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Saturday, May 17, 2008
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43 comments:
Hello crt,
I wanted to follow up on your observations about the inventory.
I checked Reston (20190) and Vienna (22182) on the MRIS site. The sales in both for zips the past four months are well below the levels of 2007 and 2006. In fact, even the spring bounce is negligible in these areas.
Fairfax (22031) shows a slight spring bounce, but the sales level is still below or close to the 2007 level and well below the 2006 level.
Annandale (22003) for Mar and April shows some bounce--a little more than 2007 levels, but still well below 2006 levels.
Springfield (22150) shows a clear spring bounce; also Mar and Apr sales higher than 2007 and 2006. It is the only zip bordering the beltway that may support your hypothesis for the last two months. But, I don't know the distress sales levels in this zip.
Lorton (22079) April sales--37 in 2008, 32 in 2007 and 46 in 2006. February and March had both 31 sales this year, well below 2007 and 2006 levels. So even Lorton doesn't fit the hypothesis as I had thought earlier.
Re: Inventory
I have heard that a significant portion of bank REO is not included in monthly inventory numbers, while sales of REO are included in monthly sales figures. Can anyone confirm?
ALT A:
Subprime In Sheep's Clothing
Personal credit scores used to be a pretty accurate indicator of the odds that American borrowers would pay off their mortgage loans. But in the past few months--far too late to do anything about it--lenders are finding that the amount of equity people have in their homes is a better determinant for the risk of default.
That is a ticking time bomb as U.S. home prices weaken in the wake of the subprime loan crisis because it means that relatively affluent borrowers might not stick around once their equity turns negative, potentially beginning a vicious circle of home abandonments that push down prices and encourage new defaults.
. . .
While the problem with subprime mortgages is well known and likely to be largely played out, their upscale cousins, known as Alt-A loans, are now threatening creditors with a new default spree. Alt-A borrowers had respectable FICO scores, but they bought mortgages that did not conform to the high standards of the prime market. Often Alt-A loans were for expensive properties and were taken out by borrowers who did not care to document their income or pony up the once-standard 20.0% downpayment.
In March, 67.0% of outstanding nonprime loan balances in the United States were Alt-A, the New York Federal Reserve Bank said, more than twice the level of subprime mortgages. That works out to $935.0 billion in Alt-A loans, or about 10.0% of all American mortgage debt, according to research firm First American CoreLogic.
Lenders liked Alt-A loans during the boom because they came with higher fees and interest rates than prime mortgages but from borrowers with better credit than those taking subprime loans. It seemed an ideal compromise between risk and return.
Now, however, Alt-As are beginning to default in ways eerily reminiscent of their subprime brethren. They are just beginning to buckle because they typically came with low introductory rates of three to seven years rather than the two- and three-year teasers on subprimes. The height of Alt-A borrowing came in 2005 and 2006, so these rotten eggs are just beginning to hatch.
. . .
Lenders wildly miscalculated returns on Alt-A mortgages, and the credit agencies are quickly setting the record straight. In late April alone, more than $50.0 billion of Alt-A-backed securities were downgraded by credit-rating agencies Moody's and Standard & Poor's.
Many Alt-A borrowers bet that their homes would appreciate enough during the teaser period that they could refinance and use the gains to help pay off their mortgages. But, with prices falling, many of these borrowers will end up with houses they cannot afford and mortgages that are larger than the values of their homes. (See: "American Housing Market Still Sliding")
. . .
It gets worse. At the height of the boom, Alt-A borrowers also chose terms that allowed them to defer building equity in their homes in exchange for lower payments, a major driver of mortgage default. Fitch reported that interest-only products represented roughly 40.0% of 2006 and 2007 Alt-A fixed rate mortgages issued, up fivefold from 2005.
Unlike subprime folk with expired teasers who have been putting capital into their homes for months and perhaps years, many Alt-A borrowers with years left on their payment-lite teaser periods are going to wake up one day to homes that have hugely deteriorated in price and have little if any equity in them. That is the exact recipe for foreclosure that bank insiders and credit analysts are warning about. Mark Zandi of Moody's Economy.com estimates that, by the end of June, 21.0% of all first-mortgage holders in the United States, or 10.6 million homeowners, will have zero or negative equity in their homes.
