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Tuesday, December 22, 2009
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78 comments:
Was wondering if anyone had any advice regarding noise insulation in townhomes? I rented one and the walls were like paper, I could literally hear every word my neighbor said. It was annoying as hell.
So any advice out there on how to make sure the unit you are about to purchase has reasonable noise insulation from the other units and outside? I would hate to lay our 300-400k on a townhome and have to go through years of that miserable experience I had in my rental?
Beer Chugger-
I would talk to all of the neighbors and ask them if the walls are pretty sound proof. I doubt they would want to lie to you and then have you as an angry neighbor. For the walls in the front and the back you can ask for someone to talk to you from the outside and see how loud it is.
On calculated risk they compare the CS index to the loanperformance data. It looks like the loan performance data, which has a couple more months of data has been going down recently. This gives me a little more faith that my prediction of CS being down a couple of tenths this month is likely to be correct. I also expect the decreases to grow over the next couple of months. From ~.2%-.3% this month to just under 1% in a couple of months
beer chugger,
If you own the place you can also consider putting up additional sound insulation as needed.
Cara-
Although that is true I think it can be very pricey. I was looking at a random soundproofing site soundproofing and it looked like it fairly cheap materials are $77 for a 4x8 sheet. I am pretty sure houses townhouses have more wall space than sqft. So you could easily need 2k-3k sq ft, which would end up costing $5k-$7k for materials alone. I assume Beer Chugger would need help installing it. I imagine this is also an expensive step. So you may end up paying 10K-15K. So unless the place is a great deal its probably cheaper and easier just to find a place with decent walls.
Another issue with finding a place with paper thin walls is that it shows the construction company was being cheap so they likely chose bad materials for other parts of the house.
housebuyer,
Indeed. I was more suggesting it as an additional step for already decent sound-proofing, than that you can just go get any old house and sound proof it.
I had many of those, "if the builder did this stupid cost-cutting measure, what else did he do?" moments while house-hunting.
Cara-
Gotcha that makes sense. Also if you are just using it for additional sound proof you may be able to just do it in a couple of rooms you spend a lot of time in to cut down your costs.(living room bedrooms...)
I don't think soundproofing works like that, it's more all or none. Think of it like having your car window halfway down vs all the way down. You still hear almost the same amount of sound even though you've "soundproofed" half the opening with glass.
You could maybe do it for one floor vs all three though.
Jeremy-
I agree that you need to do it for entire walls, although I don't think you need to do it for entire floors. Think for example if you are on an end TH unit. If your neighbor is noisy you need to soundproof the entire wall they are on. Unless there is street noise you don't have to worry about the other walls. The noise from your neighbor isn't going to leave their house, go around your house and come in through the other walls. It would need to bounce of off too many objects which would all dampen the sounds.
That's what I meant, I just didn't say it properly. You'd have to do the whole floor's shared walls, not just the living room or bedroom.
More self-serving claptrap from me.
You know how when they tell these individual stories in the press about borrowers who got themselves into trouble, there's a point where they should have known that there was a bubble? I.e. if I, who have a steady job with good pay, have to stretch to a DTI over 35% and that's on the interest only loan, then perhaps everyone else buying now is doing the same thing, and hence prices won't be able to go any higher?
In any of the stories involving middle class folks, there's always a point like this, where it should have been obvious that the high prices were unsustainable because the loan products needed to make transactions happen were so insane.
Where am I going with this? We're "all" sitting around here with over $50-$100k in the bank, whining that prices aren't low enough. What if it's not just me who's been saving up since 2006 and is now deciding to use that savings to buy? Given that typical rents around here are $1200-$2400/month, even at the most expensive places to rent, anyone with over a 80k income should have been able to save up what? at least 10k a year depending on frugality and level of other expenses, potentially 25k/year or more.
Just as buyers in 05-07 "should" have realized that everyone else was stretching too, which signals a top, perhaps we savers on the blog are not the exceptions we think we are, perhaps our accumulated savings is what will create the bottom.
I know. Blasphemy. Self-serving prediction at that. But it would have been just as self-serving in 2005 to recognize, "no, I don't want to take on an I/O loan, the fact that you're offering me one is a sign of the impending collapse".
Both apparently endorsed by the Center for Regional Analysis at GMU.
September 8, 2009
By the end of the year, the area is expected to experience a net loss of 21,000 jobs, said John McClain, senior fellow at the Center for Regional Analysis at George Mason University.
