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Wednesday, November 25, 2009
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38 comments:
Did anyone else notice, yesterday, this article from Core Logic about 23% of homeowners being underwater was being circulated -- as if it was some newly discovered sign of doom ahead
http://online.wsj.com/article/SB125903489722661849.html?mod=WSJ_hpp_LEFTTopStories
Had they done their homework, they would have noticed that 3 months ago the same group put out a report saying over 32% of homeowners are underwater.
http://www.calculatedriskblog.com/2009/08/american-corelogic-more-than-152.html
Going from 32% underwater to 23% underwater in 3 months time is not a sign of doom -- it just totally undercut their argument.
The Anonymous,
Calculated Risk had a post on that. Basically the difference is that finally Core Logic is paying attention to how much of the principal will have been paid off since the mortgage was issued, and they're actually tabulating the portion of the HELOC's that are tapped, not the credit limit.
So in a way, since the 23% number is more concrete and accurate, it's a lot scarier than 32% BS.
However, I think the key is, underwater by how much? And do people really view HELOCs any differently than they do credit card debt? I mean if you tabulated a lot of people's total debt and then assigned that all to the house, and compared the net worth of americans, then a whole lot more people would be "underwater". Of course the distinction is real. They can't take your house for you not paying your credit card. (or at least not easily).
oh and our seller's have signed off on doing all the repairs we asked for.
I think we really lucked out. They found the world's easiest buyers to deal with, and we found the world's easiest sellers. And at a price all parties can live with.
I'm feeling better today because the hubby really is just as happy about this particular house as I am. This house really is exactly what he wanted all along, I just had to find it.
Cara,
He's lucky to have YOU to find it!
especially the requisite mind-reader part....
Yahoo news
Fannie Mae new policy, "first-look". It won't accept offers from investors on its REOs for the first 15 days. I would call this a mix of covering their ass, so that foolish investors don't cause another leg down when they can't get the profit they're expecting, mixed with a PR stunt + another layer of urgency, pay list in the first 15 days or else! (or else find another house, oh no! not that!)
Cara,
Could you tell me how/where to derive the 'rental parity(sp?)' of a $500K home is, assuming a 20% down, at 5% rate?
I see a property going for $500K and also should rent for $1,900/mo. I wonder if that's close to the 'rental parity(sp?)'
Thanks!
Cara,
I ran into that "fannie mae" 15 day thing a couple of months ago. Still bothers me as it was a terrific buy. Perhaps the lister jumped the gun. They held my offer for 10 days until an owner-occ came along.
It was a 2/2 at Northgate for 145K. They are going over 200K now.
MM,
What I'm doing is a little bit of funny math (like all buyers do).
Take the loan amount, see what PITI is at current interest rates. Compare that to your monthly rent costs. Assume the tax benefit and the added maintanence costs approximately cancel.
By my rough math, $2000/month rent is about equivalent to a $400k purchase price, $320k mortgage at 5% interest rates. The main thing this calculation is missing cost-wise is the opportunity costs on the downpayment.
Now for most $500k houses, I personally think they generally transact at 5-10% over rental parity, because people intend to live in them for longer, the people moving into them have either saved up for the express purpose of having a nicer house, or have equity they're bringing from a previous home such that the cash doesn't feel like opportunity cost.
But here's the other twist. In areas where rented homes are a rarity, rents are largely dependent on the monthly ownership costs of the current owners, not market rates like apartments. So, the fact that as recently as 2002 houses were truly affordable means that a lot of the owners renting them out don't need to charge rents that are much higher than THs or apartments...
Cara,
Glad to hear that the process is moving smoothly! However, I think we can give you a run for the easiest buyers/sellers to work with. ;) When we bought, the sellers surprisingly (to us) didn't even bother to counter our "starting negotiations" price and I think partially in turn, we didn't end up asking them to do any of the very minor things that were in the inspection report (calling a plumber to put in a 99 cent seal seemed really petty).
Not enough mention on real estate blogs about the consternation that home owners being foreclosed upon suffer.
This one is out of the park.
http://url2it.com/bkrg
At the risk of sounding like a broken record, higher priced homes are generally not rented out. They don't make sense. The numbers don't work unless you've owned for ages or have no alternative to swallowing a big negative.
People, in general, don't move a houseful of furniture and some kids into a rental. There are exceptions; embassy, military or ...
We rented (what is now a 700-850K home) to an embassy for 11 yrs. I would have sold but this was 1993 and I needed to move quickly on another house. We were negative for the entire time.
