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Saturday, February 20, 2010
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49 comments:
Washington will not stop until they mortgage our children's future and drive our country to default....
What a disaster our leaders have turned out to be...
Fannie and Freddie to Buy More Delinquent Home Loans
"Freddie said it would buy "substantially all" of its loans that are 120 days or more delinquent. The company had nearly $70 billion of such loans it had guaranteed at the end of December. Fannie said it would "significantly" increase its purchases over the next few months and had $127 billion of loans that were 120 days or more past due."
"Fannie and Freddie's portfolios can't exceed $810 billion at the end of the year, and they held $772.6 billion and $755 billion, respectively, at the end of December. But the agencies' buying power will be increased because they are expecting to see those balances shrink by around $100 billion this year through natural runoff, according to estimates by Credit Suisse. That should free up additional room for delinquent loan buyouts."
This is a ploy to replace MBS purchases to some extent - Why don't we just acknowledge the fact that prices have gone up way too much in last 10 years and can't be held in mid-air at this level? Wages don't support current levels, wages are going down & making fundamentals worse every single day we delay.
Now or later - it will have to adjust. Later will turn out to be even worse when country will have spent all its fire power.
More we delay the inevitable, more I think we are likely to follow Japan's fate of long-drawn deflationary period with almost no growth.
What a solution we have found...
Let's keep foreclosures off the market, bribe buyers with free money, keep mortgage rate artificially low and encourage building more homes to add to the total supply....
Speculative Home Building Rise as Builders Bet on Buyers Before Tax Credit Ends
"Home builders are ramping up speculative construction to attract last-minute home buyers who want to tap a soon-to-expire tax credit.
The strategy is risky. If the buyers don't materialize, builders could be saddled with unsold homes that will require heavy discounting to sell, hurting profits and slowing the housing recovery. New homes may also continue to lose market share to lower-priced foreclosed houses. Indeed, some economists expect an avalanche of foreclosures in the months ahead as lenders release homes they have been keeping off the market.
i hate to ask, but,
these need to be under contract by the end of april and closed by the
end of june.
How do you get homes started now,
and finished that fast?
Can they really finish and get Certs on a house in 4 months?
"pat said - Can they really finish and get Certs on a house in 4 months?"
I think they can finish it in less than 4 months, if permits have been approved & land work completed.
i guess if the lots are sculpted and the utilities are in, yeah, a couple of weeks for foundation work.
2 weeks for framing, 2 weeks to get weather tight. a month to do interior mechanicals, 2 weeks to drywall and
lay floors, a week to get the bathrooms and kitchen up.
no room for error or weather though.
besides who is funding C&D loans, the community banks are dying on these, what is the source of construciton funds?
Pat-
I assume is still the community banks. Many are weak, but many are still very strong. The beauty of being a regional bank is that you can have some luck if you are in a strong community. So particularly in the middle of the country where there was less overbuilding during the bubble the banks are still doing fine.
I assume these would also be the regions where new houses are being made. The banks and construction companies are idiots if they are making speculative projects in CA, FL, NV...
Cara-
Unless things get a lot worse its looking like we may be over estimating the total number of bank failure http://www.calculatedriskblog.com/2010/02/fdic-bank-failure-update.html
So far there have been 188 and it doesn't look like the pace is speeding up so it would take another bad 4-5 years to get us to 1000
The Anonymous said
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.
Another factor is sky high inflation. The CPI was at 12-14% in 1980 (source) and similarly high numbers in the years around it. Median household income in Fairfax County rose 43% between 1979 and 1985. That crazy inflation also helped protect nominal prices while lowering the real price.
Since we are (or at least I am) talking about mortgage rates going from ~5% to ~7% we are not talking about an era where inflation will be all that high. There's a reason Voelcker had rates that high -- to combat massive inflation.
tbw,
It's just a hedge, that's all. Many here seem to believe than even a 2% increase will be major.
Closing costs on an asumption were $45 last I knew. No points, no appraisal, no additional upfront MIP, no survey (ask seller for their old one and get a recert.) No lender fee's. These are all very attractive to a buyer. Heck, even recording fee's are minimal and you get a re-issue on title ins. and only need buyer's not lenders.
All, presumably, eliminating a purchaser demand for cc credits.
Since you have to pay for PMI regardless of DP. I'd go for the highest loan to value possible (97%?). You want the highest balance possible for the buyer to assume. Keep your 20% or whatever in another investment and you can use it for the DP on your new place.
I'd do it. But each of you can evaluate the pro's and cons.
