Interview With A Buyer

Property owners and potential buyers have emailed to say they’re glad we’re on the ‘net discussing local real estate and the Bubble, particularly when we emphasize that there are “other” reasons to buy a house besides making a financial killing or using the house as an ATM machine through a HELOC (Home Equity Line of Credit). As we’ve said, we believe a house should reflect the habits, tastes, and predilections of its owners, and offer security, comfort, and a sense of belonging to the community—things that are more important, IOHO, than money.

One new owner, and a new email friend, is profiled below. He wrote to us after completing his purchase. The Bubble Blog didn’t exist while he was looking, or we would have cheered him on in his perfectly reasonable lowball offers. Now that he’s been on the hunt he remains, like us, deeply interested in the local market. We suspect he’ll be buying again in a few years.

We asked thoroughly intrusive questions about his background, ownership history, job, family life, and how he went about looking for a house, getting a mortgage, and becoming a happy resident of C’ville.

This search, and the completion of the sale, happened while the nation was already in the grips of the “credit crisis,” but before things started “really” getting bad, from March onward (Bear Stearns bailout, IndyMac Bank failure, Fannie Mae & Freddie Mac crisis, rising unemployment, inflation, etc.).

The deflation of the housing bubble has been going on in some places since 2006. It’s our observation that in C’ville/Albemarle the pace of sales might have been slowing, but pricing often continued to rise through 2007 and even into 2008, especially in certain neighborhoods.

This homeowner's search began around Labor Day 2007, and concluded in January, 2008, and the buyer notes that as the credit crisis grew, it did have an impact on his process.

The environment a buyer finds him/herself in this Fall might be different, but there’s a lot to learn from this particular experience.

Note on the text: We added the links and the bolding.

BUYER PROFILE:

I'm 31, married with 3 kids age 3, 2, and almost 1. My wife stays home with the kids. I make about $60K/year and am on track to make more in the future due to previous experience and future job opportunities.

I grew up in the Commonwealth, but I spent a long time (1994-2006) in the military. When I got out in 2006 and returned to Virginia from Abroad, we settled in Northern Virginia. My wife and I were very discouraged to learn that we couldn't afford even the crummiest NOVA townhouse on a $70k annual salary. So we sucked it up and rented a place, and kept saving.

In January, 2007 we bought our first house in Loudoun County. During the move I realized I hated my job, and found one down here. I put the first house on the market and thanks to a combination of "well bought is half sold," a good agent and pure good fortune, we sold it in three months and even made a few grand. I may be the only person who flipped a home in Northern Va and made a profit that year. I wasn't trying to, either.

I started working (and house-hunting) in C-ville in July, 2007. We made one offer on a house in Johnson Village around Labor Day, which was turned down, so we rented a place near UVA. We house-hunted nonstop for six months while renting, which was a smart move and gave us time to get to know the area.

We made two more offers that were turned down (due to "I need more than that to break even") before finding a place in Fry’s Spring in January, 2008. We closed March 20th, 2008.

DID YOU FIND C'VILLE "UNAFFORDABLE?"

NOVA definitely desensitized me to high prices. They are better here, although there were very few homes we deemed suitable in our price range, $330K or below--even at $100k above our range. This is determined first by size we needed three bedrooms and something we could use as a fourth, which ruled out the brick ramblers everywhere. There is really not much to choose from for a family larger than four. It seems city houses that size are only in tony neighborhoods that fall in the Venable school district, which made us majorly priced out.

As to houses being unaffordable, I agree. This fact has been the greatest source of stress in my life since I left active duty in June, 2006 (I basically finished college, got married, did my Army training, and we went Abroad in 2002--we stayed there until June 06 and moved to NOVA where I got a miserable job in corporate strategy. I feel for anyone with a pair of $30k incomes and kids, because a house payment is killer.

I make $60k and we would rather have my wife home with the kids and spend carefully--nothing drastic, but no cable, no home phone, stuff that's sensible anyway. Prices must and will go down. I love this "affordable again" BS from CAAR--a 10% price drop and it's suddenly affordable again, in spite of 100% increases from 00-06? [BB: or more, sometimes. See blog.]

What is silly too is the 'burbs like Hollymead show no discount relative to places in the city. If I may reassure myself again, I think there's a premium to having a really short commute. Most people wouldn't mind the 25 lights between Hollymead and the city, but it would drive me nuts. That is one of the major reasons we left NOVA. That 29 North is ugly and awful, although there are nice homes.

DID YOU CHANGE YOUR PRICE POINT FOR THE CURRENT HOUSE?

Our price point did not really change while we looked, although as the market got worse we did get bolder in making low offers on homes just out of reach (we started out with $260k for $320k asking prices on a couple).

DID THE CREDIT CRISIS HAVE ANY IMPACT ON YOUR HUNT OR PURCHASE?

For a while it muted our house hunting, but the urge to own was too great, in both me and my wife. Realtors shill and exaggerate a lot about the "pride of owning your own place" but there is truth in it. Plus with 3 kids renting and moving is such a pain in the ass. We moved in June 06, Jan 07, Sep 07, and now March 08- we're done. When I remember all those moves--most of which were do-it-yourself--I hope I die an old man in this house.


WHAT KIND OF ONLINE TOOLS DID YOU USE?

Mostly MyCAAR, which is fantastic. We looked at the FSBO (For Sale By Owner) sites that don't mirror MYCAAR (cvillebyowner.com, others) but there is not much there. Craigslist is overrun with ads so we didn't bother with it very much.

We definitely used the City and County tax records and assessments, especially after our first contract was turned down due to the seller's "I have to make this to break even" phenomenon. The one thing it doesn't tell you about is HELOCs, which I did not realize were so pervasive. In addition to the sales, assessments, and sizes, the County site is great with floorplans.

WHAT ABOUT LOOKING AT HOUSES IN PERSON?

We didn't go to many open houses. After a couple weeks online and viewing 10-15 houses with our agent, we knew enough in general about the area. If we liked a place enough we just asked the agent to show it to us. My last seller's agent believes open houses are just a means for seller's agents to get buyer clients and I agree. We have been to most of the open houses in our area, just as nosy neighbors and folks looking for ideas for our own home (decks, basement, etc).

