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Monday, March 9, 2009
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34 comments:
Again with the stupidity...
ok HUD. Well stop the bleeding by giving the houses back to the people that caused them. I wonder if this area is the only one juggling fixes...
http://www.pwcgov.org/docLibrary/PDF/009484.pdf
Seriously the median income thing?.. i hope these houses are less that 200k.
i hope this crashes and burns too... in fact i hope free market reigns this week.
reposting zerodown's link from this weekend on instant defaults among the now prevalant FHA loans:
With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency's overall growth in new loans, according to a Washington Post analysis of federal data.
WaPo FHA default rate surge
The article has a lot of raw numbers but not a lot of percentages (which are easier for me to comprehend the impact of) but here's a relevant one:
"In Reston, Access National Mortgage has watched its default rate climb in three years to 6 percent from 4 percent, and the firm has had more than three dozen FHA loans go into instant default, according to federal data. "
I didn't want this to get buried in the long weekend exchange about other topics.
Let me try again...
I thought Manassas was bad, but this New York Times Magazine article abot Cleveland paints a not-pretty picture of a city destroyed by foreclosures:
http://tinyurl.com/cgmgxg
Very long, very detailed, very depressing.
how things should be...
http://www.cnn.com/2009/US/03/08/foreclosure.sale/index.html
12 years renting.... whew...
Hmm...
I can no longer get good historical data for house sales from the Washington Post's website. Seems the oldest sales I can find anymore are from 1998.
I've been working a lot with Fairfax's real estate sales history pages. Substantially easier to find and use than PWC's. I'll post a new graph in a few days.
Interesting article about the FHA redefault rate.
This could really affect lower-income exurbs like Manassas and Manassas Park, I should think.
Don't see this will have much effect on higher income locations like N. Arlington, McLean, etc.
Interesting article on CNBC website about their interview with Warren Buffett this morning. I pruned from the article:
Warren Buffett tells CNBC's Becky Quick the U.S. economy has "fallen off a cliff."
At the start of a three-hour appearance on Squawk Box, Buffett said economic developments have been very "close to the worst case" that he had imagined, although conditions would be far worse if the Federal Reserve hadn't stepped in last September.
Other highlights:
The economy "can't turn around on a dime" and a turnaround "won't happen fast."
Five years from now, the economy will be running fine. The strength of the American system will pull it through, just as it has many times in the past.
Inflation has the "potential" to be worse than the 1970s.
Most banks are in "pretty good shape" and can "earn their way out" of the current problems given the low cost of funds. Banks, however, "need to get back to banking."
Housing market could work through, or "sop up," its excess supply in as little as three years if new construction is reduced to a level below natural population growth.
Interesting article about the FHA redefault rate.
This could really affect lower-income exurbs like Manassas and Manassas Park, I should think.
Don't see this will have much effect on higher income locations like N. Arlington, McLean, etc.
Tom, is this just speculation or do you have any evidence to support it? My impression has been that FHA has become very widespread, and very popular in Arlington, Alexandria, DC, etc., especially for condos and fixer-upper / less expensive homes. Obviously it's not used for a $700,000k+ SFH, but that's not the whole market in any part of the DC metro area.
FHA loans
And CR made a good point that they don't break this down into DAP vs non-DAP or streamlined versus regular refinancing, or really any other relevant breakdown.
It's kind of an odd story to print with all those words and yet the numbers, which they must have collected in order to write it, not examined or made explicit at all...
I ask too much.
Too me this is just a warning of, there are more legs down to go, just because sup-prime and ALT-A is dead, doesn't mean the 2008 book will be an improvement over earlier years.
I was walking in Kingstowne through a (very nice) TH neighborhood because there's a foreclosure listed in it last week, and looked back in FFX county to see recent sales. There were over 25 sales of these TH's all over $400k in 2008. While surely most of these people can handle these prices just fine, I'm still coming to the conclusion that we need wage and price inflation as soon as we can get it, or this disaster will just keep on giving. $400-$500k for TH's? with a foreclosure priced at $329k? (who was a HELOC himself out of a home case based on his sales price (180ish) and the foreclosure sale price (320ish)back to the bank) How many of these new owners can weather this downturn if wages and prices don't start inflating within a year or two? 4 out of 5? 9 out of 10?
I think one of the only reasons to be sanguine about the DC market, is the assumption that as soon as the economy turns around, inflation will be allowed to grow at above 5% for a little while, to make these asset purchase prices align better with future incomes. And since the timing of the NoVa market is similar to the nation, this may even be timed right for us. But these borrowers better have locked in today's rates, or they will still lose out if they're trying to refinance out of a teaser rate 3 years from now into an amoritizing payment....
Still this seems today like quite a leap of faith on my part...
Anon412 said: "My impression has been that FHA has become very widespread, and very popular in Arlington, Alexandria, DC, etc., especially for condos and fixer-upper / less expensive homes."
