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.

Rental Parity II

XXX Presque Isle Lane $153/sqft. Asking $250,000

Yesterday I promised to show an example of rental parity that's already arrived in Chapel Hill. According to IriveRenters criteria, someone looking to either rent or buy this house should buy it. It's a little cheaper to buy than to rent. If it is cheaper to buy than to rent, then rational market participants should snatch up this property. There should be a price floor at rental parity.

So are we at a price bottom? I don't think so.

Today's property may be rented for $1500/month or mortgaged for $1656/month*. Another house a few doors up may be rented for $1600/month so I would guess that the $1500/month rental rate is pretty accurate.

*Assuming a 5.5% 30-year fixed rate mortgage. Accounting for the tax breaks, the total cost of ownership is $1364/month.

The problem is that today's owners couldn't afford the house at that price. They took out a first mortgage with Central Carolina Bank for 80% of the 265K purchase price in 2004. The took out an immediate HELOC to cover another 10% of the purchase price. They put only 10% down but today's buyer will have to put 20% down. In 2008, the owners refinanced their HELOC with Bank of America to $38K. Assuming they fully tapped their HELOC, they owe $249,950, explaining the $250K price tag. Todays sellers can't negotiate lower.

But bad financing aside, why don't I think today's price for this house is the bottom? Because the monthly cost of ownership hinges on a 5.5% interest rate. When interest rates go up, then buyers for this house would have to pay more per month. If you assume that the buyers today and the buyers tomorrow are the same people making the same ammount, then they can't afford a higher payment. Therefore the demand for the house at todays price point lessens. To match the demand for this house, the price must drop.

If you're buying today at a 5.5% interest rate, then 5 years from now when you want to sell to someone who gets an 8.0% interest rate, then the principal has to drop 17%. (Plug 100K as the price for a house with a 5.5% interest rate into the IHB Calculator, the monthly payment is $662. Plug in 83K as the price for a house with a 8.0% interest rate and the monthly payment is $660). Congratulations, you lost 85% of your down payment.

Rule of thumb: You want to buy when mortgage rates are high. You want to refinance when mortgage rates are low.

Remember, you can refinance your interest rate, you can't refinance your principal.

Rental Parity

XXX Worth $175/sqft. Asking $978,000.

IrvineRenter was one of the first people to publicly announce in 2007 that the housing market was in a bubble. That's when he started his blog, at least. His basis for this conclusion was that it was cheaper to rent than to own. Properties in Irvine had inflated to a point that the monthly mortgage payments were more than the properties could fetch as rentals. Home owners (home debtors) were the ones throwing their money away.

The price point at which IrvineRenter stated he would enter the market was rental parity. Rental parity denotes the price at which it is equivalent to rent or own the property; a break-even point. If you're thinking in terms of "monthly payment" where you factor in the tax incentives and the upkeep costs into the mortgage payments and the home owners insurance payments, then that monthly cash outlay would be equal to the monthly rent someone would be willing to pay.

Since figuring out what the monthly payment is on a house is complicated, IrvineRenter has created a calculator to crunch the numbers for you.

Today's property is both for sale and for rent.

It's really a beautiful property, though, I don't know what a million dollar house should look like.

You could either rent at $3,800/month or buy for $5,438/month*. Plug in the numbers into the calculator. It's cheaper to rent this property than to buy. If you buy this home at this price, you're throwing away your money.

*Assuming a 5.5 30-year fixed rate mortgage.

This house is in Chatham county, so I don't have access to the property records. At least, I haven't started trying to figure out the Chatham county records yet.

...

We're at an interesting point in the deflation of this housing bubble. Some properties I've looked at have deflated to rental parity. The reason seems to be that interest rates are at historic lows. In my next post, I'll run the numbers on a house that's currently at rental parity with a 5.5% mortgage, but that would not be at rental parity at a higher mortgage rate.

Foreclosure in the works

XXX Tinkerbell Road $151/sqft. $389,000.

I'm going to predict that today's property will end up in foreclosure. The "owners" owe $368,037 on this property which they purchased a year and a half ago for $296,500. To avoid a shortsale/foreclosure situation, the owners have to get at least $143/sqft.

