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Monday, July 20, 2009
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56 comments:
Here's an article that was posted on Patrick.net about the coming "implosion" in the mid- to upper- end housing levels (article focused on FL & CA but may apply elsewhere):
no bottom yet
gte-
I agree that they shouldn't necessarily take out 250K, I wsa just trying to say it can be done and you could still save some money. I think both of our calculations showed at least saving 10% of their take home which is more than the historic average. I could continue to argue that couples can make 65K without college aka(a construction worker and a EA or grocery store cashier). Either way it is sort of irrelevant I think we are both just disagreeing about how much someone must save. If they are comfortable skating only saving enough to handle unexpected expenses they are probably fine. On the other hand if they want to save a decent part of their income you are right they should not buy.
I absolutely agree that people tend to suck with finances and they would probably be better off spending less.
Ace,
It's always so hard to tell if something from the massive bubble areas will really apply here, or to what extent. I worry that it's wishful thinking.
Ace-
The author has some serious wishful thinking on what he thinks he will be able to afford. He claims that high end prices will fall 40%, maybe this could happen for multimillion dollar houses. I will be absolutely shocked if this happens to the upper tier though. If you look at the CS tiered index for Vegas, Miami, San Fran, or LA 40% off the top tier would bring prices to levels seen in the mid to late 90s.
Seeing that most people claim the late 90s were a great time to buy it would incredible if after 10 years of inflation and wage growth prices end up at these levels...
The more impressive part is he claims that all of this will happen at the end of the year. For prices to fall 40% from current levels by the end of the year you need to see 6% drops monthly...
This comes as no surprise to anyone here. As many have been saying:
If someone owns a house worth 450k and they sell it and buy a house that's a 600-750k "luxury home" then fine. When your 450k house is suddenly worth 250k, you aren't going to have the equity to purchase that luxury home unless it is now selling for 400-550k. Since the bottom fell out of the low end first, it's been just a matter of time before mid to high end property prices also collapse.
My guess is that there will be a lot of people in these houses (just like in starter homes) that are "stuck" because they bought at the height of the bubble. The difference between these people and those stuck in the starter homes is that it will take considerably longer for these houses to recover since they cannot recover until after low end housing rebounds and people have the equity to pay more for them again.
Ace..I don't know what prices he is talking about or if those prices would indicate anything for any other market. I know I used to watch those Sell this house and such and a 1800 sq ft 1950ish house was fetching a million bucks..and..on that I agree that shoyld fall at least 500,000. What is mid and high end prices for that area? I dunno but I have serious doubts it means anything to anybody except maybe NYC....or..snicker Arlington...sorry I just couldn't help myself.
Jeff,
Well, the other difference is that prices will be stickier because move-up buyers at the peak, by definition liquididated the gains from the starter home bracket. So, except for those who stretched the second time around, there will be no incentive to come down to what the current buyers are able to pay.
In FL, CA, AZ, etc, prices were so hyper-inflated that there will still be plenty of distress to create the REO's and short sales in the upper tiers to facilitate price discovery, around here, I'm not so certain.
Investigative journalism in Florida, uncovers rampant fraud:
Flip this house
Fraudulent property flipping ran rampant during this decade's housing boom, with $10 billion in suspicious deals in Florida alone, a Herald-Tribune investigation has found.
Arkey-
Maybe that could happen to a place where prices haven't fallen as you said NYC nice parts of DC... But in the areas the author was talking about prices are already down 30-40%. So a house that was $1MM at the peak is now ~600-700K and the author is saying they will fall another 40%, which leave then at 360K-420K. While possible I find it unlikely.
New Fannie and Freddie rules on condo loans
relevant tidbit for me, and for price-discovery in general on older condos:
Fannie and Freddie have also boosted fees on mortgages for condos. Buyers without a minimum 25% down payment have to pay closing-cost fees equal to 0.75% of their loan, regardless of their credit score, under new rules that took effect in April. Fannie has said it will drop that fee in August for cooperative apartments and detached condos.
