There is an urgent need to centralize important pieces of housing data. I view this on the level of employment data or even calculating GDP. Housing has become such a crucial component of our nation’s economy that I am stunned, nearly two years into this crisis that we have not spent any money in a […]
There is an urgent need to centralize important pieces of housing data. I view this on the level of employment data or even calculating GDP. Housing has become such a crucial component of our nation’s economy that I am stunned, nearly two years into this crisis that we have not spent any money in a concerted effort to bring housing data under one umbrella. We spend trillions in bailouts yet will not allocate what, a few million to create a central hub of this information? When we investigated Southern California we used three different sources to come up with our estimate that 40,000 homes are lurking as shadow inventory. Some argue that this issue is minor and will have a minor impact on the overall market. Others argue that shadow inventory is much larger than many would expect and this will have an effect on the overall market.
In searching for Alt-A and option ARM data for example, we have to rely on multiple sources of data including the Federal Reserve and independent studies. We have a raw number of loans and average balances yet this data is not connected in any easy format to foreclosures:
I view this as an urgent need. If we are to conduct any thorough analysis it would be useful to have the multiple data providers under one central hub. Take for example California and two large data providers in RealtyTrac and DataQuick. Let us look at distress property data for Q2 of 2009:
DataQuick (Q2 2009):
Notice of Defaults: 124,562
Trustee Deeds Recorded: 45,667
RealtyTrac (Q2 2009):
Notice of Defaults: 124,275
Notice of Trustee Sale: 45,419
At least with these two data points, we realize that both sources are nearly on the same page. Yet this is where a lot of darkness begins to emerge. We know that many banks are taking properties back as REOs. How many? To figure this out we would first need to have banks reporting to one central hub and ideally providing data on the properties they have on their books. Some would argue that this data is proprietary. I would argue that since banks are using trillions in taxpayer bailouts they really don’t have any say at this point especially with their sad attempts at loan modifications.
Now assuming we have banks reporting to a national hub of REO data including loan stats, we can better assess the potential damage. For example, let us assume the 40,000 REO homes in Southern California are clustered in certain counties. With access to this information, we can better assess the market. Not understanding the overall market is what led to our moment of Niagara with housing. Knowing where and what the loan is attached to is half the battle. The other battle is access to local MLS data. The MLS data isn’t such a big deal anymore with sites like Redfin and Zillow making housing information accessible to all. Yet there are still hurdles. In order to have a more accurate figure on housing data, wouldn’t it make sense to have a centralized hub of how many homes are currently for sale on the market? Wouldn’t it be useful for example to know at any given moment how many homes are for sale in the U.S. and be certain of that number? It would also be easy to run a monthly analysis on the data. Instead, we are battling it out again in terms of housing bottoms and everyone is looking at various data points supporting various perspectives.
This transparency is absolutely useful and critical. When you have $13.8 trillion in household wealth disappearing and millions of foreclosures, I think it is time we rethink how we look at housing and housing data. Just imagine if you knew that in Los Angeles County there were 26,000 homes currently on the market with 10,000 homes as shadow inventory. In order to calculate a holistic market perspective of housing we need to search through a multitude of sources including the Census Bureau, Federal Reserve, MLS, foreclosure records, and other sources of public information. Otherwise, we are missing the bigger issue.
Take for example new home sales and existing home sales:
New home sales are reported by the Census Bureau and existing home sale are reported by the National Association of Realtors. Why not streamline the data into one spot? I’m sure there are many legal hurdles here but the data for the most part is already being collected. The question is whether it is useful to have all these sources reporting to one spot. What should they report? At the very least, I think disclosing foreclosure and REO data is important. In that case, we can have someone pull up a bank REO in say the Inland Empire and see that XYZ bank is valuing it at $400,000 when in reality we know comparable homes are selling for $200,000. Otherwise, we are making billion dollar policy decisions by estimating when there really is no need for it. The data is already there. That is why I am not surprised that so few people actually consider the Alt-A and option ARM problems as even an issue at all. According to government data, there are still some $1.1 trillion in subprime and Alt-A loans in the market. Yet if we selectively look at home sales that are picking up, we can conveniently ignore the toxic waste on the balance sheet of many banks.
So why isn’t there a concerted move to do this? As in many things, politics trumps good public policy. Just take a look at the 10 largest donors to Washington D.C.:
What a coincidence that in a crisis caused by crony Wall Street and inflated housing values that a Wall Street firm and those benefiting from the inflated housing values are actually doing well with current legislation. I’m sure that they being 2 of the top 3 donors to Washington is merely a coincidence. Just to show you how important information is, take a look at what happened back in 2006 when Zillow was taking off:
“Zillow is placing the American dream of homeownership at risk for countless working families,” says John Taylor, president and chief executive of the NCRC President in a prepared statement (PDF). “For a company that represents to consumers that they are the ‘Kelley Blue Book of Homes,’ this is a very dangerous situation. We call upon the FTC to intervene and ensure that Americans receive accurate appraisals and valuation information to protect the single most important investment of their lives: their home.”
Ironically, this came out when accurate appraisals meant absolutely nothing and everyone was inflating the bubble to its sad conclusion. The more data that is hidden the more speculation will be embedded in the real estate market. An appraisal is useful in getting an accurate figure on your home based on construction, modifications, and more specific changes. But if you want to get a quick sense of sanity, you can use Zillow to see why a home on one side of the street is selling for $500,000 while another home is going for $400,000. How is this bad? Of course, we have many industries that survive by hiding data from the American public and obscuring facts with noise and distractions.
We already have many analyst including myself that piece together this information. But the question is whether we want to keep the massive speculative element in housing or make it a more bland industry as it was for multiple decades? Without Alt-A and option ARM loans the bubble in states like California would not have ballooned to epic levels. Alt-A allowed for those no-doc and no-income loans to those supposedly quality borrowers. Diana Olick had this estimate a few weeks back:
“So what exactly is the size of this shadow inventory?
Hard to say, but estimates are that it could be around 700,000.”
That sounds about right but who really knows. At this point, we can only offer our best estimates with the resources available.
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Creating a Central Foreclosure and Mortgage Database: The Urgent Need to Centralize Housing Data.
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