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Friday, January 16, 2009
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26 comments:
Yesterday, I received a real drubbing by a local appraiser. But we'll see who's right in the end.
I've been spending lots of time at the PWC courthouse, looking up different properties for various reasons (short sale: how many banks? which ones? regular sale: did they HELOC themselves up to their inflated price, or do they think they still deserve the windfall they expected a couple years ago? foreclosure: what did the bank take the property over for? etc.). I overheard a bombastic exchange between a couple appraisers, and learned a lot. For example, they said that Countrywide/Deutsche Bank have been holding a ton of inventory, and are planning to unleash it all for the spring market. They also talked about several partly-finished developments, which ones were in financial trouble, and so on.
My dressing-down occurred when I asked what they thought would happen with PWC assessments, which won't be out until late February/early March: would they reflect the 30-45% drop found in MRIS and reported by the county supervisors in the Post, or would the county soften the blow? I asked because I'm hoping that severely lowered assessments will be a tool in my arsenal to convince sellers their houses really have lost value when I start making offers.
Here's what I was told:
If you take out Georgetown South in Manassas, and Woodbridge, and Dale City, and Gainesville, PWC prices are really not down much at all, maybe 9-10%YOY. And if I go to people with nice houses in nice areas, and especially people with land, and offer prices 30-45% off what they expected to get last year, the sellers will either laugh or curse.
Now, I have evidence galore to back up the fact that even in the nicest areas, prices are down significantly, but here is my question:
How do you take county, city, or zip code data and apply it to one particular property convincingly, without a formal appraisal? If you're in a neighborhood, of course, you pull recent comps in that neighborhood. What about more unique properties, like ones in the country, on some land? What yardsticks are appropriate? Especially when depreciation has accelerated so much since summer, when many of the most recent comps occurred?
Is it always true that a property's value is only what the market will bear?
As CRT has often pointed out, high-end sales, $500K+, are disproportionately in excess supply out here. It's the bottom of the market that is selling like crazy. The appraisers said nice houses on large lots, especially acreage, are untouched by the downturn. I would think they are, in some ways, MORE affected. If you can drop over half a million dollars on a house, why come out here at all, and why take anything less than perfection, if so?
(Yes, all this is leading somewhere...I have a new idea, but it's so outside the box, I need time to work on it.)
Tabitha,
Very very interesting!!!
I think the answer to your question is, you can't. If houses are in neighborhoods and have comps, then numbers can be used to convince sellers that their price needs to compete. But if there are no comps? These realizations of price need to come by the sellers themselves. Hence why they're sitting. Unless/until motivation happens, the disparity between seller's beliefs and buyers beliefs will leave the inventory sitting there unsold with no price movement.
I think what you're seeing amongst the appraisers is a contempt for the speculators in the recent build areas and a defense of themselves as the long-time residents who were never so foolish as to have the bubble prices in the first place. This is untrue. Patently and provably so, but they need to separate the "us" from the "them" to maintain their own picture of themselves.
For laughs I suggest everyone go read Brook's column today, it's hilarious:
NY Times Brooks
Once, classical economics dominated policy thinking. The classical models presumed a certain sort of orderly human makeup. Inside each person, reason rides the passions the way a rider sits atop a horse. Sometimes people do stupid things, but generally the rider makes deliberative decisions, and the market rewards rational behavior.
...
In this new body of thought, you get a very different picture of human nature. Reason is not like a rider atop a horse. Instead, each person’s mind contains a panoply of instincts, strategies, intuitions, emotions, memories and habits, which vie for supremacy. An irregular, idiosyncratic and largely unconscious process determines which of these internal players gets to control behavior at any instant. Context — which stimulus triggers which response — matters a lot.
Also, for a little levity check out LOLeconz from Slate's big Money:
http://www.thebigmoney.com/features/loleconz
you, know, just in case you like your business news delivered by captioned kitty photos.
Yeah, if you take out all of the population centers, PWC property values are holding up just fine!
Tabitha, can you share with us the several partly-finished developments that were in financial trouble? Thanks!
"Tabitha said...
