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Friday, February 19, 2010
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68 comments:
To give contrarian some credit deflationary pressure is definitely still around. deflation
Last month was the first time in 27 years that prices excluding oil & food fell. I don't think 0.1% was exactly what he was looking for, but it is something to keep an eye on. For sure it gives the fed a lot more breathing room to keep their rates at 0%. Even though it looks like they want to raise rates at the discount window to reduce their quantitative easing policy. (e.g. they feel they need to continue to help mainstream, but are no longer as worried about helping the financial industry)
Calculated Risk has an update/reminder on how the HAFA short sale system will work.
It doesn't start until April 5th, will entail the full release of all loans (no possibility of a delinquency judgement) and will require the lender to set and acceptable price or net ahead of time.
I predict a feeding frenzy in April for those looking both for a cheap house and the $8k. Whether the shorts will really start appearing quickly enough to satisfy this appetite is another question. The only reason I think they might is the timing of the HAMP failures which is supposed to be now. However, given that HAMP's represent an insignificant fraction of delinquent mortgages, I don't think that's compelling.
People who are losing their homes are on their own timeframes, not those of the market. If their liens are being extinguished anyway, why would they care if they're selling into a seller's market or a buyer's market?
Cara-
If you are losing your house I agree you don't care if it is a seller or buyers market, but it seems like you are also better waiting out the foreclosure process this way you get an additional couple of months of free rent. I guess a short sale is slightly better for your credit than a foreclosure, but both are really bad so why not save the extra ~10K of free rent? Personally I am hoping that the short sales do not come until after the 8k is gone. I don't plan on seriously looking until after my wedding in June so I would like to get all of the 8k buyers out of the market, but save all of the short sales. Maybe I am being a little greedy though :-D
housebuyer,
Free rent or release from 2nd mortgage? Mmm, I'd go with no debt-collectors anyday.
Best of luck.
Cara-
Good point I was thinking of non-recourse states where all they can do is take your house. Also some people end up with debt collectors from doing shorts although I guess the point of HAFA is to not do this.
housebuyer,
We're a recourse state.
Indeed prior to HAFA there was no incentive to short-sell rather than wait out the foreclosure process. Equally damaging to credit and just as much overhanging liability. But releasing the debt, while we're still under the rules where that's generally not taxable as income (subject to owner-occupancy time restrictions) is a game changer.
Cara-
You are correct as I said I was thinking of non-recourse states and as you said we are a recourse state. So definitely a game changer here, although maybe not a game changer in non-recourse states.
Another important point is that it caps out at $729k, so for those of you expecting high-end short sales, that's not going to happen.
I'm not sure if that's mortgage amount or sale price. Makes a huge difference in terms of which markets may be effected since a lot of HELOC abusers racheted up huge loans on houses now worth under $500k.
I was looking through some tax laws and it looks like some of the HELOC abusers owe taxes on any forgiven debt that was not used to materially improve the house. So all those people who used it for vacations and cars should in theory owe taxes on the forgiven debt. Somehow I don't see them paying this, but in theory they should
"Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately."
All those so-called investors are going to get tagged good by Uncle Sam. Ouch! It's like having a pit bull on your leg. I hope the IRS ramps up to get us this $$$$.
I've bought many properties in the past 18 mos. that were investor-owned reo's and shorts.
I hope the proper notice provisions are in place.
ot,
Anyone ever had a significant audit (in person, etc.)? After that crash yesterday, I remembered the nameless IRS office in Fairfax that had a steel door and a buzzer.
There was no listing down at the elevators. They told us the floor and office number. We had to pass our driver's licenses thru a slot and then be buzzed in.
Now I know why. There are some real nuts out there.
VA-
Yeah people really do not like the IRS. I have some family that works for the IRS and every couple of years security gets absurdly tight because some one bombs/attacks an IRS building. The absurd part is we pay far less taxes than most comparable countries. Ohh well I guess there will always be a crazy person or two out there.
housebuyer,
these wackos who cause trouble are a price you pay for living in a free state.
Oh, I dunno Konstantin, there is no corner on earth that's safe from wackos. I'd rather take my chances here, though.
The District and Fairfax County have seen a significant decrease in violent crimes this past year. That's good news.
On the 8K topic:
At the open house last Saturday, we were chatting with the selling agent, and she was trying to feel us out. So we talked about timing, and we mentioned not being in a rush. So, of course, she had to inform us of the tax credit. "Oh, we know. If we get it, that's great. Gravy. But we're not counting on it."
