Tuesday, April 17, 2007

Sheep and Foreclosures - A Sign of Good Things to Come

Warren Buffett didn't make billions by betting on the obvious. Most of the wealthiest Americans made their great wealth by taking risk as contrarians against the sheep and herd mentality of their time. You can't beat the market unless you are a step ahead of it............
From Bizjournals.com 4/17/07
"The number of California homeowners getting default notices last quarter reached its highest level in almost 10 years.........Last quarter's default level was the highest since 47,912 default notices were recorded statewide in the second quarter of 1997. Defaults peaked in first quarter 1996 at 61,541."
Ok, now let's get a little perspective by looking at headlines and analysis from 1997.........

From Dataquick News January 1997
"Lenders started foreclosure proceedings on 39,495 California homeowners during last year's fourth quarter. That was up 1.0 percent from 39,106 for the third quarter and up 4.9 percent from 37,648 for 1995's fourth quarter (see chart), according to DataQuick Information Systems.
The quarterly numbers peaked at 44,686 during last year's first quarter (Q1-06) when lending institutions implemented stricter policies in their handling of mortgage delinquencies.

So then, what did California prices do when mortgage defaults peaked in 1996? Well let's take a look......
1996 $177,270 -0.5%
1997 $186,490 5.2%
1998 $200,100 7.3%
1999 $217,510 8.7%
2000 $241,350 11.0%
2001 $262,350 8.7%
2002 $316,130 20.5%
(source realestateabc.com)

Just like condo conversions signaled the peak of the housing market in 2005, it appears notices of default and foreclosure activity coincide with the bottoming of the market within a year or so. Mind you, California also suffered significant job losses in the early to mid 1990's, not the case now, where a quarter of a million jobs were created in last year. So this correction and snap back will be quicker than in the mid 90's. So are you a sheep or? See below to see how quick the headlines turn..............

Bay Area home prices jump May, 1997
The median price paid for a resale house in the nine-county Bay Area was $260,000 in April. That was up 8.8 percent from $239,000 in March and up 11.6 percent from $233,000 for April last year (see chart), according to DataQuick Information Systems.

SoCal Home Sales and Prices Surge August, 1997
The median price paid for a Southern California home was $169,000 last month, up 4.3 percent from $162,000 a year ago. The year-over-year price jump was the strongest since July 1991 when prices jumped 4.5 percent during a post-Gulf War wave of optimism about the economy.

SoCal Home Prices Surge December, 1997
The median price paid for a Southland home was $172,000 in November. That was up 0.6 percent from $171,000 for October and up 6.8 percent from $161,000 for November last year.

Quotes and Headlines courtesy of DQ News Archive

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