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I was not impressed with this
house. And when she looked at it in February, neither
was Nora. It was a foreclosure special, and even though it was cheap
relative to the neighborhood, it needed work. So we moved on, though I made a
mental note to keep track of what happened to the place. If it sold for more
than list ($629,900), I figured, then this market was still seriously out of
whack.
I learned last month that not only did it sell for more than
list price—it sold for 25 percent more than list price. (See also this
site.) What kind of madness was this? Then I noticed the sale price—$789,000—was about what the property was assessed for. I chalked
it up to my ignorance and inexperience as a first-time would-be homebuyer.
Maybe the bank was obligated by its fiduciary duty to its shareholders to
accept nothing less than assessed value on its houses. There was probably a
provision to this effect in the TARP legislation. Tim Geithner drives a hard
bargain.
Which was a ridiculous thought—I have a fair amount of
those—because the bank wouldn't have offered it for less than its
assessed value if it couldn't have accepted less than its assessed value. What was
going on here?
The mystery only deepened when I learned—just today! (thanks, Frank)— that the house sold
for $651,000. (See also this site.) What happened to the earlier sale? Did someone buy it again? A check of the
public record (you have to type in the address) shows only the earlier
sale, from February.
Maybe the earlier price was a mistake. Maybe the later one is. Maybe there has been a glitch
in the D.C records-keeping department. Maybe, hard as it may be to believe, I
have uncovered a
mistake on the Internet. Undoubtedly, there are things I do not know about the foreclosure process.
Oh well. It was near the top of our price range and needed a lot of work, so we weren't going to buy this house anyway. So no non-buyer's remorse for us. We'll save that for houses we could actually have afforded.
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It has been more than a week since our last posting/confession, so please forgive us for the absence. Where have we been? Pondering making an offer on this house. Debating our real estate agent about the various components of this offer. Pondering again. Talking to lenders about this offer. (OK, Michael did that.) In the end, we made no offer on this house. It’s now under contract to someone else.
Michael: And we’re OK with that. At least I am. This man has never led me astray, and he says I should always be prepared to walk away from a deal.
Nora: This is a great house. Am I sad we won’t be living in it? A little. But I would be sadder living there knowing we’d overpaid for it, and $638,000 is too much for what we’d be getting. Could we have gotten it for less? Possibly—we’ll know when the sale price becomes public. But given the signals we were getting from our Realtor (which were about as reliable as our own intuition), we weren’t going to get it for the amount we were prepared to offer. We’ll keep an eye on how this one pans out. If we’re proved wrong, and the house goes for $600,000 or less, well, we’ll have learned a lesson. Though I’m not sure what. ... Not to not listen to a Realtor?
Michael: Three points. One, “overpaid” is a loaded term. The market will bear what the market will bear. If someone is willing to pay $638,000 for a house and we’re not, that doesn’t necessarily mean they overpaid. It just means they wanted it more. Two, sometimes the market will bear a lot of foolishness. And I think we both agree that this market is still pretty foolish. And three—always my clincher!—it doesn’t matter. We can make the argument, based on any given house’s rental value or replacement cost, that it is overpriced. But where does that get us?
Nora: I was feeling glum and frustrated when Michael passed along the uplifting news that we could get a loan for 3.99 percent. I guess this is what people mean when they say, “Money is cheap right now.” Money is never cheap to me!
Michael: There is some fine print, but we can probably get the rate. Money we don’t have, burning a hole in our pocket—this is what 2005 must have felt like. But I resist the notion that, just because we can get it, we should spend it. I also resist the compliments that accompany a good credit score. I feel like that character in a spy novel who has been secretly monitored for the whole book and at the end the bad guys tell him he’s OK, and he’s supposed to be grateful for the compliment, but really he’s mad that they’ve had him under surveillance all this time. I have been reading too many spy novels lately.
Nora: But while rates may be going down, prices in desirable areas are not. A three bedroom with no backyard on a busy corner for $669,000? A two-bedroom Cape for $725,000? Are the lower rates meant to encourage people like us to buy overpriced houses—yes, a squishy term, but I’m using it anyway—simply because our payments would be easier to handle? Isn’t that what got us all into this mess in the first place?
