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Monday, December 14, 2009
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110 comments:
a question on REO?
we saw a bank-owned property over the weekend. the bank (GMAC) requires us to be pre-approved by its lender. my agent said this is common. my question is, i believe in general buyers don't want seller to know how much they're pre-approved for, and each offer should have a pre-approval letter should approve the exact amount of the offer. is this line of reasoning not applicable when buying an REO? or not even valid anymore for any sale in this new credit environment?
I would think this is not really applicable when dealing with REOs. Many of the people bidding on REOs have the ability to pay a lot, but will not. So banks tend to sell it to the highest offer rather than try and push for a higher price.
MM. I think they do that to ensure the bidder is qualified. They don't to waste time with an offer that can't get past their underwriters. IMHO
here is the wtf poster of the week WTF
The guy bought it for 335K in early 2008(before the hardest part of the correction). Put in new appliances and floors, although no pictures so who knows if they are even nice. The list price is 579K. This house is in 7 corners and only has 912 sq. ft. above ground. $10 bucks says he doesn't get with in 30% of his asking price.
MM,
as housebuyer and Arkey said, they just want to know the deal will close.
Also, they can make you jump through more hoops, so they will.
Plus, it gives them the chance to offer you better financing than your current lender of choice. My best friend's little sister bought an REO a year or two ago, and the selling bank threw in "free" points to beat their other rate by 0.5%.
(this was back when they'd still sell you a house when you owned another one...)
Kenneth Harney
Reports on another sounds good plan, that sounds to me as if it will help 1% at most, just like all the other plans so far. (aside from 5% interest rates, which have succeeded beyond their wildest dreams).
streamlined short sales.
"Enter the Obama administration's new streamlining plan. Besides requiring lenders and servicers to use uniform documentation, preapproved short-sale terms and accelerated turnaround times, the plan also provides financial incentives for key players"
Borrowers with second mortgages need not apply....
"But there could be a major pothole: The Obama plan tilts to consumers by requiring second-lien holders to drop all financial claims against short-selling borrowers beyond the $3,000 they take out of the deal.
Travis Hamel Olsen, chief operating officer of Loan Resolution, a Scottsdale, Ariz., consulting firm, says the $3,000 payment won't be enough for many second-mortgage lenders. Today, they frequently obtain additional short-sale compensation from sellers as the price of their participation -- in cash or through promissory notes -- far beyond $3,000. "
The real question is, is that true? Have second lien holders been able to get more than $3000, either from the debtor or from selling the lien to debt collectors?
Cara...from what I've been reading concerning the Ca. market..yes, buyers..I said buyers..are bringing the extra cash to closing to pay the second lien demands..between $10 and 15,000 or as much as the lender can squeese on SS
Arkey,
I could believe that. I mean which party to this transaction actually has money? Buyers.
Cara-
I assume it depends on the states. In recourse states, I assume they can probably get that amount of money. The second lien is often ~20% of the original value so around here there are probably plenty of second liens that are $100K+ so I assume debt collectors would be willing to a pay a couple cents on the dollar. Also remember that in many cases the owner is still making payments, so the second lien has little reason to sell for virtually nothing.
I think the first lien also often pays the second lien holder some money, because they are better off with a short sale than a future foreclosure.
Raju-
Yes the market lows were between January & March. Since then most areas have gone up about what you said, although some went up more others went up less. Right now inventory is pretty tight, both because sales have increased and because people often take their houses off the market during the winter.
Raju,
To an extent yes. Inventory is definitely way, way down. If by first-time-buyer you mean a price range under $300k, then yes, prices both list and closed went up that much since this past spring.
Check out the recent sold prices though. If where you are looking has anything in common to where I'm looking, I think you'll see that closed prices (available on frankly by clicking solds) are now "normally" 3-5% off list at least. (other than REO's getting bidding wars). So, some of that 5% increase in listing price was just negotiating room, and is not reflected in contract prices.
It's December, there's just not a lot of inventory. Keep a sharp eye out from now on though....
But honestly how difficult of a buyer's market you're in, and which problems you're facing is all about which price range you're in. So we'd need to know more before we could give any more accurate input.
I am very impressed with the current mortgage rates which makes me to think twice to buy a home now than later in 2010 2nd quarter. Do you think the mortgage rates are going to stick to the current rates for at least one more quarter in general? I have seen the prices going up in Loudoun county in which I am planning to buy a home.
Re: second lien holders' getting cash, this column was interesting:
Short sale buyers' agents know they are in trouble when...
Keviz,
Don't we all wish we knew. Calculated Risk, the internet's best authority on all things housing economy-wise thinks rates will rise 30-50 basis points (or at most half a percent) when/if the Fed stops buying mortgage backed securities (MBS) in April:
MBS purchase effect on rates
So, the commonly held wisdom is that rates will rise starter Q2 2010.
How much will 5.5% interest rates affect you versus 5% interest rates? Anything under 6% is still historically ridiculously good. Try any of the home-buying calculators. Ginnie Mae, Washington Post, etc.
If 5.5% interest rates reduce how much you can pay for a house, won't it do the same thing to everyone else? That's the general consensus on this blog. But I am of the opinion that as long as rates stay under 6.5% it will be another nothing-burger price wise.
The point for myself and many others here has been, is there a house you want to buy, that you can readily afford? If so, then go for it, and take the low rates as a blessing, if not, then wait, save up more downpayment and hope that prices slip a bit more or seller's start listing and giving us more options.
So Cara, you think prices may go down a little bit in next few months in NoVa ?? where they have gone up recently ??