Her face dropped, it's like we'd slapped her. I found it way more amusing than I should have, I think.
Harriet,
More good social/demographic news.
Not exactly the same, but related... and probably under-appreciated.
Her face dropped, it's like we'd slapped her. I found it way more amusing than I should have, I think.
There are few opportunities in life where reality crashes head-on with fantasy right before your eyes. Those moments are always learning experiences. The successful folks are the ones who walk away from those moments retaining the lesson learned. The others are doomed to repeat.
FWIW.
Xpovos,
I once told a selling agent in October that if he thought the $8k was going to not get extended I had a bridge to sell him.
I don't think you can say the same thing this time, but your indifference was even better than my (albeit accurate) know-it-all-ness.
It worked out OK for her, so I think her belief is either better founded than mine, or at least a shared illusion.
Because: as I mentioned, that house is now under contract, and I'm pretty sure the guy who put in the winning bid was also at the open house when we were. And he was absolutely champing at the 8K bit.
We're heading out again tomorrow (with the agent/friend this time) to have a look at another set of properties. I'll give details Sunday or Monday.
This may fit some of your needs. It's a 599K house that is zoned for Longfellow/McLean that is 2 miles from Tysons. It is huge 2600 sq. ft. above ground with an additional 2100 underground and appears to be in pretty good shape. The person had somewhat unique tastes but I think a lot of their choices were pretty cool
It has also been on the market forever so you might even be able to get it a good bit cheaper than the asking price
http://franklymls.com/FX7211724
housebuyer,
backs to the toll road.
hb,
Lovely. If it weren't that I'd need a 60-year mortgage to cover that, I'd definitely be taking a closer look.
Cara-
Yeah the toll road is close, although there are two houses directly in between it and the toll road in additional to the forest. It looks like it is ~200 feet away so I doubt you would hear the road and you definitely can't see it, but you are right this still may not be a safe distance. Although I would think you are fine, because the toll road is less traveled in this area isn't it?
Surprised no one posted this yet:
WaPo Article: "In D.C., more evidence that commercial real estate headed for foreclosure crisis"
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/18/AR2010021805904.html?hpid=topnews
Mike-
I think most here agree that commercial real estate is a big problem although this article likely is overstating the problem. They comment how most loans are 5 years and need to be paid off or refinanced at the end. Although this is true, my guess is that although there is a lot of loans that can't be rolled over many of these property owners will get the banks to continue to give them one year extensions until they are above water again. It is no ones best interest to have the property get foreclosed on and need to be sold. Usually banks are smart enough to at least protect their own interests so I am not overly worried that they will not come to the conclusion that extend and pretend is the way to go.
whats going on in herndon reston and loundoun . There are no new home comming for sale are the ARM's not reseted yet in this areas ?
That house for 599K is in a great location. You would have to go there to hear if the road noise is bad. It has great prox. to Tysons and Downtown and Toll Road and Metro (WFC). Nice cul de sac for the kids. Great schools.
VA-shocker,
ARMs aren't a big factor in NoVa.
I'd strongly guess the snowmaggedon has delayed people's sprucing up plans to get their homes ready for the market, plus the nasty brown/black stuff isn't exactly an attractive background for selling your house. Nor are ice-dams in your gutters and 1.5 feet of snow still on your roof.
VA-Shocker-
ARM loans aren't a big issue anywhere right now. With short term interest rates near 0% peoples payments are going down when loans reset. The loans that are a bigger issue are option ARMs because these loans let people pay less than the interest for 5 years making the loan actually grow. So after 5 years payments increase significantly. These loans were not popular hear so it is not likely to be a big problem in DC.
we saw and liked this home but couldn't get past its incurable flaws. it sold $40K more than i thought it's worth.
on the flip side, at least the gap between me and the reality isn't widening (yet).
Jewel,
See you at the Open House! (if not UC before then)
MM,
Incurable flaws? I just see the tiny backyard.
But the house is depressingly blah. I suppose it wouldn't take more than new cabinetry/counters/appliances and vanities and lots of tasteful paint to make a big dent in that. But those things add up quick and I think I just don't like the architecture of "colonials". Zero interest and zero flow.
Maybe I'm lacking in imagination.