We'd need to put 25% down to avoid a 0.75% fee...
That's a 15% return on that extra 5% down (not counting paying less in interest over the life of the loan), but wow does that bite.
If suddenly those who thought they had 20% down on an acceptable price, now feel like they have to have 25% down, that would move their price point for final sale down 20%! (20k down on a 100k house, becomes 20k down on an 80k house). Much more logical for the seller to cover that 0.75% fee and keep the price "the same."
Time to log another entry in our turbulent month of living in Vienna...
We were sitting in our living room yesterday afternoon and noticed a guy in his car across the street looking at our house for a good 5 minutes. He took a few pictures from the car then got out and took a few more from the street before approaching the house. My wife asked him if we could help him and he handed her this slip of paper before retreating to his car and leaving.
Foreclosure flyer - I blanked out some specific information but they did have the correct name of the owner on there as well as her mortgage company (Chase).
I googled it a bit and it looks like the situation was as sketchy as it seemed. I'm not sure why this nonprofit would pay someone to make a visit specifically to our door though. It does seem like the owner is legitimately behind on her mortgage though, which has us pretty concerned. She bought in the early 90s for ~150k and the house is now assessed in the mid 400s. You'd think that there couldn't be a problem considering what we're paying in rent...except that in retrospect it's likely that she took out a HELOC. There are numerous recent upgrades to the house that probably cost a decent amount. She also didn't have tenants for a while before we moved in as far as I can tell.
It's really, really, not going to make my summer if we're forced out on short notice because of a foreclosure.
Anyone have any opinions or knowledge regarding the flyer that was given to us?
Jeff B, sorry to hear about that. I know somewhere in the Michigan (I think?) there is a well known county where the sheriff isn't forcing people out for months because of this kind of situation. If I were you, I would be afraid to death to leave the house now.
Through no fault of your own you could come home one day to find all your belongings piled up in the front yard...well half of them because the other half would have been carted away by the other people in the neighborhood. Honestly, I would be looking for a new place to live, pronto. The bank MIGHT let you stay there and pay them rent so you could call up Chase and ask them about it, you could also call your landlord and tell her about the "nice letter" you got that was meant for her and inquire about it.
Regardless, it might be time to leave and look for another place to rent. Of course, leaving will probably only expedite her foreclosure.
Jeff B,
are you sure the non-profit itself is legit:
an anonymous article on the:
Homeownership preservation foundation
Whereas the
Examiner seems to think that HPF provides an alternative channel to the hope-for-homeowners hotline (why would there need to be such a channel).
How did you find out she's delinquent?
Did this same car approach other houses on the street?
Can you find out if any notices of delinquency have been filed by Chase on her property?
Perhaps your rent alone is enough to get her back to being current on the mortgage, if it's just upgrades she's paying for.
FFX county minimalist "advice" from FFX county...
Do any of you know of resources for researching home builder reputations? We visited a Stanley Martin model home this weekend and feel mildly interested, but my husband wants to do some builder research before jumping into any new construction home. Any webistes, other blogs, forums for discussing this type of information? For instance, what's 'standard' for one builder and not for another? Quality of construction? Quality of standard/upgrade products used in the home?
Thanks in advance for any feedback.
Cara, I looked at that "advice" from FFX County and it sure looks like it's stacked against the renter. Basically, the renter has to act as though everything is normal until the foreclosure is final. Then they have to get the hell out. The new owner can't kick them out without a court order - well gee, that's standard for any eviction. That basically confirms my belief that he should get out of there ASAP EXCEPT he's bound by the lease until it's foreclosed! I think Jeff B should talk to the current owner and try to get out if possible. Also, store his most valuable (and most easily stolen) possessions and a family member's house as a precaution against coming home and seeing that court ordered move out posted to the front door and neighbors looking through the stuff in the front yard.
I've definitely read horror stories on how this kind of thing can go. I know there are good endings to this kind of story but there are definitely bad outcomes for some and I'm a worrier.
