Please post your local house search updates, MLS finds, on-topic ideas, and links here.
The Rappahannock Homes blog (real estate agent Julie Emery) waxes euphoric about September sales and the potential for high sales in October in Prince William, Fauquier, and Culpeper counties based on current contract volume.
Broker Frank Llosa notices luxury home (over $1 Million) contract volume in early October was down 50% from the last two prior weeks.
Wednesday, October 15, 2008
Northern Virginia Bits Bucket 10/15/08
Posted by Harriet at 9:17 AM
Subscribe to:
Post Comments (Atom)
32 comments:
Question: There is more and more political discussion to bail out homeowners directly, espescially to adjust principal owed in a mortgage. This amounts to forcing banks to recognize a loss now and set the house value low enough to bail out the purchaser. The biggest problem in the RE market now are the overly high price expectations pricing out buyers and preventing the market from functioning.
Pro: It is very hard for a person who overpaid to overcome denial and sell their house at a loss, even if they can afford to do so. Therefore people who are not forced to move either stay put or take one of the roads to stop paying (short sale, foreclosure, give back keys in non-recourse, etc.) This causes the bad RE market to continue as sellers stay in denial, buyers wait, and banks have to manage foreclosures. Prices fall, but very slowly and painfully for all involved. If there was a wide-spread reset of housing prices, it would restart the market; buyers would engage again once prices came back to appropriate levels. The housing restart would enable the normal business cycle to restart.
Con: There is enormous moral hazard. Even people who can afford their mortgages will demand the principal resets. Could this be mitigated by a policy that enforces the reset mortgages to be "break-even" so that bank or government gets the proceeds of all price appreciation above the new principal when the house is sold?
It seems the losers in this proposal are the banks who may lose out on the value of their mortages and people who stayed on the sidelines. However, if the policy is constructed the right way, those who stayed on the sidelines would still come out ahead of those who did buy and are being bailed out. And those same people could now look to buy with more confidence and get lower prices than they can now. Banks could come out ahead vs. having to manage the foreclosures in a non-functional market and receive even less money on the loans. This would also allow us to steer clear of both overall deflation (only houses are affected) and inflation (through overly loose monetary policy trying and failing to keep interest rates low).
Biggest problem is the precedence this sets. This bailout would be an admission that the self-correcting mechanisms of the market will take too long and cause more damage than asking the government to reset the market. On the other hand, governments do intervene regularly to manipulate prices on particular assets and commodities, whether through subsidies, import taxes, quotas and the like.
Blacksilver,
Do you have any links to these plans? As I've heard it, McCain's plan is for the Government to buy the full note from the bank (the bank then doesn't take a loss necessarily) and then the Government fiddles with the principle/interest to help keep the homeowner in the home. There would likely be clauses that the government gets to recoup sales proceeds of the forgiven portion.
Anyhow, I'm curious to read details of these plans.
Thank you,
My $0.02
Maybe Frank's excellent post should include quotation marks around "luxury homes", when he is talking about DC and Arlington in the $800K - $1 million range (farther out, I agree that $ may buy you some real luxuries). As I have frequently whined here before, many sellers in that range were unrealistic well before the crash and remain so. If you look at listing in this range, many, if not most of those houses have *significant* flaws (e.g., small square footage, bad floor plan, no or little updating, small lots, no garage, ugly) and they lack many features most people think of when they think of luxury. Maybe we should refer to them as houses in luxurious locations rather than luxurious houses, though I could see how someone could pick a bone with that too.
I should clarify - I realize Frank was also talking about homes up to $4M. I agree that many listed houses well over a million do offer some luxuries (although it's head-shaking to see how many of these have at least some of the flaws I described in my prior post -- and too few luxuries!).
Blacksilver, McCain's latest "plan" gives the bank full repayment, and the responsible taxpayers take the loss. Incredible. There is no pro to this plan, except to the banks and people who get the handouts I suppose. House prices will not stabilize under this plan because they are too high relative to income and rents, not because of foreclosures or lack of credit or any of that other bullshit. More subsidies for future buyers (in addition to the current subsidies of deductible mortgage interest, 0% capital gains tax rate, and below market interest rates via fannie, freddie, fha, hud, etc) could change the price/rent and price/income ratios of a stabilized market. But handing out money to current owners without handing it out to potential buyers does nothing for values.
Shamrock, I am estimating the price to income ratio is currently around 3.35. I think the historic average is around 3.
I adjusted the 3Q Calendar year 2007 ratio found in the link below to account for a 25% price drop with a 5% increase in DC area salaries.
http://www.housingtracker.net/affordability/?sort=price-income&dir=up
Maybe that will put us on par with cities like Jacksonville, FL and Raleigh, NC. Of course the ratio can decrease further to 3.02 with an additional 10% drop in prices and a ZERO percent increase in annual household income.