For now, Alt-A loans are performing better than subprime mortgages. The risk, however, is that generally well-heeled Alt-A borrowers will adopt the same flippant attitude to paying their debts as lenders did in evaluating them. An additional pressure: 23.7% of Alt-A loans were not taken out for primary residences are often considered investments and have a higher rate of foreclosure. Only 8.7% of subprime mortgages were for absentee landlords, according to the New York Federal Reserve Bank.
A new wave of defaults could add to the downward pressure on U.S. home prices and extend their slide for months to come.
Banks and investors don't like to talk about Alt-A defaults. One reason is because none of them have come forward with a plan of managing the issue that doesn't start with "write" and end with "down."
http://tinyurl.com/56eked
Zerodown,
Thanks for your listing of possible problems/issues.
I remember long ago some I worked for telling me "Never present a problem to someone without your thoughts on a solution for solving it."
So, your thoughts for solving these problems/issues?
And yes, there is a reason I am asking. You see, nothing occurs in a vacuum. Don't assume "the obvious" will happen. If you're spotting problems/issues, someone else with a stake in resolving them will have spotted them well before you ... and started resolving them.
I.e., Your "gloom and doom" scenario is extremely unlikely to play out as you are gleefully hoping.
Is it troll season already?
LOL...
Lance is in fine form today.
"I remember long ago some I worked for telling me "Never present a problem to someone without your thoughts on a solution for solving it." "
The problem is solving itself lance. Didn't you read the article?
"According to trade publication Inside MBS & ABS, in 2004, Alt-A loans represented just 8.4% of mortgages originated in the United States, while subprime loans accounted for double that percentage, 19.3%. In 2005 and 2006, however, Alt-A market share burgeoned to 15.4% and 17.7%, respectively, while subprime's held steady at 21.6% and 21.7%.
Once the subprime crisis hit, lots of lending dried up, including Alt-A mortgages. In the first quarter of this year, only 0.1% of U.S. mortgage loans issued fell into that category."
That does a lot to explain why so many of the pricier markets have frozen.
High end speculators like you that were counting on appreciation to build their equity, rather than actually paying for their house, are now out of the market.
Obviously there will likely be years of higher defaults as these loans work their way through the system but the "solution" is already in. Badly burned investors aren't going to make the same mistake twice.
As the realization grows that down payments play a huge role in the likelihood of a buyer defaulting down payment requirements will increase.(as they already are)
The only real wildcard is whether or not FNMA risks bankrupting itself by buying mortgages that no sensible investor will touch.
Lance,
For your viewing pleasure...
http://cosmos.bcst.yahoo.com/up/player/popup/index.php?cl=7866167
My bad, try this...
http://tinyurl.com/6jzrq8
Thanks Tedk. I am coming around more to your line of thinking. Specifically, I think it is mostly in the areas that we had significant speculation that are seeing sales increases. Thus, the sales increases (while still noteworthy) are not as significant as an increase in areas where flippers were few and far between.
Incidentally, I was curious to see if flipping/speculating was as widespread through the whole area as we assumed. Flipping will show up as a big spike in county sales records. After all it only takes a few instances of a house sold 4 times in 2 years, or one guy owning 11 houses to see a huge sales spike in an area. Using MRIS I compared sales records for Alexandria versus Loudon county. I assumed 1999 sales were average, and then compared later years sales – the idea being with a bigger percentage increase meant a greater concentration of flippers. I assumed we may see some skewing towards the outer counties, but not by much. After looking this up, I can frankly say I am shocked as the difference was HUGE!
Alexandria
Year Sales %Change
1999 2419
2000 2713 +12%
2001 2973 +23%
2002 3074 +27%
2003 3260 +35%
2004 3531 +46%
2005 3256 +35%
2006 2544 +05%
2007 2286 -05%
Loudon
Year Sales
1999 3855
2000 5019 +30%
2001 6179 +60%
2002 6735 +75%
2003 8255 +114%
2004 9381 +143%
2005 9123 +136%
2006 5919 +54%
2007 5224 +36%
Now to be fair, population increases explain part of this divergence but not nearly enough. I didn’t include it here, but PWC, which only had ½ the population increase of Loudon had an even greater increase in sales 1999-2005 +148%. Also, as you can probably guess by now, Arlington increased by the smallest percentage. Sales were up by only 27% from peak to trough.