December 9, 2009
According to the Delta Associates report, a net 40,400 new jobs have been added in the Washington region since Jan. 31.
The report, completed with George Mason University Professor Stephen Fuller, projects job growth in 2010, with 24,900 new jobs and another 34,900 new jobs in 2011.
The only expert I can find that does not share the optimism about the economy and real estate locally:
But economist Anirban Basu, chairman and CEO of Sage Policy Group Inc., isn’t so sure that the region will import a lot of new people to fill new jobs, given increased local layoffs of highly skilled workers in financial and professional services industries, many of whom have the skill set to fit federal requirements.
He also has doubts that the stimulus and the general swelling of the size of the federal government will be good for Washington in the long run.
Here’s his logic: The government already costs more than the American people are willing to pay, yet it is expanding and spending like crazy to stimulate the economy and prevent a depression. This pushes deficits into the stratosphere, putting spending even further outside the bounds of American affordability.
“To deal with this, this administration, or likely some future administration, is going to have to right-size the federal government into something that the American people are willing to finance,” he said. “Because of the ramp-up we’re seeing now, this eventual reduction will reverberate through the Washington area even more forcefully than it would’ve had the stimulus not taken place.”
“What we’re experiencing right now is a federal spending bubble, but it cannot be sustained. Just like the housing bubble,” he said.
So, even this bear believes there is a stimulus bubble. So, TBW, I'm afraid after waiting for the housing bubble to pop, you may have to wait a bit longer for the stimulus bubble to pop.
Are you aware of any statistics that suggest any such thing is happening Cara?
I have always had the impression that regulars on blogs like this make up a very small minority of the population. Blogs did probably play a role in spreading information about the bubble, but I have a hard time believing there are tons of people out there with six figure down payments in the bank waiting to buy.
The younger generation especially, of which I consider myself a member, seems to find the concept of saving large sums of money alien.
Do you ever get the feeling you are talking at people rather than to people robert?
Nobody here I am aware of thinks the DC area is in economic trouble, but as many have already explained to you that was the case before the bubble as well.
A strong economy does not preclude housing being overpriced.
You can't just say "Oh, well the economy is strong, therefor any price is reasonable for a house..."
I know a few posters have take solace in the high unemployment rate in the District:
The unemployment rate in D.C. fell in November, the first drop in four months.
Even so, a 11.8 percent it is among the highest in the country. Only six states suffer from higher unemployment, according to the latest data from the Labor Department.
Not picking on anyone, but this may have a little something to do with it:
A 2007 study found that more than one-third of the District’s residents are functionally illiterate
Do you ever get the feeling you are talking at people rather than to people robert?
No.
Nobody here I am aware of thinks the DC area is in economic trouble, but as many have already explained to you that was the case before the bubble as well.
At least spider and contrarian.
A strong economy does not preclude housing being overpriced.
True.
You can't just say "Oh, well the economy is strong, therefor any price is reasonable for a house..."
Obviously.
Carat weight has a great deal of influence on the price of a diamond -- more so than one might imagine at first. Since larger stones are more rare in nature, they are more expensive as well. For instance, one diamond weighing 2 carats will always cost much more than two diamonds of the same quality weighing 1 carat each.
"Carat weight has a great deal of influence on the price of a diamond"
Yep that's the same reason LCD screens have been expensive. They are are an item that needs to be virtually flawless but the chances of a flaw become greater the longer it takes to manufacture the item. So it takes more resources to produce a 24" LCD than it takes to produce two 12" LCDs. Manufacturing methods are getting better, though.
Now that jewelry-quality white diamonds can be made by a CVD process, DeBeers is trying to prevent them from being called "cultured diamonds" because "cultured" was such a successful model for pearls to bring down the price of "natural" pears. At one time, a pearl could only be owned by a person of vast, vast wealth. But people are happy with the beauty, quality and availability of cultured pearls, now virtually every woman owns a string of pearls, you can spend anywhere from 100 dollars to tens of thousands of dollars on them.
What were you going to compare diamond prices to?
--Muffin Top
Jeremy-
I agree, I guess I was just envisioning my place where these rooms are an entire wall. Thanks for clearing up the difference.
Leroy,
Not that I had in mind, but here's some of why I think I'm not crazy:
Here the loan level data that would allow such an assessment is not available. The best we have is the census data on the size of downpayments which is self-reported and highly delayed. Out in California where the bubble blogs are most active, people on the irvine housing blog and the bubbleinfo.com blog have kept track of the downpayment amounts recently and they are staggering, and have been for the past two years.