Forgive the long post.
We spent a long day looking at houses throughout eastern PWC on Saturday. A good 6 hours, wore the Realtor out looking at 11 different properties. One was just a drive-by, because it had been taken off the market just that morning with no explanation.
The first several houses we saw were pretty nasty. It's partly the price range, but many of these had all the hallmarks of major fundamental problems with very poor craftsmanship repair work done on top. That was a bit disheartening, but I knew we'd see a lot of those. Far and away the most common theme was every square inch available being converted into an extra bedroom. One house had a garage converted into a bedroom. Most had substantial work put into security on those rooms as well. Classic subdivide and rent, I'm guessing. One house was missing the water heater, that was impressive. But other than that, there was relatively little in the form of intentional damage or theft apparent. Mostly it was poor usage and/or run down. One house did have a broken range, but it looked like something had fallen on it.
As the day wore on we get to better properties. The best two were seen pretty late into the day. Those were:
Door #1
Door #2
Door #1 is a flip job. Investor got what was probably an ugly shell in September and turned it around quickly. The result is amazing. It's not perfect, but the interior surprised the Realtor--though I was expecting most of it. It did make it harder to look for some of the underlying potential problems, and the snow and other weather items made checking the pool impossible. I loved that it backed to a park. In the end, though, the house isn't laid out well for a modern family, and that can't really be fixed with cosmetic items, no matter how skilled the investor. Ultimately, it's also a bit overpriced. The neighborhood just doesn't support the comp, despite the fact that the house might intrinsically be worth it at the location. I figure it will sell to a small family or a young single person or couple for $20K, maybe $40K off current list.
Door #2 was another story entirely. Single owner since 1985, only two owners on the property. This was a short sale, the reason wasn't clear, but somehow they got upside down on it. They've vacated, so it was an easy show, but it wasn't a pretty one. As might be expected with a house with only one owner since the mid-80s, some decorating choices were to personal taste and garish. But even ignoring that, there were tremendous cosmetic issues. Garish wallpaper is one thing. Peeling, ripped, stained wallpaper is another. Since we're looking for a place where the price is affordable, we're not afraid of that kind of work, but the difference between those two properties in this regard was amazing.
Door #2 is a large-ish house, but a lot of the space is utilized poorly in the layout. One bedroom had been taken out to expand the master bedroom, and it didn't work well. The basement/den was in terrible need of some work, as was all of the house, but there it was most obvious what one problem was. Previous owner(s) included a smoker. Confirmation from the ashtrays still by the fireplace and a lighter on the back porch. Back yard was a little small for the house.
Door #2's a great fixer-upper. Some investor with a bigger stack of cash comes and fixes it up, it could be a really money-maker, because the location is amazing--Montclair is one of the best PWC developments--and the house has potential. Almost all of the problems we spied were cosmetic in nature. Though there may have been some electrical issues. Needing as much work as it does, we need it at a lower price, which probably takes it out of our range. Probably does sell for the $272.5, or very close to it.
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The day was depressing for a number of reasons. Essentially all of these homes were foreclosures or vacant short sales, and in many, there was evidence left of a life lived there before we arrived. It was never 'dirty', but there were psychic stains. It's a little jarring to be looking for insect activity, cracks, etc. and finding instead a child's toy, or some left behind office paperwork.
From a less humanitarian point of depressing and back to the personal side, the two best properties weren't good fits, which is sad. It's almost certainly a function of our price limits, but each of these two candidates were close in their own way. Door #1 in particular was painful because it had so many things that were just want I want out of a house--but there's no way it would work for us.
I am pretty sure that we talked about this the other day and were trying to decide if it was a reasonable price or not. The fact that the investor had to drop the price 30K makes it sounds like we were right in concluding it was probably overpriced
http://franklymls.com/FX7226586
hb,
This is a discussion from yesterday, the inside is very good and is like brand new well kept. (it was a model house) I like the location too but I am not sure about the schools. And if it is priced right, the only good comp I found is the one posted by c. We signed the contract but am trying to get others opinion about the area and was trying to find out if it is a good deal.
I know that few tears will be shed for me, but I got screwed incredibly on a short I had a contract on.
I have been waiting since July to close and have always been told I have the contract. I knew there was a back-up and that they were hanging in there.
Originally my contract was thru lister. Apparently the agent on another offer was having a fit about something and there was much concern by LA and her broker. I was given another agent in the office as my buyer agent.
I checked with my agent periodically and "things were progressing".