Cara-
That house is about the same distance from 66 as the house that I showed was from the toll road. Traffic is much worse on 66 so it is likely louder and has more pollutants.
MM,
But that new one... The added room makes a big difference, as does the wooded lot. Somehow it looks way better although I can't figure out why. Is non-white paint that effective? Are the pictures and daylight lighting that much better? Sunlight does wonders... (even though the outside could be a tenement).
MM-
That looks very nice and I like that it backs to the woods. I am also amazed that is has a sauna. I have only known a couple people that had nice saunas and they were all in houses that were ~6000 sq. ft.
The portion of 267 between 66 and 495 is not a toll road but a free road. :) A nice benefit for those of us in DC, Arlington, Falls Church, McLean, etc.
I have driven on it many times although usually off peak. It is much less crowded than 123, 7, 495, etc at those times. However I would still view a home backing up on it as a negative.
MM,
What a delightful house. I agree with housebuyer that proximity to 66 is a minus. However, I had no idea that there was anything in Arlington from that time period (70s-90s) where you don't have the funky old home style nor the over the top McMansion style.
This is just my taste btw. I know a lot of you like the style of the average 1940s Arlington home. I just think this one (FX7211724) has more curb appeal to me. I'm guessing 100% because of the bias of growing up in Fairfax County where this sort of home was common.
Main minus to me would be how to commute by Metro from there. It would feel silly to backtrack to EFC. It's a little too far to walk to Ballston Metro for my tastes. You can't park and ride at Ballston as far as I know.
Ooo, ooo, ooo,
Fun find today.
So, you know how we've had the discussion many times (as every bubble blog does) over whether higher interest rates lead to lower prices? Well, today I stumbled over the first chart I've ever seen that shows just that correlation.
Seattle Bubble
Never mind that one of the two dropping periods may have had more to do with Boeing than anything else. The point is that you can see an actual price drop during periods of high interest rates. But it only holds for real prices, not nominal ones. If you scroll down a long ways eventually the poster posted a graph with nominal prices which shows they were flat as a pancake in those times, meaning that it was inflation that was eroding the value, not people actually paying less on a nominal basis.
I know I sound like NAR saying prices never go down nominally. They do go down, many bubbles have burst, but rising interest rates alone doesn't do it.
AR7259673 is very ugly on the outside. I do like the wooded lot.
You also are in one of the few parts of Arlington south of Rt 50 that goes to Washington-Lee instead of Wakefield. You easily could get redistricted and I would actually put those odds as high given the large population increase along the I-66 corridor in Arlington (although unclear what portion are families).
Cara,
Interesting find. The Freddie Mac chart I always cite only goes back to the 1970s. That's interesting how low interest rates were in the 1950s and 1960s. Makes you wonder why the sky high interest rates in the 1970s were not more devastating.
Maybe because the market was saved by the Baby Boomers bringing an above average number of buyers in the market at precisely that time period (70s-80s)?
tbw,
Baby boomers is a good guess. You'd need to track population, age, construction, everything to really tell. Given the nominal prices were constant under high inflation, I'm guessing that prices didn't fall simply because housing was a smaller and smaller portion of people's income, so the prices kept seeming less bad. Rents on the other hand, may have been keeping up with inflation. That would surely motivate a lot of folks.
Too many things to track.
The mortgage professor column is about Va_Investor's FHA assumable loan idea.
He feels if you only plan to own a home between 3-7 years and we assume interest rates are going to go up some amount that it makes more sense to go with FHA than conventional for the assumable factor.
Xpovos said...
"Her face dropped, it's like we'd slapped her. I found it way more amusing than I should have, I think."
I wish I could have been there to see that. The borg collective (agents and NAR) don't usually know how to react to anything that's contrary to their collective mantra. You could have made her cross-eyed if you told her you were waiting until the credit expires because its existence has spurred too much demand. Agents aren't typically capable of thinking about or understanding the markets they constantly blab about=)
I think March, not April, is the month we might see the most activity.
(1) MBS program ends at the end of March keeping interest rates low throughout March, realtors will scare buyers that interest rates could rise sharply so buy now
(2) FHA increase in upfront loan premium from 1.75% to 2.25% will come into effect ~April 5, 2010. Anyone buying around that time will have another incentive to close early.
