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Thursday, January 21, 2010
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79 comments:
"tiredbubblewatcher said...
HayfieldGrad said
No one would rent a 2 bedroom apartment in San Jose to my parents because they had two small children. The apt communities would only rent them a 3 bdr apartment which cost more per month than buying a 1200 sq. ft duplex house.
This is almost certainly a violation of the Fair Housing Act. I don't think lending policy should be based on the fact that landlords violate the law. Instead of loosening lending standards the remedy would be enforcing the FHA's regulations on protecting family renters."
There might have been regulations like others have said that require certain square footage per person, or maybe requirements for how many people can live in a certain number of bedrooms.
Also, FHA was passe din 1969, was this prior to that?
Some places also have laws about male and female children sharing rooms as well. This is more complicated than just remembering that someone wouldn't rent to your parents...
This morning on the radio they said that DC is the best city for investment purposes at the moment. Apparently there is a lot of foreign real estate investment happening there.
What implications does this have? Might this be why the prices remain high in NOVA? Places like Nowheresville, USA don't really have foreign investment wanting to buy homes, but here we are competing essentially with the world...
http://en.wikipedia.org/wiki/Fair_housing
Check this out for more info about Fair Housing Act.
sehrwunderbar,
Foriegn investment is a result of a strong market not a cause. It's too small of a factor to be self-fulfilling in the long run, but Robert has frequently pointed out the reports on where are the best investments world-wide for real estate that pick DC as amongst the top current choices. So, it's an indicator, possibly (if those investors know what they're doing which has not always historically been the case).
So other than putting the cart before the horse, ("nowhere'sville" USA isn't a growth area to put your money in so foriegn cash isn't looking there to make money, not the other way around) yes it's an indication of strength.
Maybe Robert can dig up some good links on it again, it's been months.
wunderbar-
That definitely could have an impact on housing prices, although I would think it would more likely have an impact on commercial real estate. I assume most of the foreign investors are investing many millions or more, and it is too much of a hassle to manage a bunch of cheap properties and expensive ones don't cash flow well. Commercial real estate either for offices or apartment complexes make a lot more sense for these people to invest in. Did they give you any indication into what they were buying?
Not a huge surprise, but a lot of the states are trying to get more foreclosure help. foreclosure help
I think I am becoming more ok with giving help to these owners as long as it is also beneficial for the banks/ at least not too bad for them. I do worry when they are talking about making houses affordable for option ARMs people, because I don't think these owners should get payments that would be lower than payments a new buyer would have if they bought the house. e.g current house price at current interest rate. I am pretty sure to make housing affordable for these owners they will need to go well past that. Obviously this is not a huge issue for this area, but I would be pissed if I lived in CA or a state like that these mods were going on.
I thought this was a particularly interesting CR post.
Calculated Risk: Wells Fargo on interest rate risk
The bottom line being that while many banks are currently investing in 30 mortgages given the 400 basis point spread between the fed funds rate and the mortgage rate, Wells Fargo is keeping it's cash on the sidelines ready to go when interest rates rise, rather than loose out on 30 years of higher rates over the life of the loans.
Wells Fargo believes firmly that there will be a sharp uptick in rates (or that there's a heavy likelihood of such that they want to avoid).
The good news here, as I see it, is that there is a healthy apetitite for mortgage backed securities once rates come up off the floor. This ongoing appetite will limit the interest rate mortgages need to be to get backers.
My assumption is that Wells has some underlying number relative to expected near-term inflation that they feel would be a "normal" mortgage rate in the near future. Sure, they'd like to get as high of interest as they could market-wise, but there must also be some expectation there of what's a good enough rate of return.
Best case scenario for Wells is continued near-zero Fed funds rate and near-zero inflation, but another 50-100 basis points on the spread.
Cara-
Obviously that would help Wells, although I doubt they will get another 100 bps. The spread between fed funds and mortgage rates are already at an all time high, so expecting another 1% is a lot. I have said several times that over the next year I expect the 10 year treasury to go up 0.5%-1%, but I don't think this will happen unless fed funds starts to go up so bankers can at least imagine fed funds getting to a reasonable level.
hb,
Indeed, my best case scenario for Wells is unlikely to be their true motivation. I more take them at their word that they're concerned about holding 5% notes in a 5.5% or 6% environment, because one would have to hold those to maturity for lack of good prices to sell them at.
sehrwunderbar -
Foreign investors will be dismissed by the bears, but if you were buying a home in NOVA, would you rather have WDC as the best place to invest in commercial real estate or the worst?
Robert,
Would you agree that foriegn investors are an indicator not a driver though?
Sure they can drive things like Dubai, but my concern is that if they were a driver that would inherently imply another bubble, whereas interpreting them as an indicator implies much more underlying strength that is just being recognized by smart money.
can you all help me price a house?
i'm trying to rationalize a price ceiling for a listing that hasn't been updated for 70 years. i have two recent sold comps to work with.
