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Wednesday, April 14, 2010
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69 comments:
I found this chart interesting. It really shows how far we need to go to get back to historically normal debt loads personal debt loans
Although we are reducing debt at the fastest pace in our nations history we still have massive amounts of debt, which I imagine will continue to weigh on the economy for years to come.
Also the FHA fee increase has taken effect. I know the increase is not as big as many of us would like, but if I recall it was an additional 1%, which can't hurt.
I was kind of surprised by it as well. You'd think that with so many people bailing on their loans this debt would be shrinking, no?
Kevin-
Yeah I guess part of the problem is that at the same time as people are/were bailing on their debt the GDP was shrinking pretty quickly making the percent of GDP stay flatish. Now that the GDP quickly and people are continuing to bail on debt and paydown down debt through savings I would expect the number to start falling faster. The problem is that it will take at least a decade and likely decades to get this number under control and it will be a drag on the economy for much of this time.
Hi all - I don't want to sound too conspiracy theorist here, and I'm sorry if this was already discussed and I missed it.
I've noticed that there have been almost no new foreclosures listed in a good part of Fairfax (where I'm searching) in the last 2+ months. Do you think the govt and the banks are in cahoots where the govt is saying to banks "Look, we bailed you out, don't flood the market with foreclosures while we're offering these buyer credits"?
Perhaps I'm giving the credit too much credit?
MJC,
I've seen very very few new ones as well. None in the past month.
One or two a month since November.
As for the reason, I don't know. Now would seem like a good time to get them moving.
I'm figuring it's just that the post-HAMP fallout is taking longer to process than one would have thought.
MJC-
I think the government would rather get rid of the foreclosures while the buyers credit is around that way there is more demand to buy the foreclosures. With that said the government has absolutely told the banks to slow the foreclosure process down. Every couple of months they are making changes in HAMP and other programs with the full intention of creating bottlenecks in the process. The feds are trying to have an orderly liquidation of the massive pipeline of foreclosures with as little damage to the housing market is possible.
Also out of curiosity are you talking about foreclosures or REOs. Foreclosures are what is being auctioned off at the court house. REO is when it does not get a high enough bid at the foreclosure and the bank lists the house for sale and you can buy it like a normal sale.
I meant REOs.
housebuyer, that chart is cool. I read somewhere else that, because interest rates were so low, the % of household income going to service the debt was actually about the same as it was in years when we carried much lower debt loads.
Although this seems obvious, at least one implication has been debated pretty strenuously here, and that is that interest rates affect housing prices (all other factors being equal) because buyers can't afford to (or refuse to) take on a greater debt load when interest rates force monthly payments higher.
MJC-
I could be wrong, because it is more difficult to get good data on foreclosures, but it seems like a higher percentage of houses where I am looking are being sold as foreclosures and never making it too the REO step. You can pretty easily check for your area if there are a lot of houses listed as foreclosures by checking out the Washington post foreclosure section
Ace -
That is a great point to mention that the debt load doesn't seem that bad because of interest rates. I expect it is another reason why rates will be kept low as long as possible, while people try and reduce the debt load
Housebuyer,
It's interesting that you mention that more people are buying foreclosures. I met this woman who was the auctioneer on the court house steps for foreclosures. She did it for 20+ years, and said she'd never ever buy a house that way since you don't know the condition of the house, or more importantly, you're buying subject to any tax liens.
Ace,
That is a good point. If CC and car loan interest rates are lower, which they seem to be and should be since they're tied to something (I forget what), then the debt servicing could be comparable.
hb,
Not to be flippant, but what "historic debt load"? It seems to be rising and then leveling off, rising and then leveling off continually over the time series. One would think that like all things this can't continue indefinitely, but I'm not sure which section of time you think our debt loads will go back to. Though, the point still stands, if the loads never decline, then carrying this debt itself will be a continual drain.
MJC,
If you're interested in bidding on a particular house, you can always pay for a title search which will pull up any tax or other liens. On a $500k investment, I'd say the $100 or $200 title search is the least of your reasonable expenses.
Condition is a different question.
HB also didn't specify, bought by whom. Investors or future owner occupants.
Cara-
Good point I thinking something similar to the 70s, but you are right it basically rises the entire time...
