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Wednesday, January 27, 2010
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87 comments:
Looking at the CS numbers, it's pretty clear the DC area will have positive YOY numbers for the next 6 months.
The flippers are back. Purchased for $410,100 a month ago, new kitchen counters and appliances, voila, now $599,000. 2009 assessment $423,980.
Shamrock-
I agree with your statement, but I also expect most of the next 6 months to show negative MoM numbers. So seeing that I didn't buy a year ago I don't really care that much about what happened back then. What is more relevant is will waiting let me get a better price going forward, and I personally think the answer is yes. I like Anonymous' range of 160-180 for the next 2-3 years. I might make the range more like 165-180, but that's basically the same thing.
I love when the text says how motivated the buyer is and they are listing it for 5% higher than the 2006 tax assessment and over 100% higher than what they paid for it in mid 2001. They also are not showing any pictures inside the house, which makes me think that they have not upgraded many things.
vienna house
shamrock,
Where do you get the 410K? I see 499K. This is a good location.
housebuyer,
According to google maps that house is next door to New Union Baptist Church. I'm guessing each Sunday they need more than that small parking lot for congregants meaning the neighbors lose curbside parking for their guests. I also would not be crazy with looking out at a parking lot while in my lawn.
Shamrock,
I remember that house being a short sale listing at 475k. Then, before it sold, it was listed at 545k. Interior pictured last time showed it to be somewhat outdated, but not terribly so. 499k is a good sold price for that flipper - 45k off, and not too much more than the low asking price.
shamrock said...
"Looking at the CS numbers, it's pretty clear the DC area will have positive YOY numbers for the next 6 months."
Yes, it will be hard to match last winter's dramatic drops to keep us YoY negative. I agree with housebuyer though that MoM will still be negative for a while so homes will still get cheaper, especially mid-high end homes. Maybe when the housing credit expires (again) in April we'll get a bump - but I expect a corresponding slump afterward as well.
Va-
If you go to the county tax records and click on sales is shows 410.1K I am not sure why this disagrees with redfin's number
TBW-
Yeah I think this house has a lot of issues and there is no way that I would buy it. I was more just getting at the comical line about any reasonable price, seeing that they are trying to get more for it than it would have sold for in 2006. The house only 1000 sq. ft. above ground and is listed in the mid 500s this does not sound like a motivated seller at all to me.
Anyone know what Redfin's market share is nowadays? It looks like they are growing but still not that large such that they have exerted any pressure for realtors to lower their fees.
I would have bought it for 410K. Put 20K or so in and flipped it. I should spend more time actually "working".
Is 599K out of line or are we dealing with more woulda, coulda, shoulda?
p.s. under 600K for a nice house in 20194 is kinda the "sweet spot".
Looks like 9 actives between 400K-600K and most are TH's.
tbw,
I don't know if redfin has made any strides but I got a newsletter yesterday or today that said their inquiries and showings are up dramatically for December. This was in context of market conditions in general.
The Fairfax County Real Estate site has the sale of the Summer Meadow Lane flipper listed as $410k, but I see redfin says it was $499,999. Some discrepancy but $499k makes more sense so probably an error on the county site.
Shamrock,
I'd tend to go with the FX County site.
Va_Investor,
This house is much nicer IMHO
http://franklymls.com/FX7012805
and it was listed for $499k. It has a 0.76 acre lot instead of a 0.19 acre lot. The exterior is much nicer. I'd have to investigate if it's shielded from Ffx Co Pkwy noise though.
I know it's no longer active but I think it serves as a relevant comp that the home Shamrock found is overpriced. Frankly, IMHO that house (http://franklymls.com/FX7246314) has a vomit-inducing exterior. The garage does not blend in well with the rest of the home.
http://franklymls.com/FX7187793
Pretty large discount on this one. Listed for $599k and '09 assessment is $717.9k. Under contract.
This home is assigned to Oakton HS and in 2006 a realtor would have said it's walking distance to the Vienna Metro. You could hypothetically walk it each day but I doubt many would.
http://franklymls.com/FX7145006
The comment at the bottom of this one is amusing. Looking at the interior pictures it does not look like a fixer upper to me. I wonder if they are hiding some big flaws. The kitchen is a little outdated but I would not say that makes it a fixer-upper.
