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Tuesday, September 1, 2009
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66 comments:
What really happened to the coming wave of foreclosures?
It's still out there.
Calculated Risk reports from CNBC that BofA says basically that once Making Home Affordable came under discussion, BofA held off foreclosure on any borrower who might stand a chance of being eligible for the program.
Now that MHA is fully operational, those that cannot be helped by it or who's modifications fail to cure the problems that led to the default, foreclosures will start up again.
So that wave we were all waiting for? May still be in the future unless the track record for modifications vastly improves.
I know CRT is not holding his breath. But I think we do now have our answer for why the wave hasn't hit yet. (not that this is a surprise to anyone by now).
Cara,
Strange those statements from BoA seem to contradict themselves. The last bullet: We do not hold foreclosed properties off the market; seems inconsistent.
Yes, for BoA at least, we will see more foreclosures. Tough to predict exactly how many. BoA must be reviewing each delinquent loan and making a judgement about whether the loan holder "might be" eligible. Since BoA has the guidelines from the USG, they may be able to predict eligibility easily, thus most of the REOs that they are holding off the market would indeed be modified successfully.
Another take anyway.
Robert,
Try reading it again.
What they are saying is that they are delaying initiating foreclosure proceedings. Which is not the same thing at all as delaying marketing properties that they've already foreclosed upon.
It's still a type of "shadow inventory" but the delay is happening at a different stage.
Not that tough to predict. Fitch claimed that only 6% of delinquencies are now curing as opposed to 45% a year ago.
There's plenty of reasons why it would be hard to predict eligibility. (1) Market value of the home enters in (2) Loss of income or other shock is hard to decipher from just a credit report and payment history.
But more importantly, just because you were eligible, doesn't mean the modification will be successful. Earlier plans have at best a 40% success rate. Is this one really going to be able to do that much better?
"for BofA at least" -right sure, because none of the other lenders were operating in the same environment...
There were a couple of lines in today's housing article on CNN in support of Cara's post above.
And Hanson said the pace of foreclosures could soon accelerate as mortgage servicers catch up on foreclosures they have delayed while grappling with new mortgage modification guidelines.
"There could be a big wall of foreclosures once the servicers get running again," he said.
Jeremy,
that was Mark Hanson though. You gotta be careful with Mark Hanson aka Mr. Mortgage. The things he says have grains of truth in them, but as far as I can tell he's mostly exaggerating things for his own engrandizement (and profit). He's said some smarter, more subtle things lately, but I would still approach everything he says with caution.
He's a lot of fun to read though. If you ever feel that affordability will never come, go read Mark, you'll feel better.
So judging by their payment plan offer these people's mortgage is likely over 400k, yet they expect that the bank and government should subsidize them so that they can keep "their" house on a $3,000 a month income. They want to pay (3000 x .31) = $930/month.
I want a Ferrari, but I only want to pay $400 a month. Where is my bailout?
Jeremy
Yeah that one had me yelling at the TV when I saw it. No details whatsoever on how they ended up in this $400k+ home in the first place.
Net-present-value is what's stopping this "modification". Banks don't have to do the MHA plan if the value in foreclosure is greater than the value of the modfied loan. At $930/month, I'm pretty sure any haircut the bank takes at foreclosure would still be a better deal than that.
The $2900 they're being offered is the banks way of saying, you can't afford this house, you'll be better off if you leave.
Or perhaps they bought it on two incomes and now want to keep it on one? Who knows. Maybe the bank thinks the "owners" time would be better spent looking for a higher paying job... No details.
Tanta would rant. And then try to go investigate what the details really are.
Another must-read Calculated Risk post:
From the NAR: Pending Home Sales on a Record Roll
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in July, increased 3.2 percent to 97.6 from a reading of 94.6 in June, and is 12.0 percent higher than July 2008 when it was 87.1. The index is at the highest level since June 2007 when it was 100.7.
...
NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit.
emphasis added
The increase in pending sales has been mostly from lower priced homes with demand from first time home buyers (taking advantage of the tax credit) and investors.
And look at the cost of the tax credit! If NAR is close to being correct, 2 million buyers will claim the tax credt - times $8,000 - is $16 billion. But this only resulted in "approximately 350,000 additional sales".
So this tax credit cost taxpayers about $45,000 per each additional home sold. Not very effective ... especially considering most of these are lower priced homes.
