etc. are f*cked, no matter what the market does. They are worth zero, zilch, nada.

Login or register to post comments by VWbug
on Tue, 10/12/2010 – 11:36

imagine what the price decline in houses would have been if all foreclosures weren’t halted.

looks like the can gets kicked further down the road.

Login or register to post comments by omi
on Tue, 10/12/2010 – 11:48

I’m considering loading up on residential builders when foreclosure gate gets criticals. What I understand this implies is no one buying ‘used’ house can be sure whether they will have the title to it, and the only way to avoid that is to get a brand new house. This has similar effect to taking these houses off the market.

Login or register to post comments by TideFighter
on Tue, 10/12/2010 – 11:58


I consider that to be brilliant strategy, as well as shorting panhandle counties’ bonds. It’s a sure thing that these counties are in deep doo-doo, with no way out. These counties exyend from the GoM to the state line, but 80% of their revenue comes from the GoM to only five miles north of GoM. I believe you are correct though, there is feeling “in the air” from investors I have talked to, they buying freeze on used homes is on.


Login or register to post comments by HarryWanger
on Tue, 10/12/2010 – 11:59

Couldn’t believe my eyes when I saw this at cnbc.com: “


Has The Foreclosure Crisis Already Triggered A Double Dip?”


Login or register to post comments by Ricky Bobby
on Tue, 10/12/2010 – 12:00

Pulling my hair out. Just finished talking to a close family member and according to her there is no unemployment, and the real estate market in Florida is getting better, the bottom has been made. The mortgage issue is a non issue and it’s time to jump on these low prices. I try to point out the facts of government corruption, serious unemployment, and banking fraud. Of course that makes me Mr. negative. It’s like if you admit these are problems then it reflects badly on Obammi so bingo these problems don’t exist.  

It drives me crazy, I am trying to warn my own family and it is deaf ears. Is any one else suffering from this? Its disturbing there is such a divide between perceptions.

Login or register to post comments by SMG
on Tue, 10/12/2010 – 12:19

No, I have the same issue.   Unless you really pay attention, to the average person, things just don’t seem all that bad. Tell them about it, but don’t harp on it, somethings people just have to learn for themselves.   Most people are like the grasshopper in the ant and grasshopper Aesop fable.  It’s been good and comfy for so long, why would that ever change?

They will soon be awoken.

Save a little extra for them anyway they’re still family, even if they were wrong to ignore the coming collapse.




Login or register to post comments by HarryWanger
on Tue, 10/12/2010 – 12:25

Been saying this for weeks. Most of America doesn’t care or just don’t pay attention. When your life is dominated by which NFL game should I watch or which app should I download for my iPhone or Will Ricky Schmuck win American Idol, you don’t have time for anything that really matters.

Login or register to post comments by Cynical Esquire
on Tue, 10/12/2010 – 13:38

Most americans do not care unless and until it lays them low on a personal and direct basis. Even after suffering repeated blows from a corrupt system they will still believe in the system and in the myth that they are one good idea away from being a rich and powerful player. What a system we have when those most abused by the system are some of the systems biggest supporters and proponents. The truth is the average american does not care about his fellow americans (many of whom he views as vermin and worthy of contempt) nor does he give a damn about people in other lands. The ugly truth is the average american knows full well how many people are slaughtered globally in his “name” and he does not give a damn. If 100,000 iraqi children must die each year in order for US gasoline to remain under 3 bucks a gallon i can assure you the average american would sign up for that in a heartbeat and would not lose a minute sleep over it. our elite treat us like animals because we ARE animals…

Login or register to post comments by Jim B
on Tue, 10/12/2010 – 13:27

Disagree, this is a pause before the next leg down.  I wouldn’t buy a home unless I got a hell of a deal (well below market).  The FED is propping up the market with low rates and low down payments mainly through the FHA.  Gravity, at some point, will take over.

Login or register to post comments by Psquared
on Tue, 10/12/2010 – 12:11

There are two ways to clean this up. For some it will simply be a matter of filing properly executed assignments to establish ownership of the mortgage. The problem with that is the potential for fraud. In many cases the documents do not exist and will either have to be re-executed or contrived. It will take significant testimony to establish the chain of title and standing and in some cases the evidence will be insufficient.

The other way to clean this up will be statute. Each state will have to consider some sort of law that will clear the title of property that is otherwise defective because of missing and/or unrecorded assignments. This won’t help the lenders, servicers and securitizers who may be sued by MBS owners, but it will help “subsequent purchasers for value” by establishing a legal basis for title despite these defects. The question arises whether the US Congress will attempt to pass some sweeping new law affected real property title in all states. If they do there will be legal fights that will last a decade or more and will not provide any certainty.

What needs to happen is for the ABA to establish a panel to study the issue and create a uniform law for each state legislature to consider and pass. It will be different for states in which the “common law” of real estate applies (like those on the east coast) and those where a statutory framework of real estate titles exist like the western states. Two versions of such a Model or Uniform law will have to be worked out and modified.

As far as investors in MBS instruments are concerned the only way to resolve that issue will be through some sort of RTC procedure. This is a massive problem and there are no easy solutions. The idea would be to allow as many foreclosures as possible to go forward to recover principle and interest for MBS holders and somehow those assets would have to be transferred to a “Resolution Authority” after the mortgage procedure is cleaned up by the states.

The biggest problem that I see is to create a mechanism where new purchasers can acquire clear title to property. If property transfers subject to doubt because of defective foreclosures or where recorded instruments are doubtful it will stall a huge segment of our economy.

This could go on for a generation.

Login or register to post comments by HungrySeagull
on Tue, 10/12/2010 – 12:41

Let the prices drop.

Eventually we might go and grab a 3000 square foot monster on ten acres built a few years ago for pocket change.


Let em drop I say. Probably just add up the amount of hardware in form of nails, plywood, bricks, glass etc and call it even on the asking price.


There is a movement away from single family homes in my area. Every time one is burned down or a family moves out and no one wants to rent or buy, it gets demo’ed and a fresh Duplex or 4 Plex built in it’s spot. To double or quadruple the income from one peice of land.


The crazy thing is after about 20 years all this will be a memory and happy days will be here again to a new wave of people growing into adulthood who has no concept of anything that happened now while they were in wee diapers.

Login or register to post comments by Psquared
on Tue, 10/12/2010 – 12:42

With the dollar continuing to weaken I wonder what the deflation in home prices is – or will be – in real terms?

Login or register to post comments by Psquared
on Tue, 10/12/2010 – 12:43

With the dollar continuing to weaken I wonder what the deflation in home prices is – or will be – in real terms?

Login or register to post comments by Psquared
on Tue, 10/12/2010 – 13:13

With the dollar continuing to weaken I wonder what the deflation in home prices is – or will be – in real terms?

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