Jeff, Jeff B.
Yup either things are really stacked against the renter in VA, or FFX county hasn't updated its website.
"Protecting Tenants at Foreclosure Act of 2009."
The lease should survive the foreclosure unless the new owner wants to be an owner-occupant by new Federal Law signed May 20.
Thomas.loc.gov
However, I still think the advice to get all of your valuables out of the house as much as physically possible makes sense.
But I think calling your landlord, telling them what happened, and asking to see a current mortgage statement and credit report (she can get it for free through the government service) as a condition for you staying put as a paying tenant and not breaking the lease is in order.
Jeff B,
So, it looks as if the new federal law means that CATEGORICALLY if you want to stay in your rental until the end of the lease, you can stay. Despite FFX county not being up to date. I'm certain CHASE knows this, and if you're ever threatened by them you can educate them.
Hope this acts as a little bit of solice and stability. Although, I would still take the action of speaking to the landlord about her situation so you know what's coming.
Hopefully we won't come home to find our belongings out in the street - there haven't been any foreclosure notices, etc, served to the house as far as we know and we've been there since June 1.
Cara,
This is the first information of any sort that makes us believe that she's behind on the mortgage. The car did target our house specifically though, and had the owner and mortgage company information to put on the paper. He left the street after giving us the paper and was taking pictures of our house. It leads me to believe that there's at least some problem with her mortgage. I googled this practice of dropping flyers off to homeowners and there were a number of discussions on it. All of the people mentioning that they'd received one of them were delinquent to some degree. Mostly the complaints were with the stealth photographs and generally shady nature of the people delivering the paper. I didn't see a single mention of someone that was completely up to date on their mortgage receiving a visit.
I don't know of any way to find out more. There's a management company in the middle though and we contacted them this morning. They've been great so far and are trying to find out more.
My opinion is what you mentioned - maybe she was having trouble before we moved in but our rent is probably enough to bail her out. Hopefully, I need to stay in the house for at least another month or two to harvest my peas!
Would really appreciate some advice related to Real Estate lender. I am trying to refinance to get my soon to be ex-husband off the mortgage and to pay him his percentage of the equity. The sticking point is how to determine current market value.
I suggested we each order independent appraisals and compare the results. He suggests we just use the number that my lender's appraiser comes up with.
Thoughts on this could work FOR or AGAINST me? Thanks
Jeff B,
The HPF seems like insider trolls. And the methodolgy is just too slimey to be believable as an honest broker. So I do think the most likely thing is that at the end of the last tenant or before you moved in she paid late one month and is now fine.
But you could try seeing if there's a FFX county office that will let you pay to see the mortgage records for the house.
(she's not eligible for hope for homeowners anyway as a landlord, so this outfit obviously doesn't have all it's facts straight)
Thanks for that link to the new legislation Cara, I wasn't aware that it existed. I forwarded it on to my wife, it will make her feel a lot better about the situation.
Cara,
Re your question yesterday. Ffx County got rid of the personal property tax decal (and $25 fee or whatever it was) a few years ago. You should have the car registered with the county and been paying the personal property tax each year though.
Recent articles have suggested they are bringing back the decal and fee since they are not flush with money any more.
Jeff,
Yeah I've been doing some research since we got the notice and things are not at all stacked in the renter's favor. The new legislation helps (apparently there's also a new VA one that requires a landlord to give their tenants notice if they receive a foreclosure notice) but in the past you were pretty much out of luck as a renter and could be forced to move pretty quickly. Hopefully things don't degenerate that far for us.
Lynn-
I would make sure that he puts it in writing that he is ok using your person before you get the appraisal back. Otherwise he may only accept it if it is high, and if it is low he could say he will get a second appraisal.
Lynn,
There has been much debate on here as to the reliability and veracity of appraisals. In the past, lenders would basically make sure the appraisals came in high enough to justify the loan, so your husband's idea would work out terribly for you. But the new rules are supposed to create a distance between lender and appraiser to eliminate such price-fixing.
