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Tuesday, November 17, 2009
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46 comments:
For all those P.O.'d about agents buying their own short sales and flipping them for 100k profits, it could be worse, it could be common practice like it appears to be in Florida:
Flipping short sales
This has a "simple" solution. Banks could (a) just foreclosure fer pete's sake, or (b) actually proactively get involved in the short sale process such that normal buyers wouldn't avoid them like the plague. Otherwise shorts only make sense for investors like VA investor who don't care about timing or any given property to live in, just that it's a good property at a good price. Hence the middle man will remain "necessary."
Although I have to say, I walked through one REO this weekend, where the bank had chosen to do the floors and rip out the kitchen, and put it on the market before the work was done, and let me tell you, give me capital investments LLC any day over the job the bank was doing. The new engineered hardwoods had a scratch deeper than the top layer in one room, 1 inch gaps between the end of every 14th plank and the wall in another (too wide to be covered fully by a quarter round). And I'm sorry, but if I want a new kitchen, I'll take one of my own choosing rather than the bank's in a heart-beat. Gah.
Cara,
I think your best deal is a cosmetic fixer-upper. Your only competition will be investors who won't buy unless it's a steal. The vast, vast majority of buyers want turnkey. They can't even envision a new paint job or simply don't want the hassle. That is my 2 cents.
You are young and have no kids. You can do much of the work. I have a great contractor. That is what you need to walk the property with you. You can get a very close number to make the place your dream and I believe you'd be surprised at how low that number is.
OT - I'll chime in on the flooring debate. Personally, I hate pergo. In a rental I don't really care too much except for resale. I don't even like prefinished hardwood. I prefer finished in place for my personal residence.
Carpet in the bedrooms, family room and rec room. Either tile the kitchen or run the hardwood into it.
Va_investor,
In the coming months, probably. Right now, I'm seeing a lot of greedy banks/sellers listing at turnkey prices for fixer uppers. I don't know why there are more opportunities like you're talking about in Herndon/Reston than in Burke/Springfield at the moment... I think it will change though. (There are a lot of investors out there, though, so I'm not sure that's really a smaller amount of competition...)
Cara,
Most of the investors out today know what they are doing. The newbie dummies are still licking their wounds.
As far as the comment from someone stating that investors are causing a new bubble; unless you think renovated homes selling at 30 or 40%+ off peak are bubble prices, you are way off-base. Now, in the areas that haven't dropped too much the prices may be only 10% off.
but wouldn't I have much more in common with the newbie dummies, than with the experienced investors???
;)
Regarding the discussion on where the market is going, housing, and whether or not we have a collective gut feeling about which way the market is headed...I read this somewhere recently and it just seems to have stuck in my head:
A traveling salesman pulls into a small dusty western town around dusk. He steps into the only hotel and tells the proprietor that he wants to inspect the offered room and leaves a $100 bill on the counter as he goes upstairs.
Immediately, the hotel clerk runs out with the $100 bill and enters the dry goods store. He hands over the $100 and settles his grocery bill.
Bob, the grocery clerk runs over to the saloon with the $100 bill and pays his bar tab.
Frank the saloon keeper runs upstairs and settles accounts with Miss Betty Lou.
Miss Betty Lou runs back to the Hotel and settles her bill with the Hotel clerk.
The traveling salesman comes back down the stairs just as Betty Lou is walking out the door. He tells the hotel clerk he's changed his mind and won't need the room after all.
The hotel clerk hands him his $100 back.
That's sorta what I think is going on around these parts.
:)
on flooring...
does anyone like carpet in the bathroom? i've seen them in the West coast...
MM, I've seen it here!
Disgusting.
Texas Native-
The problem with that story is that it doesn't scale sustainably.
The grocery store clerk has property taxes to pay and inventory to buy. Ditto the saloon keeper.
The hotel guy has property taxes, electricity, has to pay the maids, etc.
