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Thursday, March 5, 2009
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56 comments:
Washington Post says DC's "Ambitious revitalization plans have stalled, and tax revenue is likely to dry up soon, too. "
"... a sign that the slowdown that began in the far-out suburbs has now reached prime city locations. "
T and others were asking how reliable assessments were at gauging price. In the link below is chart of assessed value vs. sold price from 2000-2009 for 10 neighborhoods:
http://novawatch.blogspot.com/
NYTimes, ridiculously overpriced houses left out of the relief effort, boo-hoo
If you'd like a dose of schadenfreude here's a read for you. I could only stand to skim it myself.
Letter to the editor in the Post today:
Foreclosure Reduction Is Key
Thursday, March 5, 2009; Page A18
Robert J. Samuelson was wrong in his March 2 op-ed column, "Wrong Turn on Housing."
As a licensed Realtor, I applaud the Obama administration's thoughtful new direction on the housing markets. Minimizing foreclosures is the most important first step to getting America out of its housing crisis. Tax credits and lower interest rates won't do anything to help spur home buying until we have a floor under home values. Home buyers won't care whether they're getting an $8,000 or $15,000 tax credit, or whether they're getting an interest rate of 4.5 percent or 5.5 percent, if they believe home values will continue to decline.
The best way to slow the decline of home values is to minimize foreclosures, thereby stopping those homes from coming onto the market. The effect will be to shrink inventory to match demand. While purchasing activity may be what many real estate brokers and lenders want, the far better -- and less political -- solution is to slow activity, stabilize prices and then consider ways to spur activity.
EDWARD Y. CARP
Washington
Hmmm...how come I don't quite buy his stated selfless motivations?
I want him to come by where I live. So far, there are four times as many foreclosures this year as there were last year, and last year, there were three times as many as the year before. County supervisors have said values will continue to slide this year. And homes are selling like crazy, because the median home price and the median income are back in alignment. That's what needs to be done: no fake home values, or funny money. Just reasonable prices, and the market will follow.
Just for fun last night, I looked at new listings vs contracts and contingencies for a few zip codes in PWC. In 2006, 2007, and 2008, there were from 2-3 times as many new listings as C&C. Now, they are almost even.
I also looked at the financing used in these zip codes--wow, what a change. From 2006-early 2008, 90%+ were "convenional" financing, just a few VA. No cash. No FHA.
Now, the majority are FHA, with the rest split about evenly between cash and conventional--still a few VA.
Are people turning to FHA because of the low downpayment requirement? Could there be other reasons?
Are investors using almost exclusively cash now, whereas in the past, they used exotic "conventional" loans?
Cara, it's not all that bad, but if you didn't get to the end, there's a doozy:
For Mark Klepper, 50, who lives in Miami, buying a big house was a way to establish credit to start a business. In 2004 he bought a home for $585,000, and watched its value rise to $1.4 million. After refinancing twice, he owes $1,064,000. But the home is now worth a little more than he paid for it, and his income has fallen by 40 percent. He stopped paying his mortgage in January. If he were to continue paying, he said, the drain would crush his business. The government’s plan does not help him.
“I feel if there’s a plan out there, there shouldn’t be a limit,” Mr. Klepper said. “If the government is helping these lenders, they need to take some principal write-downs.”
He asked his lender to reduce his balance to $600,000 and his rate to 4 percent, but so far has made no headway.
“I’m saying I can afford to pay, just not what I did in the past,” he said. “I wouldn’t be asking for it if everything was fine, but it’s not.”
You reap what you sow, buddy.
tabitha,
I think this is from some one who doesn't believe that there is such a thing as a fundamental value for a house. Just as prices could skyrocket so could they fall to zero. If there is only the market, and if no one needed houses (kind of like diamonds) then he'd be right. A lot of the same people who held such faith in "comps" on the way up, have the same faith in them on the way down, and thus don't see any end at all. For areas that are ridiculously overbuilt and actually have a vast surplus of houses relative to how many people want to live there, he may have a point, ability to pay and price compared to rent may not be enough, because rentals are only cash-flow positive if you can attract renters.
Matt,
That was one I skimmed down to, that was particularly painful to read. You refinanced twice taking cash out and now you want a bailout? What? Does not compute.
“I wouldn’t be asking for it if everything was fine, but it’s not.”
"I wouldn't be asking for it if I had been able to hold onto the free cash the way I had expected to, but now that I actually need to pay it back, and I really don't want to, I shouldn't have to, because I didn't think I would have to..."
