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Wednesday, December 23, 2009
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58 comments:
If you exclude the two listings for land and the weird rental, 4/22, or nearly 20%, are short-sales:
http://franklymls.com/default.aspx?m=R&l=600K&h=800K&s=oakton+active+fx*
I kinda like this one in a wierd way:
http://franklymls.com/FX7042101
All the shorts have double green stars. And this one at least, the LA has closed a ton of shorts. All but one of the shorts are amongst the best deals relative to tax assessment (which I know, is not that accurate, but as a zeroth order pass it's not bad).
Is your point that more distress is on the way, or that for the best deals a buyer is going to have to be willing to deal with short sales?
Although I didn't originally have any commentary, I can say that I've been watching this price range and area for a few years, and I've never seen this many shorts, especially with this low inventory.
After all, this area in particular is supposed to be a wealthy area ("and everyone wants to live here" as a poster's dad once said).
novawatcher,
Thanks for the baseline. 4 out of 20 seems sort of typical for FFX to me, so I couldn't tell what you were getting at.
The distress is definitely moving up the food chain. The big question is, whether a short sale in the next few months will be cheaper than the eventual price that the real sales settle down to over the next few years. Hard to say. Would 10% under comps be enough of a buffer in this price-range, or do you need 15%-20% once you factor in any extraordinary level of deferred maintanence issues?
What discount off comps would you say these shorts are listed at, if any? It's so hard to tell in an area you haven't been watching.
A whole boat-load of shorts last year in Springfield/Burke/Kingstowne, just turned into a whole boat-load of flippers selling back up at market price into the summer bump. Hard to say how high up the price range such activity can extend. Eggs and baskets and all that.
Cara said
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.
As you go up the income chain you increase the likelihood that the savings went not into a bank account but individual stocks or mutual funds.
I kept my down payment fund risk free but many people *did not* do that. The stock market was pretty strong until Fall 2008 so a lot of people naively felt safe keeping short-term money in there.
Then again, given how long it will take to reach the housing bottom maybe I would have been safe putting the dp fund in the stock market. But it sure feels good that the only stock market money affected by the crash was my 401k (and as Ace pointed out since I'm young it's not like I had a humongous 401k).
tbw,
I think that's a second order effect at this point. If it were true, and a first order effect, that's even scarier. Because it implies that there are even more big-saving people on the sidelines than the market is seeing now. With a little more time and stock-market recovery there could be a lot more high-cash buyers. That's a scary prospect. Unless you think all them pulled their money in March 2009.
So my point is that a lot of people in this area might have been out of the housing market because there was no way they were going to sell their stocks for a down payment when the Dow was at 8,000. They may still be hesitant to sell any stocks/mutual funds at current amounts.
Cara,
My guess is that everything is going to be in moderation and take forever. Buyers are not going to stampede back. Banks are not going to release a tsunami of foreclosed inventory. Mortgage rates will not go up to 7% in one year.
Also, don't forget that if the Dow were to be up to 12,000-14,000 in 2010 that would be a stunning recovery. People would start saying Dow to 18,000. People might start putting more money into stocks (for all the reasons so many put a lot of money into housing this decade).
Heh. I imagine someone will be like Va_Investor and say "Why should it be suspicious for the Dow to go from 8,000 to 16,000 in two years? Why an arbitrary two year time window? It was at 8,000 in 1998. So is it unreasonable for the Dow to double in 12 years?" And many will make "lost decade" arguments as to why the Dow could make crazy increases. All the arguments some here are making for the crazy 2000-06 increases because of the "lost decade" in housing in the 1990s.
tbw,
Indeed everything takes time on all ends.
I was thinking more along the lines of the DOW staying in the 10,000 to 11,000 range but the buyers who had risked their DP there adjusting a bit to the new reality of how much money they have, and the lower home prices compensating them fully for that "loss". If you used to need 200k for your purchase, and now only need 160k, what does it really matter if your stock portfolio portion of the DP fund is now worth 60k instead of 100k? You're getting a lower mortgage and lower taxes and lower transaction costs out of the deal.
