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Friday, January 15, 2010
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42 comments:
Another weak inflation report today. Both the CPI and the core CPI were up 0.1%. The weak job market continues the keep prices in check, as long as this is the case I just don't see the fed messing with rates any time soon.
housebuyer,
Agreed. I'd go further, I'd say that the fear of mortgage rate rising after the MBS purchases stop in March may spur more buying activity earlier in the spring than usual, but that those fears too will prove to have been ungrounded. I don't think mortgage rates are going up over 5.5% until 2011 at the soonest.
(Robert will chide me for being in the interest rate prediction business)
I read that inflation is going to be really high. Once I buy a house and have the storage space, I'll probably buy some commodities.
At least one County in Virginia is playing fast and loose with new assessments. I got five yesterday and three are up 50%, one is up 100% and the last is up 600%!!!!
I'll be on the phone.
p.s. they are all vacant building lots. I can't imagine much demand.
VA-
If they are in places were there is a lot of space I agree I don't see much demand for additional lots. I would think that now that homebuilders have sold most of their properties in the inner areas, that they may be interested in building more houses. Although I agree there is no way that assessments should be going up 50%-300%
Raw land is going to fluctuate, but that's pretty intense unless it got re-zoned or something.
Good luck fighting the good fight.
Va_investor,
Best of luck, let us know how it turns out. I'm assuming you haven't seen nearby land going for 4x the previous prices.
There are tons of vacant lots in these communities. I'll offer to sell them to the County at those assessments!
I wonder if they are just "pulling this" on out of area owners. They know we can't vote there. A couple months ago I got 3 new assessments (on houses) in an adjoining County. They dropped, but nowhere near what they should have. I called on the most expensive one and got nowhere. It is too unique to get a valid comp.
These vacant lots should have a bunch of comps that I can track down. I'll have to contact my agent down there as nothing is online.
And my husband thinks I don't work! I put in at least 5 hrs a week!!!!
p.s. anyone looking at HUD foreclosures?
My sympathies, VA_investor. I once had a house unsold on the market 500 miles away and the assessors not only raised the assessment 20% above asking price but had a rule that any request for an adjustment of more than 10% had to appear IN PERSON at a hearing. They refused to waive it.
VA_
I look at HUD stuff so long as it's not a 230K issue.
maybe i missed it, but when is cara's housewarming party? j/k
Konstantin said...
"It will be not very funny if I'm still here in 5 years and renting, can be a major display of overcautios/indecisive behavior."
Sounds like my situation 5 years ago. I was renting a townhouse next to virginia square metro, the crazy neighbor next door offered me her place for 250k. At the time I thought not bad but a little bubblicious for such a small 900 sqft townhouse, plus I didnt plan on being here much longer. 3 moves later, married, 15 month old, our current 1200 sqft townhouse is simply too small now.
Prices dont matter to me anymore, whether I'm still here in 3 years doesnt matter anymore, I need my sanity.
So I'd recommend not being as overcautious as I was, and treat the transaction costs of buying as simply part of your risk.
Also to yesterdays' bit bucket (i'm always behind in these buckets by a couple days), if fha is assumable which seems like a nice perk, does it make sense to get an fha with 20% down, or 3.5% and later putting the other 16 in, instead of a conventional?
GT,
Va_investor and I tried to hash out all the numbers for this earlier this year (oops I mean 09). You might want to try searching for it... though it was spread over multiple threads.
Part of the concept is keeping your loan balance as high as possible such that most if not all of the new buyer's loan is in the form of assuming your old loan. You'd then want to have that 16% on hand in case you need to pay back some of the loan, and/or be prepared to offer a seller financed second for the rest of the price if prices have gone up.
To make this judgement you really need to run your own numbers on the costs of the PMI, upfront FHA fees, higher FHA mortgage rate, and then factor in the interest you'll make on the downpayment you're not immediately investing in the house... and then see whether you think the costs are appropriate for what is essentially interest rate insurance. And you have to decide if having an assumable loan will allow you to sell faster, sell at all, or sell for a higher price?
I didn't end up going this route, because I felt that interest rates are unlikely to rise over 7% in the next 2 years when we would be most likely to experience a loss above transaction costs if we'd have to sell. Thus I didn't see the point. 5 years from now, it's possible interest rates will be up above 8% again. But if selling is difficult, it will be nothing that price can't fix.
CNBC article, "Big Banks Accused of Short Sale Fraud:
See: http://www.cnbc.com/id/34877347
Mike
Holy ^@^^@*(#%!#
Hang them high. They have absolutely no right to that money, that's the whole concept of a subordinate lien, but they have something the seller wants, the power to stop the sale. Blackmail, pure and simple blackmail.
I'm not sure if we need more investigations, or new legislation that automatically wipes out 2nd liens in a short sale, without the giving them the right to stop the sale. I'm not sure if such legislation would hold up in court....
