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Thursday, October 1, 2009
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63 comments:
I was going through a document, which was claiming the shadow inventory was larger than the actual inventory. First I don't really believe their assumption, but even if they are right it looks like it will not be that bad here. They said that DC has one of the lowest shadow inventories of any major cities
http://www.businessinsider.com/henry-blodget-massive-shadow-inventory-overhang-will-keep-pressure-on-house-prices-2009-9#heres-the-same-analysis-in-many-different-cities-6
I find the 0 notices of default suspicious. Wasn't there another more detailed analysis breaking down the delinquencies which illustrated that different states have different terminology and reporting?
Still I think even in that analysis the total houses in various stages of delinquencies (not adjusted for cure rates) was a bit less than current active inventory. But that's just what I recall, which is never very accurate.
I don't think our coming foreclosure wave is going to be very impressive. If Burke is a proxy, then banks are going to shove everything through the short-sale pipeline which, since it's such a pain in the neck, will keep the distressed prices totally distinct from the non-distressed market.
I really don't know how having a market which is 90% short sales will play out. How much of a premium can the 10% of real sellers continue to command? (apart from true differences like upgrades, condition, etc.) If the real sellers can't comman enough of a premium will they all just dry up and wait?
Ok, I'm confused. Is Md and NOVA part of the MLS numbers for DC? And does anyone know when or the month those MLS numbers were pulled?
Arkey,
Usually DC includes the DC metro area, but in general I wouldn't take this report too seriously or literally.
Or rather I think the most one can take away is that in their analysis of an area that is nearby if not including NoVa, they find that the shadow inventory would only increase the real inventory by one third. Which is enormously smaller than the doubling or tripling or worse that some other cities appear to be facing using the same analysis. Thus when the national news says, run for the hills the foreclosure tsunami is coming! we can reasonably say, don't worry, we're on high enough ground.
Cara, I kinda figured that out for myself alonnnnnnng time ago. I started tracking trustee notices in NOVA with MLS listings and they were hitting just fine some within a day, most within 7 working days of the court house sale date. I thought that would be the only way I would actually know if there was a shadow inventory or not. As far as the other shadow inventory, those that would sale but will not list, who knows how big that is? Thats pure conjecture, guestitmate at best with lots of variables.
Personal anecdote - my husband and I finally found a house we liked. It was listed in the $450-$500K range and was priced to sell very quickly. The house had no updating, and it had water damage in the basement and some mold, and was being sold as-is. However, the rest of the house had the layout, the square footage, the location that we wanted. Husband and I offered $45,000 above list price. There were 8 offers. We were told by the listing agent that we were one of 2 offers being seriously considered. Seller ended up going with another buyer with a lower net amount because that buyer was all cash. Additionally, Seller didn't want us to be able to back out, and we requested a 7 day period after contract ratification to perform inspections and have an unlimited right to back out with full return of our deposit. This only seems fair if the house is sold as-is since we'd like know what kind of work will be needed to make it livable and the cost of such work. The buyer who won the bidding war had no similar right to walk away.
Arkey,
Yeah, it mostly disturbed me that I only know a handful of buyers, and one of them is trying to buy from a "shadow lister". But I've seen talks on statistics based on one event before. It's a mess.
The other phenomenon I've noticed since looking at Jobin Realty's closed short sales, is that there's a lot of in-house buying on listings that say things like "price approved by bank, must close quickly, just need a buyer!". Dual agency (in the sense of using a buyer's agent who's in the same brokerage as the listing agent) has always seemed fraught with moral ambiguity to me, and this just takes it to a new level, because presumably for the bank to have approved it there must have been another sucker buyer in the process. Lure in an offer with a below market list, if the bank goes for it great, but if not, sell it at the bank's price to one of your own clients.
I can't decide how I feel about this. On the one hand, they are serving their own clients well by getting the short sales done, and by providing more reliable access to a trickle of underpriced homes to their buyers. What would be bad is if they in any way were insincere about trying to sell it to the first buyer. I haven't seen any signs of insincerity, yet, and I don't think it's in their long term best interest to have Jobin to become synonomous with "don't bother unless it's already gotten the bank price". And really they'll get the buyer's commision from their buyer anyway, what difference does it make if both commissions are on the same house? So, for now, I think it's no worse than the usual problems with in-house agents. In fact, for their buyers, having access to the full inside scoop on what the bank wants and what stage it's at sounds like an asset to me. And if the bank has already said, here's our reserve price, what do they care who they sell it to?