And for possibly more productive discussion here's an Op-Ed in the NYTimes on why writing down principle, rejected entirely in the Obama plan (they have forbearance and only as a last resort) is the only solution with the potential to prevent deterioration in the housing stock. NY Times 2 page Op-Ed
What did that guy do with the 500k he pulled out? Pay the mortgage with that!
cara--
Thanks for posting the NYTimes ediorial. Very interesting. I actually kind of like the idea of everyone getting normed back to reasonable appreciation levels, for the sake of so many of my friends here, who bought modest houses for outrageous prices from 2004-2006, and could never hope to move again:
2004: $390,000+$50,000 improvements, now $250,000
2004: $395,000+$50,000 improvements, now $290,000
2006: $450,000, now $200,000
2007: $429,000, now $220,000
They all had downpayments that evaporated a long time ago, none of them can refinance, they're all taking their lumps and making their payments. Why not act as though they bought their house at non-bubble prices back then? It's like the spiritual concept of grace, put into the housing problem.
Yeah the homes are getting so cheap out in Loudoun county my wife and I are considering buying a home in cash and scaling back our jobs to be with the kids more. My wife could completely quit, and I have negotiated a work from home pay reduction. We would clear the same amount of money each month!
"In 2004 he bought a home for $585,000...After refinancing twice, he owes $1,064,000."
"He refinanced twice" sounds so benign doesn't it? The reality is that he went into debt - deep debt - in order to consume more than he currently produced and he used the artificially appreciated "value" of his house as collateral to do so.
Seriously, why should we be bailing out people who went into debt to consume? If I ran up $100,000 in credit card debt to overconsume, the Federal government wouldn't bail me out. But if I overconsume in the exact same amount but pledge my house as collateral when doing so (i.e., borow through a mortgage), I should be bailed out?
Am I the only one who doesn't see the logic in this?
JF,
From what I read, it sounds like he used the cash out re-fi to fund his business. From what I've read, divorce, health issues, and failed entrepenuers are the classical victims of foreclosure so this guy's story doesn't bother me that much. Also, his inability to pay is a result of his business languishing.
At least he's not the new breed of foreclosure "victims" that are in their predicament because they bought their house like it was a used car. "So, what sort of payment would you like to make..."
My $0.02
"Doug said...
Yeah the homes are getting so cheap out in Loudoun county my wife and I are considering buying a home in cash and scaling back our jobs to be with the kids more. My wife could completely quit, and I have negotiated a work from home pay reduction. We would clear the same amount of money each month!"
Theres a name for this type of thing Doug. Its called the substitution effect :)
I thought it was called early retirement!
NovaWatcher,
I looked at the chart. I don't think it helps a lot in showing the reliability of assessments. It's more a measure of bias, i.e., are they too high or too low on average.
Say the sales and assessment were exactly the same at some point. What does that show you about reliability of assessments? Were the assessments close, or were the assessments that were way to high balanced by those that were way too low?
What you really need to judge reliability is a distribution of differences between the two, probably as a percent of sales price so that the expensive houses aren't overweighted. How many assessments were within 10% of the sale price on the low side. How many within on the high side. What about 20% or 5%. That would give you a much better idea of how much faith to put in an assessment.
The data in the chart does put a floor on reliability: If the assessments are 10% too high on average or 10% too low on average, than the average discrepancy is at least 10%. But it would be higher if you have any high assessments offset by low assessments
Doug,
do you really want to be around your wife and kids 24/7?
Just kidding!!!
it's an intriguing thought! where in Loudoun are you looking if you don't mind me asking (i hope there're houses <$500K)?
tks!
Whisper numbers from Mo Co:
Sales - 386
C&C - 1507
MOI - 12.5 (estimated)
Clearly bad news from across the river. If these numbers verify sales are down 20% YOY, and MOI is up YOY.
The large and perpetual MOI overhang is really starting to wear on Montgomery County. Not surprisingly, median price declines are now -20% YOY and look to be accelerating. Despite its late start, Mo Co price declines have now surpassed Arlington & Alex, and look very similar to FFX & Loudoun. I would not be surprised if its price drops surpass Ffx & Loudoun soon.
Doug,
I am wondering if you are kidding about moving to Loudoun. Because you used to imply that you valued North ARL schools for your kids.
Crt,
Doug's case is a bit different from 'substitution' because he already owns a home in ARL and is just looking to 'downsize'.