Michael: My own personal barometer of the bubble is this house, a “foreclosure special” that is sagging and peeling and needs a lot of work. Yet it sold for an astounding 25 percent above the asking price. I don't know the details, and they could change my assessment, but for now I look at this place and think: The bubble is dead. Long live the bubble.
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Thank you for all of the diligent research you did last week, Michael. Unfortunately, the picture you paint is a not a very optimistic one: We shouldn't buy a house we can't afford (of course!), and the landscape of what we can afford (barring an unexpected windfall) won't be changing anytime soon. Add to that the thin inventory of houses in our price range and, well, I'm not feeling terribly hopeful.
Michael: Break out the violins! What's the name of that song?
Nora: Then along comes an intriguing listing: a five-bedroom, four-and-a-half-bath house not far from our current apartment that has been reduced by $800,000. This is more than the asking price of every house we've looked at.
I know what you're thinking, Michael: Wait—is this house free? Well, not exactly. But its price has dropped more than $800,000 since it was first listed almost a year ago.
Of course we can't afford this house. But why not take a look anyway? If nothing else, it will give us a sense of what makes a house worth (a little more than) three times one in our price range.
Michael: I had two questions in mind. 1) Is this house really three times better/nicer/more valuable than this house? It is not even yellow. 2) Why do rich people get all the discounts? If houses in our price range start selling for 31 percent off, we could get this house for $662,000.
Nora: I felt a little awkward about going to this open house, knowing full well that we weren't going to buy the place. Should we pretend we're very serious, dress the part? (What do people who buy such houses look like, anyway? Do they even go to open houses?) I decided, no, we'd just be ourselves. I didn't even shower, and Joe was wearing his best $3 "Thomas the Tank Engine" T-shirt.
Michael: Can you believe she was actually worrying about what to wear to an open house? Unfortunately, as my tux was at the tailor, I had to wear my running stuff. My sneakers are relatively new.
Nora: From the front, this house looks like an average 1920s colonial. Very nice, yes, but not $2-million nice. Some of that value, no doubt, comes from the simple fact of its neighborhood, which is among the priciest in the city. Nearby houses have sold recently for more than $7 million. It's lovely over here: close to a Metro stop, near Rock Creek Park, in a good school district. These things cost money—lots of it!
Michael: I note here for the record that Joe's T-shirt got a compliment from the agent.
Nora: Once we stepped inside, it was clear that this was no ordinary 1920s colonial. The footprint of that house was there, yes, but it was barely recognizable. Everything had been opened up and gussied up with the finest of finishes. The kitchen had custom-made cabinets, two dishwashers, two sinks, and a fabulous window seat overlooking the main selling point of this house: an enormous landscaped backyard, complete with trampoline and swing set. Joe parked himself right there and began sucking his thumb with glee. (And I must mention, here, too, the powder room, where the toilet and sink were embellished with hand-painted leopards.)
Michael: I found that bathroom (note to Nora: We're not the kind of people who have "powder rooms") creepy. I do not want leopards, or anything else with eyes, painted on my toilet.
Nora: All of this was part of a huge renovation that was done about 20 years ago. It continued on the second floor, where the master bedroom featured a fireplace and large deck, and the master bath, decked out in marble, included a picture window and Jacuzzi tub that Joe thought was hilarious. (How come he doesn't get so excited when we turn on the bath at home?)
Michael: Joe clearly liked this place better than either of us did. It met almost all his requirements: Stairs? Check. Easily opened kitchen cabinets? Check. Jacuzzi faucets? Check. Private playground for intimate, catered play dates? Check. On a bus line? Uh ... sorry, buddy. But we can have the agent call Metro and see about rerouting the L1, 2, or 4. Anything to make a sale!
Nora: Walking through the rest of the second floor, I was reminded that this was once a small, plain house. The other bedrooms and an office were tiny compared with the lavish addition in back and looked a lot more like those in the $600,000 houses we're used to looking at. There was also a large finished basement with its own kitchen, I assume to help with the cooking for a knockout party, since this was clearly not meant to be a mother-in-law apartment.
Michael: It did feel like we saw two separate houses. The bottom two floors fit together better than the top one. It's a question of taste and finances, I suppose: When you add on to a house, how much do you want people (including those who live there) to notice the difference between old and new? I guess Nora and I fall closer to the not-noticing end of the spectrum.