I can't decide which is worse, if NAR's right and "only" 350,000 sales were added (such that the incentive was a big waste of money) or if NAR is underestimating the effect, and the pullback of the incentive is going to cause collapse.
Going back to yesterdays comments. I am confused why everyone hates flippers so much. There is absolutely no reason for you to buy from them so they shouldn't impact you. The margins they make are far lower than almost anything you buy from a retail outlet. If you really want to yell at profiteers why not go after microsoft or tiffany's... Both of those companies have far higher margin's and are taking money away from people...
Basically I agree with all of you that their work does not warrant the profit they make. So I will not buy from them. But this is true about lots of companies I don't buy from. Other people disagree and do buy from them if that is what these people want then why are you angry...
Cara-
There is also another option. The credit convinced new people to enter the market. This in turn stopped house price declines. So the consumer got less scared and started spending on normal items. This caused companies to lay off people at a slower pace allowing the economy to bottom out. If this is the case ~16Billion is nothing and the feds will make far more from incremental tax revenue that they would not have received if the economy continued to fail.
I am not saying this scenario would have happened, but who knows that 350K homes wasn't a huge deal.
housebuyer,
Indeed. That was basically what I just wrote on hoocoodanode (but yours was more expansive).
I think NAR is actually underestimating the stimulative effect. A lot of 1st time buyers would have continued to wait for signs of the bottom (to feel secure about their equity) or better prices, if it were not for the $8k free money.
And indeed, if housing hadn't at least reached the current ledge, the economy could be a lot worse.
Cara,
Okay, maybe THIS is the big one -- giant wave of foreclosures will hit the market and drive prices down. It just feels like I've seen this movie before.
Robert,
Indeed, it does feel like we've seen this movie before.
What I actually think will happen is a combination of (1) the fact that each modification that fails will fail on a different time frame such that there's never a crushing blow of foreclosures all at once (2) They will come up with a new intervention.
My guess for the next intervention is a diversion of "affordable housing" subsidies to buying back houses in foreclosure and renting them out to the former owners. The government and the banks would share the capital loss, while avoiding those houses ever hitting the open market. The government might even apply those rental payments to the eventual purchase of the home in an interest free way. Or the government could try to run this through not-for-profit agencies, or even subsidize the landlords buying these in bulk. Who knows? But if there ever is a huge wave, you can bet it's not all going to hit the market.
What this really is, is nothing we didn't know already, that the current minor subsiding of REO's is temporary and that foreclosures will continue to be a factor in the RE market until 2011 or longer.
Tomorrow, Irvine Renter at IHB is going to have a major post on shadow inventory in the OC. There's a teaser in today's post:
175,000 Orange County homes will go through foreclosure between 2007 and 2013. That is 40% of the housing stock with a mortgage. I will show you all the calculations tomorrow...
Something to look forward to. If there's no bad news here, why not go to where the bad news is? :)
Re: these people's mortgage is likely over 400k,
The article said their income "plummeted" during the recession.
So it's possible that at one time they could have afforded the house.
But the article omits critical info such as whether the lender should have foreseen that their income could be unstable, whether one or both of them could get another job, and whether it is likely that their income will go up.
Cara: "You gotta be careful with Mark Hanson aka Mr. Mortgage."
Aint that the truth. He's been pretty ahead of the curve on a lot of things, but I don't trust anybody that uses their data to propose a horrific plan of massive across-the-board principal reductions. What is he thinking?
In her WaPo blog, E. Razzi ferreted out this important
GAO report on mortgage interest deduction compliance
Taxpayers’ problems in complying with the mortgage interest deduction rules
include the many steps necessary to determine whether mortgage interest and
points are deductible and the recordkeeping necessary to determine how the
proceeds of home equity loans are used. The deduction’s complexity also
poses challenges to IRS. Although mortgage interest payments above a
threshold are reported to IRS, the information reported shows the dollar
amount of interest a taxpayer paid in a year without regard to the limits on the
amount of debt imposed by law. As a result, IRS lacks information that could
help it efficiently detect noncompliance with deduction limits and must rely
on costly examinations.
Several options exist for expanding information reporting on taxpayers’
mortgages and using private sector data to enhance compliance. Useful
information would include property addresses, debt balances, and an
indicator of loan refinancing. This information would allow IRS to identify
taxpayers reporting mortgage interest exceeding the acquisition debt limit.
