From AP:
"Homeowners threatened with foreclosure would in some instances get a 30-day reprieve under a new initiative the Bush administration announced Tuesday.
Dubbed "Project Lifeline," the new program will be available to people who have taken out all types of mortgages, not just the high-cost subprime loans that have been the focus on previous relief efforts.
The program was put together by six of the nation's largest financial institutions, which service almost 50 percent of the nation's mortgages.
These lenders say they will contact homeowners who are 90 or more days overdue on their monthly mortgage payments. They will be given the opportunity to put the foreclosure process on pause for 30 days while the lenders try to work out a way to make the mortgage more affordable to the homeowner.
. . .
'As our economy works through this difficult period, we will look for additional opportunities to try to avoid preventable foreclosures,' [Treasury Secretary Henry] Paulson said. 'However, none of these efforts are a silver bullet that will undo the excesses of the past years, nor are they designed to bail out real estate speculators or those who committed fraud during the mortgage process.'"
(Kind of humorous - the AP named the file "mortgage_mess_rescue.html")
49 comments:
30 days aint gonna save anybody. 90 days maybe, might give an honest guy a chance to refinance, but even so, nobody is going to finance 130% of the homes current value.
great. Now those upside-down 'homeowners' will have 120 days of 'free' living w/o paying property tax/mortgage etc and oh btw get the tax deductability of accrued interest.....
4 months of zero rent payment and one can save enough to purchase a bigger + better home where a person can......live 120 more days w.o paying the mortgage........
Project Lifeline. That name says it all, doesn't it?
Seriously though ....
Whether one agrees with this type of "lifeline" or not, the simple fact is that it is in the bests interests of all ... Except for those would be buyers hoping to pick up a home for far less than current prices.
It is in the best interests of lenders who rather see a loan paid off with lesser profit (i.e., lesser interest or longer repayment terms) than not paid off at all. It is in the best interests of government which wants to see stable communities and people literally financially invested in these communties. It is in the best interests of the economy which no one wants to see falter and leave us under or un-employed. And finally it is in the best interests of the families (i.e., our friends, neighbors, relatives) living in these homes.
Yes, I can understand the ranting and raving by the likes of previous posters. (It's good to let off steam.) But in the longrun, recognizing why lifelines such as these will circumvent a bubble from bursting, would be in THEIR long term interests.
"But in the longrun, recognizing why lifelines such as these will circumvent a bubble from bursting,"
All due respect, Lance, I don't see this making much difference.
In my zipcode, I've seen 3 or 4 sales that appear to be homeowners in trouble. The clues, "bank owned", "short sale", in addition to a recent purchase at the price peak, are rare.
Most places seem to be owned by people who bought in the 1990's or 1980's even. The city's DB has this information if anyone is interested.
An unusual number of places for sale are on REED AV. I suspect those were rentals and not owner occupied. Whatever they are, the properties are being cashed out.
In the rest of this zipcode, there are very few SFH and better TH for sale.
There is almost nothing for sale that anyone here would want to live in, other than 6 or 7 houses priced higher than I'd want to pay.
What makes more of a difference are interest rates going forward, shifts in jobs and demographics, buyer and seller psychology.
KH,
I don't disagree with you ... in respect to what you are seeing in your neck of the woods. However, in the farther reaches of the metro area there could very well be a far higher proportion of foreclosures ... absent the likes of the Lifeline program ... and the interests that gave rise to it.
The BHs are banking on house prices dropping in the same manner that some stock prices dropped during the stock market bubble burst. I'm just pointing out to them that there are too many people/institutions/government entities out there with a vested interest in seeing that that does not occur. I've said from the start that real estate can't experience a bubble bursting like the stock market because it is inherently not an investment vehicle and as such is inherently not vulnerable to the same "market" forces. You're arguing that it's not even a "market" ... which I would agree with and say that speaks back to my statement that (at least for the homeowner) it isn't an investment. It is an expense. The bottom line is that one shouldn't expect house prices to act like stock prices. As one poster some time back said "So, if house prices drop, will people dump all there houses and simply move to the woods with tents to live?"
