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Friday, June 20, 2008
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38 comments:
From yesterday's Washington Post op-ed Page A Home Price Firewall
Feldstein's fix to stem the tide of forclosure seems breathtakingly (at least to me) inadequate:
"The federal government would offer all homeowners with mortgages the opportunity to replace one-fifth of their existing mortgage (up to some dollar limit) with a government loan. This loan would carry a substantially lower interest rate than the individual's mortgage (reflecting the government's cost of funds). It would be a full-recourse loan that would have to be repaid regardless of what happens to the borrower's mortgage or home. By law, it would take priority over all non-mortgage debt."
So, Marty - you're telling me that cutting a borrower's interst payment (mind you - no principal, taxes or insurance are reduced) on ONE FIFTH of his morgage is going to stop many forclosures? Good grief.
Let's do the math on my house. I pay about 1750 a month in interest on my morgage - so one fifth of that would be 350. I pay 6.5% - so a federal funds level rate cut (currently 2%) would cut that to $107 a month.
While I would enjoy seeing my overall mortgage payment cut from 2200 a month to just under $2k - it wouldn't be a huge difference maker for me - and I doubt it would offer a lifeline to someone who was facing forclosure -- ask a lot of them if a 10% overall payment reduction would be enough to get them back making their payments. I don't think a lot of forclosures are happening because people are just barely unable to afford their loans.
Nothing against you Marty, but did you really think this through? And I'm not even getting into the structural difficulties of partially modifying thousands of loan agreements, much less whether folks would pay they 1/5 component of their mortgage to the Feds or their mortgage company and other payment administration questions.
zeropointzero, I think that you are missing the point. The lower rate is not designed to help them keep their homes, it is designed to be the incentive to sign up for the program. Once in the program, the reason forclosures are prevented is that, now 1/5 of your loan is a full recourse loan. So if 100k of your 500K mortgage is full recourse, when your house value falls to 450K, you still have a disincentive from walking away (i.e. the lender will take back their 100K).
Why doesn't the govt offer this on new loans for 1st time buyers?
I'd might consider buying then ;)
So under Feldstein's plan, even billionaire Oprah Winfrey could get a government-subsidized, cut rate loan for a portion of the mortgage on her $50 million mansion? (not that she even has a mortgage, but you get the point)
Yep, that makes a lot of sense.
LOL JF
good point.
always unintended things come out of this.
gotta save the rich person too.
EP - I got that point, as well. And, it's a pretty-ham handed attempt to get people to tie themselves to their mortgages. So, the unintended effect would be that people with some equity in their houses -- and the current ability to keep up with their mortgages -- would get an extra cost savings. But people who were probably going to lose their houses, whether they got this break or not, find themselves more encumbered in default (albeit to the Federal govt.)
It'll never happen - but I could have used the $200 a month savings. Heck - it would be just like letting a bunch of joe sixpacks like myself become Friends of Angelo like Messrs. Dodd, Conrad, Johnson, et al.
look at this home:
http://tinyurl.com/63yec8
3817 LACY Blvd FALLS CHURCH, VA 22041
Price: $322,500
Price reduction. Large corner level lot with fixer-upper in great location. New homes nearby. Close to Metrobus, shopping, recreation and in Fairfax County schools district. Foreclosure.
Here is the sales history:
http://tinyurl.com/5quhm8
So Willy Fernandez paid 200k OVER ?
I'm sure this did not appraise that high..so Willy put down a ton of his money into this dump?
Now Aurora took over at the loan default amount, 450k?.. and is trying to sell at 322k?
I don't see where Willy Fernandez got all his money. He broke even on his previous home sale with realtor fees. (And the next owner is in foreclosure too).
http://tinyurl.com/4alp79
Gotta find more about willy.
Nothing against you Marty, but did you really think this through?
The cruel part is that the 1/5th debt would follow them through life. No forgiveness. In effect, its forcing, after the fact, a 20% down payment.