Third parties who send information reports to IRS initially may incur some
additional costs to provide the data, but those costs are likely to be one-time
expenses. Additional loan information from private sector sources also might
help IRS detect home equity noncompliance.
The schedule for reporting mortgage interest deductions does not explicitly
state that the deduction is subject to limits. Further, IRS’s guidance for
taxpayers and examiners provides a different interpretation for the acquisition
debt limit than a prior tax court ruling, and the examiners’ guidance lacks
examples of problem areas cited by examiners and practitioners.
Ah, my favorite method for increasing tax revenue. Facilitating the enforcement the laws already on the books. THAT might actually happen.
housebuyer,
I guess my main beef is that the flippers (and HGTV etc) convinced everyone to install hardwood floors, granite countertops, etc etc etc. There definitely is a market for that but there's also a market for "starter homes."
My guess is that about 90% of the non-McMansion homes in Northern Virginia (particularly anything built between 1960-1989) that have luxe interiors have it not because the owners wanted it but because they were convinced those upgrades would cost x and get them 2x when they sold it.
It's a waste of natural resources and money.
Cara,
I'd like NAR to give details on how it calculated 350,000 additional sales. If it's just guessing then I can guess too -- I think it probably is responsible for 1 to 1.5 million sales.
Robert -- don't say I only post negative news:
Northern Virginia continues to have the lowest unemployment rate in the commonwealth, falling from 5.5 percent in June to 5 percent in July.
Virginia’s statewide unemployment rate fell to 6.9 percent, down from 7.3 percent in June.
Arlington County’s July jobless rate was 4.2 percent, the lowest jurisdiction in the state. Three other Northern Virginia jurisdictions -- Loudoun and Fairfax counties and the City of Alexandria, all saw unemployment fall below 5 percent in July.
The Virginia Employment Commission, which issues the monthly numbers, considers a region with an unemployment rate of under 5 percent to be “full employment."
The highest unemployment rate in Virginia is Martinsville, at 22.1 percent.
The Commission says 24 Virginia jurisdictions, most along the North Carolina border, had double-digit unemployment rates in July.
Sigh.
http://www.trulia.com/property/1084750378-8818-Olympia-Fields-Ln-Vienna-VA-22182
We saw this one in March/April timeframe. Longtime bachelor "handyman" lived there. The place was...hard to describe. I don't know if it was the large scorched area in front of the fireplace that still had the chemical extinguishing agent buried in the carpet or the water leak/mold problem from the upstairs master bath that had been leaking water downstairs through the walls for at least 5 years. It was hard to breathe in the house from the mold smell. Few weeks later I saw the typical "day laborer" crews working on the house. The garage area was a haz-mat nightmare. I saw chemicals and and the residue of same all over the place. Lotta 'zene's (Toulene, Benzene, etc...)
The built in service bay in the garage is a nice addition tho. Have to wonder what kind of business was in that home.
Amazing they flipped it in 60 days and managed to do a mold remediation in that amount of time.
Ahem.
Nice staging. Good neutral colors. Clean landscaping. Great neighborhood.
Interesting history for the new homeowner to discover.
;-)
Article
housebuyer said...
"Going back to yesterdays comments. I am confused why everyone hates flippers so much."
Here's what I hate about them. Right now, when the market is recovering, banks are unloading houses at "deal" prices. Whether or not that's a deal in the long run is irrelevant, but certainly some deals are better than others. In a free market, the price will be the ultimate determinant of who buys it. In this market, whoever pays more in cash gets the purchase, even if they are not the highest bid. They then go, spend a tiny amount on fixing the house (or not at all), and flip it for WAY more than they paid. They make off with the cash and are now in an even better situation to out-leverage normal buyers.
So my problem with this is that someone is making a profit at the expense of normal buyers' dreams of buying a house and not paying too much, and this power and profit is compounded upon each additional purchase.
I get why banks want to deal with cash buyers. Fine, makes perfect sense. But this is so unfair to all the people out there that have been waiting all of these years to buy a place, see it show one show up at an affordable price, lose on their bid, then see it again two months later on the market for an absurd price.
TBW-
When I thought I was going to buy this year I looked at ~50 houses in person and 500-1000 on frankly mls. I would say in the starter home market most houses have done very little work that HGTV would recommend(e.g. floors, kitchen, bathrooms...).