How is 30 days going to help? And Lance, how is a bailout in the best interests of anyone except those who gambled on housing? I hav NO sympathy if your arm is resetting and you cant afford it. Nor do I have any sympathy for the banks who gave you this loan. I lost 2000 dollars gambling in the stock market last month, where is my bailout?
James,
It sounds like you didn't get the message. It doesn't matter whether you have any sympathy for those homeowners having a hard time with their payments. It doesn't even matter if the banks, the government or others do. What matters is that the banks, the government, and society in general have an interest in seeing that these homeowners in trouble don't default.
Once you stop living in a world of "how things should be" and start living in a world of "how things are", you'll understand my message to you and your fellow BHs.
And as to the "only 30 days" ... That means 30 days (or probably more) for these financially stretched homeowners to re-negotiate with the banks who are more than willing to bend over backwards to keep the loans from going bad.
"You're arguing that it's not even a "market" ... which I would agree with and say that speaks back to my statement that (at least for the homeowner) it isn't an investment."
lol, of course it is a market.
"It is an expense."
Of course it is an expense, though it is also a market...
"The bottom line is that one shouldn't expect house prices to act like stock prices."
No, we expect house prices to act like house prices... in this case that means they are going to fall a good bit.
You admit that housing is an expense yet somehow think that keeping "buyers" in houses they can't afford is a good strategy. At some point you just have to admit that people simply bought more than they should have.
Some thought it would be a good investment as you used to advocate.
Some thought they had to buy or risk losing their chance, a scenario you used to describe.
Some thought fancy financing meant traditional rules of affordability no longer applied, as you used to advocate.
Many of them just went out and bought too much because they had the opportunity and didn't think of the future at all.
In the end it doesn't really matter. It isn't in their interest to bend over backwards to keep paying for a depreciating house that is going to cost them more than it is worth.
You are right that it is in the bank's interest to keep them in the house. The bank would rather have them pay just as much as possible for the house and stay in it because the bank knows they aren't likely to find anyone else that will pay nearly that much if they have to sell.
Bottom line, the banks think they can get some of these people to pay more than their houses are worth.
It is a business decision. These banks have been losing billions of dollars and their stock prices are in the gutter, they didn't just now discover charity.
I want to see "kh" talking while "lance" is drinking a glass of water.
LANCE SAID "...metro area there could very well be a far higher proportion of foreclosures ..." and "...expect house prices to act like stock prices"
Its great that you can now see all the for sale signs and other "signs" for help in your neighborhood. You have seen the light.
Its called reaping what you sew.
"The BHs are banking on house prices dropping in the same manner that some stock prices dropped during the stock market bubble burst."
That is happening, sorta. PWC, Manassas, way out there where the deer and elk used to play. Prices are down, way down.
Here, many places are plunging. Sorta.
The TH's on what used to be VEPCO's Glebe Road parking lot were listed 2 years ago in "the middle 800's". When they finally broke ground last fall, the price was "about 600". It's $499 now. That's a hefty drop.
The Eclipse Condo, sniffing distance to the Metro Bus Barns and the Regional Sewage Plant, between 8 lanes of U.S. 1 and 4 lanes of the GW Parkway, in earshot of 737's idling at National, has dozens of places for sale at lower and lower prices. It's gotta be the bubble busting.
Then there's REED AV, locally known as "the HOLE", all the ambiance of "Escape from New York", 5, 6, 7, 8 places for sale and no takers.
It's the bubble. When averages fall in this zip code, it'll be the bubble.
There are 6 or 7 reasonable houses for sale in this entire zip code. All of them are priced above what I'd pay, well, that's just an anecdote or a fact or something.
I agree with the BH that asking $449K for a small 2/1 on a 1332 sqft lot is too weird for words.
I wouldn't pay that. Most people wouldn't. That's the case with most places around here.
Where the BH's have it wrong is in thinking that just because a million bucks is a lot of money to them, that it's too much to pay for everyone.