The closest thing we have here is the MLS data on conventional versus FHA versus VA financing. In the zips I was watching FHA and VA dominated in 2008, but conventional has come back up to 2006 percentages since June-ish. Given that piggy-back loans are history, and people have reported here difficulty in doing less than 20% down, I'd say we have the beginnings of makings of some potential evidence.
If a shift towards conventional would be enough to convince you I can go look harder at the data. To my mind it's not a strong enough stat, I'd prefer loan level data for real proof.
Recall, however, that the stats on the option-arms didn't hit the presses until 2005/2006, kinda late to prevent a bad decision.
Robert: Hey, his prediction was only off by -50%!
That's just one of the reasons that I ignore the CRA.
Whoops, my math is wrong: is that -150% or -50%?
Cara-
I think your assumption of people saving a lot is overly optimistic. Why didn't these people have 100K downpayments in 2006 that made housing at least affordable enough they could use normal loan products. Most of the people I know that are making a lot just buy nicer cars, nicer clothes, fancier electronics... I think most of us bloggers are much better savers than most. I think there are a handful of people with 100K saved, but I think most people tend to buy a house well before then.
As you have said many times everyone always thinks its a great time to buy, so most people would have bought well before they saved that much. How many people do you know excluding people on this blog have saved a ton and just haven't bought yet because they want prices to fall.
Cara, my only criticism of your reasoning is that you're comparing two different quality levels of data or feedback. Being offered an I/O loan is better data about the state of the lending environment than data you get from talking to people online.
That said, I don't necessarily think that makes you wrong.
I had the same thoughts about the lending environment in 2004/2005. The only thing I was wrong about was how long and how high the bubble could go.
My parents have a hard time understanding how we can be in such a bad financial crisis. My dad says, "we're paying our mortgage, everyone in this development is paying their mortgage, how bad can it be?" I showed him an article in the NYT about entire abandoned towns in the Southwest. People are naturally bad at thinking about large numbers. The reason that people have such a tendency to base their opinions on anecdotal data is because -- it works a enough of the time.
Leroy,
This all hinges on inventory anyway. Right now the inventory is so tiny that it doesn't matter if 75% of people under 40 have never saved a penny in their lives (or who think "saving" means not paying full price as opposed to actually accumulating money in an account). If 10% of those under 40 are avid savers, that's more than plenty of well-equiped buyers for today's inventory.
Think about it this way, the non-savers bought already, during the bubble. Let's call that 3/4 of potential buyers in the 20-40 year crew. 2/3rds of these or 50% off all possible buyers, have gotten enough raises that they can now afford the house they bought back then. 1/3 of them will default. (25% of all possible buyers) Half of those are already gone. Leaving only 12% more of the churning product to go in 2010/2011. But that has to be compared with the remaining 25% of the potential buying population that were savers.
Savers can be vastly outnumbered and still constitute a bottom in nominal prices.
Cara-
If you have a conforming loan (<417K) you can easily get a conventional loan with 10% down. When getting rates I talked to BofA, Wells Fargo, and a couple of independent brokers that all allowed this.
I think the bigger reason for higher downpayments could be there are more flippers. Obviously as a flipper you want to pay as few fees as possible so they often put down hefty downpayments and use conventional loans. Very few flippers bought in 2008, when housing was falling 2%/month, because it was nearly impossible to make a profit. Now that housing has rebounded I think more people got back into flipping.
housebuyer,
In 2006 prices were going up faster than you could accumulate the DP to mitigate the costs. (or that was the perception). Today is a unique time where saving has been particularly attractive for 3-4 years.
Flippers coming back is definitely a good point on the MLS data though....
And I do agree with Catherine that getting offered an I/O loan, or worse getting offered a liar loan, was a much stronger clue.
Cara-
Its not just people that default that matter. You also need to count everyone else who needs to sell. Due to death, divorce, job loss...
The homeownership rate is still several percent higher than it historically was. So you expect overtime this too come back down so we need more people to start renting than start owning over the next couple of years.
Also remember I think we have said that payments right now are basically at the affordability you would expect, although this is due to great interest rates. So seeing that rates have been pushing higher either housing need to become unaffordable, rates need to fall back down, or salaries need to rise.
housebuyer,
But you also need to count those over 40 too.