I also don't agree that people did this as an investment instead of because they liked it. My guess is that most people like it, although they probably would not have done it if they didn't recoup at least some of their investment. If many people do not like these finishings why do houses that have them command such a large premium when selling. The fact that flippers make a huge profit by installing them really shows that buyers do want them.
Obviously people have different taste and I would be sympathetic if every house had these furnishing, but if you look at the starter home range ~200-500K homes in Nova you will find a huge variety of furnishing.
Anyone know if these mortgage adjustments and principal reductions show up in public records?
Seems to me if this is keeping people in homes they couldn't afford, and causing price discovery (and therefore affordability discovery) to be suspended for a segment of the inventory, then adding that to shadow inventory, interest rate risk, unemployment risk (perhaps not here) and, for some on this board general deflation risk, plus where we are in the seasonal cycle, this might be the ABSOLUTE RISKIEST time to buy.
housebuyer,
The fact that flippers make a huge profit by installing them really shows that buyers do want them.
I'm not convinced flippers are on average making huge profits. They made huge profits (like everyone else) during the boom years. I suspect most now are lucky to break even. Perhaps occasionally they find a knife catcher but I bet on the aggregate you will not find that to be the case.
They only make money when you have serious issues that make a home not move-in ready. The home NoVAWatcher found was move-in ready. It just had some dated wallpaper.
It reminds me of the late 90s and the stock market. People would say they were geniuses for having made so much money and were considering becoming day traders. I pointed out that everyone was making money and you had to be a moron not to when the stock market was going up, up, up.
Same here -- how could anyone not have made money on real estate between 2000 and 2006? You would have had to be a moron. It does not show you know anything about how to flip a home.
Kevin-
I guess that is a valid reason to complain. I guess the difference is I strongly believe in capitalism, so I don't have an issue with those with cash getting better deals. The same way that it doesn't bother me that gas station give discounts to people who use cash and Walmart can buy TVs for far less than you or I can...
I just see this as an example of everyone looking after their own interests.
TBW-
I agree there are probably a bunch of flippers that are not making a lot of money these ones will leave the market. As for the professional ones like Capital LLC, I would be amazed if they were not making a decent amount of money. They aren't renovating houses as a public service. So the fact they continue to renovate dozens of houses at a time makes me things they are at least making something.
Housebuyer: "I guess the difference is I strongly believe in capitalism, so I don't have an issue with those with cash getting better deals."
I'm about as pro-capitalist as they get. I am referred to as "the capitalist pig" by my uber-liberal friends. I hate this flipping scenario because it is anti free market. Price is the decider in free markets. Normal buyers are at a huge disadvantage, even if they're willing to pay more. That is just wrong. And again, it's the compounding factor too. The more these flippers are rewarded from stealing "deals" from normal buyers, the more highly leveraged they become to steal more "deals". Not to mention that removing lower priced houses from the market and placing them back on at much higher asking prices does little to help the market correct. I just hope that those who I was describing get burned, though I doubt they will.
housebuyer,
I agree that many flippers will exit the market as they fail to have any profits and thus cannot keep operating as a business. My guess is that by 2012 the number of people and companies doing flips will be about 10-30% of the number that existed in 2006.
Scott,
According to Tanta (don't ask me to find it in the CR archives, I think it was in comments...) the modification will be recorded in public records, especially if there is a principle reduction. While you or I may not be able to easily see it for free, appraisers can.
Kevin-
In capitalism it isn't always the highest price that wins. It is the best offer. Its not like the banks are corrupt and giving money to their friends. Instead they are selling the houses to who they think is offering them the best deal. They value their time so they are choosing cash deals.
This is not all that different than many buyers. There are a lot of people that will take slightly less money to find a buyer with a big downpayment vs. someone who is doing an FHA loan and wants cash back. Its the same basic principle. If you want to sell now finding a buyer with cash is important.
housebuyer,
Indeed, most homes I've been in or seen are not redone ala HGTV.
And I do like renovations, I just want to be able to chose my own renovations rather than paying for someone else's taste.
So, does anyone have a knowledgable opinion on engineered floating hardwood floors (that I could definitely install myself) versus solid hardwood that would need to be nailed, and I'm less comfortable doing and hence would have to (a) allot more time or (b) pay for installation?
Solid hardwood could be refinished ad infinitum, but this is just little condo, that while yes we plan to live there at least 10 years, I'm not sure that level of built to last forever fits with the level of construction...