It makes walking away that much more painful. Would it slow foreclosures? A little. Would it really just prevent people from moving geographically to pursue better jobs? Yep.
I've lived in three states and six cities during my career. Such a lock would have prevented me from pursuing my career path. Quite a few articles out there on how good jobs cannot find candidates as they are not willing to bail them out from under their underwater homes.
Got Popcorn?
Neil
wannabuy: Quite a few articles out there on how good jobs cannot find candidates as they are not willing to bail them out from under their underwater homes.
I'd be interested in such articles.
Feldstein's idea isn't going anywhere, but it is a useful discussion for returning to the idea of home mortgages being recourse loans. I don't know when the change was made (but think it was sometime around 1980), but I remember a time when people who were underwater had to come to settlement with a check to make up the difference when they sold their homes. People look at me as if I'm an alien when I talk about this, but trust me, I'm not talking about Charles Dickens' time. Frankly, I was totally ignorant and unaware of the age of NINJA loans (no income, no job, no assets) until this current crunch. Feldstein seems to be yearning to return to the old days, but I think we are almost back to the idea of banks requiring a cash down portion of up to 20 percent for buying a house.
I don't understand the difference between a "full recourse" loan and the loan that I have. Do you mean that I can mail in my keys and my mortgage lender has NO recourse? If that is the case, I need to hit the Post Office this weekend. It was my understanding that I was responsible for my loan and that a bank could go after personal assests if I don't pay my mortgage. If not "full recourse," what "limited recourse" does a bank have under current law?
--Remy
Yesterday's Wash Post article said:
"The analysis found that the steepest declines in home sale prices, between April 2007 and April 2008, occurred in the outer suburban ring, defined as Loudoun, Prince William and Frederick counties. The average price there dropped by $110,900, or 25 percent. The inner ring, Fairfax, Montgomery and Prince George's, had a decline of 3.2 percent. The core, defined as the District, Arlington County and Alexandria, experienced an increase of 3.4 percent."
Did I read that correctly, "an increase of 3.4% percent" in Arlington and Alexandria? I have read this blog for a while and my take (except for Lance and a few others) is that prices have dropped significantly in practically all NOVA regions.
The Washington Post is considered to be accurate, no? Ummm....How can this be true in light of all the doomsaying on this website which indicates that prices have dropped practically everywhere except a few pockets here and there in NOVA. I don't think Lance necessarily has it right, but I'm just saying...things aren't adding up like everyone says, at least in Arlington and Alexandria (3.4% increase???).
Additionally, the "inner ring" fell a whopping 3.2%? That's just "noise". Any homeowner who's worried about his/her property having dropped in value 3.2% isn't a homeowner. He/she is a flipper.
Remy will have to read his mortgage to find out whether he has a non-recourse or recourse loans. As I understand it, non-recourse loans historically used to be limited to commercial real estate, normally held by a limited partnership rather than an individual and so not having much worth outside the partnership in the event of a bankruptcy. But in recent years, non-recourse loans have also been used to underwrite regular house mortgages, with the instruments then securitized like commercial real estate loans. This is why we now have a problem of "jingle mail" or people just walking away from their properties and sending the keys back to the mortgage company in the mail. If you have a non-recourse loan, then you can walk away suffering only a two-year ding on your credit report that will prevent you from buying another house. But after two years renting, you should be able to get a mortgage again.
Great deal, ain't it.
Remy-- That must be averaged over the whole year. I did a spread sheet showing price trends for some of the core, inner suburbs and outer suburbs over the last two and a half years. It shows that Loudon Co., which has now experienced some of the steepest drops, started down in July 2006. Manassas, the place where losses have been the very worst, didn't start a sustained downward trend until March 2007.
The general rule you can see is the closer you go towards the center the later the peak prices are reached. Montgomery Co. didn't start down until September, 2007. Alexandria looks to have reached a peak in January 2008, and it's not clear that either Arlington or DC have passed their peaks yet.
