Free Money is Addictive

XXX Homestead Road $162/sqft. Asking $364,900.

This home was foreclosured upon in July. I wouldn't call it a bargain at its price. This is however what its previous owner paid for it when she bought it in 2002. When it was bought in 1997, it sold for $130K. It nearly tripled in price in 5 years. (Just because Case-Shiller marks 2000 as it's reference "100" point doesn't mean the bubble started in 2000.)

Todays owner debtor suffered from a terrible addiction to free money. She returned to the free money tap every year for another $20K:

05/31/2002 -- purchased for $365K
Corporate Lenders Investment Group -- First Mortgage for $292,000
Southland Associates w/ Central Carolina Bank -- HELOC for $36,500
$73K downpayment, but only $36.5K were frozen in the house.
Effective percentage down payment: 10%

(Barely one year!)

06/03/2003
Southland Associates w/ Central Carolina Bank -- HELOC extended to $66,000

(Almost a full year, almost!)

06/02/2004
Southland Associates w/ Central Carolina Bank -- HELOC extended to $85K

(She only held out half a year)

12/01/2004
Corporate Investors Mortgage Group -- Refinanced the first mortgage to $310K

(w00t, she made it for longer than a year!. "Two packs a day, but I'm cutting back.")

12/28/2005
Sun Trust HELOC for $100K taking over the $85K debt from Southland Associates w/ Central Carolina Bank.

By the start of 2006, she had $410K worth of debt and no equity. The owner held out for three years before defaulting somewhere around February, at which point she lived rent free until her house was sold at auction. The Corporate Investor's Mortgage Group seems to have been a shell company for a single investor. I'm not sure. This investor bought the property at auction for $321K. He must think that someone would be willing to pay $365K for this house again.

It's unclear to me what happens to Sun Trust's $100K. In California, only the first "purchase money" loan is "no-recourse" following a foreclosure. Other loans, like HELOCs are not. If this were California, then Sun Trust would retain the legal right to sue our addict for the $100K she owes.

Our addict has found rock bottom having been evicted from her home and she still has $100K hanging over her head.

Prime real estate

What part of Chapel Hill would you think the most expensive? Location seems the most important factor, and proximity to the University being pretty much the only metric of location quality. That leaves the area south of Cameron to the west of the University, and of course, Franklin street, in that old-growth stretch past the East End before it starts steeply down hill.



8XX E Franklin Street $175/sqft. Asking $740,000 for 4,214 sqft. Unsold for 175 days.



7XX E Franklin Street $411/sqft. Asking $3,350,000 for 8,144 sqft. Unsold for 62 days.

I've left the first digit intact on these two properties because I wanted to emphasize that these houses are a block apart. One is significantly more expensive than the other. 2.3 times as expensive per square foot. I think the cheaper of the two has a better chance of selling. It goes without saying, of course, that multi-million dollar properties are often on the market for a year or longer and that the 7XX E Franklin property is in the earliest phase of its' time on the market. However, the 8XX E Franklin property is not outlandishly more expensive than most Chapel Hill houses. Yet it languished on the market all summer.

Whatever the 8XX property sells for should set a ceiling for every other property in Chapel Hill. Southern Village's $200/sqft? I don't think so.

Triangle MLS reporting

How does the Triangle Business Journal cover the July sales figures posted by the Triangle MLS?

"MLS: Triangle home sales heat up in July"

Across the triangle, more houses sold in June than in July CORRECTION July than in June, so the story title makes you think that real estate is HOT. They don't mention that sales are always higher in July than they are in June. Nor do they mention that sales for Orange county in particular were less in July than in June.

Of course, after the headline, they have basically nothing rosy to report. Sales volume is down double digits YOY in all the counties counted as part of the triangle. Dollar volumes are also down double digits. (Median sales price is down, but median sales price is a worthless metric as the mix of what price ranges are selling is in high flux.) Total sales for the year are down 25% so far.

Orange county is bucking the trend

The Washington Post currently is leading with a story that July home sales are up 5% YOY (and 7% from June). Nationally, prices have been falling. As prices drop, demand increases. This is a natural response; it doesn't mean we're necessarily at the bottom when volume increases a bit, especially when volume up until now has been at historic lows. It just means that we're closer to the bottom than we were before... that's not saying very much.

But Chapel Hill prices have not been falling. So what's happened in Chapel Hill?

The Triangle MLS reports a 13.3% YOY drop in volume for July for Orange county. Orange county is bucking the national trend. Indeed, July sales (144) were fewer than June sales (149).



Because prices aren't falling, sales volume is getting worse. This is pretty clear; Chapel Hill is not near the bottom.

Valley Park Condos

XXX Valley Park Drive. $284/sqft. Asking $185,000.

I spent a summer living in the Valley Park Apartments years ago. I shared that tiny two bedroom apartment with a friend of mine. It was cramped, the kitchen was tiny. My friend had TiVo, which made up for a lot. That, and my portion of the rent was only $300/month.

