Monday, May 3, 2010

Charlottesville Albemarle Real Estate Update: Did the Homebuyer Tax Credit End With A Bang Or A Whimper?

The numbers are still rolling in for the impact of the Homebuyer Tax Credit on the Charlottesville Albemarle area; this blog will have an update shortly.

However, the Federal Government's intervention to further prevent plunging home values extends much further than a trasfer of funds to certain income-qualified "buyers": currently, 96.5% of all mortgages are owned or backed by the US.  This is accomplished primarily via giants Fannie Mae and Freddie Mac, which were placed in US "conservatorship" in 2008.  This number is up from 15% in 2006.

Read the WSJ article; CalculatedRisk has analysis from the SF Fed.

The Automatic Earth explains the consequences of US government intervention:
Let nobody try and fool nobody else anymore. Fannie and Freddie have nothing to do with the less privileged: they are the ultimate tools for Washington to keep Wall Street alive. Not only would significantly lower home values put severe strains on the major banks' balance sheets, they would also implode and destruct what Mortgage Backed Securities and various other housing related derivatives can be put on the books for.

And if Washington keeps on refusing to do so, maybe some other party can come up with some calculations on what the cost to the taxpayer would be, now that 96.5% of mortgages are provided on that taxpayer's account, of prices going down another 10%, and another set of calculations for a 20% drop, and one for 30% (or maybe 50% would be a better, more realistic view). If a government holds the view that it can spend tax revenue at will and limitless, that same government can still be put to task for doing so largely in secret. The American people have a right to know how their money is spent, on what it is spent, and above all how much.

The government needs to explain, for instance, why it has decided to prop up home prices at levels that are far higher than what they were prior to the 2002-2007 housing boom. This is vital data, because it will, or at least may, alert enough people to the fact that domestic real estate prices have zero percent chance of staying at those levels unless taxpayer money is used into perpetuity to guarantee any and all mortgages.
(Red emphasis = BB.)
Read more here.  

Frightening graphic posted at CalculatedRisk:

Meanwhile, people who already have mortgages are fleeing: 31% of all defaults are now considered strategic.


Anonymous said...

Add to the mortgage problem, the escalating weekend bank failures that get very little media coverage. FDIC has a finger in the dike. So it seems that even the accounting changes will not stem the under reporting of losses and there does not seem to be any mention of banker malfeasance.

Bleed It said...

Whimper: buy for $375k or rent for $1650/ month. 707 Evergreen.

There was a drop in inventory but lots of those were expiring listings not sales.

Bleed It said...


Anonymous said...


Tax credit expires and we're back to "housing always goes up!!!!"

Anonymous said...


craigger said...

Unless foreclosures pick up, everyone should expect a frustrating year.

John Doe said...

USA Today forgot to include

*Desperate local overleveraged sellers

*How many YEARS worth of inventory there are at those price points

*How low sales volume is at those price points nationwide

*The widening sovereign debt crisis

As for the new listings, the houses on Calhoun and on Greenleaf were bought w/in the past 2-3 years and sellers seem to think they'll not only make back what they paid, but agent fees, too. Sweet dreams!

Anonymous said...

Craigger, don't you mean "When foreclosures start being used as Comps"?

craiggger said...

To Anon, foreclosures have been very low here relative to other markets with the same level of 10yr HPA, especially Albemarle county. I'm still bearish on the housing market, but unless you have a catalyst to actually move inventory and set some real "rational" comps, people will sit and hold on to their broken dreams waiting to sell. I would bet that 2010 will be a frustrating year of high inventory (lack of clearing sales). 2011 will hopefully be better as those "desperate" sellers become forced sellers (to the bank) prices get lower and sales pick up. The sovereign debt crisis that other posters mention will only lead to more money printing, which only serves as a tailwind - not a headwind - to housing prices, which are priced in nominal dollars.

Humpty said...

Now that April 30th is past us I am waiting to see how home sales will fair in the next few months. Personally, I think by August fatigue will set in and the sellers will start to capitulate. It is correlated to the stock market and what they call the "wealth effect". If the market does well the sellers will continue to hold. However, if the stock market tanks, we will smell fear and panic across the board.