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Wednesday, June 4, 2008
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31 comments:
Im surprised we havent seen any articles about people that have f*cked themselves for life during the boom.
What I mean is, I know of some people personally, who cashed in retirement accounts, even 401k's in order to buy some home that was way out of reach.
They figured their home would appreciate faster than their retirement account, plus they just had to have a McMansion with all the goodies.
Now that their home value has plummeted, their retirement money is wiped out.
There have been a lot of stories recently about people spending retirement money in order to keep up with payments... this is going to make a huge mess of a lot of people's finances.
Eh, lose the money when the stock market tanks, lose the money when the real estate market tanks...what's the difference?
The difference is the stock market isnt down 40% from 2005, and its likely going to bounce back a lot quicker than the housing market.
doug,
house prices aren't down 40% either ... you're looking at some really exceptional cases to come up with that 40%. Even in the worst areas (e.g., PWC), you're not seeing the average, non-distressed property sale, down 40% ....
Doug,
On Monday morning, the front page of the WSJ had a graph of the acceleration in 401K hardship withdrawals for about the last 5 years (this was from Vanguard). It was startling, but not surprising.
Consumers Scramble for Cash
Graph here.
From appearances, it seems consumers were relying on mortgage equity and now perhaps these early hardship withdrawals to fund their lifestyles. I'm not sure if they could cut spending instead, but perhaps many of them will choose that route as an alternative.
Current wisdom somehow changed to convince people to use "home equity line for emergencies". This from all kinds of people who call themselves financial advisors. Probably mostly from younger people with short memories. Now that game's up, so the result is raiding the 401K (if there is any).
Someone remarked lately that it reminded them of the story of Joseph -- not saving in the fat years for the lean.
Just a thought left from yesterday's discussion...
Lance said -"set your expectations in line with what is actually doable under today's price conditions AND buy in an area which possesses a good certainty of retaining value."
Though this superficially sounds reasonable, and thus prompted some replies of general agreement, I think it is too simplistic. I certianly agree that there is too much of a culture of entitlement, and that poor spending decisions driven by that feeling of entitlement have hurt many people. That said, I am entitled to some things. I am entitled to live in an area with excellent schools (McLean) rather than one with lesser options. Why am I entitiled to this? Because I can afford it. Just because they way that I currently choose to afford it is by renting in the school district I choose does not mean I am any less entitled to it. If given a choice between buying in an area with more limited educational options for my kids, or renting in the place that I think is best for them, It seems to me that I am free to choose whichever option that I think is in my best interest, so long as I can afford it.
So, is it really in my best interest to move to the exurbs or a dangerous slum with the intent that, in the long run I'll slowly build equity and move "up" to something more desireable. Remember, as John Maynard Keynes pointed out--"In the long run, we're all dead". So why spend all of those years living somewhere I don't want to live, watching my kids go to schools I don't want them to go to, if I can afford something better right now?
Yes, the calculus could change in the future. Rents could rise (no sign of that yet--3 yrs, no increase), prices could continue to decline making purchase more desirable (yes, prices in McLean are decreasing), or my income could change (would take an act of congress), and I would have to reconsider. These are just markets. There is nothing personal. I don't have anything against homeowners. I'm just making the decisions that are in my best interest in a free market. Right now the decision is still easy, live where I want for 1/2 as much.
I wanted to raid my 401k in 2001 to buy. I'd still be ahead in home equity.
In 2003 cashing in 401k wouldn't of worked, market was already past what I could afford with my 401k.. and I figured that was top of market - but it lasted 2-3 more years.
UPDATE ON 616 LIVE OAK DR.
MCLEAN, VA 22101
Listed for $1,175,000 at the end of April, 2008
Looks like it didn't sell and went to foreclosure auction on 5/13/2008.
Date 05/13/2008
Amount $1,531,137
Seller BENJAMIN BETTIE
Buyer JP MORGAN CHASE BANK
Notes Foreclosure - invalid sale price
Deed Book and Page 19931-0506
Zestimate: $2,142,500
http://tinyurl.com/5wv72n
2008 tax assessment: $2,327,680
So, they were using a low sale price to generate interest, hoping for a bidding war. I guess it didn't work.
