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Thursday, March 26, 2009
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60 comments:
Fun thread yesterday, too bad I missed most of it in the afternoon/evening. I was off to watch a movie.
This will probably be the story of the day. Bad news, but not as bad as expected by some.
I don't know this one's pretty interesting:
UK government bond sale oversubscribed after yesterday's failure
NPR marketplace morning report mentioned the failed bond sale, and that Germany has been having some difficulties lately selling bond lately.
The one day blip aspect of the failure in the UK makes this non-news, but still I think it's something to keep an eye on. But you're right, probably to subtle to be the main story.
What I find funny about the revised GDP reports is, I don't understand why that should impact markets. I mean we already lived through that bad times. Its effects on businesses have already happened... I don't understand markets (except to explain it all away as irrational herd mentality).
Cara,
I'd heard about the failure yesterday (yay, Bloomberg radio for my commute). I'm unsurprised today's succeeded. It was a shorter gilt, and there are a number of other factors.
Of course the only reason it failed is because it was a reserve auction. Not saying that doesn't make sense, but if they'd removed the cap, they'd have sold it all.
Harriet - it looks like your Julie Emery link is calling bottom too:
http://www.realtown.com/jemery/blog
I once heard its better to be a bit early than late simply because there is more inventory to choose from. If thats true, and if this is bottom. You may have lucked out and got in at the absolute single best moment in time!
Wow that is pretty interesting Cara, I didn't know much about the bond market but I didn't know that it was an actual occurrence for a bond sale in a major country to fail. I'm guessing that phone calls were made that night to inform some people that they WOULD be buying bonds at the next auction. So I don't put much faith into the excess of buyers at the next auction.
I think the revised GDP numbers matter because markets are in the business of predicting future outcomes. If the GDP last quarter was worse than we thought its effects can change the predictions of future earnings this year.
That being said, I personally think your view of the stock market is a reasonable one. I know of no one that reliably makes correct picks in the stock market. It's too complex and there's too little information out there to make good investment decisions, in my opinion. I think the best you can do is see macro trends (like a housing bubble about to burst) and play indexes accordingly.
http://www.bloomberg.com/apps/news?pid=email_en&refer=home&sid=aZXiD0hnsSD8
Sorry if this doesn't come thru - I'm no 'puter wiz.
Nouriel Roubini calling for up to another 20% decline in housing over the next 18 Months.
Julie Emory may want to have a look at his data....
Paul Jackson semi-opinion semi-poll piece on the sentiments among potential first time buyers
well written and has some salient statistics, although it doesn't quantify what I want to know, which is how does the number of potential first time buyers stack up against the amount of current and future inventory. (inquiring minds want to know, and are too lazy to figure out by themselves... why bother when there's the interweb)
Sorry to bring something back up from yesterday, but this overriding sentiment regarding a "walk away" option of: "I don't see how you can judge someone for doing what is in their own best self-interest" gives me the heaves. Because, now their "best self-interest" directly affects my pockets, whereas before it only affected a private bank. There is a huge difference now, than there was a year+ ago.
Yes, we seem to agree that whoever does this will screw up their credit for a number of years. How many seemed debatable. I also think that we don't know right now how much it could affect their credit down the road. What with Cara's mentioning a week or two that banks were looking at different ways to tabulate credit scores, there is no telling that they can't realign things in another several years that would allow someone who "walked away" to get a loan, but at a much higher rate than a non-risk borrower. That is not my point, however.
Back to the point, this was stated yesterday: "If banks want to be stupid and make stupid loans (ARMS, IO, etc) to people who shouldn't get them and they exercise an option on the contract, too bad so sad for the bank, next time they should know better."
It appears from what I read that the two individuals who were in a predicament were not two people who "shouldn't have" gotten/qualified for a loan.
From everything I have read, these people simply bought at the worst time they could have. Is that your or my fault? No. They say: "We have a couple kids who are getting bigger, and family members who sometimes need to live with us, and we are cramped."
So they bought a TH probably 3-4 years ago and now want to move closer and move larger. They can afford to make their payments on their TH, but they can't afford to move in and up without taking a loss on the TH.
Please, do not take personally my comments here, but these people are not like many people who almost have "no choice". Those people are people who bought at the wrong time, have lost their jobs and now can't afford to pay, or their loan is about to reset or just has, and they can't afford the new payments.
The last group there, the ones who had their loan reset, was what they should have expected and I give them some personal blame for that. I clearly remember getting a 5/1 ARM and being told by the bank about the difference vs. a 30 year and what "unknowns" existed and what "could" happen with rates when they reset. I am sure these people knew that too. It is not their fault entirely, because the Bank should not have given some of these people a loan that they could only afford for a few years. So dual responsibility for that group. I digress... focusing on people in the shoes of the two from yesterday:
If you think it is morally and ethically right for them to "walk away", then you must think it is right for anyone who made a bad decision, and bought too small of a house, a house too inconvenient for them, or overpaid out of their own lack of research 3-5 years ago to walk away. Do you know how many people there are in those shoes, as opposed to those who actually lost their jobs and legitimately can't pay? I'd venture to say that there are 20 people in the shoes of these two for every 1 person who legitimately lost a job and is stuck without a good alternative but to walk.
The problem, as I see it, is that the government decided to get involved and "bail out" these banks and throwing the burden onto you and I.
If anyone who "walked away" harmed only their credit and the bank, and it did not trickle down to everyone else, then it is your conscience and your decision. It still is right now, but now it affects me, and my family, and everyone else.
Is it my fault that someone lost their job and now can't afford to pay their mortgage? No, but I do feel bad for them. That has happened from the beginning of time, though, and did not screw the taxpayers like it is now.
Is it my fault that someone bought too far away, at the height of the bubble, and all of the sudden realizes their house is too small and they want to move closer? No, and I definitely do not feel bad for them. I understand their situation, but I have a fundamental problem with people who think that they should not be responsible for their own actions, and somehow, I should now pay more taxes to help them out.
Again, nothing personal about these two, and it appears they are not inclined to "walk". But people in their shoes are a dime a dozen. If all of those people decided to "walk", I can't imagine the ramifications of how much more money the government would expect the taxpayers to cough up for them.
