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Saturday, September 19, 2009
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60 comments:
TBW, another factor in CA is the proposition that limited increases in property taxes as long as you lived in the property. I know a family who bought a place in the mid 200s and sold it a few years ago for 10 times that, but paid essentially the same property tax the entire time. Their next door neighbor who bought more recently paid MUCH more in tax for a property worth far less. It would be like your buying a townhouse and paying $3000 per year in taxes but your neighbor's paying $300 per year, in a bigger place, simply because they bought years before. Not only is that grossly unfair, it devastates the treasury since that neighbor is using far more in services, schools, police protection, fire protection, etc., than those taxes cover.
TBW and Cara, ditto for us - family helped with education expenses but once we graduated we were on our own - no down payment help, no inheritances later, no co-signing, etc. It would be interesting to see what the typical situation is.
Another seller trying to dictate to the market:
"OPEN 9/20 1-4 Final Price reduction. Check it out! Shows like a MODEL HOME!...OVER $80,000 IN RENOVATIONS UPDATES! *** "
http://franklymls.com/AR6954317
Final price reduction or I'll hold my breath until I turn blue!
Check out how many open houses have failed to sell this house.
It does look as though there have some upgrades, but $80K over 17 years is not a huge investment for a house in this range. Not surprisingly, the house still looks pretty dated. The new owners will have to do a lot of wallpaper stripping and may have to replace systems, etc.
Looks as if it may also be suffering from the big-family-house-without-a-family-backyard problem.
tbw,
Only about 10% of residential properties in Fairfax County are even condos. You think this is too many?
I would think the growth of jobs in the Dulles corridor explains a lot of the expansion of Eastern Loudoun. Plus, a lot of people commuted from PWC, Stafford and Fredericksburg to the Pentagon and Ft. Belvoir prior to 2003. I used to see the full PWC Commuter buses at the Pentagon bus terminal all the time.
Having lived in PWC through the whole thing, whoa. Yeah, population exploded down here. The construction boom was fueled by demand. For some reason, people wanted to live in PWC badly enough to pay (IMO) exorbitant prices for 1000 sq ft and lots of neighbors. I never understood it, and my trying to find an answer is what lead me here (indirectly).
People bought in here because, "at least it's not Stafford". I imagine the people buying in Stafford were saying, "at least it's not Fredericksburg."
Ace: OMG, that is a ton of open houses. And the last price reduction was back in June.... 4 months is a pretty long time to stubbornly hold on to an asking price. And yeah, $80,000 isn't much on a house that large / expensive.
So, contrarian says credit is tight, and getting tighter, but the theme on this board is that it's loose. I agree with the theme. Credit still looks pretty easy to get and I will chip in that the trend is also toward easier credit not tighter.
FWIW, my son's football game was out in Stone Ridge in LoCo. I had an hour before the game so I drove around the - too many to list - new home developments. I went to about 10. It was around 12:30pm and it was/is a beautiful day. There were on average 3 or 4 cars outside of each model home (1 probably belonged to the agent), and every development had at least one contractor working on the new homes and most had more than one.
I would think if they were working on Saturday, then they would be booked up M-F, but I don't know what hours those contractors keep.
Too general and a small sample to draw conclusions, but I do know that inventory out there is 7 according to this guy. And it is a sizeable number of homes out there.
OMG, that is a lot of open houses. The agent must be really tired of standing around their kitchen staring at that wallpaper, forcing a smile and saying: "No, nope, no backyard! Less maintenance" and "Yes, it is a busy road but after awhile, you don't even notice. One light to DC!"
Craaaap about the lending standards. So if my husband found a job tomorrow we wouldn't be able to get a mortgage for 2 years? Our credit is perfect. I guess since our downpayment fund is dwindling every month, it doesn't really matter anyway. But: bummer. I wanted to buy before my oldest started school so we wouldn't have to switch.
The CA tax thing is amazing. Eventually won't the newer owners getting f'ed outnumber the smug old owners and change the law? Paying more taxes for the same thing is un-American.
