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Tuesday, May 19, 2009
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49 comments:
an idea. Perhaps the reason we didn't detect a downturn in inventory during the moratorium and we won't detect an uptick when it ends is because these pre-foreclosures were already on the MLS as short sales?
This is not the wave of sub-prime speculators who weren't living in the houses anyway, this wave is of responsible homeowners losing their income or jobs or just not being able to keep up with their commitments. Thus this breed is more likely to seek an amenable solution that doesn't damage the property and might be slightly less onerous on their credit history. With income loss the moratorium doesn't really give the hope of curing the loan which has now become unaffordable, so the listing as a short would still happen.
This is not to say there aren't further ongoing drains on the housing market, like the destruction of move-up equity, and the continual slow stream of sellers trickling in at every sign of a market recovery. But the most drastic shocks to the area may be over so long as locally unemployment doesn't get worse.
(says me, who would like to jump in the pool soon)
Great article, only tangentially related to the blog The big money: the inherent problems with 401k'sbottom line, longevity risk and investment risk are taken by individuals not distributed. That combined with not nearly enough money saved anyway. Duh? right, but it's well written, and presents some possible avenues towards solutions.
Cara,
I read that article a few days ago. It's typical of what you hear when the market is down signficantly (and seems to be predicated on the idea that the market will never come back).
But to go even further astray, I think many of this country's large financial problems could be solved quite easily.
Take the looming funding problems with Medicare and Social Security. They could quite easily be fixed if the legislative leaders of our country had any guts to do the right thing for our country. The fix? Provide Social Security and Medicare benefits to only those retirees with financial need. This could be based on a dual test of income and assets. Above a certain threshold on either and you don't get free government cheese.
This would cut down on total payments, thus allowing these plans to remain in existence longer or to pay more to those most in need.
20/20 had an excellent piece on May 8th that showed all of these retirees in a luxury retirement community (i.e., wealthy retirees) using up Medicare benefits like nobody's business. Some of these retirees viewed their free doctors visits as social events and went to the doctors all of the time. And these old jerks didn't see any inequity in this (i.e., the fact that they really don't need the goverment cheese but that they are taking it anyway, which is basically creating a tremendous financial burden for our country's future generations).
Some geezers will argue that since they paid in, that they have the right to get "their money back." But it isn't "their money," it was a tax they paid to support those in need. This is similar to unemployment tax, which isn't anyone's money either, but is really a welfare tax.
I bothers me that people without real need line up at the trough to get on welfare (i.e., unemployment benefits), Medicare, and Social Security.
How does this all relate to 401(k)'s? I don't know. But sometimes the way to fix a problem is the opposite of what most people think. Right now everyone thinks our country has to make a bigger safety net for people to ensure their retirements. Maybe just the opposite is true. Maybe people would save more and look out for their retirment needs more if they new government safety nets would only be available for those with serious need.
Sorry for the way OT rant.
Just a random observation. I've been looking casually for a 3/2 townhouse in Falls Church or Arlington, and I wanted to solicit any opinions on the Winter Hill neighborhood in Falls Church.
Winter HillIt's slightly over a mile to EFC Metro, and there are currently 8 townhouses on the market, several which have been sitting for months, all priced within a narrow range.
I haven't been out there to look at the properties, mainly because it's not in my preferred area, and it's farther from the metro than I would like. But I'm wondering who will be the first one to drop the price, considering all the competition. It will be interesting to watch.
JF,
No apology needed to me, certainly. I think it's important to discuss alternatives.
One thing I liked about the article I posted was the idea of better low-cost life-time annuities. It maintains the idea of individual wealth management, but at some point you are able to buy in to a plan that doesn't put the entire onus of longevity and investment risk on the individual.
My question about not using Medicare, really is how expensive would the individual non-medicare options be for retired persons? Is it even tenable to fund any health insurance plan catering to old people. It's like why eye and dental insurance don't work very well, they're not exactly insurance they're a pre-paid program to spread out the costs of what are guarunteed things that will have to be done to almost everybody. If instead it can be a continuation of what you had in your working years where the less expensive young people subsidize the retirees that way, I guess it will work, but that's not available to everyone...
the other problem is knowing how much you're going to need to save with imperfect knowledge of both inflation and market returns. How can you know what health care costs will be 40 years out, or living costs?