Interest rates...hmmmmm..they only have one direction and that's up. I know the new credit card laws will have an impact on borrowing money. I turned in a bunch of cards when I started getting the new info on 33% interest rates. They wre cards I wasn't using any way like Lowes and Home Demon.
Keviz,
Have you ever heard of seasonality?
It's not just me who thinks prices are likely to go lower in the next few months, it's the Case-Schiller futures index:
http://www.recharts.com/cme.html
See how it see-saws from summer highs to winter lows? Notice that the long term inflation-adjusted trend for DC is flat to down?
The change in mix towards some more REO's coming on the market again, finally, and away from normal home sellers, who often want to move in time with the school schedule, changes which types of homes are available, distressed, motivated, or move-in ready.
The futures index thinks things are going to "crash" between now and February. Retesting the lows of last winter. But that they will rebound every summer.
I think the REO discounts being given on MLS sales are not large enough to make up for the cost of the repairs and deferred maintainence, such that effectively the prices are flat all along. But it depends on where you are looking.
Cara-
The future show DC prices going down, but its not just seasonal. If it were you would see prices going down everyone. I am not really sure why the price is so volatile, but if you look at the aggregate index it shows prices basically flat for all 2010 while DC falls in the start of the year and comes back up later.
housebuyer,
If you look through the individual markets most of them have the seasonal pattern.
I think each is sold separately. I.e. you can buy futures for the CS national index as a whole.
I think the extreme volatility is the change in mix. There's a normal seasonal pattern that held through most of the nineties, with maybe a 1% volatility. But there wasn't a huge overhang of distressed inventory, and soon to be distressed inventory. The C-S futures seem to think we have at least two more winter's worth of REO's around here.
Cara-
I agree there is a normal seasonal pattern, I just don't think that is what the index is showing. I think it is just illiquid and some of the trades are older than others. It shows DC going from ~180-160 in a couple of months. There is no way we are going to see that. There are also several cities were the futures appear to be the opposite of normal seasonal patterns including Vegas and San Diego.
Either way I think you have to agree that going from 180-160 is not typical seasonality.
housebuyer,
You're reading too quickly. What I said boils down to something like the 1% volatility of the 90's is the normal seasonal pattern, but now we have the added factor of a continued significant REO presence, amplifying the seasonality.
San Diego and Las Vegas have so many REOs banks can't save them up to dump them primarily in winter. And I think "seasonality" is less important in places without seasons.... despite the assumption that they still have children out there.
Yes, the underlying reason for seasonality has always been that winter sellers are generally more motivated than summer sellers. But that includes regular sellers. REO's have never had this much market share for an extended period before.
"Cara said - It's not just me who thinks prices are likely to go lower in the next few months, it's the Case-Schiller futures index:
http://www.recharts.com/cme.html"
Also in the last chart, you see that our market is the least corrected to inflation-adjusted levels compared to all the other markets. With the second dip, ours have much further to go than Las Vegas for example. To put it other way - our region holds the highest risk compared to all the major regions for the correction that remains.
"Spider said...
To put it other way - our region holds the highest risk compared to all the major regions for the correction that remains."
Or to put it even another way, given that incomes have risen more here than anywhere else, its more likely than not we will hold on to more of our gains than anywhere else.
Our Region (NoVa & DC) is a distinct region than any other in US just because of the continues federal spending which will create more jobs and most of the jobs will be close to DC area. When there were so many people with steady and raising incomes from federal why do you think the housing market will see one more correction in this region? And I believe that is the only reason why the prices were going up despite the national average's were going down....
The Anonymous said...
"Or to put it even another way, given that incomes have risen more here than anywhere else, its more likely than not we will hold on to more of our gains than anywhere else."
Or to put it even another way - Santa may grant your wish, manipulate the futures market, double the incomes overnight for everyone in NoVA in order to justify the price/income ratios.
"Keviz said - I believe that is the only reason why the prices were going up despite the national average's were going down....?
Where you been? Did you see the chart? Our market have been correcting along with others until the 8k credit came along.
housebuyer, Arkey, Cara,
Thanks for the info. So if banks just pick the highest offer, that means they usually don't counter?
The REO we looked at is not livable as is, and needs about $50K worth of lipstick to sell it to the 'move-in ready' buyers. Perhaps not a 'steal' for investors, given the fact that it's still on the market and available to us 'end-users'?
Sorry you got defensive spider -- its just you were engaged in more of the glug glug glug thinking that caused this blog to become delusional last year.
By your logic we are way above average -- and therefore must come significantly down -- right?
If so then I guess Detroit (which currently has a Case Shiller value of 72) is about to become a major boomtown and homeprices are going to explode in value!!!
Do you really see that as being likely?
spider,
Right now, it's all about the debt to income ratio with 5% interest rates anyway, not price to income.
But in any case, Doubling? Really? Median prices in FFX county are $350k, median incomes are around 100k (approximate, faulty memory factor should be applied here). That's 3.5x income, you think it should be well under 2?
Or do you think "fundamentals" dictate that the median single family detached ($499k) should be affordable to the median income from the get-go as a first-time buyer with 3.5% down or less?
If you have no savings, and no equity from another property, in this area, even with the median income, you'll be starting in the middle of the housing ladder i.e. a townhouse or a single-family attached, which median'ed at $327k this month.
Just over 3x the median income. Doesn't look to me like you need any income growth to support the TH rung.
If collectively we all decide to skip the TH rung, and invest zero of our own savings into housing, then okay maybe you have an argument. But I don't see that happening.
