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Wednesday, February 2, 2011
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36 comments:
HB
it's good you ran the NY Times sim.
It's funny how the hard core ideologues won't touch it, or they scream about the numbers.
They want tax cuts to increase revenue, they want Foreign aid to be 300 billion, they want the numbers to be what their emotions tell them
is this near-$1MM home mildly or grossly overpriced? i actually know (tho not very well) the owners. they really need pictures that are not out of focus or with higher resolution... :)
MM, it has a nice kitchen and lot, and is very large (~2400 square feet). I am surprised that the assessed value is so low. Definitely, clearer photos would help.
My guess is that, with all the usual caveats and if the garage is in good shape (I didn't see a photo, so that always raises a question), it is only slightly overpriced, if at all. Of course I mean "overpriced" as in relative to other Arl. properties. I realize a lot of people think Arl. properties in general are overpriced.
"In the fourth quarter, 46 percent of borrowers who refinanced their primary mortgages brought cash to settlement to lower the balance on their loans, Freddie Mac said. That's the highest share of so-called "cash-in" refinances since the company started tracking the numbers in 1985. "
so half of people refinancing, lacked equity, half had plenty of equity.
is that the same spread for people who don't re-fi?
It does show how deleveraging is spreading. People are pushing to get below Jumbo, get below PMI, or get to the surface.
But what about those who haven't refi'd? The ones who can't come up with cash? or have job problems?
Are half of them underwater or at near negative equity?
29% of area homes underwater
"When Glennon and Craig Melton sold their Sterling home eight months ago, they came to settlement with $140,000 in cash. After considering their situation for months, they decided they wanted out because they were afraid their mortgage interest rate was about to jump to an unaffordable level. They were paying only interest on their loan and not making a dent in the principal.
The couple bought the house for $570,000 in 2005, sold it for $440,000 in June and kicked in $10,000 for the closing costs.
"We cashed in our retirement, our son's college fund, our IRAs. We just gave them everything," Glennon Melton said. "We felt trapped." "
But don't worry, lots of reasons for prices to jump. Ignore the warnings.
""People keep hearing about rising home prices around here and signs of recovery, and they think it's going to translate into a lot of added value for their home," said Richard Bridges, a Northern Virginia real estate agent. "But it's an illusion. Prices aren't getting better at the rate people think they are."
Pat-
Agreed I always laugh when people say we can fix the budget by getting rid of foreign aid and pork. Its like great we can cut out a few billion that way what about the other 1.3 trillion... I think the problem is too big for just spending cuts or tax increases. We need a considerable amount of both.
I would assume that part of the reason why half of people who refinanced their mortgages need cash has to do with the history of rates. Most people who bought a house in 2000 or before have a lot of equity and refinanced their house in 2001-2002 at ~5%, so it isn't worth the fees to lower the rate to 4.5%. On the other hand most people who bought in 2004-2007 got a rate in the 6-7% range, so it is a lot more beneficial to refinance. Obviously people who bought in this time frame would have less equity.
pat,
That looks like good news to me. Lower rates, lower payments = more disposable income.
Bear in mind that many (30-40%) have no mortgage. I don't know how you can extrapolate the overall situation based on refi's.
Regarding your discussion of rental demand; the WSJ had a good analysis in the Weekend edition (in fact, DC was mentioned re: the frenzied rental market). The projection is that some major markets - DC included - will experience continued tightening over the next 5 yrs.
This is due to the growing 25-34yr old segment and people feeling more secure in their jobs, in addition to reaching incomes and ages where roommates are no longer desired.
The pipeline will take a long time to catch up. Apt. reits have been soaring and rents are expected to continue increasing 3-8% per year depending on the specific market.
This mirror's my experience in the 90's (as I've mentioned many times). Sure "fear of buying" enters into this, but demographics dominate.
pat,
You neglect to mention the family that brought 10K to the table and then took advantage of the market to score a great deal on a larger, more suitable home.
If you are staying in the market, chances are any "loss" is made up on the new purchase. Just as those who sold at peak and bought a replacement at peak.