Apparently it's not too much as shown by the recent sales. (It's too much for me too.)
"Where the BH's have it wrong is in thinking that just because a million bucks is a lot of money to them, that it's too much to pay for everyone.
Apparently it's not too much as shown by the recent sales. (It's too much for me too.)"
Yeah, because we didn't hear THAT on the way up...
If you choose you can be the last person to finally come to terms with what is going on. Just keep saying that it is an "outside the beltway" problem... or not a problem that affects Alexandria or Arlington... or at least not YOUR part of Alexandria and the northern tip of Arlington... or ... or ... or ...
If your neighborhood was subject to the bubble's effects on the way up... it will be subject to the bubble's burst on the way down.
But in the longrun, recognizing why lifelines such as these will circumvent a bubble from bursting, would be in THEIR long term interests.
Sadly, this will save few. Oh, I consider it a good thing that the banks are staffing up to save the few mortgages they can. Sadly, I'm not sure enough of the banks are healthy enough to 'save' many homeowners.
Has anyone else noticed how many high end homes are suddenly hitting the market this year? I'm floored! I'm going to have to formalize the number of flips I've found over $5M. Yes, we had 1925 Florida happen again nationally! It appears the greatest amount of flipping was done in the priciest communities! I can't prove it yet; heck, I don't need to. Time will do that for me.
ML is now predicting that 'bubble market' homes that require a jumbo to purchase will drop 40% over three years. This deflation puts some *very* nice homes down into my price range. :)
The only long term solution is for home prices to drop back down to where wages justify the prices. Do any of you work with blue-collar workers? They are one step away from rioting about them having to subsidize mortgages on million dollar homes! Seriously, they're expressing a lot of anger.
As anyone who has read my posts knows, I thought the higher conforming limits would just quietly go through. It appears J6P might want someone to blame as they see the government catering to protect the rich, not them. Oh, this 30 day wait will help everyone who can be helped. But what happens when this futile plan fails (as it shall)?
John said:
Its great that you can now see all the for sale signs and other "signs" for help in your neighborhood. You have seen the light.
ROTFL The funniest part is watching the arogant 'affluent' realize that their 2nd homes are no longer sellable. Some won't care. Oh, I know people who have three homes who will never *need* to sell one. But at some point they get tired of overpaying on a losing horse and will sell.
Got popcorn?
Neil
Lance: "the stock market bubble burst"
I wonder.
Hey Lance remember when the BH said they had money for the down payment.
When I suggested that the market was falling and taking their DP with it, someone said that he had his DP parked in a non-stock investments, maybe CDs or Money Markets.
I didn't think that one through.
If someone had, say their fifty grand DP in a money market and they had their 401(k) and trading account, say $150K in stocks. If that $150K fell to $100K, they're still down $50K.
Haven't they lost? Or is money not fungible?
I'm a pretty conservative investor but in the last 3 months, the market has hammered me. I still have my house though. It looks the about the same, a little better in fact.
I think the BH (or anyone) losing fifty grand or whatever, is not a good thing. That by itself could quiesce the housing market.
Lance said...
“Yes, I can understand the ranting and raving by the likes of previous posters. (It's good to let off steam.) But in the longrun, recognizing why lifelines such as these will circumvent a bubble from bursting, would be in THEIR long term interests.”
Hold on a sec Lance. A few short months ago you were on the “no such thing as a housing bubble” bandwagon. Now, there are measures that will “circumvent a bubble from bursting”? If no bubble, why the need to circumvent one?
Robert asked:
"Hold on a sec Lance. A few short months ago you were on the “no such thing as a housing bubble” bandwagon. Now, there are measures that will “circumvent a bubble from bursting”? If no bubble, why the need to circumvent one?"
It's only a bubble if it bursts. I was trying to explain why what some viewed as a bubble .. wouldn't be a bubbke once all is said and done.
It's only a bubble if it bursts.
"Click" (I'm saving that quote.)
