Friday, May 27, 2011

Real Estate Woes

My daughter is ready to spread her wings and purchase a home.  She had an offer in on one Fannie Mae home.  She had quite a saga.  She pre-qualified for a loan.  Found a home.  Made an offer.  Verbally said yes.  Then said best and final.  Then copper was stolen from home. She was strong armed to pay for 1/2.  Financing became difficult due to property age and new underwriting standards.  Owner couldn't wait 48 more hours for my daughter to get the second financing secured (she had verbals that the next lender would underwrite).  My daughter's offer was 15k more than the offer taken.  She was treated pretty shabbily for being a first time home buyer.  She learned a few lessons.

While it was a neat, old property, there were some real issues with it.  In preparing it for sale, the painters just scraped all of the lead-based paint off and let it collect around the perimeter of the home.  All of the windows were oversprayed on both the inside and out.  The windows were painted shut, and the kitchen cabinets were rolled--doors shut and all of the hardware covered in paint.  But he property was charming, and she was willing to remediate those items.  She was heartbroken when it fell through.

To be fair, they did ask her to give them a $2K non-refundable deposit.  It was a pretty crappy thing to ask for, because she had already agreed to pay 1/2 for their plumbing mishap (when she had no legal requirement to do so).  She also fixed 11 panes of glass to satisfy her underwriter to meet the deadline. Otherwise, they would have piddled about and likely made her pay for 1/2 of some exorbitant price. Oh well...the new owners have at least 11 panes of glass that have no overspray. She didn't give it to them because she had no way of controlling what the new underwriter would opine even though they had verbally said it looked doable.  It looked doable to the other one too!  She's not in a position to lose $2K to the whims of the mortgage gods. She said no, resubmitted her offer in 48 hours when she got a yes in writing and gave them the $2K non-refundable.  Too late---they had settled for $15K less.  Sigh....

There is no shortage of homes available.  My daughter is moving onto other properties.  I've been in research mode, having not visited real estate too much since my exhaustive work back in 10-2006 and throughout 2007.  I used to keep a list of the trustee sales on each Friday.  It was an informal way of chronicling the snowball of foreclosures.  I used to split the note amounts between < than and > than $90K.  At first the foreclosures were mostly in the lower range, and then they moved higher.

Now, it has been a while since I tiptoed into that work.  But the real madness in escalating home prices began in 2005 and continued through 2009.  The snapshot to the left shows the issue that I'm seeing quite starkly--that any poor schmuck that bought a home in 2007-2009 is potentially underwater.  This home is assessed at $315K, but Fannie Mae took a fanny-whacking and has a note of $458K--the assessment is not even 70% of the note that was taken back.  In fairness, the home is listed at $255K and will likely make a nice purchase for someone.
However, I'm seeing plenty of Fannie Mae homes that are listed higher than the assessment.  Good luck with that.  There are sublime homes, and there are "oh-my-god-can-you-live-in-that homes".  Assessments kept up with the madness.  Here's a look at an assessment history that is the norm for newly built homes. 

No fun paying $569,835 for a home that now sports an assessment of $437,600.  While the absolute numbers above are not representative (that happens to be an expensive property), the relative relationship between assessments and purchase price is representative.

For one nearby county, here is the history in a lovely middle-class neighborhood that is represented by attractive homes on large lots. 

When we ask the question,  "When is the bottom in real estate?" I would hazard a guess that the answer is nested in an assessment table.  If we were in the froth in 2007-2009,  I've got to believe that it is somewhere in the 2003-2005 valuation area. But that is a guess, hazardous or otherwise.  An average of those assessments puts us at about 69% of current assessed values.

If you have voyeuristic tendencies as I do yet don't know where to look, you can peruse the Fannie Mae listings in your area by going to  Select your state and the city/county that you are interested in.

I also dug up an old study that I did when I was convinced that this was never about subprime but rather something larger. Simply put, all housing had been bid up in a way that it outstripped earnings.  And for lenders to lend, they had to come up with fanciful (and fruitcakesque) ways to lend money.  Here's my little nebbish chart.

It was my grand ah-hah! I still believe that this big ball will get unwound further. 

The other thing that I'm seeing are homes coming onto the market as part of estate settlements. These are homes where the carpet is old, bathrooms are gross, kitchens sorely in need of updating, peeling paint, rotten trim, roof rot and HVAC repairs.  These are not homes that can get financed through FHA due to their requirements AND these are homes where there is not much available money from cash-strapped heirs.  On top of our current stressors, we have the bolus of older folks who are dying and leaving behind homes that are nearly uninhabitable. (I'm talking about ordinary middle-class folks, and not the monied class).

I'm not really posing any questions, and I surely have no answers, but these are 'things' to ruminate upon and think about how their dynamics will shape our current woes.