All knife-catchers can form is a bottom in nominal prices, not real ones. So salaries and a general lack of discretionary sellers (due to lack of substantial equity) can do the rest.
Yes, interest rates are notching up again. But I don't think they'll go above 5.5% in the next year or so. If my savers hypothesis were true anyway, those buyers would be less sensitive to exact monthly payment figures anyway, such that 5.5% wouldn't change anything price-wise.
Don't underestimate the effect rising interest rates will have in motivating buyers to get off the fence and buy sooner rather than later. If that's enough to clear even more inventory, I don't see how prices could go down. (this is all aside from the exaggerated seasonal volatility which I claim is just the changing mix of quality of products on the market).
I have no proof. But IF a bottom forms above a price to income ratio of 3 or where rental parity doesn't hold for SFHs, this will be why. The accumulated savings of those who have been patient. This could be enough to tide us over until move-up equity from people moving to the DC area to take jobs takes over.
Cara said...
"But you also need to count those over 40 too. "
My guess is there aren't as many people over 40 buying as there are selling due to divorce, retirement, death, moving to nursing home, etc.
Jeremy,
Didn't you get the memo? 40 is the new 20! :)
Divorce generally means two households from one. But the others yes, are net losses to housing needs.
However, beyond the baby-boomer bugaboo (which will be continuously playing out for the next 40 years) I don't see how the 4 motivated seller reasons are going to have a greater prevalence in the future than they have in the past.
However, one could get creative and posit a new higher divorce rate due to mortgage-payment/lack of equity tensions amongst the surviving borrowers from the bubble years. This would drain demand from larger homes, and create more demand for inexpensive, practical 3 bedroom condos like my favorite good bang for the buck, Woodwalk. :)
Jeremy,
Huh???? How many who are selling would not also buy?
Let's see, all those who die or move into nursing homes. Hmm - 40 is closer in age to 20 than it is to 65, let alone 75 or 85. So as a % of all people over 40 this is a tiny number.
It always astonishes me when people of a certain age lump everyone else together who are in a widely varying set of circumstances, but it happens often enough it shouldn't surprise me anymore.
Move up buyers (many of whom are over 40) are, most years, the majority of buyers. My guess is that the vast majority of these buyers are doing so because they want to a better or more suitable place (in normal times).
Even people in their 80s prefer to stay in their own homes rather than go into nursing homes, and most of them do. so they wouldn't sell or buy, unless they sell in order to downsize (e.g., move to a single-level home or something easier to take care of or closer to family).
A few may sell in order to rent, but I would think that is also a very small %.
Just about everyone else who sells will need to buy or rent another place to replace the one he or she is selling.
Some folks over 40 also buy second homes for investment or vacation purposes.
Cara-
I agree the 4 reasons for selling are the same now as the past, but I don't think that is the answer to this question. The problem is in the past a lot of 20-30 year olds got houses a lot faster than they would have been able to otherwise, so there are fewer buyers left then usual. So you have the same number of sellers and fewer buyers. So if lending had not been so easy there would be a lot more people in their late 20s who would buy houses from those sellers. The problem is all we get is new 20 year olds and all of us savers.
Ace to handle your question there are always new houses being built so you could imagine that the 40 year olds are selling starter houses and buying a bigger nicer possibly newer house. My main point was a higher percentage of people now are owners rather than renters. I think overtime this will go back towards the historic range through more people selling/losing houses than buying houses
housebuyer,
Wait a second here, how did the big four, conventional reasons for truly motivated sellers, i.e. the sellers from whom you are likely to get the best deal, suddenly become the entire market? I mean, they are the entire market now, or they may be, but that's not "normally" true.
The lack of discretionary sellers is real. And a represents a huge pull-back in both turnover and inventory.
Normally those 20-30 somethings have both discretionary and motivated sellers to buy from. Now they just have the remaining four reasons why one has to sell. That sounds to me like a deficit on the selling end...
I'm just looking at the close prices on the units I had been considering. And what I'm seeing is a closing of the gap between REO and real sales. "Organic" sellers were selling for 5-10% off list for closes in November/December, whereas REO's which were already listed 20% over their lows in 2008 have been closing 10% over list price, such that they're not that much cheaper than real sales. Anything well-priced (i.e. within 5-10% of comps) is gone within a few weeks, where unlike in the summer, that doesn't mean it sold for list.
Everywhere I look on the ground, what I see is unfulfilled demand. There's got to be a reason. Maybe it's just the interest rates.