I am pretty sure we talked about this house earlier, but I may be crazy. Either way dunn loring it sold for a couple hundred over list and within 5-10% of peak. Just another example of why Tysons should be added to Arlington and Alexandria when you are talking about areas with minimal price drops. Obviously it hasn't been totally immune to the fallout, but I think it is actually holding up better than Alexandria and southern Arlington.
Cara-
I wonder if it is illegal. In theory a debt holder always has the option of releasing the obligation if they are given financial compensation. They also have no reason to release it if they are getting nothing. Citi's answer started to get at some of the complexities of the issue.
Mike, I had a strong sense of déja vu when I read that. Didn't someone here post a story of something similar happening to a friend of theirs (where the agent asked the buyer to come up with more $ for the 2nd lienholder)? Maybe it was somewhere else that I read it. Good to know that it violates RESPA -- at least that gives the buyer some leverage to use against the blackmailer ("I'll report this violation...").
housebuyer, I saw Citi's answer as legalese for "we know it's illegal and that's why you won't catch us telling any one that they HAVE to do it, but wink, wink..."
housebuyer,
Citi's does, however, Citi's answer hardly sounds like the reality on the ground. Apparently the short-sale negotiators haven't had the memo sink in. And RESPA is a law too... not that I've read it.
I mean I see how the legal department would argue that it's no different than paying a mechanics lien or your back taxes so that the title is clean. But at the same time, there's just something fishy here that needs to see the light of day.
Quite possibly the correct wronged party is the first lien holder if they weren't made whole in the sale, they could argue that the fungible funds that were given to the second should have been paid to them instead?
Wow, I am so not a lawyer, but don't you think this would make a great mock trial competition case?
I'm not a lawyer but it seems to me that if the first lien holder wanted to get the deal done, it could share some of its proceeds with the second lien holder.
The benefit to either of agreeing to this? If the debtor can't afford to pay the loan and the house goes into foreclosure, I don't think the second lienholder gets anything at all if the sale proceeds are less than costs plus the amount owed the first lienholder, right? Meanwhile both banks have legal and administrative expenses in dealing with the debtor.
I am a lawyer by training, although not a real estate lawyer and quite frankly, I never even heard of RESPA until the CNBC article. Ace, regarding your statement: "if the first lien holder wanted to get the deal done, it could share some of its proceeds with the second lien holder." Yes, and that's what is happening. The first part of the article explains that.
The problem arises, apparently, when the 2nd lien-holder then demands additional money from the prospective purchaser, outside of the required HUD documents. It seems to be a direct/indirect violation of RESPA. Like I said, I don't know a thing about RESPA.
Beyond RESPA, a good case could be made that the 2nd lien-holder is engaging in fraud or possibly breach of contract. Basically, I (the 2nd lien-holder) negotiate with 1st lien-holder and make certain representations along the way ("I represent that I am receiving no other compensation related to this xaction") when, in fact, I've negotiated a side-deal with the prospective purchaser. I'd call that fraud, at the least, and, depending on the agreement between the 1st and 2nd lienholder, it's probably a breach of their agreement.
Also (and this goes back to 1st year law school -- many years ago, for me), in order for a real estate-related contract to be enforceable, it generally has to be in writing. The fact that these 2nd lien-holders are requesting cash or a cashiers' check outside of a written contract doesn't pass the smell-test.
I put on my IANAL hat earlier today for a Constitutional discussion of D.C. voting rights. That was enough, I'm staying out of this.
Anytime I think we're being too nice over here, I wander over to Ben's blog again. I haven't read regularly for over a year, or posted in longer--but they still have the same spirit. Gets me thinking straight again. One needs to indulge in pessimism as well as optimism at all times to get a clear picture.
Housebuyer - Houses between $500-850K in good condition in Vienna/Tysons/Dunn Loring are often selling very quickly if they are priced favorably relative to other homes in the same area. A couple of houses off Beulah Road in Vienna on sale for around $700K each went under contract in less than a month (one in less than a week).
http://franklymls.com/FX7231600
Thanks, Mike, for your expertise.
My point, which was unclear and a minor one, was that I didn't see the 2nd lienholder as having any business asking for $$ from the debtor, since it could work with the 1st lienholder to share in the proceeds without (apparently--to a layperson) violating RESPA. If the first lienholder refused, well, that was the risk that the second took on when agreeing to the loan and presumably charging a higher interest rate.
Cara,
Are the FHA assumption fee's still $45 with no points, etc? This would make a difference as a purchaser/assumptor would avoid a whole slew of charges. Also, do you know if the upfront PMI is tax deductible the first year?
I'm guessing that you checked all this with your LO.
What was the actual cost premium?
Mozart-
That is pretty impressive it will almost surely go for more than its highest tax assessment.