Fast forward to late yesterday afternoon. I was checking solds in that development and notice MY house closed last week at $100 above my contract. The 'other' agent was shown as selling agent.
I called two of the L&F agents involved (lister and my agent) and was told that another agent was supposed to let me know that the bank didn't take my contract but went with this other one. WHAAAA?
All I ever was told was that seller ratified mine and that there was a back-up hanging in there. I last signed an extension in November.
Now I am being told that lister had to allow other contracts the opportunity to submit a better offer. I told here I have never heard of that after a K was ratified and, if that were the case, why was I not given the same consideration.
Needless to say this is not over. I believe the other agent (also L&F) forced LA to take the back-up as her people put the first (unaccepted) offer in. There was mention yesterday of the threat to take the matter to the Bd of Realtor's, etc.
I never knew the back story until yesterday and they (the agent team -3 are directly involved) need to get their files and talk to their broker.
I am beside myself. I had a great deal and it was sold out from under me for a hundred bucks.
They didn't know before, but they do now, that I have a JD.
p.s. recent UC's and solds are 20-30% higher than my K.
VA-
That sucks. I knew that banks don't really care who the contract is with, because they are trying to get the best price, but I don't understand why they wouldn't have given you the chance to counter. As I said that is a bummer.
hb,
It's more than a bummer. The place went UC and was delisted 2 days after my K in July. MLS history shows it never came back with any further change.
I was told all along that I had it and it was progressing. I've demanded to see all contracts, correspondance, etc.
I asked LA how the other K knew to offer $100 more. Just coincidence I was told. This smells to high heaven and I have enough time on my hands to do something about it.
If they didn't grasp "fiduciary responsibility" before, they soon will.
Va_Investor,
I'm sure as an attorney you know exactly how to respond to the slight of hand on that short, but here's what I was about to do when I thought my short seemed fishy:
Realtor's Associations are strictly against this sort of (unethical) behavior. Will you file a complaint with the local chapter?
On my short, it has twice been advertised for the auction block. I wasn't too worried, knowing that banks do this to keep their foreclosure option open on shorts, but I took it seriously enough to try to get a response from an otherwise reticent listing agent. The LA contacted her lawyer, who after quite a bit of negotiating with the bank, had the foreclosure auction canceled.
So, I'm wondering, if I hadn't happened to stumble across this, would the bank have gone ahead and foreclosed? Or might the bank have canceled the sale anyway, without the attorney's action? I can't tell.
While this has been happening, we visited my husband's family in India. I write this to note that India also has a housing bubble. In my husband's hometown, a provincial city with a current population of 6 million, housing prices have doubled in about 5 years. A main cause of this? The change from paying for property in cash to the introduction of mortgage loans. Also, since we often discuss inflation/deflation here, someone told me that inflation there has been dramatic, ever since the near-collapse of US banks in 2008.
RE,
Yes, I will take any and all action appropriate. I think they thought the other guy would sue and thought I would just go away. Losing it to a foreclosure is an entirely different matter.
They screwed up bad and with the wrong person.
RE,
At first I was dealing directly with LA (dual representation) then something happened (I thought fears about a conflict of interest) and I was turned over to lister's daughter. At some later date I was turned over to another "team member" - all in the same L&F office.
I'll spend 10K or whatever to file suit if necessary. I'm not too rational when dishonesty is involved.
xpovos, thanks for your post. I think door #2 has a lot of curb appeal - really like the colors even though they are unusual. But from what you've said (that all the items are fixable), I wouldn't rule it out - I might lowball it. Here are two other observations:
1) You can get rid of the smoke smell in the house. I had a tenant in whose contract it was clearly specified - no smoking in the house - but they left it smelling horrible, with a few cigarette burns in the carpet, etc. A good steam cleaning of window coverings and carpet (or replacement if necessary), and repainting of walls is all it usually takes. Yes, this is a lot of work in a big house, but many people would do this anyway simply for taste reasons when they buy a house that they haven't paid a premium for turn-key.
2) If you're like me, there's no practical difference between soiled, peeling wallpaper and wallpaper in perfect condition, because I'd pay a painter to rip it all out and paint. Rarely does wallpaper match one's tastes and current furniture/colors, etc. So why not take advantage of how turned off others will likely be by the condition, since the actions/costs will be the same either way?
I don't in any way mean to minimize the ton of work that house needs. It sounds as if the owners may have had health problems and had to borrow against the house and may not have been able to afford to update it, or other sad events. In a house that age, that may mean it also needs a new roof, some plumbing and electrical work, etc., in addition to the cosmetics. But if all of that could be priced into your offer, and if you otherwise really liked the house...looks like a good buy to me, in a great neighborhood that works for you, which is the major thing.