- comp #1 is very similar but was updated likely in 2006 (same lot size/shape, style, yr built, garage, one block over), and also has 1 more br/ba and about 10% more interior sf. It sold in Dec 09 $50K more than the listing price of my target property
-comp #2 was a short, and is a 3-lvl bungalow instead of 3-lvl cape, same lot size/shape, has one more br, no garage, but was not updated. it sold also in Dec 09 for $125K less than the listing price of my target property
all three properties have the same LAND VALUE according to the county.
because it was listed 10 days after comp #1 was sold, i am guessing that's what the listing price was set based on, and 'discounted' $50K for not being updated and with one less br/ba.
now, no doubt the current asking price is too high, even if it had that extra br/ba. to update the target home to the similar state of comp #1, it'd need new kitchen, CAC, new enclosed porch, a deck, new windows, refinish floors, new rec room and utility room in the basement, and lots and lots and lots of new paint. that's gotta be close to $100K of work right there, and even before putting the one less ba/br discount in the mix...
anyhow, i'm leaning toward $100K below current asking price as my ceiling, plus seller subsidy for inspection issues.
what you all do think?
btw with the WTF price i suspect it's probably fishing for a builder to build new or reno/add-on. and the listing agent hasn't list/sold anything in this neighborhood for years so i'm guessing i'd be dealing with a delusional seller...
MM-
I was going to also say somewhere around ~100K-125K less than the first comp so 50-75K less than asking. $50K for the extra sq. ft/bedroom. Plus an additional $50K-75K for the work that needs to be done. The work will surely cost more, but you get to pick what you want. If the house hasn't been updated for 70 years you may be able to get some money for seller subsidies, but likely not much. The place will surely have a ton of issues, but that is par for the course with a house that age.
It is possible you could try and get it for your price, but my guess is you will not be the winning bidder.
MM,
2 comps is never enough to set a price.... Even if they're slightly further away do you have any others?
A full $100k for renovation costs seems a bit high to me. Assume instead that $100k costs is right, but that the renovated seller only recoups $75k. An additional bedroom can be anything from $0k more to $50k more from what I've seen in sold prices. Conservatively you could set it as you have at $50k, but I'd say more like $30k since the higher priced seller was already getting the premium for updates.
So, them listing at $50k off the best comp, indicates they know they're not worth as much as that comp, i.e. there's some sense of realism here, but they've left an awful lot of bargaining room. From that one comp, I'd hazard they are $55k overpriced, based on what I wrote above.
The short is extremely difficult to use at all. Shorts in houses aren't like shorts in townhouses, they're rarer, and banks don't know how to price them. TH's have lots of buyers with no kids or kids who aren't in school yet. SFH buyers are more likely to be less flexible about move-in timeframes. So, a $100k discount for putting up with the short sale process is not unheard of. In my neighborhood, until recently, $75k-$100k was the norm. (the most recent ones under contract were listed at only $50k off normal comps).
So, if the proper short discount is $75k, then the short comp also says that the current listing is $50k overpriced.
If you want to prove something lower, you'll need more comps.
OTOH, if you only want it if it's a bargain, then go for $75k or even $100k off list.... But I'd say getting it for only $25k over short sale comps is asking a bit much.
cara -- could you drop me an email at jxd205 at gmail? I have a question about your recent search. Thanks!
jim,
sure,
hopefully you'll get that in a moment, if I didn't make it so short as to get caught in spam filters....
robert
If i were a foreign investor I would be either looking at big apartment complexes or big office buildings.
Now a small investor in europe may want a small place in Florida for vacations, they are super cheap right now but anything else?
Just a huge hassle, can you imagine some German trying to manage a property in Woodbridge?
As a bit of a strange question has anyone seen any information on, which banks/ loan servicers are the most efficient and foreclosing and selling properties vs. which ones have the largest backlog of severly delinquent/foreclosures that have not been sold. Preferably it would be measured in time e.g. BofA normally takes 12 months to sell a property while JPM normally only takes 8 months?
The radio did not say what the foreign investment was in or any other information. Just that foreign investors see DC as the best location.
a few more comps in the adjacent neighborhoods (but not necessarily comps)
- comp #3: sold in Dec 09 for $30K under target home; same age, 2/3 of the lot but bigger house 3-lvl colonial, one more br/bd, "Renovated throughout. Large family room addition open to kitchen with stainless steel, ceramic tile, maple cabintes. Updated bathrooms, energy-efficient windows, zoned heat and a/c, ugraded electric. Private backyard with patio."
- comp #4: sold in Dec 09 at the same price as target home; smaller lot but bigger house 3-lvl colonial, one more br/bd, modestly renovated
- comp #5: sold in Dec 09 for $30K under target home; smaller lot but bigger house 3-lvl colonial, one more br and a half-ba, 10 yrs younger, not updated, but does not look outdated either. (i should've bought this one!)