Ace - I see what you're saying. By the way, I don't hold myself out as having expertise, at all.
I should mention, though, that in my non-RESPA example (again, don't know a thing about RESPA), the fraud or breach of contract is against the 1st lien-holder (and not the real estate agent or prospective purchaser being asked to pony-up money). So, it's really up to the 1st lienholder to protect its rights. Perhaps this is an industry practice, such that no one complains, e.g., many of the 1st lienholder "victims" in xaction no. 1 may be the "bad-acting" 2nd lienholders in xaction no. 2. If so, then maybe only RESPA can stop this practice?
HayfieldGrad said
Oh yes, where have I heard that before? It seems to me, that if more than 20% of your students are African-American or Hispanic you get labeled as gang-ridden in Fairfax County.
Once again HayfieldGrad shoots from the hip with a theory that does not explain the difference in school reputations.
The following schools have at least 20% black + Latino students according to FCPS's website:
Centreville, Fairfax, Herndon, Lake Bradock, Marshall, South County,
A few just miss the 20% mark at 18-19% (West Springfield and Westfield) and many more are not that far behind.
I have zero reservations with any of those schools and do not think they have a "gang" reputation.
So I don't think this is the factor as to whether parents start feeling uncomfortable with a school.
Mozart said
That may be one reason why Stuart and West Potomac continue to have more in-placements from out-of-boundary students than out-placements from in-boundary students, and why homes in Lake Barcroft and the Alexandria neighborhoods like Belle Haven continue to sell for well over a million. It seems that when people do their homework on these areas they conclude that they need not worry about their children finding a cohort of high-achieving students who also will pursue a challenging course of study.
I do not dispute that every Northern Virginia high school has some upper-middle class and rich kids at the school.
That being said, you have to keep in mind that a lot of successful people in the region do not have kids or have grown up kids. So there are plenty of neighborhoods that are expensive despite bad schools because the average occupant could care less about the school since they don't have kids. AND some people send their kids to private schools so they do not care as much about school quality.
Also keep in mind some of the neighborhoods you are describing are located much closer to DC and other job centers than Great Falls, Fox Mill, Oakton, etc and yet *are the same price.* If those $1M neighborhoods were zoned to better schools the home prices would easily go up six digits.
CRT said
One only needs to look at the late 70s and early 80s where mortgage rates were running 12% or more, yet nominal prices were running up "only" 7-8% a year, to see its not as obvious as one thinks.
Wow. CRT has become the kind of poster he ridicules where he brings up a theory we discussed in detail and rejected.
We had a long discussion about assumable mortgages (which Va_Investor reminded of us) and how that explains why prices did not collapse in the late 70s/early 80s with skyhigh interest rates.
Maybe if you were a more regular reader of this blog you would know this. ;)
[I'm not really mocking you. I just find this funny because you used to get mad whenever people would bring up something that already was discussed at length and rejected on the blog.]
Va_Investor said
I wonder if they are just "pulling this" on out of area owners. They know we can't vote there.
This is almost certainly what is going on. Also, you (and other real estate investors) probably have more income/wealth than the average homeowner in their county which also makes you an attractive target to counter declining revenues.
Cara said
1* How long will it take for housing prices to fully recover from the recent downturn?
2% One year
17% Two years
20% Three years
45% More than three years
15% Not sure
This just makes me more confident that we are not at the bottom yet. I know plenty of people (related to some) who believe their home will go back to its 2006 peak in a few years. Not a contrarian indicator.
Too many people still think 2006 prices are around the corner. If you think you are 1-3 years from 2006 prices you (1) invest in foreclosures and/or (2) don't sell your home until those prices come back.
TBW - Hayfield Grad referred to schools that have 20%-plus Black or Hispanic students, but you referred to schools that have 20%-plus Black and Hispanic students. So you seem to have side-stepped her point, since with one exception (Herndon), it's a completely different set of schools: Annandale, Edison, Falls Church, Hayfield, Herndon, Lee, Mount Vernon, Stuart and West Potomac. The relevant point for the two of you to hash out, should you choose, is whether these particular schools are tagged as having gangs; if so, whether the reputations are well-deserved and affect the quality of education at those schools; and whether either the reality of, or misperceptions about, these schools impact house prices in these school districts.
As to Stuart and West Potomac, my point was really that, perhaps to a greater degree than at some other schools with high percentages of ESOL/FRR students, these schools also draw from some very affluent neighborhoods where the parents remain quite committed to the local public schools. Same is true at TC Williams. But I have no doubt that, if Lake Barcroft were somehow transplanted from Falls Church to Oakton or Vienna, the houses would be more expensive.
HB Says
"I wonder if it is illegal. "
HB
It's as illegal as all that Cocaine that went up Bush's Nose for 20 years.
IANAL, but let me tell you something.