To get an idea of where prices are headed you need to look at sales volume. The only places in the region where the number of sales is up strongly are places like Manassas, where most recent sales have been REO's-- sometimes selling for 70% or more off their most recent sale price.
Remy: Did I read that correctly, "an increase of 3.4% percent" in Arlington and Alexandria? I have read this blog for a while and my take (except for Lance and a few others) is that prices have dropped significantly in practically all NOVA regions.
Yes. There is an increase.
Understand though that it depends on how you look at the data.
That's the problem with folks who work with the data at a distance.
What's happening in my part of Alexandria, 22305, is extremely interesting and complex.
The premium properties, SFH on nice lots are selling well and for higher prices.
I've cited many examples and you can see this for yourself here.
Page through the listings.
Units that you might want are pricey. Units that you can easily afford are not so attractive. Across the board, someone is buying.
For a while, the available units in 22305 has been dropping. Less than 50 units are available in 22305. This is the north end of Alexandria.
For certain classes, prices are soft. Older THs and garden apartments are offered for 10% below the 2005 peak. That's very roughly.
Of course, a 1/1 garden apartment is $200K (down from $250K) and a 3/1 older TH is $400K (down from $450K).
"Additionally, the "inner ring" fell a whopping 3.2%?
Prices in 20009 dropped 24.1%. Isn't that where you live, Lance?
KH,
22305
May 2008 vs 2007
Average Sold Price:
$437,084 $533,838 -18.12%
Median Sold Price:
$340,000 $531,250 -36.00%
April 2008 vs 2007
Average Sold Price:
$373,269 $511,075 -26.96%
Median Sold Price:
$400,000 $449,900 -11.09%
March 2008 vs 2007
Average Sold Price:
$585,857 $566,360 3.44%
Median Sold Price:
$422,000 $471,100 -10.42%
Numbers seem pretty clear to me. There are so few sales though that the data can vary a lot. I hope your assessment goes down...heaven knows your property taxes are too high as you've mentioned. :-D
Alexa:
22305
May 2008 vs 2007
Average Sold Price:
$437,084 $533,838 -18.12%
Median Sold Price:
$340,000 $531,250 -36.00%
Oh, I'm sure... but that's the fallacy of using median values.
Take a look at the current offerings
The SFH's are vanishing from the listings. There are more and more lower value offerings over on E REED or near by.
Of course prices appear to be falling but that's the median. A 2/1 SFH near me was listed for over $600K, it sold and will drive up my taxes next year.
kh,
As you know, the mean is almost entirely uninterpretable when measuring home values, when the # of sales are so low. The median isn't perfect, but it is far less sensitive to a few extreme values than the mean.
When did that 2/1 unit you mention close? According to MRIS, for the 22305 zip code, in April and May 2008 combined, the *highest* priced 2 bedroom unit that was SOLD was for *less than* $350K. Exactly one unit that had 2 bedrooms (no bathrooms indicated) sold for between $600-699K in March 2008. It was the ONLY 2 bedroom unit sold in 22305 in March. In Feb., the only 2 bedroom sold was $400-449K. In Jan., the one 2 BR unit that sold was for $300-349K. Doesn't look to me like a trend for lots of high priced 2 BR sales...
ace,
I think KH is referring to a house on Tennessee Ave. with a huge yard. It was a 2/1 SFH that was listed for the low $600's and it sat for a while. [The land is where the value is.] I have good friends nearby. That house would have sold for mid $600's in less than a month in 2005-06.
I own in the adjoining neighborhood, Del Ray. There was a 4/2 SFH house on the corner of Commonwealth Ave. and W. Bellefonte Ave., originally listed for $800K. It needs work, but would have sold for at least $600K at peak. It fell and fell to $550K, and the listing has disappeared from MLS, as have two other SFH on Mt. Vernon Ave.