I can see families renting a TH because condo's are too small and they can't afford a house.
This reminds me of Curmey (for those who follow craigs list). He once gave an example of a 2mil dollar rental house in Alex. and computed what he thought it was worth based on P/R. Ridiculous.
I think 350 -400K is max for trying that equation. There is little demand for rentals above a certain amount.
I try to stay under 200k. That is the rental market that makes sense to me.
Good input, VA_Investor.
MM, also, as someone posted earlier this week (sorry I can't remember who), due to extremely high land prices in Arlington, the numbers also don't work well, even on the "low" (we all know there aren't many places where would $500K be considered "low") end. These days, houses still sell for more than rental parity because buyers are competing with developers, who could tear down a "shack" and build a McMansion.
thanks all.
this is the house i thought was near parity. you can see why it's not attracting developers. might not be attracting anyone at this price point.
but i'll be eating my words just as soon as i finish that last piece of leftover turkey coz Arl 'low-end' are selling like hot cakes in the past week or two. not just N Arl, some zips in S Arl too.
madness.
Robert,
I feel bad for those GSA employees who have to go from working at 1800 F St NW (really nice area; near the White House; good commute for Virginians and Marylanders and walkable to many nice neighborhoods in DC) to 1275 1st St NE (much longer commute for Virginians and people in Montgomery County; not walkable unless you live in the horrible neighborhoods pat looks at).
I wonder if any restaurants have opened up in that area. I recall a few years back the EEOC employees complained that the new HQ in that area (they were previously 18th and L NW or something like that) was only near a McDonald's. But maybe with ATF, EEOC, and now temporarily GSA someone might open there.
At least the GSA employees will get to move back to 18th and F once the HQ is redone.
Va_Investor/Ace,
I agree. Rent to price ratios just do not work for SFH. In fact, I suspect there are issues using them for TH. It's a metric best reserved for condos IMHO.
Also, not to sound biased against renters (I am one currently so I'm not). But renters (particularly four unrelated persons) lower the character of a neighborhood. I have friends who rent or have rented homes in Ashton Heights (area south of Va Square and Clarendon Metros). I would never buy in those neighborhoods because I don't want to live in a neighborhood where some of my neighbors are four unrelated people. And the mix of the four changes from year to year. Also that usually means 2-4 cars.
I can't think of any SFH neighborhood where rentals comprise a large portion of occupants that does not feel a little dumpy.
I think most of us who want to buy a SFH buy in part for stability. It's nice living somewhere for 10+ years and having some continuity in neighbors.
To be clear I don't think there's anything wrong with in a subdivision of 30 SFH having 1-2 of them rented out to families.
If anyone visits the area south of Clarendon that I'm talking about you'll see what I mean. (Especially on a night where they are having a house party and there are 25 people in their 20s-30s in the front yard drinking. ;)
The Anonymous said
CRT -- Yeah I guess I should know better by now. I just think back to how different my life may have been if someone would have smacked me 7 years ago before I went down the path of beliving there was a humongous bubble in N. Arlington.
It's true that in retrospect you should have bought in 2002. But the price run-up between 1998-2002 was a little bubble-y. However, little did you know that the price run-up would continue from 2002-06. And that recovery would take from 2006 to probably at least 2010 but potentially as long as 2012-14.
I don't know how old you are the Anonymous but my guess is maybe you were born in the 1970s? I think your sub-generation is basically the most screwed given the timing of everything.
People who are older (Robert, Va_Investor) got to buy in sane times. And people who are younger (housebuyer, me, and possibly some others here) can wait until 2011 or later and still be average aged or even young for a first time homebuyer.
The length of this is insane and I think perhaps your age cohort has been screwed unless they timed this perfectly (bought in 2000-02 which for many would have required buying at a relatively young age). For most they missed the boat (1999-2002) and now either had to buy at inflated prices between 2003-07 or wait until they are 35+ (2010+) which is too long for many people.
I do think your sub-generation (or what I'm guessing is your sub-generation) is going to smooth out the recovery a little bit because some people feel "d*mmit, I'm 33 and deserve to own a home already, screw whatever money I might lose."
Sounds like there will be some unhappy campers at GSA.
On the money with the last post about renters.
Related: I wonder how large the bubble-sitter-outers are. Nothing wrong with bubble-sitter-outers, you've saved a lot of money, but it's a new demographic. Someone should write an article about them.