There's a reason why the foreclosure rate in Arlington (esp. N. Arlington) is so low: income. Availability of FHA loans won't change that.
In the outer exurbs, however...
Tom, huh?
Income doesn't have much to do with it. A lot of first-time home-buyers, even if they're making $100k or more, can't come up with a $60k downpayment on a $300k condo, so they go FHA where you only need 3.5%. Then a year or 2 later when they're underwater and can't sell, they default.
Hey Tom,
you've been a landlord, right?
My friend is considering renting out her place (in NJ), the question I have is, do you get to subtract the real estate commissions when calculating the capital gains if she were to later sell the property for a gain (after having let too much time elapse with it being owner-occupied)?
Apologies in advance for the lengthy comment here.
I posted (several times, most recently last week or so) a graph of all house sales on a particular street in Dale City. I've been meaning to update the graph with more significant data, so I finally have.
The Dale City data is exactly the same as before, and the source is still the Washington Post 'recent sales' page. Though I can no longer use that to confirm the 1980-1997 data in this chart.
The addition is that I went and grabbed a random street in Fairfax County (I selected Burke) to compare the bubbles. I selected the street because the houses were similar enough, and built only a few years before the ones in Dale City. They're all SFH, though the graph does not attempt to correct for style differences between houses, or any other factors, such as improvements.
The data source for Burke, since WaPo has slimmed it's database down was the Fairfax County Government's webpage for sales history.
As expected, across all time periods the Burke houses sold for more, though the amount as a % of the sales price is surprisingly low at times. Other than that, I think the graph speaks for itself better than I could in analysis (at least in a comment). But I will give some very basic numbers here that may help.
Dale City Street:
35 total houses
71 recorded sales (2/1980-1/2009)
SPHPY: 0.0726
Burke Street:
62 total houses
144 recorded sales (12/1975-1/2009)
SPHPY: 0.0722
SPHPY is # recorded sales per house on the street per year. It's a measure of turnover, higher numbers means higher turnover. This is an average across such a long period of time that it doesn't show bubbles or troughs too well, but an immediate number might be more useful for depicting churn in the market. E.g. 2008's specific SPHPY was:
Burke: 0.0968 (or close to 1 in every ten houses on the street was sold that year)
Dale City: 0.1143 (or close to 1 in every nine houses on the street was sold that year)
Both are also significantly above the 25-30 year average.
IMO, there's a lot of very interesting stuff in there. Hopefully you'll find it interesting too. If you want more raw data, let me know.
xpovos,
thanks for the work.
So is the pink line or the blue line the one with the higher exponent? Is x in years, months or days? Or are the dashed lines not actually straight?
I know I could deduce these from the graph, but I'd rather be lazy.
Cara,
I wish I could tell you more about the exponent equations. But I think excel chokes on dates. The previous graph I managed to get it to what is a potentially reasonable number of 4% growth. That didn't come through on these. And even with that 4%, I have no idea if it was coincidence or data compelled. I need better graphing and regression software.
The dashed lines are straight. I didn't put their equations on the graph, but I can pull the slope data if desired.
The number with the lower base and higher exponential is the Burke data. The number with the lower base and higher exponential is the Dale City data.
x is normally days if you use excel's date system, the 0.0002 is the solid curve's daily exponential growth rate. I'm colorblind but the diamond data set has a higher starting point and higher exponential growth rate (the exponent number is larger), while the square data set has a lower starting point and lower exponential growth (Excel's exponential curve fitter is very endpoint dependant and Dale city has fallen more than Burke).
If you google spreadsheet or post your excel file, I can switch your growth rate to monthly or annual and split your datasets (invisibly) so you can see the growth curve through the top and decay curve since.
Adam,
Thanks for the offer, no google at work, but I'll see about doing it at home.
Soliciting realtor (TM) advice:
I'm considering putting in offers on a couple of houses that I've already found in Montgomery county (I read here because I rent in NoVa and discourse is more civil and reasoned than Bubble meter or other MD based blogs).
I haven't decided on a realtor strategy and Im interested in your opinions. Options I'm considering are:
1) Use Redfin-pro-rebate, con-inexperienced staff with little interest in advising me.
2) Traditional- con- 3% is ridiculous for submitting an offer. Don't know a good one.
3) Exclusive buyer agent- Pro- they claim to have a better track record of negotiating deals for buyers. Business model suggests this might be the case. Con- not sure I believe them.
4) Submit offer with the listing agent- Pro- The offer amount that I'm considering is certainly lower than they are hoping for. I'm hoping the prospect of dual agency might make my offer more attractive to the agent who might advise the seller favorably. It also leaves room that they could kick some of that 6% to the seller to make up the difference. Con- I've never bought a house before, doesn't seem that hard with a lawyer's help, but I'm not sure that I can think of everything.
Opinions?