Remember, in their situation, the banks DID their due diligence. These people could afford and still can afford their current house/mortgage. Nothing unexpected happened in their personal lives. Their two kids are now "bigger", which is something that obviously happens and they knew would happen about 3-4 years ago. Their kids will be going to school soon and they want them in school in Fairfax. Again, nothing unexpected there. They have family members who live with them "sometimes". I can't call that one as well, but that may or may not have been totally unexpected.
The point is, there is absolutely nothing that I have heard to tell me that these people are in some sort of crazy hardship that happened when the economy went south. They want to benefit themselves and their kids, but it would be at taxpayer (read, mine and yours) expense due to the govt getting involved in bail outs. The only thing that happened to them is the price of their house dropped such that they can't move out because of a loss.
How many people are in that same boat? Perhaps 30% of all people who own a house right now? More? You really want all 30% to "walk"? I think people need to take responsibility for their actions (unless there was some legit personal issue that has seriously affected them due to the economy) and not rely on us to "pick up their slack".
And when I say "they" or "them", I am not talking directly to these two, and mean them no offense. I am talking about the entire group of people in a similar situation as they are.
T,
Scream louder at the politicians. They're the ones making the moral hazard and harming your wallet in the process.
As long as bailouts are a remote possibility this will continue. When they're no longer a remote possibility, banks won't make loans that creates a situation where walking away is in someone's best interest.
The upside: no moral hazard, lower taxes (or at least lower implied future taxes), far fewer foreclosures in the future.
The downside: buying a house requires substantial (more than 20%) downpayment initially, and considerable (20%) downpayment afterwards eliminating most buyers, probably forever. Housing prices go down, builders go bankrupt. Oh, and so do most of those banks. The entire U.S. economy as we know it ceases to exist.
I'm still more in favor of option #2 than option #1. But you can't have option #1 and also get upset with self-interested parties doing the right thing for them. Well, I guess you could get upset... it just won't do any good.
Let me know when you're mad as hell.
xpovos,
point of interest. VA has recourse loans, such that banks can go after you for the balance of the debt after the collateral has been sold. CA has non-recourse. Why? Because they thought that making the loans non-recourse would put the banks money directly on the line, making them more conservative in their underwriting policies. Didn't work very well, eh? Banks just decided to sell the loans off to other parties. That people bought collaterilized debt obligations on debt that was non-recourse is another mystery...
Cara,
I thought VA was no-recourse too (most states are to the best of my knowledge).
But I take your point, very well in fact. I anticipated it.
A bailout doesn't have to governmental to be a bailout. These banks were getting bailed out by investment funds, pension funds, hedge funds and anyone else who bought securitized mortgage debt. The underwriting doesn't have to be there if someone else is holding it, as you note.
Solution to that? Well, when the folks walk away those funs who didn't perform due diligence are in fact holding the bag. Boom and bust of a market cycle. Also something about human nature and the get-rich-quick scheme.
Safe as houses. Blarg.
"I once heard its better to be a bit early than late simply because there is more inventory to choose from."
lol i'll take my chances with that one!
T,
Ｉtotally understand your moral outrage here. It's a matter of personal integrity vs personal finance. In many cases, people will gladly diminish their own integrity if it helps their wallets. That said...
People seeking "solutions" to the housing market problem - whether it be price stability or stopping foreclosures - haven't once mentioned the ultimate way to stop it all. That is, make the loans all full recourse. Everything that was borrowed MUST be paid back. Extend loans another 30 years if that's what it takes, but make these people attached to their houses so that walking away (the real big problem these days) is not only undesirable, but more painful than is worth it.
I know that sounds cruel, but that is the only active "solution" to this mess that I'd be okay with. And it wouldn't cost taxpayers a dime. Any thoughts?
T,
In the described situation I would sit tight in my house --- just live in it, take no loss and continue paying mortgage. This is honest, this does not require one to take a cash loss and does not put too much debt burden on the individual.
I know some people who had plenty of equity in their home (nice and large) 2 years ago, wanted to move (to a home with a larger lot), did not want to sell since they thought that their house was worth more than they could get for it in mid-2007. So they kept two houses (refinanced old one at a higher rate to put a 20% downpayment on a new one), rented old one out at a negative cashflow and now have about 1.5 million in mortgages on two houses (and all their equity is gone, each house lost more than 200k in two years).
They cannot foreclose, since their jobs require clearance --- so they are stuck. Instead of living in their original house and having some equity left and plenty of disposable income to enjoy life they have a large mortgage and no equity.
T,
I didn't buy during the boom because I thought prices were absurd. I think people that did buy made a poor decision and are ultimately responsible for their fate.
However for me it comes down to who was in a better position to determine whether a given house was a good purchase - the layman homebuyer or the bank whose business revolves around analyzing and granting mortgages? If banks thought that the $500k shack they just provided a mortgage for was $500k worth of collateral then I have extremely little sympathy for them. I have a heck of a lot more sympathy for a homeowner raising kids and working at a job every day that doesn't have 20 hours a week to devote to researching the current housing market. Banks knew or should have known that their collateral was crap and they permitted (and strongly pushed) the writing of those mortgages.
The non-recourse idea in California is a great one. It failed miserably in making lending rational but that's the fault of the people buying CDOs. Actually I'll amend that to blame it on the people that created CDOs and falsely labelled the risk associated with them.
T, I see what you are saying but I think the point I've been trying to make is that realistically if we want to prevent people who are not facing a hardship from walking away from their house, we should make the consequences of that action more severe so that people will rationally decide against it. We shouldn't just count on people doing the right thing because they want to do what is morally right.
The problem is that the only collateral the banks have for the loans they gave out are the houses, but because the house is worth a lot less than the loan, it doesn't help the banks/the taxpayers very much when we get the house back. As more extreme example, it would be like if I bought a $5000 flat-screen TV on a credit card, but then after a period of time I decided the TV no longer met my needs or maybe I was having trouble making the CC payments (maybe the card had a zero- or low-interest teaser rate and then when the rate when up I suddenly realized I couldn't afford it). So it would be like if I said, "Well shoot, I can't afford/don't want this TV anymore, so I'll just give it back." The reason obviously that I can't just give back the TV and not have to pay off the bill is because the TV is worth a fraction of what I paid for it. Of course, houses don't depreciate the way TVs do, but they can and do go down in value, so it might not be a good idea for banks to make loans with houses as the only collateral. At the very least a significant downpayment should be required, and fortunately we are getting back to those days (FHA excepted).
