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Thursday, December 9, 2010
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29 comments:
Looking over this old chart makes me wax nostalgic.
http://thegreatunwind.com/images/IMFresets.jpg
Years ago, the doomers would post this reset chart -- the very clear implication being that 2010 would be a year of fire and brimstone for high end real estate (cuz thats where the Option Arms were).
Even better, our local doomers of yore would point to this as one of the many reasons "its moving in" the idea being that Arl/Alex sellers would be running screaming from the exits, and we 2010/2011 buyers would be scooping up prime immunozone places at firesale prices, laughing all the way to the bank.
Well as its now Dec 2010, the first of 2 TSUNAMI waves has crashed to the shore bringing utter devastation to sellers, and a land of milk and honey to buyers -- just like Mr. Mortgage said we would have.
True we have 1 more wave left in 2011 which could be "different this time". Still for those late 2008/ early 2009 sitters whose heads were filled with visions of late 2010 firesale deals in prime immunozone, the question is, "was it good for you"?
Dude
You're going to give yourself an ulcer.
Anon-
One thing clearly no one understood/predicted was the huge lag in time between when people stop paying and when houses hit the market. I agree that people were over estimating the damage that resets would do, but I think one of the main reasons was timing. If you look at people who got option ARMs in 05-06 the majority have already defaulted (most actually defaulted before their reset), but banks have just been handling the foreclosures at a slow pace. If all properties hit the market at once all hell would break lose, but banks are that stupid/can't handle the volume so they will continue sell properties for many more years at a slow pace. Due to the slow pace foreclosures hit the market, the market has handled them well and probably will be able to handle them in the future.
Anon,
CRT showed some pretty good numbers and had a very convincing argument debunking the whole option arm wave for the immuno zones.
I have not seen anything that convincingly argues the counterpoint.
My $0.02
I think the 2 biggest projects in Ballston are the site of the old Metro bus barn near the Ballston Mall. There are two office buildings which will face Wilson Blvd. One has already been leased to DARPA which is currently a few blocks away. The two planned residential buildings will be closer to Glebe Rd. but I understand that they won't start for a few years. I don't know if they will be condos or rentals. The second site is at the corner of Wilson and Glebe where the old Bob Peck Chevy dealership was located. There is at least one large office building which faces Glebe Rd and will be occupied by Virginia Tech. There are lower scale buildings on Wilson Blvd. These are supposed to be rentals.
VA Investor You are right about the shrinking inventory causing prices to go up. It is good for you and for my family rental houses. But it is tough to find affordable rentals in Arlington.
Reecon
I know i have the deal of the century on rent.
If i were paying 1600 or 1800/month
like many of my neighbors, I would be a homeowner.
But, as I do have a deal, I can be more picky, and I can be happy holding still.
Is the market like in 03 when it was every MF telling me "Buy now, or you will never own?"
Is the Market now like 07, when it was pretty obvious that prices were going to take a major hit?
Or is the market more like the middle 90's where it was a miserable long period of time underwater?
Now was it predictable Bernanke would drop rates to 4%? I don't think so.
the deal with zero percent interest is all those Option-Arms are cheaper to hold then fixed rate mortgages.
The day interest rates rise, those
adjustable move.
pat-
Although mortgage rates may/will go up, I will be surprised if the fed raises the short term rate for several years. The fed wants inflation and low unemployment. In order to get both of these it needs low rates. It has been fighting its best to cause inflation/lower unemployment and we are still near generational lows on inflation and highs on unemployment. So I wouldn't hold my breath that options ARMs are about to blow up because the fed moves rates higher.
pat,
I think you just need to decide whether to fish or cut bait. Yes, you have cheap rent. Obviously, you want to own.
It's up to you. No one knows the future (economic implosion, nuclear war, back on track, etc.).
I would guess that rents AND rates are going up. I don't think rates will impact pricing to the degree you do. I don't care as long as rents don't crash. I wouldn't care if I were buying a home.
Pat,
As long as you're living that cheaply, happy with your commute/living space, and packing the extra money away for a down payment - I say keep renting. At some point in your life you might need extra space for kids, but for now enjoy your time with no maintenance and no house payment. Just make sure you really are putting the money you save away toward the down payment every month and not spending it on cars/trips/etc.
cheryl
when you buy an investment property
what yield and cap rate do you look for?
pat-
I know your question is for VA, but out of curiosity are you buying a building for cash? (at least the cap rate is calculated for a cash buyer right)?
Also shouldn't the cap rate be dependent on other investment options? e.g. when treasury yields were 15% in the 80s investors would probably demand a much higher cap rate than they currently do seeing that there are no other high yielding investment options? I haven't talked to many real estate investors so I am just trying to figure out if you/they view things how I would expect them to.
Here is an article from CR on building costs building costs
I didn't realize that building costs had fallen by so much. The article is claiming that building costs have fallen by 15-25% not including the cost of land. (I assume land has fallen in most parts of the country by at least 15-25%). Either way I just thought it was interesting to see how much building costs have fallen. I guess this is good news for builders, it should help them stay in business during these lean years. Although its clearly bad news for day laborers that are now making 40% of what they used to make.
$399K for a 2/2 high-rise condo unit on top of Ballston metro/Grand Hyatt building.
we almost bought there years back but didn't want to stretch it to far and also the neighborhood was still sketchy. this could've been the very same unit we saw. great views.
pat,
I apologize. It's clearly your choice whether and if you decide to buy.
I tend to take a very simplistic approach. I look at my cash in, not the price/rent numbers. I look at ROI and also look (as best I can) to future appreciation based on events that I expect to occur.
If I am break-even or positive from day one on a property I believe is undermarket and has a good potential to beat the market on the upside down the road, I will go for it.