There will be no stampede's. But your idea of most high-savers also having a portion of their DP in stocks goes in the opposite direction as everyone else's assumption that the pool of savers from the bubble will dry up soonish. So, it's still quite notable.
tbw,
Cute. But the level of stickiness is just not comparable. The 90's were "lost" to housing because stickiness prevented an earlier decline. The 00's were "lost" to stocks because... there were two tumultous bubbles in them.
Besides, stocks have no consumptive value, only dividends and expected appreciation.
Cara,
I make no predictions as to whether most high savers have a portion of their dp in stocks. I was just saying as you go up the income chain the amount of stock investment usually goes up. I just meant we have to consider this other factor.
If you used to need 200k for your purchase, and now only need 160k, what does it really matter if your stock portfolio portion of the DP fund is now worth 60k instead of 100k?
If they were waiting out a housing bubble like those of us on the blog then they are not taking a $40k loss on their stocks.
tbw,
"If they were waiting out a housing bubble like those of us on the blog then they are not taking a $40k loss on their stocks. "
Why, because if they were smart enough to see the bubble in housing then they'll be "smart" enough to hold onto a losing position in the stock market at the expense of buying the home they want? Heh?
I think it strongly depends on when they bought the stocks, i.e. what portion of that loss is paper versus actual invested funds. I know, I'm not getting the terminology right...
Cara,
What two bubbles in stocks this decade? I see one -- the end of the dot com bubble in 2000-01 which began in the late 1990s.
If there was two anything it was two overreactions: (1) overreaction to 9/11 and (2) overreaction to Lehman Brothers et al
I don't think the recovery between the 9/11 crash to 2007 was a bubble. That was pretty gradual and the economy was strong during that period.
Cara said
Why, because if they were smart enough to see the bubble in housing then they'll be "smart" enough to hold onto a losing position in the stock market at the expense of buying the home they want? Heh?
I guess we disagree with whether the Dow falling to ~6500 made any sense. I think it was an overreaction so this rally is based on fundamentals and not another bubble.
But just my opinion and I don't claim to know for sure. As Robert points out if any of us really knew where the Dow or interest rates were going we could make tons of money off of it.
Bubble sitters don't have any of their down payment money in stocks.
I'm confused. Are we discussing bubble sitters or just regular people who happened to save money?
I'd say bubble sitters are maybe 1% of the population. Most people didn't buy in 2006 because they couldn't afford anything they liked. Not because they realized there was a bubble. Most people compared ketchup bottles and did not ask what did ketchup cost in 2000.
I also think savers are a small portion of the 20-35 population. Because society does not ask them to save much as it removed down payment requirements. If those ever come back (which might be happening outside of FHA) then people will have discipline to save.
Okay. Not trying to put words in your mouth....this time.
Most move-up buyers consider their home equity as their down payment. This plus they may have "saved" more money by paying down their mortgage.
First-time home buyers I would guess only have minimal savings and are buying based on their income only.
You have to consider that if FHA raises their DP requirement it would have to be cleared with the Treasury department and probably the Fed. I can't see them giving the green light unless they believe the housing recovery is sustainable.
Again, we're #1 in the nation. I need to keep track of all of my #1's.
America's Thriftiest Cities
At 11.43%, Washington, D.C., boasts the lowest household credit card debt-to-income ratio. One reason? Government jobs attract those who are conservative about personal finances, suggests Alice M. Rivlin, an economist at Brookings, a Washington, D.C.-based independent research firm.
Cara said: What discount off comps would you say these shorts are listed at, if any?
± 10%. Yes, some seem to be more than the last sale of that model.
http://franklymls.com/FX7213299
Yes, I realize that those folks paid $833k. But the most resent comps from that model in that neighborhood are not $675k, but instead are closer to $600k:
http://franklymls.com/FX7007844
http://franklymls.com/FX6943324
Robert,
San Jose is 11.46%. In other words, a meaningless difference with Washington's 11.43%.
Maybe it's a "Silicon Valley" thing instead of a government thing.
Or most likely it is a high education thing. I imagine the higher the education level the more likely you are to realize paying 30% interest and fees is dumb.