MJC,
That's insane. All cash buyer at the 450-500 price point? And who is willing to do without an inspection? Your conditions were reasonable, and you should stick to them, because the last thing you need to do is buy an underpriced house that's actually a money-pit.
Cara
When we got the news, I was half sad and half relieved. Yes, the house could have turned into a money pit, but it was also a home we could remain in for our entire lives and make it our own.
I feel a lot richer today.
but it was also a home we could remain in for our entire lives and make it our own.
I feel a lot richer today.
That's the thing about houses. You make them a home by living in them. There may not be a lot of inventory right now, but there's no lack of houses in NoVa, and whichever one you eventually buy you will be happy in, because you'll make it yours, and make happy memories in it.
(so long as you don't stretch such that the house leads to financial and marital ruin, which I'm assuming everyone here is doing their best to avoid)
MJC, I am sorry you lost the house you wanted. I would bet that the cash buyer had the house inspected BEFORE making an offer. That was pretty common during the crazy bubble days, since most sellers wouldn't accept an offer contingent on the inspection. Or, it could be a builder who plans to tear it down; they would likely have cash.
Your house is still out there!
Ace,
That's a good point. The house was not on the market very long but perhaps long enough for an inspection. One thing that I found strange was that the Seller's realtor told us that the Seller knew the Buyer which I found strange - this leads to me believe either the Seller knows investors, or the Seller sold it to a neighbor who has a lot of cash. If the Seller really did know the Buyer, then certainly the Buyer would have had additional time to get the inspection done. Or perhaps the buyer himself is an expert and could tell the cost of mold remediation/fixing the water damage.
MJC, interesting.
I wonder why they went the MLS route if they knew each other?
I'm wondering if instead of the Seller knowing the Buyer, the realtor knew the Buyer and parlayed it to us that the Seller knew the Buyer and felt more comfortable with that Buyer. Under this scenario, perhaps the realtor was able to work the double commission. I'll probably never know.
I will certainly be intrigued to see what the final sales price will be and how close it was to our offer.
MJC
Or the LA was just making stuff up because they actually felt that your higher offer was the better one, despite the perfectly normal inspection contingency, so they were trying to give you a "rational" excuse for why the seller chose the offer they chose.
Cara--
Re: yesterday's thread, I rode by that building last night on the way home and I think I've ruled out becoming a neighbor (or purchase competitor! :) of your friends; that particular block or two doesn't have enough eateries I'd go to, and I'm spoiled that way at least for now. This also makes that block or two a bit dark/quiet as far as sidewalk traffic, which might make me more nervous than the bright and busy Gtown's M Street or the Gallery Place 7th Street corridor.
The center of Columbia Heights right at the Metro is a different story, but I'm still quite sure I'd be annoyed by the uphill evening bike commute I tested last night. I'd probably have to give up the evening exercise rides I often do too, which are in the opposite direction.
I often think I should live in a neighborhood that better matches my social demographic--like I should have bought in Ballston or Arlington in 2002 or earlier instead, or should do so even now. I pretty much have never lived in a neighborhood where everyone was like me, and not 60 year old married architects of Penn Qtr, or working class families of Landmark Alexandria.
Regarding that condo checklist, you might remind your friends that buying a condo is not buying a house--they are in a legally binding agreement with the bank, but ALSO in a legally enforceable obligation to the condo ASSOCIATION, and, you don't want to live where there's a BAD association, and a GOOD association will come after you for unpaid dues a LOT quicker than banks seem to these days. As in, we used to delinquencies to the lawyers for preforeclosure within 2 months. (Which is how our delinquencies went from 12% of annual budget to 2% in the five years I was there...) And you can't fight disagreements with the board by non-payment--it's not a legal recourse and a good board won't stand for it. (And if you're a good payer, you WANT this to be true, for other payers.)