MJC-
I am pretty sure you can check what liens are on the house and get title insurance to cover you. As for seeing the house a lot of times you actually can. Many of the houses in foreclosure are for sale (either at crazy high prices or short sales), so you can use this to do a walkthrough on the house and get a better price by buying at the courthouse. Banks are generally willing to give slightly better deals because selling at the courthouse saves them significant costs related to selling as a REO. I so agree though it is probably not worth the risk for most of us, which is why most sales at the courthouses are to professionals.
Cara-
It looks like you beat me to the punch on the investor vs owner point :) At least when I have gone to the court house it is mostly investor teams there.
HB,
I would say 90s is more plausible. Although one would hope that as the Baby Boomers age, their debt loads will drop which will pull the total down. They are at peak earning potential right now. But once they've bought that dream house and start paying it down, and no longer need a new car every 3-5 years from the long commute, and the parent loans for college get paid off... In other words I think the 90s level and slow rise and part of what was underlying the credit bubble was actually life-cycle debt of the largest cohort of Americans.
Banks bring up "fairness" issue over principal reductions
WASHINGTON — Top banking industry executives are skeptical about helping troubled borrowers by forgiving a portion of their debt.
The executives told lawmakers on Tuesday they are reducing the amount that troubled borrowers owe on their home loans only in limited cases. That's because consumers who are paying their mortgages on time are likely to see such reductions as unfair, the executive said.
David Lowman, chief executive of JPMorgan Chase's mortgage business, told the House Financial Services Committee that large-scale mortgage principal reduction "could be harmful to consumers, investors and future mortgage market conditions."
Chase estimates that reducing home loan balances so that no homeowners would owe more than the value of their homes would cost up to $900 billion, with $150 billion of that borne by the government.
Such programs "could raise issues of fairness," agreed Sanjiv Das, Citigroup's top mortgage executive. The pair appeared in front of the Senate committee with top executives from Bank of America and Wells Fargo & Co.
Sincere or self-serving? Or both. I do think that the future mortgage conditions part is a valid point. You need to kick the non-payers out of their homes so that future borrowers don't think they'll get the same deal. Otherwise you'd have to gigantically raise the risk premium.
$900 billion. What's GDP?
Cara-
I think you are correct it is a mix of self serving and sincere. JPM actually would be hurt less than most banks because they in general made good loans although they did inherit a lot of crap from Wamu. The GDP is currently ~14 Trillion, so that would reduce the debt/gdp graph for consumers by ~6-7%
Bank of America exec: 'Considerable number' will lose homes
Bank of America's top mortgage executive, testifying today before Congress, will release sobering details of home-loan delinquencies, including that "hundreds of thousands of customers" haven't made a payment in more than a year.
Obama's 'homes-4-freebies' program is about to end.
And that "hundreds of thousands of customers" is just BoA. Add the other banks to that number.
Contrarian-
Yeah I think most of us agree with you that there are still many people in homes they can not afford who at some point will lose their houses. My guess is it takes about 4 years to work through most of the inventory and it will just be a slow and steady stream of foreclosures. I think this is similar to their earlier comment that they will increase foreclosures this year by 600%
The banks didn't want to dump foreclosures because it damages their balance sheets.
If they hold a foreclosure in a portfolio. the portfolio value is (Num Houses)x (House value)
if they dump the house, the portfolio value drops as they have to revalue the entire portfolio.
so they are trying to slide these out slowly
contrarian, hb
Yup it's the same news:
from Calculared Risk
foreclosures for BofA peaking around 45,000/month in December 2010, for a total of 300,000 this year alone.
And if 2/3 of those are in Cali, FL, AZ, NV, how many does this leave for VA and the other middle-of-the-pack bad states? 100,000? divided by maybe 10? giving 10,000 max BofA foreclosures in VA this year?
WaPo old foreclosure data
VA had 12000 per quarter in the second quarter of 2009. So then whether this is scary or not depends on what percentage of loans BofA represents, because 10,000/year compared to 12,000 per quarter is pretty non-frightening. I don't know this number. But if BofA services more than 1/4 of the loans then indeed, foreclosures could be more in number than they were last year.
cara,
Your comment about boomer debt was exactly what I was thinking. Couple that with the kids that have been coming out of school with enormous debt and you get the results reported. Tuition has way surpassed inflation over the past ten or fifteen years.
