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Monday, April 5, 2010
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38 comments:
The CR link pat linked to on the weekend is worth repeating:
delinquencies and underwater by state
We're 8th in underwater percentage, only 2 states away from California. And yet, in serious delinquencies we're at the bottom of a long slowly decling grouping of the bulk of the states that have between 5 and 10% serious delinquencies, with us near the 5% mark.
Underwater but not walking away. Sounds like jobs to me.
change since 08
ranked order
We're in a very similar position on the delinquency and ranked order of unemployment rate graphs. I would say that therefore so far, underwater-ness hasn't become a huge factor in our delinquencies. Or not the bulk of them anyway, which is in prime loans.
Cara, thanks for posting that. As I've said in the past, I think the key for price discovery is the foreclosures. It sounds like this area has a higher propensity to stick it out, so there's less of a REO rate than other states.
Kevin & Cara-
I agree it really does show that although some people give up when they are underwater most people with jobs continue to try and fight. I agree that price discovery is sped up due to the foreclosure/short sales. Which is why I think PWC/Loudoun... have hit the bottom but some of the wealthier areas could see prices continue to fall slowly. Hopefully this is not just my wishful thinking :)
Housebuyer, I concur. Perhaps one reason people here aren't as likely to be deadbeats is that they have security clearances, which means a) they don't want to risk losing them, or b) they are generally more responsible. Not that they'd lose their clearance because they foreclosed, but the fear might keep some paying their mortgage.
housebuyer,
Yeah, I was meeting my immediate neighbors while racking sticks this weekend. One of whom is $60k underwater if you use our house as a direct comp, less if you give him credit for the 3rd bathroom and 4th bedroom in the basement, but don't discount for lack of updates. So, probably $40k realistically. Anyway, both he and his wife are goverment employees of one stripe or another. They actually got a steal of a deal in 2006 (by buying un-updated). These people aren't going anywhere. Sure, they're underwater and know it, but he figures he'll be fine again in another year or two.
It'll probably take longer than that, and require sinking more money in with updates to bring the home closer to it's highest and best use.
But, I can't see him leaving until his teenage sons are through high school, possibly through college.
And the rest of my nearest neighbors are all lifers. Owned for over 10 years, and not leaving. Wow, I sound like Tom. But I just don't think well-established neighborhoods have the same underwater-walk-away risk as new construction does.
lifetime feds will not walk, it's not their style, but they are the lowest percentage of the workforce at any time.
if Obama cuts defense spending and Homeland Security BS, watch lots of the area tank.
Here's an interesting article about changes in compensation for lawyers, which we've discussed here before re: implications for housing prices:
At Law Firms, Reconsidering the Model for Associates’ Pay
Since it's NY Times, the focus is primarily on NY firms, but some info may apply to DC firms as well.
"In the last two years, many law firms have laid off associates, deferred start dates for hires and tinkered with base pay and bonus structures, including pay cuts and freezes, the redistribution of portions of base salaries as bonuses and the elimination of lock-step pay increases."
Cara, actually, I think you sound more like @j@! I have a friend who is in the same situation as your neighbor and says the same thing. I think long-term residents (who may have moved up or down or out in the case of divorce, etc., when prices were higher) believe housing prices are volatile here. While they are unhappy about the recent plunge, they plan to keep their current houses for a long time and believe prices could easily recover while they own the house.
Two more interesting pieces of data on the chart Cara posted:
--DC proper is in the middle of the pack. So NoVA is probably somewhere between DC proper and VA as an entire state. Apologies if someone pointed this out previously in another thread and I didn't see it.
--NY has the best %. I would not have guessed that.
Ace,
(still reading the lawyer piece)
Interesting observations. Really, who would have pegged NY State as the lowest underwater precentage? Maybe fewer purchases during the bubble because of extended economic fallout from 9/11? I don't see Connecticut and NJ at the bottom though...
Ace,
The article makes it seems as if the entire structural problem of overcharging for billable hours will be put on the backs of the incoming hires.
Could that even work?
Is there enough money to be saved that way to maintain the high salaries of the 8 years and up crowd?
What happens at this year 8? Where do people go who don't make partner?
What percentage of new grads were hired into Big Law making these salaries?
So many questions...
I think the most telling anecdote was when offered way lower salaries all 18 hires with the bait and switch still accepted the jobs.
Blogger cara said...
The CR link pat linked to on the weekend is worth repeating:
Interesting observation RE: Texas in that article. And it's something I can confirm. That 80% rule save a whole lotta Texans' who at the time (the bubble period) were manically screaming to the Texas Legislature to change those rules to allow for 100% equity loans. Texas refused to do it, they literally planted a flag on this issue.
An today...those same folks are breathing a sigh of relief that they didn't get caught up by those "Cash out your equity with a DiTech Home Equity Loan [not valid in Texas or where prohibited but completely valid and available in California, Nevada, and Florida...]...."
I think I used to see the DiTech commercials about 30-40 times a night back in the day....
Cara, good questions. TBW and other lawyers here may want to chime in on this article.