We looked as far out as Lake Monticello, Zion Crossroads, and Waynesboro before deciding it was just too far to drive. After commuting from NOVA for 3 months I had no desire to live up 29 (Hollymead, etc.) and fight that senseless traffic, but we did look at a few places up there, as well as some places closer in (near Rio and Hydraulic, for instance).
We looked south of 64 also but those neighborhoods were too expensive and/or overpriced (Lake Reynovia, et al). I really liked Willoughby but we never could find a house with a level enough lot.

When we decided to make offers, we'd been to see the outside of the house a couple times, check out the neighborhood (although rarely talking to neighbors), and had the agent take us through 2-3 times. I would walk the neighborhood, check out the house in back of it, and look for trashy neighbors (extra non-running cars, porches overflowing with stuff).

DID YOU LOOK AT FUTURE PLANS FOR THE AREAS WHERE YOU WERE INTERESTED IN BUYING?

Not so much. [We heard about the future development in So. Charlottesville] Biscuit Run, but I didn't give it much thought. It does seem like the County doesn't care about there being thousands of cars on Old Lynchburg Rd with all the condo complexes.

We didn't really think about schools. I hear Jackson-Via is good but has a lot of poor kids. My oldest son will start K in 2 years so we'll probably send him there.

THE OFFERS

#1 – Our first offer was around Labor Day 2007, for a tri-level in Johnson Village, around 1800 sf, 4 bedrooms, built late 1960s, small level backyard, steep small front yard, Asking $315,000.00. We heard that the seller later took less than his "break-even," and sold for about $277,00.00. They came back to us a week after turning us down and tried for something similar to our original offer, so I guess they/their agent had not run into buyers willing to walk away. Our agent helped put steel in our spine for this, but this time around we also were adamant about not "falling in love" with a house to the point where we had to have it at any price.

#2 - We made an offer on one fixer-upper (Greenleaf neighborhood) but the owner held out (and got!) closer to his asking. That place was trashed, though--needed $75k of work. We were ready to offer $250k but someone else valued the neighborhood enough to pay the owner (a semi-retired agent) around $300k. [BB: the house was on the block for months, b/c the owner didn't, apparently, "need" to sell. The asking was $319K. It went for $292,349.00 in January '08.]

#3 - We made an offer on a small house on JPA, 3.5 bedrooms, but only 1200 sf. Asking, $315K, but then we saw later that it went down to $285K. This is a doozy, a "late flip" just like our current home [BB: "late flip" as in was bought even after the Bubble was popping, because there was still momentum in our area]. You know...granite counters, stainless steel appliances...all the superficial stuff that used to work on HGTV. They were asking $315k, we offered $260 and would have walked it up to $280k. Maybe they rented it, b/c the inevitable "for rent" sign popped up [BB: Accidental Landlords!] in the yard after a year on the market. I am really relieved we didn't get it because it was so small.

#4 - Fry's Spring Area House, the one that was ultimately purchased: 3 bed, 2 bath, 1840 finished sq ft, farmhouse style, ca. 1920. Thanks to some good negotiating, we paid $305k, put 10% down, and still are paying around $1,900 a month, which is one of my two monthly paychecks. [BB: ie, about 50% of take-home pay goes to housing.]

It has been tough, too--we have been dipping into savings every month. I had intended to do this anyway, but financial pressures also influenced me to sell my car and bike the 1.5 miles to work. I might buy a cheaper car in a few months, but for now we just have our minivan. I wanted to be in bike or bus range of work. I really don't give a you-know-what about the "environment" or the so-called global warming crisis, I'm just thrifty. $4 gas has made me feel better about my decision. I knew I was buying on a decline, but hopefully we got a good enough deal for it not to hurt if/when we move in 4-6 years. [BB: as long as buyer knows what he's getting into, then more power to him in this market. Problems arise when potential buyers haven't educated themselves on the economy, the national real estate picture, and the local real estate picture—all of which indicate prices, and equity, are going down…and that a "short term" owner could lose $ or be "underwater"—owe more on mortgage than house is worth—in a short amount of time.]

BB: The previous owners bought the house in 2005 for 220K, so they would have made a nearly 30% profit in just three years. Except during a housing bubble, this is unheard of profit. But there was no profit, apparently, because it was a “flip.” The buyer says,

No profit there. According to their agent they lost money on the house, which I believe is true. He said they had done over $150k in renovations (which may be an exaggeration), but there were substantial things done like:

-replace (or install for the first time) HVAC
-replace all windows
-replace 2 bathrooms- tubs, sinks, tile, toilets, everything
-replace entire kitchen- stainless steel high-end appliances, granite counters, complete HGTV-style kitchen
-replace all lighting fixtures
-replace the (vinyl) siding and (steel) roof
-repaint entire interior
-rip up carpet and refinish hardwoods
-a lot of (but not complete, unfortunately) re-wiring and re-plumbing

When you add that up, I'm sure they didn't make any money. I think I noticed in my closing that they were bringing money to their own closing. If they didn't. the only reason was that they had put a lot of cash into either the purchase or renovations.

Our agent said he saw this place when it was for sale in 2005 and it was "trashed." From talking to neighbors and looking at toilet manufacture dates, I suspect they bought in Spring 05, probably didn't begin renovations until 06 (presumably the contractors were all pretty busy), and didn't go on the market until Spring 07, well past the Bubble's peak.

And finally, the sellers never lived here. I think it was done purely for profit. Oops.

MORTGAGE

We used a mortgage broker recommended by our real estate agent. The VA [BB: Veteran’s Administration] loan guarantee is not a great deal, really, there's a 2.3% or so "funding fee" which can be rolled into the loan, but is basically PMI [BB: Private Mortgage Insurance]. So VA is not a good deal UNLESS you want to do zero down. On my first we used a VA guarantee in conjunction with a VHDA first time homebuyer loan [BB: Virginia Housing Development Authority, which encourages first time buyers and has loan limits], which got us a really good rate. We put 10% down (5% savings, and 5% my dad was kind enough to loan us interest-free and only due when we sell the house). We have two mortgages: the first was a 7-year ARM [BB: Adjustable Rate Mortgage] for 80%, and we bought a point so the rate is 5.25%. Our second mortgage is for the remaining 10% and is also an ARM at 7.25%.

