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Thursday, April 9, 2009
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40 comments:
CRT,
To follow-up from last thread:
For your investor, I might be interested in one of his 'liveable' properties. I know you said he wanted to sell a few and rent a few, but if he's interested in selling a liveable SFH that meets some of my other criteria for a price I can afford--and with the sound of these properites, I should--it could potentially be a good deal for both of us.
I think if he tries to MLS it, it will just end up in the hands of some other investor who wants to rent it out.
On that note, I also applaud this investor for providing a public service. This is what good business plans are about, provide something people need, livable housing, while making money doing it. This one has the side benefit of helping to recapitalize the bank, and take over the management of property that is not the banks area of expertise.
As long as they continue sound business practices of correct mold-abatement and proper reconstruction, I say, more power to them.
They're taking the risks that rents could fall out from under them and that the demand for these houses might never reappear, and I applaud them for taking it, and have no real objection if they make a tidy profit on it, so long as they don't miraculously manage to inflate another bubble (not sure how they would do that).
Banks are making money again:
WaPo Wells Fargo reports $3billion 1st quarter profit!
The housing market may or may not have a ways to go, but the business sector may recover sooner rather than later. What's your guess, a 300 point jump up in the DOW? I'm going to go conservative and say 250.
Cara,
It's smoke and mirrors. They made money because they didn't have to write anything down.
Actually I could see the market doing almost anything today. There's a short-term trend of pull-back, medium-term trend of bear-market rally, and long-term bad bear. News is pretty irrelevant to that kind of a picture. Yesterday was full of good news and relatively OK earnings, and it was still barely an up day.
xpovos,
the article includes a statement of what the losses were (also ~$3billion) it doesn't explicitly say if this was subtracted off and that the "earnings" were net earnings or not. It just says "earnings" so indeed I think the takeaway is that the net profit is zero. But the sharp pull out of the lowest point was the even looser Citibank statement that gee charging 20% interest rates on credit cards makes money if you ignore all those people who aren't paying at all. So, if there's any more room for upward movement in the market, I think we'll see it today. There may not be any more support for upward movement, that money could all already be in this bear rally. We'll see.
Cara,
Great comment about the positive side of the business plan -- that was my thought when CRT first mentioned the deal. It makes me feel better after reading this real estate agent hallelujiah-ing that our taxes were best spent in this same endeavor.
This year reminds me of 2006 when there was a lot of gusto at the very beginning of the Spring selling season, but it was gone by the end of April. But we shall see. It could just be Easter/Spring Break time.
Xpovos - if you do want to buy one of the foreclosed self-described "real dogs" out in Loudoun or PWC for under $75k, take some of what you would save and invest $350-$500 in some mold testing and another several hundred in a really good home inspector. I'd hate to see anyone move in to something and then get sick or find out there are underlying problems. A deal is a deal, just be smart about it.
Harriet,
There's an interesting article in The Big Money, on moving section 8 funds into foreclosure occupancy...
If the money's going to be spent anyway... it might as well get people in houses, rather than keeping them on life support.
(It's just a concept by someone who isn't particularly familiar with Cleveland, but it's a concept)
The argument against it is of course that home maintanence is an ongoing and considerable expense that some of theses people will be burdened by rather than set free by. So you need to keep both avenues open as no one solution fits all.
I personally would rather see more of the risks be taken by investors with savy and means than by individual home-occupants.
Harriet,
Thanks for the perspective from 2006 since I wasn't watching closely at that time.
I'm starting to see more price drops, but exclusively by short-sellers and only down closer to the comps, not lower.
There was a new listing yesterday that peaked my interest, a 2004 buyer who tried to sell in 2007 (based on the MRIS picture stamp) and is now listing for below her purchase price. It's 10k above other recent (past 4 months) valid-and-verified sales in that complex but I guess that's for negotiating room. I applaud this owner for her willingness to eat some of the loss, and recognize that 2004 prices have come and gone. Too bad I still think it needs at least another $40k discount to get closer to its true value given the $200 monthly condo fee. If it's still there when we start looking for real, I'll get it a look though.
http://franklymls.com/FX7026594
(I also really like the actually thought out curb-shot, way more atrractive than the drive-bys).