Yes, you are correct. I believe the corrections in our region has reached the bottom. We were already at 2003/2004 levels which is sustainable and I don't expect we go down to 2000/2001 levels. If they does, that would be my dream to buy a home.
Keviz,
Almost all of the metro areas went up with the 5% interest rates and $8k buyer bribe. So either you're being disingenous about DC going up while nationally it's going down, or you are mis-informed.
Redfin blog simultaneous surge
Otherwise known as why is our bounce identical to Boston?
"Cara said - but in any case, Doubling? Really.."
Cara,
I was exaggerating - I thought, why not go for more while asking from Santa!!!
Historically, the ratio of 3.0 has been the norm. This still requires double digit correction from the current median prices. If we get a major deflation going, than we have much more to fall to get the ratio back to sane levels.
Spider, I would partially agree that our region holds a higher risk than the others. On one hand, our lack of joblessness compared to theirs has made our price discovery that much longer. On the other hand, our incomes in the region have outpaced inflation better than the other regions (or so I understand).
It's different, but in two very different ways. One makes it more risky, the other less.
Oh wait found a more recent one:
Revised
Boston's bump is already waning, but we're not the only ones not to have turned yet in September. Don't underestimate the power of an impending deadline to motivate buyers to over pay. We'll get our amplified seasonal declines too, starting now-ish.
You'll see, my home purchase alone will help bring down the comps. (in January) Just doing my part... :)
spider,
Sorry for jumping on you. I knew it had to be an exaggeration, it was just such an easy target.
Keviz,
My caution would be, when thinking about bidding, ignore any October or November comps, or whenever the summer peak was in your comp search. Use comp numbers from less frenzied times, any December closes or maybe August--June, to set your upper bounds for your bid. That way you're not overpaying. If this fails a few times, then obviously I'm wrong and current buyers are just as enthusiastic as ones trying to close in November.
Better yet have a really good agent who has a great sense of the current market because of the bids their clients have been making and losing. Say, someone from Frankly, like my agent Jeff Royce. ;)
"Cara - You'll see, my home purchase alone will help bring down the comps"
Cara, absolutely, we need more informed buyers like yourself. Message is simple - buy if you must, just don't overpay.
I just get amazed at poor folks who ended up paying quite a bit more during the sept/oct ramp up..
"Kevin said - on the other hand, our incomes in the region have outpaced inflation better than the other regions."
This is likely true. However, government will have to ramp down eventually, stimulus will vanish and end at some point and deficits will have to be cut. This is a red flag for this region in coming years.
Deficits Must Be Curbed or It's Disaster For Economy
"A bipartisan group of former lawmakers and budget officials called on Congress and President Barack Obama Monday to commit to reining in trillion-dollar plus budget deficits to avoid dragging down the economy.
Policymakers must take steps next year to enact policies to stabilize the debt at 60 percent of the size of the economy to avoid higher interest rates or crisis in global markets with disastrous implications for the U.S. economy, according to a report by the Peterson-Pew Commission on Budget Reform, a bipartisan group of deficit hawks. "
Anonymous -
Excellent point about Detroit having a CS of 72 and therefore be a screaming buy. Totally ignored by intended recipient, as expected.
When the stimulus ends, when interest rates spike, when sellers finally realize housing prices are going to plummet, when the DJIA crashes...blah, blah, blah, blah.
spider said...
"This is likely true. However, government will have to ramp down eventually, stimulus will vanish and end at some point and deficits will have to be cut. This is a red flag for this region in coming years."
I think this is a distinct possibility as well. President Bush and his defense spending is a big reason why salaries became so bloated in this area. While the new president seems to be clueless as to how to stop spending us into oblivion, it's obvious that if he learns how to, it will be on the areas that were expanded under Bush. Long-term-wise that will mean a possible decrease in regional household GDP, or excessively long periods of little gains.
Robert, Anonymous -
I was just pointing out the relative risks.
One thing we all agree on is that housing is helped big time by the presence of the government here. This is the reason for the slowness in correction. Where we diverge is - fundamentals must prevail eventually. Spending will stop accelerating & we all know which region will pay the most price!!!
And Robert we all heard for years (including this past year) how if we don't buy now we'll be priced out forever, or the bottom has come and gone, etc. Blah, blah, blah. Like it or not, the bears have been better off for not buying for the past two years and there is nothing indicating that anyone will be better off buying now versus a year from now.
One thing we all agree on is that housing is helped big time by the presence of the government here.
The basic argument of bulls like me. It's that simple.
This is the reason for the slowness in correction. Where we diverge is - fundamentals must prevail eventually.
Fundamentals are prevailing, you're just not looking closely enough.
Spending will stop accelerating & we all know which region will pay the most price!!!
I see no evidence that this is going to happen. Dems just passed a monster spending bill a couple of day ago.
Now, I do believe that deficits have to come in line at some point...beyond 2012. But, everything out of the WH and Congress suggests it is going to be tax increases. Why do you think differently?
Jeremy,
I've been more right more often on this blog than anyone since I've joined.
When I joined I said to scoop up anything under $500k and hold off on anything over $1M.
$1M is firming now, but I would still wait until inventory is down to six months.
You say you've saved money by not listening to me. How's that?
"Robert said - I've been more right more often on this blog than anyone since I've joined."
Have you ever been bearish in last 2 years? Correct me if I am wrong. But, you sound like an RE investor who might have continued to double-down during the downturn and lost some.