Va_investor,
Indeed the explosion in school loan debt may be a lot of what happened starting in the 90s.
Although relooking at the figure, the change in the non-mortgage debt is difficult to gauge because it's on top of the mortgage debt which is clearly the dominant factor in the growth.
(not that people didn't take out HELOCs to pay for kids colleges).
Pat-
In addition to the banks not wanting to dump the houses the government also doesn't want them too. Most of the voting public owns houses and is unhappy if the value falls. So the politicians want to do whatever they can to make sure values do not continue to fall. They are hoping that they can delay everything long enough that the market stays flat for a while rather than falling quickly and starting to improve, because they would be voted out of office before the recovery starts.
Ace said
But does this justify such a large differential in income tax bills? After all, you know as a single young man without dependents, you are also probably drawing far less in services than others making your income, and probably less than the letter writer is.
I think he must be leaving out some details because I don't see where he got the $474 number.
He said he and his wife had an AGI of $92,000. He said after you take out the exclusion of social security benefits and the $12,000 per person over 65 you get to $56,396 in Virginia income. Using Virginia's tax table he should owe $2,985 and not $474.
He is clearly using something beyond the social security exclusion and 65+ deduction.
Most states do not tax social security benefits.
Also, this notes that the $12,000 deduction for those 65+ is limited to those who make $50k or less or $75k or less.
I don't think we should go overboard with senior benefits but it seems to me like most of Virginia's efforts are aimed toward fixed income seniors.
I also think anything that encourages seniors to retire is good for the younger generations. More retirements equals more job openings.
http://franklymls.com/DC7118626
under contract at 40%? maybe more from bubble price, 60% from the demented list price.
and this is the hoody part of the capital.
it's improving, but it's still half hood.
TBW-
I am pretty sure he said that there is $56,396 of income the feds tax that Virginia does not. I don't think he says what other deductions he has, but either way if his AGI is 92K the amount Virginia taxes is at most 35.6K and could be less if he has some things that are deductible for both the state and the federal taxes
Re household debt
The chart shows this was a multi-decade phenomenon so I would not totally blame Bush for this. On the other hand, there's a clear spike post-9/11.
I recall that Bush encouraged Americans to go shopping, visit Disney World, etc. Americans really took that to heart. I recall people half-joking around 2002-03 that they were doing their patriotic duty when they shopped. It was a crazy mindset back then.
housebuyer,
Okay, using the tax table that income level still generates a tax bill of $1,789. So it's still unclear how he gets to $474.
So I was skimming through the WaPo foreclosure listings. Never done that before myself, and still haven't come up with an easy way to self-produce their chart like the one they gave last year.
But apparently I'm wrong, there are still weak hands left to purge out in the far counties. Most common listings were Manassas and Woodbridge. But I did see some McLean, although only noted ones with unit numbers on them so not SFHs. But following through on some from Fairfax Station did lead to some with $600k+ primary loans, and which sold for over $750k in 2007.
Having never perused before I can't say whether this is more of the same or moving on up, but trustee sales are definitely out there. Mostly however they seem to be still in the places they were most common last year, long commutes and/or condos and townhouses or old run-down SFHs.
(though I would say Herndon was underrepresented on today's random date compared to its levels in 2008/2009, present but underrepresented)
I was pretty surprised that some 2007 vintage loans were amongst those already going bad long enough to get a NoTS.
And, a quarter of homeowners who want to sell their current home and buy another say they need to make the move in order to lower their monthly expenses due to financial problems.
Maybe another reason the lower end has been hot is because there are a lot of "move down" buyers instead of the traditional "move up" buyers.
Article
Va_Investor,
Survey seems to confirm my suspicion that there are a lot of investors in this "recovery":
About 17 percent of potential home buyers say they plan to purchase a home in the near future as an investment. That's three times the investor interest seen in March 2009.
Also, investor interest in purchasing a foreclosed property to fix up and resell rose from 11.3 percent in October 2009 to 16 percent in March, a 42 percent increase.
I do not think we will hit bottom until the investor numbers go back down to more historical levels.
Good news from Washington.
April 13 (Bloomberg) -- An $8,000 tax credit for first-time homebuyers expires at the end of this month, and U.S. lawmakers have no plans to extend it.