I am not wild about ARMs (my first home was a 30-year fixed) but if we still have the place in 7 years I will refi if needed. And we pay $250 on the 2nd even though the payment is $210 because that rate sucks. At the time ,30-year fixed rates were in the mid-sixes [BB: percentage points of interest. They’ve risen recently, until just a few days ago (Aug. 260 when they started declining again.] I believe I can handle an ARM, but I know 90% of people who got them from 2002-2007 cannot. [BB: Many people are now familiar with Adjustable Rate Mortgage due to the subprime crisis—when these loans reset higher, typically in 3-5 years, the owners could no longer afford the house.]

The subprime crisis narrowed the # of banks willing to give me a loan, and during closing our broker mentioned that the 80/10 we had gotten was no longer available. In between late January (the date of our offer) and late March (when we closed) credit tightened a lot. [BB: even more so now, nearly six months later.]

ANY FINAL THOUGHTS?

If we were looking right now, we would go ahead and buy. In fact, if I had the cash there are a few places I'd try and buy as some places could almost be cashflow-positive as rentals. Maybe not at price they're asking, but at what they'd take. Especially in the city—there’s a Cape Cod nearby that is $265k and seems like a good deal. If I sound like a jackass "Housing Head" feel free to ridicule me. [BB: not us!]

Many thanks to the Buyer for taking time to answer our questions. He'll be checking the Comments section, so if you have a question, please add it there.

Rescued? Church Hill Homes

The other day we discussed the decline of local new building permits for houses: 266 were issued in the first six months of 2008. If this pace continues, the year's number will be the lowest since 1990.

It's no wonder, then, that local builder Church Hill Homes is in trouble, as reported at REALCentralVA and The Daily Progress.

Eagle Construction of Richmond has bought 11 lots of Church Hill's "green" development Belvedere, off Rio Road. It's unclear what's going to happen to the rest (according to DP, 700 projected living spaces*, 5th paragraph from the bottom).

See REALCentralVA for their post, especially for the comments, which include owners from other Church Hill developments. And see Brian McNeill's DP article, "Church Hill Deal Shows Soft Housing Market" which has all the numbers and quotes the principals.

And it's a story which may have the first newspaper headline in Central Virginia to describe the local RE market realistically.

(700 houses? Really? We're thinking, Who was projected to live there? Where were they going to be employed?)
*Update: See comments for "700" clarifiction.

For Sale: The Lodge

The Hook is reporting that the house owned by UVa Fraternity Chi Psi--known, as all chapters are, as "The Lodge"--is going on the block.

At one point this was the grounds for the Charlottesville Country Club; The Lodge bought it in 1950, and good times have ensued ever since. We know several great guys who were members of the local chapter and we ourselves, back in the day, had some high times on the property on Rugby Road.

It's no surprise that we received three emails this a.m. that began, "Holy S---!"

The place is 10,000 sq. ft., and the frat's board is hoping a private citizen, rather than a developer, buys it. Yeah, we are too. Asking? "North of $2M." (Worth it, IOHO--but of course that's also our nostalgia speaking....)

Sad, though. And why doesn't UVa buy it? Ain't they the best landgrabbers in the City?

FHA Raises Premiums to Insure Mortgages

The WSJ reports that the Federal Housing Authority (FHA) is going to raise the premiums it charges to insure that mortgages get paid. This is of course in response to the troubles over at Giant Mortgage Losers Fan & Fred (see our sidebar for the deathwatch).

The FHA is part of HUD, the Department of Housing and Urban Development. The FHA "has 4.8 million insured single-family mortgages and 13,000 insured multifamily projects in its portfolio."

Lenders would use the FHA as the "go to" place to help those for whom property ownership might otherwise have been out of reach. This market was co-opted by Sub-Prime lenders--the root of the current credit/housing crisis.

Some of the FHA's former parameters: No minimum credit score. Non-traditional credit is acceptable. Low 3% downpayment. Default assistance.


FHA loans were possible as long as a property met HUD's minimum property standards, and certain price parameters. The amounts available for Albemarle County are here. (Note the Single-family, Median, and "High Cost Area Exceptions." Interesting.)

WSJ reports on the coming changes, making FHA loans more expensive:

• The upfront premiums charged to most borrowers will be 1.75% of the loan amount, effective Oct. 1.
• That is up from the 1.5% that was in effect until July 14, when the FHA adopted a "risk-based" pricing system that created a range of charges depending on borrowers' credit scores and the amount of the down payment or equity [for a refi] they owned in the homes.
• For instance: On a $300,000 loan, the new upfront premium works out to $5,250, up from $4,500.
• At a time when house prices generally are falling, the share of new mortgages insured by the FHA has soared to 23% in July from a low of 1.8% in 2006, according to Inside Mortgage Finance, an industry newsletter.

Ouch.

Accidental Landlord: Northern Albemarle County

The shadow inventory persists. This term refers to defaults which will be foreclosures in a few months and add to the glut of houses for sale, and also to unsold houses that are now for rent by accidental landlords--those who didn't intend to have tenants.

Need a "Stately 4br 3ba Home Situated on 2+ Wooded Acres"? Try 4987 Abelia Way, up Rte. 29 in 22911.

You can see the Craigslist Ad, and rent it for $1,850.00 per month.

Or, if you feel like buying before our local market is at its bottom, you can pony up something like the Asking of $389,900.00. Check out the Yahoo! Ad, or use the MLS, ref'ing #453202.

Local New Construction, National Existing House Prices: Both Low

Local News

C-ville is reporting today on the dire stats of the new housing construction market:

Albemarle County released numbers for the first part of 2008. 266 building permits for new residential housing units were issued in the first six months of 2008. This puts 2008 on target to meet the lowest number, yearly, since 1990, when anybody started keeping tabs. The record lowest number was 569 in 1995. The highest was in 2003 with 1,720 permits issued.

What did County BOS member David Slutzky say recently? Oh, yes: "The real estate market stinks."