I think this goes a long way toward explaining the big difference in price drops we are seeing. In Lou and PWC much of the price increases we saw were borne on the backs of speculators who had no intention of living there. By contrast, since there was so much less speculation, much of the price increases in Alex & Arl were fueled by end users who bought because they wanted to live there.
Related to the Subprime / Alt-A topic above... This chart is useful
http://tinyurl.com/2ahcsc
So, 2008 is deep in the midst of the Subprime resets, 2009 the Alt-A resets pick up some steam, as Subprimes die out. end of 2009 through end of 2011 are knee deep in Alt-A, and Option adjustable rate loans...
CRT: I wouldn't use those numbers as "flipper detectors" until you've accounted for population change.
For example, Loudoun had a huge increase in new houses, and I would tend to think that new SFH's are less likely to be flipped that condos. Also, Loudoun was largely rural 20 years ago (save for Leesburg and a few patches). It doesn't take much to double the population (e.g. South Riding didn't exist 12 years ago). Also, for several years Loudoun was the fastest growing county in the nation. I'm assuming that measure was based on population, not new housing units.
On the other hand, given the [presumed] huge amount of condo flipping in Alexandria, and the large number of new condos buildings and conversions that sprang up during the past 6 years, I'm surprised that Alexandria's sales increase isn't higher than South Riding's. But then again, we're talking increases over the past, and when you start with a small denominator (e.g. Loudoun), it's easier to cause a large spike.
Here is a quick and dirty estimate based on population. The data is very limited: for Alexandria the increase is reported from 2000 to 2003 (0.5%), and for Loudoun the census site reports from 2000 to 2006 (58%). Extrapolating the population growth rates gives us this:
Sorry for the ugly formatting -- I couldnt' get html tables or the 'code' tag to work in Blogger.
Alexandria
Observed Expected % over expected
1.000 1 100%
1.122 1 112%
1.229 1 123%
1.271 1 127%
1.348 1 135%
1.460 1 146%
1.346 1 135%
1.052 1 105%
0.945 1 95%
Where Observed = percentage increase in sales over 1999. Expected is the sales due to extrapolated population growth from 1999-- essentially flat for Alexandria. % over expected is the increase in Observed sales divided by Expected sales.
Loudoun
Observed Expected % over expected
1.000 1.000 100%
1.302 1.080 121%
1.603 1.166 137%
1.747 1.259 139%
2.141 1.359 158%
2.433 1.468 166%
2.367 1.585 149%
1.535 1.711 90%
1.355 1.848 73%
Novawatcher - I knew someone who had more knowledge of stats could incorporate that into the equasion - thanks.
Also, I dont know if you factored this or not but wikipedia indicates that an Alexandria Household is 2.04 people, while in Loudon it is 2.82 people. This would seem to tip the scales more in Alexandria's favor because less of the population increase in Loudon could be eligible to make purchases over the years.
That said, if I read your 2nd email correctly, there was a greater percentage of over expected sales in Loudon vs Alex. Specifically:
Year Alex Lou
1999 100% 100%
2000 112% 121% (+9%)
2001 123% 137% (+14%)
2002 127% 139% (+12%)
2003 135% 158% (+23%)
2004 146% 166% (+20%)
2005 135% 149% (+14%)
2006 105% 90% (-15%)
2007 95% 73% (-22%)
Again, if I understand this correctly, it loooks like Loudon has an extra 9-23% of sales per year to work off. In fact, that the percentages went negative in 2006 may suggest that is what Loudon is now doing.
In any event, it looks like both areas were poisioned by flippers, but it also seems that there was some extra speculation out in Loudon that they need to work through as well.
"For example, Loudoun had a huge increase in new houses, and I would tend to think that new SFH's are less likely to be flipped that condos."
Not sure I agree with you. Anecdotally, I remember going to open houses in Loudon County with a friend. It seems half the prospective buyers were single men with clipboards and calculators. And for new construction, do you remember all those news stories of people camping out outside a development in order to get in and purchase a KB home at "pre construction prices"?
Another thing to factor in is the flipper mentality. EVERYONE knew loudon was THE fastest growing county - it was becoming the "it" place. This sort of thing attracted these bozos like moths to a flame.
Remember too the flipper's favorite factor is price. When choosing between a 3/2 2000 sf for 400K in Alexandria versus a similar place in Loudon for 340K, guess which one they would choose?