It seems like if the government is trying to prop up the artificial home values they should be giving the handouts to potential home buyers, not those who already have a mortgage they can't pay.
blacksilver2010
There's too much "unfairness" inherent in the prospect of writing down mortgages. If people are serious about needing lower monthly payments, let them sell the house and rent for a while until prices come down to where they can buy again. Or let bankrupcy courts reduce the principal. For those who need to sell, I think extending the current lift on taxing forgiven debt as income is important. But also something may need to be done to make short-sales to actual current market values easier to accomplish. What? I don't know.
It would be nice if something could be done to force us all to take the bandaid off faster, to just magically get home prices down to the historical trend, but I don't think writing down principal would necessarily accomplish that, and I'm not comfortable with the government meddling in the market to accomplish my personal preference for how this market performs.
Credit cards aggressivly give credit to people who do not or cannot pay, so that they can keep them on the leash foreever paying late fees and interest. Maybe the government wants in on the action. A new spin on an old system, land servitude.
Hi, I think there is a lot of issues going on right now. mainly the desire not to let the bad assets sell at a lower price and let the market reset.
Here is an interesting youtube video of Jim Rogers (the Adventure Capitalist and former Soros partner)
http://www.youtube.com/watch?v=h3axkNZK2uc
I think he has a good point, we need to reset the system. I know I would then be willing to get into the market. Right now I am sitting and holding onto my chips...
What do you think?
E. Floyd, at what level would real estate prices in the Fairfax County and Northern Virginia area reset? At early 2004 levels? I calculated that the median home prices are about 3 times median annual income.
Earlier I said DC is the center of the universe. I stand corrected - apparently its Arlington:
Businessweek
US CITIES BEST INSULATED IN CASE OF A RECESSION:
Topping our list was Arlington, Va., a highly educated urban community just across the Potomac River from Washington, followed by the District of Columbia itself, where many residents work in government or related services. The federal government employs thousands of residents, keeps lawyers, lobbyists, accountants, and journalists busy, and pumps money into the region through outsourcing jobs and multimillion-dollar contracts to companies such as Bethesda (Md.) aerospace contractor Lockheed Martin (NYSE:LMT - News).
While D.C. didn't enjoy Manhattan's Wall Street-driven growth during the past couple of decades, it's now in an enviable position. The capital has become a hub for companies that do defense and homeland security work in the wake of the Sept. 11, 2001, attacks.
Agree completely with Businessweek's assessment of Arlington. As I've observed, 22207neighborhoods within walking distance of Metrorail in the Ballston-Rosslyn corridor are the most protected of the protected. Sale prices in those neighborhoods continue to be very strong.
Anthony, I think really the prices should reset to around 1998 rates (maybe a little higher to account some for inflation). This was right before the dot com bubble, and I think that may have been the last time when moral hazard of interest rates and reduced lending standards.
The average wage increase, after inflation is more in line with 1% gain each year, so in reality I think real estate is really overvalued in relation to what wage earners can afford.
This is just my 2 cents...
Sorry - heres a link to the story - its on the front page of Yahoo too:
http://news.yahoo.com/s/bw/20081015/bs_bw/oct2008bw20081014006902
Here's a link to the Businessweek article. Interesting reading!
http://www.businessweek.com/lifestyle/content/oct2008/bw20081014_006902.htm
Here's the specific page on Arlington from the main article:
http://images.businessweek.com/ss/08/10/1014_recession_cities/2.htm
anthony darmiento: 2002 -- 2003 at the latest.
tom said: "22207 neighborhoods within walking distance of Metrorail in the Ballston-Rosslyn corridor are the most protected of the protected. Sale prices in those neighborhoods continue to be very strong."
Well what do you know, it's Tom back once again to incorrectly claim that prices in 22207 are holding up despite the fact that prices are actually falling. Tom, the average price in 22207 is down 10% in September on a year over year basis. Why do you pretend things are fine when they aren't? Do you think the rest of us are too dumb to realize that you are making false statements?
I'm glad I've got no use for Arlington.
john fontaine said: "Why do you pretend things are fine when they aren't? Do you think the rest of us are too dumb to realize that you are making false statements?"
Please reread what I wrote. I wasn't talking about all of 22207. I've been very consistent in describing where the strongholds are.
It's interesting that the cities on the BW list tend to have a strong university presence. Top universities don't boom and bust like a lot of orgs./industries.
j/f,
give tom credit, he's been more restrained lately. check out these blanket statements just two months ago:
"Tom said...
I agree with most of the comments about N. Arlington and I continue to be NOT surprised that housing values there are holding up just fine. Thank goodness we bought our house in 2001!