Meshell,
Ace is talking about Prop 13 which passed in the late 1970s. That proposition was a result of a taxpayer revolt in California that a majority of voters approved of. Bascially, it caps the property tax at 1% of assessed value and the increase of annual assessed value is capped at 2%. Yes, this does favor the older owner over the newer, but the older owner may not have the income to support the higher tax. So should they have to move because now they have been priced out of their neighborhood because of property taxes?
There are a lot people in Fairfax that saw their property taxes go from an average of $2500 to $4800 over a 4 year period. Does that seem fair?
hayfield: you can deal with that issue but still keep the tax rates the same for all folks. For example, you can lower the mil rate.
In CA, I know it's not unusually to do some shady bookwork in order to make it look like the original owners still own the place, yet it is really owned by a new owner.
Prop 13 is just plain stupid.
Novawatcher,
Yes, I understand property tax rates and mil rates. However, if you look at individual fiscal years between FY 2002 and FY 2007, property assessments went up 15-20%and the tax rate went down 2-10%. From FY06 to FY07 the average assessed value in Fairfax went up 20% while the tax rate decreased 11%. There was a 4-5 year period where Fairfax collected 9-10%+ more in property tax revenue than in the previous year.
HFG: Yep, you're right (thanks Gerry Connolly!), but that can be dealt with using more oversight on the budget and some sensible laws. I believe Oregon does that.
The source of the down payment is amongst the things I know is listed in the AHS survey. If you want to know if it's typical or not, use numbers.
Table 3-14 of 2007 shows that you're right.
For the DC area
sale of previous home 462k
savings or cash on hand 577k
other borrowing 23.7k
gift/inheritance 20.4k
No downpayment 66k
Not reported 55.2k
Now, you do have to consider the fact that if the inheritance was "aged" more than one year, it's considered yours, so this under-estimates the effect. But a factor of 20 is hard to argue with.
One other thing I think we should be doing when we calculate whether certain prices are affordable or not, is for certain products we should be using the full interest rate that FHA borrowers would be paying, and at their full mortgage amounts.
Meshell, tbw
I agree with tbw, since you have been continuously employed, the two of you should be eligible for a mortgage after your husband has been at his new job for 6-8 months, at most 1 year. They may not give you the absolute best available rate, or they may only do so using 75% of your combined income or some such thing, but after he's been in the job 6 months is when I'd start to consider calling around to lenders for a pre-approval. (start with the statement of the job situation, so that you can verbally get turned down without incurring an application fee)
I nominate, the day when Meshell's husband lands a new job as the official NVHBF blog marker for the beginning of the economic recovery in real terms that matter to people.
TBW, you might be interested in the writings of Bella DePaulo, a psychologist who has studied unmarried people. Although this incident isn't in the column below (it's in her book) she talks about how annoying it is to singles (esp. single women) when agents try to steer them to small condos instead of the SFHs they've asked about.
http://www.huffingtonpost.com/bella-depaulo/its-national-singles-week_b_64733.html
Thanks for the info, Cara, and Meshell, we hope you'll soon have news to celebrate.
tbw,
Where do you come up with 170K salary needed to afford a house in NoVa? I see you cite peak 2006 pricing, is this really what should be used today?
It's my understanding that median income affords median prices at present. No?
Meshell,
I agree with Cara on the 15yr vs 30yr. I would go with the 30 and amortize it over 15 so you have a fall-back lower payment. If you are a 15yr and "something" happens, you will probably be unable to refi.
There is also the consideration of whether you would want to accelerate re-payment of 5% money. We, pretty much, all agree that rates will be higher in a few years. Perhaps, pre-pay until rates increase or put that extra principal in another (more liquid) investment.
Va_investor,
Yeah I priced out how much the higher interest rate will cost us if we self-amoritize it to 15 years, rather than take the amazing 15yr rate? It's a whole whopping $6k spread out over the full 15 years. I'll take it. That's not that expensive of self-insurance.
Whether to pre-pay or invest into something more liquid is largely a matter of balance. If at some point your liquid savings are low, then it doesn't make sense to pre-pay. Since we're starting this later in life, owning outright (other than taxes and insurance and condo fees) in 15 to 20 years rather than 30 is a big plus. The other idea is to have no mortgage to pay by the time our kids go to college...