As long as it pays for itself and the tenants will be "buying" the place for me I don't worry much about the "cost" of my downpayment.
If I looked at it (and I have) the return, via principal payoff, is fine with me.
MM-
I think I would prefer this one It is more it 20% more expensive, but it is 36%, has a nicer interior, and is 5 stories higher so it should have better views. This building seems like it has decent pricing compared to many in Arlington.
"HB said... If you look at people who got option ARMs in 05-06 the majority have already defaulted (most actually defaulted before their reset), but banks have just been handling the foreclosures at a slow pace."
Agreed. The funny thing was, this now obvious method of disposition was dismissed as "impossible" and "NAR propaganda".
Had you, HB, appeared on this site a few years back and said this, you would be branded a "realtard (TM)" and clearly here to try and scare us into buying now. As $0.02 noted, the only person who got kinda away with this was CRT, and even then, despite his impeccable logic (and data to back it up), the majority position remained, "just wait til 2010, there WILL be a TSUNAMI, you will see"!!!
It just amazes me how blind we were to seeing only what we wanted to see.
that's because no one predicted the magnitude of the massive bailouts, sherlock holmes.
Anon-
Agreed.
MM-
Predicting interest short term interest rates were going to 0 was/should have been pretty easy seeing the fed only cares about inflation and unemployment and both were causing them to want low rates.
It was also pretty obvious they would not let the entire financial system fail. It was possible they would make all the stock worthless, but they couldn't risk the lend of all lending and money market accounts.
I think looking back a lot of actions could have been predicted, but maybe that's me just using hindsight
"Pat said...The day interest rates rise, those adjustable move."
So Mr. Mortgage's precious "the quickening" hasnt gotten here yet huh Pat? Say, why dont you ask him when it gets here? Oh, thats right, Mr. Mortgage deleted some of his old posts (remind you of someone?) and hasnt posted anything new for 6+ months now.
A word to the wise, it is not considered being a traitor to bearishness by noting some bearish theories are pure garbage. I remember once some bear insisted XYZ was going to happen in Virginia, even though (because of the foreclosure laws) XYZ was impossible in this state. This is not like religion or politics where to be a "good christian" or a "good democrat" you must adopt 100% of the official dogma.
Dont get me wrong, there are still good reasons to be a bear. Being a bear because of reasons like unemployment, removal of the tax credit, slow household formation, etc. are all rational and defendable.
However, being bearish because of, (and defending theories like) the "Option Arm TSUNAMI" are just plain dumb.
Learn to separate the wheat from the chaff if you really want to understand what is and is not a threat to housing in DC in late 2010.
"MM said...
that's because no one predicted the magnitude of the massive bailouts, sherlock holmes."
MM, while the predictability of that is debatable, its almost beside the point.
What CRT suggested back in 2007 and 2008 is that due to (a) sales by people with option arms (b) early defaults of option arms (c) refinancings out of option arms into fixed loans and (d) voluntary modifications of option arms, by the time that alleged "wave" got to us in 2010, it would be no more than a bit of splashing at our ankles.
The point was simple -- much of the massive amounts of foreclosures, inventory, etc we saw in 2008 was the 2010/2011 wave. This was entirely predictable, yet dismissed as realtorspeak.
The Anonymous: I have to ask: if it takes 13 months, on average, for a bank to foreclose or do a short sale, how do you know the tsunami isn't happening right now? I don't know that it is, but I don't know that it is not. Please explain your confidence. Thx.
Mike, in large part because the number of foreclosures we saw from 2006-2008 were so high, they could account for every subprime, I/O and Option Arm loan ever made, and then some.
To assume these massive foreclosures were coming only from Prime and subprime, and werent knocking down the height of the eventual 2010/2011 option arm wave was ridiculous.
Contrarian-
Although interest rates are currently very low wouldn't they likely stay at these levels or lower ones if we have years of deflation ahead of us. IF you look at Japan (the best example of deflation) their rates are way lower than our current rates and have been that low for years now.
Contrarian, from that CR article:
"[Greg McBride, senior financial analyst at Bankrate.com] was cool to the idea that option ARMs could flood the foreclosure rolls. Option ARMs are less concerning, he said, because so many have defaulted already. Indeed, the September 2009 Fitch Ratings report showed that 30-day delinquencies on option ARMs sat at 46% even though just 12% had recast. Further, option ARM foreclosure rates already match the sky-high subprime foreclosure rates."
Thanks for helping me prove my point.
Mike,
Further to your questions, CRT a few years back showed data on the number and types of different loans originated in the various zipcodes/neighborhoods in NOVA. For some of the "immunozones" the total number of undesirable loans was on the order of 800 or so. Remarkably small given the sales rate, number of homes, and time periods involved.
With a little additional analysis and comparison to regional markets CRT made a fairly convincing argument that the undesireble loan-type would not have much of an impact in some areas.
For what it's worth...
My $0.02
Contrarian, I dont think anyone was disputing there were plenty of prime ARMs out there. The question here was about the ALT A (i.e. the Option Arm and IO loan) TSUUUUUUUNAMMMMIIII!!!!!
Out of curiosity, when you said this...
+++++++++++++++++++++++++++++++++
"Contrarian said...This "shadow inventory" will soon come back onto the market, lowering the value of other homes, and ultimately the value of banks holding the mortgages.
When the next tsunami of foreclosures begins (in the next few months, along with a collapse in the stock market), it would not surprise me to see bank holidays (closures) lasting for long periods of time. 4/1/10 3:42 PM"
++++++++++++++++++++++++++++++++++
Which tsunami were you referring to? Alt A or Prime?
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