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A Metro NYC Real Estate Horror Story
In 2006 a house not too far from mine came on the market at a very rich
price. $2.7mm for a five bedroom home on four acres. It was a nice
place. At the time I thought it was way over priced, but I was praying
it would sell. That comp would have put money in the pockets of all the
neighbors.
It didn’t sell, and then 2007 happened. There was not
much price erosion that year. But there were no sales either. So that
house sat on the market. The price was lowered several times through 07
and 08. The RE agents let it be know that the seller was “negotiable”
at every new sales price. Nothing sold in 2008.
The house was
sold this week. It was a short sale. The sale price was $600,000. Less
than 25% of its asking price three years ago.
The owners had a
total of $1.8mm on the house. A $1.2mm 1st lien and a $600,000 second.
I don’t know how the sale proceeds were divided up. The 1st got less
than 50% of principal. The 2nd probably got pennies. The loans had been
in default for more than a year, so the $90k in arrears were wiped out.
An absolute disaster for the lenders.
The new buyer is solid. He
shopped for a mortgage on the property for three months. They finally
got a mortgage with an advance rate of only $417,000. This number is
the Agency limit; therefore the only lender out there was Fannie Mae.
This comes to an advance rate of 70%. The buyer had the $183k required
down payment so the deal got done.
There are hundreds of $1 million homes within a few miles of this property. This morning they are all worth 40% less.
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There is no 'mark to market' in housing
I though that some option and neg-am loans had caps which were related to the mark to market value of the house.
So a house price decline would end the option ro neg-am
period and require full monthly payemnts.
Funny thing is banks hate marked-to-market if it is THEIR assets, but they love M2M if it is YOUR asset. Go try to get a HE loan telling BAC or whomever that the recent sales in your area do not reflect true values but merely distress sales.
Boy did I get an earful from the locals on this. No more cocktail partys for me. I am forever on the 'B' list.
I am wrong when I said that all homes have been devalued as a result of what happened. Most of the homes are not for sale. So it is only those that have/want to sell at this time that to face this. There is no 'mark to market' in housing.
As many of the comments suggested, this phenomenom is happening all over the country. One person falls through the cracks and it has an impact to others. The folks from Cali. have been living with for the past two years. What happens in Cali. has a way of spreading to the rest of the country. It just takes a while longer.
We are all less well off today. Some are up against it, but everyone is less rich. If there is fairness to this it is that the bigger the home, the more you lost.
My take on this is: watch the real economy. As the reality of lower RE values sets in consumption must fall. By January we are going to be looking at a big slowdown. There is no stimulus that will offset the drop in demand for high end RE however.....
By the way Bruce, given the town you live in and your age, if you have a daughter who went to private school in Westchester I was a class mate of hers. So you can let her know some one from Masters thinks your cool.
Anyone remember 1989-94? The entire metro DC area went underwater, as did much of the country. A modest $300k house, built in 1985 for $150, was worth $200-220 for years, without all the handwringing. People just paid their mortgages. As of 2008, the $300 was oops worth $800. Now comps are going for $600-640. Where's the horror, unless you leveraged it?
Housing prices in Westchester will not decline like the rest of the country. Look at the google map of foreclosures. Barely any in Westchester (I'm not talking about upper Westchester/ Putnam county where every guido from the Bronx moves and thinks they're living "the good life"). Yes it might be harder to sell but housing prices will still be higher than they should be. Way way to many rich people in this county who are willing to pay for a "lifestyle image". Believe me, I know. I work in that county in a town where everyone works on Wallstreet and everyone thinks they are a Kennedy. You can't compare the rest of America to a county where the unemployed gold digging housewives still need to have live in nannies to watch the kids while they shop and play tennis.
Ralph glad you could join us. lol
Bruce- my brother-in-law put 15% down on a house in Phoenix. Rented until he saved enough. He really did nothing wrong except not realizing the sham and remaining a renter. Finance is not how he make his living. Today his house is down 50%. Downpayment gone.
I really think the only reason there are not riots in the streets is that the average person does not realize how the whole sham went down.
Eh. The average person knew better and got caught up in the bubble too. There's culpability everywhere.