- comp #6: sold in Oct 09 for $85K under target home; same size/shape lot, 3-lvl cape, one more br. not updated, but does not look outdated either.
If DC metro is so strong, then why do I see so many empty commercial realestate buildings in Fairfax?
On my recent drives in the Falls Church-Fairfax-Fair Oaks region, I noticed a lot of empty office buildings and plenty of vacancy signs.
NoVa,
Commercial is very weak right now and will be for a few years at least. The foreign investment is most definitely commercial. It's a good time to buy and probably may be better next year.
btw,
I don't know if lending is as tight as it was last year. I'll have to check with my resident expert.
I would guess that cash is king.
NoVAWatcher,
I would guess that if now is a good time for foreign investors to buy it is because the price is lower due to all the vacancies, and expected to rise as our local economy improves. Just a guess though.
MM,
To my eyes comp #6 sets the bottom range of reasonable closed prices. One could argue that Oct 09 was artificially inflated, and get from that that this new house should be $95k off it's list price.
Comp #4 is probably what they were basing their price on. If the owners felt not updated equals not updated, and that one sold for this, why not them too?
Comps #3 and #5 confirm what the first two comps said, it's at least $40k overpriced. The exact lot dimensions aren't that important for livability of a non-tear down property. (unless we're talking 0.1 acre lots here, in which case it starts to make all the difference in the world). But that they both sold for $30k less and were bigger and at least modestly renovated means this one should sell for at least $10k under them, despite the larger lot, perhaps as much as $40k under if the size of the lot isn't that important.
So, I think we have a good range here.
Possible sales range:
-$100k to $0k off list
Likely sales range:
-$75k to -$30k off list
Target if you think prices may start falling again:
No higher than $75k off list.
Target if you want to make sure you get a deal and yet stand a chance of getting a contract? no higher than $55k off current list.
Target if you want this house in particular? the likely sales range. It's more work and less space than those $30k off though, so I'd push that down to $40-$45k off even still.
If there were that many sales in December there will be more listings soon, or eventually anyway. You don't have to buy this house, you can wait for another, you don't want to regret paying only $30k off list.
So... DOM for this house and the comps? Percent of final list for each sale?
(man, I have too many opinions...)
if you were going to rent a 4BR apartment, what would be the ideal tenant or tenants?
Downtown DC area.
pat,
I would say prob either a family, or a group of people that have stable jobs. you don't want to risk one of a group not being in a stable job. Esp is each can't independently pay the rent themselves without any of the others.
wunderbar & pat-
I agree. I would also try and avoid groups of young people e.g. college students. Not only are they more likely to damage the place during parties, but they are also only likely to rent for a year and if you are a landlord one of your biggests costs is the downtime between leases. I assume VA would have much better information on this though seeing I am sure she has rented to many different types of people over the years.
I would never rent to college students. PHD candidates? Yes.
I had groups in a few properties over the years with mixed results.
In one case, I rented to one individual and he obtained the other tenants and "managed" things. I think he got enough rent from the others that he was paying very little. I didn't care because he really took charge of everyone and filled vacancies, etc.
In every case I always required ONE check and let them work out the division of utilities and how much each person paid (based on room size, sep. bath, etc.).
pat may not be able to do that and will have to have some individual leases. He should cash-flow much better with individual per room rentals and will have to make a utility division. I wouldn't include utilities - been there, done that. I've gone into places that were 85 degrees in the winter and 65 in the summer. Zero incentive to save or even act responsibly.
A strict set of "rules" that covers everything you can think of (moving in girl or boyfriends, cleaning and use of common areas, etc.) will be necessary.
I'd target mid-late 20's and older.
Cara said...
unless we're talking 0.1 acre lots here, in which case it starts to make all the difference in the world
they're all 0.2 acres homes, the smallest is about 0.13.
darn it, i just found another comp in an adjacent neighborhood:
comp #7: sold in Dec 09 for the exact price of target. 3-lvl colonial, .13 lot, ONLY ONE MORE BATH, and NO GARAGE! Gleaming hardwood floors throughout. Sparkling and open kitchen with granite counters and new, ss appliances. Bright and sunny living room and dining room. Large master bedroom.Renovated bathrooms. Finished basement with w/w carpeting and wet bar.
Doms/%L/$ diff of target:
#1 - 13/99/+$40K
#2 - 2/102/-$125K
#3 - 34/97/-$30K
#4 - 28/97/$0
#5 - 12/96/-$30K
#6 - 4/99/-$85K
#7 - 4/100/$0
i'm beginning to believe that other neighborhood (#3,4,7) is more desirable...
I agree with investor's comments. My family rents out places and you really need to watch the younger people and those that seem "fly-by-night" so to speak. But, also depends on the neighborhood and how much rent is to who you can rent to.
If the rent is super cheap in a ghetto area, that's different than upscale complex with higher rent. You need to factor that in as well to who you are going to get.