Listing price is ridiculous even if it's not a fixer-upper. Worse than a WTF price if it is a fixer-upper.
TBW-
You can't really count under contract short sales. The lister has little incentive to list the house at a reasonable price, so many people list it too low and the bank either counters or refuses the price. Using solds from short sales makes more sense, although that is still not really apples to apples, because many people can't wait 6 months to buy a house.
tbw,
What was DOMM on Savoy Drive. Still hasn't closed, when was it listed and UC?
http://franklymls.com/FX7225294
This one is active. 75% off '09 assessment. 1 acre lot. Woodson HS pyramid. Not crazy about it being off of Prosperity Ave but it appears to be set back a bit from it. (Side note you can take Prosperity Ave pretty much all the way to the Dunn Loring Metro). Convenient commute to Tysons Corner.
Va_Investor,
Not sure. I only know what's visible on FranklyMLS.
housebuyer,
I agree you cannot use a foreclosure or short sale as a 1:1 comp but surely it still has some comp value. If a regular sale is asking 120%+ of the short sale comp I think that is overpriced (assuming the short sale was not totally ruined inside).
tbw,
That is one ugly house! Comps suggest it is no bargain.
http://franklymls.com/FX7150925
Good for a chuckle. Someone in 2005 thought this was worth $579k.
GLUG, GLUG, GLUG
[Yes, the land is worth something but I'm not sure how you pay $579k, tear down and rebuild, and make even a modest profit after the cost of materials and labor.]
TBW,
Mr. Benotto's comment makes perfect sense to me. If you watch HGTV you'll frequently hear the euphemism, "this room/house is, ah, 'taste specific.'" I stay far, far away from any house owned by interior designers because they want to be compensated for their decorating, when it is frequently fussy, over the top--or it could be nice, but simply not someone else's taste, resulting in an "ego price."
In this case, Mr. Benotto and I would be factoring in the many hours and $ we would have to invest tearing out the prior decorating to make it suitable for us. We'd have to "fix it up."
But for someone who likes this style it is can be an excellent buy, because for him/her, it is updated and move-in ready.
Remember 1495 Evans Farm? The one with the mural painted on the wall in the inside-out room? Taste specific. It never sold.
Home that shamrock mentioned:
http://franklymls.com/FX7246314
38% greed in 30 days - purchased at 410k last month. I doubt buyers are that stupid.
Flippers serve a purpose - yeah right - we don't want another bubble. Go and do some productive work...
P.S. Don't believe Redfin data - County records are always reliable.
Ok spider,
Why didn't Joe average buy it?
TBW-
I agree REOs are decent comps for regular sales, because the bank will actually sell it for the list price. I have seen some short sales list at absurdly low prices and the bank just will not accept it. So for short sales I only use them as a comp if it was a sold price.
If you think the short sale is a reasonable price and will likely be accepted, then you can probably use it as a comp.
I guess some new risk aversion has come to the markets. In addition to stocks selling off this week, the one month treasury went negative again. treasury
Ace,
I understand now. I guess that's why Benotto said "neutralize it."
I also agree there is ego pricing going on here. $150k over assessment? Give me a break.
I also have a hunch given the lack of basement photos that little has been done to finish it. And I think in this type of home at least a partially finished basement, if not finished basement, is now the norm.
Spider said, re: FX7246314 : "38% greed in 30 days - purchased at 410k last month..."
1) It's not sold yet.
2) Should they sell it for less than some buyer is willing to pay? Should there be some law that says you can only profit x % on a flip? What's your solution?
"...Don't believe Redfin data - County records are always reliable."
While the county record might be correct in this case, not sure i would say they are *always* reliable. People make mistakes all the time.
FWIW, the list price history on frankly shows that it was last listed for $510K on 4/1/2009, i'm guessing as a short sale. Then it sold in Dec, 2009 for $100K less? $499K seems more likely to me.
VA Investor,
I have no idea. In any case, that doesn't explain 38% greed in 30 days. I bet most flippers still believe that swings of 2004-2007 is almost back.
For all I know, Joe average might end up buying 400k property at 550k during another 8k rush. Distorting markets & inventory isn't serving any purpose in my mind.
HB,
Yes, things are not as good as it appears. I don't think we are out of the woods yet - never believed it.