Wanda Sykes also had a good joke about how when you are broke you don't really care about becoming really broke. So hearing 60% interest does not faze you.
Robert,
I see you did not note this:
As with San Jose, Detroit and Washington, D.C., many of these metros are struggling with high poverty levels and a dwindling middle class.
Cara,
FX7042101 -- yucky outside
Also I'm laughing that they took pictures of the living room with clutter. And a cluttered kitchen.
Maybe this agent purposely keeps the houses a little messy so people think they can get a deal and more people bid.
tbw,
No comment on the red IKEA kitchen?
It's a short sale. This level of presentation is actually above the bar from what I've seen.
Remember that all the sellers are getting out of this sale is the albatross off their neck. Not a lot of motivation to clean up around the house.
The architecture is not for everyone, but I like funky.
http://franklymls.com/FX7122084
Let's run some numbers on this home in Oakton.
1996 - Sale $290,000 - Mortgage rate 7.81% - 20% DP = $58,000
Monthly Mortgage (80% LTV): $1,671.71
If we make that 30% of monthly income that's $5,572.37 monthly and an annualized salary of $66,868.40.
2001 - Sale $413,375 - Mortgage rate 6.97% - 20% DP = $82,675
Monthly Mortgage (80% LTV): $2,193.50
If we make that 30% monthly income that's $7,311.67 monthly and an annualized salary of $87,740.
2006 - Sale $785,000 - Mortgage rate 6.41% - 20% DP = $157,000
Monthly mortgage (80% LTV): $3,932.29
If we make that 30% monthly income that's $13,107.63 monthly and an annualized salary of $157,291.60.
2009 - Listing price $665,000 - Mortgage rate 5.1% - 20% DP = $133,000
Monthly mortgage (80% LTV): $2,888.49
If we make that 30% monthly income that's $9,628.30 monthly and an annualized salary of $115,539.60
----
1996 - $67k
2001 - $88k
2006 - $157k
2009 - $115.5k
Median HH Income
1995 (96 N/A): $70k
2001 - $84.7k
2006 - $100k
2009 - ?; 2008 - $107.4k
----
Revert to mean might be in the $625k with ~5% mortgage rates.
With 6% mortgage rates it goes all the way down to $550k. With 7% mortgage rates it goes all the way down to $500k.
So as noted a million times on this blog mortgage rates are key to where these homes bottom.
"NoVAwatcher said...
After all, this area in particular is supposed to be a wealthy area ("and everyone wants to live here" as a poster's dad once said)."
It still amazes me that we are even reduced to pointing this out. I think back to when Mr. Mortgage and other charlatans started telling us about the upcoming TSUNAMI of short sale inventory which would be DUMPED onto the market, allowing us to feast on the spoils. They peddled tales of a land of milk and honey for the bubble sitters in the desirable areas so long as we waited -- and we guzzled it down -- glug glug glug.
And speaking of hyperbole, maybe I should write up the post-script on the inventory armageddon:
Lo, and be it known that on the 23rd day of the 12th month of 2009, the prophecy of Mr. Mortgage was finally realized.
For it was on this day that in the Commonwealth of Virginia, Town of Oakton that not one, not two, not three, but FOUR short sales were witnessed on the market!
Countless bubble sitters who had been waiting patiently for years descended from far and wide into Oakton and feasted on the bounty of said 4 short sales. It was indeed a christmas miracle as the prophecy from so many years earlier had finally been fulfilled...
TBW: I think you forgot property taxes and insurance in your calculations.
Also I think the math above shows that many people who bought in Oakton in 2006 (let alone 2004-07) most likely overstretched just like people did in Manassas. Meaning there will be many short sales, foreclosures, etc. Just delayed. As NoVAWatcher shows there are plenty of short sales in that area.
tbw,
As novawatcher pointed out, comps also yield 600-625 as the likely close price if it sells. But thanks for all the numbers.