We'll see how long this spring rally lasts and where.
Heres' some interesting info that is similar to what Mr. Mortgage has written about - specific to our area:
http://www.novahomeguy.com/
note his list of pre-foreclosures coming down the pipeline
The reason they made money is because the new accounting rule lets them report their assets at what they paid for them, not what they are worth.
So they have a bunch of junk mortgage securities, as long as they dont sell them they dont need to devalue them.
all true, but it hasn't stopped the rally, +197 so far baby! Lemmings, gotta love em.
what lemmings believe
Xpovos. Their plan generally is buy and hold, and if they do sell anything soon its the unliveable stuff - the ones that would be worth more as vacant land. However, if things change I will let you know.
Glad to hear the sentiment here generally approves of their plan. This is one of my more conservative clients - the one who stayed on the sidelines during the peak of the boom.
Spunky - interesting + the guy seems legitimate (unlike Mr. Mortgage who I find highly suspect). Could be an explanation for why inventory is falling so precipitously in a time when it should be rising.
CRT-
yes, I think Mr. NoVA is legit - I also think he's one of Frank's (Frankly Realty)Agents.
I like his info as I watch a narrow area of South Eastern Loudoun / Northern PWC.
I still see plenty of inventory "coming on" in the zips I watch (20175, 20176, 20152, 20105) while old Sellers (> 300DOM) are still sitting on their dream prices.
Waiting for the capitulation to begin.........
Aaak! This one makes me cry.
It's a very creative and modern, and from the photos and description, it's a quite well-done house. So I went past it yesterday even though it's considerably outside of my price range. As I approached I thought, what a pretty neighborhood.
But it is on a very small lot and on all sides but one are very run-down-looking (esp. for N. Arlington) old apartments - I mean boards where some windows should be, trash outside, etc. So when you're relaxing on that front roof deck, that is what you will see. I just don't think many people would be willing to trade off those downsides at this price.
My prediction: These sellers will get $200K or more less than what they would get if this same house were in a "normal" location. And builders may conclude, "you just can't sell modern architecture to those fuddy duddies in Arlington."
oops, here's the link:
modern house
Ace,
Love the house, it's a great advertisement for the builder. But wow, they really spared no expense for that lot, eh? Who would have even thought it was buildable? From the tax records it looks like they bought the house next door, for $625k in 12/15/2004 split off this lot from its back yard and then built on it. Not too shabby of a plan if you can do it. Who needs to tear down the old house if you can just build a new neighbor?
Cara, you might be interested in these discussions that Arlington had when the builder presented the proposals to build the house and asked for variances:
Arl. zoning 1
and
Arl. zoning 2
Ace,
that's awesome, thanks.
My favorite quote:
"Commissioner Fallon wants to commend the applicant for the high LEED score and high quality
of design. However, it is an inappropriate use of the URD ordinance to shoehorn a house onto
the site with several modifications, creating a substandard lot with inadequate setbacks. "
followed up by:
"Commissioner Monfort noted that the URD is specifically designed to allow substandard lots. "
CRT: "Spunky - interesting + the guy seems legitimate (unlike Mr. Mortgage who I find highly suspect)."
I cannot trust a guy that says the answer to this whole thing is to write down the principal amount of everybody underwater to the current market value. I'll still read him, but I don't take what he says too seriously either.
Agreed, Cara. The irony is that the "bureaucrats" could often save the builder from him/herself if the builder, but in this case it was a 6-4 vote to let him/her go ahead.
Another example of it - when I lived in a single family neighborhood in a small city within the metro area of a big midwestern city, a developer bought an oversized lot with a teardown SFH and wanted to cram in 18 townhouses. Aside from the obvious disconnect with the character of the rest of the neighborhood and total ugliness of fitting so many tiny places on a lot intended for much less property, the prices would have been relatively cheap, bringing down the values of houses nearby.