Cara-
I agree that I think there is a lot of demand, because there are a lot of people that have waited several years while housing was fallen. These people think they are getting amazing deals. The problem is that once they are gone you are not rebuilding new buyers at a fast rate. I agree right now there are not many discretionary sellers, but I think more will come in the future as the pain of the housing drop falls from their memories.
Most people in VA are still above water on their mortgage so they can sell if they want, while most 20 somethings can not afford a house that is as nice as the place they are renting so I am not sure they are going to buy.
Although ignoring this whole argument I still contend that we are not going to see significant price falls maybe another ~10% in some of the areas that we slower to fall and then a long static period (with some volatility). This will overtime making housing affordable
What I find amazing with regard to the unfilled demand is how there is such a disconnect between the sellers and potential buyers. I see all of these desperate sellers, yet there is still such a lack of welcoming to me, the possible buyer. Not that anyone needs to kiss my butt, but I still feel resented, like I'm coming to steal your house. Not as bad as in 2007, but the feeling is still there. Very different from when I bought my condo, when, ironically I had a lot less buying power.
As I've written about before, realtors I meet seem so incredibly disconnected from the idea of trying to give me something I want or need. It is like those Verizon commercials - "Listening to customers, gee are you sure that's a good idea?"
I wonder what it will take in the market for this feeling to change, and what it will mean if it does.
Here is your shadow inventory. These are the investors who are pricing out the real home owners.
Linky
It isn't looking pretty in 2010 for RE. Be very careful out there overpaying these flippers....wait it out if you have to.
Now there goes the low inventory thesis, it's artificial dude!!!
Catherine, I am wondering if the market is also (now) missing another large segment of the typical market -- job changers. People who are underwater can't look for jobs elsewhere, so they aren't trying to sell. Others who might like to change jobs, which might mean moving to another city, are afraid in this economy to do that, so they aren't putting their houses on the mkt. People who might like to retire early and work part time in a different field can't afford to because of investment losses or just general nervousness that if they do retire they would never be able to get another job if they had to later. So they also are holding onto their houses.
Except for those (of the above) whose new employers would pay for their moving and house selling expenses, most of the above groups would normally add to the inventory and be relatively eager sellers.
Don't have any data for any of the above, unfortunately.
The inventory is clearly being manipulated in more than one ways - see the link I posted in the other post. Bulk purchases by investors at discounted prices makes me conclude that starting January we should see flood of these homes hitting the market at lower prices (given their cost of purchase) If you add the new foreclosures hitting prime borrowers - I seriously think we have much more trouble ahead.
contrarian -
Good post. Did you want to follow up on Howard Davidowitz and his contention that the TARP money was in the sewer from May?
spider -
Okay. More inventory is on the way....
And what about demand? My previous post said Boomtown has a net job gain of 40,000 jobs since 1/31/2009.
Do you really think our out of work roofers and Sharper Image employees are going to fill these MS/MBA type jobs the government keeps generating?
He argues this is important because the area doesn’t have a glut of idle qualified workers, so it’s seeing an inflow of people to fill professional and business services jobs, as well as government jobs.
Where are these people going to live?
By 2011, another 82,000 new jobs will relocate from other states to military installations in the region through the Base Relocation and Closure Program, according to the Maryland Department of Business and Economic Development and the Virginia National Defense Industrial Authority.
spider said...Bulk purchases by investors at discounted prices makes me conclude that starting January we should see flood of these homes hitting the market at lower prices
And you picked January because...
Catherine said..What I find amazing with regard to the unfilled demand is how there is such a disconnect between the sellers and potential buyers.
Is this different from other time periods? I think it might even be more prevalent at the upper end of the market where I've heard the adage that the market is filled with buyers that don't have to buy and sellers that don't have to sell.
"Spider said...
Now there goes the low inventory thesis, it's artificial dude!!!"
We know that Spider -- known it for years. CRT reported doing bulk purchases for clients back in 2008 -- we assumed those investor purchased houses would come back in TSUNAMI form in 2009. They didnt.
So yeah, its artificial -- has been for years. The real question is not whether it exists, but how it gets resolved. If it gets resolved via the TSUNAMI Mr. Mortgage and some other bufoons promised, we see crashing prices.
If we see the same drip drip drip strategy we have seen in the last 12 months, the price trend we have seen over those same 12 months will continue to be the order of the day.
"Robert said - and you picked January because..."
