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Friday, May 15, 2009
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64 comments:
I know this is San Diego not NoVa, but you gotta take a look. This is what lemmings think as they jump off a cliff:
Divergence Jim the Realtor's bubble blog, by Rob Dawg. Signs of spring there are really bringing the WTF listers out of the woodwork.
Last night, I was reading the details of how appraisals must now be done for Fannie/Freddie-backed loans, as of May 1st. I could not determine how much the new rules would change the game. Will appraisers no longer know the contract's purchase price when making their appraisal?
This is my appraisal story:
The house we purchased was not on the market. The divorcing couple who owned it could not agree whether to accept our offer or not. The lady accepted it, but her husband wanted at least $100K more. We bombarded him with charts and graphs and all kinds of data, but he would not budge, and tax assessments (which we know would come in below our offer) were at least 6 weeks away. Having faith in our data and the appraisal system, which we had never fully experienced before, we offered to get an appraisal for the house, to prove our offer was reasonable.
Mr. D said yes, but while we would pay for it, he would choose the appraiser. We countered that both parties could hire their own appraiser. So we did.
We called the the appraiser our bank would approve. She had done an appraisal for a previous house we had tried to purchase, and it had come in exactly where I thought it would, based on my data. Since there was no formal offer, she had no idea what was going on.
We were absolutely floored when we got the results of her appraisal. It was for $140,000 more than our offer, $40,000 more than what Mr. D wanted. We were devastated. Our strategy had blown up in our faces. I had blown it.
We sat on this information while we waited for the other appraisal. I emailed our appraiser back, acknowledging receipt, and said we would not be purchasing this house after all, since the appraisal had come in too high. (The company had offered a discount on our bank-ordered appraisal for the same property, if we got them within a month of each other.)
The next day, we received two emails: first, a copy of Mr. D's appraisal, which came in $150,000 over our offer. Second, another email from our appraiser, with a new appraisal only $37,000 over our offer, with a terse explanation that our property was so unique, and the market situation so volatile, that a second look led to some necessary revisions.
These appraisals ended up not having a bearing on our offer, because the couple waited for the tax assessments to come out, and they were $37,000 below our offer, so Dr. D caved at that point and let us buy their house. But it made me a permanent cynic when it comes to appraisals.
Especially because the bank-ordered appraisal, which used a different company because we ended up going with a different bank, came in at $550K, our exact offer. This was only two months after the other ones. Unless it is truly a cookie-cutter house, with tons of recent sales, I think you can make the numbers say anything you want.
And I remember someone here who lives in a new development in Bristow saying his refinancing neighbors were getting appraisals in the upper $400Ks, when ALL of the recent sales have been in the $300Ks, so maybe even under cookie-cutter circumstances, appraisers can say whatever they want.
Will the new rules change anything?
tabitha,
thanks for sharing that. Here's hoping my mom's appraisal for her refinance knows it needs to come in above $510k. (that's $65k below the yearly 09 assessment). Given the complete lack of sales in her development, I pity any appraiser who has to attempt to value it right now. There are no comps within 2 miles. Not in the last 8 months. (The REO down the street sold for over $550k last summer).
If appraiser's don't know what they need to do to keep transactions happening this may indeed be the next leg down. Not that I think a system that can always justify any number its given is a good one, or worth keeping, but impediments to financing could be a major drag on the move-up market.
I think what may have happened in your case is that you actually did get a ridiculously good deal in the current market, which is why the first sets of appraisals came in so high. The real reason the last one came in exactly at the transaction price is not because it's really worth only that much, but because the banks can't afford to offer any more HELOCs.
tabitha said: "the bank-ordered appraisal, which used a different company because we ended up going with a different bank, came in at $550K, our exact offer."
Funny how that works, isn't it?
"WTF lister" <-- most appropriate description indeed.
Tabitha, thanks for sharing that story. I'm now a cynic too when it comes to appraisals. Hell, we should just do away with them altogether. Let the free market decide what a house is worth.
kevin,
what about refinances and HELOCs? Getting rid of appraisers would mean "gasp" that you'd have to sell your house to get the equity out of it! Hmm, that sounds like a good idea to me... You could still refinance, but instead of getting an appraisal, you would just be refinancing the amount of debt you already have that's already "covered" by your collateral. This would also be great news for underwater debtors. Given that under their current loans, their collateral is already insufficient, what does the bank stand to lose by giving them a more affordable loan? Why bother re-appraising? I like it. Won't happen. well, not for a while anyway...