Would you like a Mulligan on that response Lance? To someone looking to sell a home for 60 cents on the dollar in 2010, its sure going to seem like a bubble.
Remember, in a recession, high end housing drops in 'value' more than 'entry level' housing. Right now we're seeing the opposite (well... not in Detroit...). But the quantity of McMansions/Mansions that were flipped tell us we'll soon see the top fall off.
Got popcorn?
Neil
God love ya Neil, still trying to educate the masses. There's a special place in Heaven for you, with all the popcorn you'll need for all time & eternity!! :)
Save your energy, there's no point to debate our DC Gen-Xer's that still think their home purchase is going to let the retire by the time they hit 40!
Reality with teach them otherwise, as it always does!!!
What is funny is that he is still trying to change what he said. He used to say that it wasn't possible for there to be a bubble in RE in the first place. (and for that matter that RE in the DC area was undervalued)
Now he admits that there is a bubble but is saying it isn't really a bubble if it doesn't burst... lol.
Slowly but surely reality is running lance out of ways to spin this.
It is a lot like the Iraqi information minister during the war. He is going to keep repeating the party line no matter how stupid it makes him look right up until the point he is seen as nothing but a joke... then one day he will just disappear without a word.
My only issue with this "lifeline" is that sure, it may help a few that would otherwise lose their homes, however, it is still doing NOTHING to entice buyers like myself to stop renting and start buying! Unless prices come down, I will continue to rent, forgo the tax deduction, and keep my money in other investments that earn a guaranteed 6% a year rather than pay double what I pay now to buy the place I rent. Until that day comes, no amount of delays, etc. are going to stop this bubble from deflating!
Neil said:
"Remember, in a recession, high end housing drops in 'value' more than 'entry level' housing."
Neil you should stick to Orange County (California) housing matters. You show your ignorance od DC when you imply I am in "high end" housing. I'm definitely not in high end housing. I am in very average housing.
leroy said:
"It is a lot like the Iraqi information minister during the war. He is going to keep repeating the party line no matter how stupid it makes him look right up until the point he is seen as nothing but a joke... then one day he will just disappear without a word."
hmmm ... I guess you didn't hear that he turned out to ne right? There were no weapons of mass destruction ...
"I am in very average housing."
I thought you paid $900k for your house lance. Does that mean you now think you overpaid by a wide margin?
I agree Christopher, the market is stalled because few are buying and rents are low.
I agree that people in financial trouble deserve to have the government help them. My history lessons included the unjust indentured servitude of the 1700's.
The fed rate cuts may have brought mortgage rates down (a little), but the "fence sitters" have proven that they do not "frenzy" into buying. They walk, not run, and maybe stop to smell a flower along the way.
I read a house for sale ad in the paper today. It said "Serious inquires only.". A smart seller would not want to exclude ANY potential buyers.
Christopher, I think the time for you to buy is far in the future. As long as you are not raising a family, rent is the best option. Once you start needing 2 or even 3 bedrooms for your kids, it begins to make more sense to buy because apartments that size are similar in price with a modest sfh or townhome once you factor in the interest deduction.
John,
I just lost 100k in the stock market, maybe you wouldn't mind forking over your taxes to support my 100k loss?
"From each according to his ability, to each according to his need" right?
Government should not be in the business of providing a backstop for stupid decisions made by people.
It's life, there are no guarantees! Instead of people whining and moaning how much they lost, why don't they grow a pair, suck it up and realize I made a bet, I lost, let me cut my losses and start over. Instead of, "please government make the pain go away", help me, I can't make it myself.
There is a thing for people who are in a rough spot, it's called private charities, Salvation Army, churches, and the like!
It is absolutely 100% morally wrong to FORCE one individual who did not make a stupid mistake to give up his time and labor (via. taxes) to support another individual who did.
It is a form of slavery-FORCING one person to provide sustenance for another.
You want to talk about indentured servants-on average people work until April 30 before they pay taxes. 1/3rd of the year, your working life is spent as an indentured servant to the government.