Finally, recall that when it comes to a fix and flip, a decent number of the close in properties are considered historical. Alexandria's board of architectural review is a bunch of Nazis. They insist on people using "period appropriate" materials. I knew one guy who tried to fix & flip in Del Ray, but gave up once he figured out the extra time & expense to get it done there versus in fairfax.
Im not saying the flippers werent close in. God knows they were all over the condo market in Arlington. However, now that I think back to all the open houses I went to (sfh in Arlington for me & helping a girlfriend with a SFH in Loudon) it does seem like a greater percentage of the buyers in Loudon were nothing but flippers, and it makes sense that this would be the case.
Novawatcher- also, it should be noted that an even more skewed comparison would be Arlington vs PWC. Here is what I found.
Arlington
1999 3083
2000 2976 -03%
2001 3083 +0
2002 3397 +10%
2003 3675 +19%
2004 3924 +27%
2005 3490 +13%
2006 3082 -0%
2007 3090 +0%
PWC
1999 5474
2000 7169 +31%
2001 8834 +61%
2002 10170 +85%
2003 11030 +102%
2004 13148 +140%
2005 13594 +148%
2006 8277 +51%
2007 5710 +04%
It also looks like Arlington’s population increased by about 9% 189,543 – 206,800 (2000-2006). PWC increased about 27% from 280,813 to 356,671 (2000-2006). Average Arlington Household is 2.15 people. Average PWC household is 2.94 people.
This does not explain all the divergence we are seeing in prices, but after looking at this, it seems like little surprise that Arlington is holding up best in the area (with Alex 2nd best), while PWC falling the farthest of any area (with Loudon on its heels).
Are you guys accounting for the much lower home ownership rates in Arlington and Alexandria?
Only ~40% of the population owns in those to areas compared to ~70-75% out west.
"Are you guys accounting for the much lower home ownership rates in Arlington and Alexandria?
Only ~40% of the population owns in those to areas compared to ~70-75% out west."
Im not sure it matters unless we know that the percentages changed. For example we know in 1999 there was 40% home ownership in Alexandria and this supported 2419 sales per year. However, if we knew by 2003 Alexandria's homeownership rose to 50% or fell to 30%, that would certianly chnage the equation, but I am assuming it remained constant during that time.
In sum, as long as Alexandria remained at a constant 40%homeownership 1999-2007 and Loudon at a constant 70% homeownership 1999-2007 (more or less), I dont think it changes anything.
That said, if someone sees something I am missing, please let me know.
Another thing that is consistent with the idea that more of the speculation was in the outer counties is to look at the number of foreclosures we are seeing.
For example, its reasonable to assume that an investor is much more likely to let his house (or houses) go to foreclosure before a homeowner. For a homeowner, losing their home to foreclosure is a very tramautic experience and they will fight like hell to prevent it. For an investor, letting their rental or investment houses go to foreclosure is a mere business decision.
A quick search on any random site (www.foreclosuredeals.com in this case) indicates that foreclosures available by county vary wildly:
Arlington - 51
Alexandria - 56
Loudon - 736
PWC - 1957
The slowdown everywhere started in mid 2005, the credit crunch everywhere started in early 2007. These events hit all areas at the same time. Why are we seeing these huge discrepancies in foreclosures?
Perhaps income is a factor. For PWC that makes sense as it is one of the poorer counties around. However, we all know Loudon is much wealthier than either Arl or Alex. If anything Loudon's wealth indicates it should have the least foreclosures at this point. Again, why are the inner areas, neither of which is as wealthy as Loudon showing so many less foreclosures?
Now here, county homeownership percentages and county populaiton are important to consider and if I thought it would make a difference I would look at those further. However, look at the discrepancies in those numbers again - they are HUGE! Thus, even after these variables are accounted for, I feel pretty confident that these huge discrepancies above will remain.
In sum, given the huge discrepancies in sales (spiked more in the outer counties) and foreclosures (again much more prevalent in the outer counties) leads me to believe that while speculation happened everywhere, it was particularly heavy in the outer counties. If so, its no wonder they have suffered disproportionately for the last 2 years.
As always, this is just a theory of mine and I am not married to it. If anyone has another explanation for the differences in sales and foreclosure numbers we are seeing, I would love to hear it.
the anonymous: I guess I was thinking there would be more condo flipping because I remember all of the folks camping outside to be the first to buy DC/Alexandria condos.
http://tinyurl.com/4a43ro
[not the best example]
Leroy: I made the assumption that the ratio of renters:owners held constant. In other words, if the population doubled, so did the number of potential owners.