TBW
"It's not walkable unless you look in
the Areas pat likes"
Dude
While I admit openly that i'm looking in transition areas, 1275 1st is
really a nice location for an office building.
1) it's 1 block from the NY Ave Metro.
2) it's 4 blocks from the 395 exit.
3) it's off NY Ave so people from
PG can easily drive in.
Now sure NY Ave is'nt' wonderful but
it's changing, there's a 5 guys at NY and Florida, and a McDs that would much rather be supporting
QP's then Crack vial sales.
Between APA and Peoples and XM there is lots of daytime foot traffic.
Is it Georgetown? Heck no,
Is it dangerous like Anacostia.
Heck no.
It'll be better.
I'm looking at a place, i'm thinking
of making an offer, the Listing agent said "Cash, no inspection, 2% down
he holds the cash"
I'm tempted to counter offer
"Cash or 203K, I have 30 days to close inspection, no reserve, but if i find a problem, I can walk away and
my Attorney holds the money".
Its a REO that has been DOM over 180 days, so I don't think they have a huge bargaining position.
TBW-
Seeing that the government is throwing trillions at saving the banks there is no way it wouldn't cough of tens of billions to save the FDIC. If contrarian thinks its going to fail its because he also thinks the world is ending the Dow will fall under 1000 and unemployment is going to be well over great depression levels.
pat,
According to the Washington City Paper the Trinidad neighborhood (albeit a few blocks east of there but not far) has a higher crime rate than Anacostia. So it is worse than Anacostia.
I agree that on paper there are a lot of reasons why that area makes sense for economic development. And I agree that over time it might become nicer. But within the five years GSA will be there? Eh. Probably will take much longer than that.
You also need more private employers. People who work for the fed gov't are very much 9 to 5ers often with little time for lunch break and little demand for dinner options. Look at how dead the downtown blocks east of Gallery Place and around Judiciary Square feel as compared to the areas around Foggy Bottom, Dupont, and Farragut West/North. The eastern edge (mostly gov't employees) has no street traffic and very few good restaurants. The total opposite on the western edge.
pat,
You do realize this urban redevelopment theme is nothing new, right? In the 1950s the federal gov't redeveloped the SW waterfront area. How do you feel they did with that one? Most people agree that despite the efforts it remained a pretty crummy neighborhood.
Not all urban renewal efforts work. Some do, but some do not. I don't mind your optimism. It's your certainty that this will work.
So I have an opinion question for the group. Our current lease expires in February and we are trying to decide how long to extend it. 8-12 months is one price, with 7 months costing $25/mo more, 6 months is $80/mo more, etc. We are going to look at homes this Spring, but have doubts that we will find what we like at a price we're willing to pay. How long would you sign a lease for knowing you were going to start looking at homes in March/April?
P.S. Our new 8-12 month rental rate is exactly $1 higher than the current rate, which was reduced $30 from the year before that. Our management company uses some computer formula to determine rent based on availability and other factors. Looks like rents are still flat in Tyson's.
Jeremy,
Tough to say. I'd suggest determining the following first:
(1) How tough would it be to find someone to sublet the rest of the lease?
(2) What's the penalty for breaching the lease (sometimes spelled out in the lease)?
(3) How long have you lived there and what is the management like. If you've lived there years and been a good tenant some places would be fine with vacating early with 2-3 months notice.
It also depends on what you buy. If you buy a short sale Cara's experience shows how long that can take. If you buy something not move-in ready it will be nice to have the rental while you get work done.
Cara - my response from previous bit:
I think you know very well where I stand compared to you and Anonymous.
You and Anonymous believe that prices will go sideways for next few years. I think we will see another dip in housing prices and economy both next year. I see W, while you see L.
It seems Anonymous already started to hedge his/her bet by saying c-s will start heading lower (which is what I have been saying out loud while some of you seem to think otherwise)
We will soon find out where we end up.
Hey, We are all on a same boat (most of us anyway) trying to achieve the american dream without getting scrwed.
By the way - was yours SS? How long does it take now-a-days?
Also - as soon as we see the prices go back down - we should see investors getting worried - wondering how far down it might go.
If stock market also crashes because of housing decline, it should be even more interesting how it all plays out in next few months.
It’s Official, Mortgage Interest Rates Today at All Time Record Low
I am more steadfast than ever in my opinion that I have no idea what is going to happen to interest rates from here.
spider,
You seem very sure of your predictions. I would never say never. Remember a poster who went by the handle of Tooskineejs? He promised N. Arl would be down 40% by 2007. He even sold his home in 2005 and moved his family to a rental down the street. You'd really have to be sure about things to do that.