In their neighborhood, two houses just sold:

6/30/2009 -- 421 Tinkerbell Road. $119/sqft. $222,350 for 1862 sqft.
6/26/2009 -- 508 Colony Woods Drive. $100/sqft. $233,000 for 2367 sqft.

The next most recent sale in this neighborhood was back in May.

A third house is currently listed for $100/sqft. It's larger than today's property. It's also a few years younger (1968 vs 1962). This third house is priced to sell, and it will. Its owner even stands to make a profit.

When this third house sells, there will be three perfect comps -- comparison sales -- for today's property which an appraiser will use to measure the value of today's property. If the appraisal comes in at $119/sqft (generous), then the bank will only loan $243K. The buyer would have to put up a $143K down payment. If the appraisal comes in at $100/sqft (likely), then the bank would only loan $204K and the buyer would have to put up a $183K down payment. I don't think there are buyers with that much money saved who will consider this property.

The owners of today's property purchased the house in January of 2008. They payed the previous owner $296,500 in February 2008, but took out a 332K loan with BB&T. I don't understand why the bank wanted to loan 112% of the property value. Apparently, First Medallion Bank didn't think this was unreasonable and so they allowed the owners to refinance in December 2008, into a $346,800 loan. Then in January 2009, they took out a second mortgage from Kingsford Home Improvements for $21,237. Ahh. Serial refinancing. Did all that extra cash go to good use?

From the picture of the kitchen, it looks like they put in a granite counter top. The cabinets look new, but are ugly. I'm guessing the flat top range was installed as well. I personally dislike the idea of flat-topped ranges. They certainly didn't make the kitchen larger, it looks tiny. Maybe there are other improvements they made to the rest of the house, but then, why aren't they showing them in the pictures (there are only four), or at the very least, including a description of them? Geez, any description at all would be nice.

These owners intended to flip the house. Instead, they're going to get burned.

As good as sold

XXX Canterbury Lane $296/sqft. Asking $999,000.

Todays owners have been in their house since 1991.

In 1991, they bought the house. The county's stamp-tax records are incomplete. They took out a $55K 15-year mortgage with Wachovia

In January 1999, they refinanced with the State Employees Credit Union (SECU) for $75K.

By December 1999, they were ready for a little more of that delicious MEW, so they opened a HELOC with SECU for $100K.

It looks like they tapped $75K of that $100K HELOC since in November 2007, they refinanced with SECU into a $150K mortgage.

So far, they are $150K in the hole for a 3300 sqft house. That's less than $50/sqft + whatever down payment I don't have record of. These owners are expanding their debt through the bubble years, but still not going crazy, at least by Irvine CA standards.

They put their house on the market in March of this year, 118 days ago.

And now, the WFT portion of our story:

In May, they opened a $530K HELOC from Harrington Bank. WTF? The house is already on the market, can't you just wait until it sells to spend that equity? If they tapped that HELOC, then they're $680K in the hole.

I just can't figure out why someone would do that. $530K is not a small amount of money. $530K is the price of another house. Did our current owners pay cash for another house with debt from this house? (Is that really paying cash?). Is it really wise to spend the profits of a home sale before the sale completes?

If they sell at their asking price, they stand to make a fortune. They would get $220K in addition to whatever portion of the $530K HELOC they haven't already spent. But who is going to pay $300/sqft for this house?

Tally: 1 for 5

I've now looked at the debt history for 5 houses, and it's only been the first one that I looked at that showed evidence of mortgage abuse.

XXX Westbury Drive $119/sqft. Asking $400,000

Today's property was purchased in 1992 by its current owners for $235K. At the time it was $70/sqft. It looks like they put 65K down and had a mortgage of ~$175. In 1999, they refinanced to a ~$185K. In 2004, they refinanced again to ~$213K -- and it appears to have been into a fixed-rate mortgage at that! This refinancing does not qualify as serial or abuse.

