The local housing economy made page one of the A and C sections of the Washington Post this weekend. The Housing Bubble Blog and Calculated Risk readers are also discussing these articles:
Homeowners Losing Equity Lines
"Now that home prices have dropped in many parts of the country, lenders are nervous that they may never collect the money that they extended to borrowers. They are responding by freezing or lowering the credit limits on home equity lines . . . .
'Nearly all the top home equity lenders I know of are doing this or considering doing this,' said Joe Belew, president of the Consumer Bankers Association, which represents some of the nation's largest home equity lenders. 'They are all looking at how to protect themselves as real estate values go down, and it's just not good for the borrowers to get so overextended'.
. . .
Larry F. Pratt, chief executive of First Savings Mortgage in McLean, said most mortgage documents he has seen give lenders wide latitude to suspend or freeze credit lines. . . . Maggie DelGallo did not realize that when she took out a home equity line a few years ago on her home in Loudoun County. Her lender recently froze the line.
DelGallo, a real estate broker, has used some of her credit line over the years. Had she known the freeze was coming, 'I would have drained it,' she said. 'I would have taken every dime and possibly placed it in a money-market vehicle.'"
Housing Rut Derails Host Of Dependents
"Richard Clinch, a researcher at the University of Baltimore, said that from 2001 to 2005, as much as half of the job growth in metropolitan Washington was linked to the soaring real estate market. Many of those workers are 'hidden' in jobs not widely thought of as linked to home sales, he said. The chain of workers involved in real estate deals has grown over the years, largely because of the money at stake".
43 comments:
"Richard Clinch, a researcher at the University of Baltimore, said that from 2001 to 2005, as much as half of the job growth in metropolitan Washington was linked to the soaring real estate market.
I missed that article at the HBB. Thank you for highlighting.
I have a challenge. Since we know income and sales drive home sales prices, what are everyone's predictions for greater DC, Arlington county, and Alexandria sales rates for February? Put down your prediction. We'll see how well everyone understands the market. My prediction is a 25% to 40% LOWER sales rate than 2007. For all areas. Obviously if sales are worse...
Got Popcorn?
Neil
Agreed. I see prices also falling 10% from last year.
I predict that I will continue to not care about DC or Alexandria.
"what are everyone's predictions for greater DC, Arlington county, and Alexandria sales rates for February?"
Lower sales volume, for sure.
Assesed values may hold for a while but then again they have to....Local governments all across the COUNTRY are facing budget shortfalls because of declining real estate values. They are already talking about a $0.05 increase where I live, plus they are cutting the budget, and they are still short of necessary revenue.
With that said, I would like to point out that realtors have a whole bag of tricks that can be used to skew the MLS data in any direction at any given time.
Here is a link worth reading....it may have been posted here before;
http://tinyurl.com/2a3pns
It's the garbage in, garbage out scenario.
"as much as half of the job growth in metropolitan Washington was linked to the soaring real estate market."
No surprise here. So, the next logical question becomes, where are all of these people going to find a job?
A little self-interest post:
Oh wise real estate people:
Any tips for making offers on "short sales"?
Ok Neil, I'll bite. I predict sales around 20% lower and prices flat to up 5%. What's your price prediction?
gold_h2o:
That's precisely why I no longer use the nvar stats: I no longer trust them anymore. There were too much "corrections" for comfort (e.g. a pdf from 2006 might also list the previous year's prices, but those prices don't match the ones listed in a 2005 report). They also change the way they report the data every few years: i.e. attached & detached sometimes combined, sometimes separated; different bin sizes, etc.
I gave up last year and started using the data from mris:
http://www.mris.com/reports/stats/
What's your price prediction?
Official stats or Case-Shiller?
Official? Fairly flat (within statistical noise). The issue is that Case-Shiller isn't broken down by city and won't be out until May for February. But that will be down ~3% for February.
Got Popcorn?
Neil
The comments for the first story on WP are BRUTAL.
I'm not making month-to-month predictions...but my guess is Spring will not be pleasant for RE.
Ah yes, Neil, the vaunted housing crash accompanied by "fairly flat" prices....
Tabitha,
Short Sales might not be worth bothering over. Bank Owned would be preferable. Or if your agent is willing to keep writing contracts, you can go that route but expect to wait a while for answers.