(tbw's link to garages led me to a link to hardwood floor costs, which was way high, which led us to shop online at lumber liquidators last night...)
housebuyer said...
"In capitalism it isn't always the highest price that wins. It is the best offer."
Best offer is in almost all cases determined by price. We are in a situation where buyers simply cannot compete with flippers, even if they offer more. That is ANTI-capitalism.
I would love to know how much this "flipping" is being done by $2 an hour undocumented workers. Where do you guys think these people are living and sending their kids to school? Yeah, you guys who want to live in the Oakton/Vienna areas criticize the schools in Falls Church, Alexandria, and southeastern Fairfax county while your work crews live 10-20 to a house in these areas.
housebuyer: I just don't like scalping.
Also, don't forget that some of these flips are inside jobs, meaning the sales were awarded to friends and family.
Not all, but it does happen.
Melissa said...
"Also, don't forget that some of these flips are inside jobs, meaning the sales were awarded to friends and family."
This is absolutely true. Buyers are denied decent sales prices in many cases because the listing agents want to pass the deal to their friends and family, only to pop it back on the market at a much higher price. Bottom-feeding agents who prospered so much during the boom now get the inside track to prosper on the way down.
I know I'm just not articulating what I hate about all of this, but I swear when I successfully put it into words, you guys will feel the same way.
Melissa-
I agree I don't like it if it is an inside job, and I am sure you are correct that it happens.
Kevin-
Why do banks accept these offers if they are not the best offer. Are banks trying to ensure that they fail? I think they are taking the best deal for them for a couple of reasons.
1. With cash buyers they will guarantee the sale. There is no chance that it fails an inspection or an appraisal and the bank has to lower the price.
2. Selling the house to a cash buyer today gets them cash now which they can use to make money. With a normal buyer they get the cash at least a month later and there is a cost to them to keep the house maintained and insured during this month.
housebuyer said...
"Why do banks accept these offers if they are not the best offer. Are banks trying to ensure that they fail? I think they are taking the best deal for them for a couple of reasons."
Because they need to sell ASAP. Given the risk that the buyers with the better offer might not qualify or their appraisal falls through, the banks are willing to risk selling for less if it means getting rid of the house.
This introduces a new middle-man into the market. The flipper, who because of his capital, has an unfair advantage over other buyers. He will absorb any time (risk) lost in selling the house for a handsome profit. Meanwhile, the buyers are stuck with higher housing prices.
I'm really against anything that artificially inflates the market or gives profits to those who do not deserve them. Denying people affordable housing is disgusting.
does this 'flipper' worth the $250K premium?
i wasn't able to dig out the previous MLS listing but last sold was June 09 for $400K. a FSBO?
Cara,
RE: 45% DTI
People with a lot of assets.
Robert,
People with a lot of assets. Okay... but then why wouldn't banks require them to put a larger percentage down than the normal 20% in order to obtain the high DTI loan without paying interest penalties?
And this still doesn't answer the fundamental question of what's "a lot"?
Robert,
RE: 45% DTI
People with a lot of assets.
Robert remember this discussion began when Jeremy relayed the following:
So I talked to a mortgage broker today about preapproval and he was more than happy to approve us for a loan up to the 729k limit even though our income is only ~175k.
So it sounds like you admit that if Jeremy does not have "a lot of assets" that he should not be offered a $729k loan. In other words, you agree with Jeremy and many of us that banks are still too loose in lending. Glad to see we are all on the same page.
MM probably not, but who knows it really depends what condition the previous house was in. They clearly did a lot of cosmetic work and appeared to use fairly expensive materials. That obviously does not warrant the 250K. But if the house had mold and structural damage. Yes it absolutely warrants the 250K.
There is a property I see on most of my runs and its amazing at the work that the flipper is doing to fix it. The house had basically everything possible wrong with it. Everyday you see the flipper replacing something different. At this point I am a little surprised they didn't just demo the house and start from scratch.
Cara,
I'm just saying some people are financially prudent even though they have 45% DTI. Retirees, small business owners, unusually large 401k balances, stock options, large inheritance, whatever.
You can't ridicule people unless you know the entire financial picture.
I have no idea how many.