To get to the point: we are seeing less sales consummated in the nicer areas because fewer sellers are getting the prices they feel they deserve. This is particularly true for the sellers of less-than-immaculate places. I have no way of capturing data regarding houses that have been pulled from the market, so I can only offer anecdotes. But the decreased sales are a fact -- down to 1998 levels even in Arlington and Alexandria. For this to occur in an environment where interest rates are still 6-6.5% should generate caution, not glibness. Don't people understand what it means when an asset class trades at greatly reduced volume, albeit at the same price? Just wondering.
kh - I also included the average cost if you didn't notice. So you are saying because there are very few SFH's listed, that is why median/average is down? With 9 sales in May and only 49 places for sale...it's tough to argue.
I clicked on that list of homes in 22305. Wow...you don't get a very attractive home for your money. Of the 49, only 2 looked even minorly interesting. I think I've become a house snob. :( Blame my wife!
Oh my lord. The shoe finally dropped. From the way you were talking, kh, I was assuming 22305 was over more by Old Town.
We looked at 22305 in 2000, mainly because it was somewhat cheaper than Del Ray. It's up around by the Spanish speaking community. As much as I like ethnic culture, I want a diverse community, not 90% Hispanic. The single-family houses we checked out had loud street parties going on on the weekends. The other thing is connections are pretty bad. Too far to walk to the metro. Maybe okay if you like to drive.
kh: without know the prior ratio of houses to condos or townhouses, you're McEnearney listings are worthless.
Terminator-x, thanks for the info about the aberrant sale.
I agree with you about the likely cause-effect direction (and someone could do a study to confirm it). As long as there are substantially more homes on the market than sales, and with interest rates still in historically low ranges (though climbing), a ceiling effect can't account for why there aren't more sales. It's far more likely that demand is down for a variety of reasons that we've discussed on this board, and that, as a result, homeowners who would LIKE to move but do not HAVE to move at this time are either offering their homes for sale then withdrawing them when they don't sell, or owners are not putting them on the market at all because they believe this is a bad market and few qualified buyers willing to pay the desired price. This in turn lowers demand because they can't buy a new place without selling their old one. Some would-be sellers may also be concerned that the houses that they might be interested in buying are still being priced at 2005-6 levels. So if they sell their current house at 20% below those levels because that's where the market is, they aren't sure they'll find a move-up house at the right price. And since moving up is the only motivation for them, that defeats the whole purpose of being in the market. Only when these would-be sellers see that the houses they seek are falling into a range that would make sense for them, does it make sense for them to list their current houses.
Richer areas are undoubtedly going to fall more slowly, since owners are more likely to have the resources to hang on longer-- but as has been said repeatedly, prices are set at the margins.
Consider this single family home in one of the nicer areas of 22305. Most comparable houses are on the market for at least $600,000. But this one is bank owned.
Here's the sales history:
sold 02/15/1991 for $268,000
sold 08/27/1999 for $265,000
sold 01/15/2002 for $345,000
sold 05/25/2006 for $690,000
It's now on the market for $534,900, having been reduced twice over the 80 days it's been listed. If it is snapped up at this price you'll begin to have an idea what the new price level is.
that dump isn't work 375k
Terminator-X:
I think KH is referring to a house on Tennessee Ave. with a huge yard. It was a 2/1 SFH that was listed for the low $600's and it sat for a while. [The land is where the value is.]
Yes. That's the place. It's probably not a knock down though, it'd be an add-on to the core house.
Sarah: We looked at 22305 in 2000, mainly because it was somewhat cheaper than Del Ray.
Geographically challenged.
22305 includes Hume, Northridge, and Beverly Hills. Del Ray is somewhat cheaper, not the other way around.
22305 includes 2 or 3 blocks around E REED and E and W GLEBE. These are the lower priced areas you're referring to. You are correct, there is a problem there. There are relatively more of those places on the market than the SFH.