But, these plans all have the underlying assumption that we continue to have a much larger savings on the side than we do principle payments into the house. (or at least are also saving liquid half as much as we are into principal)
Ace,
That was a really telling article.
Anyways, you still need median household income in Fairfax County to be about ~$170,000 to support 2006 level prices long term. We are nowhere near there and this recession likely has delayed when we get there.
I'm not going to dispute that your $170k figure is correct. I assume you used some kind of long-term average to arrive at your number and this is based on tax returns filed with the IRS?
If the above statements are true, I'm not sure you are comparing apples to apples. This generation can contribute up to $15,500 for a single or $31,000 a couple to their 401k. That doesn't show up on the AGI. Also, I wondered why my capital gain on the sale of my previous home never showed up on my AGI either. No state, no federal, and no FICA taxes. And I would guess there are other items too.
TBW, about peak prices, one thing I would note is that I don't think we will see peak prices anytime soon. For me, my house is an investment and anything that moves its value higher is a good thing. What I'm saying is that I hope houses appreciate to 75% of peak vs. 74%. And 76% vs. 75%. Like any investment I have, I would rather it go up than down. I'm not sitting around waiting for the nasdaq to go back to 5000, but I do have some tech stocks like Google. If Google takes market share in the search engine war, that is a good thing. SAIC moving their HQ to NoVA can't hurt housing values and will probably help to some tiny degree. So, I see that as good.
Robert, here's a Census Bureau source for income figures supporting TBW's contention that median income is well below $170K in Fairfax Co.
http://tinyurl.com/mp2sg2
Ace,
Sorry, I wasn't trying to argue that it was $170k, I was trying to point out that it may be higher than what is reported vs. a generation ago because of some "off balance sheet" items.
Is there some reason that median income should be able to afford MORE than median price? Absent trade-up proceeds or massive savings or gift or inheretence?
If people want to wait for a certain standard of living (ie. house/neighborhood), then continuing to rent below your means and saving may be what's required.
Tbw failed to respond to my calculations of affordability in the areas I watch.
btw - was over at RTC again last night. I am really feeling excited about the future around here. I was looking at the demographics...quite interesting. I may put some more chips on the table.
OT: Does FHA still do true second homes?
btw : FX Median income is around a 100K, is it not? And Median home price? Under 450K?
Robert, thanks, here's the definition of "income" in the Census site linked above (in 2007 dollars):
" IC
See Independent City (below)
Immigrants
Aliens admitted for legal permanent residence in the United States.
Immigration statistics are prepared by the Immigration and Naturalization Service, Department of Justice, from entry visas and change of immigration forms.
Related term: Foreign born
Imputation
When information is missing or inconsistent, the Census Bureau uses a method called imputation to assign values. Imputation relies on the statistical principle of "homogeneity," or the tendency of households within a small geographic area to be similar in most characteristics. For example, the value of "rented" is likely to be imputed for a housing unit not reported on owner/renter status in a neighborhood with multi-units or apartments where other respondents reported "rented" on the census questionnaire.
Income
"Total income" is the sum of the amounts reported separately for wages, salary, commissions, bonuses, or tips; self-employment income from own nonfarm or farm businesses, including proprietorships and partnerships; interest, dividends, net rental income, royalty income, or income from estates and trusts; Social Security or Railroad Retirement income; Supplemental Security Income (SSI); any public assistance or welfare payments from the state or local welfare office; retirement, survivor, or disability pensions; and any other sources of income received regularly such as Veterans' (VA) payments, unemployment compensation, child support, or alimony."
VA_Investor,
According to the same website (in 2007 dollars, estimated):
-- FFX median household income was estimated at about $102500 and median family income $120800.
-- FFX median home value (all types of homes combined) was $554900K.
oops, sorry, I thought I was copying and pasting only income but it was more than that. Please ignore the first part of my post, since I can't edit.