If these owners have to drop their price by $50K, then they still walk away with an additional $122K in profit (well, $98 after the realtors take their 6% cut) -- that's beyond the $38K they already extracted from their two refinancings. What's funny is that, in spite of having so much of an equity cushion, these owners have not dropped their price to move the house (I don't know how many times they dropped the price, they likely have, all I'm claiming is that they haven't dropped it sufficiently to move it); the house has been on the market for 233 days. Besides that previous bit of snark, all I can say about these owners is that I wish I were in their situation.

...

One thing that's confused the hell out of me as I've been looking at properties around Chapel Hill: there's no clear price per square foot that sellers list for, and there's no clear price per square foot that buyers are willing to pay. Sometimes, it seems like $160/sqft is the average, but then you have places like Sothern Village and Meadomont that are nowhere near the same price. It vaguely looks like many sales are occurring at the $140/sqft range. Today's property is cheaper than that, though. Why hasn't it moved? Certainly it is a big house and I hear it's now in vogue to buy a smaller house, but at it's current price, it's a much better deal than a lot of other properties I've seen on the market. I can't figure out why it would have remained unsold for so long.


Mortgage abuse tally: 1 for 5. 20%.

Instructions for Finding House Debt History

Say I'm interested in looking at the debt history for 123 Hoosuredaddie St in Chapel Hill. Maybe I'm interested in purchasing this house and want to learn what it sold for recently, or maybe I'm curious if it's owners were serial refinancers.

I have to go to two websites:

1) I go to the Address Inquiry page on the Orange County property records website.. There I search for "Hoosuredaddie St" in the street name drop-down menu, and click on the "Display addresses for street" button.

This takes me to a page that lists all the houses on Hoosuredaddie Street; I click on the "PIN" link for 123 Hoosuredadie Street. This takes me to an intermediate page that lists the current owner. On this page is a link for a "Property Summary Page".

I follow this link to an "Orange County Land Records Data" page. At the top of this page there is a row of orange rectangles.

The "Prior owners" link inside the right-most orange rectangle will list the number of tax stamps paid to the county for each transaction. From the tax-stamp count, you can figure out the selling price for the house. This page also has the date of the sale and the name of the owner prior to the sale.

The "Documents" link inside the third-from-the-right-most orange rectangle lists all of the documents relating to this property including all the liens on the property. This list is almost completely useless since all you have is the title of the form; there are no links on this page to the documents themselves. THIS PAGE IS REALLY IMPORTANT. Each document is identified by two numbers: the "book" and the "page". The first column contains this information with a "/"... e.g. "4309/527"

2) If you have the "book" and the "page" numbers, you can then go to the AiLIS Public Inquiry page. On this page click on the "Book & Page" tab. This brings you to a form where you can enter in the book and page for a particular document. This then brings you to a page listing all of the signatories to the document -- each one has a link to the document as a PDF. This is where the gold is.

For example, if you go to book 4309 and page 527 you will see the record of an Orange County resident who, in 2007, paid off his mortgage, 3 years after taking it out. Good for him.

Count your chickens

XXX Perry Creek Drive $142/sqft. Asking $460,000

(This property is not listed for sale on realtor.com. One source tells me it's for sale, but another says it's no longer on the market.)

5/28/2002 -- Bought for $350,000 -- $280,000 ARM Mortgage and a $70,000 downpayment.
9/26/2003 -- Refinanced for $289,000
1/6/2004 -- Took out a second mortgage for $26,600
2/2/2007 -- Opened a HELOC for $99,400
5/17/2007 -- Extended the HELOC to $129,600

Total property debt: $445,200 if you assume they fully tapped their HELOC.

The owners have already spent the money that they will make on the sale of this property. They've counted their chickens before they hatched.

...

I've finally figured out how to look at the debt record for a property. This is the first property I looked at, and it shows the same pattern of mortgage abuse seen and documented in Irvine, California.

I intend to keep a tally that I will update on this blog: the percentage of houses for sale that I investigate which show signs of HELOC abuse. The tally so far is 1 of 1, or 100% of all homes I've looked at.