I also expect April to be somewhat busy because #2 is not the end of the world -- only an extra $500 per $100k of mortgage (nonetheless many people will be pennywise and poundfoolish and overbid to close before early April). People will rush to close before the $8k credit is gone. However I think we'll see fewer sales in April than March.
Assuming no more $8k credit extensions or other freebies to homebuyers/realtors/etc or new MBS purchase program (which is not a safe assumption), then I see one of two scenarios:
(1) Mortgage rates zoom up by May or June to 5.5% or above and we see horrible results in housing market (not fully appreciated until C-S et al come out a few months later)
(2) Fed successfully gets private sector to keep interest rates low; we see start of mostly flat period for next few years
If #2 happens I think we will pretty much have run out of things to argue about on this blog.
Cara, good find on the relationship between interest rates and prices. I think the reason you don't see a nominal shift is because it is a delayed market response due to price-stickiness. Just an opinion.,
I guess there is always the "foreclosure tsunami" out there but I will arbitrarily declare that it has to occur by June 2010 or else it's never happening as well. :)
I do think there is a lot of "shadow inventory" and that's part of why I see flat prices at best for so long because I think we'll have above average foreclosures on the market until at least 2012 if not later. I just think the government and banks are successfully colluding to keep it from all coming at once.
tbw,
Ole Jack has stolen my thoughts. Paydown and/or appreciation can be overcome in several fashions to facilitate a sale; ex. owner take-back, wrap-around, conv. second. In the '80's, OTB's were routinely discounted and sold to provide cash to the seller and no down to the buyer. There is a very old saying in RE: if you can't get it financed, you can't sell it.
kevin,
Which is true, in a sense, we are waiting. But if the ideal house hits the ideal price, we'll buy now and take the 8K, thank you very much.
The problem is the ideal house won't hit the ideal price, partially because of the credit.
Won't stop us from looking, though.
xpovos, totally understand. I'm not eligible for it so buying isn't even a consideration for me so long as it's out there... okay it would be if prices weren't mostly in lala land. But still if I were eligible for the credit, it would be fun to explain that logic to a realtor and watch their head explode. The tax credit to the RE whores is bigger than Jesus, Moses, and Mohammad combined.
Va_Investor,
Who's responsible for evicting occupants in properties sold at trustee's sales? I'm assuming the new owner?
Thanks!
Cara, HB, TBW, et al.
The first house's two incurable flaws are:
1) 66 and metro. in addition to car traffic/noise on I-66, you could hear the horns from trains entering and exiting the tunnel loud and clear every few minutes.
2) it sits behind another house, plus the smallish backyard, it doesn't give much privacy.
but that's just me.
MM-
Hearing the metro train horns sounds like it would get old very quickly. That sounds as bad if not worse than living on the flight paths into dulles.
I-66, you could hear the horns from trains entering and exiting the tunnel loud and clear every few minutes.
Nice catch. Less than two hundred yards from the tunnel exit. Didn't see that. Another thing to watch for...
MM,
I saw the house on Greenbrier a few months ago - My realtor says that particular lot is called a "pipe stream". The weird lot, out of date interior and proximity to 66 killed it for me.
I'm not sure if I will go to the Illinois house in S. Arlington. I've *almost* ruled out moving down there due to the schools situation. I've got to say though - the master bedroom is awesome! 12 x 20? I've never seen one that big before in Arlington. (Atleast in my price range) The closet is great too.
BTW, I am submitting an offer on a house in N. Arlington tonight. I wish I could show you guys which one, but don't want competition! The house needs alot of work and its about 10-15% overpriced. The sellers are supposedly motivated, so we'll see. The house has a ton of "cute" potential which gets the big $$$ in Arlington, and it's in the perfect location. We're going to do a renovation loan. The floors, kitchen, and basement need a complete overhaul. We're expecting to spend $70k on renovations.
Cara -- nice job on the nominal price/ interest rate correlation.
So just as we expected, the argument "higher interest rates = lower nominal prices" is dubious at best.
Yet on a real (inflation adjusted) basis, there is some merit to waiting as your earning power (a lagging, but necessary factor in inflation) is going up faster than the nominal price of the home.
Housebuyer said: "Usually banks are smart enough to at least protect their own interests so I am not overly worried that they will not come to the conclusion that extend and pretend is the way to go."
I think you're exactly right. If the bank had it's way, it would extend and pretend until the properties were above water. Heck, the banks don't have to "take the loss" on their balance sheets if they do this.