The house I am living in today in Highland California sold in 2006 for $280,000. I bought it in June 2008 for $145,000. It was assested by my local tax assessor in June of 2009 at $84,000. And the three houses down the street are listed for sale at ~$70,000.
Yes, real estate can fall that far that fast. There is a reason California had two foreclosure moritoriums this year so far. Otherwise my house would be worth $30,000...
What does the drop in RE do to the NY State tax base? What is a typical cost per $1000 value in RE?
You are all forgetting that RE taxes are a big squelch on valuations. For example a 4% tax rate will cut the value of a home by about 30-40% over a 1% tax.
Housing should be priced around 2.5X annual after tax income. Most areas still have a way to go. Median household is what, 50K +/-? That would make the national median price about 125K.
BTW Bruce, this situation sucks for those caught in the middle of the vortex. Wealth destruction is hitting many neighborhoods.
the obvious shorts in this disaster (at this point) are building materials and Mexican labor. I've built houses and I can tell you that market prices are well below building costs in most areas.
YOu are right about construction costs. I just did a big remodel on my home - spent over $1000000! I'm on 100 acres in the country and my takes are $1800/year.
New York Real Estate has awhile down to go
what's so sad about it?
Most houses are aburdedly overpriced still. House prices were set by the dopiest buyer and lender. Now that lenders cannot lend like this anymore and buyers have to have the real goods prices are coming back down to earth
Bruce...here is the real 'Horror Story'
"The Daily Show: Tim Geithner Can't Sell His Home"
http://www.huffingtonpost.com/2009/07/30/the-daily-show-geithners_n_247691.html
the video is hilarious
I'm not pro real estate as I'm a renter, but either the ask was ridiculously high or there must be more to the story. I can't imagine a bank letting go a short sale at 25% of a realistic comp from three years ago. Maybe they unleashed a colony of termites on the place. Something smells rotten in Denmark.
Prices would not have gone so high if interest on debt was not tax deductible. You gets what you pays for.
dont be surprised if it comes down to 149.. just kidding..but you never know as our folks drive us down into a big hole
Nope they were worth only 500k haha
When I need an accurate price, I hire several local brokers, and ask them each for an appraisal, making sure that none of them will get the listing. The mean of their appraisals is usually quite accurate. Asking for too high a price means no sale, in this case for years. The selling price is only what someone is willing to pay....
By the way, has anyone heard about the massive new increases in health insurance premiums. What is up with that?
Yes and I have no clue as to why. 38% for my company
my house went from 950 to 500 in one year now its down to 299 still not sold answer APPRAISAL FRAUD!!!!!!!!!!!!!!!!!!!!
the buyer appraises, and hasn't bought at 299. there is no fraud. your house is still overpriced relative to today's market. period. you and many others. you now have both the truth and my sympathy. i mean that.
when I bought the property I was told the bank did the appraising and I was not entitled to even see the supposed appraisal now after a forensic mortgage audit and a demand to see the appraisal by my lawyer it turns out the adjacent property which was sold 3 months before my purchase and identical was left off the appraisal the properties used in the comps were 40 to 50 miles away
First of all, unless there are many short sales happening it does not instantly translate to entire wealthy neighborhoods suddenly looking like the worst of CA or FLA.
I live in NY, about 25 miles north of the city, a very wealthy community on the L.I. Sound. We sold our first home last May and did extremely well. Note we were located within 5 mins walking distance of John Thain's 20+ acre Georgian Brick Colonial spread near the Westchester CC.
In 2009, properties are off 10-15% asking generally speaking. There are NO short sales going on and only a handful of pre-foreclosure type properties at the lower end of the ladder.
So, not sure where this sale took place but four acre parcels are very few around here and most of lower Westchester which has little or no buildable land.
Prices can come down some more here but no real chance of a meltdown as I see it. We're renting and in the market for a modest sized home that will suit us just fine.
Dont worry--in a hundred years it will be worth 2.7 again!
I used to listen to radio guy Bob Brinker. Callers would ask if we could ever end up like Japan. He said no that our banking system was to smart and nimble. .....Huh
I have been trying to find articles on Japan's residential history. Here is the most recent I could find:
http://www.haver.com/COMMENT/070323x.htm
Japan had been stagnent for at least 16 years. I am wondering if housing values continue to drop to at least year 2000 levels which was the last time prices matched income levels, bubbles usually overshoot on the downside, and our economy is on the slow road to China(pun) than why would I own a home especially if I owe more than it is worth. I don't think tax advantages are enough incentive.