National News

The Case-Shiller Index numbers have been released for June. This Index, from Standard & Poors, is considered by economists to be the most reliable indicator of American home values. C-S covers 20 metropolitan areas, and only previously owned, single-family homes are included in the survey.

On an annual basis, prices are still plummeting at record levels. In June, home prices in the 20 cities in the index were 15.9 percent below their level in the period a year ago. Read more here.

[Update] The insightful ones over at CalculatedRISK have more to say on this issue:

"In real terms, the Case-Shiller National Home price index is off 25% from the peak. Real prices are now back to the Q4 2002 level (nominal prices are back to mid-2004)."

THEIR PREDICTION?

"With existing home inventory at record levels, and tighter lending standards, prices will probably continue to decline over the next few years - perhaps another 15% to 25% in real terms on a national basis."

Be sure to click over there to see the compelling charts and graphs.

National July Sales and Inventory Rise, According to NAR

According to the National Association of Realtors, sales of existing houses rose 3.1% in July. However, the number of houses for sale increased as well, up 3.9%. Of course, many of these sales are Foreclosure sales--as are many of the additions to inventory.

Good news? For whom? For everybody who sold a house...but not for those still waiting to sell. Good news for those who are waiting to buy, however. The increased inventory will push house prices down even further. The median price for a previously owned house fell in July to $212,400 from $215,100 in June. Last month’s price was 7.1 percent below the level in July 2007.

There is currently an 11.2 month supply of existing houses nationwide--meaning it would take this long to sell off the houses. We still have a ways to go.

And while lower prices could spur sales, they also cut into current owners’ equity and household worth. As we know from a report earlier this month, nearly 1/3 of homeowners who have bought in the past five years now owe more than their houses are worth.

Are all housing markets are regional?

While this is sometimes accurate, the local sales tell much the same story as the national ones. And August is almost over: we'll know in the beginning of September what the final results of the Summer Selling Season are.

The Charlottesville/Albemarle Bubble has been slower in correcting itself than others; there are still agents and sellers here who haven't received the memo that it's 2008, or looked into the chaos of the national economy, or even what's happening on a state and local level. Many still believe the Myth of the Protected Market, and are proselytizing as such. Our numbers, however, tell a different story than that of the optimists.

In our area, as of mid-year 20008, there was 9.8 months of inventory on the market; the median price for C'ville was $265K & Albemarle $320,200K. As of the beginning of July, there were 2595 properties on the market in the Charlottesville area, and 239 sold in July 2008, when the area is defined as Albemarle, Charlottesville, Fluvanna, Greene, Louisa and Nelson. There are more when you take into account the further regions ("The Vallye"), and this is the number reflected on the CAAR homepage (www.caar.com) which states that as of the end of July, there were 3,688 available. (These numbers are the same as those that were attached to our "mid-year" post, and courtesy REALCentralVA.)

Additionally, there's the shadow inventory: houses that are in default right now and will be added to the market in foreclosure soon. There are also houses that are being pulled off the market because they haven't sold (and sellers instead of dropping prices are "waiting out the market") and/or renting--becoming "accidental landlords."

Good time to buy? If you make sure your offer is low and your house isn't worth less than you owe the second month of your mortgage....

And in terms of new house building? The WSJ has a caution: That Housing Recovery? Keep Waiting, says the WSJ, and goes on to detail the woes of new housing builders exchange-traded funds.

"The Real Estate Market Stinks"

Albemarle County's budget is in trouble--as are local and state budgets everywhere.

“What we all know is that the real-estate market stinks. Property values have dropped. And therefore our revenues are going to be dropping,” Supervisor David Slutzky said, in a recent article in the Daily Progress.

Figures due next month, September, are expected to show that Albemarle County Revenues are declining. This, along with Virginia's budget deficit, equals--what? A cut in services? But which ones?

The article tells us "'Inadequate funding for core services has adverse effects,' Slutzky said, citing a lack of adequate funding in Charlottesville and Albemarle County for police officers. The result has been a recent gang-related crime problem, he said."

Where else will we see problems?

While the County's deficit is unclear, the City of Charlottesville is facing a $1.78 Million projected deficit. And the Commonwealth itself faces a deficit of $641 Million.

Is the solution to raise taxes, or find money elsewhere?

Foreclosure Central

The experience of Merced, Calif., suggests that recovery from the national real estate debacle will be painful and protracted.

Read this riveting article, "In the Ruins of the Housing Bust, the Price of An Illusion," about a city in crisis. It's the worst-case scenario, sure. But we all know, or will know, folks facing the same things. And the run-up in prices sure sounds familiar....

Accidental Landlord Thinks William Faulkner Slept Here

Buy For $800,000 or Rent for $3,000/Month With Accidental Landlord in Western Albemarle

The number of unsold houses continues to grow, becoming a "shadow inventory" as they turn into rentals. With more rentals on the market than usual, and the country in a recession, prices should be coming down.

But since we're in Charlottesville/Albemarle and the water is still, apparently, filled with Bubble Juice, asking prices remain silly.

If you want live in Western Albemarle, you can rent this baby: 2400 Pine Garth Run, just beyond Foxfield, 5 beds, 3.5 baths, $2995.00 per month - or $36 Grand a Year.

OR Purchase for $799,900.00. Despite this price point, 2400 Pine Garth Road is listed with ForSaleByOwner.com. But maybe the current owners don't really want to sell this house for $800K? After all, they bought it for $360K in 2000--so surely they're willing to negotiate?

The Sale ad tells us that the house was originally a cabin built in 1960, but has now been expanded to 4,500 Sq. Ft.

However, the County Tax Assessor differs: claims the place dates from 1965. Which puts into question the following great local hearsay from the CL ad: "The home was originally a hunting cabin built circa 1960. The original owners of the cabin were relatives of William Faulkner, who reportedly stayed at the cabin while he was a writer-in-residence at UVA."

Faulkner was Writer-in Residence at Virginia for two semesters in 1957-58. He died in 1962. His daughter's family did, however, live in the area.

Did somebody really take a cabin and expand it into this thing? Or could it be that the current owners are overlooking the fact that one of the storage sheds was the original "hunting cabin"?