Always get some sort of application so you can call their work or past landlords too to check them out somewhat.
Make sure you know who you are renting to, as in, one person shows up and says it will be her and her boyfriend and new baby. Then all of a sudden you show up one day for something and the person's mother, sister and two kids, and other 5 kids live there (exaggeration, but you know what I mean).
Also, if they are having problems getting security deposit together, don't rent to them that easily because it might foreshadow the future.
MM,
It might be more desirable... Can you see any reason for that?
The problem with any given comp is you don't know how much the buyer fell in love with the place. So, for instance comp #7 may have totally overpaid. But lots of renovations versus no garage seems like about an equal trade off to me.
Those are all really short days on market. It is now the lazy days of winter, but it sounds like you might need to act decisively. i.e. unless we're right and this place is $50k overpriced, you're not going to have the luxury of waiting until they do a price reduction.
Those were all obviously well-priced comps given that none of them sold for more than 5% off list...
I know you said the LA doesn't work in this neighborhood, but how are their listings doing in general? check both active and sold.
(I would throw out comp #7, it's way renovated and may have just lucked out, besides it's not as close by).
For now, I'm standing by my don't give them more money than $40k off list or you'll regret it stand.
The complication is, with such short DOMs and high close/list prices... more than 10% off list may not be taken seriously... How about the DOMs for other current actives? Has activity visibly slowed, or is it just that only the dogs are left? Could you argue that this is one of the dogs?
What does your gut say? What does your husband's gut say? Given these comps what's a price you two could live with? What's a price you could be happy about? You might feel that bidding with an upper limit of $40k of list is okay, he might not be convinced. If it takes too much work to convince him there's probably something to his reluctance. Or to your reluctance. Listen to that to.
MM,
Dumb question, have you seen this house in person yet? You might not be interested at all...
Housebuyer -
I wish I had the answer to your question about how slowly or quickly different banks handle foreclosures (and short sales, for that matter). I guess one thing to keep in mind, but only with regard to short sales, is that those banks that have received TARP money are expected to follow the streamlined short sale procedures set forth by the government.
Cara -
When evaluating what to offer for a short sale, I guess one can use other neighborhood short sales comps?
Yesterday, our agent told us that our offer has been accepted by the seller. While I was initially surprised, now, in mulling it over, it's no wonder that they took our contract. The listing agent has two other shorts in the same neighborhood. While she has closed short sales, I can see that each of her short sale listings has gone under contract about 5 different times, each listing going in and out of contract over one or even two year periods. And while I thought about being tough and just waiting it through, that might not be wise if interest rates go up. At this point, we're just the first guinea pigs in the short sale process. I guess we just wait and see.
We wanted to know what bank we're dealing with, but the listing agent isn't readily giving us this information. My agent says LAs are fearful that the buyer will try to contact the bank directly.
REdealSeeker,
Best of luck. Didn't I tell you that you might "win" just so that they have an offer to put before the bank?
Yes, for shorts you should look at other closed short comps for your offer price.
For accepting or countering the bank if/when you hear back you'll need to use your own judgement.
What's the timeframe after which you can get out of the contract free if they haven't proven that the bank is approving the offer?
I believe you may have hit a sweet spot in terms of low comps for short sales. If the 10 day answer time frame comes to pass as planned on February 1, then (a) you'll know real soon whether the bank is going forward with your offer, and (b) the effect of swifter short sales won't have taken hold on the comp prices yet.
So you may have just made a very very smart move. It's just one that requires a little patience and luck.
If the quick turn-around doesn't happen, then start looking in earnest once you're short-sale time limit has expired. You can leave the short on the table if you're not finding other things you like as well for good enough prices.
I see inventory picture brightening up as expected & price reductions accelerate. This is even before 1/31 HAMP expiry hits & foreclosures join the party.
On another brighter side, our president did the right thing finally. This at least moves us in the right direction, even if it fell short of reenacting - Glass-Steagall.
Bravo...
Again - failures must be allowed & moral hazard avoided at any cost. Or else our future is bleak.
We only have 30 days until we can be released from the contract. I was thinking that if this short is not of the post-TARP streamlined variety, we'd scrap it for something will be settled more quickly.
HB, REdealSEEKER,
check county sales history of sold REOs might give you a hint of who tend to drag their feet?
Cara,
no, haven't seen inside yet other than the pictures. driven/jogged by it a couple of times. unless there's a hole in the roof/floor it'd be hard to be surprised coz everything is so 'original' in the pictures.
can't see it until i decide whether to hire an agent.
Spider,
I am somewhat in agreement with you. While I can see well maintained, nicely priced properties getting sold very quickly here in Loudoun County, helping to maintain prices, this is also where a large percentage of the residential property has only been in existence since the bubble. (I don't have any figures, unfortunately, but Loudoun's population growth and wealth bear that out.) I get the sense that many more distressed properties will come onto the market post-HAMP.