“That’s not on the table,” Senate Finance Committee Chairman Max Baucus, the chamber’s top tax-writer, said today in Washington.
“I think that’s pretty much it,” said Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat.
Nor is the tax break’s chief Republican sponsor demanding an extension. “I said when we passed it before that I would not come back to the well and I’m not going to,” said Senator Johnny Isakson of Georgia.
...
Baucus said there’s little appetite among lawmakers to continue the benefit when the federal budget deficit is projected to reach about $1.5 trillion.
“It’s competing with so many other popular provisions and we’re getting to the point where more and more provisions have to be paid for,” said Baucus.
Dodd said he told colleagues the previous extension was a “one-time deal,” and “we shouldn’t play games with our colleagues by getting this and then trying to extend it.”
Isakson said, “If you keep renewing it, people think it’s always going to be there and you lose the incentive.”
TBW, Virginia allows many of the same itemized deductions (RE taxes, mortgage interest, medical, etc.) as does the Fed. Did you factor an estimate for those in with your calculations?
tbw,
"I do not think we will hit bottom until the investor numbers go back down to more historical levels. "
What's your thought process here? Because I would have thought exactly the opposite. Investors need lower prices than owner occupants do because they need to make a profit, not just trade off for rent. So I would have figured that the bottom would be marked by a maximum investor participation, just as the top was marked by a maximum speculator participation. Sure it could be delayed in time by a bit either way (some more investors than typical still wanting to get in as prices start to rise).
So I'm curious as to what you're thinking. Did you just mean that we won't know the bottom has passed until after the investor percentage has peaked? I'd agree with that.
But the housing recovery could still happen even with a continued overhand of distressed properties that have the potential for flipper profit, such that the investor percentage would stay elevated. And people tend to avoid condos like the plague for years after a downturn, so there will still be a lot of investor activity there since the prices should stay relatively low.
Cara-
I think you need to separate the good from bad with investors. You should have a lot of smart investors at the bottom, but you tend to have more of the dumb investors at market tops not bottoms. For example there were way more "investors" flipping houses in 2006 compares to now.
So make sure you are not just thinking of people like VA_investor, but also all the weekend warriors who think they will get rich flipping a house he/she is working on during the weekends.
hb,
It was subtle, but that's why I said "investors" for the bottom and "speculators" for the top.
And that may be tbw's concept, that 16% investors has to have some foolish ones in there. But its 16% of purchases, not of people. So the smart investors could just be throwing more money in.
So yeah, it may come down to what fraction of today's investors you think are scrounging for the best deals that are so far undermarket as to practically guaruntee a return or will be nicely cash-flow positive as a rental, and what fraction you think are betting on a quick turnaround in price otherwise they're screwed.
I'm guessing there's not a lot of dumb money left out there. But I also am surprised by the continual drum of foreclosures in PWC, so what do I know? Maybe there's a bottomless supply of both.
Regarding the principal reductions, I don't think it would serve anybody's interests except for the small minority of the populace that bought with zero down, can actually afford their houses, and would in effect be receiving a six-figure check from the banks to reward them for their bad behavior.
Morally, it is a horrific idea. It would be like spitting in the face of every renter and responsible owner in the country.
Financially, it doesn't make any sense. If they start offering broad principal reductions, it would reach more people that wouldn't have walked away and anyone that doesn't get it would walk regardless. It's pointless and I hope the proponents of such a terrible plan have a moral awakening.
Kevin-
I agree. You can probably make similar arguments for lowering peoples interest rate, but I think it goes down a lot easier with most people. I am not really happy that people are being rewarded for their bad behavior with interest reductions, but at least it isn't as appalling as writing people six-figure checks. So if they feel they need to try and help people by reducing their monthly payment I think they should use interest rates.
The March county by county NVAR reports are now out. (link on Harriet's front page)
FFX county the most interesting thing that I could find is the story of number of new listings in March in SFHs. Up by double digit percentages across the board price wise above the $300k mark, down by more than half below that.
But given that solds were well up for almost every bucket above $400k, I'd say it's warranted optimism on the part of sellers. 465 sold compared to 2763 active listings at month close? 5.9 MOI in a rising inventory spring environment? Not bad at all.