Nora: No question: This is a very nice house. Is it $1.9-million nice? I guess so. (In 2008, its improvement assessment was $1.5 million.) But if we picked up this house—and its yard, including the trampoline and swing set—and moved it, to say, Pittsburgh, or even five miles out in Takoma Park, what would its value be then?
Michael: That's a brilliant idea, Nora! Maybe we could move this house and find out.
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Hey Nora: I found us the perfect house! Again!
It's in a great location—good schools and just a few blocks from the subway. It's right near a spacious park that includes the highest point in the city (and maybe a little lead). It's cheap: only $550,000 for three bedrooms and 3.5 baths. It even has two garages.
OK, so there's one tiny little problem. Click on "Street View" or "Bird's Eye View" in the listing, and you will see that it is not quite—not to put too fine a point on it—finished. No windows, no doors, no shingles on the roof. No front porch. No yellow paint. On the plus side, there is lots of lumber in the yard, and a lovely chain-link fenced topped with barbed wire.
The other day, you saw a run-down bungalow for $629,900. I took that price as the best evidence yet that this market still has a ways to go before it reaches bottom. Then today I looked at a pile of lumber for more than half a million dollars. We now have better evidence.
But don't just take my word for it: There is statistical support for my anecdotal drive-by reporting! (And I didn't drive by the house, I walked.) Here are two of my favorite charts.
This one shows the year-over-year changes in housing prices both nationally and in the top 20 markets, based on the Standard & Poor's/Case-Shiller index. (Maybe we should move to Vegas. We can use the money we save buying a house on safer, more predictable investments, like roulette.) In Washington, prices peaked in the spring of 2006, and right now they're at the same level as they were in the spring of 2004.
This one also comes from Robert Shiller by way of the New York Times. Though it's now three years old, it is the best single illustration I have seen of America's real estate madness. (It also appears on Page 13 of Shiller's book Irrational Exuberance.) Where are we now on this graph? If you go to the Web site for Shiller's book, you can get the updated data. Not to get too technical, but as of 2008 the index was at 137—more than 30 percent down from the peak of 2006, but still quite a bit higher than the average that reigned for most of the second half of the 20th century.
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I'm sorry, Mom: I didn't buy a mask before looking at this house on Tuesday. I even brought Joe with me. But, I promise, he didn't touch anything. As Denise suggested, I held him during our whole tour, which, truth be told, wasn't very long.
Really, it wasn't that bad. Michael was right: The property is much bigger than it looks from the front. There's a good-sized family-room addition that leads to a large backyard. There's also a wood-burning fireplace in the living room and a very large (unfinished) basement with lots of built-in shelves.
But.
Beyond the cosmetic issues (lots of orange paint, a collegiate-looking mural on a bedroom wall), there are larger matters, such as the odd placement of a (very steep) staircase (with teeny steps) behind the kitchen and the lack of central air conditioning, not to mention that droopy exterior with the asbestos. Denise suggested that an overhaul would cost around $100,000; I think that's a fairly conservative estimate. She also pointed out the handful of Realtor business cards in the kitchen, commenting that such interest is likely to keep the price up.
I know one has to adjust expectations when looking at a bank-owned property. I was hoping that we could be like all those pioneers I've been reading about, magically turning this shop-worn property into our dream house. What flipper extraordinaire Jeff Lewis could do with this place! (Cabinetry hand-crafted from exotic woods! A koi pond in the yard!)
But shouldn't the starting price on such a house be less than $629,900? It's not as if this is some grand mansion; it's a simple, three-bedroom, two-and-a-half bath Craftsman-style house. Granted, it's in a great neighborhood, with good public schools and a pleasant walk to the nearby Metro. Houses in this area sell for $700,000 and up. But do they have sagging porches and rock-inspired frescoes?
Is location really that valuable?
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A watercolor image in a listing: How quaint! Or is it? The devil in me wondered: Might it be an effort to cover up the truth a photograph might reveal? Or was this house so lovely it inspired a work of art? I had to see it and find out. And after I saw it, I sent Michael over for a second opinion.