Also, by keeping the comparisons within a county, e.g. Loudoun 2006 vs. Loudoun 2000, correcting for population change, I was comparing apples to apples.
Or to put it experimental terms, by comparing sales in 2006 vs. 2000, each county was it's own control.
CRT: You're forgetting something when comparing Alexandria and Loudoun: the housing stock is relatively new, whereas Alexandrias on average is much older. That doesn't mean much in and of itself, but in the extreme youth of much of Loudoun, that places an upper bound for how long some of the houses could have been lived in.
For example, South Riding is roughly 12 years old. That means that no one has been living in South Riding for more than 12 years. More pertinent to our topic is the huge number of new SFH, townhouses, and condos that were built 2003-2007. By extension, that suggests that a much larger proportion of Loudoun's housing stock was bought during the peak years -- the very years when an unusually large proportion of mortgages were subprime, Alt-A, etc.
In contrast, I've seen whole blocks of houses in Vienna where that last sale was 20+ years ago. The probability that anyone on that block is underwater (assuming they didn't heloc) is minute. As a population, Alexandria is going to have a greater proportion of houses that were bought 10+ years ago than Loudoun -- likewise, I would imagine that Loudoun would have a greater proportion that were bought < 5 years ago than Alexandria.
More pertinent to our topic is the huge number of new SFH, townhouses, and condos that were built 2003-2007. By extension, that suggests that a much larger proportion of Loudoun's housing stock was bought during the peak years -- the very years when an unusually large proportion of mortgages were subprime, Alt-A, etc."
Very true Novawatcher. The youth of the housing does mean that so many of the purchases were recent, meaning that the owners were underwater. At the same time however, the older housing stock close in does not preclude forclosures - in that many of those people could have used their houses as ATMs and end up in as bad a predicament as their exurban counterparts.
Still though, I agree with you, the percentage of people who own free and clear or with huge equity is still much larger and this could be why the foreclosures are so less frequent close in. Thus, foreclosures alone is probably not that indicative of speculation.
By the same token, the increase in sales (which is suggestive of flippers) and the high number of foreclosures (either due to flippers or regular owners who bought close to the top or otherwise) both suggest a greater price drop is warranted in the outer counties.
If you're spotting problems/issues, someone else with a stake in resolving them will have spotted them well before you ... and started resolving them.
lance, When you figure out who this someone is that has all the answers, you might want to put him/her in touch with:
IndyMac Weighs Raising Capital as It Posts Loss
IndyMac Bancorp Inc., a lender that thrived during the housing boom by offering home mortgages that often required little or no proof of income, posted a $184.2 million loss for the first quarter and said it is weighing moves to raise capital.
IndyMac warned that it could fall below the minimum level of capital needed to be classified as "well capitalized" and that the regulatory response to that is unknown.
. . .
The company said it doesn't expect to return to profitability until "home-price declines decelerate." Dropping home prices worsen losses stemming from defaults, and many second-lien loans are being written off. Like other mortgage companies, IndyMac has had to repeatedly defer its promises of recovery. Three months ago, the company forecast a small profit for 2008.
. . .
During the boom, IndyMac specialized in Alt-A loans, a category between prime and subprime that typically involves borrowers who don't fully document their incomes or assets. As defaults soared, investors stopped buying such loans from lenders last year.
IndyMac has been forced to shrink drastically and focus on loans that can be sold to government-sponsored investors Fannie Mae or Freddie Mac or insured by the Federal Housing Administration. Loan production fell to $9.71 billion in the first quarter from $25.93 billion a year earlier.
http://tinyurl.com/5eel4e
ING reports profit decline on market turmoil
AMSTERDAM (Reuters) - Dutch financial services group ING Groep (ING.AS) reported a bigger-than-expected 19 percent drop in quarterly net profit, hit by weaker returns from real estate, private equity and market investments.
. . .
ING booked 2.3 billion euros as a charge to shareholders' equity, related to its investments in residential mortgage-backed securities (RMBS) in subprime mortgages made to risky borrowers and "Alt-A" loans, made to borrowers with a slightly better credit profile, as well as from collateralized debt obligations (CDOs). In 2007, ING had provided 1.38 billion euros in similar provisions.