Cash for clunkers hangover for Ford:
Calculated Risk
hoocodanode:
Cinco-x: That -5.1% is YoY, wow.
fyi: Aug 2009 = 176,000
That's down 34.8% MoM
Now, houses are bigger and longer commitments than cars, and the $8k is a smaller dent in the price, and has lasted 11 months, so I'm not sure how to scale this. (and this is just Ford reporting so far).
car ~20k, house 200k, C4C 4.5k, FTBTC $8k, car ~7 years, house ~15 years, if they are multiplicative that'd be put the post $8k effect at 10 x 2 x 2 smaller than the post C4C effect or 1/40th which would mean the drop in sales would be less than 1%. Hmmm that would mean we won't even see it over seasonality. Of course there's no real reasoning behind the functional form I've just assigned there.
Cara, if this holds, and the $8k expires, it'll be nearly impossible to see anything in the data IMHO.
Oops, I did my own back of the envelope math wrong.
it should be
1/10 x 2 x 1/2 for 1/10th of the effect or 3.4% drop in sales. Still difficult to discern over seasonality but non-negligible.
This assumes the ability to motivate sales is inversely proportional to the cost of the purchase, proportional to the amount of the cash, and inversely proportional to how long you expect to live with the decision.
Seems a reasonable first order approximation to me. (who has never taken an econ course in my life)
Robert,
But the purchase index is already down despite the low interest rates. purchase index decreased 6.2% from one week earlier despite drop in 30 year rate.
Okay, so that was only one week's data, so totally noise-dominated. Still, I'm not convinced that low rates create much more demand (they do create the ability to pay more).
But, in general despite the huge plunge in Ford's sales MoM, I think the effect will be an order of magnitude smaller for the housing market, and may not be the panacea we've all been waiting for. Not unless inventory rises.
Cara-
I think it will have a bigger impact than that, but if you want to use your numbers I would change the $4.5K to something more like $3K. This doesn't make a huge difference, and I don't think we really don't believe the numbers, but not everyone got the full $4.5K many just got $3.5K not to mention they likely would have been able to get $1K for their car for parts if they had not done cash for clunkers.
Cara,
I saw that. At first I thought it was simply August/September and a steady decline in home purchase loans, but it does say seasonally adjusted.
Will lower rates spur more buying activity? At the margin, it should bring in a few people at the very bottom end of the market.
Is this a blip and the 30 year fixed goes back to 5.5% like this summer? This has caught me by surprise for sure.
housebuyer,
my car and house prices weren't accurate either. but sure, we could put in a range
minimum effect:
1/10 x 2 x 1/2 x 38% = 3.8%
maximum effect:
25k/180k x 8k/2k x 5yr/7yr x 38% = 15%
5 year car but only a 7 year home, 25k car but only a 180k home seems a bit dodgy...
maximum reasonable effect:
20k/200k x 8k/2k x 5yr/10yr x 38% = 7.6%
extreme minimum effect:
1/10 x 2 x 5yr/30yr x 38% = 1.26%
The other extreme assumption of course would be that both the size of the purchase and duration of owning it are immaterial. This would be the case if neither program actually created sales, but simply changed the timing of planned purchases. If you are just moving buyers around in time, all of whome would have bought anyway, then the gap should only depend on the size of the incentive.
thus the gap could be as large as a 76% drop in sales, if the dependence were linear with a coefficient of 1.
That's a bit absurdist for me, as is the idea that the total price of the purchase and time commitment is irrelevant, but it is another extreme assumption to consider.
Cara-
My guess is any number we through out is way off, but the way I would probably think of it is that the life of the asset doesn't matter. So either it is 3K is 10% of a car vs. 8K is 4% of a house so the difference will be 10%/4%=2.5X
Or more likely 3K is ~100% of the average car down payment vs. 8K is about 33% of the average closing costs + down payment so the difference would be 100%/33%=3X
So I could easily see sales falling ~10%, but seeing that inventory has fallen more than 10% I just don't think it will be that big of a deal, who knows... I guess we will just need to wait and see.
This house could use a little TLC, but for all the Vienna people its a really convenient location and under <400K
http://franklymls.com/FX7172445
Cara or whoever's currently looking:
does your agent try to steer you to houses beyond your price range? and if so does it irritate you? i'm working with this guy that i thought would be a good fit, but after the first showing he came back with a 'DREAM HOME' listed at 20%+ over our price range, and indicated it could be 'stolen' for just 10% over!
am i weird to be a little pissed?