I don't know what history you've taken, but I've learned that the above quote comes from Marx, the founder of the economic system, communism---and that sure as heck didn't work.
gte811i
Oh, I do call it welfare. I do agree with much you said. But I also think that in this great country, everyone should be fed and have some kind of shelter. If I am the one paying for it, then I should get to decide what it is.
"But I also think that in this great country, everyone should be fed and have some kind of shelter. If I am the one paying for it, then I should get to decide what it is."
Ah... but what does "some kind of shelter" mean? Does it mean keeping people with steady jobs but expensive tastes in houses they can't afford?
There are no shortage of people in "very average," $900k houses that they are absolutely entitled to...
Those poor poor people! Imagine being forced to live within their means!
I have no problem with government assistance for the needy. I don't see any need for the government to assist people that are absolutely convinced that their $900k house is "very average" and that anything less is beneath them.
I feel bad for the people that got caught up in the hype and bought more than they could afford because they let some real estate pumper convince them they "couldn't lose," but it isn't the government's responsibility to help people with the means to help themselves. Bad decisions are bad decisions.
The bubble HAS burst and we are all covered with the after-slime....the undeserving irresponsible being handed the clean wipes for free while responsible others have to struggle to get their own.
Coalition for Personal Responsibility said...
"The bubble HAS burst and we are all covered with the after-slime....the undeserving irresponsible being handed the clean wipes for free while responsible others have to struggle to get their own."
I don't see anyone giving anything away other than more time for these folks to keep their commitments. Why would this bother you? Would you rather they walked away from their responsibilities? Is this because you for some reason believe that that will allow you to buy their homes for far less than their current values?
Folks,
Keep in mind that Paulson himself said that the worst was yet to come from ARM resets as he announced this "lifeline."
Momentum/trend, psychology, lenders and builders learning from having been burned by easy credit policies, and so on will combine to cause continued falling prices for the next few years. These 'Lifelines' will have only a marginal impact on that. Ignore Lance.
"Momentum/trend, psychology, lenders and builders learning from having been burned by easy credit policies, and so on will combine to cause continued falling prices for the next few years. These 'Lifelines' will have only a marginal impact on that. Ignore Lance."
I agree completely.
There is really no way to put air back into the bubble once the general populace finally realizes what has taken place.
These sorts of lifelines may slow foreclosures and will probably even prevent some foreclosures, but they won't address the fundamental problem that housing prices are completely out of line with incomes.
Now that credit is returning to normal and buyers actually have to have some chance of repaying what they borrow the market can go nowhere but down. The only question at this point is just how steep the slope will be.
Lance: "no weapons of mass destruction ..."
No bubble close in either, although that doesn't stop your friends from haranguing me for linking to the price map from the City of Alexandria.
kh said...
"Lance: "no weapons of mass destruction ..."
No bubble close in either, although that doesn't stop your friends from haranguing me for linking to the price map from the City of Alexandria."
kh, I think they really believe what they're saying ... And since what they're saying is "Not now ... but soon!" How can a rational argument be had? Everyone is entitle to their opinion as to what they think "will be". But, you'll notice how quickly they shift the subject the minute you point out "what is" ...and the fact that it doesn't align up very well with what they want to see out there.
Yes, I think people looking out in the far out burbs will do well now. I've always said that. Or for condos. I've always said that too. But no one is saying they are doing well in finding nice properties in desireable areas for the bargain prices that the bubblehead theory promised them ... "At least not yet". Hope is eternal.
The lifeline won't do much. This is more a bailout scheme for the financial institutions than it is for homeowners. The banks don't have the resources to process all the foreclosures in the pipeline, so the lifeline is an attempt to kick the can down the road. Better slowly than all at once.
On a lighter note, did anyone see that NAHB is refusing to make any political contributions for the year because neither Congress nor the Bush Administration have "done enough to stabilize the housing market"? Good times. Good times.
http://tinyurl.com/25z6bh
Lance said...
“Would you rather they walked away from their responsibilities?”