I think that a significant element of the price "stickiness" of a neighborhood is its turnover. An example, the street adjacent to our is fully within our neighborhood/subdivision. I went to the FFX co website to check the sales. There are 67 houses on the street. Sales by year:
2010 - 1
2009 - 4
2008 - 1
2007 - 1
2006 - 0
2005 - 2
2004 - 4
So, during the "peak" of the bubble from '05-'08, only 4 of the 67 were sold. Are these people underwater? Quite possibly. Are there others that probably HELOC'd themselves into trouble? Probably. But is this neighborhood in much trouble? I doubt it. And I also doubt I ended up picking the only steady-state neighborhood inside the beltway. I think the simple fact is that despite what seems like an absurd run-up, some places are unlikely to all of the sudden bust a lot more than what has already happened (barring something on a macro-level).
TN,
And yet Texas is still semi-middle of the pack in terms of underwater percentage.
I think what the 80% rule did more effectively was prevent a bubble from growing out of hand, by reducing the incentive for homeownership. If a home is just about a home, then no buyer wants rapidly rising prices. If a home is about free money, then many buyers and owners do want sky-rocketing prices.
The funny thing is, the 80% rule primarily protects the banks from the fallout. That 20% buffer is looking pretty good right now, especially since it's nearly gone for many owners.
Does Texas not allow 3.5% FHA loans and low-down VA loans and Ag loans either?
Fred,
Isn't your specific example the same thing CRT did on a wider scale for this area?
My $0.02
Cara said "Owned for over 10 years, and not leaving. Wow, I sound like Tom."
That's what longterm homeownership does to you, Cara. Don't fight it!
Fred,
Good way of looking at it. FFX county does let you sort by sale date, how convenient!
By that method my street (also fully within my neighborhood) has 109 houses, 9 of which sold during the bubble and another 6 of which may have been refinanced during the bubble years (assuming refinances appear in the records as $0 transfers). Some of those "refi"s are probably not refi's since they were moving from an owner to a trust named by the owner.
So assuming my street is a fair survey of my 1000+ house neighborhood... then my neighborhood has about a 9% underwater fraction, possibly 13% or so with HELOCs. Well under the 24% in VA, 16% in DC, 22% in MD(by EYE).
Not as quite as healthy as your neighborhood, Fred. Whether it's healthy enough to be sticky at the current price-level or not, only time will tell. (just outside the beltway for those not keeping track of everyone's personal info).
I don't know if I mentioned it already or not, but the house that we have under contract is one of 12 on a cul-de-sac. Of those 12, one is clearly the one we're buying--from original owners. Three others are still owned by original owners (late 1970s). 3 were bought during the boom years. One was recently foreclosed upon.
Interesting story there. The Saturday we were out to do the home inspection, the foreclosed house had the winterizers out. They went to change the locks and shut things down to protect the property--when they went in, they found it stocked with all sorts of bizarre things which got labelled 'medial' or 'chemical' items. Called the cops, who brought in Hazmat. It was a 5 hour production.
It was interesting to watch. The day we saw the house first (also the day we put in a contract) I walked the street, looking at the neighbor's houses, decorations, cars, etc. The house that was foreclosed on and had these problems was the one that gave me the 'vibe'. Every other house was in great shape.
Wow, I was dramatically, fantastically wrong:
http://franklymls.com/FX7262955
REO, list $326k I said it was overpriced for the amount of work needed.
The market disagrees.
Sold for $340k.
If that's what you need to pay for a fixer upper these days, I'm so glad I went for move-in ready. As far as I can tell that's a straight discount for the dollar amount needed to make it look like the other split-foyers, no additional hassle/REO discount that I can tell. The main benefit then is being able to put in more money on your own timeframe and for your own personal taste.
Fred,
Yup, that's what I had to do to get down to 9 sales, and 6 $0 transfers. At first glance it did indeed look more worrying.
Texas Native said...
Interesting observation RE: Texas in that article. And it's something I can confirm. That 80% rule save a whole lotta Texans' who at the time (the bubble period) were manically screaming to the Texas Legislature to change those rules to allow for 100% equity loans. Texas refused to do it, they literally planted a flag on this issue.
I just read somewhere that Texas pushed the rule because of the powerful real estate lobby there. Of course everything they do is about increasing their own overpriced revenues, this just incidentally happened to be a good thing for the economy albeit by accident=)
Xpovos, Was there a meth lab in the home? Sounds pretty serious from your description (cops and hazmat). A meth lab can pretty much destroy a property and make it unlivable.
Fred,
Just spot-checked a different street and got 13% bubble purchases. I think I'll stop while I'm ahead.
Jaime,
A methlab was one of the possibles. I haven't been able to get any hard information. It's not been reported on at all that I can tell.
I'm not particularly concerned about it, which is odd, I guess. I should be since it's clear evidence of at least crime, and possibly more in the neighborhood I'm about to move into! But I think I see it more as just a natural fallout of the situation the area has been in, and the cleanup process starting doesn't scare me nearly so much as it just continuing to sit there and operate.