CRT is the best person to answer your question though, and I'm not sure he's around.
Thinking outside the box. What about the tax assessed value? I know, everyone on here says it's terribly inaccurate for individual properties, but the virtue of using it in this instance is that it's a known quantity. In FFX county it's supposed to reflect 90% of the market value. I don't know where you live. Would that be a number you could live with? Would it be a number he and his lawyer would accept? How does it compare to a search for comparable sales in your neighborhood? (frankly.mls.com has a sales option).
If anyone needs a dose of unmitigatedly good news WaPo: Crime down in DC PG County, MoCo and FFX
In the District and Prince George's County, homicides are down about 17 percent this year.
Jeff B, just make damn sure that Chase knows you're renting and not the owner. The very fact that people came to advertise a program that the owner is ineligible for leads me to believe that the lender believes the house is owner occupied. I'm assuming that owner occupied dwellings can still face lender eviction after foreclosure. If this is true, then you need to make sure they know you're renting and that the lease is in force even if they foreclose.
I can still imagine you getting home to find your possessions in the front yard because the bank thought you owned the place.
Cara-
Do you have anything that suppoets tax assessment being 90% of market value? I had always thought it was 100% and this link also says it is 100%
http://www.fairfaxcounty.gov/dta/realestatetax_taxassess.htm
This is in response to Jeff's post to Jeff B:
If your landlord signed the deed of trust (mortgage) claiming the property was owner occupied, and if your landlord failed to notify the lender when it became a rental, then you informing Chase of this change could cause Chase to accelerate the loan. Generally, these types of changes cause the owner to be in default, allowing the lender to accelerate the loan balance. That would undoubtedly lead to foreclosure unless your landlord is 1 or 2 payments away from satisfying the deed of trust.
Also, it's likely the landlord/tenant laws under the Virginia code do not apply to your landlord. They usually apply to a landlord that has a minimum of 6 (I think) rentals. Something to look into.
housebuyer,
That was just from memory, maybe it wasn't FFX county then. We hashed and rehashed this issue last summer?? And my memory was that the assessment was supposed to be only 90% of value. But that could have been for PWC, since that was the juridiction relevant to the conversation at the time.
Point being, if she wants to use it she should look up it's definition, because it's commonplace for the assessment for tax purposes to be inherently 10% or 20% under market value.
If you think we have it bad? Where a friend of the family lives in Connecticut, they only reassess every ten years, and supposedly don't have any process whatsoever for rebutting the assessment (according to her, I pressed hard, because I can't believe that would stand up to legal scrutiny, so I don't know).
Here's where it says 90% for Fairfax County
http://tinyurl.com/kkocve
Fairfax County has an annual assessment program where all real property, residential and commercial, is assessed at 100% of the estimated fair market value as of January 1 of each year.
I think the key word is ESTIMATED because they are using a formula based on sq. footage sell price. Not upgrades or remodels or condition of property which effects market value.
Housebuyer, both the FFX and the Arl County websites imply that it is Virginia state law that dictates the 100%, but neither states it explicitly, but maybe you could google to find a relevant state law.
Because of the time lag between the sales period used to assess properties, and the date the tax is assessed and imposed, when prices were increasing, it was very common to see assessments at 90% (or less) of assessed value, with greater gaps where significant improvements had been made to the property. But the law was the same.
I have a question sorta related to what housebuyer and gte have been discussing in terms of affordability.
I have a friend who I would guess makes $65k or less (I'm almost certain less). That friend is looking at homes in the $400k-500k range. I have not really said much because I figured now that it's not 2005-06 the banks will just deny a loan. But now I'm worried that banks have not tightened as much as it is being claimed and a loan might be granted.
Is there a polite way to say you cannot afford a home in that price range? Should I just have faith that the bank will deny the loan?
TBW,
Why don't you send him/her a link to an amortization calculator to show how much his/her monthly principal and interest payments will actually be? That way s/he can play with the loan amount and the interest rate.