ING said the fair value of its U.S. subprime RMBS portfolio now stands a 81.4 percent, down from 90.1 percent at end-2007. The fair value of ING's Alt-A RMBS portfolio was reduced to 84.3 percent from 96.7 percent.
http://tinyurl.com/65qrzm
Fannie's Alt-A Issue
Fannie Mae is supposed to be prime, but its reporting some issues with loans involving less than perfect credit.
On Tuesday, Fannie Mae executives told analysts that 43.0%, or $946 million, of the $2.2 billion in losses incurred during the first quarter involved Alt-A loans. They also said that the company's "Alt-A book will continue to drive an outsize portion of our overall credit losses." Fannie also reported $344.6 billion current Alt-A exposure and a limited strategy for stemming future losses.
These types of loans are attractive to lenders because the rates are higher than rates on prime classified mortgages, but they are still backed by borrowers with stronger credit ratings than subprime borrowers. However, with the higher rates comes additional risk for lenders because there is a lack of documentation--including limited proof of the borrower's income.
Fannie's Chief Executive Daniel Muddacknowedged that underwriting wasn't what it should have been during the mortgage market's heyday, saying that every company has a got part of their book that worries them most, and "In our case, it's the Alt-A book and we are focused on that."
Mudd said that the Alt-A vintages performing most poorly in a four-year average book were late '05, '06 or early '07. That is, notably, most of the time.
Fannie Chief Financial Officer Steve Swad made a point of saying that Fannie's Alt-A book had about half the cumulative rate of default as private-label Alt-A securities in the market for the 2005 through 2007 vintages.
http://tinyurl.com/5karbv
ZERODOWN said:
"lance, When you figure out who this someone is that has all the answers, you might want to put him/her in touch with:"
Zerodown, it's you. It's not that I expect you to have "all" the answers. You haven't exhibited having any yet. The point I'm making is that enumerating reports which one-sidedly portray a picture you'd like to see means little unless you've given thought to solving the problems you've listed. In truth, it is a waste of space on this blog and forcing us to scroll past all this really isn't right.
Demanding solutions, dictating "the" truth, calling people wasteful AND deciding whos' right and who's wrong. Perhaps you should start your own cult Lance.
Seriously lance... considering your track record I think we have had about enough of your "answers."
The level of cluelessness you have exhibited every step of the way through this bust is simply stunning.
...and just so everybody knows just how clueless we are talking:
=============================
"Large downpayments were a necessity back when lenders had only very incomplete information on the person borrowing from them. You'll note that they NEVER demanded down payments from governments, sovereigns or others whose creditworthiness was beyond reproach. With today's tools downpayments are far less necessary than they were in the past. People's creditworthiness can be established to a far greater degree of certainty than it could even as recently as 5 years ago. AND, as has been the practice for at least 10 years back, the less credit-worthy are charged higher interest rates (actually, MUCH HIGHER interest rates) which in the agregate insure the lender against bad debt. (I.e., Poor credit people are made to carry their own weight.) Many lenders have centered their operations around what is a very high profit business --- lending to borrowers with poor credit. Capital One is a bank that grew from nothing in no short order targetting people with poor credit. Twenty years ago these people would have simply been screened out and denied credit and the rest of us would have been required to put down large down payments and pay extra interest to cover those few credit risks that did slip through the net. Today, the net is so tight, that they can instead be taken out of the general mix and charged enough to cover the extra risks they bring with them ... Lemonade has been made out of lemons! Thus leaving the rest of us with lower interest rates AND the ability to borrow with little or nothing down." -Lance Jan 18 2007
Lets see here... subprime borrowers are now similar to:
"governments, sovereigns or others whose creditworthiness was beyond reproach"
How are those computer models working today lance? Is the "net" still "so tight, that they can instead be taken out of the general mix and charged enough to cover the extra risks they bring with them" ?
What is particularly sad, is that he was saying this in Jan 2007, within months the subprime collapse would be front page news. How you could spend the amount of time on housing blogs as he does and not know a problem was coming is a mystery. I think he really does just skip past anything he doesn't like the sound of.
"I think you've forgotten that when a borrower gets approved for an ARM, their income and debt-ratios must be such that even under worst case scenarios (i.e., interest rate rises to cap) they are capable of making the payments." -lance Jan 2 2007
Here is another excellent example of Lance's knowledge of lending. In retrospect he was dead on target right?
lol
CRT: I'll have to respectively disagree with the 'warranted' part of this statement:
By the same token, the increase in sales (which is suggestive of flippers) and the high number of foreclosures ... both suggest a greater price drop is warranted in the outer counties.