And, Hello? If there's a modicum of veracity to this tale, we must point out that these folk want to maintain the bragging rights of having housed one of the Greatest Authors of the 20th Century, without authenticating. We don't, quite, 'buy' any of it. But you know how we are.

Vandalism in "Downtown Belmont"

Fitzgerald's Tire Co. is on the triangle between Hinton Avenue and Monticello Road.

This is across from La Taza Coffee, Belmont BBQ, Saxx, The Local, Crush, and near Mas.

Graffiti? Gang tagging? Whatever the term of art is, this isn't good for property values--among other concerns.



This image was captured on Sun., 8/17. It was whitewashed (you can still see the fresh paint) by Wed., 8/20.




The image below is on the side of the arts building "The Bridge," on Graves Street. As of today, it's still there.










Thanks to CG for these.

Famous Last Words - Laughably Late

Fan and Fred stocks drop for third straight day amid concern that bailout is imminent. In a Letter to Editor published in 8/19 NYT, we read:

"...we expect to move through this period without asking for Treasury support and are taking the steps necessary to serve our markets — and our vital mission — for many years to come." --David Palombi, Sr VP, Freddie Mac, Aug. 11.

Did he email the Eds? Or why is the response 10 days out of date?--during which Fred lost billions more, and the financial landscape again changed. Lesson learned?

Interview: Jim Duncan, RE Agent & REALCentralVA Blogger

It seems everybody in Charlottesville/Albemarle has heard of RE Agent Jim Duncan, of Century 21 Manley. And a big reason is his blog, REALCentralVA. Not only does the blog cover buying and selling property in the Charlottesville/Albemarle area, but it also covers Green and EcoBuilding issues, local politics, area housing developments, road issues, state government, UVA news...plus has a level of transparency about the RE industry not seen on many blogs. Additionally, a frequent theme on the blog (lately) has been the uses and values of blogging. And did you know Jim Duncan was one of the first 50 RE bloggers in the nation?

We're the Bubble Blog, yes, but we're not anti-Realtor. We're anti-Bubble. There's a vital need for expert realtors (we've said this before here, and on other blogs), especially in this rapidly-changing, complicated market and economy. A good realtor, in our humble opinion, is someone who takes into consideration not just the profit aspects of helping people to buy or sell what is typically the largest purchase of their lives, but also someone who knows that owning a house conveys with it other elements: a sense of community, a sense of responsibility, a sense of security, and that in the current market, and for several years to come, these intangibles may be more important than large profits.

We're not alone in thinking that Jim Duncan achieves this. Recently, C'ville, in The Best of C'ville 2008, said of him: "...realcentralva.com is a must-read for anyone who wants to make sense of the chilling local market."

This post comes as a reciprocal interview: he hit us up, we hit him back. At the bottom of that interview, we noticed a disclaimer. Which made us laugh, as we've received emails suggesting the same thing: that Jim is the Bubble Blogger. Hey--Thanks for the compliment! But that would mean he blogged in his sleep....

A note on the following text. We bolded the hyperlinks. Where we emphasized something that Jim didn't emphasize, we included a note. Thanks to Jim for taking the time to do this. It's surely a good use of blogging as a tool.


What's your background, and what led you to RE?

I have a BA in English from the Virginia Military Institute, Class of 1998. I've been a Realtor for just about seven years. I play adult soccer, coached my older daughter for nearly seven years and enjoy reading about and being aware of current events, primarily political and economic. Technology has always intruiged me. I enjoy speaking about and educating others on the benefits of real estate blogging. I'm a real estate (and real estate blog) dork; it's taken me a while to come to terms with this fact (my wife picked up on it pretty quickly) and I'm ok with it.

What led me to RE is simple - it's in my blood. I was planning on making the move to real estate in 2001 - I'm a multi-generational real estate agent - when I was laid off from a local tech company. There's nothing like unemployment to motivate. My first home inspection was on 9/11/2001 -- a day I'll never forget.

We've read on your blog that your mom is an agent. Are you in the same company? How did she inspire you?

My mother is a Realtor with the same company - Century 21 Manley - and has been an active Realtor for most of my life. My dad is a Realtor in Culpeper and I tell people I've been doing real estate since before my voice changed; I used to answer the phone in my parents' office. Mom inspired me in simple ways - work ethic, do whatever it takes (ethically) to do what is best for the client and to not miss my kids' games (she rarely missed one of my games) and she reinforced things I already knew - honor and reputation are paramount and non-negotiable. She was and is a mentor, someone to whom I ask the "dumb questions" ... "Mom, will I get sued if I ...., what if I ... does this clause sound right ..." I honestly do not know how anybody can make it in this business without having someone of whom to ask those "dumb questions".

I genuinely love what I do and am passionate about all things real estate - learning, representing clients, teaching, listening - and I hope it shows in all that I do.

When did you start your blog? What was the inspiration? How did you choose your particular format? Care to comment on technology as a selling tool?

I started my blog in January of 2005 and was one of the first fifty real estate bloggers in the country [BB emphasis]. The inspiration was simple - I saw a void in the local media for candid commentary from the perspective of someone who lives and breathes real estate. The format evolved and is constantly evolving (I'm due to break my design/format now) ... I started on a free, very basic platform and made the move to Wordpress in March of '05.

Technology in and of itself cannot sell anything; how it's applied can help the process. In my world, my blog serves as a passive marketing tool and was never intended to be a selling tool (or advertising). First and foremost, my blog is a tool that I use to educate myself, store my thoughts and opinions, and use as a resource for my readers.

I tend to join as many social networks as I can just to ensure that if it does catch on, I will have secured the "JimDuncan" username. Among the most productive networks for me have been LinkedIn, Twitter, and Facebook. People want to know more about people whom they might hire before they contact them; I Google most people I meet and I tend to Google phone numbers as well. Being able to say with confidence Google me is a pretty powerful thing and reassuring to potential clients that they know "who I am" before they meet me.

In a related question: how many blogs do you read per day, trade sites, newspapers? On how many other people's blogs do you regularly comment, or regularly actually do a post?

I scan about 100+ real estate blogs, 100+ local blogs and about 20 nationally focused economics blogs. I tend to comment on about 15-30 blogs with regularity.