For example, they said that Countrywide/Deutsche Bank have been holding a ton of inventory, and are planning to unleash it all for the spring market."
Tabitha - Actually I think John Fountain provided us with a clue as to how much that might be on the "bank-owned properties" page
http://tinyurl.com/95psbq
You could argue that this is just bank owned, as a percentage of MLS listings, but I dont think so. I think this is the "pocket" or "shadow" inventory that the banks have not been listing.
You will note for example that in October 2008, PWC had 6400-6500 bank owned properties. However, in October MLS showed there were only 4,826 homes for sale - I thus have to conclude this is the "shadow inventory" of unsold foreclosures building on the banks rolls.
It makes sense too. PWC has been averaging close to 1,000 foreclosures a month. Even if every PWC sale was a foreclosure sale, you still are running an excess, and I think this is it.
Note, I dont think it will all be "unleashed" at once in the spring. My guess is they have been dumping it out little by little for months(years) now, and my guess is they are going to just open the spigot a little wider in the hopes of pushing the total pocket listings number down.
Rob, I am sorry, but since I did not recognize most of the names of the developments, because they were out in Gainesville/Haymarket, an area outside of my search, they did not stick in my head.
Ones I noticed were New Bristow Village (one guy said the builder was "liquidating," so buying a fixer-upper there would not be smart, since comparable resold properties and even brand new properties could be had for the mid-$300s) and "Esteppe," where the builder is trying to sell a couple one-acre lots for a quarter of a million each. I think that's actually Ellis Plantation, off the PWPkwy. I had noticed a few foreclosures in that neighborhood selling for the $500s when they had originally sold for the $800Ks-$900Ks. I think the builder is D.R. Horton?
Then there's Lee's Commons, right by Old Town Manassas, which was supposed to be a "luxury townhouse and condominium" setup, but they said the builder has "gone under," and the project will remain half-finished. The builder is Ryans Homes, so I know the company still exists, but they said only about a dozen of 140 units had sold, and the builder just slapped siding on the units that had started construction. Since I drive by them every day, I can vouch for the fact that they are just sitting there and no work is being done on them. Oh, and some other condominium complex right by Old Town, too, is only partially sold because the builder started and can't finish.
I don't know if that helps at all. The dudes spent most of their time talking about how they were glad they invested in gold instead of real estate, and how everyone in the real estate business knew this had to happen, "this" being falling values. They also said foreclosures have only just started to snowball around here, and that the vast majority of comparable sales have to be foreclosures, because only the most aggressively priced properties sell.
Since there were 1,101 foreclosures in PWC in the month of December according to RealtyTrac, I think that is right. That's one of the highest monthly numbers ever, and the hard #s have been steadily increasing every month this year. And Fairfax actually overtook PWC now.
Oops, I did not mean to post that yet, as I made a mistake: Fairfax County had more foreclosures numerically (1,311) than PWC, but their rate is still lower (1 for every 299 units, versus 1 for every 121 units).
CRT, I have brought this up many times before, but you said it very well regarding shadow inventory. With December added to the 7,672 through November in 2008, you get this:
PWC foreclosures
2008: 8,773
2007: 3,344
2006: 282
2005: 52
With inventory down to the mid-3000s, where are all those foreclosures?
That loleconz thing is a complete ripoff of lolfed.
"With inventory down to the mid-3000s, where are all those foreclosures?"
Tabitha - I agree. Again realty trac numbers are a bit inflated, but there were simply too many foreclosures relative to sales (per MRIS) to purge all incoming inventory.
On the other hand, there are reports of private party investors who purchase properties in bulk. Also, lets not forget the foreclosure auctions you see advertised on TV - unless their is a realtor involved, many of these sales go undetected by MRIS.
Still though, that chart that John Fountain provided is persuasive...
http://tinyurl.com/95psbq
You would assume that the county that had the slowest absorbtion rate (i.e. months of inventory) would have the biggest problem with shadow inventory, and the quickest with the least problem. That seems to fit well with the graph (Arl & Alex doing the best, PWC the worst).
Thus, even if all foreclosures stopped today, my guess is there are a good 6,000 units, (or essentially one year of inventory), that the banks are holding in PWC as shadow inventory.