Yeah I kind of have a hard time believing that the guy that's been pompoming the market while it tanks during its worst period in history can came he's been the most correct without the whole room snickering.
"Spider said...Spending will stop accelerating & we all know which region will pay the most price!!!"
Yep -- Its gonna hurt when incomes get cut down to 2-3% a year, and home prices continue to go up 2-3% a year...THATS when I will buy!
Robert,
Either housebuyer or CRT would win the most frequently correct award.
And spider,
he gave his life real estate history when he first entered the conversation. He's just a housing ladder member who has climbed to his highest rung in Great Falls. So if by double down you mean take bubble equity from a previous home and add in more cash/mortgage to transfer it into a huge house, that has now lost some paper value, then yes, I guess so...
Robert -- please dont take my comments as meaning I agree with your v shaped recovery. I still see way too much slack in this area (prices are on the high side, etc.) to agree with you.
However, I for the life of me am amazed by the bearish comments we see 4+ years into this downard cycle. Its the same ill conceived comments and mistaken ideas, over and over again...the only thing that changes are the people who utter them (most of the old bears have left and bought already).
Have you ever been bearish in last 2 years? Correct me if I am wrong. But, you sound like an RE investor who might have continued to double-down during the downturn and lost some.
We'll never know will we.
You have mentioned several times about how you have been tracking this market or that market closely...for 3 years. An interesting number. Perhaps you're not all that smart in predicting the housing decline, the truth is you simply could not afford a home in '06, '07, or '08 and by happenstance the market fell. Just a guess.
"Cara said...
Robert,
Either housebuyer or CRT would win the most frequently correct award."
Agree there. Its not hard being always right when you show up in early 2009.
Even contrarian had a long being "right" streak back in late 07 early 08 -- simply shooting fish in a barrel back then.
Robert -- please dont take my comments as meaning I agree with your v shaped recovery. I still see way too much slack in this area (prices are on the high side, etc.) to agree with you.
We're even then, because I don't subscribe to the L-shaped recovery, or the long flat period. I have a hard time believing that home prices in NOVA go up 150% in five years and then down 30-40-50% in three years, and then somehow inch along at 1-2% a year for 5, 10 years.
Agree there. Its not hard being always right when you show up in early 2009.
And why did I show up when I did?
CRT from May 20...
Robert - in my estimation a slight V is possible, (as per your example if the peak was 500, and the low 300, a v shaped spike to 315-330K is possible, followed by a long flat period, but beyond that, I deem it unlikely.
How's that working? A little timid don't you think?
Another quote from CRT, back in May on "shadow inventory" that never showed up...
I think what you are missing about the months of inventory (MOI) metric is that it may be artificial thanks to shadow (bank owned) inventory. Suppose MLS shows 100 homes available, and 25 sell in a given month. At 4 MOI, yes prices should rise.
However, suppose that the banks hold 1,000 additional homes off the MLS, but the instant anything sells, they will just push more and more out of the shadows and onto the market. In this case, the "true" MOI is not really 4 but closer to 40 (1,000 held for sale/25 sold).
Eeneh. Wrong answer.
The Anonymous said
However, I for the life of me am amazed by the bearish comments we see 4+ years into this downard cycle. Its the same ill conceived comments and mistaken ideas, over and over again...the only thing that changes are the people who utter them (most of the old bears have left and bought already).
Many markets (Vienna, Oakton, North Arlington, North Reston-20194, etc) did not begin going down until late 2007 or even early 2008. For a lot of those markets the only thing bad about 2006-late 2007 was it took a few weekends to sell the house instead of one weekend. Or maybe you paid closing costs. We did not see massive price drops in most of those areas until 2008. That's why in many of these submarkets we are still seeing 2005 prices (whereas others are down to 2003 prices).
So I don't think it's fair to say that we are 4+ years into the bear market. Heck, I'd say many submarkets only had 1.5 years of a bear market and now have had 0.5 years of a new bull market.
Btw -- have you bought a home yet? I thought you were still on the sidelines like many of us. If you are not at least where Jeremy and some of us are (thinking at best things are going to be flat), then why aren't you buying? If we are too bearish one would think you'd buy.
Re housebuyer's WTF house (FX7221205)
I saw on the google map the name Dar Al-Hijrah.
http://en.wikipedia.org/wiki/Dar_Al-Hijrah
Interesting read. That the mosque has had former members (and religious leaders) who have been convicted of terrorism would give plenty of people second thoughts of living close to it. Another strike against the WTF listing. Apparently the Ford Hood shooter may have been associated with this mosque.
Robert said
It's a tough market to predict.
7.5 months ago...
TBW said...
I don't think Case-Shiller for DC is going up any time soon. If it does go up this summer, then I am going to more seriously consider moving to Atlanta or Austin or elsewhere where it costs less to live.
Good find. Clap, clap, clap. But didn't C-S not move up until the fall rather than this summer? :)
I guess I'm not threatening to move because this uptick (a) seems a response to movement at the bottom end and (b) seems temporary. I stand by my comment though. If a modest SFH (non-rambler) in areas like Vienna or Oakton or Fairfax and so on are still all $600k or more, then I am moving somewhere sane.
*still at $600k or more in 2011 or so
"TBW said...
Many markets (Vienna, Oakton, North Arlington, North Reston-20194, etc) did not begin going down until late 2007 or even early 2008."
Statistically, its not as clear as you might think. Every market in the area (good, bad, and inbetween) was going up at (roughly) 20% a year til 05.