Contrarian,
Good find!! That house has some nice features, but some incredibly taste specific ones. I'm thinking the dining room. Unless it's priced such that it gets 40 eager buyers, I don't think they're going to find someone who has the same taste as them. Based purely on the couple from Slate's search this past spring, I wouldn't put this house over 700k. But that's just out of thin air.
NoVAWatcher,
I didn't forget them. I don't have all day so I can't make this perfect.
If you want to add them please do so. I don't know if I can find the property tax rates for '96, '01, and maybe even '06 anymore. But then someone is going to scream what about the tax deduction which would require finding tax rates and so on.
BTW: I've been in that house, and it's pretty nice, except for two things. The first is that the lot is odd, and there isn't really any back yard.
More importantly is the kitchen. You know the saying "Measure twice, cut once"? Well, they should have. IIRC, you can't open the stove (or was it the dishwasher?) without opening the adjacent cabinets. I also got the impression that the cabinets above the fridge weren't bolted to the wall, but instead were resting on the fridge.
The wife and I figured you'd have to hire someone to redo the kitchen (I don't think a little shimming would have fixed it). That, plus the yard, turned us off. Otherwise, it was a nice house.
One final note: I'm not sure what is up with Frankly, as the last sale was $785k in 2006, not $413k in 2001.
Cara,
If it sells for $600-625k then that sounds like buyers are getting savvy about what feels right based on current mortgage rates.
However, right now as a buyer you have to be able to find sellers willing to sell at a realistic price like that instead of the WTF price.
But yeah we might be nearing a bottom by next spring/summer if Bernanke keeps mortgage rates near 5%. That's a big if.
If next year homes like that are low $600s without a lot of arm twisting and mortgage rates are still 5% I might just buy. However, I suspect interest rates will be up and sellers will still be mostly at WTF prices and this is going to take forever. :(
Actually, it would have to be mortgage rates are still ~5% and Bernanke promises to keep em there until 2012 or something like that.
Cara: those weren't comps for this house.
http://franklymls.com/FX7122084
I think that house is actually nicer. The other ones are crippled, for lack of a better term. At first glance they appear pretty large, but that is deceptive. In actuality, the upstairs are pretty small (~800 sqft?) -- notice that the upstairs is visibly smaller than the downstairs.
When touring these houses (almost rented one for $2400 last spring), I didn't get the impression that the area between the garage and the rest of the house was an extension, so much as the downstairs was normal sized and the upstairs was missing some square footage.
The same thing applies to this house:
http://franklymls.com/FX7182949
It's not that is has a large downstairs, so much as a tiny upstairs.
NoVAWatcher,
Interesting intel about some flaws in the house.
I just picked it out because it had great data. Sale prices in 1996, 2001, 2006, and a listing price for today. Much better to use than assessments which might be off more some years than others.
tbw,
I think you should switch your focus from looking at active listings to looking at closed listings. There's a huge spread in who "won" buyers or sellers, but if you're watching solds, then you'll get a better idea of when the price you'll have to pay actually gets close to what you think is reasonable. Lists are meaningless, it's all about the solds. Too bad some things have long close times, such that solds don't really tell you current bidding conditions... But just as you have incomplete information so does the seller.
The Anonymous,
I don't think NoVAWatcher or Jeremy or I have been predicting massive numbers of foreclosures or a tsunami. Talk about a strawman.
Some here have argued Oakton and similar areas would have almost no short sales or foreclosures. That is what I think NoVAWatcher was refuting.
You seem overly focused on the hyperbole on the bear side and not so much focused on the hyperbole on the bull side. I encourage you to re-read some of Va_Investor's many predictions about foreclosures in Oakton, North Reston, McLean, and so on. I think you'll find NoVAWatcher's comment makes sense as a response to that.
Cara,
It's a personality thing. Some people like to negotiate. I do not.
I find (based on real estate history) it likely that we are going to have an L once the bottom is in. Not a V. So I'll wait until list prices are back to reality.
I don't want to fall in love with a house but then it's a WTF seller and I start to rationalize paying 5-10% more than I really should be doing.
Contrarian, I'm an HGTV fan too.