The neighbors banded together to influence the small city zoning board to make the developer reduce the number of townhouses. They were very reasonable in not demanding that only a SFH or two be built instead. The developer of course thought everyone was being terribly unfair but eventually I think a compromise of 8 or 9 townhouses was agreed upon (the final resolution occurred after I moved). When I went back several times after building commenced, the developer had sold only a couple of the townhouses, despite the mini-bubble occurring there. He should have thanked his lucky stars that he wasn't given permission to lose his shirt on 16 or so unsold properties - even though the price per unit would have been cheaper, he wouldn't have sold them. For the same price, would-be buyers would have gotten more square footage, a small patio and yard, and a nicer property in other neighborhoods where they didn't need to pay the small city's very high property taxes.
Kevin said...
I cannot trust a guy that says the answer to this whole thing is to write down the principal amount of everybody underwater to the current market value."
Did he really say that? Yikes!
For me it was much simpler. Seemed too much of a sensationalist. The guys tagline was "dont believe the hype" - what "hype"? If anything the media was downplaying the issue...
Ironic too in that this was his tagline, yet he tended to use apocalyptic language on a regular basis...
NYTimes, Home equity considered in the student aid packages?
I am so naive. It had never occured to me that one's home equity would be included in the student aid calculations such that the schools would EXPECT you to tap that equity to pay for tuition. How naive am I?
mitigating quote:"Of the roughly 2,000 four-year colleges nationwide, only about 250 require applicants for financial aid to disclose a home’s value and outstanding mortgage debt. That disclosure comes in the College Scholarship Service’s Financial Aid Profile, a supplement to the Free Application for Federal Student Aid.
"
choice quote:"Institutions that require the Financial Aid Profile are typically costlier, and wealthier, with endowments large enough to sustain a supplemental financial aid program. Traditionally, these schools would ask parents to contribute 5 or 6 percent of their home’s equity to the tuition.
As real estate values climbed in the early part of this decade, colleges started to back away from that formula, because it forced many families of otherwise modest means to cover too much of the cost of tuition. About two dozen of the nation’s more affluent colleges, like Columbia University and the Massachusetts Institute of Technology, capped the amount of home equity that they would consider available for tuition.
If an applicant had, say, $500,000 in available home equity and the household income was $100,000, some of these colleges would consider only $120,000 of home equity in their financial aid calculations, or 1.2 times the family’s income. Others would multiply the household income by 1.5 or 2, instead.
"
OMG. Yup, tuition is the next bubble to pop, and it won't be pretty. I knew people were choosing to tap home equity to pay for their kids tuition, I had no idea that student aid offices were requiring you to do so.
kevin,crt
well, he said that's the only loss mitigation procedure that would work, not that it should be done. Basically his thought process is that if people are ever underwater or have no prospect of getting future appreciation gains then they will ALWAYS choose to walk away. Obviously that's not true for all people.
It was never clear to me if he actually thought the banks/government should implement this plan or if he was just making the case that all the plans they were trying to implement were worthless. Given the default rates so far on the modifications, I'd say he's being proven right on the second part.
Given that his line of business appears to be buying up non-performing loans for pennies on the dollar, you can see how he'd take this position. The only way for him to make his business profitable is to write down the loans massively to split some of the savings with the home-owners and keep them paying interest on his investment.
Cara, this article repeats one of my pet peeves. Parents aren't being asked to "contribute equity." They are being asked to take out loans for 5-6%, in addition to any loans they are seeking as part of the financial aid package. I'm not sure that the policy of asking parents to take on some debt before their children will be considered for other aid is a bad thing, but it needs to be called what it is.
The mentality of the house as (a) an ATM, from which you withdraw saved cash with no obligation to repay it, as opposed to (b) the reality that the accurate analogy is to a lender to whom you must repay the debt, is part of what caused the current mess.
CRT: "Did he really say that? Yikes!"
