Loss Given Default: From Madrid to Los Angeles Foreclosures Set to Crest in 2011-2012
Next year, in the opinion of Chris Whalen, we are going to see a further sharp decline in residential home prices as the tide of foreclosures begun in the past year starts to clear the courts and move to market via involuntary sales. The same thing is happening in Spain, by coincidence.
So after being down 10% for 2010 earlier in the year, now down 5% for 2010 and (projected) -10% in 2011. The “resolution” of a lot of assets currently marked as “in transit”…is going to reveal some currently hidden truths on the balance sheets of the banks.
Even as the Fed continues to manipulate the markets via QE, all of the assets and exposures not on Uncle Ben’s menu are going to widen IMHO. And the spreads in and around the homes…are going to widen as the number of involuntary sales grow and these far-below “market” transactions pull the comps down toward the cash price liquidation level.
The outlook for the other source of state and local revenue — namely sales taxes — does not look so rosy either.
Automatic growth in public sector mandates in 2011-2012 forces even more cuts in public sector jobs and services.
And then you potentially create a feedback loop of deflation.
In any event, we are going to need to apply leverage to this growing volume of foreclosures. Otherwise we sit back and watch the largest asset liquidation in history, a process that may well take the pricing for residential properties down double digits next year.
Foreclosed Homes May Flood Spanish Market – From Madrid to Los Angeles Foreclosures Set to Crest in 2011-2012″
The number of foreclosed homes for sale in Spain may triple next year as new accounting rules prompt lenders to dump their depreciating assets, according to the co-founder of a website that advertises repossessed properties.
About 100,000 houses and apartments owned by banks are now on the market, Fernando Acuna said in an interview. A quarter of them are listed on the website operated by his Madrid-based company, Pisos Embargados de Bancos, on behalf of 25 banks.
Spanish lenders have a total of 181 billion euros ($242 billion) in “troubled” construction and real estate loans, the Bank of Spain said last month. Since Sept. 30, the banks have been required to account for falling property values more quickly, encouraging them to shed assets without waiting for the market to recover from a three-year decline.
“Lenders took on an immense amount of property from developers and homeowners and now they’re being forced to offload the deadwood,” Acuna said.