Kevin,
Do you have any doubts that The_Anonymous is an owner who is worried about an investment value of the home?
Again, there are too many unknowns in the current economic situation that can make these predictions of the bottom correct. I would say if people start expecting inflation as imminent, they will rush to take fixed-rate mortgages and home prices can rise in a matter of weeks. Other than that -- no possible reasons for prices to stabilize.
"kevin said...
"I once heard its better to be a bit early than late simply because there is more inventory to choose from."
lol i'll take my chances with that one!"
Hold on Kevin - think about that for a second. Say with hindsight we knew bottom was X date. Say too you miss it pricewise by 2% early or late.
If you had a magic time machine that could transport you back to that early or late off 2% point, would you rather be in early when there are 50 homes to choose from or late when there are 40 homes to choose from?
This isnt fearmongering - its just a point of fact that makes sense. I think most people here would rather have the certainty that comes with being a bit late rather than the uncertainty that comes with
"what if I got in too early"? Thats why I am still here too.
However, if that was indeed bottom (which we wont know for years still), what I am saying is that Harriet got in when there was still plenty to choose from. In 20/20 hindsight, she may have been pretty darn perfect with her timing.
Cara, looking into your advice re: the rentals in my community, here is what I am seeing:
Pretty much all are for $1500 or $1550/month.
My asking price is $300000.
Looking at trulia, they have both mortgage calculators and they have rent vs. buy calculators.
On the mortgage calculator, let's say someone buys it for 300000 w/ 20% down and gets a rate of 4.875. And they pay $2900/year in property taxes and $800/year in property insurance. I come up with a cost of $1579/month in that scenario for owning.
Moving over to the rent vs. buy:
Using rent inputs of the buyer paying $1550/month, with zero rent increases, zero fees, and $40/month renters insurance (I have no idea if this is high/low).
Using buy inputs of $300000, 20% down, 4.875 rate, appreciation of 2% per year (might be conservative but that is good), $800/yr for insurance, $2900 for property taxes, $200/yr maintenance (may be low, but my house has pretty much everything brand new inside and out).
Using "other assumptions" of the default "25%" tax bracket, 4% before tax return on savings and 2% inflation...
I come up with:
"Buying a home would save you approximately $44,367 (in today's dollars) over 30 years, compared to renting, based on the assumptions you provided."
And it appears that in years 1-3, the total "cost of buying" would be $35,640 and in years 1-3 the total "rent & fees" is $57,240 (always is $19,080/year since I assumed rent would never increase from $1500/mo).
So someone would save over $21,000 in the first 3 years by buying. (I guess this clearly does not take into account the downpayment 20%, but I'm not sure why it does not...)
And you wouldn't even pay "more" per year (in terms of your annual "cost of buying" exceeding your annual "rent & fees") until year 20.
If someone bought my TH and was still living in it for 20 years, I think that would be pretty incredible.
Please let me know if you think any of my calculations are too "off". I tried to be very conservative on both ends to give the "renters" the benefit of the doubt.
And based on those calculations, I think it makes perfect sense for someone to buy my TH rather than pay $1550 in rent, given the fact that housing values in the next 7-10 years are surely to be higher than they are now, and we are at a "bottom" in terms of mortgage rates.
Am I wrong?
To elaborate just a little further, since T said that the banks did do their due diligence in cases where they made loans to people who could really afford the payments, I would disagree with that in cases where there was a zero or minimal downpayment -- a credit card company wouldn't be doing their due diligence if the deal they made with me was that I could just give back the TV (with penalty to my credit rating) when I decided I didn't want it anymore.
And, like T, I'm not trying to make any commentary about MovingtoFFX from earlier as they seem to be trying to do the right thing. I'm just talking about the general case here.
This is a good blog entry from bubblemeter on Yun's comments on February house sales...
http://tinyurl.com/c4zylu
"Konstantin said...
Kevin,
Do you have any doubts that The_Anonymous is an owner who is worried about an investment value of the home?"
Well you better as well should Konstantin. Had you been around longer, you would find out I was about to buy back in early 2003 when I was told about the bubble, and why I should wait because prices were coming back down soon.
I then sat around as prices went higher and higher, yet I was still assured 40% off, bloobath is coming.
Then I watched in amazement as prices where I was looking (of course Arlington) basically gave back a little to where they were only 30% ABOVE the prices I was told in 2003 were unsustainable.
4 years later those self assured arrogant "bloodbath" assholes are now mostly gone, never admiitting how wrong they were, and leaving me to ponder what happened.
So I am frustrated as hell, angry at myself at listening to them, and angry that I am never getting those years of my life back.
Even worse, I STILL acknowledge there is a shred of hope that it will happen, the Arlinton Implosion will commence, and I will have again made the wrong decision by getting in too early.
SO thats why my posts are the way they are. I am seeking the assurances of the reasonable veteran posters who are still here like ACE, Cara, CRT, Leroy, Harriet, etc. For whatever reason, I still value their opinion and THATS the reason I still post here!
t,
it's missing the transaction costs.
Buying has to beat renting by enough to cover the 5-6% brokers fees on selling it over the course of living there.
The tax benefits approximately cancel with the required maintanence costs, approximately.
1600 is my current rent, so I've been running these exact numbers every which way for a while. The only scenario under which $300k makes sense is one where you can count on inflation taking care of the brokers costs. Given the likely additional downside risk of another 20k loss in price you end up with scary low numbers like $225k to break even buying over renting.
The best calculator is at the NYTimes:
buy versus rent
You need 2% yearly appreciation and 1% yearly rent increases to get buying to be better than renting in 4 years with 1550 versus 300k. Some buyers should bite at that level, which is why I say that Burke TH's are near bottom and near rental parity. But if the buyer is baking in an assumed 10% loss then it's ugly. Or if they're doing the 0% changes calculation then buying never makes sense at that price (even with my low 2% return on savings and high 28% tax bracket).