Cara, good point. Actually, my statement was kinda dumb. Appraisals are good for the banks, so they don't get screwed by scamsters. Like if in a normal market I buy a $200k house, then sell it to a buddy for $800k and he of course defaults, but we split the profits. The bank eats it big time, because the house was worth nowhere near that amount. Kinda like.... the housing bubble!
But appraisals should have nothing to do with what price should be paid for a house, just what is financed. Especially when you get a spread of $180k like Tabitha experienced, which is just absurd.
Our appraisal helped us. We closed on a short-sale in late February but had started the process back in November. What we paid in February ended up being less what we initially offered by $45K due to the appraisal (which didn't take place until January). I think the appraisal that was done was pretty conservative - but it worked to our advantage. We paid appraisal price - the bank accepted the $45K less price based on the appraisal without a blink.
kevin,
hmm, yes that is the gaping problem with getting rid of them altogether.
I still like my plan to allow all borrowers who overpaid for houses to refinance the full amount of their outstanding debt, so long as it's into a fixed rate loan held by the same institution. If those who got caught up in the bubble want to stay in their houses and aren't asking for a principle reduction, I think we should let them, regardless of LTV.
The problem with that has been discussed a year ago here, which is if they're overpaying on their PITI, they may have no money for maintanence and landscaping. But I think that's minor compared to unnecessary disruptions to our banks. Unnecessary because these people are ones who intend to honor their debts. So, let them. Let them and the knife catchers save our economy by saving our banks. If a couple hundred dollars more a month due to decreased interest payments will keep them solvent, why bicker over the collateral?
that's pretty sweet dgg! I really think buying in the off-season is a way better plan than trying to wade into things now.
Cara:
"I still like my plan to allow all borrowers who overpaid for houses to refinance the full amount of their outstanding debt, so long as it's into a fixed rate loan held by the same institution. If those who got caught up in the bubble want to stay in their houses and aren't asking for a principle reduction, I think we should let them, regardless of LTV."
That sounds exactly like my plan. Give them three options:
1. Continue to pay according to the current contract
2. Walk away
3. Refinance into a fixed rate for a term that you can afford. If you bought a $800k house on a $100k salary, you might need a 60 year loan, but you can keep the house and afford it now.
People arguing for principal reductions need to be slapped. It's very simple really. If foreclosures are so awful (and I don't think they are), then simply force everybody into extended fixed rate loans. Make them mortgage debt slaves for life, with full recourse loans so they aren't tempted to walk away. That's a lot of interest they'll be paying over the life of the loan, which means that the govt might eventually get back its TARP money.
The bleeding hearts actually like that idea, until they realize how sinister it is. They then do a complete 180 on the need to save these people's homes, because they realize nobody "needs" to own a home.
Tabitha - unfortunately your story is all too typical, especially in an adversarial system like this (divorce). If you recall, thats why I suggested you insert a provision requiring the "3 broker method" to establish value. I see it alot in many commercial contracts and it really helps to keep these guys in check.
I will say, the PWC market is so disjointed right now, I think its reasonable to assume the variance in appraisals is not all that surprising. In a more orderly market, it normally isnt that bad.
Best appraisals I have seen are ones where there is no "target price" on the line. For example, when I refinanced recently, I had enough equity such that a 100K swing above or below what I thought the property was worth wouldnt affect my abillity to get the loan. These sorts of appraisals, or really any where a target value isnt an issue are much more trustworthy.
I wonder if frequents your blog? could be, might be, maybe he should of a while ago. I do not see how he ever got is position, I mean he borrowed only 3k from CC @ 0% interest, why not borrow 100K @ 0% like many others did. The guy, admits that he was clueless, but he even now does even get it.
Great read on Silver Spring purchase at the top of the bubble
http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?pagewanted=print
"If I arrived at the Metro just before the end of rush hour, I would wait for five minutes to save 50 cents on the fare." (ummm that's 10 cents a minute or less than min wage)
Tabitha - unfortunately your story is all too typical, especially in an adversarial system like this (divorce). If you recall, thats why I suggested you insert a provision requiring the "3 broker method" to establish value. I see it alot in many commercial contracts and it really helps to keep these guys in check.