Thus I think the transparent Ponzi scheme of taxes is a more flexible way of taking care of costs in real-time and spreading them over more people, in a way that they would never do themselves, and to some extent can't predict. Yes, it is a Ponzi scheme, take from the new members to pay out to the old members, but it's all out in the open and everyone knows it, so it's okay...
9 listings in one tiny complex between $469k and $489k, that's impressive. I would guess the one to break ranks will be whoever actually gets a buyer to walk in the door and put in a low-ball offer. Normally I'd say whoever's been listed longest but given the pathetically small price drops so far on the three longest listers, I don't think so. The other possible break-rankers are the most recent one, and the lowest-priced one.
But without checking all their tax records, and mortgage documents to find out who has how much equity left it's impossible to say which of these has room to negotiate and which are HElOC'd to the brim.
and can I just say, just shy of half a million dollars for a TH? When do they think this is 2005? I don't care what they sold for at the peak, that's still pure crack-rock.
(I'm so glad I'm looking out in Burke...)
Yes, the thought of spending half a million dollars on a townhouse is a real slap in the face, isn't it?
For some reason this little subdivision fascinates me, and I'll be watching it with great interest.
Paka,
We drove through Winter Hill to look at the outside of two rental THs last month. Two of the James St THs had open houses that day and we went into one out of curiosity. It was a very nice townhouse but inconceivable to me at almost $500k. We both really liked the neighborhood and the surrounding streets that we drove. They also had a flyer describing the upcoming changes to downtown Falls Church - apparently there's a major project in the works. You might want to look into that a bit to see what's planned.
We had an interesting chat with the agent at the open house we attended. She had bought a TH in Sterling near the bubble peak and had lost a decent chunk of value since. I said that we were planning on renting for at least another year to see how the market panned out and she more or less told us that she thought we were doing the right thing. You don't hear that from realtors too often :)
paKa
I reserve "slap in the face" for things that I will have to do, or that are a reality check. Since this appears to me at first blush to be more of a lack of realism on the part of owners, I wouldn't call it that, but I think I get your point.
It will definitely be fascinating to watch. There are some similar sized THs in Burke, many of which were purchased near peak, but they have no listings in them, so this is much more illustrative.
Oh my god that is an entire neighborhood of insanely selfish bubble sellers. They're asking more than double what they paid in 2000. I hope nobody is stupid enough to buy in at that level. I really hope one of them breaks rank and brings the others slowly back to reality.
If you look at the sales on sawbuck realty for Winter Hill you will see that several sold in 2008 in the high $400's. Two BD sell for ~ $320k and they sold a 3 bd in December for $480k, which was down from $490k earlier in the year.
I guess the sellers still think they can get that price. Comps would support the appraisal. Time will tell.
I particularly like the 347 Gundry listing, and how it ends with "Hurry!"
Hurry? The TH has been sitting for three months. It is the highest priced non-end unit. And even if it goes - you have 7 others to choose from! :)
And, for just $40k more (living here too long if this is a "just"), I was at a very nice open house on Sunday for a SFR inside Falls Church City limits. Only major drawback was a terrible spiral staircase (and price, of course). Out of curiosity, anyone have a ballpark number for how much it would take to add a generic staircase, assuming you don't mind giving up some sq footage to do it.
Thanks for the report from the ground, Jeff. Oh, and I have read the plans for the development in that area.
Kevin,
You know there are other places that still selling for double their 2000 prices. My friends bought their Kingstowne townhouse in 2000 for ~210k and I just saw one listed on their street for
479k that got a contract in 11 days. Of course in 2005, people were buying these townhouses for 525k(insane).
hayfieldgrad,
and again, can I say how glad I am to have found Burke, where prices really are coming back down to earth (for the most part). If I were still looking in Kingstowne, I would just be getting angrier by the day. Thanks for the reminder of why I don't want to even look at that market.
paKa: accordingly to Frankly, nothing there, save for one $350k unit, has sold in the last 173 days. Yet there are 8 units sitting there between $469-$489k.