The rule of thumb numbers of 150-180 times monthly rent do pretty well reflecting these more in-depth calculations. at 180 times monthly rent, you get a sale price of 280k, which is within bidding distance of your list price, hence why I will be surprised if you don't get a bid soon. But if you don't, you may need to lower the list closer to what people can prudently and conservatively justify paying.
Great comments from all.
"Scream louder at the politicians. They're the ones making the moral hazard and harming your wallet in the process."
Don't get me started on those clowns.
"That is, make the loans all full recourse. Everything that was borrowed MUST be paid back. Extend loans another 30 years if that's what it takes, but make these people attached to their houses so that walking away (the real big problem these days) is not only undesirable, but more painful than is worth it."
I can't argue with that. Seems to make sense, I am not an economist and don't know all the ramifications, but it seems like it warrants consideration.
"In the described situation I would sit tight in my house --- just live in it, take no loss and continue paying mortgage. This is honest, this does not require one to take a cash loss and does not put too much debt burden on the individual."
I agree 100%. Unless they suck up the loss, sell for a loss right now and then move on. One is an immediate burn, the other is a completely reasonable thing to do. Not everything works out as planned, make the best of it. Either make your commute longer and live a bit more "shoulder to shoulder" w/ your family members, but not lose any money in the process, or lose a bunch of money but have the freedom you want. But don't make me pay for your decision one way or another.
"If banks thought that the $500k shack they just provided a mortgage for was $500k worth of collateral then I have extremely little sympathy for them. I have a heck of a lot more sympathy for a homeowner raising kids and working at a job every day that doesn't have 20 hours a week to devote to researching the current housing market."
At the same time, the homeowner was willing to pay $500k for a shack, and they knew (better than the bank perhaps) that it was a "very expensive shack". All (save Arlington) property values have come down dramatically from 5 years ago. Using the "hindsight" approach, all banks lent too much, all homebuyers paid too much. Yes, it is the bank's "profession" to know worth, but its also a fundamental supply and demand market. The houses were selling vastly over the true cost to rebuild price because demand was so high. When the banks were appraising houses, they did so knowing market conditions.
You own 1 of 100 banana trees and sell bananas for $5/bunch and produce 1 bunch per day, and then the 99 other banana trees burn down. Suddenly you have 99 other customers in addition to your typical 1/day who want your bunch of the day. They start bidding and outbidding. Some drop off because they won't pay more than $5, some drop off because they won't pay more than $10. But eventually you sell your 1 bunch for $30. Every day there out, you have similar competition and your bunches are going for between $25-$30/day for a month. If someone asks "what is that bunch worth", what is your answer? It's worth as much as people are paying for it regularly, which is $25/$30. It is not worth $5 anymore until 1) the other banana trees regrow 2) there are no longer are 100 people/day looking to purchase a bunch, or 3) people decide for whatever reason they refuse to pay more than $5/bunch and would rather go without than pay.
"realistically if we want to prevent people who are not facing a hardship from walking away from their house, we should make the consequences of that action more severe so that people will rationally decide against it."
Can't argue w/ that...
"Don't blame the taxpayers who are walking away, blame Congress who is sticking you with the bill."
Is it wrong of me to blame both?
The Anonymous,
That there will be less inventory to select from (or even that if there were that the lessened inventory would not somehow be of equal or even greater value) is not axiomatic. So even assuming your other assumptions, buying after the trough is not as bad as you seem to want to make it.
Re: blaming both the taxpayers (walking away) and the politicians: I think it is wrong to blame both. Politicians are supposed to be our best and brightest. I don't expect the everyday man to make perfect decisions. Only ones that are in his best interest. I'm cynical enough (at least) to not expect perfect decisions from politicians either. But I do expect decisions that at least extend past his own best interest.
So, when everyone is just doing what's best for them, I'll blame the politicians and chalk it up to human nature for everyone else. Why would I blame them for doing what the social contract expects of them?
Cara - thanks a lot for the input. Your advice is helpful because we are both interested in the market in the same location and it helps to know views of buyers in my vicinity.
Do you know how much a monthly payment would be for renters insurance on a 4 BR 300k townhouse? If it is, say $50, than the "180 times rent" number would be $288k, which very close to me selling for $291k and paying no closing or conversely, me selling for $300k and paying 3% closing... Or is renters insurance not include in that calculation?
"You need 2% yearly appreciation and 1% yearly rent increases to get buying to be better than renting in 4 years with 1550 versus 300k. Some buyers should bite at that level, which is why I say that Burke TH's are near bottom and near rental parity"
Good to know. I am tracking the 22015, 22032, 22152 and 22153 zips very closely in terms of homes on market, homes closing, that sort of thing. Last week there were 20 4 BRs on the market, with 9 under contract (11 actives). 7 days later there are 21 on the market, 11 under contract (10 actives).
Last week I was the lowest priced non-short sale/foreclosure 4 BR in all 4 zip codes. This week, one guy lowered his price to dip $10k below mine, so mine is now the 2nd lowest priced regular sale. But I was in his house 2 weeks ago and it was a disaster. It is not even 4 BR, he is trying to build the 4th as we speak, and the house is in complete disrepair. Original kitchen cabinets, disgusting bathrooms, cracks abound and paint/carpet are all old/discolored. I don't even view him as legitimate competition. We'll see how things go...
"Xpovos said...
The Anonymous,
That there will be less inventory to select from (or even that if there were that the lessened inventory would not somehow be of equal or even greater value) is not axiomatic. So even assuming your other assumptions, buying after the trough is not as bad as you seem to want to make it."
Thats true Xpovos. ANd wher I am looking in Arlington, inventory is down YOY, but it hasnt crashed. I see no reason to rush in there.
However as I recall Harriet bought in PWC. The inventory freefall there is amazing - its down 60% YOY, and down 30% (about 1,000 homes) from January 1 to today, a time in which it should be rising!
http://www.virginiamls.com/charts/PrinceWilliam.htm
Tabitha & CRT were pointing out that prices in PWC haven moved much up or down in the last few months, and when Harriet bought last fall, there were 2000 more choices than there were today.