SFH's and condos both outperformed townhouses in YoY median and average price gains. For what that's worth...
Or I guess the other thing for those following MoM trends, after Dec, Jan, February falling trends the SFH average and medians both went back up to January levels this month.
Could be the mix. Everything in these reports could be the mix.
Now we wait, first for the May inventory once the 1st time buyer credit has passed and the new FHA fees have been felt. Then for the June/July close prices once any April contracts have flushed out. In the meantime keeping an eye out for a surge in foreclosures locally, not just in California.
Cara-
I think we might need to wait a little longer than June-July. My guess is that sellers will not care the credit ended and will not immediately lower their prices after April. Buyers will want the sellers to lower the price, so there may be a bit of a stallmate causing few people to go under contract in May & June. This is just my guess we will have to wait and see.
forgive me for being new to this process, but can someone tell me the details or a website as to how one would actually go about buying an auctioned property (has not hit the MLS) and if you can purchase one without all cash, and for example if the property itself was located in alexandria va, would the auction happen in the same city or is it at a specific location within the county/state.
N Arl 4/3/2 on busy street sold just below '05 price. Sanity returned?
cara,
I like that terminology -- speculators vs. investors. Every market has some investors and there's nothing wrong with that. It's when the speculators come in and ruin everything.
So to answer your question I think there are still many speculators. I just do not believe you get to 16% of purchases with people who make real estate investment their full time job like Va_Investor. I think we still have a lot of people buying up a second or third home intending to flip it because they saw something on HGTV.
Keep in mind that many people do not believe we ever had a bubble. To them the 2006 price is the "market" price and the 2008-09 prices are the "recession" price. I'm pretty confident many people believe once the recession is over they will get 2006 prices again. Yes, I'm just armchairing that. :)
dyi-
All of the auctions are done at the steps of court houses. If it is Alexandria city it would be at the Alexandria court house. If it is the part of Alexandria that is part of Fairfax County it would be at the Fairfax Court house.
Generally on the listing they will tell you what the winner must pay that day. This is usually 10%, although sometimes it is something like the minimum of 10% or 20k. You then have 15 days to get them the rest of the money, so if you have a bank that has all of your information you should have no issue getting a loan set up in that time frame. If you do not close on the house in 15 days they can keep your money and reauction the house.
MM-
Not only was the house 5% lower than the 2005 price according to the comments they did some expensive work on the house recently. They at least redid the master bathroom and perhaps did some of the other work. So perhaps N Arlington can sell for less than peak :) Although I am sure Tom will tell me that this is nor N Arlington (clearly anything selling for less than peak is not N Arlington)
hb,
personally i think the house over-improved itself. but i'm not in that price range so it means nothing.
also i wouldn't say 10/2005 was the peak in N Arl. i think '06/'07 was, especially for pricey homes. '05 was when 30-50% annual appreciation stopped. but again what i think means nothing.
MM-
I agree that 2005 was not peak so realistically this is probably selling for 10-15% below peak. Sure that is a much smaller discount PWC, but it isn't insignificant either
MM, I think that's a nice house, but agree with you the busy street was a big factor.
All neighborhoods in North Arlington have dropped in assessed value since 2006--it's a matter of public record, no matter what some people's opinions are. Some have dropped much more than others have, and obviously individual houses differ, and with all the improvements some owners have done since then, it's often hard to sort out market movements unambiguously. But I don't think Arl. Co. (or any other Co.) is in the business of cutting property values and forcing themselves to raise tax rates--never popular with voters--unless the market clearly dictated it.
I would find it interesting to hear the thoughts of the new owners on living on Washington Blvd (home MM found). Do they think it's a plus?
I can understand if someone had a budget of $200-300k for a home compromising on being on a busy road. In this area that's unfortunately become a small budget for a SFH so you might have to take something bad like being on a busy road.
But if you are whoever bought this house and you had $800k to spend? Really? Seems to me that you basically had your pick of the litter. While you are still priced out of a few neighborhoods you pretty much have a lot of homes you could buy. Why end up with one on a busy road? Even in North Arlington $800k gives you a lot of options in SFH.
This is focused on DC and some of the tenant protection commentary is almost certainly irrelevant to Northern Virginia, but a lot of it I think relates to our discussions. Here is Megan McArdle complaining they cannot find a home to buy in DC.