Anyone know where a job can be had modifying ALL these loans?
It's more a measure of bias, i.e., are they too high or too low on average.
Look at the shifted chart. You'll see that the assessments are spot-on. Not spot-on for today, but for ~18 months prior, when the assessment was taken.
In other words, the assessments are backwards looking. That means on the way up the assessments will be under, and on the way down they will be over. To say that they are biased is to misunderstand what they represent.
just wanted to add this here. perhaps soon home buying will no longer be on my mind...
Dow 6,652.19 -223.65 -3.25%
EDWARD Y. CARP: HACK
Yeah, let's reduce inventory, then everything will be awesome. Except the fact that housing prices are way too absurdly high. Let them correct, and keep hacks like Mr. Carp out of the press.
MM - Excellent point. People need funds to buy houses, and with the equity markets in shambles many won't have the necessary funds. At a minimum, it will force a significant portion of buyers to look for lower priced housing.
It's one thing to buy a $500k efficiency condo when the stock market is booming, it's another thing entirely when the market is down 50%.
One of the long-standing bubble eyesores is finally gone from Clarendon. The abandoned CVS and Sala Thai at 10th and Washington is now a pile of rubble. No word on whether they'll ever take down the "Garfield Park - Coming Spring 2007" sign.
"Tiredbubblewatcher said...
I think the Reston Town Center area might be working in getting that demographic in its condos and apartments. Does anyone know of anywhere else?"
The yellow/blue line at King Street. Not Old Town necessarily, but the new mixed use Carlyle center
http://www.alexecon.org/pdf_docs/CarlyleSubmarketProfile.pdf
I drove thru it for the first time the other day. Its not for me personally, but I was impressed...
MM,
Yeah, what is that about? GM's report? Any other obvious spurs?
Common sense rules of personal finance were forgotten in the bubble and have yet to be remembered, such as you shouldn't have any money that you intend to use in the next 5 years in non-safe products. I.e. your downpayment money should be in CD's or savings or at worst money market funds if you intend to buy anytime soon.
(reminds me of the Lord of the Rings opening, about the ring passing out of knowledge...)
I guess these rules don't apply to the discretionary house buying of the uber-wealthy...
To say that they are biased is to misunderstand what they represent. .
To make this statement is to to completely misunderstand what I said. I understand what the chart is showing. When I say it is a measure of bias, I mean it tells you the direction of error (and typical size of directional error), rather than typical amount of error. The size of error is masked by the negative errors partially canceling out the positive errors. Even where they are "spot on" we're still looking at a measure of bias, with the measure being near zero at those points. That does not tell us how far off the typical assessment is. Only that errors on the high side are being offset by errors on the low side, eliminating the bias.
That means on the way up the assessments will be under, and on the way down they will be over.
No, it means they will "tend to be under" on the way up and will "tend to be over" on the way down. Which is just another way of saying on the way up assessments are biased to the low side and on the way down they are biased to the high side.
Shift it 18 months and the bias is much lower throughout, and changes direction more often.
I think you may be hung up on the idea of "biased" meaning non-objective, slanted, or otherwise bad, which it doesn't here. A measure of bias can be a a valuable statistical tool.
Reading further on the link you gave, like I should have done before posting originally, there are charts that are much better at showing graphically assessment reliability. From them you can a very good look at both how far off assessments are in each direction, and how that changes over the last few years. For McLean, at the peak years, you had several sales at over 30% over assessment while others others were at 10% below. Here, the assessments were very poor at measuring of value (if you take sales price as value). These charts do an excellent job of portraying reliability of assessments.
Throughout both charts, both on the way up and on the way down, some assessments were lower than sales price, and some were higher. This is the reason for the "tend to" above.
$585,000, and watched its value rise to $1.4 million. After refinancing twice, he owes $1,064,000
I would like to nominate a new term for people like this, based on my time on a condo board trying to get people to keep their condo fee current:
ATMers.
These people used their houses like an ATM machine for years, to fund businesses, SUVs, trips, big-screen TVs, etc, etc.
And now they think the money should be FORGIVEN, just because it happened to originally come from their house, and not a corporate startup loan, a credit card, or savings?
I say if they can't pay, THEY SHOULD BE ON THE STREET. PERIOD!!!
Let's have a new rule in the housing bailout: if you are having trouble paying on your current house and you EVER EVEN ONCE did a CASH-OUT refinance on that same house, you are PERMANENTLY INELIGIBLE for ANY bailout, unless you are out of work due to disability, or there was a loss of an income in the family due to death. Overseas military service too, MAYBE, if it started AFTER your most recent refi.