Then, starting in late 05-- early 06 all that changed as sales dried up, inventory rose, etc. In the good ones (vienna, oakton, etc.) went prices flat (or mild decline), while the crummy ones went into moderate decline."
Late 07--late 08, the good ones went into mild/moderate price decline while the crummy ones went into severe price decline. All now are flat or positive once again...
"If you are not at least where Jeremy and some of us are (thinking at best things are going to be flat), then why aren't you buying? If we are too bearish one would think you'd buy."
Believe me, I am looking -- hard.
"Robert said...
CRT from May 20...
Robert - in my estimation a slight V is possible, (as per your example if the peak was 500, and the low 300, a v shaped spike to 315-330K is possible, followed by a long flat period, but beyond that, I deem it unlikely."
Well isnt this exactly where we are right now? Down 40% then up 5-10% -- isnt this about where CS is right now.
In that regard, if you want to claim you are the "most" right, why dont you stick your neck out and describe your V shaped recovery in numerical terms.
Specifically, I have gone on record as saying Case Shiller will trade in a range of 160-180 for a while -- mostly moving up (seasonally) in the spring and down (seasonally) in the fall.
So what does a V shaped recovery mean to you, and please, by all means put it in numerical terms. Where will case shiller be 6 months from now, 1 year from now, 18 months from now, and so on?
See the thing is its easy to be "right" all the time, when you speak in generalities (i.e. prices wont fall "much", there will be a "stampede" in inventory). All you have to do there is wait til the numbers come out and then say, "yep, that is pretty much what I expected when I said "much" "stampede" etc.)
So what do you say? Do you have the courage to go on the record and give a specific, numerical, value for prices in your v shaped scenario. Most people here dont, because they dont want there to be proof to show they were wrong. Here is your chance to show us how "right" you are about this.
So what do you say?
Incidentally, if I were to make a prediction, I would predict that you would skate around the issue one way or another.
Here is your chance to prove me wrong...give us case shiller values for 6-12-18 months, etc. -- no ifs ands or buts.
188
198
215
Robert has already admitted to everyone here how ignorant he really is of the housing market with the botched sale of his own home. He is the typical delusional WTF listing seller who is now just praying for another bubble to rescue him from his previous mistakes. He even conveniently provided us the proof with his "bitch slap" link a couple of days ago:
"Me, I put my house on the market in March 2006. I was going to get out and rent. Idiotically, I was greedy and set my asking price too high. I kept lowering my price -- chasing the market down, and finally took my house off the market at the end of 2006. I was late. My home declined in value."
Just because you wish it so, Robert, doesn't mean there will be another boom so soon after the biggest bust in modern history. I didn't see people lining up to buy beanie babies after that market tanked and I'm pretty sure people put a little more thought than that into their home purchases after all the recent events. I'm sure you'll be fine retiring in a home across from the golf course instead of on it when you finally give up and realize that price you wanted in 2006 is a fantasy you won't be seeing for many years to come.
Robert: "We're even then, because I don't subscribe to the L-shaped recovery, or the long flat period. I have a hard time believing that home prices in NOVA go up 150% in five years and then down 30-40-50% in three years, and then somehow inch along at 1-2% a year for 5, 10 years."
That's an epically stupid remark. The market correction will un-correct then, huh?
Well isnt this exactly where we are right now? Down 40% then up 5-10% -- isnt this about where CS is right now.
Man, I don't know how many times I have to post the same thing - CS is for WDC Metro NOT Northern Virginia.
PG is a drag, a big one. DC is flat and MoCo is inching along. Add them all up and it is probably 0.
NOVA, which is probably 40% at most of the index is doing all of the heavy lifting. So, take your CS number for WDC and divide by 0.4 and you'll get something close to NOVA CS.
Do you disagree?
Jeremy: "Robert has already admitted to everyone here how ignorant he really is of the housing market with the botched sale of his own home. He is the typical delusional WTF listing seller who is now just praying for another bubble to rescue him from his previous mistakes."
Clearly that's the case. Anybody that tried bottom-chasing the market and giving up before the ball dropped to bring in 2007 thinking there were better times ahead and STILL thinks there is reason for a rebound... well they're going to get fleeced. With his level of arrogance, I can't say I feel sorry for him.
"Robert said...
188
198
215"
Robert -- for starters, I was wrong, and you were right. I didnt think you would answer (most dont).
Just to make sure (in large part because I think those are very strong gains -- quite the "V"), let me make sure I have this right regarding Case Shiller values in the DC area:
1. In 6 months (i.e. when CS comes out in late May 2010), CS will be at 188 -- right?
2. In 12 months (i.e. when CS comes out in late Nov 2010), CS will be at 198 -- right?
3. In 18 months (i.e. when CS comes out in late May 2011), CS will be at 215 -- right?
I think I have you correct, but I want to be sure. Either way, bravo -- I didnt think you would be so gutsy...
Jeremy -
That shows that I was bearish in 2006.
Two things: I didn't need to sell. Didn't really want to, but when the house next door to mine sold one year after I bought for $735k more than I paid, I started seriously thinking about it. The other thing is that I had used my home sale exclusion in 10/04 and wasn't eligible for it again until 10/06. So, I was a WTF seller until I realized I wasn't going to make enough profit for it to be worth my while.
What would you have done?
Anonymous - that's right.
That's an epically stupid remark. The market correction will un-correct then, huh?
Not saying that. Actually, you agree with my comment. You think the market is going down 10-20%. Fine. Sounds like you are in the volatility camp. I just don't understand why you call yourself stupid.