Well, TBW, I hate to sound like a pumper, so I'll just say: do a franklymls search of Arl. sold properties in that price range, and I think you'll be disappointed. I predict it will confirm your decision to shop in Fairfax. The owners clearly made a trade-off for a nicer house on a busy street. To me, the busy street is a deal-breaker but I do understand others' choices given the competition.
http://www.lpsvcs.com/NEWSROOM/INDUSTRYDATA/Pages/default.aspx
interesting data
c, Va_Investor,
I have passed your info to the SIL (son-in-law). We talked for while.
His house was assessed at $750K at the peak but now Fairfax says it's under $600K.
He has more than enough savings to help buy a small apartment but he is waiting for several things to be resolved, the separation, divorce, a consult with a tax attorney, and whether the old man will have to file for bankruptcy.
He mentioned that a fellow in Springfield just lost his house. That fellow has not worked for 2 years, got behind on his mortgage, and the bank sold it the other week.
Ace-
I am not sure its that great of a deal I looked at all of the comps in the same zip code that sold in the last year. I will list a handful below that I think are at least as good but aren't on a big street.
799K fully renovated
840K bigger house
836K huge needs some updates
755K fully renovated
There are also a ton of houses that are either not updated or slightly smaller that went for 650K. With the extra 150K you could add an addition or add the updates.
OK, HB, I'll let others comment at length. I'll just say that the first one is within spitting distance of 66 - to me that's just as bad as being right on Washington Blvd. and probably it factored into that house's price. I won't nitpick on the others, but I do see trade-offs with all of them. My argument is not that the Wash. Blvd. house is a steal or even an especially great deal, but just that $800K doesn't buy you a fabulous house in Arl.
Having interviewed builders and architects, I do not think you can get much of an addition for $150K, especially if you aren't designing it yourself and serving as general contractor, and you would still have to deal with huge hassles. Renovations, yes, you can do some for the $150K.
Ace-
Thanks for noticing the first one is so close to 66 I hadn't actually noticed. I agree with your premise you can't get an amazing house for 800k in N. Arlington, I was just trying to say that there did not appear to be a big discount for being on a busy street. HGTV regularly says that a busy street brings down a houses value 10-15% and at least to me it didn't look like the house was 100k+ cheaper than other comps.
I wish I could find better comps, but in N. Arlington most of the houses are fairly unique so there just aren't any great comps. Its a lot easier to get comps in the new neighborhoods with all the cookie cutter houses haha :) If someone looked at other Zips perhaps they could get better comps. I don't know the neighborhoods well enough to know what is comparable neighborhoods in Arlington.
Tag - I sympathise that he is in such a rough position but I'm pretty sure that prices will drop later this summer and he'll be in a position to get a better property that he can today, provided he can pay cash and won't be affected by rising mortgage interest rates.
housebuyer, agreed. It's also very hard to imagine the floor plans and flow of these houses, which is a big factor in determining how desirable they are.
tag,
I agree with c, well I'm not confident that condo prices will actually go down, but I have a hard time imagining they will go up.
Yup, there are still foreclosures in Springfield/Burke/Greater Alexandria. These were actually some of the relative hotspots by FFX cnty standards last year. Herndon was worse, hence why I commented on what appeared to be a lack of concentration there in a scan of the WaPo legal notices yesterday.
tbw,
Wow Megan McArdle sounds like such a whiner in that piece, she's usually not so obnoxious. So the good houses go under in 7 days or less. Okay great, now you've identified that you need to be following only the new listings as they come out, and staying on top of them to check them out individually promptly. Which means doing your homework about price and location ahead of time such that you can make a decision. Or, you can wait if you think things will improve. Your choice. Geez.
The thing about the percentage of speculators now is, that's not what I've been seeing come on the market for the past year. The number of Capital Investments LLC and other clearly professional outfit properties vastly outnumbers the number of 2008/2009 purchasers trying to flip (although I have seen, and even pointed out some of those). If you're right and we've got a lot more new dumb money flowing in, they must all have the buy and hold strategy. Which, since I'm also not seeing an increase in rental listings post-sales, would mean they're living in these homes, hoping they bought them at the bottom. That would be indistinguishable from real buyers at this point.