Responsibilities? Yea, sure Lance. Purchase a house you can not afford, not make payments, and then wait for government handouts. That’s being “responsible”?
America For Sale
http://tinyurl.com/2udhuv
You gotta love the last few paragraphs...
"But here's why the trend is troublesome, and more so now than ever. According to the Bureau of Economic Analysis, the rest of the world currently owns way more of America (stocks, bonds, real estate, etc.) than America owns of the rest of the world, by a margin of $2.6 trillion (as of year-end 2006; a 2007 figure is due in July and will be larger). Net foreign ownership is increasing very rapidly; it has multiplied by a factor of five in just the past decade. As it grows, we must send more dividends and interest to foreign owners, giving them more money with which to buy more U.S. assets, earning more dividends, and so on.
This compounding effect is small when net foreign ownership is low, but at today's levels the effect is becoming significant and ever harder to reverse. Where it leads is grim: As a nation we eventually cease to be capitalists and become simply wage earners. As Warren Buffett put it in a prophetic Fortune article more than four years ago, a country that goes too far down this road can be "colonized by purchase rather than conquest."
That isn't inevitable. We can turn our situation around by saving more and spending less, and market forces, such as a weakening dollar, will help us do that. But every day we don't, the hole we have to climb out of gets a little deeper."
"No bubble close in either"
heh, well at least you finally came out and stated your position.
Of course it is nothing but childishness but hey, to each their own right?
You had better stick to tax assessments and last year's sales. The forward looking indicators aren't doing much to help your case.
But hey! good news right though right? Sure there may have been a bubble everywhere else... but the few square miles that is the city of Alexandria wasn't affected!
Reality with teach them otherwise, as it always does!!!
Spunky, I've come to the conclusion that Recessions are required to teach the general population how to be responsible.
What is funny is that he is still trying to change what he said. He used to say that it wasn't possible for there to be a bubble in RE in the first place. (and for that matter that RE in the DC area was undervalued)
Yea. Its funny.
http://bubblemeter.blogspot.com/2007/11/lance-from-september-2005.html
Only 2% of the population earns $200k+ a year. So by definition, any housing over $700k is 'high end.'
Since you are so adamant about DC housing Lance, start your own blog. Provide data. But also start reading what all these blogs are posting and learn. Lance, make a quantified predition on sales in DC instead of trying to do your name calling. I can already tell you that February sales volume in DC will trend at half of peak sales. The 'Make a Wish Foundation' helps kids and not 'affluent lawyers retain real estate equity.'
Got popcorn?
Neil
Lance: "I think people looking out in the far out burbs will do well now. I've always said that. Or for condos."
Or the converse, if you bought a place in Dumfies (where ever that is) or Manassas (I've been there once or twice), and you have to sell in the near future, you won't get anything like what you might have received at settlement 3 years ago.
Ditto flippers who bought the Eclipse Condo pre-construction. What were they thinking? Couldn't they see that majestic views of a sewage plant and the Metro bus barns would not guarantee a big juicy flip?
"But no one is saying they are doing well in finding nice properties in desireable areas for the bargain prices "
Depends on what you mean by nice, desirable, and bargain.
It's still strange that your friends go into a huffy-tizzy when I link to actuals or the City's price maps.
All last fall, I said that it looked like SFH in my area, Northridge (22305 and 22302), were not plunging like Shiller promised.
Northridge has gone flat. Overall the City of Alexandria is down slightly. It's a big nothing.
It's like it would kill them to admit that, for 2005, 2006, 2007, and now 2008, the stats here do not show a bubble bursting.
"All last fall, I said that it looked like SFH in my area, Northridge (22305 and 22302), were not plunging like Shiller promised.
You have said this sort of thing before and never managed to back it up with any actual sourcing.
What is it that you think "Shiller promised?"
"It's like it would kill them to admit that, for 2005, 2006, 2007, and now 2008, the stats here do not show a bubble bursting."
Who on earth is saying otherwise?