Your real estate agent should have a good idea of how many short sales are being accepted in your area. If he/she seems clueless, I suggest interviewing another one.
From yesterday:
"CNN TV just reported 35% of all homes will be in negative equity by 1/1/2009---up from the current 10.8% or 8.8 million homes, per Goldman Analyst."
Harriet, thank you, as always.
My husband and I have read about short sales and agreed to avoid them like the plague...then a house came along that fits all of our criteria, except that it's a short sale, instead of a foreclosure. Since we still have a couple months before we NEED to move on a house, we figured it was worth revisiting the idea, since waiting is OK for now.
So much for patting ourselves on the back for being so cold and dispassionate about this process!
kcwood said...
"From yesterday:
"CNN TV just reported 35% of all homes will be in negative equity by 1/1/2009---up from the current 10.8% or 8.8 million homes, per Goldman Analyst.""
As the BHs used to say, the media gets a story line and exagerates it. Something like 40% of all homes are owned free and clear. If you're going to believe this "35% of all homes will be in negative equity by 1/1/2009" claim, then you have to believe that 58% (i.e., 35%/(100%-40%)) of all mortgaged homes in the country will be in negative equity. Under the farthest stretches of the imagination, this doesn't pass the reasonableness test. The vast majority of individuals didn't buy their first home yesterday or even within the last 5 or 10 years. The vast majority of people with a mortgage on their house have substantial equity in their house. Now, if you believe home values are going to drop in excess of 90% ... perhaps. But that doesn't pass the reasonableness test either.
I think there is a misquote somewhere here.
The prediction appears to be that something like a third of all houses with mortgages will be negative equity, not a third of all houses period.
This is still a pretty dire prediction.
"Goldman Sachs Chief Economist Jan Hatzius estimates home prices will slide 10% nationwide in 2008, meaning 15 million mortgages, 30% of all outstanding, will be attached to negative equity. That implies about $3 trillion worth of mortgages could be worth more than the homes they finance, he says."
This quote makes it clear that he is talking about 30% of all mortgages, not 30% of all existing homes.
http://online.wsj.com/article/SB120303447307470075.html?mod=googlenews_wsj
http://tinyurl.com/35f574
Leroy,
Thanks for the clarification. It's interesting though how many BHs make the assumption that all homes are mortgaged.
my crystal bong says: Feb sales down 20% YOY.
the rules have definitely changed wrt credit. with increased tightening comes more calls for greater nationalization. they don't use that word, they just put "reform" and "GSEs" in the same sentence.
Please accept my apologies for the misquote. I normally triple-check any quote I pass on, but this came from a client in the Federal government who said he was quoting from MarketWatch and I didn't question it. I have corrected him and he apologizes. When I read it I knew it was mortgages, and didn't presume it was all homes.
Again, it was not meant to mislead. I am only concerned with the opinions of experts such as Goldman Sachs. No single person's or special interest groups' opinions mean one whit to me. It is safe to say that Goldman Sachs would much prefer the statement wasn't true.
Still that percentage of negative equity mortgages is abysmal. My mortgage is not in the negative and 70% apparently are not. Most mortgages that exist today were not made in the last 4 years.
I will check with one of our clients who provides numbers to the Senate Banking Committee to verify that this a historical percentage. The Depression may have been worse.
"Again, it was not meant to mislead."
Hey, it is no big deal. Everyone makes mistakes and something still doesn't match up in the numbers.
Notice in your quote it says 10.8% of homes = 8.8 million. In the article I found it says 15 million mortgages is 30% of all outstanding. Working the math... your quote implies there are 81.48 million homes in America.
My quote works out to 50 million mortgages... the difference(40%) is roughly in line with the number of people who own their homes outright. I have no idea if the totals, 81.5 million and 50 million are in the right ballpark but the way these numbers work out is enough to make me wonder.
It might be that the economist has made several different but similar statements that are getting mixed up somehow. Maybe at one point he spoke about all existing homes and at another point he spoke about outstanding mortgages and the confusion is a result of people jumbling the two predictions together.
Does anyone know of a direct link to a report or something similar? All I have seen are news articles that mention his prediction but give little context.