Xpovos,
I would agree. If that was the only house that gave you a bad vibe and didn't have that well-cared for feel, then the police coming in and clearing things out is the start of a good and necessary process of clean-up. Once completed some investor or new owner will buy it, and the nieghborhood can return to normal.
The liar loan/mortgage fraud environment led to all kinds of other illegal activities. I remember an NPR story on marijuana houses on 0% down interest-only loans back a few years ago. They could make more than enough money running them as pot-houses to pay the mortgage.
Xpovos, since it appears the problems in the neighborhood may be limited to that house, I can understand your reaction. In fact, that house may have helped you get a better deal on YOUR house, because some buyers might have been scared off by the other one. So your timing may be perfect.
Cara,
Of those 9 purchases during the bubble, how many rolled bubble profits from the sale of a prevoius residence into the downpayment?
The couple that bought our SFH in Clifton in 2004 sold a TH they bought in 1995 in the same school district.
Robert,
No way of knowing that I can think of. Well, no easy way, you'd need to follow up on all the lien records, which can be done, someone posted a link to it the other day.
I'm not sure I'm up for that much work. And if you're going that far you'd want to at least spot-check the non-bubble buyers to see if I'm missing refi's that don't appear as $0 transfers.
Robert,
Yeah, I think of my neighborhood as being "starter homes", and pre-bubble the prices were such that one would think that was true, but just because we bought it as our first purchase, doesn't mean we're typical. So, you're right, it's probable that some goodly fraction of the bubble buyers do have an equity cushion still today.
Hmmm, I could look up the fraction of FHA loans in my zip at the time... That might be easier, but less exact...
In any case, I think psychologically the first barrier to selling is not selling for less than you paid for it. And for that question, the lien amount is irrelevant.
(Looking under the lamppost...)
Xpovos, I feel sorry for the poor schmuck who buys that house if it, in fact, was a meth lab. The chemicals they use to cook up the meth are so caustic that the only real option is to demolition the property and start over. Kind of along the lines of what Cara said, meth labs have been really creative in finding places to do their business. I've read some stories where they have moved into vacant properties and by the time anybody notices they are long gone. Meth labs make the Chinese dry wall problem look tame.
I'll be keeping an eye out, that's for sure. The owner is a long-time owner, and looks to have gotten himself into trouble via a cash-out refinance rather than bubble buying (2004 $0 transfer). Right now I'm leaving the possibility that it was an overestimation and was just some hobby equipment, but the more sinister ones are very plausible as well.
Regardless of what is done, it'll be my neighborhood by then, all goes well. So a foreclosure, sale to an investor, or a demolition all have different effects.
Ace,
Most of the major law firms in DC follow the "NY model" (as do most major firms in Chicago, LA, SF, Houston, Dallas, Atlanta, etc with minor cost of living adjustments [you can live like a king in TX in other words.])
Things went from insanely awesome from 2004-07 (salary escalations, large bonuses, many perks) to insanely bad mid-2008 to present (everything listed in the article -- pay freezes, cuts, removal of perks, etc)
That's why I've always found Robert's whole "what recession?" a little shocking. I know that many of us lawyers wish he was right that the federal gov't was hiring a boatload of people. Instead the postings trickle in at the same level they did during the Bush years except now more people are competing for them.
Re all the posts about underwater mortgages...
I suspect this is a time where the Northern Virginia numbers are *worse* not better than the rest of the state. I don't think Richmond or Hampton Roads had much of a bubble. I guess some college towns did so maybe some of VA's did. So I'd guess Northern Virginia's underwater rate is even worse.
cara said
And the rest of my nearest neighbors are all lifers. Owned for over 10 years, and not leaving.
I told you it was common to be a lifer in a home. :) It'd be funny to hear their reaction to the "housing ladder" philosophy. I suspect they'd be as dismissive as I am.
cara said
Interesting observations. Really, who would have pegged NY State as the lowest underwater precentage? Maybe fewer purchases during the bubble because of extended economic fallout from 9/11? I don't see Connecticut and NJ at the bottom though...
Upstate NY is about as populous as VA. And there was no bubble there. You can still get real estate for five digits in some parts of upstate NY.
Add in that ~75% of people in NYC rent and so I think that would cause the most volatile NY market to be a smaller percentage of the state's mortgages then you would initially think based on the population there.
Oh! And so many buildings in Manhattan are co-ops with sizeable down payment requirements. Add in the reality that most recent condo purchases in NYC were subsidized by mom and dad for spoiled kids and you have probably most people who bought there with some skin in the game helping keep the number of underwater mortgages down.
tbw,
And the other thing about NY State? I read somewhere yesterday that they have a greater than 2% state tax on refinances. That would hold back the worst of the HELOCs.
A lot of the people in my neighborhood did come from the townhouses down the street. Or at least, when my co-worker lived in the townhouses he and his cohorts all bought SF homes 5-10 years later, and while he bought in Burke Centre, most stayed close by in the same school district near the same amenities and bought in my neighborhood. (partly because unlike him, they hadn't saved up a second sizeable downpayment, but were simply using the paid-down/appreciation equity + the original DP). So, some of the lifers are also housing ladder folks, it's just that these small homes were/are their target destination.
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