Nora: While the house was not quite as sun-dappled as the painting (OK, it was a cloudy, wintry-mix kind of day), this three-bedroom, two-and-a-half-bath semi-detached colonial, just a few blocks from where we live now, was indeed quaint. Its brick-and-stone exterior was inviting—maybe not put-me-in-a-painting inviting, but pleasing nonetheless.
Michael: Some guy honked at me as I was pulling in front of the house, which is on a very busy street. (You can too park on the street on Sundays, buddy!) Also, I was late, so the open house was over. Fortunately a very nice man in an overcoat, loafers, and red socks let me in to have a look. (I assume he was an agent.) Still, I was not in the best frame of mind.
Nora: Inside, there was more to please: hardwood floors, an open floor plan, and a first-floor powder room. And the kitchen, though quite small, had a decent amount of counter space (and not granite ones, either). The living room looked out to a deck and a surprisingly large backyard.
Michael: What was up with that kitchen window into the dining room? Very high. Hard to see the people eating. How is a chef supposed to make adjustments between courses to match his cuisine to the palates of his diners?
Nora: If we don't like your pancakes, we'll just have PB&J. Seriously, after I saw this place, I thought: OK, we could live here. I wasn't alone in thinking this, apparently. There was a steady crowd here, and I don't think it was enticed just by the Girl Scout cookies the agent was offering. The basement was nicely finished and opened to a patio and that nice green yard. Upstairs, the three bedrooms were definitely quaint in the other sense, which is to say small—but not intimidatingly so, and the closets were surprisingly big.
Michael: I didn't get any Girl Scout cookies. It's interesting how your view of a house for sale can change depending on whether you see it at an open house. In a way, I think open houses are inherently misleading. Either they're crowded, in which case they tend to ratchet up anxiety: Look at all these people! Do you think they'll make an offer? Is that guy measuring the blinds?? Or they are deserted, in which case, well, they tend to ratchet up a different kind of anxiety: Is there something wrong that I'm missing? Where is everybody? I feel like I'm intruding. I'm sorry, I'll go now.
But to get back to this place, Nora, I think what we both liked about it was its efficiency—there was very little wasted space. So even though the rooms were small, they made the most of what they had. It's not like there was a 20-by-20 foyer leading into a tiny living room or walk-in closets for a bedroom barely big enough for a double bed.
Nora: Also, at $624,000, this house is at the top of our price range, but we could probably swing it (Michael: What did the lender say?). Still, much as I liked it, there were, as always, drawbacks: the petite kitchen and bedrooms, but perhaps most troubling, the location. While certainly convenient to public transportation and a commercial strip that includes a beloved local bookstore, this house suffers the flip side of convenience: That brick-and-stone façade faces that aforementioned very busy street, which gets backed up with traffic during rush hour and beyond.
Michael: What does Joe do when the ball goes into the street? That's what I think about. This is usually your department!
Nora: The ball doesn't go into the street—he's not allowed to play in the front yard. He plays in the back. But my deeper concern is what a friend said to me recently: "Half a mil for a ‘regular' house is way too much, even with the benefit of being in D.C." (Of course, she lives in Philadelphia.—Michael.) Still, half a mil plus $124,000 is definitely way too much for a house that isn't my beloved yellow one with the porch, which has literally become the gold standard.
At any rate, I had another listing on my itinerary. It didn't come with an artist's rendering, but it did have a funny tag line: "GREAT NEW PRICE---PERFECT FOR THE NEW STIMULUS BILL!!" I guess that means it's priced to sell, but at $699,000, perhaps not to us. Still, the desperate tone of the ad intrigued me. I went on my own, figuring that this one, unlike the previous one, probably won't sell in a couple of days.
The house, a spacious three-bedroom colonial, is located in a neighborhood I'm not very familiar with, but there are things about it I like: It's in a desirable school district, close to a park and a straight shot to a Metro station a couple of miles away.
The scene here was quite different from the previous open house. Not only were there no cookies, there were no people. The agent, who told me she wasn't the listing agent, was refreshingly candid. The house, she said, had been on the market for more than 100 days, and the sellers had finally been convinced to drop the price by $50,000. The implication was clear: These are motivated sellers. She also let me know that houses in this neighborhood weren't selling for what they were three or four years ago. Could this be the kind of bargain we've been reading about? Might they entertain an offer for, say, $500,000—or less, I wondered?