I used to write on the Bloodhound Blog and currently write at
Agent Genius, a national real estate blog/magazine. I contribute occasionally at the Virginia Association of Realtors' blog, VARBuzz. I also write RealCrozetVA - a hyper-local blog focused solely on Crozet. I started it in September of 2005 as a forum for Crozetians - again to fill a void in the space.

The real estate blogs I read are here and the Charlottesville blogs are here in OMPL format (for importing into a feed reader).

Part of the value I bring to client representation is knowing where to find information for my clients. Reading more than they do is part of this. I'm very comfortable saying "I don't know ... but I'll find out."

In a recent market report, you had a line about having said for the past 9-18 months that the recovery is 9-18 months away. You yourself seemed surprised that you'd been saying recovery would be soon for so long. What's your best guess now? And based on what?

I'm sticking by my prediction of 9-18 months, and reserve the right to shift that as needed. There are just so many factors affecting the market right now - high levels of inventory, the "shadow inventory", credit "crisis", fuel and staple costs, fear ... that getting a handle on what is happening and when the recovery will come is seemingly impossible. I think that the truth lies somewhere between Nouriel Roubini and the NAR [National Association of Realtors- BB], and possibly trending closer to Prof. Roubini.

I think that there is a good chance we may look back at the charts of the 3rd and 4th Quarters of 2008 and say "There! That's when we should have bought!" A commenter recently asked (and I've neglected to answer - sorry -) how much more I think that City of Charlottesville properties will decline. My answer - not too much more (I think) - building permits are down, new construction inventory is starting to be burned through, but we still haven't seen the full shakeout of the builders and Realtors; until this happens (and until we have hindsight) I don't think we'll be able to call a "bottom".

All that being said, right now there seems to be a real increase in qualified buyer activity - buyers are more qualified and better able to both make the decision to purchase and afford that decision. Almost to a person, my buyer clients recognize that today is an extraordinary time to buy - rates are low, many sellers are motivated, and prices are good. It's the prices and the stubborn sellers that have yet to fully give; but many are giving in to reality. [BB's emphasis] My clients also tend to be buying for now-realistic timeframes - at least five years and often for far longer. This qualifies as a *very* good thing.

You seem to be the media go-to guy in C'ville. How did this happen?

Luck, timing and I'd like to think that the media and readers find value in my expertise and candid analysis of the market. I answer calls from the media and give honest answers, and thank them when they call me. I respect the work that they do and in turn like to think that they respect what I have to offer. All media are seeking content and expertise; I try to offer both. I'm actually talking about this next month at RE Blog World in Las Vegas [BB: Are Bubble Bloggers invited?]. I think that my candor is part of what they (and my clients) seek.

Have you had any foreclosure sales? Anything "tricky" about them (for instance, hidden liens, etc.)

None yet, although I have been able to negotiate with lenders in two recent transactions to help forestall impending foreclosure prior to us - the Realtors, buyers and sellers - being able to do what we have to do. I have heard several instances of Realtors who describe the process as eminently frustrating as the lenders don't seem prepared or interested in doing what is right - either for their own bottom lines or for those of the buyers or sellers/owners.

The trickiest thing about them may be *finding them* - there is not an efficient and comprehensive way to search for either foreclosures or short-sales. In fact, many of the lenders state explicitly that the property is not to be marketed as either a foreclosure or short sale. But there are "code words" that can help ferret them out. [BB: We've seen only two (2) properties recently on the MLS which explicitly state that they are "Foreclosures" and sold "As Is." And even services such as RealtyTrac, which has a monthly fee, don't always have the same info as the local papers--and vice versa.]

In a related question, are you concerned about Alt-A resets/defaults/foreclosures in our area, based upon the NYFed's map of loans?

I'm a bit concerned, (and would be lying/blind if I said I wasn't) as I don't think our region has yet seen the full brunt of the short-term ARMS or the Alt-A resets/defaults/foreclosures. That being said, I don't see us being like Prince William, Loudoun, Miami or any of the other foreclosure hotspots. I've written about foreclosures in the Charlottesville area a few times - February, April , and May of this year. The February foreclosure story is notable for the comments.

Jim asked the Bubble Blog this question, so we handed it back: If you had a magic wand for housing/the economy, what would you change?

I'd take out some of the irrational exhuberance/froth/whatever you want to call it. The expectations of buyers and sellers are what concerned me the most. I knew something was amiss when clients called me and told me that they wanted to sell ... and if they couldn't *clear* $80k (a 50% return in 25 months) then they couldn't/wouldn't sell [BB emphasis]. That was the clearest sign that something was "wrong".

The fact that nearly 70% of the loans in Virginia are "low or no-documentation" is certainly cause for a pause, but without being able to localize that for the Central Virginia region, it's just a number without appropriate context. [BB emphasis; the Fed's map doesn't allow such specific info at this point.]

I'd get people to value homes' intrinsic values more than the immediate financial values; I'd reduce the amount of fraud and unhealthy greed in the market. I'd have those writing the loans accept some risk for their loans - something that was dramatically missing from the "boom" years.

On a much lighter note, you must certainly know every neighborhood in C'ville and the County. What three places or things are there that surprise or please you?

What surprises me is that I'm constantly surprised. There remain nooks and crannies of the City and County that remain hidden and under the radar. The sheer volume of "stuff" to do is stunning. From Live Arts to the Paramount to JPJ to the Pavilion to ... there is so much to do and see that it amazes me that our community is able to support so many activities and venues and there seems to be more demand out there.

Gardens - as I've taken to riding my bike around Charlottesville , I have noticed more gardens in more yards - front and back - than I ever have before. I don't know if this is in response to gas prices, more socially-conscious people or just something I've never noticed before, but there seem to be gardens everywhere (and lots of tomatoes!) I'm also fond of the number of CSA's and farmers markets we have.

What would you like to say to potential sellers? To potential buyers?

I have found that usually the brand of the Realtor doesn't matter.

To sellers - be patient and realistic. Seriously assess whether selling right now is the best option. If you are going to sell, price your home aggressively after looking at the active and under contract comparable properties. Seek professional advice, if only to provide the emotional and psychological detachment that is necessary to make a logical, honest assessment.