Kevin,
Not sure I can agree with your stance on flipping. Granted, I see the frustration in being denied "a great deal" but I think that's a fact of life in an industry that has Pros versus the majority of us that buy just a handful of times in our lives.
The people that chase down the best foreclosure deals are the ones that know when the homes hit the market, that can walk in and "inspect it" themselves, and can evaluate on the back of a napkin how much it would cost to renovate vs the foreclosure price vs the non-distressed market price.
Someone who lives and breathes this is always going to have an advantage. That is a free market since that is where they decided to invest themselves, their time, and their knowledge.
I also do not think it distorts prices. Sure, in the case of a rookie HGTV-inspired flipper, you're going to see crazy scenarios. But I have a feeling that person is going to get burned pretty badly - if they haven't already.
My $0.02
So it sounds like you admit that if Jeremy does not have "a lot of assets" that he should not be offered a $729k loan. In other words, you agree with Jeremy and many of us that banks are still too loose in lending. Glad to see we are all on the same page.
Okay. No assets. Credit? Current mortgage rate? Length of time with current employer? Even with no assets, seems tough to make the call. Obviously the banks got it wrong before, maybe they are making the same mistakes again. Not smart enough to know.
Robert,
If I was "ridiculing" anyone it was the banks for offering up these products indiscriminately.
Because it makes all the difference in the world, how many people there are for whom 45% DTI is a sensible idea, compared to how many people are being "sold" this amount of money relative to their income. People with a lot of assets are looking at where to invest those assets, which is a perfectly good allocation. Others who don't have those assets may still be offered these terms, and may be counting on, "oh well I'll make more money soon, why not get the dream house now?".
housebuyer,
these 'updates'(my uneducated guesses of costs) are listed:
Knockout Kitchen ($15K)
Honed Granite ($8K)
Marble backsplash ($5K)
Bosch Whirlpool Appliances ($10K)
2 New luxury Baths ($40K)
Fireplace (?)
HW Flrs ($15K)
New Fenced landscaped yard ($8K)
i agree if nothing else was done (i'm surprised no mention of new roof, windows, AC unit etc. which usually are needed for older houses), $250K is a bit much. we just won't know.
have you listed your house yet?
btw,
for this discussion it appears that Jeremy is getting capped by a 36% DTI front-end ratio, while Novawatcher was being allowed to go all the way to the full 45% DTI back-end ratio with their PITI because of a lack of other monthly obligations.
At 5% interest anyway Jeremy's is a lot closer to 36% than it is to 45%.
Why A Housing Rebound Could Take 20 Years
Headline is a little misleading -- it's talking about how long it will take for us to hit 2006 peak prices again, not when we will bottom.
Nationwide, price levels won't regain the peaks of 2006 until 2020. In the worst-hit states, Florida and California, the rebound will take until 2030. Five other states won't hit their 2006 peaks until after 2023. Anybody who doubts that it could take that long should consider the real estate bust in Japan, where prices are still down by half from the peaks they reached 15 years ago.
So unfortunately I cannot seem to find Chen's analysis online (at least for free). I think VA might be one of the five states hitting the peak in 2023 but let's say it's 2020 (it's definitely not one of the states that will peak earlier since the housing boom did not pass us by.)
Assuming it takes until 2020 to reach 2006 prices again, I think a lot of sellers give up and just sell already. It will be different for various people but I think a good chunk will just give up and there's some more inventory.
Also, not to be macabre, but some of the retiree holdouts will die between now and 2020. Homes that parents die in more often than not are sold (and since inherited often not as insistent on the highest price possible.)
Robert -- if your options are selling now or waiting until 2020-23 for the 2006 price again, will you wait? Just curious -- I know you think the peak is coming more quickly than 2020-23 but just curious what you would do if you could know for sure it's not coming again until 2020-23.
er I should say everyone is insistent on getting the highest price possible but people who inherit a property usually are not willing to wait 180-360+ days for a price they theoretically could get (and often do not) when something $20k less sells it in a month.
TBW,
To be fair, that is the same guy I considered questionably qualified to talk about housing when Robert posted a link to his 10 Cities Primed for a Real Estate Recovery blog posting a few weeks back.
Rick Newman's Expertise:
Globalization | Corporate downsizing | Offshoring | U.S. automobile industry | General Motors, Ford, Chrysler | Cars and SUVs | Hybrids | Gas prices | Alternative energy| Airlines | Defense industry
Whoops, wrong link to the bio page. Rick Newman bio here
Jeremy,
Well it's not his prediction but Celia Chen of Moody's Economy.