That's a very interesting house, and I can see why they need a good cold slap of Mike Aubrey. It looks as though it has a bad case of designer-itis. A few gallons of primer and some neutral paint would help with some of the taste-specific problems.
Also, some of the rooms look oddly shaped and a bit hard to use, which is not surprising for a house that age but still a drawback. The kitchen has fabulous cabinets but everything is so squeezed together - I think it might function better (and would have been cheaper) with fewer cabinets. Maybe it's just the photo angle or the clashing red paint, but I don't think so.
Of course that's just my taste-specific taste!
I suspect all of you are right about its being overpriced for the neighborhood, even at its lower price. In 20016 it would have sold by now.
Looks as if Piney Branch is also a pretty busy street and from the Google street view, it looks as though there is a school, apartment building or something else across the street from this house. Plus no garage, though the lot is big enough to add one it appears.
But still an interesting house with a ton of systems and other updates, a very big (expensive) deal in a Victorian house.
TBW said...So as noted a million times on this blog mortgage rates are key to where these homes bottom.
There is another key: availability of credit.
Could be the story of 2010.
I know whenever I talk about credit, I am accused of advocating neg-am Option ARM's, but credit is still tight by historical norms. If that reverts to the mean, it will add fuel to the housing market - particularly the mid and upper tiers.
TBW said...Let's run some numbers on this home in Oakton.
Ugh. Again with the Census Survey household income figures.
TBW said...Robert,
I see you did not note this:
As with San Jose, Detroit and Washington, D.C., many of these metros are struggling with high poverty levels and a dwindling middle class.
I think you have lawyers marrying lawyers and roofers marrying Target employees.
+ the one-third of the District that is functionally illiterate.
TBW -- forgetting that you missed that my strawman was sarcasm, why do you think my comment was directed toward you? If anything, you seem quite reasonable in that you think (correctly) there wont be a "exploding" this and a "tsunami" of that.
My comment was directed more towards the ghosts of yesteryear. Take for example what we see here nearly a year ago on this thread as John Fountain and Contrarian are here spewing doomish forecasts of the upcoming TSUNAMI, which will devastate inside the beltway.
https://www.blogger.com/comment.g?blogID=4787878578920468587&postID=7867304277187031189
Here no one gets whipped up into a frenzy before CRT takes control and dismantles the doomish arguments bit by bit. However, there are others where that doesnt happen and even reasonable people were thinking there was another huge (25%) correction coming to hit even the devastated areas like the low end and places like Loudoun where (in actuality) priced had bottomed.
Bottom line is it still just blows my mind to see how irrational the thinking was here just last year. Putting Contrarian aside who clearly has his own unique problems, were we really that gullible so as not to see it aint as bad as the doomsters are telling us, or was it simply wishful thinking in that this is what we wanted to see?
RE: 12/15/2008
Interesting.
"Robert said - If that reverts to the mean, it will add fuel to the housing market."
LOL....Very funny!!!
Credit it tight by historical norms? Seems awfully loose to me. Heck, last spring I was outbid on a $700k home by someone with an FHA loan!
The Anonymous,
Nice recap and assessment.
Thanks.
Just wanted to say Merry Christmas and Happy Holidays to everyone here, and to wish Cara the best on her very-quickly-upcoming move. May we all be as successful in 2010!
Novawatcher -
Can't find the link, but overall credit was still contracting in the third quarter 2009. However, it was contracting at a much slower pace and is forecast to expand in the first quarter 2010.
I would say FHA, with 3.5% DP, is loose, but nothing like 125% neg-am no doc hybrid ARM's like we saw during the bubble.
I made up that mortgage product.
Beats me, Contrarian.
By the way, I usually play on the doom-team. Don't know about this inning.
I've got a feeling that we've seen the worse.
Like he says, Glug, glug, glug.
"Contrarian said...
Nice recap The Anon"
Ahhhh, methinks a nerve has been hit with Contrarian. It will be great fun picking at this in the months to come!!!
"Contrarian said...
Nice recap The Anon"
Ahhhh, methinks a nerve has been hit with Contrarian. It will be great fun picking at this in the months to come!!!
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