When you discuss "distressed" properties exactly what does that mean? There is something wrong? Or not new, or forclosure? Or something entirely different?
Sehrwunderbar -
Distressed is a real estate term referring to the financial state of the owner as it relates to mortgage payments. So, someone who cannot pay the mortgage might sell the property as a short sale, or that property might be foreclosed. That may or may not lead to a lack of upkeep. The house we currently have a contract on is in mint condition, but I've seen hints of anger in foreclosures, and you can read a lot about the lack of upkeep in high foreclosure areas.
"spider said...
I see inventory picture brightening up as expected & price reductions accelerate"
Right right... For the record, there are now about 5600 properties -- about 600 LESS choices than were available when Spider told us about the upcoming STAMPEDE!!!
http://www.recharts.com/nova/nova.html
The Anonymous,
if you think that the inventory will go down now, it is a big mistake. Not sure about Lyon village area, but overall it will go up a lot in nova, partly because of the distressed sales, partly due to the move-up tax credit and certainly because of seasonality.
Anonymous,
Ever heard of second derivative??
In that same chart, you see the acceleration in last two weeks - it should tell you something. May be you don't want to see it. Or may be you don't even believe HAMP expiry would matter.
Oh well - my friend, time will tell...
"spider said...
Anonymous,
Ever heard of second derivative??
In that same chart, you see the acceleration in last two weeks - it should tell you something"
Yep - it tells me its spring, and inventory moves up just like it does each and every spring (save 2009) since the beginning of recordkeeping.
For the record, I am standing by my prediction of a few months ago 10,000 units (+ or - 20%) at peak this year. Why dont you put your money where your mouth is and tell us how many units we will see at peak when your STAMPEDE materializes???
Novawatcher said...If DC metro is so strong, then why do I see so many empty commercial realestate buildings in Fairfax?
On my recent drives in the Falls Church-Fairfax-Fair Oaks region, I noticed a lot of empty office buildings and plenty of vacancy signs.
You've focused on the one niche market that is extremely weak - office building in the burbs.
CRE is apartment complexes (seen any empty apartment complexes?) hotels, shopping malls, office buildings, and industrial buildings.
Office buildings in DC proper and Arlington are doing good.
Pat 4 bedroom apartments are pretty rare. In my condo building we only have a few 4 bedroom units which were created out of a combined 3 bedroom and 1 bedroom unit. One of them is rented to the military attache for an embassy who needs access to the Pentagon. Just a word of caution on DC rentals: DC has very restrictive tenant-landlord laws which greatly favor the tenants. If you have a difficult tenant it is hard to get them out. If the apartment is a condo and you ever want to sell the place, you have to offer it for sale to the tenants first and they can tie up a property for months.
Current inventory is 1/2 that of 1/09 and 1/3 of 1/08.
1/10 5,500
1/09 11,000
1/08 17,000
WOW! And I had my hopes on getting a good price. I guess I really just am not used to such high pricing... I don't think I ever want to get used to it.
No commentary from Robert on Senator Brown's win? Or how Obama is about to establish a deficit reduction commission by executive order?
I wonder if we will still hear Robert's crowing about future federal gov't spending. There was a lot of spending in late 2008 and 2009 to deal with the recession. Looks like we might have some belt tightening earlier than I expected.
HayfieldGrad said
This report from a 1996 issue of the Journal of Housing Research has a chart that used data from Chicago Title and Trust that shows the dp percentages for 1st time homebuyers in two year intervals as follows:
1976-78 16.5%
1979-81 19.2%
1982-84 14.7%
1985-87 15.1%
1988-90 15.4%
1991-93 14.3%
As you can see the average never reached 20%.
The average did not reach 20% but came pretty close many years. Anyways, as I said yesterday, I'm not asking for more restrictive lending than there was in the past. Just for lending to go back to that.
I'm 99.99% positive that the average first time dp was not 14.3% between 2003-07. It was probably 5%, if that. Even today it is probably not 14.3%.
tbw,
For tenth time, 5% down conventional loan, zero down VA, and 3% down FHA have all been around since at least 1980. I even got a 100% second mortgage in 1981.
What is it you actually want to go back to? The 20's?
Va_Investor,
Look at the numbers HayfieldGrad posted. You and I know that is no longer the average. Lending is still much looser than it used to be in the 1980s-90s. Don't play coy.
Va_Investor,
In 2003 the FHA Loan Limit was raised to $280,749 in high cost areas. In 2002 it was $261,609. In 1999 it was $208,000.
Today you can get a FHA Loan for up to $729,750 in high cost areas.
You are being disingenuous if you do not think FHA Loans went from being irrelevant to SFH neighborhoods in Fairfax County to being widely available.
tbw said...Looks like we might have some belt tightening earlier than I expected.
Like you expected Brown to be elected? It's possible you are right, but not because of your insight. It's called luck.