It's no secret that most of these investors are out to maximize their profits before a) 8k tax credit expire, b) Fed MBS program ends and, c) interest rates go up.
It's a no-brainer that early 2010 will be relatively better for them compared to later....
"...the price trend we have seen over those same 12 months will continue to be the order of the day."
You seem to no longer believe prices are coming down or even staying flat. It makes me think you already purchased, and keeping your hopes up...
Read my earlier response to Robert...early 2010 is all the investors got. I am sure they are smart enough to know that fed is starting the exit later part of 2010 and 8k isn't getting extended beyond what it's now.
Cara and Ace:
I thought "over 40" was code for baby boomers. Aren't they the generation that is ~40-65 now? My comments were in relation to the fact that we will have more people dying, retiring, etc than in the past. I didn't mean to offend anyone by lumping them all in together.
spider -
Still not a peep out of you about NOVA housing demand. You know the story of the last 18 months: bears have consistently underestimated demand. I think you have no idea how much demand there is out there.
Beer Churger The best insulation for townhouses is concrete block party walls between the units. You can usually see the walls in the basement and it is worth looking in the attic to see if the concrete block walls extend to the roof. Many of the newer townhouses probably don't have concrete block walls. Another way to lessen noise is to make sure you put at least a carpet runner on any wooden stairs. If noise becomes a problem you could ask your neighbors to install a runner too. Runners are not very expensive. If you are going to buy a townhouse, be sure to look at it on the weekend or evening to see how noisy it is when people are at home. Even if you don't hear any noise, you can check with the neighbors to see if they hear noise from the townhouse you may want to buy.
Cara said...
"Divorce generally means two households from one."
And a second marriage means one household from two. The main thing about divorce is that it usually results in a distressed sale, or at least one in which the buyer has a little more leverage than usual. Maybe even more importantly, it means a sale at the time of the divorce when normally the sellers would try to hold on to their house until a better housing market came along.
Bc
if you want it's fairly easy to soundproof the walls, set up a stud wall and put insulation in, it will
stop 90% of the noise.
Cara,
I don't comment too much anymore due to many factors, but I would like to comment on your savings theory.
I just don't think the data supports your theory. The savings rate in this country was close to 2% since '05 and in '09 is 4-5%.
http://www.bea.gov/BRIEFRM/SAVING.HTM
Let's say for the sake of argument a household is making 100k and saves 4% of their disposable income. After taxes on 100k is ~70k, we'll say 75k. 4% of 75k is 3k/year. Let's just say someone is real ambitious and saves 10%, that's 7.5k/year. Since '05 they would have 30k . . . just enough for 10% down on a POS shack in Centreville. Let's say they were really ambitious and saved 20% now they have a 20% downpayment, but no 6 months expenses, etc.
For every person saving 20% you'd need 9 saving 0% to get an average of a 2% savings rate. One can argue for people saving negative amounts, but that won't last for long and not for 4 years.
So just to make it work over the past 4 years only 10% of the population could buy using traditional rules. Considering homeownership rates are ~67% that means that something doesn't add up.
If the current buyers had so much cash, you wouldn't see the plethora of programs designed to help with downpayments, such as using the FTHB credit as a downpayment, nor would more than a 1/4 of loans be FHA loans!
Cara, you and I and others on this board are the exception and I mean <5% of the population exception.
I actually think saving more would cause people to think twice about prices. "I've saved x amount for xx years and all I can get is blah with 20% down!" You don't care so much about the price when you don't have any skin in the game.
I'm glad you've found a SFH for yourself. And I think in some areas prices are about were they "should" be, not cheap, but supported by fundamentals of income, rentals, etc.
I still firmly believe in 10 years inflation adjusted housing prices will be a lot cheaper than they are now, but that doesn't mean it's a bad time to buy. How we get there is . . .well take your bets.
Just like when you buy any consumable item you expect the value to go down. But just b/c the price will go down doesn't mean you don't buy if it's right for you. Housing is an expense. Expect to lose money on it! Lose money renting or lose money buying, just run the numbers and find out which one is less costly.
In the areas I'm looking, it's starting to make sense to buy, not a no-brainer yet, but working on it, hopefully in the next 3-6 months I'll find a no-brainer.
But this much I do know, inflation adjusted the bottom ain't in yet, housing is going to become stupidly cheap. Think 850 gold 1980 to 250 gold 1990, that cheap, or oil 140 to 40, and the more price supports the government puts in the worse it will eventually get.