Cara:
You deduct the real estate commission in determing the "amount realized" from the sale:
The amount realized is the selling price minus selling expenses.
Selling expenses include:
Commissions,
Advertising fees,
Legal fees, and
Loan charges paid by the seller, such as loan placement fees or “points.”
The "amount realized" minus the "adjusted basis" equals the gain or loss on sale of the property.
If you don't meet the qualifications for the exclusion, you can't exclude any gain; however, you determine the gain/loss in the same manner whether or not the house qualifies for the exclusion.
See:
http://tinyurl.com/ar5fur
thanks zerodown,
That's pretty reasonable of them/us.
TBW,
Indeed I think it's the bubble mentality that made saving for a downpayment seem impossible and useless, because you wanted to get in before being priced out forever, and your DP seemed to be going less and less far every year.
The American Housing survey is done by the census bureau every two years. But the data you want has not been compiled as a historical trend that I could find, so you'd have to (try harder or) mine it yourself:
AHS
I think it may only go back to the mid 1970's.
The 2008 data was discussed by NAHB:
2008 survey which showed that currently indeed first-time buyers average age is 32.
"People in that situation can save up money."
They can, but usually don't...
I know I feel very out of place amongst my generation when it comes to saving money. I am sure there are some others that are saving aggressively, but it seems more common to buy a BMW, a sport bike and a bunch of consumer electronics.
I am talking about people with significant income here, but little to no savings.
There just doesn't seem to be any understanding of delayed gratification.
Leroy,
It helps to have an obtainable goal in mind for the savings, like a downpayment on an affordable house. Then once you're in the habit, its kind of addictive in its own way.
I gave my father a ride into work this morning, and he and I chatted savings rate. BLS reports savings rate, but by that standard, I probably look like I'm frittering away most of my paycheck. But I have to look at the big picture.
Savings is not just "Income less Expenses", true, but it's also more than just "Money I take in cash and put in a bank or CD".
I think it's probably closer to Income Less Expenses than most people, particularly financially conservative people like me want to admit. My biggest expenses are 1) Rent [no way that's saving] 2) Paying down debt [CC, student loan, auto loan in order of APY--any of these 'could' be considered savings. Most of them I agree should not.] 3) 403(b) contributions [not in the BLS numbers; absolutely should be]. Then somewhere down the line is a fairly small percentage that I keep in cash as a growing concern for rainy days, and perhaps an eventual down payment. But paying off the debt is higher priority.
Depending on how you score it, the combined income my wife and I make is as much as 4 times what we 'spend' to as little as 1.0y x as much where y is a distressingly small digit.
eponymous: I like option #4, but I haven't tried it myself.
tiredbubblewatcher,
No hard stats to back this up, but could some of the difference in eras be college? In recent times, it has become more popular to both take on more school-related debt, and to stay in school longer and/or get more advanced degrees. Anecdotal, of course, but I have an MS, and my wife has an MS and went back to also get her MBA. So while I've been out of school for 5+ years and have saved up what I would deem a good 10% DP and cushion, my wife still doesn't have much in savings after tuition payments ($20K/yr). So, either we wait another year or two and save for a DP, or we put 10-15% down sometime this year (getting the $8K back) and get a place where our entire PITI is paid off by one person's biweekly paycheck (yeah, we are looking at places that are basically 2x earnings or less). Unlike others on here and elsewhere, I don't think the 20% is such a drop-dead number.
"It helps to have an obtainable goal in mind for the savings, like a downpayment on an affordable house. Then once you're in the habit, its kind of addictive in its own way."
I agree completely, but I started saving years ago with no particular goal. My salary easily would have supported my own apartment and a new car, instead I had roommates and a 10 year old car.
It hasn't made me miserable, I honestly don't feel much draw to many of the things people spend money on.
As someone else said, I think a lot of what drives some people to spend is the desire to "keep up" with everyone else.
That describes me exactly as well Leroy. I sometimes wonder if it's liberating to be as carefree with money as some people are though. They're the ones still buying tiny expensive houses and it doesn't give them a second thought. I try to walk the fine line between financial prudence and being a miser but I do feel like I spend more time thinking about money than most people.
Jeff B,
The crooked house in 22205 is under contract. This tells me the market has hit bottom.
I can't believe it! To me that's the kind of sale we would have seen during the bubble days.
I'm willing to accept that the market is different around here (as much as I'd prefer not to). The sale of that house for $475k is a stark example of what is possible in Arlington.
I wonder if the buyer also bought the empty lot next door and is going to rebuild on the site. It is a very nice location next to a park so the potential is there.
Crooked house is not that ugly, I've passed by once and the surroundings are pretty pastoral there. It is almost impossible currently to get a sfh of that size in that area for that price. Do you see many listings in that range?
I believe that the buyer will be upset with his decision in the long run, but if he made this decision based on current comps it looks ok.
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