I know you seem to believe in differences between our economy & Japan. But, I don't think major deflationary spiral is out of the equation as of yet - Not saying it will happen. (I give that scenario about 30% probability)
Va_Investor,
The person who bought the Reston flip appears to be a realtor in Prince George's County. He also runs a solo law firm.
Do you still believe it's just the "pros" investing/flipping? I suspect this is his first attempted flip. He is probably trying in vain to make money because his law shop and realtor shop is probably in shambles.
Also when you run his name in the Washington Post search you cannot even find anything. Presumably when you run a pro flipper in that search you would see 10+ results, right?
Va_Investor,
Also, surely you cannot come up with any improvements worth almost $200k that only take one month to do.
"Flippers serve a purpose - yeah right - we don't want another bubble. Go and do some productive work..."
Flippers like this really can't cause a bubble. They enter and exit the market too quickly to have much effect on the market as a whole.
This is a perfectly legitimate enterprise. They purchase a property that they believe has potential, create value, and sell it again.
Now I agree that in many cases flippers take short-cuts that are at best short-sighted and at worst borderline fraudulent, but as always it is up to the buyer to beware. (Besides, any shady contractor could do the same thing.) I personally wouldn't buy a house from a flipper but clearly many people will pay a great premium for their work.
I don't see any reason to attack flippers as greedy just because they are making money. They are also taking significant risks so a relatively large profit margin for their efforts is justified.
The flipping craze during the bubble years was irritating because in so many markets you couldn't screw up badly enough not to turn a huge profit. In many cases the flipper would do everything wrong, hold the house for months longer than they planned... but end up coming out ahead simply because the market was rising that fast. Those types of amateurs won't last long in a stagnant or declining market.
(I wish HGTV would have shown more busted flippers as the market turned.)
I'm remembering a little more about that Reston property. It was removed from the market once when the list was $475k, presumably under contract, then came back on the market at a much higher price, ~550k. Presumably the short sale was rejected by the bank. So I cannot believe this sale somehow went through at $410k.
Either way, let's hope nobody buys this thing at $600k, but when you don't have to put any money down and you don't need to pay back what you borrow to "buy" a house, what the hell? Price is no object.
"Do you still believe it's just the "pros" investing/flipping? I suspect this is his first attempted flip. He is probably trying in vain to make money because his law shop and realtor shop is probably in shambles."
Then perhaps he will lose his shirt.
It should be easy enough to find out how this went for him.
Why don't you update us how it turned out in a few weeks/months?
I am not predicting he will come out ahead. I am not predicting he won't.
Couldn't the flipper have gotten away with an all-cash offer of 410k?
tbw,
It's not that the improvements are worth 200K. Why would I buy something for 400K and put 200K into it? That would be pretty dumb.
Finding the bargain, jumping on it, and then doing the right upgrades = 200K.
"novahog said...Should they sell it for less than some buyer is willing to pay? Should there be some law that says you can only profit x % on a flip? What's your solution?"
Spider's basic problem is that he simply doesnt like the prices. He thinks the prices should be lower -- the market doesnt -- and the market is winning.
Imagine we were in a full blown state of panic -- a Contrarian doomsday scenario... say a subdevelopment had 10 houses where people simply kept refusing to buy, 250K...nothing, 100K...nothing, 50K...nothing.
Suppose the price fell all the way to 5K each. At this point, maybe even Spider would swoop in and buy all 10 of them in cash.
This would make a new, even more doomish blogger (Scorpion) angry. Scorpion would call Spider an idiot knifecatching greedy flipper because Scorpion "knows" those houses are only worth 4K a piece.
Then, as Spider waited for the panic to subside, and then started selling the 10 flipped houses 1 at a time. Say even that "gasp" he was able to sell them for 10K a piece.
At this point, Scorpion would lose it. He would say this jackass flipper Spider is making 100 PROFIT for NOTHING! He is a cancer to society and I hope he fails miserably, etc. etc. etc.
Thats basically whats going on now. The flipper thinks the prices are low enough, and Spider doesnt. The market is speaking to Spider, and he simply doesnt like what it is saying.
Va_Investor said...
"Finding the bargain, jumping on it, and then doing the right upgrades = 200K."
Finding an underpriced home, cleaning it up, and selling it for an overpriced list. Flippers definitely remove the most affordable homes from the market and cause many people to pay more in the long run. Basically, to beat the flippers (and their all-cash offers) out on a home you have to pay more than you otherwise would have.