TBW-
To be fair SFH in a lot of the nice burbs where in the mid 200s in the 80s and 90s so FHA loans were not way off base. The problem is the bubble brought them to 700K and the FHA limit still lets you buy them, although hopefully the bubble will let some air out of these places bringing them down to 500K-600K. I am not predicting it, just hoping for it :)
Va_Investor said...
Current inventory is 1/2 that of 1/09 and 1/3 of 1/08.
1/10 5,500
1/09 11,000
1/08 17,000
sehrwunderbar said...
WOW! And I had my hopes on getting a good price. I guess I really just am not used to such high pricing... I don't think I ever want to get used to it.
wait a second, do we know for a fact that 'low' inventory means we cannot get a good price anymore? was price worse in 1/09 than 1/08? if so, by how much? OTOH, do we know high inventory means good deals are abound? were prices in springs better than winter's or just the opposite?
HB, it is going to happen. Tax credit may delay it a bit however.
tbw,
FHA was not relevant in the early to mid 2000's due to liar loans and no down, no doc.
Can you say that FHA underwriting requirements have changed at all since the 80's? Last time I got an FHA the underwriting was very thorough. What loosening has occured? Yes, loan limits increased; whether and how much was justified by increased prices I don't know.
FHA has always been a little more generous on dti, but this is no change. Why would expect these loans to fair worse now? Prices have corrected most in the areas where I suspect most of these loans are originating.
I just don't get what you think has changed. I closed many, many FHA's in the 80's. I don't know the volume in the 90's as I had "retired" in 1991.
The abberant period was basically limited to 2002-2007 and these were not FHA.
Yes, the tremendous fall in low-end properties caused increased losses in the past few years, but why do think this carries forward?
.
Robert said
Like you expected Brown to be elected? It's possible you are right, but not because of your insight. It's called luck.
I did not predict Brown would be elected. I did not even know his name until he became national news. All I knew was Coakley's name and assumed she would win like most were predicting until recently.
That's my point -- I was not bearish enough about politics. The only Dem loss I predicted was Deeds losing to McDonnell. I was not bearish enough to predict Corzine losing in NJ. I have absolutely no idea what to expect this November.
You've been predicting a new New Deal or new Great Society from Obama. I don't think we'll see that. (I don't think he ever was promising that in any event.)
housebuyer said
To be fair SFH in a lot of the nice burbs where in the mid 200s in the 80s and 90s so FHA loans were not way off base.
Okay here is the chart with historical FHA loan limits. As far as I can tell pre-2008, "high cost" areas were limited to Alaska, Hawaii, the Virgin Islands, and Guam. Now it includes places like the DC metro area as defined by the Census (and many other metro areas).
1980 - $93,750
1985 - $115,300
1990 - $187,450
1995 - $203,150
2000 - $252,700
2005 - $359,650
2007 - $417,000
2008 - $729,750
So you can see pre-2008 the limit was going up in accordance with the bubble. But the oft forgotten stimulus bill in 2008 established this new high limit for high cost areas. That made FHA Loans MUCH more relevant.
I am sure in 1995 you could buy *some* SFH in Fairfax County with a loan for $203,150. But not many. Every home spider, Jeremy, you, and me point to was going for more than that in 1995.
In any event, let's say 20% of SFH in Fairfax County were $203k or less in 1995. What percentage of SFH are $730k or less today? Probably 90-95%. That's an expansion of FHA Loans.
Va_Investor said
Yes, loan limits increased; whether and how much was justified by increased prices I don't know.
Look at the table I found. The 2008 stimulus bill skyrocketed the loan limit. Rep. Barney Frank wants to raise it even more.
Va_Investor -- you've said you mostly buy condos to rent out. I'm sure FHA loans have always been relevant for that.
But pre-2008 you could not have gotten an FHA loan for *your* home in 22182 or your current home in 20194. Now you can (unless your current home is as expensive as Robert's).
Anyways, let's say the average home in Northern Virginia ends up being $300k. So a 20% dp is $60k.
Take someone who graduates college at 22 and buys their first home at 31. That's nine years to save up a down payment. Here is what I think is a doable savings plan:
Yr 1 $2k
Yr 2 $5k
Yr 3 $5k
Yr 4 $6k
Yr 5 $6k
Yr 6 $8k
Yr 7 $8k
Yr 8 $10k
Yr 9 $10k
As you can see you save a lot more in the later years when you presumably have a higher salary. Also, many people will marry during that time period and have two people contributing making it easier.
If you have zero savings the first year you make up for it in the later year.
It's called delayed gratification. It's called setting a goal. If you want to buy at a younger age then save more money each year. If you want a more expensive house save more money. If you can't save up that much money then get a $200k home. And so on.
Requiring 20% dp is not going to prevent first timers from buying a home. You just need some discipline.
