Newmans Own: Our family's search for a house.

A Mystery on Brandywine Street

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.

Long Live the Bubble

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.

Welcome to the Neighborhood, Mr. Spitzer

As it turns out, we aren't the only Slate writers looking for real estate in Washington. Nora and I never looked at this building—it didn't come up in any of our searches!—and now we find out that our fellow columnist Eliot Spitzer has bought it for $180 million.

If you had asked, Eliot—as colleagues, we can be on a first-name basis—we would have been happy to show you around, maybe introduce you to a broker or two. Nora knows a lot about the pros and cons of various kinds of kitchen countertops. I could have told you about what kind of paperwork to have handy when you talk to a lender. Maybe we all could have attended an open house or two. But you seem to be doing OK on your own. And you probably get some good advice from your dad.

Still, we're here if you need us. And to return the favor—if you ever decide to get into the local residential real estate market, can you give us a heads up? Just so we don't make any competing offers.

By the way, I notice the place you got is what is known as "a distressed property." (Another thing Nora and I can do: guide you through some of this real estate jargon. It's not that hard once you get a few key concepts.) Which got me to wondering: How much would you pay for this? Nora looked at it a couple of weeks ago and didn't much care for it, but I wonder if it's worth a second look.

It's Too Late for Us

So, to answer my own question—should we buy a house we can't afford?—we now have our answer, Nora: No.

It was a silly question anyway. As you know, I am opposed to spending too much on many things, such as toys and computers and even boxes of cereal. It's not as if I was going to change my mind on something as big as a house. And now that the president has unveiled Operation Save Our Homes, we also know that the government isn't going to help us: You had to have bought your house before Jan. 1, 2009, to qualify.

Which makes sense. Otherwise, as I noted, there would have been a perverse incentive for people like us to buy more house than we could afford, in the hopes that the government would step in and make things more affordable. Of course, there have been perverse incentives to buy more house than you can afford for most of the last decade, but that's another story. As the president says, we need to look forward, not back.

The one thing I will say about Operation SOH (note: not its real name; it's called HASP) is that it is as complicated as it needs to be. Possibly more. On the government Web site that attempts to explain it all, there is a series of questions that start out simple enough—"Is your home your primary residence?"—and end up purely speculative: "Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?" There's no way to give a solid answer to this question, really, though this site will help. Maybe the best answer is, "I'm not sure. Make me an offer and let's find out."

The questionnaire is designed to funnel you into one of two programs, though in both cases the government ends up recommending that you gather up as much paperwork as you can find and call your lender. By Monday, I predict most will have phone trees already set up: If you can't afford your mortgage and would like to refinance, press 1. If you have already refinanced and would like to negotiate a lower payment, press 2. If you lost hundreds of billions of dollars in the real estate market in the last five years though your own greed, corruption, and stupidity, and would like government assistance to help you avoid bankruptcy, please press 0 and ask to speak to Secretary Geithner.

There is also a sad little Web page where you end up if it is determined that you don't qualify for any federal assistance. This plan "will not help everyone," it says, though you can always call "a HUD-approved housing counselor" to find out just how screwed you are. "In certain cases," it reads, "you may need to sell your home and move to more affordable housing."

 I have an idea, Nora! How about we move into affordable housing to begin with? 

A House Beyond Our Wildest Dreams—or Means

I hope to return to Austin—the subject and the place—soon. But while we were running around the city, the Obama administration was readying a plan that makes me ask, "Should we buy a house we can’t afford?"

Ordinarily, of course, I wouldn’t even think to ask such a question. We Newmans are a financially prudent people. And while the details of the Obama plan are still being worked out, the basic problem it is trying to address is clear: Most of our houses are worth less than we thought they would be. This creates problems for the people who live in the houses and for the banks that own the houses. So the basic gist of the plan is to help banks and home-livers (I resist the term homeowner because it is simply inaccurate—in the majority of cases, the banks own these homes, not the people who live in them) gently renegotiate a more realistic arrangement.

Like I said, the details are still unknown. (Watch this space March 4!) And there is a lot of room for debate in a phrase like “more realistic arrangement.” But some information has been released, and it makes me think that the grandly titled Homeowner Affordability and Stability Plan could encourage people like us to buy a little more house than we can afford.

One of the ways the government can help home-livers, according to the plan, is to reduce the amount of the monthly income they spend on housing. (See Family C in this fact sheet.) Say you spend 42 percent of your current income on your mortgage. If the bank will agree to modify your loan to get you to 38 percent, then the government will step in and help the bank get you down to 31 percent. If, at the end of five years, you have remained current on your payments, the government will give you $5,000 to put toward your mortgage, and you and the bank renegotiate.

This may sound needlessly complicated. (Wouldn’t it be easier for the government just to offer everyone who qualifies lower interest rates?) But if I were the kind of guy who based his decision-making on government incentives—and I’m not saying that I am—I would buy a house that required mortgage payments of, say, 42 percent or 43 percent of my income, and then ask the government and my bank to get my payments down to 31 percent. I suppose we could spend, say, 50 percent of our income on housing, but then we may be considered too far gone to help. Better to live just slightly beyond our means.

None of this is to say, by the way, that I think HASP is a bad idea. (Note to Obama administration: Ditch the acronyms—TARP, ARRA, TALF—and get someone at the Pentagon naming this stuff. Operation Save Our Homes, something like that.) I have no problem with the government and the banks helping people like Marlo Saab, who makes $80,000 a year and is having trouble making the payments on the $550,000 house he bought (no money down, of course) three years ago. In the debate between Ledeen Halloran and Harry Snegg, I side more with Ledeen than with Harry.

All I’m saying is—Nora, maybe we should look at this house?

Tempted by Foreclosure

Assured by our reader lorikay4, I'm not going to be scared off by asbestos shingles. ("Not a big deal as long as the shingles are painted," lorikay4 says. "Unless you are planning on scraping the paint off and ... inhaling the dust, I think you'll be fine.") Still, I may follow my mother's advice and wear an asbestos mask when I go to see this house in American University Park. ("Good ventilation is your friend," the respirator's ad reads. I couldn't agree more.)

I have to admit that Michael and I have both taken a quick look at this property from the outside, and I'm sensing we're going to be divided on this one. While we agree that it's in a great location, I was a little taken aback by the condition. This is a bank-owned property, so I know I shouldn't be so surprised that it doesn't "show well," to use a Realtor's term. But the electrical tape holding together boards on the front porch was a bit much. (I think it was just stuck there. But the color was suspicious. —Michael.) But Michael says the backyard is pretty big, that there's a sizable addition, and a kitchen reminiscent of the one we had in L.A. (And I'm the nostalgic one?) But the location is just too good to leave this one un-investigated. Also, from what I've been hearing, there are lots of contractors out there looking for work, so maybe we could get a good deal on the renovations? (Leave your estimates in the Fray.—Michael)

It's hard to believe, though, that the asking price of this house is $629,900. That does not feel like a bargain. It is, though, if you look at the tax assessment: $786,800. Of course assessments are derived in part from recent sales of nearby and similar homes. Still, this high assessment could become a problem if the bank thinks it's already offering enough of a discount.

But I'm getting ahead of myself. First I have to get that mask.