Four of those last sold in 1999-2000. Assuming they didn't take out stupid home equity loans, I think one of those would break.
Personally, I can't imagine paying that much money in Falls Church for a 3br townhouse without a garage.
John Fontain,
I respect you and your opinions, but means testing SS/Medicare is a dead deal. Maybe because politicians lack the guts, as you phrased it, but they're going to lack the guts because while I'm a minority, I'm a strong one. Let me clarify.
I'm not taking 17% of my pay and stuffing it into careful investment vehicles now and reducing my current quality of life (in order that I can have a continued quality of life later) in order to be told that because I was smart and self-sufficient, I get no benefits from the taxes I paid, while those who lived their 100% or more of salary early on get doled out. Smart money would riot, and that's ugly. I'm not sure it's as apocalyptic as Ayn Rand wants it to be if Atlas shrugs, but it's certainly not pretty for elected officials.
By no means is the current system good or fair, and in a number of ways it does favor wealthy people (both now and later). We can negotiate compromise to fix that. But if they try to tell the ants that the grasshoppers get what they need, and you get nothing...
Well, Aesop don't play that.
Hayfieldgrad,
I feel sorry for anybody that thinks it's wise to pay anywhere near '05 prices. There are probably some that exist though. The "this neighborhood is special" excuse seems to trump the logic that says "it was always special, like when it sold for 1/3 of its current price a decade ago".
xpovos,
There is no such thing as a free lunch. If people without need weren't given government cheese, those without need wouldn't need to pay as much tax. To say, "I want my cheese because I'm paying for it," ignores this reality. This is admittedly oversimplistic, but:
Choice A: Pay alot of tax and government cheese for all.
Choice B: Pay less tax and government cheese for only those who really, really need it.
I'll opt for B anyday because it's the right way to do things. But I agree it will never happen for one simple reason - politicians live to get re-elected and they won't do anything that is temporarily unpalatable even if it is good for the long-term future of our country.
I'll agree it's overly simplistic, there is at least choice C: You'll pry my cheese from my cold dead hands.
You might think that's an unlikely choice. Afterall, it's rare that people are willing to trade their lives for money.
But it does happen. Usually in conjunction with other societal changes of great magnitude.
Have any of you dealt with bank owned properties recently? I tried to put a bid on http://franklymls.com/FX7055948 yesterday. This was one day after its open house and only the 5th day on the market and the bank had already accepted an offer. I had thought banks were normally pretty slow at responding, but I guess not.
Although, in re-reading, I think I might have misunderstood your later post.
You're already acknowledging a possibility of a fix wherein no-one gets cheese.
housebuyer,
bank-owned and short sales are two different beasts. These days every REO that's priced well that I've seen come on the market in the past month or two has been under contract within 2 weeks, the last 2 both had hidden statements in the listings that only realtors can see that said offers must be in by X day at Y time, usually the Monday after list.
Banks that are pricing under the market expect and get bidding wars, and are ready for them.
(things may cool off in late summer or fall, and some particular banks may not yet be on the ball, but this is what I've been seeing)
TBW, interesting statistics. I get the periodic crime report emails from the Arlington police. Many of the apprehended suspects are from the District or areas other than Arlington. Many (most?) of the crimes seem to be car thefts, burglaries of businesses, and fights between acquaintances, sometimes involving malicious wounding.
TBW - that is certainly part of it. Look up the crime rates in Alex & DC as well as they have fallen dramatically as well. They were both really high in the 90s (especially DC which was suffering under the crack cocaine epidemic that roiled the city). They are still high compared to the burbs but far far less than it was in its heyday.
I should have mentioned that when I found that info on the massive demographic change (departing minorities, incoming whites) in the Arl, Alex & DC areas. What I dont know is if the lack of crime helped bring in the new demograpic, or if the new demographic caused the crime to abate.
oh and in case anyone missed it there is some actual good economic news.