I'm actually okay with this if the flipper has to pay full income taxes on the profit since flipping is their job. I'm not okay if they pay less taxes on this type of income than other types of income. I don't know how that works since I don't ever intend on flipping homes.
"Finding an underpriced home, cleaning it up, and selling it for an overpriced list. "
If it sells at that price it isn't overpriced.
It is perfectly fair to discuss whether the market as a whole is over or under-valued, and talk about whether it will/should move in one direction or another...
...but when it comes to selling a specific house, what do you expect a seller to do? Ask less for it than they think they can get? Give someone a "bargain" that effectively comes out of their pocket?
"Basically, to beat the flippers (and their all-cash offers) out on a home you have to pay more than you otherwise would have."
If the flippers are using cash to make their purchases then I have no problem with what they are doing. They are risking their own money. (or that of a financial backer)
What I don't like are flippers taking advantage of government subsidized loans intended to promote homeownership to provide cheap and/or no money down financing.
It shouldn't be the government's money that is financing risky ventures.
If a flipper can get financing from a bank as a flipper... then that is fine.
Anonymous said...whatever...
Exaggeration as usual from you...glug..glug..glug...
VA_Investor,
Doesn't make sense to me that in this market that seems to be pretty tight there won't be competition among flippers. I do not think that the place that sold for 410k and supposedly is worth circa 600k with some updates makes sense profit margin-wise. If it was sold for 499k, and will eventually sell for something like 550-575 it will make sense to me.
Another maddening tidbit about the "flipper" property: It was purchased in 1999 for $241k and was a short sale at $500k 10 years later. Amazing. What a f** up country.
"Spider said...Exaggeration as usual from you"
EXACTLY -- reductio ad adsurdum my friend!
I see that my point was made as you felt compelled to respond -- yet note how you did not attack my logic.
Seriously, what about my hypothetical was wrong? Were the prices too high? Would $5 and $10 suffice? Too low perhaps? Maybe 50K and 100K is better? Seriously, where is the flaw in my hypothetical?
Actually, VA_Investor, there may be many instances where it makes sense to invest $200K in a house purchased for $400K or less, especially if one is buying a home to live in as opposed to invest in. There certainly were around Arlington and probably many other areas between 1999 or so and 2005, and maybe there are today as well. I think the point others were making is that it is hard to imagine how $200K worth of work (materials and labor) could be completed *within one month.*
I would have less of a problem with accepting a current "market value" of a house--in whatever condition, flipped well or flipped poorly, etc.--if I were convinced that we actually have a market setting home values. I still think the bribes and artificially low interest rates are whipping some people up, as did the bubble year conditions. And I remain concerned that today's buyers who are bidding highly for some properties aren't "beware-ing" are going to be some of tomorrow's bailout-ees at your expense and mine.
So I can see the argument for calling something "overpriced."
Anonymous,
Many bears here including me have clearly laid out many many different times the reasons we think this market is overvalued. I did not think repeating those same ratios & wage-adjusted common sense analysis would help your position. If you think properties that sold in 200k range earlier this century are worth 500k or more - I do not agree despite your childish comparisons to 10k/5k or whatever scenarios.
By the way, flippers did not exist in the current form or spirit before the bubble. Granted government/fed/treasury policies transformed them into what they are today. And they definitely have helped & are helping the overall market distortion.
Ace,
What I meant was that it would make no sense for a flipper to pay 400K and put another 200K into a property (total 600K) and then sell it for 600K. This would result in a loss.
Also, to whoever asked, if you flip houses as a business you pay taxes as ordinary income.
Also, absent felony Bank Fraud, what type of zero down or preferred lending does anyone imagine a flipper can get?
"Spider said...If you think properties that sold in 200k range earlier this century are worth 500k or more - I do not agree despite your childish comparisons to 10k/5k or whatever scenarios."
Then, let me ask you spider, what is an apt comparison?
If prices of 200K properties fall to 300K, unless you are the most bearish person on the face of the planet, there will always be someone thinking prices will fall even further.
That more bearish person, (Scorpion in my example) will assume that he is right and you are wrong -- and that values WILL fall to his predetermined levels of acceptability.