Instead, I read those as leading to greater liquidity and quicker price discovery, i.e. a quicker drop in the 'burbs (e.g. ye old outside-moving-in scenario).
Having said that, it may very well be that the housing stock:houshold ratio grew to a higher level in Loudoun than in Alexandria (all else being equal).
"Instead, I read those as leading to greater liquidity and quicker price discovery, i.e. a quicker drop in the 'burbs (e.g. ye old outside-moving-in scenario)."
Novawatcher - That is certainly possible. The issue I have with the ouside moving in scenario is nothing more than its getting to the middle innings here and we still havent seen it.
I think you have to have a serious and sustained supply/demand imbalance in order to see a really respectable price drop, and at this point I dont know where it is coming from.
I first thought credit tightening last fall would cause it. I then thought the slackening of sales in Jan would cause it. I then thought inventory would rise to new record levels this spring causing it - instead the market seems to have adapted as Arlington & Alexandria are now at 5.4 and 6.0 months of inventory respectively.
The Alt A unwind is a possibility. However, I am assuming given the generally wealthy population of both inner and outer counties, that will largely affect the whole area (except perhaps PWC) at the same rate. Its possible that this causes the inner counties to start catching up to the outer counties in terms of price drops. However I think its more likely it will drag down all counties at largely the same rate, meaning the discrepancy in price drops will continue.
Now even if none of these things come to pass, prices will continue to fall close in simply because of the substitution effect - and I think this will continue for some time even after the outer counties stabilize. However, unless something happens to disrupt supply and demand that are now pretty much in balance close in, I dont know where big price drops will come from.
Its interesting - instinctively I "know" that all prices in all places have to revert to their long time mean - I get that. At the same time, its not yet coming to pass and its getting a little late in the game - all things considered. Until it happens, I keep throwing things out there hoping one of them will give us a good explanation for the discrepancy we are seeing.
"Its interesting - instinctively I "know" that all prices in all places have to revert to their long time mean - I get that. At the same time, its not yet coming to pass and its getting a little late in the game - all things considered. Until it happens, I keep throwing things out there hoping one of them will give us a good explanation for the discrepancy we are seeing."
Honestly, I think the simplest answer is just that things are moving much slower than you expected them to.
These sorts of corrections always take a very long time to unfold. At each stage of things homeowners seem willing to hold out for bubble level pricing a year or more before they begin to cut prices.
The extremely minimal level of sales we are seeing in close shows that these sellers have not yet come to terms with the shift in the market.
Leroy said:
"Honestly, I think the simplest answer is just that things are moving much slower than you expected them to."
That's right ... someday it's gonna happen .... Just keep waiting ... That someday has been being promised by Leroy now for how many years? Leroy --- or at least people just like Leroy --- have been predicting a bursting bubble now since at least the year 2000. Yep, someday it'll happen.
Good advice as usual Leroy ...
"That's right ... someday it's gonna happen .... Just keep waiting ... That someday has been being promised by Leroy now for how many years? Leroy --- or at least people just like Leroy --- have been predicting a bursting bubble now since at least the year 2000. Yep, someday it'll happen.
Good advice as usual Leroy ..."
Hey cool strawman lance, nice to see you haven't given up on that particular juvenile tactic.
As for predicting what is going to happen... well lets just say I prefer to rely on the available data than your wishful thinking.
The trends are clearly visible for anyone willing to look. You obviously are not interested in actually understanding the market and are instead here on some kind of a mission to make up whatever goofy scenario you have to to explain why your house will make you rich...
Leroy said:
"make up whatever goofy scenario you have to to explain why your house will make you rich..."
Leroy, how many times do I need to tell you ... owning a home has nothing to do with "making someone rich". Owning a home is to provide you and your family the home base necessary to carry on your life. You shouldn't try to use it to make money for you as you believe. On the contrary, it is an expense ... One to be minimized over the long term.
Perhaps once you understand that you'll stop treating this whole home-buying thing as if you were out looking for a stock deal. It isn't.
"Leroy, how many times do I need to tell you ... owning a home has nothing to do with "making someone rich". Owning a home is to provide you and your family the home base necessary to carry on your life. You shouldn't try to use it to make money for you as you believe. On the contrary, it is an expense ... One to be minimized over the long term."
