Friday, October 31, 2008

Charlottesville - Albemarle Area Real Estate: Beware of "Comps" in a Market Where Prices Are Still Declining

Home prices are dropping nationwide.

Locally,
home values have already declined 15-30%, depending on neighborhood. Because this area has been slower than many to deflate, and because the run-up has been so high, especially in the past five years, the area still has a ways to go down, ioho.

According to a survey by real estate site Zillow.com about three-quarters of U.S. homes lost value in the past year.

But perceptions are another story. Nationwide, about half of U.S. homeowners say their home's value has either increased or remained the same over the past year.

But for the first time, a tiny majority -- 51% of homeowners-- said their home had declined in value in the past 12 months. Of the rest, 32% think their home increased in value in the past 12 months, while 17% said they believe their value remained the same. This survey was taken in the first week of October.

Hmmmm.
What's the percentage of owners in the Charlottesville Area who think their home's value is unchanged or has actually risen?

We can't answer that. But we're going to go ahead and assert that most homeowners who are selling believe that the value of their house has increased.

And we're going to go ahead and assert that all Seller's Agents in this area think that their client's house values have risen even though the bubble here has been deflating steadily since 2006.

That is, Seller's Agents believe this until the house doesn't sell.
Currently, there's nearly 15 months of inventory.

Note to Buyers:

Seller's Agents are still showing their clients "Comps" -- comparable sold properties -- from 2007 and 2008 as a way to price their properties.

And Buyer's Agents are showing their clients "sold comps" from the past year as a way to come up with an offer on a property.

But what do these "comps" really mean? Do they mean the same thing they meant just last summer?


We doubt it. Unless you're seeing a "comp" from a house sold in the past seven weeks, you're likely to pay too much as a buyer right now.


We've pointed out that it's a buyer's market.
However, the entire financial landscape has changed--and keeps changing, almost on a daily basis. This includes the Charlottesville / Albemarle area, which is not "protected" or "insulated" from the rest of the world, which is in a recession.

And if an agent tells you differently? Tells you that this market will maintain its "value?" Ask to see their crystal ball. Experts and prognosticators have a different forecast.


The latest way the US financial landscape is changing is that existing bad mortgages--those in default or foreclosure, those that are "underwater,"--are going to be rewritten and guaranteed by Treasury and the FDIC in cooperation with major lenders.

Once these programs get going, property values will take a while to find their bottom, ioho. There will be more "reassessing" of properties whose homeowners are underwater but not likely to default, due to taxpayer outcry.

But you know us.
We're always discussing declining local values and national trends. So how about some local input about what is already actually happening?

To read about one assessment company's experience with local declining home values, see "An Apples to Apples Look at House Deflation." It's by Michael Martin, one of the loan officers at Crown Mortgage Services who, along with Jason Crigler, writes The Mortgage Buzz. The post discusses Absolute Appraisals, which does business in the Charlottesville and Richmond areas and surrounding counties.

Some excerpts:

Absolute Appraisal's "...experience in this market gives a clear picture of what is happening in our area with declining real estate values....[there has been] a 15-30% decline in housing values."

"...the most heavily declining areas are where there is excess supply. These days, that is in condos and in new construction neighborhoods. Builders who have gotten in over their heads have been dumping their excess inventory to the detriment of their previous customers.

Older neighborhoods have seen less decline.

Not only has this deflation led to less loan activity...it lead[s] to the uglier side of this bubble bust – foreclosures."

The entire post is available here.

5 comments:

Montpellier said...

I would just add, with regard to the re-writes, that Sheila Bair and the FDIC tried to provide a demonstration proof of the viability of such a program when they took over IndyMac. The results are in: they have been able to renegotiate a whopping 3500 loans, a miniscule percentage of their troubled book. Any specuvestors who find renewed hope that the cavalry is coming and that free-money happy-days are here again, is going to have a rude surprise.

The problem is: when you're dealing with liar's loans - NINA loans - these buyers still don't qualify.

Dave Phillips said...

Bub,
Nice work. Not much to argue here, but I would offer a clarification to your concern about those of us who say this market is "insulated." Insulated does not mean immune. Cville is insulated from the severe peaks and valleys, but it still has ups and downs. I have always offered the visual of a kiddie roller coaster vs an adult roller coaster. Both have their ups and downs, but one is more severe.

Remember, being insulated could be seen as a bad thing in a boom market like 2005. Northern VA, which is NOT insulated, saw much larger price increases than we did. When the bubble burst, they saw much larger declines than we did.

I think the 15 to 30% price decline locally is probably a good guess. Non-insulated areas may have seen 25 to 50% decreases. One thing is for sure, the market will decide what home prices will do and not the Bubble Blog or the CAARBlog.

I do need to challenge you on your assumption that Seller agents are providing old comps and misleading sellers on what they are worth. Do you have any proof of this, or is this just a gut feeling. I have not met a local Realtor who thinks using old comps is smart and over-pricing a property is not in their best interest. I have no proof to contradict you, but I do not see the logic in this assumption.

Montpellier said...

I dunno Davo - I've been tracking sales in my neighborhood to arm myself for next year's assessment 'conversation' with the City. I'm in a very 'insulated', highly desirable UVA faculty 'hood, and I'm seeing 10-15% haircuts - off of the city's current assessments, nevermind the REALTOR (and specu-vestor) fantasy-land "list" pricing.

I have no idea - nor evidence - about the bubbler's assertions that bad (misleading) comps are being used (cherry-picked data); I would make the assertion that all MLS data is suspect as an accurate sampling of the real market. The MLS is not a representative cross section.

I have seen a few private bank sales, which are pretty shockingly back to late '90s prices (which, IMHO, is where we need to go). These are not going to be in your MLS, and no REALTOR got a cut, but they are sales.

Anonymous said...

WSJ: nov. 4 dateline:

"Even an ambitious program of mortgage modifications will not prevent a further decline in house prices," said Douglas Elmendorf, a senior fellow at the Brookings Institution and a former Clinton economic adviser. "....houses still look overvalued relative to people's rents or incomes, and it's going to be very difficult to sustain house prices at their current level."

http://online.wsj.com/article/SB122575783560595185.html

Real C'ville - The Bubble Blog said...

Dave,

By "old" comps, we mean back to the beginning of 2008, January and moving forward into Spring.

Our info is of course anecdotal: we have buyers who write to us. They are surprised that REALTORS are showing certain sold comps as a way of indicating not only value but also what an acceptable offer might be.

As you might imagine, the buyers typically have much different ideas about both of these topics, whether they're local or coming from out of town.

There's an idea that price declines should be catching up to the rest of the nation a little more quickly, especially after what's been happening to the global economic landscape in the past 9 weeks or so.

But time will tell.

BTW, when buyers write to us we refer them to the CAAR blog, mycaarDOTcom, REALCentralVA and other RE blogs. We remind them that we're aggregators of info and their neighbors, not economists or professional prognosticators.

Your roller coaster analogy is picturesque...it seems apt for the area until perhaps last Spring. But now...who knows?