"Nicolas Retsinas, director emeritus of the Joint Center for Housing Studies at Harvard University, talks about the outlook for the U.S. housing market and mortgage foreclosures. U.S. home prices have reached a bottom and may be set to rise in the first half as buyers take advantage of increased affordability, said Karl Case, the economist who co-founded the S&P/Case-Shiller home price index. Retsinas talks with Pimm Fox on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg) (Bloomberg)"
video
Va_I, a lot of people forget that simple fact. You might like this story. Some time ago I was shopping for financing for a large addition to our home. I called a bank and a credit union, and the same thing happened at both. I told a mortgage officer that I did not have a mortgage on the current property, wanted to add on and wanted to get a loan, and asked would I apply for a first mortgage or a "re-fi"?
The first officer went through all kinds of legalese and I finally asked him to pause and said I didn't see how that applied to our situation. Finally we figured out that he had assumed that someone ELSE had a mortgage on our property and that for some reason I was trying to get around having to cooperate with that person in order to get *another* mortgage. Until I repeated myself multiple times, in multiple ways, neither officer "got it" that the mortgage was paid off.
(By the way, in case anyone is in the same situation and interested, eventually both said the appropriate loan is a "re-fi" in this situation.)
cheryl
Certainly for those with good incomes, losses on current houses allows one to roll into a better house for less.
The real issue is both macro economics, unemployment, and banks needing to clear inventory.
i cited yesterday that 11% of housing units are vacant. Now how many are local?
tks Ace. yes it's big tho looked outdated to me. but i'm not in this price point so you know better.
i can't help but wonder where they're moving to. will likely see the husband on Sat...
"Bear in mind that many (30-40%) have no mortgage. I don't know how you can extrapolate the overall situation based on refi's"
22% have no mortgage, They are fine.
22% have an old mortgage Either refi'd
in the last decade or now cashin
22% Have a mortgage underwater.
34% rent.
Thats the housing market to me.
44% of the market are housing secure. 56% depend upon landlords or bank forebearance.
now the renters are what they are, its the 22% underwater that matter.
do they walk? Do they just endure?
Japan is full of people still paying underwater mortgages.
Until I repeated myself multiple times, in multiple ways, neither officer "got it" that the mortgage was paid off.
Hang up.
i cited yesterday that 11% of housing units are vacant. Now how many are local?
Need to know the long-term average for this 11% number to have meaning.
yes,
Been in the same situation with owning something free and clear. Foreign concept to many.
pat,
How many of that 22% are local. Pulling up national numbers is not justified in my opinion. That is just my opinion - you can hang your hat on whatever you feel is appropriate.
"Pat said...now the renters are what they are, its the 22% underwater that matter.
do they walk? Do they just endure?
Japan is full of people still paying underwater mortgages."
Some endure, some go belly up, some sell & bring cash, some wait til prices recover, etc, etc, etc...In any event, I fail to see why this bothers you so deeply.
You do realize after all that by definition, the greatest percentage of people will be underwater at the bottom of the market. For example, back in early 2009, Core logic was reporting 32% of DC area was underwater....Early 2010, it was 31%....Now, per your report, its 29%.
Further, we wont get down to 0% underwater until we surpass 2006 peak prices, which in some hard hit areas will not be for another decade or more.
So what is your plan? 5 years from now, when prices are up another 5-10% are you going to cite "Core logic reports that 20% of DC homeowners are underwater" as a reason not to buy?
10 years from now, when prices are up 10-20% are you going to cite "Core Logic reports that 10% of homeowners are underwater" as a reason not to buy?
15 years from now, when prices are nearing, (but have not exceeded) 2006 peak prices, are you going to cite "Core Logic reports that 1% of homeowners are underwater" as a reason not to buy?
The Anonymous, Ace,
I noticed the N Arl SFH $800K-$1MM market appears to be very quite in Dec/Jan. did you know there's exactly one house sold in this category last month? Jan '10 had five.
I counted 11 sold in Dec '10, 18 in Dec '09.
Wow who put this house together. Why would they paint half of their bricks. The windows also look really mismatched. It looks like two reasonable houses got split in half and merger
I just looked at the picture again and I was wrong its not all brick. It is half white siding and half brick. Either way the point still stands that this is a ugly house.