And for inventory . . . it's manipulated. I watch franklymls like a hawk. Right at the 1st of Oct. about 10% of the inventory I look at went offline, like poof within a week. I went through a good bit of these places, they were either foreclosures or SS. I've stopped by several of the places, completely vacant, stuff growing in the gutters, etc. No one lives there and fat chance of anyone paying the mortgage. I looked up the public records, no sales transfers. I don't have any concrete proof but my gut is the banks went to working out loan mods for a good chunk of the inventory. The redefault rates on loan mods. + those that actually get through are horrible, but it kicks the can down the road another 3-6 months.
It's an artificial environment designed to keep housing prices propped up that will ultimately lead to much lower prices than if they had let it completely collapse. And while the "current" inventory is low, every single home I have looked at (30+) have been vacant. The built too many homes, and keeping housing prices high will only lead to more houses b/c builders will build and that will lead to more supply.
Anywho, my 2 cents.
Cara,
The Newington Forest has a contract. I wonder if the offer was full list or closer to 300k.
"Spider said...
Read my earlier response to Robert...early 2010 is all the investors got. I am sure they are smart enough to know that fed is starting the exit later part of 2010 and 8k isn't getting extended beyond what it's now."
Ahh -- I see it isnt spring 2009 (and spring 2008) failed predictions all over again. Instead "its different this time" ehh Spider?
Yall get ready for the STAMPEDE of inventory Spider tells us is coming, starting in less than 1 month YAAAAAHOOOOOO!!!!!!!
gte811
Yeah, I'm working some areas on the hill and i walk the streets and see lots of untended homes.
that tells me the shadow inventory is huge.
if you go into google real estate and ask for foreclosures, it's frightening.
Hey all.
Need some feedback. Hope you don't mind me asking here.
I'm trying to help make the FranklyMLS spreadsheet faster. Not so much in load time, but in absorption of data.
I first added the * next to a short sale a year ago. But now I want go further with that. So I made one green star for "Approved" short sales, and 2 green stars for a short sale listing when the listing agent has previously closed a short sale. The thought being that they are more likely to close.
Any thoughts on this?
Should it instead use a red, yellow, green format? Should I only give the 2 green stars to a listing agent that has cosed 2+ deal. Or a 50% + close rate (some agents hafve 40 short sales and might only close 10, but this is rare).
Hope you don't mind requesting feedback here. I also posted a blog post with more details.
Oh and lastly, Im considering a "b" symbol of some sort next to prices where the listing is bank owned. So you can quickly scan the column and see which is regular, short and REO (bank).
Thanks!
Frank
Was I the only one running around with a lot of errands that could not be done this weekend because of the snow?
Anyways, I'm glad Ace pointed out to Robert in yesterday's thread that he's quoting a bunch of right-wing websites. Of course they are going to be critical and overstate gov't spending.
Is Obama increasing spending and increasing the number of federal workers? Yes. Is he doing so in a humongous way? No.
This is just a scare tactic which may or may not work in November 2010.
Regarding divorce -- it was down 4% and some think because of the housing crash. WSJ Article
Cara,
The data shows we are not a nation of savers. But perhaps might be becoming one soon. Almost everyone I knows lives beyond their means. I know a teacher who drives a Mercedes. It's all pretty sad really. If people can find get a loan and a monthly payment they can afford they do it.
TBW-
I fear that even as people become more frugal and start to spend less they still may not be able to save much, because the government will likely need to raise taxes. Over the past couple of decades both people haven't saved and the government hasn't saved. In order to fix the governments problems they may have to take the savings from individuals.
Frank-
I think I would use something like a red, yellow, green system rather than some number of green lights. Particularly for people new too your site, they may see a green light and think that means the person is good with short sales, when in reality only having a single star is not that impressive. Thanks again for having such a great site.
frank, housebuyer,
agreed, I think red/yellow/green would work better than multiple astericks. Not sure which color should be which... Make sure that the description of the astericks remains prominent, as opposed to an occasional "tip". (you probably did that already)
Hayfieldgrad,
I've seen both happen, so no way to tell. Could go either way. Some twit paid 30k over list for an REO townhouse up in Burke closing on 12/8. Another person got 5% under for a renovated former REO SFH last week. Who knows?
gte,
Thanks for piping in! One quirk is that 2% savings rate is national. The national median income is not an easy one to live on and still save. Our median income compared to the cost to rent is a lot more comfortable. So, your 5% estimate (for number of substantial savers) could reasonably be changed into 10% savers to account for the larger percentage of disposable income.