Ace,
Right on. No difference between ugly wallpaper and peeling/stained. Same with paint and carpet. Chump change that would be spent regardless. Take advantage of the fact that joe average is turned-off.
VA_Investor, that's outrageous. Go get 'em and keep us posted.
what do you guys think about this short sale?
http://franklymls.com/FX7222813
shay, did you notice that it is already under contract?
It's hard to offer an opinion when there are no photos and the description is limited.
Ace,
We signed the contract and the house is really nice inside and well kept. It used to be a model house so it has all the nice features. I like the area too but I am not sure if it is a good buy and worth waiting while we could buy another house that is not a short sale.
Ace,
You're dead on, and we had a friend who does some work as a GC with us, and were getting estimates in terms of $ and time as we went. That really helped. The problem is that the list price is very close to our max, which means we'd need it to be much closer to move-in ready. That price is not reduced nearly enough for me to take it on needing that work, even if I can get a good price on it. Unfortunately, it seems unlikely that I'll get a big enough place at the price I need, regardless of the amount of work needed.
Noticed http://www.redfin.com/VA/Arlington/2416-S-Eads-St-22202/home/25724316 on my morning constitutional this morning. If you scroll down a bit, you discover that one of the listed "comps" is... the same address, 5 months ago, for $450k less. I wonder what kind of renovation one does for $300/sq ft?
In fairness, the previous sale was cheap for the neighborhood, but the current asking is quite high, especially for a property that faces out onto 6 lanes of Jefferson Davis Highway... (But hey, it only takes one greater fool with a bunch of money.)
VA_Investor,
No, I agree that foreclosure is out of the listing agent's hands, to some degree. When I was worried about my short sale, I thought that after the listing agent had accepted our contract, she was keeping it on the market to accept other contracts. From what I can tell, that isn't the case, it simply took a few days to get the contract signed and the property delisted.
Dave, from the photos, they did a beautiful job on the upgrades, and from the description, they spent a lot on things you don't see as well (it was probably quite run down before to justify the extremely low price). There appears to be an unusually large/nice kitchen.
But I agree with you that the location will very likely knock down the eventual sales price. It's not right on Rt. 1, but very close. In addition, there is a safety concern (much lower than in parts of DC but higher than if the house were in the center of the neighborhood). Because of the retail on Eads (and the businesses such as McDonald's) between Eads and Rt. 1, there are sometimes some robberies or car break-ins.
When I've been by that house, it seems too "exposed", with limited yard privacy. For $800K+, I don't think many buyers will accept these shortcomings, even with the house's advantages and proximity to metro, etc. Here's my predicted sales price: $750K.
shay, thanks for the additional info. I hope your contract allows you to back out if you find something that you think is a better value. Did your agent do comps. before you made your offer?
yes, but from reading this blog I don't know if he was detailed enough. But he did and price ranged from 759K to 850K.
shay, without knowing much about it, I agree with you. It's a house that has been on the market at $749K, but apparently didn't get offers so was dropped in asking price to $699K on 1/4/10 (and I assume you didn't put in your offer until recently). That suggests that it is not comparable in market value to houses that sold for > $759K. If it were, it would have generated contracts at the higher price.
On the other hand, Fairfax Co. says it was worth $968K in 2009 (assessments for 2010 will come out soon), having slowly dropped from even higher values. Most FX properties I have seen (though that's not my target area) are not selling for a lot less than assessed value - this one is asking substantially less.
So something very strange is going on here--why didn't it sell previously at a higher price?
Ace, it could go for $750k. Heck, could go for asking price. If I could predict what people would pay, I'd be rich by now. :)
I'm inclined to think that the property is going to sit for a long, _long_ time at that price. A nicer (IMO) house on a larger lot a block up 25th (the listed house is at the corner of 25th & Eads, the previous sale is a block further away from the highway on 25th) took 9 months to go from (asking) $750k to (sold at) $700k. I'm going to predict 9-12 months on the market, and a final sale around $700k.
As a side note, it's right next to a property that the county is probably going to condemn one of these days. The builder got halfway through framing effectively a brand new house without going through permitting, the county hit them with a stop work about two and a half years ago, it's been deteriorating ever since, and I'm guessing the builder/homeowner are too broke to continue at this point.