Recently, the apartments were converted into condos. The kitchens were remodeled. They now have the tiniest work surface I've ever seen in a kitchen. BUT that tiny strip of counter top is custom granite. Ooooo. Granite.

When I was surfing Realtor.com this spring, I saw them go up for sale and thought, "who would ever pay for that shithole?" Well, the original offerings disappeared from Realtor.com shortly after they went up. I drove by this evening, and sure enough, there are people living there.

Except, Orange County does not have any record of these condos having been actually sold. Only today's property is listed. The other condos, when they were listed in December '08 originally listed for $195K. If they really did sell for $195K in May (when they disappeared from Realtor.com), then why is this one being listed for 10K less?

I have a feeling this apartment-to-condo conversion is now in its second phase: condo back into apartment.

*Correction*
Two of the nine do have recorded transactions on the Orange County public records website. One of the two deeds-of-trust lists 4 people on the loan (all with the same last name) and makes reference to "rent" several times. I have a feeling these four people bought this property as an investment and are renting it out. The place rented for $600 / month when I lived there; I would hope they can get a lot more so that they can cover the expense of the mortgage.

Foreclosures on google maps

CalculatedRisk pointed out that google maps nowdisplays foreclosure data. The data that google is displaying comes from various points in the foreclosure process. NODs, NTSs, & REOs all show up on this map. So I had to take a look: what's in the pipeline for Chapel Hill?

Here is a map for the 27514 zipcode.



There are hardly any on the map. I'm surprised.

Compare that with 10 miles away in Durham



How can one interpret this?

a) Chapel Hill will be immune to the housing bust because the schools make it special.

b) Because foreclosures won't deflate the bubble, Chapel Hill's deflation will take a long time. But with Durham properties just up the road foreclosing, their prices will deflate. There will be a sharp price gradient between Durham and Chapel Hill, one that cannot be explained by Chapel Hill's schools (since that difference is already priced into the market). This price gradient will slowly erode Chapel Hill's prices.

What do I mean?

Let's say the school system allows Chapel Hill to command a 20% premium over Durham; a 100K house in Durham would cost 120K in Chapel Hill. This price difference existed before the bubble began. Both Durham and Chapel Hill see 75% appreciation during the bubble; the Durham house rises to 175K and the Chapel Hill house rises to 210K.

Now, due to foreclosure pressure, the Durham house returns to it's pre-bubble price of 100K, but the Chapel Hill property remains at 210K. Can Chapel Hill pretend that it should now command a 110% price premium over Durham?

So, I look at these two maps and I see depreciation in the future for both Durham and Chapel Hill; but Chapel Hill's depreciation will be slower. Terrific. We'll drag out the negative consequences of this stupid bubble for even longer.

I'm going to post more news links

I'm going to try and increase the links-to-news content, which means, I'm not always going to post when I have a house that I want to point out.

Sometimes, it'll just be a link to an article.

Like this one:

"The vacancy rate in the Triangle’s apartment market hit a five-year high of 10.4 percent in July, according to a report released Thursday by Real Data Apartment Market Research.

That’s up from 9.2 percent a year ago, according to the report, which comes out twice a year.

...

It’s also lowered rental rates, which have fallen by almost 10 percent in the past 12 months – to an average of $760 per month from an average of $787 per month."

Priced to comps

XXX Pebble Springs Road, $155 /sqft, Asking $399,900

Todays property costs 50% more than it did ten years ago. In fact, it did all of its appreciation between 1999 and 2005 when its current owners bought the place. If it sells for its asking price of $399, then since 2005 when it was purchased for $362, this house has merely been keeping up with a 2% inflation. Today's asking price is reflecting a "return" to 2005 pricing. However, I think the bubble will deflate to '99 pricing or somewhere thereabouts, before toxic exotic financing took over. If I'm expecting a return to 1999 pricing, then the house should cost $318K in 2009 dollars (20% higher than its $265 selling price).

But alas, housing prices are sticky. Its owners owe $330K, so they're in no hurry to set a $318 price tag. Furthermore their neighbors have had success moving their properties at the similar $/sqft.

Recent closed sales in Springcrest:
7/7/09 -- 410K for 2549 sqft = $161 / sqft
7/2/09 -- 397K for 2500 sqft = $158 / sqft
6/15/09 -- 480K for 3477 sqft = $138 / sqft
6/2/09 -- 390K for 2400 sqft = $162 / sqft

This property will have no trouble appraising at $155/sqft; someone with a good credit history and a $80K down payment would have no trouble closing on this house.

CalculatedRisk has been waffling recently on how much housing prices have left to drop before the bubble has run its course. The summer selling season has seen a seasonally-expected uptick in volume, which is at least better than continued volume drops against seasonal expectations. However, this slight increase does not mean that bubble-era "normalcy" has returned. The papers are trumpeting this increase loudly, and it may produce an unfounded sense of optimism.

Chapel Hill is only seeing a return to 2005 pricing. We have a long way to go.