Robert: "So, I was a WTF seller until I realized I wasn't going to make enough profit for it to be worth my while."
You know, there are a lot of wannabe sellers out there that realize selling for less than peak price "isn't worth their while". Typically they want to move but feel the stars are only temporarily misaligned and will reconnect. They don't understand market trends or fundamentals and think there is a coming resurgence, much like you constantly rant about in a baseless manner. I feel sorry for these people.
"Not saying that. Actually, you agree with my comment. You think the market is going down 10-20%. Fine. Sounds like you are in the volatility camp. I just don't understand why you call yourself stupid."
If that comment was directed towards me, then I don't know where we agree. I think long-term it's L-shaped, but short term, W-shaped (V then \ then _______).
And no, taking your house OFF the market in 2006 doesn't mean you were bearish at all. It means you thought you could sell for more later. That makes you the uber-bull, the ultimate delusionist. The guy that couldn't have been more wrong but is now pretending to be right.
I'll admit I didn't time the market perfectly. I sold more than a year after peak, probably missed out on $50k. It wasn't my goal, to time the market, but a lot of it does have to do with waking the F up. Why don't you man up too and admit you were dead wrong?
Am I the only one who thinks that even though prices have fallen (and are actually beginning to rise a little) that these prices are unsustainable as a whole? I mean the average income of the area is what 92k (which is very high), and housing prices are 480k? How does that work???
After years of working my butt off while going to school at night I am doing well and can afford a home. But these prices are almost offensive to any normal person. I mean half a million dollars for an ordinary home? Something just seems VERY wrong to me.
So where do people stand on here as a whole, time to buy, wait longer, or save up a whole bunch of money while renting and move to a place where insanity does not rule. :-)
Beer said...
"Am I the only one who thinks that even though prices have fallen (and are actually beginning to rise a little) that these prices are unsustainable as a whole?"
No, I'm with you. Certain areas are due for a very large correction. Other areas are already there.
"I mean the average income of the area is what 92k (which is very high), and housing prices are 480k? How does that work???"
It's called "price stickiness". True price discovery is inevitable though.
The Anonymous said
Believe me, I am looking -- hard.
Fair enough.
Robert:
You seem to be the voice of the "buy now" rationale. And after reading some of your posts and linked articles you make a pretty convincing argument. But at some point don't you feel that the price of something can seem to stabilize yet still be too high to be "proper".
I just have a hard time wrapping my finger around the idea that an ordinary home with a small plot of land can cost half a million dollars? Is it really that great to live 30 miles from DC to pay such a high price?
Either way great posts man, you really back up your arguments with some strong thinking/links and in a way are making me think buying now may not be such a horrible idea.
Article on ritzy community built in Congress Heights
This was the feature article in today's Metro section. I highlight it for pat. It's a good example of how developers cannot just turn around a neighborhood overnight. Even with Metro stops and richer residents. There's still a lot of violence.
Kevin said...
"No, I'm with you. Certain areas are due for a very large correction. Other areas are already there."
Do you think there will be any areas that are a reasonable commute to Tysons where one could buy a somewhat decent home for 300-400k in the near future?
"It's called "price stickiness". True price discovery is inevitable though."
I agree, once people (especially sellers) hear their home is worth a certain amount they get that in their head and its nearly impossible to get it out.
I have a friend who bought a home for 315k ten years ago, it's now worth nearly 600k. He had the gall to complain to me the other day about how he lost 100k in value due to this drop. He really needs to be kicked in the nads for such a comment lol.
Robert,
C-S numbers are all fine and dandy but as you said we have no clear understanding of how much of it reflects Northern Virginia, how much of it reflects PG County, DC, or Montgomery (or places further out).
Here's what I'd like to see you predict:
In May 2011, a middle class family (dad, mom, 2.3 kids ;) goes house shopping in Northern Virginia. Dad works for a defense contractor in Rosslyn, mom works part-time at a Fairfax County library. Together they make $85k. Where can they afford to buy in Northern Virginia?
Name names (like Reston, Vienna, Burke, etc). Name the price range you see them buying.
I think when you sit down and think about the logical consequences of what you are describing you'll see that you are going to recommend one or more of three ridiculous options: (1) get a mortgage they cannot really afford (PITI takes up 50% or more of monthly income), (2) get a superlong commute [buy a home in Leesburg], or (3) live in a part of Northern Virginia families like the one described above seldom live in because it's crummy or has bad schools.
Beer:"Do you think there will be any areas that are a reasonable commute to Tysons where one could buy a somewhat decent home for 300-400k in the near future?"
That's what I've obsessively been searching for. My threshold for a commute is very low. I've nailed down a few areas that have corrected sooner (therefore are affordable and less-risky) and due for long-term fundamental appreciation (that is, conditions will improve).
Falls Church is relatively cheap and close to Tysons. A lot of that market's price discovery has already occurred. But it is a pretty shitty area. If you're willing to deal with higher crime etc then go for it.
Personally I've nailed it down to the 22031 zip of Fairfax. Close enough to Tysons that you won't have to get on the highway, and more likely to see fundamental conditions improve, like is being done in Merrifield. This is what I'm going for, though prices aren't in line yet as far as I'm concerned.
"I have a friend who bought a home for 315k ten years ago, it's now worth nearly 600k. He had the gall to complain to me the other day about how he lost 100k in value due to this drop. He really needs to be kicked in the nads for such a comment lol."
Agree. This is what I'm talking about with "price stickiness". Same with one's salary, it's all going up, never down.