So yes, its not axiomatic especially in Arlington. But in PWC, the market I was trying to make the point in, it sure as heck looks that way.
I think he's got some work to do on that feature. My house and several others show up on the entire other side of town from where they really are located...
"Kevin,
Do you have any doubts that The_Anonymous is an owner who is worried about an investment value of the home?"
I dunno. Makes a pretty good argument about people needing to stick to their agreements and make good on the loans they've borrowed. Or could just be fearful that his home's value is more or less tied to the willingness of his neighbors to stick it out.
"Hold on Kevin - think about that for a second. Say with hindsight we knew bottom was X date. Say too you miss it pricewise by 2% early or late."
40 houses, 50 houses, it doesn't really matter to me. What's more important is that I don't get into the game, then see my property drop another 20% in value. I'll sacrifice a lack of abundant selection for equity security any day. After all, we're talking about a normal inventory on the market, not a real lack of selection.
t,
renter's insurance is in the NYtimes calculator. It depends not on the size of the place your renting but on the dollar amount you want to insure. We pay $180/year to cover something like $25,000 in full replacement costs. The insurance rate goes down if there's no gas in the house, and if the neighborhood is safer/doesn't flood/etc. Mine used to be as low as $9/month.
"Kevin said...
I'll sacrifice a lack of abundant selection for equity security any day. After all, we're talking about a normal inventory on the market, not a real lack of selection."
Kevin - where are you looking? I think you arent looking in PWC so yeah this doesnt apply to you. Even within PWC there may be submarkets where inventory isnt dropping much, it could just be the foreclosure filled low end where most of us arent looking anyway.
The_Anonymous,
Yeah,
I've read that story of yours several times. People tend to regret about things they haven't done a lot, I know that based on my personal experiences. I'm pretty sure that these folks in 2003 did not expect what a 0% down no doc loans can do to the housing prices.
Still, the psychological motivation that you have in calling a bottom is beyond my understanding.
I thought that there are about 4 types of people on this blog:
a) people who bought in the bubble time with huge leverage and partially speculative, any housing correction is very painful for them, so they try to convince us/themselves that it does not exist. i would call them Queen's Royal Lancers (or should they be Peeping Toms?).
b) people who own houses, wonder where their equity is, may be want to move up, may be want to invest into RE, housing correction can be positive or negative event for them (say positive since they can move up easier if their income is rising).
c) people who would like to buy and would certainly like the RE to depreciate in price, but understand that it is not in their power to move prices down and all the quotes of Shiller, Roubini, etc, will not change the prices --- it is the market who can and will.
yours truly is in this bucket.
d) people who believe that their words will move the market and all the hell will break loose all over us and then they will buy their dream house in arlington for 10k.
Cannot classify you.
I still do not understand someone who is pretty convinced that the bottom for Arlington has passed, has income/downpayment to buy --- and not buying. Prices dropped from the peak. Interest rates are low. Inflation can start soon.
You do not want to have this non-buyers remorse TWICE if you consider last 5 years of your life "lost"?
Nothing personal here, we are all very different in the internet from our life personalities. Just curious.
t,
And my calculation didn't include the $83 monthly HOA. So if you're looking at every penny, then you need to take that off too. So I put a round number figure on yout TH of 270k, which is only 10% off list price and hence still within bidding range. But you're right those do look like brisk sales. At the same time a lot of those are of the short and REO type, which you're discounting when you arrive at your place as the best deal. So, while it is possible, even easy to justify a price of 290 for your TH, (and thus it should finance and appraise for that much) I don't think that's the number that will "attract" a buyer...
Becuase with the combination of a TH, in a complex with a lot of renters (and hence a lot of parking problems and hassle with landlord owners) you're looking for a naive buyer. But a naive buyer isn't going to appreciate the maintanence you've done and will want the cheap prices they see on the REOs and shorts, so you need a sophisticated buyer, but a sophisticated buyer might count their finances tightly and be unwilling to loose a penny of equity after purchasing. So, you need a family with experience owning who are willing to reasonably say, this possible $20k paper loss is no-nevermind to me, and is the risk we're willing to take to get a nice, problem-free home in a great school. So, you're currently priced at the "it could happen" price. And you have to decide when the time is right for you to change tactics to the "fantastic value for the money" price of like 270k. But, I do think now is too soon, because I do think sales are brisk and the number of buyers coming on the market is still increasing.
oh and t,
your example is a supply side one. What happened was an increase in purchasing power with the proliferation of low-doc loans, higher DTI's allowed, interest-only loans, negative amoritzation loans, etc. Basically everyone suddenly decided that $5 bananas were cheap at the price if they might someday be worth $30.
I don't know if this is 'news' to anyone other than me, but I can access 2009 assessment data for FFX now. Wow. It's just as bad a hit as PWC for most of the properties I've looked at.
As we've discussed many times before assessment means very little except for tax purposes, but still, it's shocking to me to see that 30% decline.
Arlington SFR for $425, over $100k under assessment - not a foreclosure, doesn't appear to be a short sale, and north of 50.
But the real conundrum about the place is, how many tables does one smallish house need:
http://franklymls.com/AR7014623
Thanks for the compliment, The_Anonymous.
I hope you don't feel like giving up yet - you may have the last laugh. I still see some potential downward movement in Arlington - slow, as it has been, not an implosion - especially if you don't mind one or more types of incurable defects, such as a busy street or being across from a school, or if you don't have to be extremely close to a metro.
Cara - one correction regarding the perceived number of rentals in my NH. There are not as many as you may think, although I don't know what the "average" is for a TH community. There just don't seem to be that many people who I know that are renting. But I certainly don't know everyone...
There are no parking problems at all, though. Everyone has 2 spots, and there are visitor spots as well. You can drive by at any time and you'll never see the entire place filled to capacity. No one parks in your spot, I have never ever had that issue. So unless you have 3+ cars, you have nothing to worry about. I have also not personally seen any landlord/tenant problems. I can't say that there are not "private" battles, but at least publicly, I have never seen much of anything in the neighborhood to cause me to raise my eyebrows. Except for certain people not stopping completely at the 4 way stop and the occasional speeder in the NH, which I'm sure happens pretty much everywhere. There are a lot of "young families" in the neighborhood with young children and that is a good thing (in my opinion).