OTOH, you're right, I can recall a number of 2008/2009 purchasers who have listed and/or sold. Most got away with it.
The trouble would come if the current speculators are still getting teaser loans or I/O loans and hence will run into trouble if profits don't appear within the next 2-5 years. I know those percentages are down, but I can't recall to what and when. But one could consider things like the 3.75% 5/1 ARM from ING I've seen advertised as being a "teaser" equivalent since rates are most likely to be higher when year 5 rolls around.
tbw,
But wait, my category of dumb money wouldn't even show up in that 16%. You need 2nd or 3rd homes, or investment properties to get included in that number.
So, those should show up in some way, are you seeing more non-pro flippers in your neck of the woods? Or more rentals available? One would hope they're not so dumb as to be just leaving them vacant... and pretending houses are stocks...
And your explanation still doesn't cover my orginal question. Wouldn't investor participation at the bottom be higher than "historical norms"? Expecting it to decrease from now is one thing, expecting it to be at a minimum at the bottom, or even down to normal levels is another.
Cara-
I have seen a handful of properties come on the market in my small area that were bought by real estate agents who then added 10-20K of work and listed the house 80k over what they paid. Most of these houses are sitting vacant at least according to the pictures.
housebuyer,
How does that compare to the number of more professional flips you've seen? Have the realtors so far been successful?
This could be another area/price specific thing, where I'm not seeing what tbw is seeing because my neighborhood is entry-level, and the intoxification from the bubble has been heavily beaten out of it, such that flippers are only buying foreclosures and short sales and until some very recent exceptions getting enough of a discount that a profitable flip could be done even if prices don't rise.
Whereas in Vienna or other Tyson's convenient locales, or other semi-levitating regions/price points the belief of a quick return to 2006 prices might still prevail.
If you think about it also, the pros should concentrate on the lower rung housing because with the same amount of money and profit potential they can spreas their risk of serious expensive damage to a house they buy across more properties.
Now, what the breakdown of these categories is in the amalgamation of the DC area, is much harder to answer. I would have guessed there are both more houses and more turnover in cheap areas than there is higher up the food chain, but by what amount I don't know. But if the median FFX cnty sold price is under $400k that gives you most of your answer. More than half of the county's sales are more similar to my neighborhood than they are to Vienna... But not by a lot.
So, I'll call it 50/50 8% of purchases by speculators, 8% by investors. Which I think still puts the investor share higher than "historic" levels, but also shows signs of irrationality in the mid and upper levels.
Cara-
I actually find it pretty surprising I haven't seen a capital LLC house hit the market where I am looking in almost a year now. They bought a ton in late 08 early 09, but have been quite since. In general I haven't seen that many flips, I think there are just too few great deals around here.
I think, once again, demographics and turnover rate are not being properly accounted for.
Destination neighborhoods that are close-in have a longer lengh of ownership and alot of move-up equity. These people also have assets to carry them thru tough times.
The crazy loans were being made in the new developments at peak pricing. They were also being made to people who had no understanding of "teaser rates" and liar loans - this you see at the lower end, mostly.
Responsible professionals in good neighborhoods mainly "bail" to due a change in circumstance, where others couldn't understand that places were wildly overpriced and they couldn't afford the homes to begin with.
I see no one in my area walking away merely because prices have dropped. That would be ridiculous. These are "homes" and nobody is going anyware short of a major situation of duress.
This is the difference between the better neighborhoods and the 'hoods.
My payment is fixed and affordable. I have no desire to sell. I have no need to sell.
This is why the low-end crashed and the rest did not. The low-end couldn't afford their places from day one. They were paycheck to paycheck with nothing to fall back on. Smart people dumped the bad areas and used their equity to move up. Investors simply got out while the getting was good.
Va_investor,
"I think, once again, demographics and turnover rate are not being properly accounted for."
Sorry, I'm not following you, in what discussion or with respect to what question?
I'm guessing what you're getting at is that those areas where I would allow tbw to put speculators today (for lack of personal knowledge on my part) you would argue there are none now, nor ever have been? (none, few, take your pick). Is that where you're going?
cara,
My mistake. I thought we were talking about where (and why) the future foreclosures would be concentrated.
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