I don't claim to be sure of anything. You think it will be "interesting" if the stock market crashes? Are you nuts or do you have a stash of MRE's and gold (which may be in a bubble).
People have to live somewhere. You can't live in a stock. Your plan seems to depend on a fiscal crisis of unprecedented proportions. Is that your wish? It sure seems that way.
A year or so ago, we used to joke with friends (half-joke?) about worst case scenario's. I think the worst problem - fear- is past us.
VA_Investor
Be aware there is an insane dollar carry trade going on.
What the yen was fueling for 20 years, now the dollar is.
speculators are making insane leveraged bets using zero or negative rate dollars.
when returns turn positive all this implodes because it's just unsupported.
so commodity and stock are very risky.
give it some time, the return to reality will be harsh.
TBW
trinidad sucks i concur
but it's a long way away and
those are night people.
the ones who work days will never see this
as for urban redevelopement the
trend was to the suburbs between the 50's and 90's, that trend is ending hard. Boomers are ending careers and sick of commuting,
and the Gen Y crowd likes the city, they hate driving.
they'll crowd the urban poor out into the hills. where they can duke it out for food and kit-kat bars.
VA Investor,
I would never say never. But, I am quite certain that we are not out of the woods yet. I don't own gold as I feel we need to worry about deflation before inflation - I believe gold/commodity is in a bubble that will bust like oil did earlier - and take economy with it. I am not a market speculator, rather someone who understands and admires economics at its core.
I know we are creating another mini asset bubble similar to 2003-2007 - which didn't go too well as you know. As a country, we are making a lot of mistakes by bailing out the same institutions and individuals who acted irresponsibly - talk about the mother of moral hazard.
Recessions are necessary evil to ensure the capital gets directed in the most optimal way. As an example, there was an astonishing amount of wasted investment that went to housing and related sectors during the bubble that could have been utilized better. Greenspan didn't let 2002 recession play itself out - we had to pay for it dearly with a bigger bust. We have to let this completely play out this time, so that market can facilitate the price discovery. All the government interventions are hiding the true picture. MTM is another scam where suddenly banks are able to hide their losses and show profits.
Can I be wrong? Can this mini-bubble go on for a while ? sure, there is always a chance. Never say never.
However, I do think fed won't repeat that mistake this time. If they do, market will make them pay other ways and force it to act (commodity prices will kill the recovery for example)
We can't get out of the mess unless we clear it up ourselves as a country.
spider,
What the Anonymous and I think is essentially the same thing as the C-S futures market for DC looks like right now. Strong seasonality, but long-term flatness.
You weren't around for some of our predictions, but basically this August or September what I was saying was that I fully expect that this winter's lows could erase all of this summer's gains, and that would still count as seasonality to me. What I'm not expecting to happen and The Anonymous isn't either, is for the housing market to dip significantly below the 160 of last winter. In fact I'll be more specific, I'll be surprised if C-S for D.C. goes below 165 again.
Thus why I'm asking for clarification. Your W and our L? May or may not be significantly different predictions. However, I'd say that if you think this winter's lows will be around 155 or less, and next summer to stay under 165 than yes, you do actually have a more dire outlook than we do.
For me at least, I'd agree 155 low this winter is definitely in the realm of the possible. I just think 165-170 is more likely. And I, in general, look at that futures market and think those seasonal swings are a bit too extreme, and expect our C-S to look closer to the composite 20 prediction.
But see, now I'm putting words in your mouth, and I hate doing that. Because I'm terrible at it.
Cara,
I expect CS to go back to mid-2003 - which is around 155. There is some possibility we may even go lower than that, I won't bet on that however.
We will start to see C-S drifting lower this winter. However, we may not see the bottom until sometime in mid/late 2010 at the earliest. Earlier we correct, better it is for the economy to get back on its forward trajectory.
To add to that - C-S number doesn't take into consideration some of the regions that haven't corrected as much yet. Some of them will have to fall more in % terms than composite C-S numbers for our region.
thanks spider.
At the risk of putting words in their mouths, I'm guessing tbw thinks it will go to about 155 or a tad lower but will take longer to get there, 2012 at soonest, and Kevin thinks it will definitely get under 155, with those areas that have fallen the least being less than half way through their correction.
I agree, the sooner we reach a true and sustainable bottom, the better for our local economy and that of the nation as a whole. The banks, however, don't seem to agree with us...
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