Calculated Risk, spreads check. The spreads CR looks at to see if the banking crisis of confidence is improving are all back to close to normal now. So, the liquidity problem is being deftly handled by the powers that be for now. The solvency crisis is another question, but at least banks and businesses are no longer too scared to loan to each other without huge risk premiums anymore. So phase 1 of the global financial crisis has passed. The continued management of liquidity will be an ongoing problem for years (as has been pointed out by all those thinking that helicopter Ben is going to print cash if need be, that is if I'm understanding these things correctly, maybe printing cash is solvency not liquidity, what do I know?)
In any case, my apologies to contrarian, but I think one aspect of the potential slide into complete collapse has abated.
"Ace said...Many of the apprehended suspects are from the District or areas other than Arlington."
Same thing here in Alexandria. A very large percentage of the suspects apprehended are from P.G. County.
tiredbubblewatcher said...
"Anyone know why Arlington assessments were kind of low in the late 90s/early 00s? "
Laziness probably.
Paka-
You probably know this, but there is a price premium for being within the Falls Church City school district. I have no idea how much, but a good realtor should have the stats. I think that neighborhood is cute and the location is great for walking to things but I would check out the parking issue there, too.
Meshell said...
"Paka-
You probably know this, but there is a price premium for being within the Falls Church City school district. I have no idea how much, but a good realtor should have the stats. I think that neighborhood is cute and the location is great for walking to things but I would check out the parking issue there, too."
But those were pre-existing conditions.
Won't someone please think of the businessmen?
http://tinyurl.com/pycja5
tiredbubblewatcher,
How did the crime stats in Arlington change between 2002 and 2005 when prices more than doubled?
And if we picked a very low crime area, such as Country Club Hills, how did crime change between 2002 and 2006 and how does that correlate to price changes?
You can probably guess where I'm going with this...
A little Tuesday afternoon housing-related levity for everyone...
Enjoy.
John - I think you are a bit too rigid in your time constraints. Say for example, crime did not diminish in an area til 1996. There will certainly be people who think the diminishment of crime was a blip, or that the crime will return.
Thus, its unlikely this area will see any appreciation from reduced crime in 1996, 97 etc. It likely will start small (as some people think it is now "safe"), and grow over time as more and more propsective buyers deem it "safe".
To be sure the 2002-2005 gains were superheated because of the bubble. At the end of the day, all the bubble gains will evaporate. Still, given the enormous demographic change in the core areas, its also reasonable to assume that a decent percentage of the gains were real, and will remain.
The converse is true too. Recall that highly publicized slaying of that couple out in landsdowne a few months ago?
At this point, its highly unlikely it did much to further diminish property values - in all likelyhood, it was a fluke event.
Say however, this becomes more common over time. Car theft, burglarly, as well as the occasional violent crime. Eventually, landsdowne will develop a reputation as an unsafe area, making it an option for a smaller and smaller (and presumably poorer) group of prospective buyers.
Say too that the crime is mostly in the "ABC" section of landsdowne, not in the XYZ section. Still, wont prospective buyers in the XYZ section, wonder if crime will hit their area next and price it accordingly?
Say too that all this is occuring but that the bubble didnt exist. If so, is it in any way reasonable to assume the property values of Landsdowne will not suffer?
Contrarian - great article. Take away the implication of a flood (as the headline suggests, but the article does not), and this pretty much is exactly my thoughts on how the holdouts re-enter.
Robert - if you are out there, this is a great read, and one of the main reasons I seriously doubt any rise in prices once a bottom is reached. In sum, as more and more regular homeowners think its "safe" to list again, they will. This will cause inventory to stabilize, (i.e. quit rocketing down towards zero as they are now).
If too many believe this, inventory will rise a bit, any upward pressure on pricing will be replaced by downward pressure.
This will cause homeowners to delist again, causing inventory to fall again, causing prices to stabilize again, causing more homeowners to come out, causing inventory to rise, etc. etc.
This cycle will repeat itself multiple times over time - prices will not fall any further, but prices wont rise either. Thus, I see an L shaped recovery as a near inevitability.
Kevin, true. I take it back :).
For tiredbubblewatcher: The reason Arlington Co assessments have gone up so much is that the value of land in Arlington has increased because of the commercial value of land in areas such as Ballston. The townhouse you mentioned on Stafford St. was assessed at $238,900 in 1997. Of that amount $69,200 was for the land and $169,700 was for the townhouse/improvement. The land was 21% of the assessed value.
