CRASH TEST DUMMIES IN THE DEFAULT WORLD!

CrashTestDumies
CrashTestDumies
CrashtestDummyI wasn’t going to talk about banks and foreclosures and all the other “stuff” getting stuffed into our increasingly strange world of consensual realty, this week.  Honest. I was going to put the breaks on my own broken record. I was going to get out my smiley-face lapel pin and quit howling at the moon as we swim against the current of current events.
But a Realtor friend of mine just returned from Burning Man. Two weeks ago, he was jetting around the Playa in his solar-powered art-car enjoying a world unburdened by debt. Now he’s laboring through the hangover of reverse culture-shock. And as he reminded me with a wry smile of irony…this place around us, outside of a certain oasis in Nevada that materializes like the annual alignment of a planetary mirage…is known as The Default World.
When he left the desert, everything in that parallel dimension was cleaned up, packed up,  and piled up into a huge, cleansing bonfire. He returned to a universe that is still Crashing and Burning in slo mo, frame by frame, like one of those crash dummy videos chronicling the close-up carnage as the economy keeps plowing headfirst into the wall and calling it good.
So here’s what keeps running through my dumb head in slo mo…
If we roll back the clock to 2005 – the market had bandwidth. The energy was free flowing. From first time buyers to first class flyers. From $500,000 to $5 million. Everything was selling at both ends. And in the middle. There was plenty of room to move.
Now, we have a marketplace where the bandwidth is getting narrower. The majority of active buyers here, are looking below $500k. Yes, some things sell above that. And yes, you can quote the median price numbers back to me. But truthfully, the more I juxtapose aggregate real estate statistics with my own direct experience – the more I am convinced that those numbers lie. Or simply tell an incredibly small truth in The Default World.
$499k is the new, favorite stopping place for listings on their way down.  It is getting more crowded all the time. Those are the houses that sorta mighta sold for $675,000  not long ago. Somehow they missed their window of opportunity and they’ve been plunging on the giant slip and slide ever since. The scariest part is that some of those $499k homes haven’t sold.  Buyers aren’t lining up around the block to write offers on them. Why not? At $399,000? No problem. We’ve got 10 offers on most of those places that are, arguably, hardly live-able.
Right now, the market above $499k is a giant trash compactor. Prices are slowly moving down through the layers of accumulated recycling. Everything between $5 million and $500k is getting painstakingly, incrementally, inexorably smushed together. Most of the market is getting slower and denser. There’s an astounding difference between what you can buy for $500k and what you get for $600k.  Or $700k  and $800k.  Visualize a car going through  the crusher and coming out looking like a metal cube 2′ by 2′ square. That’s what the market above $500,000 feels like.  Gravity sucking everything into a wormhole where normal space collapses. At some point in time, if the market gets heavy enough, won’t it crash through the glass ceiling below it? Won’t the bottom fall out of the bottom?
Banks are in control of the marketplace. REO’s are bank-owned properties. Homes that were possessed and repossessed so quickly, Linda Blair’s head is still spinning.  Short sales are just homes on their way to being bank-owned,  after would-be buyers and sellers commit ritual sepulchu to spare themselves the aggravation of being ignored any longer.  Some significant portion of the “organic” sellers out there must be driven by distress. Presumably they’ll stop making their mortgage payments and join the queue, somewhere along the way.
There is a giant shadow inventory of foreclosed homes being held in bank vaults. Homes that have been foreclosed on, but haven’t hit the market yet. There is a shadow, shadow inventory of notices of default that haven’t been foreclosed on yet. There is a shadow, shadow, shadow inventory of homes that are behind on their payments but haven’t received there NOD’s yet. And there is a shadow, shadow, shadow, shadow inventory of homes where Sellers are just coming to terms with what a jobless recovery might mean for them.
What happens when all of that inventory hits the market at some point in time?  Banks  can’t keep dribbling out little bits of their supply forever can they?  Where will it all end? Only the Shadow knows for sure.  Welcome to topsy-turvey landscape of The Default World.  Who’s fault is it anyway?