Actions speak a heck of a lot louder than words lance. You claim that housing isn't an investment... then then try to claim that anyone who doesn't rush to buy will suffer financial ruin.
You say you don't treat real estate as an investment, but then your actions suggest the exact opposite. Everything from your decision divide your house into rental units to your decision to "build equity" only through appreciation rather than by actually paying for your home.
"Perhaps once you understand that you'll stop treating this whole home-buying thing as if you were out looking for a stock deal. It isn't."
Perhaps once you understand that the people here are quite a bit smarter than you seem to realize and your motivations are completely transparent you will give up on trying to muddy the issues. It is clear you are here cheering the housing market because you think it would benefit you financially.
Lance Said
"Leroy, how many times do I need to tell you ... owning a home has nothing to do with "making someone rich". Owning a home is to provide you and your family the home base necessary to carry on your life. You shouldn't try to use it to make money for you as you believe. On the contrary, it is an expense ... One to be minimized over the long term."
Lance I remember you said sometimes ago, DC market is much lower than NYC market. So get in to it before it overpriced. But now you are saying
"owning a home has nothing to do with "making someone rich"
If you believe in the above statment why you advice people to get into market which eventually making them richer according to you.
It looks like Leroy said your statments are contradicting.
Lance said...
“In truth, it is a waste of space on this blog and forcing us to scroll past all this really isn't right.”
You gotta be kidding….Lance, you must be from the Island of Shiffer.
Leo said:
"Lance I remember you said sometimes ago, DC market is much lower than NYC market. So get in to it before it overpriced. But now you are saying
"owning a home has nothing to do with "making someone rich"
If you believe in the above statment why you advice people to get into market which eventually making them richer according to you.
It looks like Leroy said your statments are contradicting."
What you're not understanding is that this has nothing to do with "making me rich." I would luv to be able to live in a rowhouse in Manhattan! But I can't afford it ... nor will ever be able to afford it. I'm glad I can afford to buy that rowhouse here in DC ... and will be able to enjoy it not only now ... but later as it becomes more and more like Manhattan. Have you been to 14th and U lately? Wow that whole area up 14th and over on U is really showing the seeds of a big city center. It's like night and day the difference between today and 5 years ago. I can only imagine what it'll be like in 5 years ... or 10. Past that and it's hard to imagine. And just think ... I can actually walk to there ... from my comfortable rowhouse ... You see, it has nothing to do with "getting rich". Unless of course you consider enjoying life "getting rich" ... which of course it is.
Lance: I would luv to be able to live in a rowhouse in Manhattan! But I can't afford it ... nor will ever be able to afford it.
Lance, I don't think they will ever get it.
It's like 2000 Russell Road. Back in the 1990's, my neighbor and I could have gone in on it.
Maybe I could have swung it on my own. Could-a, Should-a. It was only 3/4 mill, which is 3X what my place was worth at the time.
As you've said repeatedly, it's not about the money, it's the lifestyle.
2000 Russell Rd is 1 mile from the Metro, and the jobs that have sprouted up around it. A mile and change from the edge of Old Town. An easy walk to the restaurants and shops of Del Ray.
It's not exactly the same QOL that you have in the city. It's similar but different.
Like your 14th and U, the building around the Masonic Metro stop has been incredible. It looks like Manhattan.
It's a big change and drives up the value of real estate nearby.
It's the QOL that drives the price.
KH said:
"It's the QOL that drives the price."
I'm in total agreement with you on that.
And then there's real QOL and illusory QOL. Builders building in new subdivisions without "as yet built" real amenities play on that human instinct to seek QOL. They'll show you this grand manse out in the middle of nowhere and let you imagine yourself as a "lord of the manor". Only after you're out there do you realize that it's only you and a bunch of other "lords of the manor". The good schools, the restaurants, the shops, the social institutions which really make up QOL just aren't there yet. And when the boom stops and all hope of those kinds of things getting out there anytime soon ceases, is when the prices plummet ... as they have.
Could Leeee-roy be imagining himself as a "Lord of the manor"?
Lance: The good schools, the restaurants, the shops, the social institutions which really make up QOL just aren't there yet.
Plus jobs. Don't forget those.
I know people who live way out the boonies.
Some have jobs, way out there. But then, every few years, something happens and they end up working in Arlington, Alexandria, the District.
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