Consider this single family home in one of the nicer areas of 22305.
That's actually one of the worse areas. It's one block to GLEBE and traffic from a nuisance highrise flows past morning and night.
The lot is large enough to be a knock down. There's a place two blocks up Russell that was listed for $2.2M a few months ago.
Once you get out of sight of GLEBE, prices soar.
Alexa:
I clicked on that list of homes in 22305. Wow...you don't get a very attractive home for your money. Of the 49, only 2 looked even minorly interesting. I think I've become a house snob. :( Blame my wife!
No argument from me... you and your wife has good taste.
One joke in our area is, you have a young, high potential couple, Lawyer married to Systems Engineer, say. Their parents gave them a hundred grand as a wedding present.
They use that as a down in our neighborhood.
Their parents come to visit.
"We sent you to the best schools... hundred grand down, and you're living in a HOVEL!!!!"
This area is not cheap and isn't getting cheap.
"Once you get out of sight of GLEBE, prices soar."
Right right... as always things are going just swimingly. Sure the data may show falling prices, falling sales, etc etc but that isn't any concern.
You just have to ignore any data you don't like.
There's a place two blocks up Russell that was listed for $2.2M a few months ago.
Listed, but apparently not sold. Unless it was the one that sold in March... That's the only one in your zip that's sold in that price range in the last 6 months. There have usually been 3 or 4 listings during that time. Currently there are none.
About Del Ray being cheaper than 22305-- I'm not so sure of that. In May there were 9 properties in 22301 in the 1-2.5 million range, compared to 22305's zero. Over the past 6 months there have never been more than 4 for sale in that price range in 22305. In the 22301 zip that includes Del Ray there have never been less than 5.
Of course it depends on how you're defining the boundaries. According to the Del Ray Citizen's Association Del Ray includes parts of both 22301 and 22305. The multi-million dollar house you were referring to on Russell south of Glebe is definitely part of Del Ray according to its map.
Sarah: Listed, but apparently not sold. Unless it was the one that sold in March... That's the only one in your zip that's sold in that price range in the last 6 months. There have usually been 3 or 4 listings during that time. Currently there are none.
Yes. We're talking about 2 different houses. The new one in 22305, Russell Road near GLEBE isn't worth it. (my opinion)
It's still being built but isn't listed in MLS.
The one about a mile up Russell Road, an older house, is still for sale. That one is a premium place. (again, my opinion)
I think you're right it might be more "Del Ray" but it's on the Beverly Hills side of Russell Rd. That one makes Mansion Drive look cheap.
KH says:
"22305 includes Hume, Northridge, and Beverly Hills. Del Ray is somewhat cheaper, not the other way around"
No way. You'd be right 10 years ago, but not now. You can walk to the Metro and many restaurants from Del Ray; not so from even the nicest parts of 22305. Beverly Hills is predominantly SFHs, and is indeed a beautiful area. Del Ray has a mix of SFH, townhouses, and duplexes. Identical SFHs in Del Ray and Beverly Hills will cost the same.
terminator-X: No way. You'd be right 10 years ago, but not now. You can walk to the Metro and many restaurants from Del Ray; not so from even the nicest parts of 22305. Beverly Hills is predominantly SFHs, and is indeed a beautiful area. Del Ray has a mix of SFH, townhouses, and duplexes. Identical SFHs in Del Ray and Beverly Hills will cost the same.
I'm living in the past!
I do walk to the Del Ray strip on nice evenings. It's about a mile from here. The lots of Del Ray are smaller, on the average, than Beverly Hills.
...and the streets are NARROW!!
The lots of Del Ray are smaller, on the average, than Beverly Hills.
...and the streets are NARROW!!
Heh. In other words, the essence of urban, walkable charm. You know, the lots of the mcmansions in the suburbs are even bigger -- and the streets are wider. Beverly Hills is probably pretty to walk around. I wouldn't know-- because I'd have to drive to get there!
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