I'm surprised that no one bid more than $1.531 million.
It doesn't look like the bank listed the property -- guess it's now part of the reo shadow inventory.
House losses are more painful than stock losses because of the leveraging. I own millions in real estate and I invested less than $100,000 in cash. My first place I bought with only 20% down. Other I bought with no money down. Try that with a margin account.
399 N EDISON ST
ARLINGTON, VA 22203
Pending sale: $449,900
http://tinyurl.com/4csuz8
Prior sale: $529,000
8/18/06
http://tinyurl.com/42oozs
"Rents could rise (no sign of that yet--3 yrs, no increase)"
This statement is patently false. During the housing boom, rents were stable from 2001 until 2005. But then jitters about the housing market increased the pool of renters, plus the growth in gov't, which helps me in Arlington.
The threat to me is all the new failed condos because there are now a lot of new, very desirable units flooding the market. Some good deals are to be had and people may spend the extra $300-$600/month for the amenities I can't offer. I've had to make some capital investments (granite, ss appliances, etc.) to make sure I can keep up with the Jones. I have an opening coming up, I'll let you know how it goes and see how much things have changed in a year.
1042 BALLS HILL RD.
MCLEAN, VA 22101
Pending sale: $2,000,000
Zestimate: $2,496,000
http://tinyurl.com/69zcnx
2008 Fairfax County Assessment: $2,207,960
2007 Fairfax County Assessment:
$2,475,230
Bill- "patently false"? How do you know what I pay in rent? My 2008/9 rent= 2006/7 rent. 3 yrs, no rise.
Possible explanations are;
1) I overpaid in 2006. Possible though my market research at the time did not indicate this.
2) I underpay now. Also possible, though lots of vacant rental near me similar to mine with similar or lower prices argues against this. Or 3) The rental market has not really changed much in my neighborhood. I suspect this is the case. This doesn't mean it can't change next year, just hasn't yet.
1179 WINDROCK DR
MCLEAN VA 22102
03/19/2008
Amount $2,800,000
Seller WCI MID-ATLANTIC US REGION INC
Buyer BRADSHAW BENJAMIN G
Notes Valid and verified sale
Deed Book and Page 19840-0662
Prior sale: $3,480,000
6/20/2005
Anyone want to flip this one:
1125 LAURELWOOD DR.
MCLEAN VA 22102
02/19/2008 $990,000 BADAWY SAMY B ABDALLA RAWA NASSIF
02/15/2008 $910,000 MEREDITH MARK BADAWY SAMY B
01/17/2007 $1,200,000 ELLIOTT SELCAN MEREDITH MARK
01/03/2006 $1,100,000 LEE MARGUERITE S ELLIOTT SELCAN
lance said:
"house prices aren't down 40% either"
yawn, i was just checking one out..
sold for 500k in 05, listed for 300k
*Warning, this house is not located in N arl or dc
http://www.homesdatabase.com/FX6776753
doesnt look distressed, 11 miles from old town, not too bad
7405 GEORGETOWN PIKE
MCLEAN, VA 22102
Asking price: $4,250,000
http://www.franklymls.com/FX6582586
PRIOR SALE:
Date 08/02/2005
Amount $6,500,000
Seller TANEJA VIJAY
Buyer BECHARA DANIEL Y
Notes Valid and verified sale
Deed Book and Page 17585-1939
1149 BELLVIEW
MCLEAN, VA 22102
Asking price: $3,999,000
DOM: 402
http://www.franklymls.com/FX6766650
Fairfax County Assessments:
2008: $4,832,950
2007: $5,145,000
2006: $5,022,000
2005: $1,067,000
House built in 2005
people spending retirement money in order to keep up with payments...
Who needs MSM stories. Ask your coworkers. Too many had to look like they were well off... who weren't. Cest la vie.
Someone remarked lately that it reminded them of the story of Joseph -- not saving in the fat years for the lean.
And then some call the ones who did save vultures. ;) Retail sales for this summer will be... interesting. As so much of our economy is discretionary service... we could see a faster decline than in prior recessions. :(
Zerodown... wow. That 7405 property sounds like quite the haircut...