Yes. That was his big drive the past several months. That the only solution to this whole thing was to simply eliminate underwater portions of mortgages. I let him have it a few times, rightfully.
I think the 'hype' he referred to was the cheerleaders always calling a bottom. This was much more prevalent in late '07 to early '08. He was basically digging up contrary numbers to show that NAR was full of crap and the market was going to get much worse. For that, I commend him. For advocating massive principal reductions, I abhor and distrust him.
Cara: "Yup, tuition is the next bubble to pop, and it won't be pretty."
Agreed. They're going to have some seriously pathetic application rates if they don't slash tuition.
"Basically his thought process is that if people are ever underwater or have no prospect of getting future appreciation gains then they will ALWAYS choose to walk away. Obviously that's not true for all people."
Precisely. My whole counterargument to his position is that the losses from foreclosures will be much much less than writing down all principals to market value. People have inheritance, family, other options. Also, many will just stick it out. So even if a third of them were in danger of walking away, it'd still be far cheaper to just let them walk than to write down EVERYBODY's principal. Not everyone is going to sacrifice their integrity and renege on their obligation.
ace,
I know. It's so frustrating. "Equity" is only equity if you sell the place. But this method by schools does get around a tactic that was much discussed when I was going to college, of the parents moving up into a bigger, nicer home just before senior year of high school to soak up some of their liquidity such that it wouldn't appear on the FAFSA. Especially prevalent (by hearsay) in ugly divorces.
Cara,
(thinking off the top of my head, FWIW): Then wouldn't it make more sense to simply ask the parents for the entire net worth picture, and ask for a contribution/loan of x% of the entire net worth?
It's also interesting that the vast majority of universities do not use this approach.
Re: Financial Aid-
I strongly agree with this approach. All schools should use it. Not to use it rewards individuals who choose to keep most of their net assets tied up in housing at the expense of those who choose other asset classes. If I live below my means, small house, college savings in cash and equities, why should my neighbor who spends lavishly on a large house be more eligible for financial aid than my children?
I agree with eponymous. Even more importantly, I think colleges should definitely look at 2nd homes, and perhaps other non-cash assets like boats and luxury cars.
If you're broke cash-wise but have 2 homes, 3 luxury cars, and a boat, I don't think your kids should get financial aid.
Cara: Townhouse you mentioned sold in Aug 04 for $277,100 after bid up from $255,000. Owner has rented it since Sep. 05 for $1,550/month and tenants still live there. Owner has probably done okay with tax writeoffs and the property may be in less than perfect condition with tenants so she is smart to try to dump it now. Beware of mansard roofs though as they are notorious for leaking, particularly in poorly-built townhouses.
For Ace: the house you saw has an interesting back story. Builder bought the farmhouse next door on a 14,000 sq ft plus lot in 2004 for $625,000. The lot was too small to subdivide but owner managed to get the house on a 8000 sq ft lot and a building lot on the remaining land. For the record she got the building lot because she agreed to build a totally "green" house on it. Off the record, she got the building lot approved because her husband then worked for Arlington Co and now is the City Manager of Falls Church City. Once the non-conforming lot was approved, she renovated the farmhouse and sold it for $807,000 in Nov 2008 (it was listed at $799,999). Even if she has to sell the new "green" house for $200K less, she is still doing just fine. But I suspect someone will buy it despite the apartments across the street (not as shabby as you think -- they are loaded with school teachers, military and government workers).
The "green" house is pretty spectacular - you should see it
Anielarke,
Thanks, that is very interesting - a little of that info is in the links, but not all of it.
I wasn't speaking about the people living in the apartments - no doubt they are just as you describe and people holding other jobs, retired, in school, etc., who live there may be very good people too. Instead, I was describing the physical appearance of the apartments, which anyone can judge just by driving by.
Some $1.3 million house buyers don't want to be near ANY apartments, no matter how nice, let alone have them on 2-3 sides of the house. Other buyers would be open to having some apartments close, but only a few, and/or if they are upscale and in good condition. This is among the reasons for the location, location, location mantra.