Agreed, on an inflation adjusted basis, now is definitively NOT the bottom. I don't know about houses becoming as truly cheap as they were in 1999 or not, they will some places but not everywhere it was true last time around, but still, in real terms, no way is this the end.
spider,
Why exactly do you think that bulk purchasers would be "releasing" their inventory at below market prices? Everything I've seen from flipping LLC's leads me to believe that they are very strategic about dripping out their product one home at a time per neighborhood, and getting a good price quickly. If I were advising them, which I'm not, I wouldn't start to really release inventory until late February to catch that urgency again.
Frank,
I agree with housebuyer and Cara. I would only use green if you're dead sure about the listing agent's success in closing short sales. Since I'm not an agent, I can't quantify "dead sure."
I am interested in seeing what happens once the government streamlining of short sales becomes effect in April. It will either be a mess like the HAMP processing has been, making your color system even more critical, or (as we all hope), it will turn many of your reds and yellows into greens. Maybe your green will then indicate, "gov't SS plan compliant".
I meant, becomes "effective" - not "effect".....
spider,
ps.
Besideswhich, the whole point of bulk purchases is to sell them to serious RE investors with reasonably deep pockets and/or good financing. You weren't around when CRT was obliquely discussing the bulk deal he was the RE lawyer on. These groups are buying them at such steep discounts that they can easily cash-flow positive as rentals after they've been fixed up. They are only going to sell them when the amount they can get for them sufficiently compensates for the lack of future rental income, or to free up cash for other purposes. They're like the midnight-blue hole of shadow inventory. Not black, because they do rent them out and slowly sell them, but pretty darn dark. We're talking 5-15 year business plans here. This is not a bunch of pure flippers.
There's many reasons banks prefer to sell their REO inventory this way. One, because it moves a lot of inventory, but secondly because it upholds the values of the collateral on the loans they service and hold. If it didn't accomplish the second goal, the banks could just sell them all to us for dirt-cheap instead.
Cara-
There are several other reasons they sell them in bulk for "dirt cheap prices." In reality it may actually not cost them anymore. Don't forget when they do this they don't pay 6% for Realtor fees. They sell the loans more quickly, so they do not have to subsidize the interest on the loans. They do not need to continue to pay for maintenance, taxes... Basically the bank ends ups paying a significant amount of money for any house that is just sitting around. So if this allows them to sell properties 6 months faster than it may in fact save them ~15%. So while we would all love to get houses at a 15% discount to REO prices we can't save the bank enough money to make this happen.
housebuyer,
I doubt that this allows them to sell 6 months faster, in fact given how many bank-owned I've seen on the FFX Cnty rolls that have been owned by the bank for over 6 months, I'm guessing they just put together a parcel from existing REO inventory. But point taken, at a minimum they avoid 6% transaction costs, and can curtail all carrying costs. Furthermore, these are generally bought both as-is and sight-unseen. So the bank doesn't undertake any of the risks of a particular property being a disaster. (hence part of the additional discount to the bulk purchaser).
Cara-
I assumed they were coming from the foreclosure pile not the REO pile, but you may be right. Either way is saves some amount of time seeing that it often takes a month or two to sell the house and 30-45 days for the house to close once is under contract assuming the person doesn't back out. I guess the exact timing doesn't matter just the fact that they definitely save the 6% and some other amount for not needing to take care of the properties. I assume it also saves them from needing to hire more people. These banks are already swamped with distressed properties so anyway to get rid of them faster without hurting their other holdings is good for them
"Cara said...
They're like the midnight-blue hole of shadow inventory. Not black, because they do rent them out and slowly sell them, but pretty darn dark. We're talking 5-15 year business plans here. This is not a bunch of pure flippers."
I actually spoke with them again recently (I dont represent them anymore now that I switched jobs), but things are going really well for them. They made all their purchase money back on selling some of them into the bounce this year.
However they are still very cautious so they do plan to hold on to the majority of them as rentals. They expect to sell their remaining shadow inventory over the next 15-27 years...
Thanks CRT,
"They made all their purchase money back on selling some of them into the bounce this year. "
Yikes! That's impressive. Totally logical, but still impressive.
I'm closing in less than two weeks! And between now and then is Christmas and New Years, so it's almost no time until we have our own place to make a home. We're about as packed as it's possible to be while still living in our apartment... handing in the 30 day notice today.
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