Meanwhile, I'm going to go see if I can borrow against my gold holdings to spend on toys, so that if gold goes down I can get the loan forgiven.
JEEEZ!
KeithK: By bias, I assumed you meant that there was a systematic bias, other than that due to the time shift (er, delay). For example, chronically underassessed.
Reliability is a different issue, and as you mentioned, you can get a feel for the reliability from the scatter-plots below.
"Doug's case is a bit different from 'substitution' because he already owns a home in ARL and is just looking to 'downsize'."
True, but it is driven by the same type of thinking.
True, the N. Arlington schools are going to be superior, but having an acre or three of land is worth something to kids also.
And it also helps to insulate if society does fall to ruins.
Would be looking for something in the 350-400k range, out past Leesburg. Winchester area is a possibility also.
Tired:
I'm the one who mentioned FF county condos yesterday. When I said FF county, I wasn't thinking of the ghetto condo buildings in Falls Church (near route 50), Skyline, or any other dingy buildings that haven't been updated in 25 years.
I was thinking of condo buildings near Tyson's where there are alot of white collar workers (who could afford the 300-500k price tag).
I'm far from an expert but I think they will bounce back much better than other condos.
BTW, the new condos in Tysons (not sure of the name) are selling for outrageous prices. My friend just looked at one and I think he said it was like 400-500k for a 1br. Apparently the salesperson said that like 1/3rd of them were sold. I doubt it.
-Pacman
"Would be looking for something in the 350-400k range, out past Leesburg. Winchester area is a possibility also."
Uh, that would be WAY out past Leesburg, try Round Hill.
If gas goes back up again, that may become an issue. But only if you have to drive in somewhere.
Winchester sure isn't Loudoun Co, but housing there is finally dropping in price. I think the foreclosures are really a problem in Winchester, but I don't know for sure.
Anything East of the "Great Wall" (as one Local RE Agent says on his blog) *Route 15* holds MUCH greater value than properties West of 15
For those of us that watch Loudoun Co. like a Hawk...
Doug,
If you're interested in public schools, Clarke County has recently had some really good reviews. They're between Loudoun and Winchester.
I might recommend a wood-burning method of heat (geothermal being preferable). I think with this cap and trade issue that we will see energy prices skyrocket.
tiredbubblewatcher,
This is really just a rehash of the immunozones arguments now applied to a subtype of housing.
In the run-up all boats were floated, desirable and undesirable. In the crash the undesirability will be noted again and re-priced in. But to the extent that the desirable units/neighborhoods/strong-handed players became overpriced due to the availability of credit and bubble equity, they will fall as well. We just are having a hard time quantifying the extent on the local scale, and may only be able to quantify it after the fact.
"Anything East of the "Great Wall" (as one Local RE Agent says on his blog) *Route 15* holds MUCH greater value than properties West of 15"
Would you go so far as to say these areas are *immune* to price declines?
;-)
"Would you go so far as to say these areas are *immune* to price declines?"
Leroy
I'm not quite understanding if you are asking about East or West of Route 15 being immune to price declines.
But neither are immune - ALL of Loudoun has decreased in Prices, as I'm sure you know.
I'm just stating that the further out nether-regions of Loudoun have a much steeper price decline than Properties East of Route 15.
East of 15 is "closer-in" and thus Sellers think it's worth more (just like the Arlington Sellers... - sheesh)
At least most homes in Ashburn/Brambleton/Lansdowne/Broadlands are generally newer than Arlington construction (which isn't always a good thing, I know)
This is just my observation, as I want to buy in Loudoun/PWC sometime this year
I don't have any spanky charts/statitical data/degree in Economics to back this up, just good 'ol mid-western been-here & done this before life experiance
That was just a joke.
Over and over again people have come onto this blog and proclaimed that one area or another was "immune" to price declines.
Contrarian,
I'm comfortable with my opinion on where the housing market will go from here. I have no idea where the stock market will go. This might be the bottom, it might not. No one knows. The prudent thing to do is stay out stocks, in my opinion. Are you shorting the market?
If you're talking about holding non-stock investments then that's something I can probably get behind. I say that because I believe they'll do ok regardless of which way the market goes.
Contarian - Can you briefly explain your basis for believing equity prices will drop 90%? In addition, can you tell me how long you believe equity prices will stay at such lower levels?