I will say, the PWC market is so disjointed right now, I think its reasonable to assume the variance in appraisals is not all that surprising. In a more orderly market, it normally isnt that bad.
Best appraisals I have seen are ones where there is no "target price" on the line. For example, when I refinanced recently, I had enough equity such that a 100K swing above or below what I thought the property was worth wouldnt affect my abillity to get the loan. These sorts of appraisals, or really any where a target value isnt an issue are much more trustworthy.
Cara: I'm seeing the same divergence here. As the sold prices fill up my mailbox, I see nice discounts ($500-$900k range). But, when I look at quite a few of the new listings, I think 'WTF'?
For example "Your two neighbors sold identical models over the past 12 months -- 1 in the past month -- for $730k, and you're listing for $930k?"
Actually, I think someone on this board lives near this house and might know the house I'm talking about.
Kevin,
The interest on an 800k house is more than anyone would call affordable on a 100k salary. The problem is that far too many people massively overpaid for their homes (beyond any reasonable way they can pay it back). The only two options are mass defaults or mass principal reductions (any other proposal may delay the other two but won't solve it unless the delay is via enough inflation to effectively result in a principal reduction).
adam, kevin
at 60 years you might as well go to an infinite term, otherwise known as an interest only loan. Indeed, many borrowers can't even afford that. But I think we should focus our efforts on those who can be "saved" if they choose the path of renting from the bank.
Adam, that was a bad example I gave. Somebody in that situation obviously should lose the house (or rent it back).
Good article Buck. I think this was his problem: "As an economics reporter...I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range."
Remember, these two clowns are the ones who claimed it was impossible to determine the existence of an asset bubble until after it popped.
The econ reporter is probably one of those people who is well educated but not smart in a practical/common sense way.
Kevin,
I agree, but the problem form a public standpoint is that when all those folks lose their homes, it spills over into more and more homes, resulting in a huge amount of social unrest.
I think the best course is a hardline bankrupt the bad actors, but unfortunately there are enough bad actors that good actors will be punished regardless of the action you take. I suspect that writing down principle minimizes the cost on the good actors.
The exception would be unique homes that don't undergo the opportunity for a transfer that would have happened if a huge number of homes were foreclosed and sold.
Someone might have posted this already, but this is a fantastic read:
Suburban Housing Markets are UnsustainableI'm nearly done reading the first part, and though it's not eye-opening to me, it could be to the majority of homeowners out there. Very well-written and funny. Definitely rips into NAR, which is all it takes to earn my adoration.
Adam:
"the problem form a public standpoint is that when all those folks lose their homes, it spills over into more and more homes, resulting in a huge amount of social unrest."
What spills over onto the other homes? My neighbor forecloses, so what? Should we subsidize his house so I don't have to endure the horror of an overgrown lawn there for a year? "Social unrest" sounds pretty spooky. What do you mean?
"I suspect that writing down principle minimizes the cost on the good actors."
Please tell me more. Principal reductions for those that bought more than they could afford. Good actors? Elaborate.
The social unrest comes from having 10 million people temporarily foreclosed on with no good way of housing them, as well as having all the banks that made their mortgages fail.
Good actors are either people who bought a home they could afford or those who didn't buy a home at all. Bad actors are those who overpaid either through their fraud, ignorance, neglect, or someone elses fraud.
If we toss them all, there will be enough very upset folks that I would fear for the government we'd end up with.
Since writing down principal should reduce the price of homes for new buyers and wholesale principal write downs would benefit all borrowers, I suspect this will produce the lowest costs than other plans (many of which give a huge number of people nothing left to lose).
adam,
what about all those who've already "lost their homes"? What's wrong with moving in with friends and family? Generally that's a whole lot cheaper. What better way to get financially solvent again than minimal cost housing with relatives or roomates?
I love novawatcher's post-apocalyptic writing, but I don't see it happening. Why? Expectation of inflation while still holding on to your house provides hope, combined with a huge wave of relief at having been released from an unending burden if you are kicked out.