If you take out Georgetown South in Manassas, and Woodbridge, and Dale City, and Gainesville, PWC prices are really not down much at all, maybe 9-10%YOY.
The proper response to a comment such as this (as long as you don't want to keep talking to the person) is:
Break into a BIG smile, and say:
"OH!!! Only a 10% drop?!?! Well, then if you take out ALL THE OTHER neighborhoods, I guess there isn't a price drop AT ALL!!!"
CRT,
The NVAR report says "decreased foreclosures" on the 2009 Outlook page. Do you think that is even remotely possible?
I mean, there have been about 12,000 foreclosures in PWC the past two years, so you'd think there can't be too many houses left. But then I think of all the shiny new neighborhoods where houses are selling for half what they sold for in 2006, and I wonder, how long will people keep paying under those circumstances? Not to mention further job losses in a deepening recession...
From my on-the-street perspective, it seems like the vast majority of the shadiest characters have left the area, and they were the force behind the high numbers the past couple of years. But we have only just begun to swell the numbers from Alt-As and such, and the very first month where the economy could likely be brought to bear--December--broke the 1,000 foreclosures/month line. So how can NVAR think foreclosures will decline in 2009?
It is in NVAR's best interest to keep housing prices inflated and convince people that now is a good time to buy. They have no responsibility or reason to give us numbers that would show otherwise.
"The NVAR report says "decreased foreclosures" on the 2009 Outlook page. Do you think that is even remotely possible?"
Yes and No. Nationally, not a chance in the world. Regionally, probably not, PWC, actually yes - maybe...
My rationale is PWC was absolutely laden with junk loans, flippers, (your "shady characters"), etc. Once they were underwater - these guys had no real intention of trying to make a go of it. Thus, walkaways, shortsales, jingle mail, etc. became the norm.
At some point, as you suggest, you have worked through the bulk of the feeble loan holders. As it stands now, about 10% of all homes in PWC were lost to foreclosure in 24 months - thats awfully high. Thus, in a sense you are running out of flipper/walkaway types who will go away quickly and quietly.
Next year, I do think the driver will be a recession. If so, every area will lose a certain percentage of homes to foreclosure (thanks to job loss), but my guess is that its pretty evenly distributed area wide.
For example, tech workers dont just live in PWC, attorneys dont just live in Arlington. Thus, overall, I think you will see an evening out of foreclosure rates. This would mean that Arl/Alex foreclosure rates will rise, however, PWC rates paradoxically may fall. In the end all areas end up having a foreclosure rate in the middle - somewhere around fairfax county rates, (1 in 300 homes) perhaps.
I should note too, I also think Alt A will (paradoxically) be a big dud in places like PWC. The reason being, by your calculations, 12K homes have gone into foreclosure in 24 months. If true, that number exceeds every single Alt A and Subprime loan made in PWC combined.
Logic would dictate, the foreclosures we have seen came predominantly from this pool of loans. Thus, once it comes time for Alt A resets in PWC, will there be any Alt A loans left to reset?
Also, Tabitha - I dont know if you remember, but last month I told you I thought PWC had peaked at -45.59% in Oct, and would decline in percentage terms here on out?
As a follow up, last month PWC came in at -46.76%, so for the record, let me say, whoops!
Im a sucker for punishment so I will now say DEC 2008 is the all time peak in terms of percentage loss for PWC. I still think based on the inventory out there, 115K-120K is the bottom for medians (meaning PWC median prices have another -25% to -30% left to go).
I will follow up next month when PWC undoubtedly proves me wrong again!
Tabitha,
"So how can NVAR think foreclosures will decline in 2009?"
I wouldn't trust any of this. Did you see the WSJ report on the former NAR head economist that admitted that he was pressured to say what NAR wanted him to say.
Frank
Broker FranklyRealty.com
Thanks Tabitha. I'm a resident of New Bristow Village and I was afraid you were going to mention this neighborhood. I have heard for some time that Beazer was having financial difficulties so I wonder if this is the builder you ware referring to. It's either Beazer or Centex as those are the only two builders in development. If one does liquidate their properties I wonder how that would be handled. I believe any house that is to be built would need to be built in line with plansall ready approved by the county.