When a house is Sold the HUD-1 is supposed to describe all payments on both sides. this is so taxes can be collected, and the notes sold to Fannie,Freddie, FHA, VA,,,,,
Settlement firms exist to collect the paperwork and get it all straight.
The reason all this is illegal is the First Lien holder has 99 of the cards, the only card the second has is refusing to release and forcing foreclosure.
The First can basically tell the second to go screw and do a title action.
here the second is committing a fraud on everyone.
it's this bizarre lack of standards
that has occurred since bush got in power.....
VA Investor
I don't know enough about how the upfront MIP works. From what I read, if you pay mortgage insurance premiums "that are properly allocable to periods after the close of the tax year" then you have to figure out how much each month is worth over the term of the loan or 84 months, whichever is shorter.
http://www.irs.gov/publications/p936/ar02.html#en_US_publink1000229966
So to me, the question is this:
Is upfront MIP a pre payment for future insurance premiums and thus "allocable" to later periods or is this upfront premium for the year of closing only?
TBW-
I don't think its just assumable mortgages. Interest rates were only rising 1-2%/year. Each of these movements would have caused a 5-10% decline over the year, but inflation was 10+% over this time period so you would expect prices to increase. So the net impact of both of these could in theory lead to higher prices.
After looking a little more, I'm pretty sure that the upfront MIP has to be allocated over 84 months although don't quote me on that one. The confusion comes in the difference of terms used by the IRS compared to everyone else. To add to the confusion, the IRS reporting requirements for the banks allows them to calculate the upfront MIP that applies to each year for you on your 1098's or they can put the entire amount paid at closing down on the tax form and then you'll have to remember to do it every year.
Something else that will be of interest to anyone that bought a new house in 2009 is that the real estate tax deduction is based on the number of days you owned the house in the year (starting with the date of purchase). So the property tax deduction for the first year you owned the house has to be prorated.
http://www.irs.gov/publications/p530/ar02.html#en_US_publink100011838
I don't believe I said that assumptions, owner financing, etc. prevented a price crash in the early 80's. I said that those homes sold. Others didn't necessarily lower their prices, we just had a frozen market. A mexican stand-off. People were not under the foreclosure threat as there was real underwriting back then.
Secondly, inventory was probably quite low as I doubt many would give up those cheap rates to take on a much higher rate new loan.
This brings into question the supposed risk posed by the huge number of new FHA originations. The dti may be looser than conventional and the dp lower, but these are not liar loans and they are not being made at peak pricing.
A rise in rates will not hurt this segment due to the assumption benefit and due to the fact that these places are not now "over-priced".
The fact that the lower-end has no choice but to go FHA (due to lack of dp money), does not alarm me.
As far as the up-front MIP, this probably has to be amortized over the length of the loan - don't know for sure. Obviously, points and monthly mip are currently deductible when paid.
It used to be that when an FHA was paid off (not assumed), a refund of upfront MIP could be applied for. I recall receiving refund checks for as much as 75%. It was based on the "loss experience" of loans originated in that same year as yours.
So, in my mind, I'd probably go FHA with minimum down. If it was unnecessary, due to good conventional rates, to allow an assumption, I would apply for the refund.
I don't know that this is still the way things work.
Va_investor,
I agree. With the current underwriting standards, DTI, and considerably lower prices the FHA percentage does not scare me.
As to your question, I didn't check.
Conventional interest rates need to exceed the rate + PMI for it to make sense, I don't think they will for the next two to three years.
But it really came down to the necessity of keeping the rest of the downpayment on hand in case of a job loss (since the payment on 96.5% of the purchase price exceeds what one of our salaries can do, whereas the payment on 80% at 5% doesn't). This was never a plan I could have sold to my husband. He's gotten in the habit of being able to save his entire net pay every month, it's a hard habit to break. We couldn't have bought a SFH where we wanted to buy, on one salary alone, if we didn't also put down the 20%.
Furthermore, on our house, we either would have lost the bid, or would have needed to pay $15k-$20k more up front to get it, since we would then have been competing head to head with another FHA offer. (I wish I could honestly say that we just wouldn't have bought it, but since I wasn't in that situation I can't say, can I?)
So there were too many things about the scheme that made it not right for us. Which is not to say it's not worth investigating, for people with different interest rate predictions and who are using a different fraction of their monthly income towards housing.
However, the basic problem with FHA right now, is that as far as I can tell, you have to bid higher than you otherwise would to land a contract in the current environment. Whether it's on things cheaper than our house where investors wiegh heavily in the competition, or whether it's stuff in our price range or higher where sellers don't have to deal with FHA unless they chose to. It puts you at a bidding disadvantage which unless you are very judicious and willing to lose multiple times, means you'll pay more.
Now if there were some market segment where the bidders are purely FHA, then I guess you're not paying more than anyone else. However, that would presumably also be a hot segment that has recovered the most...
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