Ghost Town

113 Atterbury Street $237 / sqft. $799,900


Orange County records show that every single house on this street is owned by an investor or the builder. The other houses aren't listed for sale, however.

For some reason, I can't find this address on any map. Buyers aren't biting; 309 days on the market. Maybe they can't find it either.

What a view

For $273/sqft, this house offers you the opportunity to bathe in front of your neighbors

Stress

When the bubble burst in San Diego, the city that first saw the end of the bubble, it was greatly effected by foreclosures at the bottom end of the market; the subprime implosion. As subprime mortgages were pulled from the offerings, volume disappeared. Prices had risen to a point that, without subprime mortgages, there were no buyers. So prices had to drop to return to a point where the population could afford houses. The irony is that the subprime mortgages was touted as an "affordability product" that allowed more people to enjoy home ownership. Instead, subprime mortgages made housing unaffordable.

I don't get the sense Chapel Hill saw much of the subprime fallout; I do think that we'll see more of a problem when the Negative ARM loans recast (scheduled to begin this fall) and we will probably see problems with regular-old ARM mortgages now that interest rates are starting to creep up. There will be more stress in the Chapel Hill market in the near future.

5526 Spring House Lane. $154/sqft. $649,000.

Here's an Orange County property that's currently on the market as an REO -- it's a foreclosure -- it's not in the Chapel Hill school district.

It was originally purchased in 2005 for $870K ($206/sqft) and was bought back by the bank (US Bank National Association acting as a trustee for Credit Suisse) for $739K in March of 2008 ($175/sqft).

The reason foreclosures often go for much less than the market price is that banks have rules about keeping non-performing assets on their books. They are in a hurry to get rid of real estate. For some reason, US Bank National Association was not, and is not currently:

Orange County property records show this foreclosure occurred on March 19th 2008. The property did not get listed until March 7th 2009. This property sat unoccupied for a full year before making it to market? It could have been listed once, de-listed, and then re-listed to give it a fresher look. Regardless, the property is on the market for 25% off it's 2005 purchase price and it's still been on the market for 52 days. An obvious question is: if the market won't snatch up a property when it's owners are aiming to price it below market value, then haven't the owners over-estimated the market value?

How it will burst

130 F-9 Estes Drive

I don't have enough data to definitively prove that the appreciation seen in Chapel Hill during the bubble years was driven by the exotic loans and the subsequent self-reinforcing euphoria over home ownership (and in particular, mortgage equity withdrawl -- MEW). What I have is this: a simple argument that appreciation is due to changes in the desirability of an area (and not simply its desirability), and a pretty short list of things that have changed about Chapel Hill in the last 10 years.

I also have evidence of a significant real estate bubble that happened during the same period and its subsequent burst in many metropolitan areas. I have two dots that are not very far apart and I see how one could draw the line. We have rampant appreciation in Chapel Hill occurring at the same time as rampant appreciation took place in the rest of the country. The bubble burst elsewhere, it's going to burst in Chapel Hill.

How will it happen?

Sales volume will dry up across the board. Foreclosures will represent a majority those sales that do take place. Volume at the bottom of the market will return, but the mid- and high-end properties will languish. These sales will be to new home buyers and investors, but the move-up buyer (the buyer that in normal times makes up 80% of the market) will be stuck in the homes due to depreciation. Eventually, the debt-riddled mid- to high-end properties will succumb to foreclosure. Once a neighborhood has been overtaken by 3 or 4 foreclosure sales -- or even sales reflecting mild depreciation, they define the selling price for the neighborhood; no sales are possible at the previous "value."

This last point is subtle but important. A bank will only loan 80% of the appraised value of a house. If a buyer wants a loan on a house that's asking $300K and has $60K ready for a down payment, then if the bank appraises the house at $250K, they will only loan $200K. The buyer has to come up with the remaining $40K for a total downpayment of $100K, or the sale falls through. (Incidentally, the National Association of Realtors has been complaining loudly about appraisals not coming in high enough.)