Obviously the bubble has not yet burst in Alexandria city.(or is just starting to anyways) If your argument were that the bubble hasn't yet burst in Alexandria City then nobody would argue with you.
The problem is that you then go on to insist that there is no bubble, and thus it can not burst. Which is of course nothing but wishful thinking on your part.
...and no amount of tax assessments from previous years changes that...
Leroy said:
"The problem is that you then go on to insist that there is no bubble, and thus it can not burst. Which is of course nothing but wishful thinking on your part."
Isn't that sorta like a double-negative? i.e., nonsensical.
It's wishful thinking that something which hasn't happened, and which there is no indication it will happen (other than BHs' hopes), is going to happen?
Face it. The wishful thinking is on the part of the BHs. Like KH said, for 2005, 2006, 2007, and now 2008 your average, typical neighborhood in the metro area has not experienced a bursting bubble.
KH,
I have a friend who is planning to buy in the fall. Requirements are less than 400K, Tyson's/Falls Church area.
He has an excellent realtor who has already sent him listings of hundreds of properties that fit this criteria. A lot of them are along Rt 50 and Columbia pike. Some are along rt 7 just east of Tyson's corner.
Most of these look to be distressed sales too. (That may have been another criteria). But the sheer magnitude of listings, below current assessments, leads me to believe there is quite a ways to go down before this is over.
I fully believe that pricing pressure here will continue to work it's way into the more desireable parts of Arlington and Alexandria. I'm guessing it will take another 6-9 months for reality to hit the regions I mentioned, and another 3-6 months after that for the pricing pressure to show up in further.
My $0.02
"But the sheer magnitude of listings, below current assessments, leads me to believe there is quite a ways to go down before this is over"
No Way!! There's no bubble!
There's not a TON of stuff on the market dying for a Spring Sale!
Any price reductions are miniscule!
Hogwash! Just ask Lance & KH!
Bwaahhh!
mytwocents,
Save your effort. KH and Lance are RE true believers.
They foolishly believe that in 'average, typical neighborhoods" (Lance) or certain Alexandria or Arlington neigborhoods (KH) that there was no bubble, therefore, it has not burst.
Both have declined my invitation to define the point at which they would concede a bubble exists. But I am saying the bubble has burst in those neighborhoods.
Has anyone forgotten those days when a person would put thier house on the market on a Wednesday, hold an open house on Sunday, and have a deadline to submit offers by Tuesday. They would then open up the offers (usually a dozen or so) and accept the contract with the biggest escalation clause. The next house that came on the market would be priced, initially at the last sale price, but in 2004 and 2005, it was priced 10K to 50K to 100K above last sale. This was happening throughout Alexandria and Arlington.
Is this really the norm now? If not, wouldn't that be an indication that a bubble, however defined, has burst, to wit: multiple offers above asking price was not the norm before 2001, and it is not the norm after 2006, ergo: bubble.
By admitting that prices have declined or stagnated, KH and Lance have already conceded the argument that the bubble has deflated. They are simply trying to argue, using the falacious assumption that the future will resemble the past, that prices can't fall further in their sacred cow areas. They create the straw man argument because prices have not dropped by x% (were x is a sliding scale, incidentaly, for those who have been keeping score), then there is no bubble and all BHs are wrong.
They fail to see that people have choices at the margins. Take me for example. I was looking to buy a house in Arlington to shorten my commute to DC, but $1M for a rennovated 1800 SF 3 bed 2 bath house on 10,000 sf lot was not worth the 20 minutes it would save me in my daily commute. I bought further out, and got 5 bedrooms and 3 baths in 3500 sf on a half an acre for hundreds of thousands of dollars less. I could have picked up a fixer upper for about 60% what it would have cost me in Arlington. I am one less person that was bidding on house in Arlington, because I had better choices in McLean, Falls Church, and Fairfax.
Their assumptions are just wrong. And the data that contiues to roll out will continue to reveal how foolish thier opinions truely are. They are either to stuborn or stupid to admit as much. But their true believer status are revealed here every day.