Is there room for things like the non-profits in Boston that are buying people's homes from the bank and selling it back to them for prices they can afford? Sure. But I don't want it as a national policy.
Adam: "The social unrest comes from having 10 million people temporarily foreclosed on with no good way of housing them, as well as having all the banks that made their mortgages fail."
They can do what I do: RENT. Living in those houses for many months not paying their mortgages should give them a huge lump sum of money saved up. They can rent something much nicer for the same amount they were paying on their mortgage. Terrible example, Adam. I'm afraid that your "social unrest" was nothing more than spooky words that translate into "they'll have to move". Give me a break. And the excuse about the banks and their losses is odd. Isn't this realized by now? Wouldn't forcing banks to reduce principal balances in fact be way more expensive?
"Good actors are either people who bought a home they could afford or those who didn't buy a home at all. Bad actors are those who overpaid either through their fraud, ignorance, neglect, or someone elses fraud."
Then principal reductions will not minimize the cost to good actors. It rewards the bad actors.
"If we toss them all, there will be enough very upset folks that I would fear for the government we'd end up with."
They're so underwater they don't really want the homes anyway. You want to cause a public riot? Reduce the principal balances on those who least deserve it. Best case scenario people will march with pitchforks and torches. More likely there will be boiling blood running through the streets. People work their whole lives to pay off their homes. If those 95% of people that live responsibly see the guy across the street get a reward for being a selfish dumbass, they will go insane with anger. It would be the most quintessential and painful form of insult to those that live responsibly.
"I love novawatcher's post-apocalyptic writing"
---
I think you have me mixed up with someone else
sorry, someone on this blog also write post-bubble fiction, and I thought there was "nova" in their name...
Cara: I thought that person was on CR.
novawatcher, they are, but I thought they were here as well....
loved the seekingalpha link Kevin. I usually ignore the seekingalpha links on patrick because a lot of it is just rehashing, but this one had such fun vitriol in it to make it very entertaining, even if I could quibble with the social commentary.
Kevin, seekingalpha was a blast. Thank you.
It reminded me of the endless interrogations we go through out in public: How can you afford to have all these kids? Fact is, if you took a peek into our Catholic homeschooling community, you'd see a lot of huge families living in cozy little homes, happy as clams. The notion that you need to restrict family size because kids in and of themselves are so expensive/need their own rooms is hogwash.
We may be living the dream in our new house, but in the Marine Corps, we lived in trailers and concrete boxes and hotel rooms, with all of our kids in one room (sometimes all of us in one room), and you know what? We didn't just survive, we thrived.
Stuff gets in the way. If you have to move all the time, you begin to see your stuff for what it really is: a pain in the neck.
I hope and pray this housing situation leads to some national soul-searching.
I mean, think of that NYTimes reporter. Is that a life worth emulating?
Cara, it's a really fun read. And it is biting in its criticism of Bush, Clinton, and the delusional hypnosis of the American consumer psyche of the past decade(s). I'm guessing that the writer in all of his wisdom will recommend just reducing everyone's principal balances;)
Tabitha: "Stuff gets in the way. If you have to move all the time, you begin to see your stuff for what it really is: a pain in the neck."
I agree and I loved the article's use of George Carlin's famous "stuff" bit=)
"I hope and pray this housing situation leads to some national soul-searching."
Amen. This is a great opportunity for us to rid society of our stupid and selfish behavior. Be frugal, be smart, live conservatively.
kevin,
yeah it was a blast. I remember hearing that state of the union by Bush and talking over him by the end of it, it was such hogwash, so it was stunning to actually read its text knowing what we know now. And back a few years ago when I first stumbled onto IHB, I used to rail against the lifting of the capital gains tax on housing to no end. (I've given up)
Tabitha
The whole concept that each kid needs their own room drives me up the wall. It's good to have communal space where you can leave half-finished puzzles and drying artwork and craft projects and brew beer, (okay maybe this allows too much slobbiness) but bedrooms are for sleeping, what difference does it make? I missed my sister when she left for college so much! (I was still little)
Cara: "I remember hearing that state of the union by Bush and talking over him by the end of it, it was such hogwash, so it was stunning to actually read its text knowing what we know now."
There have been times while driving home I'd listen to some knucklehead like Sean Hannity praising Bush's economy and how the tax cuts have boosted prosperity, etc. I find myself saying to the radio "that was the housing bubble, you idiot!"