Miss Betty Lou has to pay for---well, you get the picture.
Plus, Miss Betty Lou would have a room above the saloon and wouldn't carry a tab with the hotel.
Texas Native,
That is just BRILLIANT!!! Told as it only could from Texas.
On top of everything else I mentioned, what makes the matter worse is 6% agent commission that's been institutionalized.
Whopping 34% is eaten away every five turnovers - talk about insanity. Housing is probably the biggest scam going on after insurance industry in this country.
spider,
couldn't agree more on the 6% fee.
the ex-realtor senator who pushed for the tax credits should call out on the industry and demand reduction of the fee as part of the 'stimulus' deal.
cut it to 4% will help the housing market more than the $8K/$6500 ever could.
MM,
so, what you're saying is redfin will save the world economy? just kidding.
oh geez redfin saving the world. I had them sell our house and they didn't defend us and all. Matter of fact - they were frustrated that sales was about to fall through off on minus 25k on a bad appraisal. We already had a signed contract all we needed was a good appraisal that didn't compare us the dump foreclosed neighborhood next store. They just want their numbers too. Get'em in get'm out - bite my hide.
Housebuyer says:
I am pretty sure that there were not many IOs in this area. Do you have any data to claim otherwise? As for ARMs, resets will help buyers. The fed is going to keep rates low for a long time to help the economy, so when there rates reset to something like LIBOR + 3 their rates will actually fall. The only buyers that are in trouble are those who bought in 2005-2007, because prices are around 2004 levels and if you have owned a house that long you have paid down some of the principle. Do you really think that that many people are underwater when it is only buyers from a 3 year period?
http://www.washingtonpost.com/wp-dyn/content/article/2005/05/27/AR2005052701345.html
About 54 percent of home buyers in the District purchased their homes using interest-only loans so far this year, according to LoanPerformance, a San Francisco-based company that tracks loan originations nationwide. About one-third of buyers in Maryland and Virginia are buying with interest-only loans.
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Just five years ago, only about 2 percent of home-purchase loans in the Washington area involved interest-only terms.
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/18/AR2007081800089.html
In 2005, the year we bought our house, nearly 40 percent of the mortgages in the District were interest-only, according to LoanPerformance, well above the national average of 27 percent. Interest-only loans typically mean that buyers lock into a low interest rate -- about 5.125 in our case -- for the first three or five years, without paying principal, before the loan balloons into a 30-year, fixed-rate mortgage tied to current interest rate indexes.
Housebuyer,
There are 2 , 2, 2 Hazards in one
in an IO loan.
First that the Interest can reset
to a nasty shock.
Second that the RECAST can become
more then you can afford.
consider a 5/25 IO mortgage.
You buy a 500,000 property, not that unusual in the DC Area.
at IO it's 2083 Interest Plus Tax and Insurance. Call the Tax 1% and the Insurance 1% so say $800 for that.
Total Payment is 2900. but $2500 is deductible so figure 30% taxes
gives you a net payment after tax of $2100...
Now most people stretch to the max for a house, so figure, that's 33% of AGI.
Now what happens when this mortgage recast to a 25 Year Adjustable Rate loan.
Principal and Interest goes to $2922
and T&I hold at $800/month. Remember the Principal isn't deductible, so the effective payment rises $850/month.
Every person I ever knew with an I/O did it because they couldn't afford a 30 year amortizing mortgage. So if they couldn't afford a $2700/monthly PI up front, why would they afford a $2900
Now let's look at this in perspective, a RECAST is almost a 40% increase in payments.
let me correct what i said ..they wanted us to eat 25K because of a BAD appraisal. Never did they mention any solution other than us being out 25K.
Cara - I know you were kidding...but people never hear the negative side of cheap real estate labor.
ronnie,
I'm totally with you there. I'm working with Jeff Royce from Frankly for a reason.
Senator Isakson is a disgrace. I have nothing but ill feelings towards the guy. What really rattles my cage is that they go and sack the economy with this sham, then package it to their clients like they've done something positive and kind for them. It's just disgusting.