To buyers - be patient, but be ready, willing and able to pull the trigger when you find a house that fits. Focus on what your needs are and have your list of wants a close second. If you're going to buy, try to make sure that you will be here for at least three to five years, if not longer. Read. Educate yourselves. Ask questions. Choose a great buyer's agent whom you can and do trust. Negotiate reasonably and have realistic expectations.

Anything else you'd like to add?

Just that I'm grateful every day for the opportunities I have, for my wife and family for tolerating me, and for the people who make my site what it is - the commenters who give their time, energy and expertise.

Good Price: For Sale or Rent in the Bubble

This is another in our continuing series of houses that have been for sale but now, unsold, are for rent (scroll down for other recent posts).

2200 Brandywine Drive in the pretty Greenbriar Neighborhood is convenient, by car, to everywhere (and gas is down to $3.54 right now, though this probably won't last).

When it was actively for sale, it had a "reasonable" Asking of $319,000.00. AND owner financing was available. Perhaps it needs a bit of updating, since it had long-term owners? But $319K as original asking doesn't make one roll one's eyes in disbelief.

It's 4 Beds, 2 baths, up on the hill of a corner lot, with nice shading.

And it's well-priced, IOHO, at $1,300.00/month as a rental.

See the Craigslist ad.

2100 Twyman Road - Accidental Landlord

Even a casual reader of Craigslist and the MLS is familiar with 2100 Twyman Road, because it's been for sale and for rent for more than a year.

The -- interesting? confusing? odd? to be expected? -- thing is that the price keeps shifting, up and down.

We've seen it for sale for $499k, but it's currently listed for $539,000.00.

MLS #451851, 4 Bedrooms, 3 Baths, 1955, 0.38 acre. It's in beautiful Merryden, which is bounded by Ivy Road, and near the lovely Lewis Mountain Road. It's close to UVa Central and North Grounds.

Like the price, the "stats" on the house keep morphing. Does it have four bedrooms, or five? Is that an In-law Apt. in the basement, or a legal rental? Hmmmm.

It's available for rent now, and you can see the listing here. $2,300.00. This is pricey, but perhaps the owners are hoping to attract grad students, since this Craigslist ad (which we have to say, isn't very informative, and doesn't include a pic) notes that the place is near the Law School and Darden.

We know at least two recent renters, and perhaps they'll divulge details in the Comments. And if you have a few minutes, you might want to check out the sale history.

Local Reports

Richmond Times-Dispatch:

Already Slow RE Market Must Absorb 100's of Homes as Wachovia Securites Moves to St. Louis

Banks Cut Back on Home Equity Loans

Belmont: Accidental Landlords

702 Belmont Avenue went from an Asking of $519,000 to $499,000. It's now on Craigslist as a rental for $2,100.00/mo.--utilities not included. "Short Term Rental Preferred."

702 Belmont: $2,100.00 x 12 = $25,200.00 Per Year.

611 Avon Street went on the market in May for $494,000, and has since dropped to $464,000. It's now advertised as a "Charming Belmont House", $2,300.00/mo., utilities not included.

611 Avon: $2,300.00 x 12 = $27,600.00 Per Year (say, that's close to the Median Income here in Charlottesville).

These houses are recently renovated, but the rents are out of sync even for the most overhyped area in town. The Accidental Landlords are not looking at what the market can bear, but what they need to make. Which is understandable -- but IOHO not realistic in this economy (inflation is up to 5.7%) and location.

"Expensive" rental houses in Belmont go for about $1,600.00 for 3 bd / 1-2 bath, 1700 sq ft. Suggestion: Take 703 Graves Street as a cautionary tale. This place was bought in 2007 and reno'd to be a rental. At $2,300.00 per month, it's been empty the entire summer.

It's not 2007. Heck, it's not even 2008. It's more like 2004. Then again, there's often some import from NY or DC with cash burning a hole in his pocket....

Gam and others? Belmont lovers? Jump into the comments and explain how these Asking Prices for Selling and for Renting are Reasonable in this Economy and for this location.

BTW? 702 Belmont has an Open House this Sunday.

"Dr. Doom" - Economist Nouriel Roubini

"On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession."

"He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt."

"These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

The audience seemed skeptical, even dismissive...."

Read Stephen Mihm's compelling NYTimes article here.

850 West Street: Bubble for Sale or Rent

850 West Street has been for sale for as long as we can remember. The Asking is $363,000.00 for a 2 bedroom/2 bath house that has its own blog. To rent, it's $1595.00/month. Ouch, either way.

The blog says, "The house is on West Street, directly behind the Vespa store, in a great diverse city neighborhood."

This is the 10th & Page Neighborhood, which today is primarily African American, according to Charlottesville Community Design Center. And we've heard 10th & Page referred to as a lot of things, but never as a "great...neighborhood." Perhaps it became "great" after those candy-colored cottages went up on 10th?

West Street runs parallel to Preston Avenue, which means the house is also behind the Region 10 Community Services Building and near the Coca-Cola Bottling Plant, as well as near some auto repair shops.

One of the"improvements" to 850 West Street is a fence that is at least eight feet tall, which runs around the entire property. Which of course makes one wonder, if the neighborhood is so "great," why is this place a walled fortress? Just for fun?

And by "diverse" do the owners mean that the area has recently had a drive-by shooting? Well, o.k., that's an interesting, and new, definition of "diverse." The good news is that C'ville's Finest don't think the shooting is gang-related; the bad news is that it happened approximately 600 feet away from 850 West Street, on 9th Street.

Or perhaps "diverse" indicates socioeconomic status: some properties in the neighborhood have been bought by investors who don't live there and/or have been gentrified, and others haven't.

BTW? We're big proponents of "diversity" in neighborhoods, meaning mixed racially, ethnically, economically, religiously, aesthetically, and in terms of "life-style" choices (talk about a euphemism!)--but not at the expense of displacing families that have lived in the same area for generations, and disrupting a sense of community, due to ridiculously inflated prices.

Whatever the adjectives and their meanings, 850 West Street is unsold and unrented. Hmmm. Pricing, perhaps?