Kevin,
I do not think living frugal is good, I'm and it hurts me. I would say just to live within your means and balancing simple pleasures with expensive ones is a good idea.
Discussion about kids is also pretty revealing. I have some co-workers coming from huge families and having a lot of kids as well, very happy people. It's not for everybody, it's a lot of responsibility and no time for yourself in general, but if that's what you need and like --- money usually is not a problem.
Calculated Risk thinks there's hope for you yet, Kevin: mid-to-high end pricing puzzle.
I think the "surging prime defaults" is the key point.
Frugal is being restrained. It's something that everybody should aspire to be. I've come a long way in the past three years. I look back on my old attitudes and habits with shame and contempt.
Cara, you're monitoring CR quite diligently. I think the upper two quarters of homeowners are going to have a rude awakening call in the next few years. My father might be one of them. He has a rather expensive house that (of course) doubled in value from the time he bought it in 2001 to the peak. He laughed at me when I told him it would likely fall back to his purchase price or even below. His doubts were reinforced with the reason that "it's nice and special and in a great town". True, I said, but those were all pre-existing conditions. That the house was really expensive and therefore attracting to people with lots of money was irrelevant I told him. Trickle up, trickle down. The "move up" crowd is diminished, to say the least.
I'm saying this as someone who saw the bubble for what it was starting in about 2002 and rented since. I'm buying a house now mostly because I can afford it and it's likely to provide a cheap place to grow food.
So far most of the foreclosures have bene people who really stretched to buy and the majority of these losses (at least in the DC metro have been immigrants). However as this wave passes, if we don't get major inflation quickly (which I suspect will be the case but it's definitely not for sure), the next wave will hit quite a few longer termed home owners.
The house I'm buying was owned by someone who paid a little more than 2x what I'm paying 4 years ago, but many of the neighbors are also underwater now (as several of them were rebuilt into much larger nicer homes). As those people begin to realize that they're equity is gone, I suspect there's real potential for problems.
If it were 1 million people who were at risk of foreclosure sure let them crash, they knew the risks, but we don't have the rental capacity to absorb what's already occured (and don't suggest banks rent the houses back, they can barely process the paperwork to sell homes right now). Sure, most American homes can house two families, but how many can house 3-4.
The two things that stick in my mind about this crisis are that in 1929 1/2% of american households held stock investments (fewer still on margin), and 30% lived on a farm so lots of people hunkered down and lived as subsistance farmers. That isn't possible in modern America.
I'd argue that few people will be able to measure the full cost of the inflation that we'll get as a result of the current solution so this method only looks cheaper than passing losses to lenders (who would be recapitalized via the government).
Virginia tax revenues down nearly 20% from last year. The only category of revenue that seems to be up is the ABC tax (liquor):
http://www.finance.virginia.gov/KeyDocuments/RevenueReports/FY2008-2009/revenueLetter-4-09.pdf
[thanks to a CR poster]
Adam, it sounds to me like your reason for wanting stupid principal reductions is entirely self-serving. You're afraid your new neighbors will walk away and drag down the value of your new house. I say this not to attack you, but every excuse you've made thus far has been so contrived that I actually thought you were an underwater owner yourself, looking for a $200k taxpayer funded paycheck to reduce your balance. Even worse, you're scared your value might drop 10%, which it probably will. And if that's the case, deal with it.
The argument that we have a shortage of available homes for them to rent is absolute bullshit, pardon my French. We're at a record point in the last 100 years of the fewest number of people per home. Refer to the awesome article I posted in this thread (at 12:53 PM) and feel free to be completely embarrassed with that idiotic statement. There are millions of empty homes in the U.S. Investors are buying them in bulk and renting them out (perhaps part of the shadow inventory explanation, as has been discussed).
Not only was it a completely wrong argument, you ignored Cara's wonderful point that when people consolidate, they save a lot of money. This is actually why the number of ppl/household drops during recession. It's not a bad thing at all, and it's downright insulting to everyone who reads this blog to suggest there is a shortage of domiciles to rent.