Foreclosures in Fairfax County
Based on data from the Department of Tax Administration, the number of county-wide net remaining foreclosures in Fairfax County continued to decline in July. A total of 921 properties were still owned by lending institutions at the end of July, marking the first time in 16 months that this number has dropped below 1,000. Though still elevated well beyond prior years, this marks the tenth consecutive monthly decline since September 2008. On average
through July, properties that have been re-sold were in active foreclosure status (i.e., deed in the name of the lender) for about 4.6 months.
Thanks for the info on mortgage-qualifying. Unfortunately, I don't think my SAHMdom counts as employment for mortgage purposes, even though my bosses are relentless ;).
HayfieldGrad, I do think its fair for that hypothetical owner's taxes to go up, if that is the way the taxes are calculated for everybody. Maybe that is my subconscious projecting a prejudice in favor of people situated like me vs. them.
VaInvestor,
I don't know anything about Reston real estate in general, but I meet a friend at the town center every month or so for coffee and that area does have a really nice feel to it. Needs a few more stores, though ;).
Our friends live in a 1970s-ish kind of funky looking townhouse neighborhood backing up to that golf course. They like the neighborhood and the townhouse is nice and wide and liveable, but they bought in 2005 and it is worth a lot less than they paid. Luckily they bought planning on staying so they just try not to think about it.
Interesting article on who, exactly, chooses to "strategically default", hoocoodanode?
Kenneth Harney
Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore -- a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion -- are far more likely to default strategically than people in lower score categories.
* People who default strategically and lose their houses appear to understand the consequences of what they're doing. Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters "are clearly sophisticated," based on the patterns of selective payments observable in their credit files. For example, they tend not to default on home equity lines of credit until after they bail out on their main mortgages, sometimes to draw down more cash on the equity line.
Robert,
Do you have a link to the whole article on that? Definitely interesting numbers in your excerpt.
Moody's on when housing prices will rebound to peak
Virginia as a whole is at post-2023, but given that MD is at 2018-2022, I'm not sure where this puts their prediction for NoVa.
Cara, I read that article and my first thought was..not so fast buster. I think those walking away simply because they do NOT want to pay might find themselves on the nasty end of a stick unless they file bankruptcy and even then this will follow them forever in getting credit. Obiviously the finacial institutions are already preparing the information they need to identify these loans. There is a reason for that.
Moodys is full of it. They based projections on the current facts. Not so fast. If some form of the health care gets passed, this could have the potential to raise wages. People that have benefits are paying for others not having health care through smaller raises. What would come to an employee instead goes to the health care benefit plan. If they can get those costs under control it will allow employers to offer higher wages or it should.
Arkey,
I don't think we'll know the answer to how this will play out for a few more years. In CA, where the highest balances are and the most underwater folks, the loans were explicitly non-recourse* for non-refinanced, purchase mortgages. So, if one of the bullet points is true, a lot of these folks think they will get away scott free because that's what it says in their contract. (Not the case in VA!, but MD is non-recourse).
If banks are smart, they should offer to refinance them at least once, so that the loan becomes recourse, and they have better power to pursue them.
Will pursuing these borrowers legally be worth the cost in legal fees? Hard to say, probably not in all cases, but if you can pick your battles well, pick ones you can win, then successful suits against strategic defaulters could go a long way in preventing such actions after the next bubble bursts.
fyi, just in case anyone reading this doesn't know what I'm trying to say, approximately
*recourse, means that the persons taking out the loan are responsible for paying back the money regardless of whether the underlying collateral is sufficient or not.
*non-recourse means that aside from fees associated with the foreclosure, the collateral itself will be accepted as full replayment of the loan.
"I may put some more chips on the table."
Why don't you have all of your chips on the table?
Cara,
Re: Moody's on recovery to peak pricing. This is truly only relevant to those that bought at peak. Buying 30-70% below peak would make a difference. I'll take a double (assuming 50% off peak purchases) in 10-15yrs. Especially since it's a double on the entire purchase price, not the down-payment. As usual, glass half full.
NoVa,
Surely you jest!
Va_investor,
What I assume they're trying to do is rate the MBS issuances from the peak period to determine how long the collateral will take to return to the value at issuance.