CrashTestDumiesI wasn’t going to talk about banks and foreclosures and all the other “stuff” getting stuffed into our increasingly strange world of consensual realty, this week.  Honest. I was going to put the breaks on my own broken record. I was going to get out my smiley-face lapel pin and quit howling at the moon as we swim against the current of current events.

But a Realtor friend of mine just returned from Burning Man. Two weeks ago, he was jetting around the Playa in his solar-powered art-car enjoying a world unburdened by debt. Now he’s laboring through the hangover of reverse culture-shock. And as he reminded me with a wry smile of irony…this place around us, outside of a certain oasis in Nevada that materializes like the annual alignment of a planetary mirage…is known as The Default World.

When he left the desert, everything in that parallel dimension was cleaned up, packed up,  and piled up into a huge, cleansing bonfire. He returned to a universe that is still Crashing and Burning in slo mo, frame by frame, like one of those crash dummy videos chronicling the close-up carnage as the economy keeps plowing headfirst into the wall and calling it good.

So here’s what keeps running through my dumb head in slo mo…

If we roll back the clock to 2005 – the market had bandwidth. The energy was free flowing. From first time buyers to first class flyers. From $500,000 to $5 million. Everything was selling at both ends. And in the middle. There was plenty of room to move.

Now, we have a marketplace where the bandwidth is getting narrower. The majority of active buyers here, are looking below $500k. Yes, some things sell above that. And yes, you can quote the median price numbers back to me. But truthfully, the more I juxtapose aggregate real estate statistics with my own direct experience – the more I am convinced that those numbers lie. Or simply tell an incredibly small truth in The Default World.

$499k is the new, favorite stopping place for listings on their way down.  It is getting more crowded all the time. Those are the houses that sorta mighta sold for $675,000  not long ago. Somehow they missed their window of opportunity and they’ve been plunging on the giant slip and slide ever since. The scariest part is that some of those $499k homes haven’t sold.  Buyers aren’t lining up around the block to write offers on them. Why not? At $399,000? No problem. We’ve got 10 offers on most of those places that are, arguably, hardly live-able.

Right now, the market above $499k is a giant trash compactor. Prices are slowly moving down through the layers of accumulated recycling. Everything between $5 million and $500k is getting painstakingly, incrementally, inexorably smushed together. Most of the market is getting slower and denser. There’s an astounding difference between what you can buy for $500k and what you get for $600k.  Or $700k  and $800k.  Visualize a car going through  the crusher and coming out looking like a metal cube 2′ by 2′ square. That’s what the market above $500,000 feels like.  Gravity sucking everything into a wormhole where normal space collapses. At some point in time, if the market gets heavy enough, won’t it crash through the glass ceiling below it? Won’t the bottom fall out of the bottom?

Banks are in control of the marketplace. REO’s are bank-owned properties. Homes that were possessed and repossessed so quickly, Linda Blair’s head is still spinning.  Short sales are just homes on their way to being bank-owned,  after would-be buyers and sellers commit ritual sepulchu to spare themselves the aggravation of being ignored any longer.  Some significant portion of the “organic” sellers out there must be driven by distress. Presumably they’ll stop making their mortgage payments and join the queue, somewhere along the way.

There is a giant shadow inventory of foreclosed homes being held in bank vaults. Homes that have been foreclosed on, but haven’t hit the market yet. There is a shadow, shadow inventory of notices of default that haven’t been foreclosed on yet. There is a shadow, shadow, shadow inventory of homes that are behind on their payments but haven’t received there NOD’s yet. And there is a shadow, shadow, shadow, shadow inventory of homes where Sellers are just coming to terms with what a jobless recovery might mean for them.

What happens when all of that inventory hits the market at some point in time?  Banks  can’t keep dribbling out little bits of their supply forever can they?  Where will it all end? Only the Shadow knows for sure.  Welcome to topsy-turvey landscape of The Default World.  Who’s fault is it anyway?

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