Here's another fun article:
How to work the systemIt's another counterpoint for people and their bleeding heart "millions living in the streets" garbage. You know you're having a tough day when every single argument you make just happens to be debunked by the articles collected on patrick.net on that particular day=)
Here's another example of shadow inventory, using my favorite neighborhood example, New Bristow Village:
We put offers on houses on each of these streets one year ago:
10922 CRIDER Ct
BRISTOW, VA 20136
Price: $399,000
PW7050197
All houses on street sold new in 2005/2006 for about $700K-$800K. Two sales this spring: $316K (REO) and $360K (short sale).
10935 A P HILL Ct
BRISTOW, VA 20136
Price: $350,000
PW7055312
All houses on street sold new in 2005/2006 for $700K-$800K. Sales in early 2008 were in the low $500Ks (REOs). Most recent sale was last fall for $395K.
Crider looks like divorce. AP Hill looks like an immigrant who paid way too much.
For those left on those streets who paid twice their house's current value, probably with a shaky loan from the builder's subprime lender (the same lender we dealt with last year when we made our offers, who is now defunct, I believe), how much longer will they hold on? I believe the builder, Centex, went under as well.
Short sales in this neighborhood were happening fast this spring, some going under contract within a week and closing in less than 60 days.
This scenario is repeated over and over and over again in Bristow, in Gainesville. In fact, looking at RealtyTrac's maps, the foreclosure rate is still ridiculously high in Manassas/Woodbridge (about 1/120 houses), but it is much higher in those newer communities now (about 1/60 houses). The focus of foreclosure activity has shifted.
Does that get counted in shadow inventory?
Tabitha: "The problem with the 60 year mortgage proposal is the effect it would have on the next generation."
No disagreements with what you said. But I think that it's an option that should be put out there in lieu of principal reductions or special deal interest rates for people that want to keep "their" homes. It is completely sinister, but it's an option that gives latitude for those that really want to keep the house, as well as rid taxpayers of the burden. Obviously as Japan has shown us (where they do have 60 year mortgages), it's quite cruel to subsequent generations. Unlike Japan though, we don't conflate thousand year old traditions with business and sack the unborn with our debt. On a personal level obviously, unfortunately not as a society.
"I think this just shows how adults should foreclose for the sake of their children."
Totally. Which is why I said I don't think foreclosures are bad. Allow the market to correct and let these people run away from their wretched investment. It's the best thing for them, and they are getting the kind of forgiveness they'd never get with any other type of loan.
I'm feeling a lot of antipathy toward underwater homeowners here. We are all "bad actors?" In our case, we had just finished college/grad school, settled down into "real" jobs, and had not a clue that house prices could do this. We bought into the "knowledge" that we would be priced out if we waited any longer. God, how I wish I had known better, but we didn't, and we are paying royally for it. We may be stuck in this $375K TH (which now would sell for the low $200s if we were lucky) for our kids' entire childhood. I never thought I'd live for good in a TH.
Oh, and we DID live with family to save our downpayment for this house. Four years in an apartment, then three years with family, and this is where we ended up -- at least $80K underwater. I'm not expecting anyone to pity us ... just sharing that like many people, we weren't trying to overreach. We were actually qualified up to $500K, which could have bought us a house, but I thought that number was insane and we were trying to be prudent and buy the cheapest thing that wasn't a dump. In April 2006.
I wish I could still be living with family and saving to redo this whole thing, but 1. we're stuck in this house now and 2. we had to move two states away from our only close family (in the U.S.) for work. And friends? Don't know about you guys, but I don't have any friends close enough to want to have the four of us live with them. Anyway, we CAN afford our TH. Just weren't planning on staying here for good.
I don't expect the government to do anything about this -- though I'd sure jump at it if they did.
"I never thought I'd live for good in a TH. "
I've been waiting for years to be able to afford a TH. Sorry for the lack of sympathy, but you didn't do your homework on the market. That prices doubled in a few years and in many places tripled in eight years should have been ample enough sign that this was a bubbled market. Blame whoever told you that you'd be priced out forever, not those that were warning you about the bubble.
I hope the life as a TH owner is not so horrible as you make it sound. Like I said, it's what I've been working towards for a long while. To hear an underwater owner make it sound like the slums is disheartening and condescending.
"Blame whoever told you that you'd be priced out forever, not those that were warning you about the bubble."