Pat,
I'm just logging in for the day so perhaps this has been discussed but, what is the basis for saying half of re-fi'ers have equity and half don't?
I realize cash-in implies they needed more equity to close, but it could also mean that people are simply buying down the size of their mortgage payment.
I'm just curious as to how you drew that conclusion.
Thanks,
My $0.02
MM, agree, not much is new on the market. That should help your friends.
Robert, you must patronize much better businesses than I do. That kind of interaction (or worse) is pretty typical these days, in my experience.
I'll pop in for a few comments.
I realize that just about all the bears are gone, so there is no one to really keep VA (or the bulls) honest so the comments sections ends up turning into a semi-one-sided "buy, buy" . . . "what you didn't buy! how dumb are you, going to wait 'till your dead to buy?" . . ."buy now!!!" . . .everyone pats themselves on their back DC is great, market is coming back . .. . etc, etc, etc.
It's actually quite funny looking at a (now) outside perspective seeing how absolutely warped things are in DC.
So in the interest of popping in for a late night snack and keeping VA honest (who suffers severely from selective hindsight bias).
The article pat linked has 2 couples. One cashed out their investments and also brought 10k in closing costs. One just brought 7.5k-- they bought in '05. The difference IMO (the article doesn't mention the loan type for the 2nd couple) in the 2 cases would be the 1st had an IO and the second did not. The second was able to pay down some of the mortgage during 6 years and didn't have to bring as much to the table.
And no
"If you are staying in the market, chances are any "loss" is made up on the new purchase. Just as those who sold at peak and bought a replacement at peak."
this is partially true . . .
VA teller of half-truths.
Let's run some #s. Year 1, we have two homes, a 100k and a 200k home. Person A can only afford 100k home. After 5 years prices triple. 100k home is now worth 300k. 200k home now worth 600k.
At year 1 the difference between homes is an extra 100k after 5 years the difference b/w them is 300k, (i.e. the price of the difference doubles too).
It costs them an extra 300k now to buy home 2 vs an extra 100k 5 years earlier. This is true even calculating in their 200k "profit" when selling the first home.
Now this is all well and dandy IF your income tripled during those 5 years. Your income would now compensate for the added level of debt. If your income didn't triple and you moved up then congratulations you are a debt-slave, you suck at finances and your life will now be harder than before.
Conversely, take a 100k house and a 200k house. Prices drop 50%. 100k -> 50k, 200k->100k. Price differential between them went from 100k to 50k. So unless your income went way down you should thank your lucky stars prices collapsed b/c it's easier to move up now, unless you are leveraged to the hilt b/c you're a debt-slave . . . provided you were prudent beforehand and had financial reserves to cover the 50k loss.
From the article cashing out 401k and trust funds IMO are not financial reserves those are emergency reserves. If you have to do that you really shouldn't be buying another home.
For the record, I do own my home, free and clear (and I love owning my own home, so many things to do, and great price :-) ). I honestly want lower home prices. It could go down another 50% and I wouldn't care. No one ever complains if car prices ever drop or if computer prices drop but they want higher and higher home prices.
And fixing the budget without raising taxes is actually pretty easy (yes I've done the NY times things and got it to work 1st time, easy). It's kind of like what you do when your income is cut . . . cut out everything except the essentials.
Oh wait, this is DC. I can't honestly expect anyone who thinks that 500-600k for a 3/2 or 4/2 SFH is a reasonable price compared to current incomes, or who thinks pay freeze is unreasonable, or thinks fed workers are underpaid, etc. will ever be able to even remotely fix the budget problems. The only answer is more leverage and debt.
DC is a fantasy world and really has no clue as to what goes on in the rest of the country. That's somewhat okay as long people can understand it's a fantasy . . . unfortunately most do not.
Maybe someday DC will realize what many in the county now realize: Debt != Wealth. Debt = Slavery
cheryl says:
"How many of that 22% are local. Pulling up national numbers is not justified in my opinion. That is just my opinion - "
I believe DC is pretty much middle of the pipe for national stats.