The Anonymous,
Explain to me why this does not have further to drop?
http://franklymls.com/FX7201362
What do you think the peak price was? I suspect maybe he could have gotten $700k in 2006-07. Now it's $620k.
I don't understand why you think that's all it will drop. This house probably went for ~$300k in 1999-2000. It's barely gone down. This is par for the course in this area. There really has barely been any price decline. There certainly has not been four years of price decline.
The Anonymous,
Or I'll put it another way. You really don't think it's possible that house might drop to the low $500s? That's a $100k loss right there. If it goes down to 2003 prices we are talking low $400s. Now a $200k loss.
I think there's still such huge potential equity loss in that part of Ffx County that I can't understand why you are confused by Jeremy and me sitting it out.
kevin said...
"Falls Church is relatively cheap and close to Tysons. A lot of that market's price discovery has already occurred. But it is a pretty shitty area. If you're willing to deal with higher crime etc then go for it."
Wow, I just did a search in Zillow for any sfh under 400k in the entire Falls Church area and did not come up with a single one. So even in a "High Crime", "Shitty" area I cannot get a house for under 400k.
These prices are f'in insane!
"Robert said...
188
198
215"
Never say never. But, that ain't happening. You may want to cut your losses now when government has everything in. This was the final extension of 8k credit, which they made very clear - it isn't going beyond April 2010.
"Robert said....
the truth is you simply could not afford a home in '06, '07, or '08"
I have been looking since 2006. It never made sense then seeing the euphoria - "RE only goes up", "Don't wait, you will be priced out".
Couple of my friends (who I tried to stop) lost over 50% in their home (one of them bought TH at 330k, a similar one sold at 150k earlier this year) One of my coworker pulled equity from the first home to invest in a rental & is underwater by almost 200k.
There are many many families buying time using up their savings. If you think we can have another bubble right after the one that just popped - chances are slim to none.
beer,
search solds not lists. Who cares about lists? Focus on what you're going to actually have to pay to close a deal. Especially for the purposes of scoping out areas for affordability.
Frankly and redfin both have sold data.
Why are you comparing 92k median income with 499k SFH median? 92k median has to be compared with the median home price at best, which is exactly inside your target price range.
tiredbubblewatcher has been saying what you're saying for a long time, that the old 1940s or 1960's SFH neighborhoods should be filled with school teachers and firemen. And that the 100k+ earners should be able to get something bigger and nicer....
It was true in 1999 and it might be true again at the end of this long slow flat period where inflation catches up with prices if we get one. But I see no reason to expect it to be made true through nominal price declines now. It could. There's just no compelling reason it has to.
Beer, check franklymls.com.
There are quite a few listings under $400K in Falls Church. Maybe not the best parts of FC, but still...
http://franklymls.com/default.aspx?m=R&l=0&h=400K&s=falls+church+detached
Robert said:
", the truth is you simply could not afford a home in '06, '07, or '08 and by happenstance the market fel"
Robert
The problem in 06 wasn't the folks who couldn't afford houses who didn't buy but the one's who couldn't who did"
Thanks for the response Cara,
Since I just hit the market within the past couple of months I am still in total freaking shock that after housing prices have "fallen" they are still so high. I get the feeling that Kevin was correct, "price stickiness" has make people feel it's normal to spend 500k or more for an average home. Well in my opinion that is insanity!
Whatever happened to the idea that you should buy a home that was double your income? At that rate that would mean that everyone around here is earning 250k, and that is not even close to the reality. So who is buying these homes? And can they really afford them?
I mean even if you use the "new multiplier" of three times your income (I like how this just went up by 50% and nobody really had a problem with it lol), it's still insanely high. I mean does this entire area really earn the 150k to 200k that is required to sustain these home payments?
Look I know that some areas will cost more than others, but to have to pay half a million bucks for an average home in an average area just does not compute.
Who knows, maybe I just need to wake up to the reality of these times. Someone please make me feel better about this, it's really depressing to have worked all this time and not be able to find a decent home at 400k.
Ace said...
Beer, check franklymls.com.
There are quite a few listings under $400K in Falls Church. Maybe not the best parts of FC, but still...
http://franklymls.com/default.aspx?m=R&l=0&h=400K&s=falls+church+detached
Good site, thanks Ace.
I cannot believe those homes cost 400k in those areas. I feel like I am in a bad episode of the Twilight Zone lol.
kevin said...
"Personally I've nailed it down to the 22031 zip of Fairfax. Close enough to Tysons that you won't have to get on the highway, and more likely to see fundamental conditions improve, like is being done in Merrifield. This is what I'm going for, though prices aren't in line yet as far as I'm concerned."
Thanks for the info Kevin. It sounds like you and I are both in the same boat. I just hope we do not wait for prices to drop and suddenly they go up again so we get screwed...
Cara/Tbw,
My friends that live in a Kingstowne TH purchased it when they were both teachers. They were making 80k when they purchased it about 10 years ago. Two teachers with 3-6 years of experience like they were, would be making just over 100k today. They couldn't purchase a Kingstowne TH, but they could purchase that Newington Forest home that you pointed out Cara. There is also this townhome off Sydenstricker just down from the Pohick library. Both are listed for 330k.
TBW
Great article, my requirement for a house is i should feel safe letting my girl walk down to the store for some milk at 11 PM.
Now I'm picking areas where the street feel is getting better.
When you meet nice folks with little kids, it has to be okay.
Robert
Did you ever do those calculations on I/O vs 30 year amortizing mortgage payments?
BeerChugger: "It sounds like you and I are both in the same boat. I just hope we do not wait for prices to drop and suddenly they go up again so we get screwed..."