You are right, I am not really taking into account the short sales/foreclosures as much as I could. But I know from a buyers experience how big a pain in the butt it is dealing with those. Some buyers are willing to do it to get a deal, even if it needs instant money down to update/restore.
Others would rather pay $10-$20k more over 30 years (thus $76/mo more), have a home inspection, have the owner fix anything wrong, know that they are buying a house that was well taken care of and is in great condition, and more importantly, not fork out $5000+/- out of pocket immediately to repair/replace things. But everyone is different....
Here is what is "active" in Burke (22015) for 4 BRs and priced below mine at $300:
- 1 short sale for $260, on the market for 130 days.
- 1 regular sale for $290, on the market for 25 days (this was the run down 3 BR I spoke of earlier today).
- 1 short sale for $298, on the market for <7 days.
That's it. Sure, if someone wants a 3 BR, there is more competition. But if someone needs or just wants that extra room, my regular sale @ 300 is miles better than either of the last two (290 and 298). I can't comment on the $260, but the fact its sat for 130 days has to say something about it.
Expanding to Springfield, there are 3 short sales at $215 or below (on market for 56, 4, 3 days), and 1 short sale at $280, on the market for 208 days. So a total of 4 properties, 3 significantly lower, but again, there is a big difference between Springfield and Burke (which you will see if you move out here) and some people may not want Springfield for any number of reasons.
As you can see, there really is not that much competition out there for 4 BR TH at the $300 or below level, which is one reason I priced where I did (to be the cheapest regular sale around). We'll see how things go though, I could be wrong or I could be right... even if I am wrong at $300, I don't think I would have to lower it that much but I guess the market will have to dictate that to me...
Konstantin - very fair question. I fall into the category C - albeit I (like all of us I think) can get tired and frustrated with this whole thing.
For the record, I am out shopping now. So the question remains, why am I still posting? Two reasons:
One is fear, fear that if I buy in Arlington its gonna come crashing down and then I am stuck - in a lot of ways im like Kevin, Xpovos -really most of us. We like the advice we get on this board, and we appreciate it.
The second is to act as a counterbalance. I think there is an adverse selection problem on blogs - we seek out those who are like us - even if we are not representative of the buying public. Thus, as this contiues, and more of the more moderate buyers buy, and quit posting, we have the potential for this to become a real echo chamber.
This second point is what I am trying to point out with PWC. As much fear as I have about buying in Arlington, I should say, I am NOT fearful about PWC. I may be wrong about it, but from what I see it looks awful close.
So really, for those of you who are fence setters in PWC and who are thinking of shopping. I want you to look again carefully at this:
http://www.virginiamls.com/charts/PrinceWilliam.htm
Tabitha & CRT had a good discussion the other day about how prices arent moving much, and look at that inventory. There are 2000 choices now. Where does it stop? 1500 choices, 1000, 500? I dont know. However all the signs of a bottom are coming together there, and frankly that would have me a bit concerned about choices.
Thus for those of you that are close to looking but dont want to because of non financial reasons, (i.e. fear), just think about my motivation. Let me serve as that same "slap in the face" that I wish I had gotten so many years ago. And if Im wrong, you can heap part of the blame on me. Just like I do to the doomers of yesteryear.
So there it is kids thanks to the anonimity of this site, this my heart & mind laid bare. Decorum would dictate that Lance & his ilk do not come back and throw this back in my face, but thats where I am coming from.
The biggest problem with full recourse is two fold. First they'd be dismissable in bankruptcy so if someone is willing to be foreclosed on they're credit is trashed so what matters if they go through the bankruptcy courts too? Second, it's expensive to pursue a full recourse judgement and collection, even if the assets are there. Home equity loans and seconds are full recourse everywhere, but it doesn't matter if 90% of the time you'd spend more obtaining the judgement than you'd ever hope to collect.
To fix the problems, you'll probably have to take the government support away from housing (making it risky again) but that would make everyone's home price drop pretty drastically.
T, on pricing your home, partly be patient, there's a ton of inventory out there, so you might be a little down the list on a lot of people's lists. But if you're not getting any looks, have your agent check sales (or use one of the online services) to see what prices things were asking to get closes. The last two houses I've looked all attracted multiple bids above asking price, but were both the lowest priced similar home by about 10%, but both sat a week before they had bids.
t,
The reason to consider 3 bedroom TH prices is as follows. Most people who want/need 4 bedrooms also strongly prefer SFHs and will pay a premium to get them if need be. This is why so few 4 bdrm THs exist. To get your best price, yes, you need to connect with that buyer for whom your TH is the perfect fit. But, most of your possible buyers only actually need 3 bdrms. But if you're priced only 10k above that, then they'll consider making the trade of just a little more money for more space.
What's still sitting is not relevant. What's sold is the relevant question for what will sell. Why? Because you'll keep getting new competition.
On the other side, I absolutely would not price below 270k. Anything less than that and buyers will think something's wrong with the place.
The market hasn't spoken yet, it hasn't been listed for that long. Patience is the right course for now. Personally, I want your TH to sell for as close to your current list as possible. Why? Because that means that buyers are there and ready to buy in Burke, which means that it may be stabilizing. Which would be good for me, because that means I can legitimately go up to my upper price limit without worrying about covering my butt.
(oh, and if you re-take the picture of the bathroom, pull back the shower curtain, since the curtain is not what's for sale)
The Anonymous said...
"Kevin - where are you looking? I think you arent looking in PWC so yeah this doesnt apply to you."
Correct. I'm looking at Fairfax: 22030. If I were looking in PWC, I would probably have bought by now. You're right, the inventories there are shrinking rapidly. I keep track of all kinds of stats around the area, updating weekly, so here is a snapshot of SFHs in Manassas over the past year:
Date Count Median
27-Nov-07 896 $399,900
15-Jan-08 812 $375,000
11-Mar-08 807 $354,900
6-May-08 866 $329,900
15-Jul-08 740 $344,900
10-Sep-08 626 $345,000
10-Nov-08 490 $325,000
16-Dec-08 495 $319,000
26-Jan-09 400 $300,000
2-Mar-09 339 $300,000
23-Mar-09 317 $325,000
Adam said...