I would say in a seller's market the assessment would be 90-95% of the sales price. In the buyer's market of the past few years, assessments generally are 100-115% of the sales price. Results may vary neighborhood to neighborhood.
But by law the assessment is supposed to match fair market value. Because of the time lag and difficulty in individually assessing the tons of homes within each locality it is impossible to have assessments always ending up where the market sales price would be.
Nonetheless, I'd say unless it's a hot market you are a fool to be paying more than assessment. And if the seller wants you to pay a lot more for "improvements" to the home, remember the rule that in *normal markets* (not the crazy market earlier this decade) most home improvements only recoup 60-90% of the cost. And there's such a thing as making a home too nice for the neighborhood.
Friend plans to buy it for himself/herself, not planning to get married anytime soon? Is not finishing law/med school? Must be crazy to look in 400-500k range. Well, I remember a friend of mine was saying in 2006 that I should buy a nice home in 500k range, assuming that I was making 60 grand or something. Funny thing was that I could afford 500k house at that time given my income, but would not think about 500k house at that moment since there were only tiny places for that price in decent location. But the idea of buying at 7-8 X income was fun.
By the way, our friends ;) at the National Association of Realtors is adamant that you not overimprove your home so it's not anti-bubble mentality when I say that.
How Much Is Too Much
Key points from article
In terms of your home's resale value, the best home improvements are largely cosmetic – a new roof, painting, carpeting, minor kitchen and bath re-dos, and only those alterations and additions that brings your home in-line with others in the neighborhood.
Such improvements increase the value of your home virtually dollar-for-dollar.
"That means $10,000 spent on a kitchen remodel in a mobile home next to the railroad tracks in a poorly rated school district will not reap the same return as $10,000 spent on a 6-bedroom, hillside home with a view, in a highly rated school district," said Kit Davey, a Redwood City California-based interior designer and staging specialist.
Of course, the golden rule for improvements is improve the home because *you* will enjoy said improvements. Don't get a fancy spa bath in the master BA because you think the next owner will want it. Get it because you or your family will use it. By having years of enjoyment of it you will not care if you recoup the cost.
MJC,
Good idea with the amoritization calculator. Although I think the friend currently spends 50% or more on rent so the results might not scare him.
Konstantin,
Friend plans to buy it for himself/herself, not planning to get married anytime soon? Is not finishing law/med school? Must be crazy to look in 400-500k range.
Friend is buying for himself. Not married nor on the road (although who knows what will happen). Is not becoming a lawyer or doctor. I would imagine it will take another 5-10 years for him to get to $100k salary and he may never reach that amount.
Given his age I can understand the frustration in not yet owning. I think though he has to really rethink what neighborhoods he is looking in. I think he is not quite getting that a large portion of the DC area population does not live in their dream neighborhood.
I mean, I accept that I cannot buy Hickory Hill in McLean from Ethel Kennedy. ;)
TBW - any chance for any extenuating circumstances?
I had a friend in a similar income & price bracket. After much badgering about why he couldnt afford it, he reluctantly admitted his grandfather died and he got a 250K inheritance.
tbw,
I wouldn't count on the banks to not approve it. If he's currently paying 50% of his gross on rent, they may very well let him pay that much for a mortgage too.
The WaPo calculators are my favorite though, they'll let him check out things like how much it will save him over the life of the loan to put more money down.
But if it's what he wants and what he values, I don't think you can/should stop him. Although if he's thinking along the lines of an I/O loan, that's another beast, and you should strongly state that there's no benefit in that over renting from a real landlord, and plenty of unneeded downside risk.
The Anonymous,
I suppose that is possible. I've known many a person to move up (or buy a home) when they inherit a lot of money. It's one of many ways the current system favors those with wealth. Then the family wealth grows even more since in most years real estate is a good investment.
Cara,
Do you have the URL for that WaPo calculator?
http://www.washingtonpost.com/real-estate/tools-calculators.html?nid=roll_propvalues
I guess it doesn't directly have the calculator I wanted, that must have been on Kiplinger.