Got Popcorn?
Neil
CEO declares 'depression' in housing
Toll Brothers head says market could fall by 20% and recovery could be up to three years away.
hog
Neil,
Wow, if the owner (Daniel Bechara) of 7405 is the same guy as this:
http://www.northernvirginiamag.com/health_beauty/2008_topsalons.html
we've all been paying too much for haircuts.
Wow, if the owner (Daniel Bechara) of 7405 is the same guy as this:
Actually, the lender foreclosed on April 1, 2008, so the bank owns the property.
Date 04/01/2008
Amount $3,918,004
Seller BECHARA DANIEL Y
Buyer HARBORVIEW 2006-7 GREENWICH
Notes Foreclosure - invalid sale price
Deed Book and Page 19859-1687
Jeez - and I thought the brick front only look was bad:
"In Beaumont, 70 miles east of Los Angeles, the Seneca Springs community is dotted with 4,000-square-foot, seven-bedroom Mediterranean homes that KB built at the peak. But right next to them the company is erecting new houses with exactly the same 50-foot façades- and a big difference you don't notice from the street: They're about half as deep and roughly 2,000 square feet. Those homes preserve the community's curb appeal by keeping the façades looking similar and sumptuous."
http://money.cnn.com/2008/06/02/real_estate/Downsizing_American_Home_Tully.fortune/index.htm?postversion=2008060407
Is this really what housing in America has come to? Actual architecture be damned - is it now all about the size of the facade to make up for other potential "shortcomings" in ones life?
If this continues, I could see builders erecting a McMansion facade only (like you see on movie sets), and then when you open up the front door, it leads you right into a doublewide!
CRT,
Random question, were you at all tempted to buy KBH stock after reading that article?
Personally, I've never cared for the brick front, vinyl siding look. For McMansion prices one should get a real brick or stone house.
My $0.02
For a little levity, here's an Alexandria forclosure:
http://tinyurl.com/6hnhdo
"f this continues, I could see builders erecting a McMansion facade only (like you see on movie sets), and then when you open up the front door, it leads you right into a doublewide!"
Honestly I feel like a lot of the current McMansions come close...
Those brick facades in the front only are just awful. I have even seen some houses with stucco or some other facade on the front with siding everywhere else... it just looks ridiculous and terribly cheap.
"mytwocents said...
CRT,
Random question, were you at all tempted to buy KBH stock after reading that article?"
No, but I really wasnt thinking about it either way.
"Leroy said...
Those brick facades in the front only are just awful. I have even seen some houses with stucco or some other facade on the front with siding everywhere else... it just looks ridiculous and terribly cheap."
I couldnt agree with you more. Unfortunately, we seem to be in the minority as brick front only has become de rigeur.
GT said...
"lance said:
"house prices aren't down 40% either"
yawn, i was just checking one out..
sold for 500k in 05, listed for 300k"
Why did you fee it necessary to take my words out of context? I clearly said "Even in the worst areas (e.g., PWC), you're not seeing the average, non-distressed property sale, down 40% ....
Your anecdotal "evidence" doesn't give the average reduction of price for the average non-distressed sale house.
PWC median sold for APRIL :
2008 - $262,000 (29% drop!!)
2007 - $369,000
2006 - $385,000 (peak)
2005 - $365,000
2004 - $271,500
2003 - $214,900
2002 - $180,000
2001 - $153,400
2000 - $134,925
40% may have been a bit high, but I'm sure there are MANY cases out there like that. If we bought in 2006 or 2007 like Lance espoused, we'd be in the shitter right now. I'd sure he'll say PWC is not in the "good" area and that we'd have to wait 5 years. Never mind that $100+K drop, it's chump change.
Any guesses for 2009 and 2010? How about :
2010 - $200K
2009 - $230K
lance said:
"Why did you fee it necessary to take my words out of context? I clearly said "Even in the worst areas (e.g., PWC), you're not seeing the average, non-distressed property sale, down 40% ...."
you're right, i picked an average sale that is in a 'better' area than PWC
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