"The biggest problem with full recourse is two fold. First they'd be dismissable in bankruptcy "
Agreed. What I'm talking about is much worse than that. Make them like student loans or child support. No BK protection. There goes their incentive to walk.
Cara - thanks for the advice/info as always.
Kevin - do you have your numbers by zip in FFX County or just the 22030 you are looking at? If you have it by zip, would you mind sharing 22015?
I know there will likely be a difference between SFH and TH, but I am just curious for what you have for SFH. Where do you pick up this data from?
kevin
ah debtors prisons. Of course, that's the answer! Inflation is the only way out of those, which will suck for the banks who are sitting with a load of 5% interest loans...
If you're looking for solutions for how to prevent this from happening again, check out irvine housing blogs suggestions on required DTI's and downpayments. If people can't overleverage then house prices can't disconnect from incomes other than through people's own hard earned/ hard saved cash.
If you're looking for how to spread the pain around for the current mess? I think that's what us knife-catchers are for. Take those non-performing loans off the books by selling the darn things and replace them with people who can qualify in this environment. The knife-catchers will save the economy and they are the only hope for both the banks and the housing market.
Uncle Sam wants you to catch that knife. In fact, the republicans are trying to give you 15k for your troubles. And you may already qualify for the 8k.
MRIS stats by zip code
MRIS stats by region
I'm not sure if that's what Kevin's using, but if you haven't seen this yet, you need to check it out.
(it doesn't separate distressed from valid and verified sales though, for that the ffx tax assessor is better, it's linked to on the front page of this blog)
T,
No, I haven't been keeping track of Burke. I've kept track of the SFH prices in the following towns (not by zip):
Arlington
Ashburn
Centreville
Fairfax
Herndon
Manassas
Oakton
Reston
Sterling
Vienna
As well as some other select data on 22030, 031, 033, c-ville, and manassas.
Cara:
"Uncle Sam wants you to catch that knife. In fact, the republicans are trying to give you 15k for your troubles. And you may already qualify for the 8k."
Indeed they do. I'm not eligible for the 8k though. I can't wait for their response to the market when that buyer bribe disappears.
Cara: "I'm not sure if that's what Kevin's using, but if you haven't seen this yet, you need to check it out."
No, I hand count that stuff. Fo' real. Plus that site doesn't work for me here. Will try it again at home later though.
Kevin,
Yeah if they're not dismissable, that eliminates bankruptcy, but there are plently of people with assets walking from recourse loans who aren't getting judgments against them. Obtaining and collecting on a judgement is an expensive process, so I'm not sure making a bank made recourse loan will be enough.
My favorite idea for heading the crisis off (a little) was to have the government swap a refi deal for all the deadbeats was a $100,000 recourse second loan at 10 year treasury rates. In exchange for which the borrower could refi the remainder, and the government got an option on 50% of the equity.
There were not good solutions, but that seemed to have the right incentives behind it.
Building on what could be one of Wall Street's strongest monthly performances ever, the Dow soared 175 points and the Nasdaq Composite turned positive year-to-date Thursday thanks to big gains from tech stocks and retailers.
According to preliminary calculations, the Dow Jones Industrial Average rose 175.00 points, or 2.23%, to 7924.56...
“The feeling on the floor is pretty optimistic. People are sensing that perhaps this thing is turning a little bit,” NYSE trader Bernie McSherry of Cuttone & Co. told FOX Business.
It's been a March to remember on Wall Street as a huge rebound in financial stocks, a series of interventions from regulators and glimmers of economic hopes have sent the S&P 500 up more than 12%. That would be the best one-month rally for the broad index since 1987, according to Bloomberg News. According to Miller Tabak, the S&P's monthly gains would rank as at least the fourth strongest in the index's history.
“We’ve really got some upside momentum over the past few weeks. The market seems to be in one of those rally modes where it’s shaking off bad news and buyers are overwhelming the sellers,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research. “I’m taking a wait-and-see attitude to determine if this is something real or another expected bounce in a continuing downtrend.”
T,
My vote is for, "another expected bounce in a continuing downtrend.”
see chart here
T said: And based on those calculations, I think it makes perfect sense for someone to buy my TH [for $300k] rather than pay $1550 in rent
I haven't done the calculations, but in 2002 when I bought my TH for $245k, an equivalent one rented for $1500. At 6% interest and 20% down, my payments were a little over $1400. That made me pause, as that was the first time I had bought a house where I didn't have a clear substantial saving over renting. At the time, I thought I might have made a mistake in buying.
The $425,000 house in Boulevard Manor -- north of Rt. 50 in Arlington, not a short sale or foreclosure -- is actually a little above current comps. Two most recent sales 1st St. in Boulevard Manor: one level 2 BR 1 bath rambler with updated kitchen sold for $375,000 with $7,500 seller paid closing costs and 2 level 2 BR rambler in original condition with daylight basement sold for $418,000 with $12,400 in seller paid closing costs.
For The Anonymous: get into the Arlington market. The deals were in October, November, December, January and February. They are fading fast as the leftover inventory from those months is being purchased by the bargain hunters who cannot stomach the thought of buying one of the good houses now coming on the market in a bidding war or within 2% of list.
I'm late to the ballgame again (10-month old and life :-) ). But to follow up on the previous thread.
"Next time you watch It's a wonderful life listen to what they're talking about, moving people from Potterville rentals into homes they owned (via Bailey building and loan mortgages). You'd go back to an era where bankers/lawyers/doctors and successful businessmen owned and everyone else rented."
I submit to you that this is EXACTLY the same situation we are in today. At 5%, the rule of 72 says that you will double in <15 years or triple the cost in 30 years. So that 300k loan will cost you at least 900k over 30 years or 600k in interest. If you've only saved up 60k in say 5 years at that same rate it will take you 75 years to pay it back.
The only way this is even remotely possible is with the "magic" of inflation. Ah now inflation "eats away at the debt".