I on the other hand, dont claim to know what 200K properties are "worth" today. All I know is that if they are being picked up by all cash buyers, and this keeps happening over and over again, there is a strong indication that this, right here, right now, is the bottom.
Does that mean that it will be the bottom tomorrow? No. If the govt restraints are removed and your 30% hedge of deflation (which obviously affects your impressions of fair market value by the way) is right, we are nowhere near bottom. If the govt manipulation pushes us into hyperinflation, these are deals of a lifetime never to be seen again.
Still, its obvious that the market today is telling you something that you dont like. I dont like it either, but after seeing the stagnation and even the slight price bump seen in the last 10 months, im not going to sit here and rail against flipper greed when they are trying to tell me something I dont like.
spider,
Flippers are merely taking advantage of market opportunities. I know you don't want any competition, but would that really be a "normal" market?
It seems you would rather have some sort of coalition that refuses to buy (thus causing prices to plummet). It won't work, no matter how much you wish.
Is it just that you wish you had 600K or 800K in cash? Or, are you truly looking out for the greater good?
Having prices drop quickly is perfect for first-time buyers. It is bad for everyone else who owns property. Move-up buyers will have less home equity to take to their next home purchase. Yes, that purchase will be less, but how much less. Even people who might make a downward move, like retirees, likely to need to be careful with their money, don't want to take a big loss. People who have to move jobs have to deal with an underwater home.....
From a utilitarian perspective, stable pricing, or pricing that drifts down slowly, is best. I think there is a broad socio-psychological benefit to this, preventing widespread panic and loss of confidence in the market. Better to rip the band-aids off slowly.
Va_Investor,
I understand that they would not put in $200k of labor + materials. But presumably the labor + materials + time of doing this should equal $200k. Otherwise people would do it themselves since they could then specialize in it.
And given this only took one month I once again am skeptical it was any improvements that would have been difficult to manage on one's own. A completely gutted kitchen from top to bottom? That's inconvenient. But I'm pretty sure he did not do that because deciding what to do, having someone plan it, finding the right materials, and having them installed and so on takes more than a month.
He probably got a new stove and fridge. That's a day project.
*they could specialize it (get what they want)
REDS,
I agree completely. Even years ago, the people on these type of blogs who were advocating price drops of 70%+ were completely clueless as to the economic fallout. They failed to realize that their stock porfolio's and jobs would vanish in the Great Depression to follow.
The Anonymous said
Thats basically whats going on now. The flipper thinks the prices are low enough, and Spider doesnt. The market is speaking to Spider, and he simply doesnt like what it is saying.
I understand where you are coming from and am sympathetic to your stance that the market will decide. I agree. I think it will cause most of these fools to go out of business in 6-12 months.
Unfortunately we have a new round of fools who thinks they can successfully flip and not be burned like those in late 2005-07 were. Novice flippers are probably 80% of the current investor class.
The Anonymous,
You also have to keep in mind that a lot of people cannot afford the homes they bought. So when the market created a bunch of condo buildings with SubZero fridges and other high end features it was reacting to false information about income/wealth because people were getting loans they could not afford.
I predict once condo construction begins again after this current lull that we will see more modest buildings because while the DC area is rich it's not as rich as 2005-07 era construction would have had you believe. Hence why you see so many spec buildings falling apart.
tbw,
Why "should" it add up to 200K? Buying a discounted reo for cash doesn't not require one to put 200K in it to get 200K more when selling.
People haven't been standing on the Courthouse steps for decades to break-even.
Is your argument that the house isn't worth 600K or wasn't worth 400K? Is it that flipping should be outlawed or profits regulated?
How about we regulate house prices in general and wages and ....
btw, a great new kitchen can be done in two weeks :)
"I'm actually okay with this if the flipper has to pay full income taxes on the profit since flipping is their job. "
gains from house sales are taxed as capital gains, that's half the rate of income tax. You also don't pay
FICA or FUTA on this.
The idea of home prices going down slowly over a long period of time being beneficial is totally off. The faster you correct, the faster you start getting gains, improve older houses, etc.
Being underwater is certainly a problem, but if the prices are going down slowly people will be less inclined to move, and will stay underwater for a longer period of time.
Normal market is a market where prices slowly grow without any government inteference. Slowly bleeding housing market is the worst possible scenario.