You make a good point about the fact that the seller may just want to make money by taking advantage of a unique situation rather than to find the best location for this unique house to appeal to the most people and make the most money for her.
I also have no doubt I would love the house - Cara, MM and NoVAwatcher and several others here and I really like modern when it's well-done. I just wish it were in a different location (and much cheaper, so I could afford it, but that is another story!). But there are a lot of pretty great (and bigger) < $1.3 million homes now for sale in Arlington, in much better locations. My point is that people willing and able to spend that amount on a house are likely not to be willing to spend it on even a spectacular house, if it has the drawbacks this one has (which can't be changed). I know this is true because it's true for a lot of people who are shopping in much lower brackets.
An added complication for the seller - as a prior owner of a modern house (and it wasn't a dump - was designed by an award winning architect for himself and family and in great shape on a great lot, in a great school neighborhood - in another city) I can tell you that the vast majority of people will not even consider modern, no matter what. They just don't like the style. So in most cases, that reduces the demand, and ultimately the price the seller can eventually get. Ask a Realtor or appraiser you trust if you don't believe me.
For more evidence, check out the characteristics of Arlington houses that sit. While it is by no means an exact parallel (I don't think there is even a somewhat close comp. to the 16th St. house), take a look at 711 N. Barton - much closer-in and close to metro, in a hip neighborhood, etc. It's a "cool" modern house also on oddly shaped on an odd lot, though it is much less expensive and smaller than the green house. It's been sitting forever.
If I'm right about the above, and if you're right about the ability of the seller to make money even for $200K less (and I believe you are - the cost of even high quality green construction and its land couldn't be anywhere close to the asking price), then she would be smart to change the asking price now to reflect the poor (for N. Arlington) location and undersized and strangely shaped lot.
I guess time will tell! With any house, all it takes is one person who really loves it and can afford it. I may take your advice and go to the open house just for the fun of seeing a spectacular house.
ace,
i don't know about the modern in this area. there are plenty of such houses around glen echo, for example, where the lots are large enough for relatively flat structures or on the potomac, where view is nice because even one-story home sitting on the slope has plenty of horizon in front of it. and people pay crazy amount of money for these. i wish there was more houses like this one and less demand for it. always though that the best in sfh is that it can be somehow unique, but for most of the area the fake craftsman is the best you can get.
Konstantin, isn't it the truth? Placed in those settings, modern works especially well, too.
But when I came here Realtors warned me about the difficulty of selling modern houses and it's consistent with my experience. When I interviewed architects about a possible addition to my home, they said the same thing - they would love to design and build more modern houses, but the challenge is finding clients who feel the same way. So I think it's true that there are a few people who love them here, but most do not. That's why you see all the fake Craftsman (-men? -people?).
ps Konstantin, I should have also said that if you compare the prices of those modern houses in Glen Echo with comparably sized, comparably featured houses that aren't of that style, I don't think they will be more expensive - and they probably took/would take longer to sell than the "traditional" houses. They are expensive because everything in Glen Echo is expensive!
Hehehe, was I right or what? DOW up 246.27 points. Too bad that's totally useless as investment insight since the bulk of that happened immediately at opening based on the futures prices. It would have been much more useful if I could have consulted my weegee board Wednesday and foreseen that yes indeed mortgage originations for a depository institution that's paying next to nothing in interest to its depositors would turn a profit when everyone and their brother is refinancing. Duh. Ah well.
I'd also love to own a modern home though it will be a while before I can legitimately afford one.
The Barton St modern suffers from a few of the same problems as the 16th st house - the location and lot are pretty poor. It's close to the Pershing/50 intersection so the nearby traffic is somewhat heavy. The lot on one side is a gravel lot followed by a small strip of stores. It's an interesting house but I'm not a fan of the lot at all.
anielarke
thanks for the inside info. If they're good tenants the place shouldn't be any worse for the wear. (I'd prefer to re-paint and re-floor any place I buy myself anyway). Though... if they want the lease to convey, that's a different thing.
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