It's interesting the blogger quoted her because she presumably contradicts his claim that DC, Long Island, Philly, and Fairfield County, CT are primed for recovery since they all were bubble areas. It appears Chen holds the view that the only places primed to hit peak more quickly are the heartland areas that never had a bubble to begin with.
MM-
Your calculations sound about right as to additions to the house. They obviously spent more because they need to pay another 10K in closing costs a couple of months of the mortgage and 6%in realtor fees(maybe only 3% if they are a realtor). I think these last fees really kill the profit margins flippers would get.
Also I don't own. I was looking to be a first time buyer, because we wanted more space. We didn't really find many places that we liked so we decided to get another one year lease.
Robert -- if your options are selling now or waiting until 2020-23 for the 2006 price again, will you wait? Just curious -- I know you think the peak is coming more quickly than 2020-23 but just curious what you would do if you could know for sure it's not coming again until 2020-23.
Well, TBW, I think I paid 80% of peak in my neighborhood. You can check the prices. See the house next door. But you know I used $400k of monopoly money for my downpayment. I actually think prices are 10-15% less than what I paid, so 2006 prices would be 30-35% higher than they are right now. So, 14 years for 33% gain on my house? I can't do the math. That would be okay, I suppose. But, of course, the future is unknowable. So, my answer is that I would not sell. Would I be better off renting? I'm not sure I can do the numbers.
Regarding flipping...
There is no generally accepted published repeatable standard to renovating homes. We have building codes, but the code does not tell you the flipper how skilled you have to be with that nail gun. The quality of each installation of each sub component adds up to either quality long term workmanship at one extreme, and shoddy amateurish work that will rarely last more than 12 months at the other extreme.
One interesting tidbit we picked up this spring looking at foreclosure over foreclosure and a few FSBO's was how each home had such large swings in the quality of the workmanship. A large percentage of foreclosed homes were mid-flip (the ones we looked at).
One home had a toilet that you literally had to step over to get to the shower. One basement bathroom was framed with re-used 2x4's. What? Oh, meant to say 2x4's that had been cut into 24" lengths and then patched and glued together to make longer lengths for the framing. $20 of effort to save $3 on a 2x4.
I'd never seen that level of effort before to save money and cut corners.
Attic Insulation held in place with flammable spray on glue. Yikes.
A plumbing addition that re-used 40 year old galvanized pipes that were nearly rusted closed.
Re-used electrical wiring with fabric covering (1940's era).
It was simply amazing to me to see what some folks intended to hide behind sheetrock walls as "improvements".
Anyone can flip. Anyone can paint. Anyone can frame. On and on. It takes a seasoned eye to spot the structural and electrical short cuts that cost serious cash to remediate.
If the inspectors don't catch the flaw, odds are the new homeowner is going to discover that flaw sooner rather than later.
That's my issue with flippers. Attending a Saturday morning Home Depot class on tile laying does not make someone a mason.
Over all the homes we visited, the number of times I saw recognized quality workmanship I could count on one hand. We saw over 50 homes in that time period. Not all were appeared to be "flippers", but most had some form of renovation underway.
My .02
Texas, you have probably just identified one huge category of reasons why we see "contract fell through - back on the market!" -- thank goodness for good inspectors, but unfortunately, even the best ones don't have x-ray vision.
More reasons to hire the renovators yourself a la Cara, if you can stand it. And more reasons why *good* (meaning "well-crafted", more than "stylish") renovations cost so much more than what a lot of people believe.
I fail to see the relevance of what the "flipper" paid. Resale will be at the price the Market will bear.
Capitalism? Yes. Unjust enrichment? No way.
Cara,
I heard today that ALT-A is coming in large numbers. This was from someone at Fannie that is in a position to know. I should have asked about price points. I'm under the impression that it is higher-end (?).
Va_investor,
It's "higher end" than the peak of the sub-prime, but that would still mean the TH level in Reston.
Different people were Alt-A for all kinds of different reasons. For instance if you bought your new home before selling your old one it was easier to go the Alt-A route than to get a bridge loan or prove the rental income on your old home. People like that, who used it for convenience but didn't really need it aren't going to default in any greater numbers than prime. Of course prime defaults are on the rise themselves (still well under 10% I believe).
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