Something like 40% of all homes are owned free and clear.
I think this statement is wrong. Does anyone have proof of this?
I can believe the 35% of all homes quote - many many people have taken HELOC's. So even thought they have purchased their homes 10+ years ago, they have
"liberated" so much "equity" from their house that they could be under water in a year.
Justin said...
"Something like 40% of all homes are owned free and clear.
I think this statement is wrong. Does anyone have proof of this?"
This has come up numerous times and I've supplied links at least several times. (For this stat as well as the fact that 75% of second homes/rental homes --- one category for government stat purposes --- are owned free and clear.) I think this was discussed with Leroy at one point ... Hence why he is taking it (the 40% figure) as a given in his recent post.
This link MAY have substantiation for it. (Honestly, I don't have time today to find the original posts where I gave the original link ... over on the Bubble Meter blog.)
www.census.gov/prod/2001pubs/c2kbr01-13.pdf
actually if you look at the mortgage statistics you will note that the great refi wave of 2003 covered almost all of the mortgages in the US. a lot of people bought during the boom years and many more refinanced. add lines of credit and then you have the pretty gloomy picture.
"In 2000, 30 percent of specified
owner-occupied homes in the
United States had no mortgage; that
is, they were owned free and clear,
down from about 35 percent in
both 1980 and 1990."
www.census.gov/prod/2003pubs/c2kbr-27.pdf
Although I don't have data, I believe that this % has likely declined since 2000, because of the increasing costs of houses and the popularity of refinancing and HELOCs.
Also, other parts of this report and the one Lance linked indicated that many of these homeowners are over the age of 65.
sorry - by "these homeowners", I meant the free-and-clear homeowners.
Now it looks like it is my turn to apologize. I had heard the 40% number before and knew it was in the general ballpark but I didn't go to the effort of checking it.
It looks like the real number is more like 30%. (as Ace already pointed out)
Here is a source:
http://www.federalreserve.gov/pubs/bulletin/2006/financesurvey.pdf
http://tinyurl.com/rvfw7
According to the data in the table on page 28, as of 2004, 69.4% of US homeowners have debt secured by their primary residence.(This includes mortgages and home equity loans)
That is an increase from the 66% reported in 2001. (As seen in the data on page 26.)
If the trend continued, as of today well less than 30% of homeowners should own their homes free and clear.
Leroy,
"If the trend continued, as of today well less than 30% of homeowners should own their homes free and clear."
This may be true ... But even if true, one has to consider how the change of the tax code to allow only mortgage-related debt to be deductible from gross adjusted income plays into this. Twenty years ago a home owner might have had his home free and clear AND have had his car loan, credit card expenses, etc. all in other separate accounts whose interest at the time was tax deductible. Nowadays the that same person knows to structure all such debt as a deductible HELOC or the like ... and not have a car loan, paying off the credit cards in full each month, etc. ... Using instead the deductible interest. I.e., you could have the same amount of debt ... just have more of it flavored as mortgage debt (with the resulting lowering of the "free and clear" number.) I think the 75% of second homes/rentals speak more about the direction of the trend since it isn't as obscured by changing tax laws.
I am not sure what point you are trying to make Lance.
We were just doing a bit of fact checking on the numbers. Regardless of what the number might have been twenty years ago it looks like ~30% is the number today.
Second homes are also not going to be a very good indicator of any sort of general home ownership trend. The people who buy second homes are not average homeowners.
Did anybody else get this notification about a condo auction in Alexandria on March 16th?
Website is:
www.eos-21condos.com
You have to register on the website for details. Terms and conditions specify captive mortgage and captive title insurance company. Boy, if I am considering taking the plunge, I'd sure want a title company who is representing my interests ONLY.
FYI, FWIW.
Leroy said:
"We were just doing a bit of fact checking on the numbers. Regardless of what the number might have been twenty years ago it looks like ~30% is the number today."
What I'm saying is, even IF the 30% figure is true, that wouldn't mean that homeowners as a group are any more in debt today than they were 10 - 20 years ago. Because of tax law changes, more homeowners are smartly structuring their debt as tax deductible mortgage-oriented debt. The guy who yesteryear had no mortgage but had (at the time) tax deductible car loans and other loans, today has a (at this time) tax deductible home equity loan.