Given the total lack of transparency at how they arrived at these numbers, I'm not willing to take the "predictions" too seriously at the moment. I just thought it was interesting that the split up the bins such that VA was amongst the few states with the longest recovery times.
But yes, in terms of people reading here, this particular number is only relevant if you bought within say 10% of the peak and have seen a significant decline since then. 13 years is a long time to wait before getting your down payment back in nominal terms, and a lot more interest to be paying in the mean time and opportunity cost on the sunk principal.
Other than that, it's just an indication that Moody's doesn't see a V for Virginia. How much that lack of endorsement is worth is debateable.
Cara,
I, for one, have never expected a V recovery; more like the flat line we saw in the 90's.
Again, if you are buying at (or close to) rental parity, your "cost" is the opportunity cost on the DP. I know you can't quantify the vaule of owning, but surely (imho) rents will increase during the stagnate years and you will find yourself well down the amortization schedule or possibly free and clear in 15 yrs.
Va_investor,
Agreed for current buyers, if they can purchase near rental parity, the Moody's assessment is irrelevant to their purchase decision.
That's not the point of the article, or the assessment. The point is, more houses were purchased during the peak years than at any other time in recent memory. How will those owners continue to fare? Will they ever have equity for moving up, or will they have to save money while paying an overpriced mortgage at the same time? How much longer are foreclosures likely to be commonplace (surely not all the way out to 2023)?
For entry level buyers these questions are irrelevant. But as I think Meshell and I are the only entry level buyers left commenting here who haven't bought yet, I think this provides some food for thought for the move-up market.
Cara,
I have a couple of thoughts about recent buyers who are, presumably, priced in.
First is sell low, buy low. This is the present situation. Perhaps, due to their equity situation, this is not a possibility (ie. they don't have cash to bring to the table).
People who were move-up in 2005 would have paid top dollar, but also received top dollar on the sale of the old place. Wash.
Those harmed the most entered the Market for the first time at peak. They made their bed and will have to lay in it. Same as those late to the dot-com's. The only alternative is to rent the place out (even at a negative) and use the low down FHA program if necessary to move-up.
Finding a bargain can mitigate the loss caused by peak buying. Think dollar-cost averaging. Of course bargains don't fall in one's lap and many won't qualify to carry the rental negative (lenders only count 75% on rental income, so the loss is much larger on your application).
Our income went up alot from 1988 (when we bought) and late 1993 ( when we leased the old place and moved).
Yes, I'm sure it sucks to look at the numbers. Nothing in Life is guaranteed. If you want a guarantee, buy treasuries.
The point of your post was 2023, was it not? Like tbw citing the income required (170K) to buy a house in 2006: I find referring back to peak pricing irrelevant going forward.
I don't think you presented it as an MBS statement and I doubt many here are too concerned about those financial instruments. You clearly are not basing your purchase decision on applying 2005 or 2006 prices.
Va_investor,
It is indeed difficult to use the "return to peak prices" as a useful input to purchase decisions going forward.
If you wanted to draw something useful, you'd say there are 13 years until 2023. If my area saw a 30% drop from peak, that means that Moody's is predicting an average annual appreciation of only 2.78% for the next 13 years to get back up to 142% of current prices.
So the useful thing it's telling us (which you already mostly agree with, I believe) is that current buyers can't count on appreciation anytime soon to cover transaction costs or make up the difference between renting and owning if owning is still more expensive for the product they're looking at.
Why? because I doubt that they're predicting a slow and steady 2.78%/year from here on out, more likely flat or down a smidge more for the next 2-3 years, and picking up steam inline with inflation later.
But as Robert implied in his sarcasm, 13 year out economic forecasts aren't exactly reliable.
VA_Investor,
I'm sure you meant to say:
"If you want guarantees, buy treasuries AND HOLD THEM TO MATURITY."
Because I can pretty much guarantee treasury prices will have spectacular losses in principal value until maturity, due to interest rates being higher, probably much higher soon and for the rest of our lives.
Scott-
She may have been talking short term government paper. The movement in price on things less than a couple of months is so negligible it doesn't matter. You are correct that 30 year treasuries really can have wild swings in price. Personally I think TIPS are a much better deal now than treasuries...
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