Cara,
Just a comment about the government's streamlined short sales. From what I've read, it's supposedly going to go into effect, with standard forms available (as a guideline, rather than new law) April 5, not February 1, but may be implemented earlier as long as a lender keeps good records.
tbw,
You really need to ask people that you know that own homes whether they put down 20% or more when they bought their first home. I bet you will be surprised to find how small their downpayments were. I can only think of 1 couple, I know, who put an enormous downpayment as 1st time homebuyers. The guy was an extremely frugal Marine who saved around ~100k over a decade, but he didn't have any college loans. His wife got another 100k from her parents as a downpayment gift. Her parents also paid for their entire wedding so that was another expense they didn't have. They were 30 and 32 when they bought their home.
The chart in the Journal article I posted last night also showed the average number of years people saved for their downpayments. The range was from 2.0 - 2.8 years. So expecting most people to save for most of a decade, doesn't seem very realistic. That same chart also showed what the average percentage of the downpayment was a gift and that range was 8.5 to 13. So again, even though people were putting down more than 10% it wasn't all money they saved by themselves.
tbw,
My house was going for quite a bit under $203k in 1995.
Entry-level SFHs in the entire Burke/Springfield area were $180k and under.
On inventory,
MM is right. The only year that there was more inventory for sale at prices similar to today was last year. When inventory was high, next to nothing was at prices worth buying. It's really the last year to this year's inventory drop that stings. Because prices aren't any better this spring than they were last spring, they may in fact be higher (certainly they are higher now in my neck of the woods, which may or may not last), AND there's fewer to chose from.
However, I think there's a tipping point right above me. I'm seeing more nice houses near the $500k mark this year than last year that seem "reasonably" priced at least with respect to comps.
So, I suggest we need to break inventory up into two categories, sub-$450??? and over $450k. While there is probably still a drop in inventory even in the over $450k stuff, I'm strongly guessing that it doesn't match the near-desert conditions in the sub-$300k market.
I'm not sure where to put the break-point though. And sadly only the MRIS stats let you do this and they give the total inventory over the course of the month not the daily inventory.
Spider,
Sure I saw that too but that second derivative is awful noisy, Inventory is still under what it was many days in December... You might need to run a longer moving average for smoothing purposes before evaluating your second derivative. Basically, I was going to comment the same thing yesterday morning after perusing the numbers myself and then I clicked back through into December and saw that it was another nothing-burger so far.
REdealSeeker,
Yup, I got the dates way off.
My gut says however, that if, for all future shorts, banks will need to answer in 10 days, then those same banks will need to start hustling to get the current shorts completed to relieve the backlog before any potential deluge begins. To me that makes business sense. But, seeing as I've never been in a business, what do I know? And, I'm not fully confident that it will really happen even as of April 5th, so if I'm not confident, why would the bank's be breaking their backs to prepare for something they could more easily just lobby against?
Cara-
I think your 450 number is dependent on where you are looking. I think your premise is probably correct, but it may be 450K in Springfield, closer to 550K in Vienna/Arlington, and probably something like 350 if you look at PWC. My numbers are just for example, I don't know anything about PWC, and the Vienna number may be off a little.
hb,
yeah, that's part of the problem. You could just do it in all the allowed tiers of the MRIS breakdown... The basic problem is it's more work than I'm willing to do anymore...
Cara-
Yeah it doesn't really make sense for any of us to do it for all of Nova. It is much more of a look at the areas you care about and try and figure out whats going on.
tbw,
This will be my last comment on downpayments (I hope). The discussion is getting old and there seems no way to change your mind.
Actually, higher dp's will benefit me because it increases the rental pool.
FHA does not give loans to investor's. When I bought in 1982, 83, 84, 85, 87, 88, I put 5% down (except for FHA). In 1993 I put 10% down and in 2002 I put almost 20% down. These were all personal residences. Beginning in 1987 I could have put 50% or more down.
Until recently, we always got the biggest loan we could. Leverage and working capital were much more important to us.
Beginning with the 1987 purchase, I could have put 50% down. Prior to that we could only cobble 5% down because we had keep all prior residences as rentals.
I'm quite sure, as pointed out by Hayfield that a large percent of first-timer's get parental help on the dp. I know my brother did.
When I said "I closed many FHA's", I meant that I was the settlement attorney not the buyer.
Your 20% requirement is in no way a reversion to pre-bubble requirements. While you may think it SHOULD be a requirement, it wasn't.
So there.
hb,
Yeah, essentially it's what I was doing last year when looking at Burke's zips MRIS numbers. But then I was more trying to tell if houses were moving from one bucket down into the next bucket lower in price.
But I do think doing a county-wide look might be informative too for a better wider perspective on the market. Inventory drying up in lower cost areas could influence the stability of higher cost areas too. I.e. right now Burke and Reston are great alternatives to Vienna depending on the direction of your commute, but if availabilty dries up in Burke and Reston, then fewer people will be able to substitute a longer commute for a smaller house price even if they want to.