Ace, the house is really nice but it was on the market for higher price we just looked at the house when they reduced it @ 699K because that was the price range I was searching. We looked at the house and it is nice. I didn't know about the tax assessment, but there were few real comps with the picture and it is even better to my test than those some of them that have pictures the interior)
http://franklymls.com/FX6947754 sold on 2/20/098
http://franklymls.com/FX7053019
815k on 11/24/09
http://franklymls.com/FX6925408 sold 759K on 2/20/09
shay, I hope you get it, then!
Dave, do you mean this one?
http://franklymls.com/AR7083243
This is a very interesting comp. I agree this one has a better location, though the one on Eads' updates are more to my liking and it has a much bigger kitchen (important to a lot of people), but this one should have had pretty broad appeal. This one has a long, narrow living room, which limits it a bit as an entertaining space, but it also has a garage, which the Eads house lacks, and much more usable outdoor space. I'm starting to lean more toward your prediction!
does anyone know an inspector who knows old houses and works in DC?
I'm looking at a place in DC, and need an inspector.
Ace, That's the comp.
And I admit my memory isn't what it once was, but I'm recalling the comp being on the market for significantly more than 75 days (I'm thinking open houses starting around... April, maybe?)
VA Investor
I can sense your pain but what is a "K"? Kickout? I thought that is a house sale contingency (not applicable in your case?)
c,
I'm happy to see that there is at least one non-lawyer on board!
K means Contract in legal abreviation.
Good luck VA_Investor. I think all of us are for more transparency in the market, and if it takes people like you suing their pants off to get it then so be it. You are doing the rest of us a favor.
Va_investor,
That's truly a bizarre situation... Hope it works out for you.
Dave,
Regarding the house on 2416 Eads, the sellers are definitely dreaming. They couldn't even throw in a finished basement for that price? I think people at a $800k price point expect a finished basement, because I expect that at my $600k price point in Arlington!
Jewel: You DO NOT want a finished basement at the house on Eads. We learned in looking in the neighborhood that very few basements are finished because the area is built on springs and it is almost impossible to keep water out of the basements no matter what you do to waterpoof them. If you buy in that neighborhood either assume the basement is for the laundry and storage or move up the hill to the dry area.
Va_investor,
Gah!!!! That's beyond frustrating. Best of luck with taking action, although I'm pretty sure you don't need luck with this aspect.
Xpovos,
Door #1's a really cute house. I take it, it's just too small for the size family you have or plan to have in total?
I agree with everything Ace said on Door #2. But I know exactly what you mean about the top of your price range. Renovations take cash, short-term credit or a renovation loan which I doubt they give for wallpaper... Our move-in ready limit was $400k, but our, may need a new roof, and does need $25k of interior work limit would have realistically been $225k (take $35k from the DP and put it in the fixing-up fund and 20% down). Yes, that methodology is the worst case scenario (take 20% leveraged money and turn it into cash). The other method would be to keep the loan amount constant at $320k, and divy up the DP and fixing up fund, arriving at a purchase price max for fixer uppers of about $360k and just sucking it up and paying a little PMI. Still, it's hard to find something with a full 10% discount, and that you feel confident only needs that much money to get into shape. Even more so for you since 10% isn't as large of a dollar amount for the repairs/renovations.
Wow, that unhelpful. Anyway, that was me commiserating. It's likely to take a lot of hunting, but you might stumble across it at any point in time. Best of luck.
spider,
I'm pretty sure the GSE's are simply minimizing their liability by buying the loans back from the investors. Tanta had some posts explaining this eventual outcome years ago on Calculated Risk. It's really not similar at all to purchasing new origination MBS's which is essentially what the Fed was/is doing and which is what has a direct effect on interest rates.
Cara & Spider-
Yes Cara is correct. the GSEs were already on the hook for these loans, they just determined that it is cheaper to buy the loans now rather than having to pay interest on the loans for another 6+ months and having to buy the loans in the future. Once the loans are 120 days delinquent there is virtually no chance that the loan starts performing again baring a huge influx of money.
Cara,
I understand, and thanks. :-)
#1 was painfully close. The 'deal-breaker' was a combination of size/prize/layout concerns. I'll be keeping an eye on it, and if the investor gets nervous and no one's biting, I may have another go at it.
#2's issues were primarily cosmetic, but I had reasons to believe a home inspection might turn up some more serious issues. It also had major layout issues. Vaulted ceilings for the dining room--very impressive, such a PITA! Den was laid out all wrong for what we had. The subtraction of one bedroom to add to the master worked against it too.
Still, again, we'll be watching, and if the price moves in our direction, I'll be ready.
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