In 2009, the land was assessed at $375,000 and the townhouse/improvement was assessed at $359,300. The land is now 51% of the total assessed value. This is a typical ratio in many parts of Arlington.
For PaKa: Winter Hill has two types of townhouses. The first are small condo townhouses which were built in the late 1940s and renovated and converted to condos in the 1980s. There are currently two of those on the market at $299,000 and $319,000 and their condo fees are $244 per month. The other group of Winter Hill townhouses are fee simple with an HOA fee of $67 a month. They were built in the late 1970s. There are 8 on the market ranging from $469,000 $489,900. One of the condo townhouses is under contract as a short sale and the list price was $249,900. Another one is under contract and is not a short sale, and the list price is $289,900. A third one is under contract and is not a short sale and was listed at $350,000. Sales since November 2008 include 2 of the condo townhouses which sold at $230,000 on April 10, 2009 and was bank owned and needed work; a second one sold at $362,500 on April 29, 2009, was not bank owned and has some updates to the kitchen. Among the 1970s townhouses: one sold at $480,000 (with $7,500 seller paid closing costs)on Dec. 2, 2008; one sold at $510,000 (with $10,000 seller paid closing costs) on Nov. 13, 2008 and had been updated. Also, you might check the walk to the West Falls Church Metro -- it is probably closer than the East Falls Church. The local George bus stops at Winter Hill and goes directly to the West Falls Church Metro.
if you are out there, this is a great read, and one of the main reasons I seriously doubt any rise in prices once a bottom is reached. In sum, as more and more regular homeowners think its "safe" to list again, they will. This will cause inventory to stabilize, (i.e. quit rocketing down towards zero as they are now).
I would not draw the same conclusion by looking at the data. The data I could find from the census bureau would indicate that about 14% of people move each year. Roughly 2/3rd are homeowners so about 9.2% sell their houses to move. 33% is way to high to sell, even if there is some pent up demand. My guess is since ~ 20% of people are underwater then they are saying they "would" sell if the market improved. For a large % this means they can "sell their house for more than it is worth" as the survey shows.
Since they are underwater by 1-30% I would not expect any big spike or L. I would look for a stair step as you hit the next +10k (or market appropriate amount) you will draw more sellers in until the market clears. Then prices will rise again to the next step and the process will repeat. It will be several years until those people reach break even and consider selling.
The most intersting thing about the survey was that sellers perception of reality has improved dramatically from 32 to 5 which shows that sellers now know what their homes are worth and will price them more realistically. I think this jives with the sales volume.
Finally, I don't think you can draw local conclusions from a sample of 1,365 nationwide. Real Estate is very local. I would expect NOVA to have a higher turnover than average for example.
Yes, "shadow inventory" exists. It always exists, but I agree that it is more significant right now. I will cause selling pressure going forward.
I would contend that we aren't near price levels where this matters. It will matter significantly if we get back to peak bubble levels.
For example, lots of people had a house on their street or similar house sell at the peak price, say $500k. These people wish they had sold at $500k. Houses are now selling at $300k. A move to $350k is not going to make them list, but a move to $450k might, and $500k will.
So, right now, we are not going to see this "shadow inventory" affect prices, but at or near peak bubble prices it certainly will.
robert,
Depends on who we're talking about here. If this is a long time owner who owes less than $300k, and the prices go back up to $350k on their TH or small entry level SFH, but their dream home can still be had for the steal of $550k, you bet your ass their going to list and sell for just that $50k in liquid cash. Everyone needs to live somewhere. So what matters is not what you "make" on your current home, but what the mortgage will be on your new one.
Now if we're talking potential retirees, I agree completely, the decision of when to downsize and move to someplace with considerably lower cost of living will be dependent on getting enough money from their current home, many of these will attempt to wait until the bubble highs are reached, (and lets hope for their sakes that just as this time around that some areas of the country aren't swept into the bubble, and they can move there.)
Robert,
Wasn't it you, that was mentioning a colleague stuck in the townhouse and wishing to buy a sfh if her townhouse appreciates just a bit?
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