Maryland and Virginia are 8th and 11th worst states for foreclosure/Neg Equity, National average is about 14th, DC is a couple places behind that.
CA, NV, AZ, FL These are the worst by a league, but, DC isn't that far out. Lots of Bubble here, lots of Hype in the past. Lots of mania.
Anon
I think by 2012 we will be through the worst, either the entire set of I/O's Option Arms, Etc. will have gone into Recast, Foreclosure, or Retention or they will never.
I think the Banks have started clearing inventory, if they would jump up rates 2%, we'd really have stable prices.
But, the Buyers bribe is done, the Subprime is entirely cleared out, now to see what happens with the Prime Bubble.
$0.02
Why I thought 54% had no equity.
1) In order to refi you need a couple of things Good Credit, Appraisal, Steady Income. The need to bring a check implies
2) Appraisal problems. Most people don't have much in savings. 50% of americans have none, 80% have very little. So Burning savings
to refi, is a desperation move.
when you buy down a mortgage payment you are saying
"I am buying a 30 year bond at 4.5%". People don't like that.
So that driver has to be IMHO
Appraisal problem (They were underwater, Close to the 479K limit
or Close to 80%) and saw the difference as worth the bleed on savings.
Figure half were refi's because rates are good, the other half were
underwater equity.
The deal is since 02, rates have been darned cheap.
What's been cheaper? It's not like people Refi'd out of expensive 78 and 82 vintage loans.
gte811i,
You may be correct, but this area is very expensive and has been since I moved here in 1981. I moved from Cincinnati, so perhaps I had a distorted view of pricing.
Do you mind saying where you live now and the median income and home price?
I'm sure you refer to me as the bull who distorts data and pushes home buying. I will admit that this is the best home buying opportunity I have seen since 1997.
Just my opinion. I don't care if people buy or not. I care about rents.
You think DC is out of whack and this will correct. Prices will never drop to the national median - again my opinion.
It's nice that you add your perspective which assumes a significant decline. Data and predictions are quite different and very well be wrong.
It's nice to see another bear on here. There are others. If late 2008/early 2009 was not the bottom or close to it, then I will admit that I totally misread the local market
I have put my money where my mouth is. I freely admit that I am an optimist. I have said many times that I expect we will bounce around the bottom for a number of years. I do not expect price drops over 5%. And this won't be of much concern to me.
I have also said many times that I bought little after 2003 unless it was a 1031. I don't recall encouraging anyone to buy in the period of 2003 to 2008 (at retail).
People do a refi for various reasons - lower rate, eliminate pmi, reduce term to 15yrs, etc. This may involve bringing money to the table. This doesn't mean the majority are cashing in IRA's or emergency funds.
pat-
I would think almost everyone who refinances their houses is using a conventional loan, so they would need to have 20% equity. So rather than saying 50% of people are underwater I would probably switch your comment to 50% have less than 20% equity.
VA Investor Another reason for refinancing is buyouts for divorces. In the credit counseling program I work with, we get many divorce referrals. The biggest asset is the house, and if someone wants to keep it, doing a refi allows one party to cash out the other through a refi.
gte talks about no one caring if the price of a car or computer goes down. If you have to replace a $1,000 computer or $20,000 car, it doesn't hurt as much as replacing a $600,000 house.
MM -- I hadnt noticed. 11 sales in Dec (on 26 units of inventory) was actually pretty high so maybe that explains the Jan drop. Should look in Feb & March to see if there is any followthrough.
reecon-
Although your comment is true that it would hurt a lot more if you had to replace a 600K house compared to a 20K car it is rare that you would need to. High house prices are only good for people who are planning on downsizing or moving to a cheaper area. You are going to live in a house so if your house goes up in value the rest of the houses you might want to buy would also likely go up an equal amount. So you really are no better off.
"GTE811i said...how dumb are you, going to wait 'till your dead to buy?"
GTE -- if you want to buy at (or near) the bottom...if you wanted to get the best price possible, would you move in when the greatest (or near greatest) percentage of people were underwater, or when the fewest percentage of people were underwater?
Just curious.
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