I never heard a single voice saying this. Not one. Had not the slightest clue that it could happen. Yes, we were stupid, but there really was little knowledge about this among the general public -- though clearly not among you guys, who were more savvy than most on this topic.
I didn't mean to sound ungrateful -- I appreciate having a place to live. But I am sad that I did my kids a disservice in that they can't ever go outside and just play without being taken somewhere and watched. And I feel trapped -- I would much rather be renting and be free to go than to be stuck somewhere, paying the bank much more than the house is worth, unable to even sell and move.
I wrote what I did just to show that people in this situation are not all greedy hogs. As I said, though, I wasn't out for "sympathy." And being in a TH in a decent area isn't bad -- it's the being trapped that's bad.
Oh, and I did NOT mean to sound snobby by that TH comment. I realize that sounded that way. I just have always loved green land to take care of. The house never mattered as much as the land to me -- I could live in a hut if it was in a field with trees around it. That's all I meant. I didn't mean to sound like I'm too good for a TH. Just that I cost myself my own particular dream.
Heading to FX:
Why so desperate? Inventory is shrinking. TH sales are up. Prices of REO's are higher. Fortunately, you bought into the hottest real estate market in the country for the next 3 to 5 years.
Hang in there.
"Kevin said...
but you didn't do your homework on the market. That prices doubled in a few years and in many places tripled in eight years should have been ample enough sign that this was a bubbled market. Blame whoever told you that you'd be priced out forever, not those that were warning you about the bubble."
Kevin - in all fairness, I first started hearing bubble talk way back in 2002 - even if you know its inflating, there is no way of knowing when its going to stop (I know a handful who were convinced 2003 was going to be a spectacular price drop - oops). Imagine too, what if prices quadrupled, or quintupled before it burst in say 2011?
Think too about the buyers in Arlington and DC - any realistic chance those areas will see 2001 prices again? The sad reality is many of those people really were priced out forever.
Granted, places like Arlington & DC are special circumstances - most of the bubble areas did not see the dynamic change and will make it all the way back. Still, my point is, its just not that simple to say "dont buy in a bubble" - those that bought in 2002, 2003, are going to be fine. Those who bought in 2004, 2005, 2006 are shaky if the bought outside of Arlington, Alexandria DC & a few sections of Fairfax.
Those that bought anytime in the last decade in PWC are really hosed.
I guess what im saying is in hindsight, it clear, no one should have bought in 2006. Yet I am one who didnt buy in 2003 because of the bubble (I was assured 2002 prices for sure), and now I am very sorry I didnt.
Robert, thanks for the reassurance. I can't see a way out of this, but that's why I'm reading this blog, as a head start on at least being better informed from now on.
headingtoffx
As I said on a previous thread, I am the only person amongst my friends and family that did not buy a house between 2004-2007. So, I do have a lot of empathy for those who were caught by a bad alignment of life timing and bubble timing.
I just don't think principle reductions are the answer. And it's not what you need, anyway, you can afford your payment.
What underwater owners need, and what we all need is for the economy to get going again as soon as possible. And that means getting house prices in alignment with incomes as soon as possible, clearing out the REO inventory so that owners can sell again, and getting banks solvent again and most importantly getting job creating going. Lower house payments means more money in the hands of owners to buy other things, means more jobs.
Cause here's the thing, the sooner the economy turns around the sooner we'll get some nice comfortable, 2-3% inflation including wages. But due to the huge overhang of sellers like yourself house prices will stay flat, not shoot up back out of your range again. So, 3-4 years from now, with a little more savings from increased earnings, you and your husband will have enough to both pay off the balance of the note and put in a comfortable downpayment on a much lower priced SFH than you could have in 06.
But this price correction has to happen first. You are amongst those who didn't overstretch for housing instead deciding to buy within your means and under your wishes. This was the best decision you could have made at the time. When we reach the long flat plateau of prices you'll be able to sit back and wait until the perfect home for you comes up, buy it and then sell your TH into a low inventory but stable and predictable market.
Cara, once again you make a lot of sense. Thanks.
(In case it is noticed that my username changed slightly, I had to create another one. Still can not re-log in here for some reason.)
open a gmail account with the username you want and be logged into gmail and google blogger will pick it up.