I exaggerate when I say no sales are possible at the previous value; they are, but they require buyers with enormous down payments. The number of such buyers are few, and, given that they're frugal enough to have saved up in a time when everyone else was digging their debt hole deeper and deeper*, they're probably smart enough to know that time is on their side.

(*some such buyers merely cashed out on the bubble and may not be the clever buyer I'm envisioning)

What have we seen in Chapel Hill so far?

Volume is down: first quarter closings dropped 42% relative to first quarter 2008. Volume in 2008, mind you, was down 29% from 2007.

Meanwhile, the average price is up 11% from last year. WTF?

So far, it doesn't seem like many foreclosures have come through Chapel Hill. That's the next step.

Today's property:

130 F-9 Estes Drive, $71/sqft, $49,900.

I believe this property is a foreclosure as it matches the free data I found here and the complete lack of effort by the realtor in the listing supports my belief. (I'm not ready to pay $40/month for the foreclosure.com subscription service.)

This property sold for $58.5K in 2008 after being sold at $65.5 in 2007. That's 23% off 2007 pricing.

This looks like price weakening at the bottom of the market...

Was Chapel Hill's appreciation justified?

106 Baskerville Circle in Durham County

Acknowledging that housing prices have increased over the last ten years, I have to counter the second of the two arguments home owners like to use to justify current prices:

Our area is better, so the appreciation is justified.

I have a funny story.

So, when I first started thinking about the housing bubble and how it related to Chapel Hill, I ran a quick google search and found this exchange on an internet forum. That's basically all google turned up besides the new Bubble Tea place on Franklin.

In that forum, about half way down the page, "Omamia" says she'd rather rent for a year and watch how the housing bubble plays out -- she's worried there would be a 20 or 30% decline in prices. "MrsSteel" respectfully disagrees. She responds that the reason that Chapel Hill is not experiencing a bubble is because of the *schools* -- "the very best in the area -- possibly in the entire state." According to MrsSteel, 20% declines will not happen.

What struck me as being so funny about that response was that a few days before I found this thread, I had been on the phone with my grandmother, who lives in Wilmington, Delaware. Her neighborhood also saw significant appreciation in the past ten years, and when I expressed concern for her over possible depreciation, she said that she wasn't worried about it. Why? The schools.

"The schools will save us" is a thought that comforts many people.

The problem with that logic is the same problem one might have with buying stock in Dell. Sure, Dell sells a lot of computers, but are they ever going to sell more computes than they are already? Is there reason to believe Dell's current sales expectations are not already built into the stock? Chapel Hill's schools might be better than Chatam county schools, so you would expect to pay a premium on a Chapel Hill house, but that premium was already built into the price of the Chapel Hill home before the housing bubble began. Appreciation during the bubble was not due to any feature of the area before the bubble began.

Fundamentally, appreciation is due to a *change* in the desirability of an area, not simply its desirability. In order to justify appreciation, one has to point at what has changed to make an area more desirable. Did incomes increase, did employment increase?

I will start looking for that data. I don't have the impression that incomes increased during the bubble years. The University is the largest employer in Chapel Hill proper, and I don't have the impression that they started paying higher salaries, or that they increased employment.

Maybe the triangle as a whole? RTP has been expanding, right? Maybe RTPs expansion has something to do with Chapel Hill's appreciation?

I don't believe this is the case and here's my flimsy data to back it up: Durham properties did not show the same appreciation Chapel Hill properties did. I would expect that RTP would have had a similar effect on Durham properties as they would on Chapel Hill properties; RTP is in Durham.



The Durham median-price line is the orange one that's pretty much flat (143K in 2005, 160K in 2008). I need to look harder to find a 10-year plot for Durham.

There are many Durham properties that are listing in the $130/sqft range -- I happen to have found this one because it turns up when you search for Chapel Hill on Realtor.com. How much of a premium should a Chapel Hill property command over a Durham property?

106 Baskerville Circle $131/sqft. Asking $369,000

*Update*

I'll weaken my own argument here: Durham county housing did appreciate during the bubbble; it looks like it saw a 50% appreciation in the last ten years. This is less than the appreciation Chapel Hill housing saw.