Caveat,
It's good to see you posting again. Yours was a consistent, grounded, and welcome voice of reason over on the Bubblemeter Blog.
Right now, I'm trying to get a feel for when I would call a bottom. In June of 2004 I told some friends (who were continually deriding me for not jumping in and buying) that within 18 months they would hear of people losing money on real estate. The latter half of 2005 saw properties start to sit. And those of us who were watching the moving averages saw things start to decline.
Right now, I think market psychology has accepted that prices don't always go up, and that it's a buyer's market. But I don't think sellers have truly capitulated yet. I think it'll take another tough Spring selling season. That means it'll be going on well over 2 years of few to no sales. There aren't many people who need to move that can/will hold on for more than 2 years. At least, that's what I'm willing to guess.
On top of that, banks are starting to get dragged in with foreclosures, and when they can manage to write off and bury the losses in the right quarterly report, they will dump inventory fast.
I think this will be the year that all of that hits the fan in earnest. It may take an additional 3-9 months for the fallout to hit the premium desirable neighborhoods. At that point, there will be some sideways movement and then the whole thing will start anew.
So at least 2009 for a bottom.
My $0.02
mytwocents,
From my experience, you are right about sellers not capitulating. They don't want to believe that prices have come down, because they see that a house sold for X in the last month, and conclude that thiers should also sell for X. Actually, they think X + n, because their house is really nice. They don't seem to get the fact, or find it significant, that someone chose that other house over theirs.
In my estimation, and I have seen this point raised by others with more experience analyzing real estate markets, that to the extent there is bottom, it will be a long plateau rather than a short spike. I posted an article from the WSJ from a guy who estimated that it would take about 10 years or more for wages to catch up to home prices by traditional measures in the more severe bubble areas if prices stayed where they are.
Real estate markets generally move extremely slowly. It took me a about a year to buy a house from the day I first started seriously looking to the day I moved in.
The January data on sales volume is jaw-dropping. People are not only waiting, they are making other choices (like renting or moving to other, less expensive areas). I would have waited longer if I could, but I needed a house.
Given the circumstances, my two cents is that patience, while not only a virtue in and of itself, is a wise investment strategy. Smoke it if you got it.
"I have a friend who is planning to buy in the fall. Requirements are less than 400K, Tyson's/Falls Church area.
...listings of hundreds of properties ... distressed sales too. ...
I fully believe that pricing pressure here will continue to work it's way into the more desireable parts of Arlington and Alexandria."
Could be.
My expectation, when the bubble talk hit the news in 2002, was that I'd see about a 10% pull back lasting about a year followed by a slow rise for about a half decade. Slow being 2%, 3% a year.
From the start of the bubble talk in 2002 to today, places in my area have roughly doubled. The comps show prices still rising here, albeit at about 1%/year for the last 2 years.
I have hard-core BH friends. For years they've been yelling at me to sell, sell while I can. It frustrates them to no end that it's just not happening.
One fellow, real smart guy, is absolutely convinced that prices everywhere, including Alexandria, are about to fall to half.
It looks like the market has stratified two ways. Way out there, Manassas, PWC, prices are seriously down.
Here, close in, the places that you would not want, REED AV, the Eclipse Condo, are soft but priced above what I'd feel like paying. ($50K down and $2,000/month, FOR THAT? I don't think so.)
(might look at 0 Glebe Road, if you can snag one for under $500K, maybe. Maybe. Preconstruction 2 years ago, they were hawking them for $800K.)
Also close in, the places that you and I (and your friend) would want to live in, those places are basically out of reach and according to the city and comps, still climbing in price.
What would it take? $100K down and $5,000/month. That would cramp my lifestyle.
Fortunately, like Lance, I bought in before the boom, er, bubble. I have a mortgage that I can handle, live my life, and follow this blog for two reasons.
Maybe there will be that 50% price drop. I doubt it but the word would show here first.
Maybe way out there, where prices are falling, there's an investment opportunity. That's getting more likely but has not happened yet.
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