If you have a problem with flippers trying to make "too much" profit:
You go to a car auction and buy a car for $1,000, put $500 into it (say, new tires). You find a buyer willing to pay $2,500 for that car. Should you sell it for $2,500 or $1,500?
You buy stock for $10/share on monday. On friday, the market price for that stock is $15/share. Do you sell it for $10 on friday because it wouldn't be fair to make a 50% profit on it in 4 days?
"Anonymous said - If prices of 200K properties fall to 300K, unless you are the most bearish person on the face of the planet, there will always be someone thinking prices will fall even further."
We are talking in the aftermath of going through unbelievable run in housing. Housing has generally been slow growth, wage/inflation tracking investment except for the recent past. I believe, we will get at that without the crazy gyrations & bullish/bearish investors/speculators trying to gamble on this.
I understand your point - I just don't think it is going to be true once this is all said & done & we see speculators/flippers burn. And, this would have happened already without temporary government actions.
"novahog said - If you have a problem with flippers trying to make "too much" profit"
No one said anything about making profit or fairness.
We are talking about "useful purpose" that flippers serve.
Konstantin -
Patrick of patrick.net would be in total agreement with you. So, you're basically saying that housing values can and should change with stock-market like volatility if it brings prices back in line with incomes?
But why would such a sudden drop not be the same as what happened in Fall 2008, where there was a real danger of complete economic collapse? I'm no economist, but would be very interested in understanding how these two situations might be different?
pat,
You better check with the IRS. If you are in the business of flipping RE, it is ordinary income.
Whether it's a business or not is subjective and varies based on several things such as number of transactions, etc.
spider,
The other day I put forth many useful purposes served by flippers. You failed to respond.
btw, what useful purpose is served by builders' jacking prices on each new phase? What about the stock trade example? Are you saying that any profitable business serves a purpose only to the extent that the profit doesn't exceed some limit that you think is justified?
I don't think a plumber or electrician or automechanic or lawyer or or or should make what they do. I don't think people should be millionaires because they own a McDonalds. I clearly think you are overpaid due to the time you spend online (at your job).
You sound like a socialist, except when it comes to your house and your income.
va investor - didn't mean to offend you. And let me say, I am not talking about someone like you who has been doing this for years and a pro.
"VA Investor said - You sound like a socialist"
Not even close...
Va_Investor,
Time = profit in the materials + labor + time equation I mentioned. So the flippers would not break even.
I'm guessing this flipper put in about $40k worth of work max. That's why I doubt he'll get $200k ($160k) profit. Because the work was so minimal no sane person would value paying someone else to manage it for $160k.
novahog said
You go to a car auction and buy a car for $1,000, put $500 into it (say, new tires). You find a buyer willing to pay $2,500 for that car. Should you sell it for $2,500 or $1,500?
Obviously if you can find a fool who will pay $2,500 you sell it for that. My guess is you get $1,750 max though. And that $250 profit for managing the work only invites so many people.
I'm not mad that flippers want to make that $250 profit. I'm mad they are wasting everyone's time going after the ephemeral $1,000 profit. My guess is we would have about 75% fewer attempted flippers if they knew they were only going to get $250 instead of $1,000. I suspect in 6-12 months they'll realize that $1,000 is not going to happen and we'll see fewer all cash investors and they'll go back to stock investment and the only flippers left will be people like Va_Investor who were doing this pre-2000.
Thanks for the clarification, VAI.
REDS, people wanting to move up benefit from price declines if the % decline is the same or greater for the range of the new house as for the old. They don't make as much on selling their old house but pay a bit less in commission, and perhaps a lot less on the new place.
tbw,
You miss the point. FINDING THE DEAL and having the resources and guts to do it. Pull the trigger on 400K after an hour or so of thought. Try minutes or so at the Courthouse. That is worth alot.
Who says that the underlying value is 400K? And, you would have to admit, people want turn-key and will pay for it. I am not convinced that 600K is over-priced. The market will tell us.
About car auctions. There is time, effort and risk involved in that too. I know of a place close to Baltimore. Are you, or 99% of the population, willing to buy a car on the spot in cash without a thorough inspection. Do you honestly think the premium should simlpy be the cost of upgrades and repairs.
I think you miss the point here.
Ace-
That is true unless the old house fell enough the person is underwater and doesn't have enough cash to bring to the table to get out of the loan. In this case although they could afford to trade up banks will give them the loan while they are underwater on their old house.