"Leroy said...
That was just a joke.
Over and over again people have come onto this blog and proclaimed that one area or another was "immune" to price declines."
Out of curiosity, has anyone ever in all seriousness said that word? I could be wrong but it seems to me that
(i) someone bullish points out this area or that will "do better" "wont fall as much" "is worth more" etc.
(ii) someone bearish, responds saying the bullish person thinks this or that area is "immune".
Maybe I am wrong, but I would be a bit surprised if anyone other than a realtor ever said "this area is immune".
"John Fontain said...
Contarian - Can you briefly explain your basis for believing equity prices will drop 90%? In addition, can you tell me how long you believe equity prices will stay at such lower levels?"
Im curious about this too Contrarian, and really, since you seem to have a good handle on this thing, timing wise, when will we see Dow 400 and Median Home Price 40K?
Lance said his area was immune.
He later changed his definition of decline, stating that a drop of 15% was considered flat.
Pacman said:
"BTW, the new condos in Tysons (not sure of the name) are selling for outrageous prices. My friend just looked at one and I think he said it was like 400-500k for a 1br. Apparently the salesperson said that like 1/3rd of them were sold. I doubt it."
I currently live across the street from these new condos and can attest to the outlandish list prices. However, judging by the fact that only maybe 10% of them have lights on at 9pm at night I'd say that 1/3 definitely have not sold. The whole building is dark except for the community lounge up on the top floor.
Also, they only list a couple of units at a time for sale - I'm guessing to hide the massive inventory they've got left from prospective buyers.
"NoVAwatcher said...
Lance said his area was immune."
LOL - When I was typing, I was thinking I should say, has anyone "other than a realtor OR LANCE ever said 'this area is immune'?" Should have stuck to my guns!!!
Contrarian,
I was not saying that the stock market couldn't fall 90%. It had fallen 86% in the great depression and it can do so now.
But my problem was with your call that housing prices would fall 90% in the DC area. Unlike business earnings that have been in free fall, rents haven't fallen by more than 10-15% yet. Only mass unemployment, say 40%, can cause rents to drop more than 50%.
I am still skeptical that housing prices will fall a lot below what is justified by rental equivalents; since there is no high probability that rents will fall by more than 40%--50%, there is a limit to how much housing prices will fall.
I know you base your prediction on the Kondratieff Wave theory, but that theory has been discredited as it was from an era when there were no Central Banks.
Many such wave theorists have been wrong for several years. I reject the notion that anyone can time these things. My views are more like those of Naseem Nicholas Taleeb, the author of "The Black Swan".
"TedK said...
Many such wave theorists have been wrong for several years. I reject the notion that anyone can time these things."
Apparently timing isnt important to the wave theorists either. Heres an article from 1989 years ago when Robert Precther (Mr. Dow 400) and a buddy were arguing over whether the bear market leading to "the depression" would begin in 1990 or a bit later.
http://query.nytimes.com/gst/fullpage.html?res=950DE0D61E39F935A35751C0A96F948260
Given that it is now 20 years later and that the market is up 3000+ points from 1989 isnt important. If dow 400 comes to pass they will say they were right all along, forgetting that their timing was off by two + decades.
I have a question for the board. I've seen that a buyer can assume a loan from a seller as an approach when buying a house. Given that interest rates and housing values have dropped so much, I can't imagine there are many of these types of opportunities available these days. Is this true from your experience?
In all likelihood anyone moving from Arlintong to Loundon County is not downsizing in terms of size of home.
Doug,
Check out the Loundon schools. There are likely to be just as good as those in Arlington. In fact, Arlington schools are not the best in the area. The best are in areas of Fairfax County, not Arlington.
FranklyMLS.com feature update.
(people don't seem to mind getting meta testing feedback from you all)
Just added a new feature. Now in Arlington and Fairfax, each listing will link directly to the tax records of that exact home.
It sounds easy, but it actually is a major programming pain. But do you all want to see that for every county?
Also each MLS# and street address has a "g" next to it for easier Google searching to find more info on that home.
Anything I'm missing?
Frank
Frank,
Your tax link is still going to 2008 assessments. Can you update it to 2009 ones for FFX?
Thanks
Frank,
Sorry, I meant to say the tax assessment values you display is still from 2008. The new link you have added to the county sites is fine. It is good and brings all info together, so we don't need to look elsewhere for research.
The interactive search option on ziprealty may make it still relevant, though.
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