Spider, I agree that housing is a sham. It didn't start this way, and doesn't have to continue this way, but enough manipulation and hands grabbing at suckers' money has made it all a big money party for middle men. I profited off of my condo, but nearly half those profits were eaten away on closing costs ($10k) and agent fees. I swear both together couldn't have spend more than 20 hours on their clients. I wanted to vomit when I saw the numbers, and that is one reason I became less-than-thrilled with the fallacy of home ownership.
pat,
hmmm. I wonder how well this meshes with the NY Fed data (which imo is more authoratative). They may actually agree just fine, because the Fed data we usually refer to here is talking about the total percentage of outstanding loans.
The thing is, what has happened to the reset charts is that instead of a tsunami at the time of recast as originally assumed, buyers who stretched are defaulting much earlier, and most have already gotten through the system or started along that path towards distressed sale.
And I for one do know a family who got a 10/20 IO loan with a balloon payment at year 10, who are paying at the fully amoritizing rate, and have been all along, more or less, less when there's no overtime, more to make up for it when there is.
http://www.loanperformance.com/pressreleases/FirstAmericanCoreLogic_HPI_8_19_09FINAL.pdf
First American Core Logic is one of Mr Mortgages favorite sites.
DC MSA is down 10% Year on Year,
That's a huge equity bleed.
Prices are back to 2004, basically
most people who bought during the bubble, got their hands singed.
The key is to wait out the deflation, despite the Homedebtor credit and cheap slave debt.
Give it time, lots of property will go bust.
There are decent deals, if i didn't hate 95, i'd have bought 3 townhouses in hoodbridge this spring.
I'm waiting for decent deals in Immundria,Immunington or Immunimbia.
Remember that one i posted up 1244 wylie street? Listed at 143
against a block of houses that all sold fo 450 during the bubble.
it may be 15 years before these people are above water.
Unless Bernanke wants to go to double digit inflation debtors are screwed.
TBW -
This is the number you should be focused on:
The region’s total work force at the end of September was 1,305,600, down 1 percent from September 2008.
BTW, I believe the above number is the employed workforce as the author uses the term workforce and employed people interchangeably - which is not the norm. Normally workforce is the entire available labor.
13,000
I told you the # of jobs would return to peak in 2Q10.
Sorry, unemployment is not even Queen. It's more like a 9 or 10.
pat -
If you get a chance, would you comment on this article.
It falls under the category of nobody writes about good news only bad. I can't even find a more recent article about ARM's adjusting lower for both mortgages and HELOC's.
ARM indexes have dropped significantly since this article was written.
Pat -- as Cara suggested, thanks to the New York Federal Reserve, we know far more about those loans than was suggested in that 2005 article.
At the peak, (Jan 2008) we knew that
-- Arlington a grand total of 1,300 interest only and neg am loans.
-- Alex had a grand total of 1,000 loans
-- Fairfax had 8,100 i/o and neg am loans.
-- Loudoun had 2,200 i/o and neg am loans.
-- PWC had 4,000 i/o and neg am loans.
-- We also knew that 40% of those loans had already reset in Jan 2008.
The reset rate is now around 55%. This coupled with the preponderance of these loans to go "belly up" (along with a few that sell or are modified) long before the reset date, suggests that 30% of the numbers above are left to wreak their economic devastation on the area. (390 in Arlington, 300 in Alexandria, 2430 in Ffx, etc.)
As such, you can see why noone here is really much concerned about the Tsunami, much less the Quickening hysteria that occupied much of 2008.
pat said...
"Give it time, lots of property will go bust.
There are decent deals, if i didn't hate 95, i'd have bought 3 townhouses in hoodbridge this spring.
I'm waiting for decent deals in Immundria,Immunington or Immunimbia."