Kiplinger, downpayment
TBW-
I agree with most of your comments on the assessment, with one small difference. In a normal market you would in theory pay a couple of percent over the assessment. Historically house prices go up with inflation so since the assessment is a year old on average you would pay a couple percent over that price if everything was rationale. Either way this is nit-picky and you can easily just say you should buy a house that is a good deal.
TBW-
I don't think the bank will accept it unless he has a ton of savings. Both I and a coworker are looking for houses and could not get that both with 800+ fico scores. With no other debt we could get up to 50% of our income going to house payments, but at a 5% rate this is only 5X our income. So if he is making 65K he should only be able to get 330Kish. I really doubt that a bank will get more aggressive than that. A 500K place would be near 100% of his salary.
Thank you all for your comments.
The 2009 Fairfax County Assessment shows $394K. This is an end unit townhome. There have been 6 townhome sales in my neighborhood in the past 90 days. All have been inside units - with sales prices ranging from $385K on the low end to $400K on the high end. I expect him to argue that the value should be higher for an end unit home. Nevertheless, we purchased this home 6 years ago and nothing has been done to it - i.e. - it needs some refurbishment.
Thanks again for your advice here - trying to decide my next steps.
Lynn-
You can always argue that it would cost 6% in realtor fees to sell the house. So you would get 6% less than the appraisal and should split that amount.
Lynn,
Excellent point housebuyer!
Given how close $394k and the recent high of $400k are, I would say using the tax assessment is probably as close to "fair" as you're going to get. Interior/exterior has far less to do with sales price (right now) than quality of finishings and degree of move-in readiness. Using a number that you both know will be less capricious than an appraiser, whether you do one or three.
CRT's methodolgy was approximately, get two appraisers and if the difference is less than 10% meet halfway, if it's greater than 10% (or X% as agreed upon apriori) then a third appraisal would be ordered and the middle value used. (or the average of the three values)
If you've both gotten lawyers for the divorce I recommend CRT's route, if you're trying to keep this cheap and amicable I reccomend just going with the tax assessed value, even if it might be a bit high. (assuming you can get a loan for the remaining balance).
Jeff B: Is this it?
http://tinyurl.com/mkobvd
I'm almost certain that's not it but I don't have a realtytrac membership so I can't tell for sure. I'd be very surprised if the bank already owned the property and we didn't know about it. Hopefully we'll hear back from the management company soon.
jeff
stop paying rent. if you feel it's important escrow
the payments, but figure in the next 60-90 days you will be foreclosed upon and will need a big deposit,
and you can be certain you won't get your deposit back from the landlady.
We are planning to buy a SFH/large townhome in Mclean/Vienna/Oakton, within 3 miles of a metro station and not far from major commuter highways, built 1990+. We are not looking for a huge lot, but an upgraded home with 3+ bedrooms plus basement. Our budget is within 650K. We recently bid on two homes whose list prices were 100-150K above their 2009 tax assessments and where recent sales of similar homes also reflected much lower prices (i.e. within our reach). Our bids were about 95-96% of tax assessment values which corresponded well with recent sales data, but we were rejected in each case. Do you know if offer prices for such homes are higher than tax assessments. One of the homes is still on the market while the other one's under contract. Do you think prices will fall in the next few months- we are willing to wait.
Ar,
That's out of my price range so I can't really answer this. My guess if you don't get responses, is that few other people on here are looking in that price range right now.
One thing to keep in mind is that the move-up market is just recently getting hot. Well over 2/3 of sales were real sales around here, and those owners who sold this spring, or are under contract now, may be out looking furiously for a new place. That should subside after the spring/summer rush subsides. Whether prices will actually go down further in your bracket is hotly debated on here, but I wouldn't depend on it. Take it as a nice bonus if it does occur. But you're considering a very limited and highly desirable subset. So, yeah, don't count on it.
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