"Because of tax law changes, more homeowners are smartly structuring their debt as tax deductible mortgage-oriented debt."
Anecdotal sure, but this is not my experience. I see older folk, 55+, who have paid off their homes and have no debt. When they buy a car, it's an economy car and they take the cash from savings.
The younger set is carrying a mortgage and do have HELOCs but those who are talking appear divided into two groups.
Set 1 has 50% or more equity and uses their HELOC very sparsely. They say things like, "I had to replace the roof, I almost had the LOC paid off, here we go again."
Set 2 has zero or negative equity. I have overheard them calling around to lenders, trying for another $50K for their lifestyle, such as a luxury car.
I'm not saying that the population falls into one of these 3 groups, nor do I know what the ratios are. This is just from listening to neighbors and coworkers talk.
"What I'm saying is, even IF the 30% figure is true, that wouldn't mean that homeowners as a group are any more in debt today than they were 10 - 20 years ago. Because of tax law changes, more homeowners are smartly structuring their debt as tax deductible mortgage-oriented debt. The guy who yesteryear had no mortgage but had (at the time) tax deductible car loans and other loans, today has a (at this time) tax deductible home equity loan."
There is a wealth of data available that shows the average American is carrying more debt today than twenty years ago. I suspect this includes homeowners.
That isn't what we were talking about though. We were just trying to figure out what the current number is.
Do you have some data that shows 40% of homeowners had no mortgages 20 years ago? I wouldn't be surprised to learn that was the case but I am not going to work from that assumption at this point unless you can produce some credible data.
"www.eos-21condos.com"
Wow that place is inside the beltway also.
135k for a 1 bedroom would be a steal at that location. Assuming there isnt some slum apartments next door.
Do I win the pool!!!???
According to S&P Case/Shiller Washington prices fell 9.4% in the last quarter (YOY).
Of course, this just means that prices will start to go up because I am sure there are a ton of buyers on the sidelines that don't already have a home...oh wait, we have 67% home ownership...well, maybe my cab driver will be able to buy a third "investment" property and help prices rebound!
What I find interesting about the Case-Shiller numbers is that the rate of decline in prices is accellerating in the D.C. area.
EOS 21 is the old Oakwood Apartments across from Landmark Mall and BJ's. They are not that nice and they are pretty old. Back in '94, I knew a lot of interns on Capitol Hill that used to live there for the summer. Van Dorn is near Skyline and not far from old-town.
Bill,
I was going to say the same thing.
I shop at that BJ's and at the Landmark Macy's (previously Hect's).
If people are going to buy condos, the preference should be for newer properties that will have a decent resale value. Converting old apartments to condos is a silly idea for this area.
doug,
I live *near* EOS-21. Its an ugly dump. Some company bought it to renovate into condos a few years ago I believe. Some units may still be rentals, others condos. I dont know the inside, but I wouldnt dare pay $135k for a one bedroom there. $135k should be the two-bedroom price for that dump.
I know of one person who paid over $300k for a 2-bedroom there in 2006. They are not in good shape.
Stealth4,tedk & Bill,
Thanks for the information about "www.eos-21condos.com".
It is always good to hear from people who live near by the property.
- Leo
What I find interesting about the Case-Shiller numbers is that the rate of decline in prices is accellerating in the D.C. area.
What's enteresting is that the worst of the Western markets, which are falling together, have flattened out (in terms of the equity lost per month). It looks like after the January or possibly the February data that DC will join the worst bubble markets in a 3% to 3.5% per month price decline.
I previously predicted that price declines would max out at 2.5% to 2.0% per month. Obviously I was 0.5% too optimistic. Cest la vie. I'll graph later in the week on my blog.
Got Popcorn?
Neil
Leroy asked: "
Do you have some data that shows 40% of homeowners had no mortgages 20 years ago? I wouldn't be surprised to learn that was the case but I am not going to work from that assumption at this point unless you can produce some credible data."
The Census Bureau report quote and link I provided indicates that the free-and-clear figure was 35% of "specified owner-occupied homes" in 1980. I realize you may be asking Lance if he has other data.
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