But, it's not necessarily in the interest of the people making payments on the property. Case in point: mortgage bankers' association. They didn't want to extend and pretend. It's not in their interest to keep paying on a property that is hopelessly underwater. I don't think they are unique, either.
In sum, I think it's a bigger problem than you currently recognize. And, it'll have consequences for commerical rents in the area, no doubt about it. What consequences it will have for residential rents and residential prices? Only time will tell.
The Anonymous,
It goes back to our discussion about assumable loans. We know that until the 1980s most loans were assumable. Now it's just FHA and VA Loans. One big question is what percentage of homebuyers were assuming mortgages back during the early 1980s. If it was a significant chunk then that makes the experience of the early 1980s irrelevant for today.
tbw,
Do you mean "if it wasn't a significant chunk"?
I was out looking in the early 80's and an assumable was big.
MM,
It's up to the buyer at a trustee sale to evict any occupant.
I am a long time follower of this blog but never posted before. I need help with this short sale and if it is priced well for the area and also comments on the comps.
http://www.redfin.com/VA/Alexandria/6411-Gayfields-Rd-22315/home/9784987
Hard to tell, Shay, since available details on your property are thin. However, if you know more about that property I suggest you compare it against this one:
http://franklymls.com/FX7053019
Va_Investor,
how much would you estimate the eviction is going to cost and how long, worst case scenario?
Tks!
C,
Thanks that is a good comp. I think the interior is much better one the one you posted because it was a model house.
MM,
I've always done them myself, so I don't know what a lawyer would charge (guess 1K).
Usually the people move on their own just before or after the sale. VA is a landlord state and the judges don't put up with much nonsense. I'd guess a month to six weeks.
When I used to buy these places some were occupied. I would immediately leave a letter on the door stating that I bought the place and intend to have my locksmith change the locks. I am not using any self-help to get them out. This is a big no-no. I provide them with the new key and demand access to survey the property and take pictures.
I warn them not to remove any fixtures as this would be theft and I have pictures of the appliances, fixtures and condition. Any destruction could be construed as criminal (at least that's what I tell them).
I sometimes offer a financial incentive to leave within 15 days and to leave the property in good condition. I will put this in writing.
An eviction requires that you deliver a 5 day notice to Quit the property (leave), after which time you file an unlawful detainer at the Courthouse. This will be served by the Sheriff. You usually have to provide at least two weeks for the return date (Court date).
I've never had to execute on an order of eviction. The sheriff will put them out - standby while your contractor removes their possessions.
If they appeal the case, request a bond. As I said, I never had to go this far so I am not the best person to ask. I consider these people trespasser's, but the legal term may be tenant at sufference.
You will not have to follow the provisions of the VA LL Tenant Act as you don't have enough properties to fall under that.
My locksmith only required the Memorandum of Sale from the Trustee in order to change the locks. I didn't wait for the actual closing due to the theory of equitable title transferring at the Courthouse.
I haven't had to evict anyone in about 15+ yrs, so take this info for what it is worth.
Shay-
I agree without seeing the inside of the house it is really hard to tell what it should be worth. I assume the price is pretty good based on how far below the 2006 price, but if the inside has been destroyed that may not be true. Also did you realize the house is already under contract?
Va_Investor,
Thanks you so very much!
Jewel, TBW,
Yes the schools could be less ideal for the Illinois house but thinking back 5 years I didn't even like W-L.
For me, the two sex offenders two blocks away are a much bigger issue.
"tiredbubblewatcher said...
The Anonymous,
It goes back to our discussion about assumable loans. We know that until the 1980s most loans were assumable. Now it's just FHA and VA Loans. One big question is what percentage of homebuyers were assuming mortgages back during the early 1980s. If it was a significant chunk then that makes the experience of the early 1980s irrelevant for today."
I certainly would not say it was "irrelevant". All we know for sure is the concept "higher interest equals lower nominal prices" flies in the face of what
that graph shows us.
Now, it very well could be that the assumability was a major major X factor back then, and I do think it had an effect.
Still, even if assumability was pervasive, to think that interest rates could go from 9% to nearly 18% and nominal prices did not drop in the slightest should certainly give one pause to automatically think that higher interest rates now equals lower prices tomorrow.
hb,
The inside is very good and is like brand new well kept. We signed the contract but don't have a good knowledge of the area and was trying to find out others opinion.
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