Well I've patiently watched as they've gone up recently due to the tax credit/bribe. There's no denying the fundamentals. What bullshit happens in the mean time is just that, bullshit.
Contrarian,
I can see a correlation between the collapse of subprime hedge funds and the subprime foreclosure wave.....but how will the Dubai World default lead to Northern Virginia foreclosures? The cause and effect here just doesn't seem clear to me.
HayfieldGrad,
Yeah there's plenty of reasonableness and affordability down near us. The Kingstowne townhouses have retained a bit too much cachet to be affordable to schoolteachers now, but like you said, there's a lot of good homes in the South County district, both townhomes and single family that are affordable. It's just kind of far from Tysons.
Beerchugger,
May I reccommend you think about the neighborhoods just west of 495 off of Braddock road? They're nice neighborhoods, going to Woodson and Lake Braddock high schools, and not too terrible of a commute to Tysons if you time it right.
try starting from here:
Sawbuck 22151
Check out greatschools.net for high school rankings if that's important to you:
http://www.greatschools.net/
And Fairfax County Public Schools has a boundary locator and boundary maps at:
Boundary locator
2010 boundaries actually will shift and move some Annandale High School students to neighboring districts that haven't seen as much young family growth.
beer,
as to your broader question of how do people afford $500k houses, and why are perfectly normal average looking homes half a friggin million dollars?
Well, stickiness is half of the answer. Behind stickiness the deeper answer is equity. Most of the people in those homes either bought them when they didn't cost nearly that much, and thus have significant appreciation equity, or used the proceeds from another home sale, either of another rung on the ladder here, or of a single family home elsewhere, to fund their downpayment and keep the mortgage amount affordable. This means those people are under no duress, and hence the stickiness.
The median purchased home in FFX county is a townhouse. There's your sign that the housing ladder rat-race is deeply embedded currently. However, I would caution strongly against buying a townhouse now unless it's truly inexpensive, because as SFH's become more affordably the demand for TH's will slacken entirely. However, if you want to jump a rung or two in this area, then you have to have what ladder participants have had, equity. In this case in the form of a hefty downpayment. Just a good job with a good income is not enough in a high employment growing metropolitan region, with close proximity to the swiftest growing job center in the area.
On the plus side. Other than Robert, no one here thinks that saving up for another year or two is going to price you out of your target home.
Why do I think that? Because my hypothesis hinges on move-up equity. Move-up equity from post-2002 buyers just got nearly wiped out. This means only transplants to the region will be your primary competition. (plus those who got major raises since their last purchase). Cutting competition down by a third, will keep prices close to where they are now if not dipping a tad lower.
Another thing to consider doing is buying a modest home for around the $400 mark or less, that has the land (or vertical capacity) to build a significant addition on later when you can afford to do so. Essentially, buy your home and your move-up home all in one. This is what we're doing. You've got to like the house enough as it is to be happy in it for 5-10 years easily, preferrably longer, but it is an alternative.
Finally, it is of crucial importance that you actually walk inside some of the homes you're thinking about. The pictures on the internet just aren't the same thing. For a good year before my husband and I started seriously looking, I was looking at pictures of townhomes and thinking I could get something we'd like for as little as $250k. OMG. I was so wrong. Likewise the much maligned ranches, turned out to be warm and welcoming in person. (although the one we're buying actually has tons of curb and photographic appeal).
"TBW said...
I think there's still such huge potential equity loss in that part of Ffx County that I can't understand why you are confused by Jeremy and me sitting it out."
TBW I dont have an issue with what you and Jeremy are doing. His comments make his general stance seem quite reasonable, and I think you have done a wise thing for setting a date certain (i.e. if prices dont fall by 2011).
My comment was directed toward Spider and his doomish ideas of what will happen here based upon the US as a whole (forgetting the logical extension of that position is that Detroit should explode upward in home value). Same thing with Pat and his "we are later in the correction" comment which flies in the face of a huge reduction in inventory and improving sales conditions -- its that sort of thinking that I find so misguided.
Also, remember too that I am looking in Arlington where we now know there is a income/demographic paradigm shift going on and sales conditions far far better than they were in the last 3 years. Remember your, "put your cards on the table" house that sold recently for 99% of peak price? Well, thats pretty much where I am looking and what I am dealing with.
So for me, its a temporal argument. Like everywhere else, my area quit going up in 05-06. The last 4 years of waiting and watching the greatest economic dislocation in modern history has gotten me a few percentage points of peak prices. So, to answer your question, do I think its "possible" the next 2 years will bring the remaining 20% drop that I "think" the market should be at? Sure. Do I think its "likely"? No.
So again, I see no harm in waiting for a while still - especially where you are where there has been some real price movement and no evidence of shifting preferences. And I think you have done a wise thing by setting a date certain for yourself. We all eventually get to a point where we say, "its either gonna happen by X date or it aint gonna happen at all." For me (who started looking in 2003), and for where I am looking (the heart of the immunozone), just understand that I am the 2009 version of the 2011 TBW.
How does a wipeout in Dubai lead to a collapse in NoVa.
It starts with the interconnections.
Dubai needs cash, so they start selling assets. Resorts, Apartment buildings, Treasury bonds.
Other people start getting worried, so they sell, a stampede out the door starts. Bond prices start rising,
that means mortgages start going up.
Interest rates start making homes less affordable.
Now Bernanke stopped the last fire but used a trillion dollar firehose.
Is he going to have another 2 trillion?
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