But wait, did we even want this house? Nice though it was—a spacious kitchen (no granite!) and a sweet screened-in side porch were among its appealing features. (But, oddly, the sellers had turned the smallest of the three bedrooms into a very large walk-in closet.) Probably not. Sensing my hesitation, the agent mentioned another house, smaller, she said, but in a more convenient location. Hmm: Michael had mentioned this very same house to me the other day. Perhaps they were onto something. I'd have to take a look ...
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By Nora Krug and Michael Newman
For our entire adult lives, whether in New York, Los Angeles, or Washington, we have been among the most discriminated-against minority in America: We are renters. Now, finally, we are ready to join the two-thirds of Americans who own a home. So while most of you may have been dreading the day the bubble burst, we have been anticipating it. We are hoping there is at least one desperate seller—that's all we need—of a big beautiful home just waiting for buyers like us: a 1.5-income household with great credit, enough savings for at least a 20 percent down payment, and, best of all, no home of our own to sell.
In this blog we'll chronicle our quest for our first home in post-Bush, pre-stimulus, late-bubble Washington. Before we begin, a few salient facts about us. We're the Newmans (hence the blog's title, not to be confused with the Newmans behind these delicious cookies). Michael's the politics editor of Slate, Nora (whose last name is Krug) writes the paperbacks column for the Washington Post, and Joseph is a 17-month-old who's running out of room to run in our two-bedroom apartment in Northwest Washington. And despite our years of saving—some of it dating back to Nora's bat mitzvah!—we can't really afford to stay in our neighborhood, which we like a lot.
So we start with that compromise. And we're prepared for more, the most unfortunate of which may be leaving the city for the suburbs. (There is a chance we could hang on to urban life by buying in Capitol Hill, but more on that in later posts.) Houses in our neighborhood start at about $800,000; three-bedroom apartments in our building are about the same. Other desirable neighborhoods—convenient to parks and public transportation, feeding into a decent D.C. public school—are simply out of our reach. We're holding out a tiny bit of hope, if that's the right word, that things will get so bad that a neighborhood like this will become affordable. But our real estate agent, Denise Verburg, has done her best to crush this hope. But hey, Denise—the economy could get worse! Then again, if it does, we might be out of our jobs.
Truth be told, our house search predates this blog. In fact, a few weeks ago, we were very close to making an offer on this very house, in Silver Spring, Md. It's a lovely house that fits many of our criteria: at least three bedrooms (this one has four); two bathrooms (including one on the main floor); a decent-sized but not-too-decked-out kitchen (granite is so over) with space for a table; a good-sized backyard (this one even has a sandbox); a basement playroom (this one was a bit dreary); good closet space (a great walk-in on the second floor); central AC (D.C. is horribly humid in the summer); and, if possible, a fireplace. And we were told that there were two offers scheduled to be made on the house the very next day. No fair, we thought. The bubble's supposed to be burst!
So wait: Why didn't we buy this house?
Several reasons, really, but the most important one is that it violated that most cherished and clichéd principle of real estate: location. The owners said that they walked to the subway every day, and we don't doubt them. But it is a 1.3-mile walk along a grim, busy thoroughfare. Neither of us is averse to walking a mile and a half to the subway. But isn't a nice walk one of the things you move to the suburbs for? There was also the issue of that dreary basement, the tiny living room, and more important, the fact that the neighborhood high school isn't one of the county's better schools.
Why move to the suburbs just to live in a smallish house with a long, unlovely walk to the train and be able to send Joe to an underwhelming school? But you'll move before Joseph goes to high school, Denise, our gung-ho agent, assured us. But hey, Denise—the economy could get worse! In fact it almost certainly will. We may have to stay in this house till Joe goes to college.
In the end, we decided not to make an offer, despite Denise's advice to make one with an "escalation clause." (To her credit, she allowed that it was a "counterintuitive strategy in this market." That's one way of putting it.) Neither of the two other allegedly interested parties actually made an offer. Nearly a month later, the house is now under contract. And we're feeling maybe a slight amount of nonbuyer's remorse. Until Friday, when this house came on the market. Joe and Nora are off to see it now.