VA-
I agree with you. I have no idea what this house is worth, but generally good flippers are not trying to make money on selling higher than market, but they plan on making money by buying low. Banks are willing to sell below market at the courthouse steps, because it cuts out a lot of cost such as two Realtors commissions, property taxes while it is in REO, and the cost of maintaining the property. So if flippers are willing to take the risk of buying unknown properties they sometimes can get big profits. Othertimes they get a property that is a money hole.
"VA investor said - I am not convinced that 600K is over-priced."
2009 $423,980
2008 $484,590
2007 $513,980
2006 $523,880
2005 $440,850
2004 $362,175
2003 $292,075
2002 $267,960
2001 $179,960
2000 $146,415
Need I say more?
Ace -
My family is in a move-up situation, and so that is a good example of how moving up works in this particular declining market. Using assessments (since we've neither bought nor sold yet), I compared the value of our townhouse at market peak to today's value, and did the same for the house we have a contract on. The townhouse, which is considered within the lower tier/price range, has retained only 70% of its value. The house we have a contract on, in the more expensive tier, has retained 75% of its peak market value. And that extra 5% is a lot more on a pricier house than it is on a less expensive townhouse. That means that if we were to sell and buy at assessed values, we'd have to pay quite a bit extra just to "move up."
This particular example is quite in line with what is discussed on this blog, i.e., that the mid-tier market has been taking more time to correct.
So, in this particular case, perhaps I am wrong? If there were not so many safety nets in place to prevent so many falls, then moving up from a TH to a SFH might not be quite as difficult.
On the other hand, shouldn't we be scared about sudden price changes, and the further problems it might cause to the overall economy? And if major economic damage is done, then that might significantly reduce the number of people buying and selling homes anyway?
"I understand that they would not put in $200k of labor + materials. But presumably the labor + materials + time of doing this should equal $200k. Otherwise people would do it themselves since they could then specialize in it."
You are hitting on an old problem of economics.
What is someone's time worth?
Consider a baker... given a bag of flour, a basket of apples, butter, some sugar and a few other very basic and inexpensive ingredients a good baker could create a delicious apple pie with very little time or effort. (even preparing them one at a time)
Considering the cost of the materials that go into a pie -a few dollars-, what should an expertly baked pie sell for?
Now turn things around... give those same ingredients to someone incompetent or only semi-competent. The best you could hope for them to do is to spend twice as long while producing something of marginal quality, assuming they didn't create something completely worthless and waste the ingredients.
Getting to the point... pies actually have a huge profit margin by some measures... but only if the baker knows what he/she is doing. The missing ingredient here is skill, knowledge, experience and perhaps to some extent innate ability.
Tying this back to housing... a talented flipper/renovator can expect to achieve better results faster and cheaper than an average homeowner either doing it himself or contracting it out.
A good flipper will examine all aspects of a project from start to finish including anticipated costs in materials, work, and financing and will uncover efficiencies that an average person simply wouldn't.
(And above all will be smart about which projects to undertake in the first place.)
So yes, a flipper could potentially do $40-50k of work while creating $100k+ of value, assuming they are talented.
(And again, I haven't even looked at this house. I have no idea what it will sell for so I am not predicting anything about it specifically.)
Housebuyer, I would say in that situation the buyer doesn't have any business moving up. S/he can't afford a more expensive house. If s/he's being transferred, sometimes the employer would help.
REDS, yes, I think we agree; that's why I put in the same - % - decline condition, which is not met it your example.
Good point about the sticky seller problem in the higher tiers. The market value of their houses may have gone down but they may not believe it. The assessments (at least in Arl.; I believe in other counties) only reflect actual sales. If there are only a few (where buyers were willing to pay a high value), versus many more unsold houses taken off the market, or not put on to start with because the seller didn't think s/he could "get his/her price", the assessments will still be relatively high, reinforcing those sticky seller mentalities.
I also notice that various neighborhoods around Arl. have gone down at different rates each year, and it doesn't follow a simple pattern (e.g., not necessarily close to metro, or the cheapest areas, or the most expensive, or the closest-in, etc.).