Here's a anecdotal Japan story: In 1989, my trading assistant purchased a condo about a two hour train ride from Tokyo. The bank loaned her 120% of the price of $1.3 million (banks overloaned because prices could ONLY go up) on a 100-year mortgage.
Today the condo is worth about $150,000. The good news is she only has 80 more years on the mortgage. (Actually, she sent in what they call a "jingling envelope" to the bank years ago.)
Foremerly, real estate was purchased to live your life, not as a form of speculation. A friend said, "It's bricks and sticks." That's the reality. I have a very nice home and it remains a nice home whether its market value is 2 million or two bucks. My daily experience living in the house is the reality, and my experience doesn't change because of market movement.
as much as I'm rooting for RE prices to crater, especially in LA, i gotta call BS on this. there must be fraud or very salient facts about the property missing to help explain this. more facts about the property would be helpful before any serious extrapolation or insight can be gleaned.
BofA, in LA at least, is willing to underwrite jumbo loans up to $2 million with 20-25% down (though BofA is pretty much the only game in town). i know this is real from personal experience bidding on a home. in LA, prices in the coastal areas remain very sticky on the downside unfortunately.
i hope and would welcome the post's example as a real market indicator, but i'm highly skeptical.
Make sure your property tax reflects the new lower values.
All during the housing bubble in florida the cities would have small airplanes flying all over the place taking photos of everyones propertis so they could adjust the taxes up.
good luck with that! i'm in upstate NY where property taxes are higher than in downstate. as real estate prices rose over the past several years, these phuckhead local politicians were re-assessing every couple of years for their big money grab. haven't heard peep out of any of these phucks about new assessments and you can bet your life they will avoid it like the plague. to give you an idea of cost, my house is worth currently about 200k and property taxes are 5k per year. my friend up the street has a new house, which he bought one year ago for 280 and he is getting tagged for over 8k per year.
Tax Chit Story----When getting a divorce in Q12006 I bought & converted a 2 BR condo for $170k all in that appraised for $220k. Fast forward to investors own 14 of the 72 unit and NONE of them sold a 2 BR even though their asking prices were $250k or lower. In Q2 2007 one of them remarkably selld for $335k. Buyer defaults and it short sells for $110k in Q1 2009. Turns out it was a boyfriend and gril friend working together. Tax Assessor has a windfalll high comp while now throwing out the 6 short sales and foreclosures. The buildings assessed value is screwed for years to come. Gotta love the RE tax chit
DH - Here in my neighborhood the scam is that the no new taxes pledge will be upheld by boosting the biannual assessments by 20%! Letters to the assessors office requesting review get returned to sender.
Notwithstanding the fact that the assessor's office is housed in a palace built in 2006 and featured in Architectural Digest's "Finest Public Structures" in 2007.
how come tim 'the tax cheat' geithner has raised the price of his home that he is trying to sale?
*ding*
proof that Tim-may has no clue about the economy.
Maybe he's waiting for Blankfein's brother in-law to buy it.
But if there are no takers, no worries -- he'll make back his losses in his first 3 months in the private sector.
TARP and Fed Funds will somehow find a way to "invest" on behalf of the taxpayer in Timmy's house.
They were only worth 600k to begin with
Decent houses in the best NY and NJ suburbs went for 200k in the early 1980s. 600 sounds about right, since the median income in these towns is about 200 today. Of course, barring desperate sales like this, it will take a while longer until this is accepted as the new normal.
There are a lot houses like that in CA. I was looking for a loan in April 2008 (before LEH blowup), and I was almost checked through my colon for every bit of asset and income for a loan of 250K. I imagine now it is only getting harder to get a loan. selling a house like that will take a miracle. .
"Liquidity is an illusion."
Michael Milken
" Michael Milken is a fucking asshole and should be hanged "
Cheeky Bastard
Abby is a prostitute. Metaphorically speaking, of course.
Your forgot Bald and a punk...lol
It would be interesting to view the area on zillow.com.
Care to post the zip code?