Now hold the phones . . . please point to a period (excluding GDI) when we've only had on average 5% inflation for 30 years-and especially since 1971 (when we became totally fiat based). So now if during any given 30 year period inflation runs higher than 5% (prices doubling every 15 years) how do the banks make money?
Isn't it completely illogical for a 5% loan to exist if the fundamentals of a 5% loan are completely unrealistic? So how do banks make money . . . inflation! But didn't inflation just prevent them from making money?
Unfortunately most people don't understand how inflation works. Inflation works through 2 methods, expansion of money (physical dollar bills) or expansion of credit (loans). There are obviously market drivers to the 5% loan, but with the magic of fractional reserve banking/lending and especially with the 0% reserves banks can in essence lend money and create inflation at will. Inflation always benefits the 1st users of the money (which are banks, which are used to funnel money to investment banks for hedge funds, housing, etc).
In other words with our system it is in the banks best interest to loan out as much as possible, regardless of CPI or wage inflation. If they can pump up the debt levels of the country by creating money at will thus causing the prices to skyrocket that means more and more people will be on the hook to pay them back. It is a perpetual self-feeding system of debt!
I am NOT advocating a system of no-debt, I think that is just dumb. If someone wants to loan someone else money, great please be my guest go ahead and do it. I have a BIG problem with someone (a bank) loaning someone money they didn't have (in essence creating it out of thin air).
For example there is actual money to supply all the demand deposits in this country (checking accounts). My bank account "says" I have 1000 in it . . . I really don't have 1000 in it. 900 of that money is loaned out to someone else or swept every night. Even though they "claim" it is a demand deposit it really isn't. Our entire monetary system is based on this debt since 1971 and is getting progressively worse.
As far as fearmonging that if housing loans were 5-10 years we'd all be living in hoovervilles, just BS.
Take a look at just about any good/service that is not leveraged. Computers, cameras, household goods. The real value per item of these objects goes down due to productivity gains. Any good or service which sees productivity gains will go down in real value per item. We have seen immense gain in productivity in ALL sectors over the past 10-20 years, naturally things should be really cheap.
Without a fiat currency the natural outcome is for EVERYTHING to get cheaper and/or consequently for real wages to increase. So while you may take a 5% pay cut one year, your 95% pay now buys more than 100% did 2 years ago.
And THAT is where the standard of living increases, through productivity gains, not through housing debt.
I'm not arguing for no debt, in fact I think debt can be absolutely wonderful, if used properly. Going into debt to start research on a new business/technology which will increase productivity, starting a business to increase your own personal productivity, getting an education to increase one's own personal productivity. Using debt to increase future productivity is a good thing.
Using debt to buy a depreciating asset, which just sits there and does nothing but cause you to sink more and more money into it to keep it updated and then to continue to "work your way up" the housing ladder and to continually be in debt to a sinking asset logically doesn't make sense.
It only makes sense through the "magic" of a rotten, corrupt, immoral monetary system based on devaluation, fraud and theft.
As far as renting from the banker/lawyers. Hmmm, let me see on a 300k place, I pay 600k in interest, and if I don't pay it all they own the place . . . that sounds a lot like renting from the bank to me . . . they just let you think you "own" it.
I'm also sad to say, but a huge portion of the population is absolutely stupid with money and finances. Do you honestly believe 65+% of the population handles their finances well enough to be able to really own a place? I honestly wish they were, but most people can't even maintain a budget . . . but they have the financial wherewithal to "own" a house!
Enabling those who financially aren't prepared to own and who don't have the discipline to do so is just leading them to their deaths financially speaking. The banks will suck as much out of them as they can and then leave them hanging dry in the wind.
Rent from the bank, or rent from a person . . . it doesn't matter you're still renting.
Please don't throw in tax advantages crap . . . if something has to be subsidized then that means it doesn't make sense to do it and the only reason the gov. subsidizes it is to keep the game going.
Our entire system is rotten to the core, one day it will collapse, of that I am 100% positive, when . . . maybe 2 years, maybe 5 years, maybe not in my lifetime.
Fundamentally it is unsound and unstable.
However, given all of the above, I am not looking at necessarily buying at 90% discounts, where prices go from here, what the gov. does, supply, demand, is extremely difficult to predict. Too many non-calculable factors weigh in.
I will prob. end up buying in the next 1-2 years . . . but I will base my decision upon what I realistically think I can afford given my income -the hear and now-and historical price to incomes (I know all of this is based upon 30 years morts.). I have to act upon reality not upon what I know to be a fundamentally flawed system. But while I might take out a 30 year, it will be paid off much sooner than that.
I don't give a rats behind about the bottom or what every else is paying or thinks they should pay. I know exactly what I feel I should be able to afford and buy given my education, background, etc . . . and it ain't a flipping TH in xxx. If fools want to pay 300k for a TH, so be it, I will not. It is not worth that much to me, and if I am priced out, so be it. I will continue to rent as cheaply as humanly possible save, save, and save.
I have too many other goals in my life that I want to accomplish that can only be realized once I have my family living secured (i.e no worry about mortgages). I can not afford to be tied to a perpetual debt cycle to a non producing asset and risking my family going on the street b/c I am not making money for a period of time while I am attempting to accomplish my other goals.
Sorry for my longer posts, I personally find this type of philosophical debate much more stimulating :-).
gte
that was awesome!!!
Oh, and to anyone who's thinking where should they be investing, may I suggest micro-credit? I'm seriously thinking that if the stupid system of shipping US food overseas for food aid can be totally replaced with buying locally (1 of the few things Bush started that I whole-heartedly agree with) then canning factories in Africa seem like a fantastic investment as a loan-product.
Oh, and did anyone else catch the Simpson's this week? Awesome. Check it out, totally on topic.
Wow, GTE!
Is there a way to archive posts for posterity?
@cara and Nova,
Thanks! Sorry for getting back to a dead thread late . . . life happens.
Well, archiving for posterity sounds good. Honestly, through forums like this, I try and hone my thought process and theoretical knowledge so that one day I might be able to explain it properly.
While the system is corrupt, I believe in the core principles of this country and just maybe, maybe if the stars align someday one of my goals will come true, help bring this corrupt system back into alignment, but I've got a lot of honing to do in the meantime :-).
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