LOL agreed, though I'm not holding out for any inside-beltway areas. I just think the foreclosures there are so low in number that price discovery will take forever.
If I worked further out (not in Tysons), I would have bought a house in MaNASCAR by now. 22030 is as far out as I'll go.
anyone follow McLean on here? $370K hair-cut for DEUTSCHE BANK for this REO. ouch!
MM, whoa. Not a bad deal.
MM-
That price looks amazing for that area. Do you know if/what was wrong with the place. I assume something is strange based on the realtors comments
"Visionary buyers should look at this one! Home located in prestigious Potomac Hills, close to DC, Tysons, great schools is ready for creative owner. Better than building your own home! Large rooms, easy floorplan needs a "Designing Owner."
Either way as long as it didn't need a massive amount of work a 3100 sq. ft. house in the McLean are for 500K sounds like a great deal. It is also strange that is sold for 200K less than the list price.
Nice dig Anonymous. Move along, no tsunami here.
MM said
the ex-realtor senator who pushed for the tax credits should call out on the industry and demand reduction of the fee as part of the 'stimulus' deal.
But MM . . . the NAR does not engage in soft price fixing. Why, the 6% cut has come from intense competition in the marketplace. ;)
kevin said
If I worked further out (not in Tysons), I would have bought a house in MaNASCAR by now. 22030 is as far out as I'll go.
Why not the Route 7 or Route 267 corridor? Ashburn or Sterling? Or Herndon? Plenty of good options there that would be shorter commutes than Manassas to Tysons.
And eventually you'd have the option to ride the Silver Line from Loudoun to Tysons which could be a pleasant ride. Or you could still drive and fewer people will be on 7/267 because they are riding Metro.
Cara
The NYFed dynamic maps of subprime mortgage conditions uses First American Core Logic as their data source. So, the data should be common. Now the NYFed map won't let you roll back through time so it's hard to tell what's going on.
but when i roll in, the percentage of subprime and Alt-A are pretty bad for delinquency.
I suspect around here, people had a little more financial reserve, but,
my street feel is that a lot of distressed inventory is going to hit the pipelines.
Anonymous
Yes low interest rates are helping people with ARM's it's why that SOB bernanke is robbing savers so he can help homedebtors and the scumbag banks holding that paper.
but how much more can the fed intervene? They are in the bag for a trillion more.
Pat-
The more they owe the more likely they will want to keep rates near zero. It is much easier to pay debts back when you can borrow near zero percent.
tiredbubblewatcher said...
"Why not the Route 7 or Route 267 corridor? Ashburn or Sterling? Or Herndon? Plenty of good options there that would be shorter commutes than Manassas to Tysons."
I'm not trying to have a 45 minute commute to Tysons, so no Ashburn or Sterling. There's nothing out there for me. I'm sort of tied to the Fairfax/Oakton/Vienna area. All of my friends and favorite restaurants are in this area, as well as school and work.
Federal Reserve Bank of St. Louis President James Bullard said policy makers may not start to raise rates until early 2012 while facing a “too low for two long” argument that may “weigh heavily” on the central bank.
TBW, are you ready to concede that you've been dead wrong on interest rates? You use words like inevitable, but you're ever so cautious to not set a date certain. I'm the only one on this board that has suggested rates my not go up. You got tagged on this one.
Robert-
I agree that rates could stay low for a year or two, but they will definitely go up in the time frame that we plan on owning a house. AKA 5-10 year time frame. So if you are worried higher rates would hurt housing prices this time frame is relevant.
You sure about that. kevin always says look at Japan. What is the history of interest rates over there for the last 5-10 year timeframe?
Robert-
Seeing that we still have core inflation YoY even during the worst recession in decades I would say I am pretty confident. Japan had deflation most of the time since their land bubble burst. We have acted far quicker to heal our banks than Japan ever did. We still have a growing population, while Japan has an aging population.