Heading to FFX, I am glad you spoke up. I know you aren't asking for sympathy, but I feel sympathy for you.
As more evidence (in a different context) of what others have said here about there being no certainty, contradictory predictions, etc., at the time you bought, I came across a late 2007 newsletter from my mutual funds company. I'm paraphrasing, but two things really jumped out at me:
1) "2008 offers more than usual uncertainty but we are still predicting positive returns."
2) "If you are worried about the domestic stock market, move some of your $$ into global and emerging markets which tend to be a good hedge re: domestic funds."
I'm sure I don't have to tell people here how utterly wrong both of these comments were for 2008 and beyond. And these are EXPERTS in this field. Yes, I know, like NAR for real estate, they have an interest in pumping, i.e., getting people to invest, but one of the many ways in which they differ from NAR is that they have an interest in keeping the same clients constantly over a long period of time, and being really wrong is likely to jeopardize that.
My point is not that one should listen only to mutual fund advisers but rather to just provide one example of the same kind of thing you were describing - how hard it is to sort out mixed signals, especially when people paid VERY WELL to know better than the non-specialist, get it wrong.
I also believe that your situation is very different from that of the immature (and apparently incapable of adding and subtracting) couple in the NYTimes excerpt. While I commend the husband for his honesty in writing the story, I got furious (and sad for their kids) about just about everything else these two nimrods did and how they still don't see the situation clearly, and I usually am not bothered by this type of story. I want to lock them both in a room for 8 hours with Suze Orman yelling at them!!
Heading to FFX,
I am so sorry for your circumstances. I cannot tell you how many friends who moved to this area within the past five years who are underwater $100K, $200K, more. They put down 20%, they bought within their means, and they are stuck in their 1000sqft townhouses or 1200sqft SFHs with four or five little ones. It stinks. You can make the most prudent decision at the time, and still have it ruin you. Keep hopeful!
Cara, I'll try that.
Ace, strange how those mixed signals never got picked up by mainstream media till very late in the game. I work in journalism and am basically paid to read the news, and we didn't have this big fat story. Newspapers (including the large one where I worked at the time) failed the public on this one.
Tabitha, thanks. I caught the end of your story and I am very happy for you! You were so patient and did this right, and your family deserves it.
H2ffx,
A lot of blame goes to NAR and RE agents that kept pushing people to buy before they were "priced out forever". A lot of people called them out on that, and the foolishness involved. I pleaded with many of my friends to not buy during the bubble. None listened, and I was chastised for interfering with their "dream". I was once even labeled as being jealous. Of the ones that I still talk to, only a couple conveniently remember the warnings.
Peter Schiff in 2006Obvious
Those are 2 links. The second (obvious) is great.
Head2FFX says
'm feeling a lot of antipathy toward underwater homeowners here. We are all "bad actors?" In our case, we had just finished college/grad school, settled down into "real" jobs, and had not a clue that house prices could do this. The phrase what goes up, must come down never drifted through your mind?
I guess I have the benefit of having watched real estate pop in washington in 1992 and knew a guy who wrote a 38K check to get out of his townhouse, so I viewed that as a moral lesson.
I also had the benefit of at the time I was renting a 1 BR in South Arlington and was paying $750 for that and a Condo in the area would run my 2200/month. I was stunned.
I also was shopping for a house in the midwest for business, and was comparing rents and costs of construction there.
I figured it was nuts in FFX when houses were costing 2-3 times to buy as to rent. and were selling for $350/ft and were costing $150/ft to build.
look it was madness, and lots of people got caught in them, but, it was the prudent who looked at these weird mortgages and got scared. It was the prudent who decided to wait out in rentals.
if you had rented a TH until the bubble popped..
I was hoping the bubble would pop in 2005.
Kevin,
You were definitely wise.
Pat,
"The phrase what goes up, must come down never drifted through your mind?"
Um ... no. What goes up usually does NOT come down in home prices, so that didn't "drift through my mind."
"I guess I have the benefit of having watched real estate pop in washington in 1992 and knew a guy who wrote a 38K check to get out of his townhouse, so I viewed that as a moral lesson."
That's great that you had that lesson. I'm getting mine now.
"if you had rented a TH until the bubble popped.."
Now there's a thought that HAS drifted through my mind, thanks.
ii
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