8/5/08 9:10 PM "
and this:
"Tom said...
...So, MM and Terminator, run along now to bed and try to calm down. Prices in N. Arlington are doing just fine!
8/22/08 10:52 PM "
Now he's narrowing it down to "22207 neighborhoods within walking distance of Metrorail in the Ballston-Rosslyn corridor" (btw i think he forgot the 'SFH' qualifier)
before long he'll give us the streets and #s.
it's all fun!
>There is enormous moral hazard. Even people who can afford their mortgages will demand the principal resets<
Blacksilver, nice post.
I think this con is huge and makes any plan along those lines impossible. It would also be too complex to administer, I suspect.
I would like to see the government do more to encourage short sales for truly distressed families (wiped out by job loss, unemployment, etc.,) so they can move on as quickly as possible.
MM said "give tom credit, he's been more restrained lately. check out these blanket statements just two months ago..."
MM, note that I didn't say prices in 22207 had not fallen -- I said they're "doing fine." As in "by comparison" with the rest of NOVA. And I've been identifying 22207 neighborhoods within walking distance of Metrorail as especially protected for months now -- it's not anything recent!
blacksilver2010 said...
Con: There is enormous moral hazard. Even people who can afford their mortgages will demand the principal resets. Could this be mitigated by a policy that enforces the reset mortgages to be "break-even" so that bank or government gets the proceeds of all price appreciation above the new principal when the house is sold?
Moral Hazard, absolutely. There is no incentive for someone to pay the mortgage when their neighbor gets a principal reduction.
Another aspect. These principal reductions. Where are they to be recorded? That $400K home is no longer a $400K comp with the principal reduction. How will this be made public?
MM - That's funny. You are right that Tom is steadily backing himself into a tighter and tighter corner. It's funny to watch the retreat.
I just don't know what the point is. Does he think that by claiming "everything is fine" that we'll all respond with a "OK then, I'm running right out to buy!!" He's not fooling anyone.
Another Manassas anecdote:
I've been watching this house:
9104 TRUSLER Ct
MANASSAS, VA 20110
Price: $525,000
MN6861539
for two and a half years. When we first moved here, I believe they were asking around $800K. They have been at $650K for the past year. The owners moved out more than a year ago. I got an automated email this morning announcing yet another open house (they have at least one a month), AND a $125K price drop. Then I read the listing:
"10 D A Y S A L E with REDUCTION of $125,000 (from $650,000), 10/16 to 10/26, ENDING WITH OPEN ON 26TH!"
What is this?
Are they seriously going to raise their price again?
It's a nice house on a culdesac with a recently remodeled kitchen, but it is still otherwise dated, with some layout issues (the master bath is small and open to the bedroom, no door, for example).
Anyway, I have been watching the houses in this neighborhood closely, because nothing has been selling there (except one foreclosure), and these are largely vacant homes with retirees trying to sell them from a distance. I wonder if the economy has finally forced their hand. Another house that had asked $800K in 2006 and didn't sell is back at $569K...
Ah, here we go again about the (shrinking) parts of N. Arlington holding the immunity idol. Indeed, 22207 is a great neighborhood, but it isn't bulletproof when everything else around is falling. And remember: real estate markets are local, but the money used to pay for it is international. And last month's data regarding 22207 wasn't great; I'll repost what I wrote on Monday's bits bucket:
MRIS.com has published the September 2008 data for 22207, and it reflects that the high end is being hit. During September 2008, there were 21 homes sold in 22207 and inventory of 152, yielding 7.2 months of inventory. By comparison, sales in September 2007 totaled 37.
More telling, however, is the type of home being sold. The average sales price for September 2008 has decreased by 11.66% compared to 2007, whereas the median sales price actually increased by 1.12%. This means that there are fewer high end sales to push the average well above the median. In this regard the average list price of sold homes in 22207 has gone from $1.006M in Sept. 2006, to $957K in Sept. 2007, and to $846K in Sept. 2008.
I expect that increased jumbo spreads and tighter lending standards are a primary cause of this trend. One month does not a trend make, since inventory in 22207 during August 2008 was less than four months. We shall see . . . .
Ha...if BusinessWeek is saying Arlington is safe, look out below. They are a *great* contrarian indicator.
Joe,
I have noticed Arlington has seen a steady hold on prices since January 2005. Prices in Arlington gains 10.8% annually for the last ten years according to Zillow, whereas Fairfax County realized 8.6%.
Perhaps Arlington is different given its location, demographics, and inventory of homes. For example, what percentage of Arlington homes with mortgages are under 3 or 5 year ARMS? I suspect the only source for this info are the banks.
Anthony Darmiento
Hi
YOur bolg is very nice. I have really learnt a lot from this blog thanks
Post a Comment