Ace-
They only have no business moving up because the house is underwater. If the house had staid flat moving up might have been reasonable. For example think of someone in Vegas. Lets say they bought an average house for 500K in 2006. Pretend their salary has tripled and they have saved a 200K. If the market had staid flat by any reasonable metric they would have no issue buying a 750K house now, in reality a million dollar house would probably be fine. But since their house dropped 50% by the time they pay comissions they would need to have saved 300K. In this case the fact the market went down hurt the buyer because they need to wait longer than they want to in order to get their move up house.
I know this is an extreme example, but it is meant to show that prices falling doesn't always help a move up buyer.
REDS and Ace: We rent a townhouse in Dunn Loring/Merrifield. Our landlord offered the townhouse to us for about 11% less than he paid in 2005. He eventually sold it to a friend for about 10% off his 2005 price, and the friend is keeping it as an investment property. Incidentally, the friend is getting the same rent from us and will probably increase the rent when we move in February. The assessment for the townhouse went down about 7% between 2005 and 2009 and the declines were split almost evenly between the improvement and the land. We bought a house in Arlington, but are not going to settle until mid-February. We bought it from a very long time owner but somewhat similar houses in the neighborhood, sold in 2009 for only about 2% less than in 2005. The tax assessment for the house we are buying actually decreased by only $730 between 2005 and 2010. The value of the land stayed the same between 2005 and 2010 (which is about 3 times the value of the house) and the value of the house went down slightly.
I don't have 2010 assessments for Fairfax, but I suspect they will go down more. So if you move up from an area that has declined to an area that did not decline, are you paying a premium both to be in a move-up home and in an area with more stable housing prices?
Leroy
http://en.wikipedia.org/wiki/Jack_Abramoff_CNMI_scandal
In testimony before the Senate, it was described that 91 percent of the private-sector workforce were immigrants, and were being paid barely half the U.S. minimum hourly wage. Stories also emerged of workers forced to live behind barbed wire in squalid shacks without plumbing. A Department of the Interior report found that "Chinese women were subject to forced abortions and that women and children were subject to forced prostitution in the local sex-tourism industry." [2] The Senate passed the Murkowski worker reform bill unanimously.
Sorry Leroy, this was Tom Delay's pet little program. He embraced all this evil, and used to give speeches about how wonderful
the Marianas is. I call that monstrous. If you can't, that says
more about you then me
Let me just say that what you are doing is laughably transparent.
"I demand you condemn this egregious behavior by the other team!"
Run along...
As I said before and will say again if necessary, I am under no obligation to defend or condemn any party, and regardless of whether I agree or disagree with you on any particular point it is simply not worth my time to engage in a political discussion with someone who can't conduct themselves at a mature level.
housebuyer, I don't disagree that your hypothetical homeowner loses money on the old house with the decline, but if s/he can't afford to cover the "underwater" portion, then s/he can't afford the new house either. And, whether someone is underwater or not really is irrelevant to the reality that, if the new house declined by the same %, s/he is better off financially than if there had been no decline.
Let's take two homeowners who bought identical houses a block apart. I'll make it extreme to make the points as simply as possible. The houses were $400K. Homeowner X put down $100K and financed the rest. Homeowner Y put down nothing and financed it all. Y kept his/her $100K in a CD instead. (If you don't start with the assumption that both had the same financial position, then the affordability issue is clear -- one can afford what the other cannot. But that's because of the savings one has and the other has, not because of the decline/increase in prices.)
The houses in the neighborhood then declined by 10%.
Now there is a move up house in the same neighborhood that both want. The new house was $700K but is now $630K. That's $70K less than what it would have been at the time both bought their cheaper houses.
X can sell for $360K (ignoring transaction costs). S/he loses $40K and has $60K to put toward the new house. But the loss of $40K is more than offset by the $70K decline in the price of the new house.
Y can sell for the same price. Although s/he would have to withdraw $40K from the CD to pay off the first loan, s/he is still ahead by the same amount as Y ($70K for the new house, less $40K lost).
X and Y may consider it a hardship to eat that loss, but if they consider it more than a hardship, then then can't afford the new house. But they can still more readily afford a $630K house than they could have afforded the move up house at $700K.
I should have clarified my first pgh to add, "if the homeowner insists on moving up."
Obviously if the homeowner does not buy the new house, the market decline has created a paper loss right now, but if s/he is not selling the house at this time, the loss is not realized. My comments all through this thread apply to someone who is a move up *buyer*.
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