$1,595 x 12 = $19,140 in Rent Per Year.

Sounds like what the mortgage payments would be for the current owners' purchase price of $287,500.00 in June, 2005.

View the Craigslist ad for the rental here.
View the Craigslist ad for the sale here.

Is Alan Greenspan Suffering From Dementia?

Former Federal Reserve Chairman Alan Greenspan, whose reign from 1987 to 2006 many blame for the current housing/credit crisis, has a suggestion for how to sell off the 800,000 extra unsold properties nationwide:

"The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants," he said. The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes, would accomplish that while paying other dividends to the U.S. economy.

He estimates the number of new households in the U.S. currently is increasing at an annual rate of about 800,000, of whom about one third are immigrants. "Perhaps 150,000 of those are loosely classified as skilled," he said. "A double or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale -- and hence help stabilize prices."

A good idea from the 82 year-old? Or more of his recent kooky ramblings, which include the following:

"While local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity," he said in October 2004.

Eight months later, he said if home prices did decline, that "likely would not have substantial macroeconomic implications."

And in a speech in October 2006, nine months after leaving the Fed, he told an audience that, though housing prices were likely to be lower than the year before, "I think the worst of this may well be over."

Greenspan sees an end to the housing crisis in 2009. If you'd like a good laugh, read the entire article: "Greenspan Sees Bottom in Housing, Criticizes Bailout."

One Third--Or More--of New Owners Owe More Than House is Worth

Recently, Zillow.com, the Internet provider of home valuations, asserted that many homeowners are delusional.

Today, they have their 2Q 2008 Market Report, which has some not unexpected numbers (unless, of course, you're a delusional homeowner).

Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages than their properties are worth, according to Zillow.

Second-quarter home prices fell 9.9 % from a year earlier, giving 29 % of owners negative equity.

For those who bought at the 2006 peak of the housing market, 45 % are now underwater, Zillow said, as reported by Bloomberg.

Our MSA is too small to appear on Zillow's list of valuations. Richmond, however, makes the cut. During Q2 2008, 47.4% homes lost value, and 13.2% have been sold for a loss.

For the past 12 months, 60.9% lost value, and 10.9% sold at a loss.

And since the Central Va/Richmond peak was, arguably, later than 2006, we still have a ways to deflate....

View Zillow.com's 2Q Market Report, including a clickable national map, here.

JP Morgan Loses 1.5 Billion SINCE JULY

The bank had its biggest decline in six years after reporting a $1.5 billion loss on mortgage-backed assets in less than two months. The stock dropped 9.5 percent. And this is the firm, to remind those of you not obsessed w/banks, that bailed out Bear Stearns under the direction of the Fed and the Treasury.

Last month, JP Morgan CEO Jamie Dimon, in a frank statement, said in discussing their Prime [perfect credit] mortgages: "Prime looks terrible, and we’re sorry. We can say it eight times. It looks terrible.”

This month, he says that JP Morgan's decision to expand to mortgages in 2007 was "wrong."

It's sort of like being a local investor here in Charlottesville and buying a house in 2007, renovating it, and trying to sell it or rent it in 2008 (hey, wait a second, that's a future post on this blog....). But you get our gist: Lack of Foresight.

The excellent Calculated Risk has a list of "Themes" they expect to see in the news repeatedly (not just on Econ, Finance, and Bubble Blogs) over the next few months:

• Alt-A (good credit, 'light documentation' mortgages) is the new subprime. Or “We’re all subprime now!”
• House prices - On a national basis, they think nominal house prices have probably fallen more than half way from the peak to the trough. But there's still a way to go, especially in slower-to-pop areas
  
• There will be two housing bottoms - One for Existing Houses, One for New Construction
• There will be no rapid recovery for housing

Read the post here.

Mortgage Losses Now Hitting Credit Unions

Credit Unions are among the most conservatively run financial institutions in the country. They're not-for-profit and member owned, taking members' money and loaning it to others (if you think this sounds like George's business in It's a Wonderful Life, you're right, it's similar).

The mortgage problems are focused on "corporate credit unions," which are vital entities in the industry. Instead of dealing with consumers, they provide investment services and financing to regular credit unions, which do. Regular credit unions park a portion of their funds with one or more of the corporates, which in turn invest the money. Five of the largest corporate credit unions are in trouble.

Negative Equity: The paper losses of the five big corporate credit unions are large enough to wipe out the net worth of each of them. Added together, their negative equity totals $2.9 billion -- meaning, in theory, that their debts exceed the current market value of their assets by that amount.

The federal regulator overseeing credit unions says the losses are likely to be reversed when mortgage markets stabilize. But when might that be? Outside observers are afraid that there could be "bank runs" and failures.

This is a careful WSJ story that puts into perspective the gravity of the mortgage situation at all levels, just as Standard & Poor's Rating Service is downgrading certain securities at Mortgage Losers Fannie & Freddie, which may make it harder for them to raise capital.

Read it all at WSJ.

Paulson Forgot to Add....

Treasury Secretary Henry I'm Sorry I Ever Left Goldman Paulson opined on Sunday's Meet the Press as to how there are no plans to inject capital into Freddie and Fannie, even though both posted worse than expected results on 8/6 and 8/8, respectively.

What he really meant to say was, There are no plans to inject capital into Giant Mortgage Losers Fannie and Freddie--This Week.

We think this will happen around September 15th--you know, a few days after the numbers for the final month of the Sad Summer Sell of 2008 roll in, plus there's more evidence of 2007 mortgages collapsing quickly.

Paulson's intelligence shines, though, whenever he speaks; we'll give him that. “We have got some serious issues that we’re dealing with in our economy,” he said. “I believe it’s going to take us well beyond the end of the year to work through all the housing problems.”

Ya think, Hank?

He also mentioned that he'd be leaving office along with W and the $482 Billion Dollar Deficit W leaves for his successor.

That deficit doesn't take into account costs for Iraq and Afghanistan or the potential $50B for another economic stimulus package. It doesn't account for vacuuming out $$$ from the national treasury that will result from further declines in the housing market and the need to invoke the Bailout.

Good plan, Hank.