My gut feeling for Loudoun County is that nice, newer homes in excellent condition fly off the market if they're in the 450-500 range.
There was a nice, move-in ready home for 450 in Potomac Crossing. It came onto the market and went under contract in two days last weekend.
There was another home in Coton Commons, Lansdowne for 480. We went to see the house on the Wednesday night two weeks ago. Not an open house, and had already been on the market since Friday. We were one of about 5 or 6 groups of visitors. It was a short sale, and the owner of the home was graciously providing tours. The house went under contract in 8 days.
In the last few months, I have seen houses in Leesburg sit for a long time in the 400-500k range, but there's usually some issue with the house, e.g., it's near electrical towers, it has no backyard, or it's a foreclosure needing a lot of work.
This is also a matter of driving until you qualify. While you can find some homes in this price range in Ashburn, it seems a little easier to find them in Leesburg.
If this frenzy for homes in the 400k-500k range continues through the spring, I can't imagine that inventory will be increasing much. On the other hand, if the tax credits for first time and move up buyers are truly a catalyst for buyer activity, and if banks start unleashing some inventory they have to have been holding back (I'm assuming they are), then that may affect inventory later this spring.
But, given that people like to house hunt and move in spring and summer, I think that these government deadlines are smartly planned. I think it's much better timing this time, much better than the last dead-of-late-fall, December 1st deadline. More people might just move anyway after the deadline.
Cara,
A couple more findings on the comps to share with you:
- so I sorted the sold listings by ba/br, and guess what, there was none sold with the same ba/br with my target in 09/10 in that neighborhood. There was a "INVESTOR DEVELOPER ALERT! True Handyman Special or Tear Down!" which has two lots in Aug 08 for $125K off target; and one land sale in June 08 for $135K off.
- I then sorted by sold prices, and all were sold more than $45K off target home, except that short. the next cheapest was $30K off back in June 09 for one more br and a half ba. but check this listing description:
EXCEPTIONAL UPDATED VINTAGE BUNGALOW ON OVER-SIZED LOT. Broad front porch huge screen porch off DR kitch. Lovely heart-of-pine flrs, fantastic kitchen w/refurbished classic "Geneva" cabinets, Zodiac counters. Charming updated BAs. Stylish LL den, laundry room, spacious work space on LL w/outside access.
I think the market has no appetite for listings like it; OTOH, it's also not likely to get it for $100K or even $75K under current asking, unless it becomes a short or REO.
MM,
No appetite for listings like it... I guess there's no easy way to tell if there were others like it for sale that just didn't sell or if very few houses are left that haven't had an additional bedroom tacked on...
I can't parse the first half of the second bullet. I thought some of the comps were at or above the LP...
In any case if after looking at the comps, which you've now done really thoroughly, if you think it's over $75k overpriced and that's more than 10% off list, then let it sit. Personally I have totally different impressions of places in person than I do online so I would want to take a look at it. Why? Because I wouldn't want to think it was my ace in the hole fall-back house if it actually was crumbling in person. (or felt tiny, or smelled beyond redemption, or looked like even more work than I thought).
MM,
Here's my take, not necessarily about that particular house but houses in general.
While I have had a few heartaches (or more - due to the number of properties I have) there is usually something better that comes along. That gut-wrenching loss turns into relief when you find something better. It's definitely not always the case. There is sometimes the "woulda, coulda, shoulda" that will haunt you for quite some time, but, generally speaking from experience, you will do just as well or better on another house.
The key is to know your market, be decisive and act quickly when the opportunity presents itself.
fwiw.
tks Cara, Va_Investor for the words of wisdom. this one is special coz i just love dreaming how it'd look after all the reno's done, it's such a blank canvas with hopefully solid bones. but yeah i suspect it'd feel too tiny in person. but hey i don't have that extra $50K to buy a bigger place so can't be picky.
(btw Cara i meant to say they all sold for HIGHER than target minus $45K)
MM,
my observations of housing stock of similar age.
If you like large bedrooms go for a colonial with only 3 bedrooms not 4.
If you like large living rooms and reasonable kitchens go for the L-shaped ramblers or split foyers.
If you like cute and curb appeal, with warm-feeling bedrooms go for a popped out cape.
In small houses it's all about how the space is allocated. Do the rooms you really spend time in have the most space? Is there wasted hallway? Is the storage sufficient to keep the living areas un-crowded and neat.
If the rooms that matter to you are big enough, then the place won't feel small. If the rooms you care about most are closet-like or half the size you want, it will feel clausterphobic.
Which is why for us, people may rag on split-foyers or split levels or ramblers and prefer capes and colonials, but I couldn't stand the tiny living rooms and alley-like kitchens of the capes and colonials of that era.
When the house is over 1600 above ground square feet these problems aren't as drastic, when it's over 2000, you don't even notice. But at your price point or my price point, allocation of space is everything.
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