I have been following this thread for a very very very long time and I appreciate everyone's comments on this blog. There have been some great discussions and I have found everyone's input very insightful. With that said...
In my discussions with a mortgage broker recently he indicated that the govt has to start helping those who are in good standing in their loans but have little to no equity now and thus are unable to refi at these sub 5% rates. He was talking about people with good credit scores, those that never missed a payment, etc. The broker said allowing these people to refi will free a couple hundred dollars + a month which then can be distributed back into the economy to help (though in a very small way) stimulate the economy. So what do people think. Will the govt eventually allow these type of borrowers to refi? Should the govt back these loans vs those on the brink of foreclosure, i.e., riskier loans? Good this be part of a stimulus plan?
Oh please oh please!
Someone tell me there's a "ton" of Bank inventory that's going to be dumped this Spring as well in LOUDOUN Co too..... !!!
Talk about a kick in the teeth to the existing Seller inventory...
Down she goes kids
Hey, Rob, we had an offer on a house on Crider Court last year, but were outbid, and we're watching a short sale on Walter Taylor. The homes there are very pretty.
You may want to post your question again at the top of the weekend bits bucket so everyone sees it. I am very interested in the answer. I wonder what to do with the "good" underwater people, too, like my friend with four little ones who is spending over half her family's monthly income on her prematurely-triggered ARM, whose house is worth half what they paid for it new from the builder, who was turned away by Indymac for loan modification precisely because they are keeping up with their payments.
I think this is the article Frank was talking about:
Realtors' Former Top Economist Says Don't Blame the Messenger
Mr. Lereah, who says he left NAR voluntarily, says he was pressured by executives to issue optimistic forecasts -- then was left to shoulder the blame when things went sour. "I was there for seven years doing everything they wanted me to," he said, looking out his window to his tree-filled yard in this Washington suburb. Mr. Lereah now works at home, trying to rebuild his career and saddled with a sagging portfolio of real-estate investments.
Anyone surprised?
Rob said: Will the govt eventually allow these type of borrowers to refi? Should the govt back these loans vs those on the brink of foreclosure, i.e., riskier loans? Could this be part of a stimulus plan?
This would be better than backing bad loans; however, i don't think the govt should be involved at all. They do nothing but make things worse. Allow the market to do what it's supposed to do.
Why not subsidize all renters' payments too? I'm sure if all the renters out there had a few hundred extra $ every month, they would put it back into the economy.
I'm self-employed, so i send in quarterly tax payments. Let me skip two quarterly payments and i'll use that money to go buy a new car. If i can go one year without making those payments, i promise to use that money as a downpayment on a bigger house. Of course, that will never happen. Instead it'll be used as part of some "stimulus" or "bailout".
I am not much of one for revenge, but it is nice to hear Lereah ate some of his own cooking.
I don't particularly care why it was that he lied the way he did, it doesn't matter to me. The fact is that he knowingly gave countless people bad financial advice in order to make a buck himself.
Tabitha, my wife and I are very happy with the neighborhood. The down turn in the housing has cleaned up many of the undesirable neighbors (to include multi family). It's nice to see neighbors moving in and now taking care of their properties now. The HOA has just been turned over to the home owners from the builder and there's been an immediate focus to improve the landscaping. Maybe it's just wishful thinking but when this neighborhood is done and starts to mature I really think it's going to be a beautiful neighborhood. I just get a feeling that our neighborhood is going to be a different than a lot of the other surrounding developments when it gets over the hump. Please let me know if you have any questions about the neighborhood.
As for my refi question I'll repost this to the weekend tidbits.
Tabitha, one little FYI for you that I thought you would find interesting. One of my neighbors is reporting that several of her neighbors are refing. Believe it or not, the appraisals from the banks for these Neos (models with the garages in the back) are coming back at $470K +. If you have been watching the neighborhood, as I have been, I'm sure you are as surprised as I am with this. Especially since this is the banks doing the appraisals!
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