Basically the only way rates can stay low for that long is if we have deflation, and if you think we are going to have deflation how can you be betting on housing to do well?
housebuyer, Robert,
The other method they could stay that low is semi-permanent government ownership of the mortgage market. Even once the target rate goes above zero again to appropriately manage inflation, they _can_ choose to keep mortgage interest rates steady. I don't think they will chose that, I don't see why they would feel they needed to, but you never know.
Cara-
Aren't they already doing this with the 1.25 Trillion purchase of MBS. They already said they are going to stop this program in early next year. So I would say its more likely that rates rise when this program ends even if short term interest rates stay at 0%.
housebuyer,
Exactly. But they could (a) extend it, (b) make FHA the entire mortgage market, (c) make the GSE's more explicitly tax payer backed... I'd put option (a) at 50/50 but not indefinitely, but the others are not beyond the realm of imagining.
Cara-
I think option A is low odds, because they already talked about getting out a early. I think there is almost no chance of B. I think option C will not have an impact. Everyone knows the government is going to back them so an explicit guarantee will not have much of an impact.
Well, for whats its worth. I think they will pull back and quit proping up the rate. I think they have every intention of inflating the debt away. There is a reason that the government is giving every Tom, Dick and Harry a loan right now. They know this is probably the last opportunity for homeownership for lower and middle class families for a long time and they are building in reserves for future low and middle income families with the current loans. Home control vs. rent control. Some of us oldies but goodies remember the rent control battles.
"Pat said...
Yes low interest rates are helping people with ARM's it's why that SOB bernanke is robbing savers so he can help homedebtors and the scumbag banks holding that paper."
Pat -- thats great and all, but can I ask what that had to do with our conversation til now?
You noted Mr. Mortgages "the Quickening" fantasy which implied we would be innundated with REO listings by now.
I pointed out the REO never showed up on the rapidly declining MLS, and in any event, Mr. Mortgage likely realized he was wrong when he yanked the "quickeining" post.
You then suggest that this area has "alot" of I/O & option arms that will recast soon, (presumably driving inventory up), hopefully in "Immunington or Immmundria".
I then point out Immunington & Immundria had a grand total of like 2400 i/o and Option Arms, and that only about 690 of them still exist as of today.
So again, in case you missed it, the point isnt the "SOB Bernanke" is helping ARM borrowers. The point is, the ARM borrowers in the areas you reference were (a) few to begin with, and (b) have been washing out so quickly that recast/reset is a non issue.
Dont get me wrong, I think this market faces a ton of headwinds before everything is hunky dory. However, it is clear that the "Alt A tsunami" is not one of them.
Arkey says
"They know this is probably the last opportunity for homeownership for lower and middle class families for a long time and they are building in reserves for future low and middle income families with the current loans."
I'll disagree,
Id argue that The New York Money elites view this as the last chance to pin down foolish buyers and monetize their debts onto the taxpayers. The Fed, FHA and GSE's are all using taxpayer guarantees and getting foolish homedebtors to risk their last penny snapping at inventory that would otherwise impair their balance sheets
Anonymous
I'm not sure I believe you when I see the stat that only 1.7% of all mortgages are Alt-A or Option ARM,
DC was the number 4 market in the bubble, was Arlington utterly independent of this?
The chance of ratty data making things look different seems rather high.
When I waltz neighborhoods on foot, i see a lot of empty inventory, far more then the 1% that is normal.
that Arlington has more people who will hold out to the end, and have better resources is for sure, but,
when a bubble pops it collapses
for everyone
Pat I understand your reluctance to accept the data. We've all believed for months or years that a tsunami was coming, and hard data showing it likely wont is disappointing.
I dont think you were here 2 years ago when we discovered this - like subprime, the Alt A loans are disproportionately located in loudoun, PWC, etc. Someone best described it as a "kick in the nuts".
I used to rail against the data too. Its only as the months and years have progressed and the tsunami hasnt happened that ive become resigned to the fact that it likely wont. If your not there yet, thats understandable.
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