MM,
Couldn't tell you. Jeff doesn't find listing for us, we find them on frankly and redfin and point them out to him. I'm sure he would find us listings if we asked him to, and if this short falls through, we probably will, but yeah, I don't think we've actually ever given him a price range either....
I think what you're finding is pretty standard practice. They assume that your price is your comfort zone price, not your upper limit for a house that fulfills your every wish. And if they think you really could get it for "only" 10% over your comfort zone, then why not show it to you?
Try making it clear that this is your line in the sand price, and that having savings every month after the mortgage and bills are paid is amongst the attributes you're looking for in a home. In fact it's one of the non-negotiable ones.
Frank had a blog post related to this the other day....
tbw,
To each his own. I don't exercise regularly unless it's part of my commute. I don't, I know myself, and I try, but if it's not something I have to do anyway, I don't take the time for it. So, for me, if I could reasonably take public transit to work, a 20-25 minute walk everyday is the perfect distance. Besides, you should see how fast I could walk after commuting from Attleboro to Boston for a year. 15 minute miles.
OTOH, I now drop my husband at the metro each morning, rather than give up a half an hour of sleep. I just feel guilty making him walk if we're leaving at the same time. I walk and meet him most afternoons though, unless its raining or snowing...
TBW-
I agree that you will probably be able to get a nicer house in the future for 400K. I don't think I would walk it, but it is a very easy fast bike ride probably 5 minutes. I also think it is funny that you said your time is too valuable so you will live at a place that is further away. If your time is valuable you should just live somewhere close and drive.
I think I actually like the house I posted a couple of days ago more, but this I think this is a decent starter house that a starter family could probably afford with today's interest rates.
Cara said--
Columbia Heights is not as safe as Georgetown or Gallery Place. I did not mean to imply that.
No, I wasn't taking it that way, just comparing the difference against my priorities and reporting my reaction last evening.
I don't exercise regularly unless it's part of my commute.
This is exactly my self-awareness too, and why bike commuteability is so high a priority in a rental or purchase for me. Luckily bikeability is really getting focus and improving in DC.
tbw,
What's wrong with a house that is 1000 sq feet above grade? My mom grew up in a house that was about 1100 sq feet w/o basement. I think the notion that each generation has to live in a bigger house just to show that they've done better than the last generation is stupid. Considering that the average family is now smaller than the families that lived in that rambler when it was brand new, it is even more ridiculous.
Both of those Vienna houses you have as examples of "starter homes" are over 2000 sq feet above grade. I think for a lot of people that would be beyond a starter home. I think 721 Upham(FX7088541) would have sold for at least 350k in 2002 as it was assessed for 333k in 2003. By 2003, I think this house was likely over 400k. I think 10319 Mountington(FX7154588) would have sold for ~450k based on its 2003 assessment of 418k.
Cara, I told you that when everyone is on the same side of the trade - higher interest rates - it is usually an indication that things will go the other way.
That's not Japanese and Chinese buying bonds, that is probably short covering from traders that were betting on higher rates.
Now, this is EXACTLY something contrarian should have been on top of.
Contrarian, I know you are a late night poster. Did you have something in long-term bonds or Fannie and Freddie debt?
HayfieldGrad -
I grew up in a 1200 sqft house with my brother, sister, and mother. It sucked. My neighborhood sucked. My mother drove a old Fiat that started 50% of the time. That sucked too. Vacations sucked. My clothes sucked too.
Now I live in a big house, drive a BMW, my kids have nice clothes, and we vacation in Bermuda. And it's great!!!
As far as being out to "impress" people. If you knew me better, you would know that I don't give a shit what anyone thinks of me.
Cara said...
I don't think our coming foreclosure wave is going to be very impressive.
It's over. There will be no wave.
That chart in the top post is another indication.
That doesn't mean I don't understand where the original idea came from. Those that subscribed to it weren't without logic and understanding. But events over the last six or nine months have changed the playing field.
For one, we have rising prices. Nothing will snuff out foreclosures like rising prices. But, we also have low unemployment. And we don't have the severity of homeonwers being underwater that the "sand" states do.
I was reading about strategic defaults - where someone with perfect credit and the ability to make the current mortgage payments simply walks and takes the hit to their credit. This is more common the further underwater they are and the frequency of foreclosures in their market. We don't have much of either. It is happening in Vegas, Miami, Phoenix and the Inland Empire in CA. It's feeding on itself and the foreclosures get worse and worse the more foreclosures there are.
It didn't happen here, but it could have.
TBW,
We agree on the absence of the wave in this area. I also won't quibble with you about banks strategically releasing inventory, but we will disagree that it is happening here. It's not.
I'd add that I think getting a SFH for less than $400k (and one much nicer than the one you found) will not be that hard in the Vienna area once home prices have bottomed around 2011-12.
I think we're sitting on top of another spike in prices because of interest rates. I expected the market to pretty much be flat going through Fall and Winter. I had said that if the Dow was over 10,000 and 30 year rates were less than 6% it would be another strong Spring. With rates plummeting, I can see another 10% move through the Fall/Winter.
But, that leaves less and less time for prices to fall as you predict. The fundamentals really kick in beginning in 2010 and strengthing through the year - primarliy because of the Stimulus. And as Stephen Fuller said, 2011 and 2012 will be "gangbusters."
Robert,
Have you even ever lived outside of the DC Metro area? Sorry, I cannot feel sorry for you growing up in Fairfax County. I'm sure your house was nicer than the old enlisted military housing at Ft. Belvoir that both my brother-in-law and sister-in-law lived in for a few years.
tbw,
The fact that you think any FCPS school that you attended 10-15 years ago was "bad" to me is crazy. The ESOL population has double in FCPS in the last decade so I have a hard time believing that you attended a school with a measurable amount of English learners. Why do you always blame the school problems on low-income and English language learners? Wealthy, white kids don't cause problems? The Westfield heroin ring were mainly kids from the wealthy Virginia Run subdivision.
You were never poor nor did you ever attend a substandard school. You were never on food stamps like a lot of enlisted military families are. I knew lots of enlisted military kids who recevied free or reduced lunch and lived in some pretty crappy housing. If you saw the elementary school I attended in Hawai'i, you would never again call your elementary school "bad".
tbw,
Btw, I am a female. I said the house I grew up here was bigger than Robert's, but that was only for 5 years of my life. All the other houses, including 2 duplexes, were the size of the home that Robert grew up in.
Schools like Annandale have more of an income mix than Lake Braddock, Robinson, West Springfield. Do you know that a lot of the parents in North Springfield that got re-districted from Annandale to Lake Braddock were unhappy with this? Those middle class North Springfield neighborhoods have been part of the Annandale HS community for decades.
Not everyone who is upper-middle class feels the same way you do. The late Tony Snow, one of Bush's press secretary, had at least one of his children at West Potomac when he was at the White House. My mom has a friend, whose husband worked in a prominent West Wing position under Bush and is now a lobbyist once again, had all of her children attend West Potomac. A lot of people can look beyond the FRL percentage and see what the school has to offer.
tbw,
Hey, I loved our Dodge Dart! We called it the golden chariot because it was that awful fake gold color. No power steering, so you could wiggle the wheel along with the radio while still going straight. No power brakes. It was great! You could have run that thing into a brick wall and it wouldn't have crumpled. So, you would have gone flying through the windshield, picky, picky!
And in regards to your continued hopes in the shadow inventory, you really should take a look at housebuyer's link. Yes, things could continue to drift down, and yes, we could get stagnation like we did last time such that in real terms prices won't bottom for years, but for any more measurable declines, I think this winter is going to be the last of it. It's totally fair to wait it out another year, to be certain that the worst has past, but I would keep a very keen eye out for homes that you would be happy in this winter/early spring if I were you, or anyone else that hasn't bought for that matter. Because if you total the cost over the whole amoritization over the time you live there, the declines that are to come may not reduce your total cost, because the only thing that I can see that would bring prices down now is when interest rates eventually rise. Given that we have no idea when that will be? It's a pretty tough calculation to try to optimize your costs. If you find a good home for a decent price? Try optimizing your happiness instead.
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