The Motley Fool's Seth Jayson has an opinion, as usual, on the newest home price release from S&P/Case-Shiller.
Near Fool HQ, [Alexandria, VA] the argument I often hear about home prices never falling (because there's reliable government spending, big influx of population, blah, blah, blah ...) is shown to be a complete fiction, as D.C. area prices tumbled 7.2% year over year.
39 comments:
An interesting article in the NYTimes from a U.Chicago economist concerning how sellers who refuse to sell at a loss will likely make the housing crash worse.
http://tinyurl.com/ypszg6
So these puff pieces the editors of the WaPo RE section are doing to preserve the ad revenue from home sellers may actually be making the housing crash worse.
Caveat Emptor said...
"An interesting article in the NYTimes from a U.Chicago economist concerning how sellers who refuse to sell at a loss will likely make the housing crash worse."
The results seem to be based on an assumption that people must sell their current home to buy a new home when circumstances dictate that they must move to a different city. It's been my observation that in periods where prices are abnormally depressed, people who move tend to hold off selling altogether ... instead renting out the property until prices return to normal levels. Not only does this preserve that particular homeowner's capital, but leads to less being offered for sale in the market place ... and hence higher prices. It's kind of like what we saw when prices were rising quickly ... Every Tom, Dick, and Harry put his house on the market (especially investment properties), thus helping keep prices from rising faster and higher than they would otherwise had supply not been increased.
Lance,
You fail to understand oversupply. Even if your "observation" is true, then if everyone is renting rather than selling (becase of lack of demand) this creates an oversupply in the rental market. What does that do? Creates lower rents. Which makes the choice between renting and buying favor renting. Which further reduces demand for sales.
Any other half-baked theories you have to offer?
Lance,
Really, your delusion that Real Estate always wins is wrong. Historically, emperically, theoretically, and actual wrong. Let it go.
"until prices return to normal levels"
Uh, Lance dude, a "correction" IS a return to "normal levels" or at least some sembelence of reality. That is why it is called a "correction."
Right now there are very few rental properties that are listed at reasonable rental rates. Why? Because the mortgages are too high to offer the house at market rates.
The smart thing to do is rent your place, but only if you bought before the boom - otherwise you wont be able to cover the mortgage.
BTW, a 2 bedroom apartment in my area ( not house ) goes for $1800. That could cover my mortgage with ease.
"It's been my observation..."
heh...
"instead renting out the property until prices return to normal levels."
Translation...
"instead renting out their properties until inflation bails their ego out."
As someone already pointed out, this correction IS a return to "normal levels."
No pan-global-new-paradigm-sky-fairy is going to intervene and keep this bubble inflated now that the credit bubble is popping.
It is true what Doug says about current rental rates. But I want to ask this: Does anyone think that established property rental owners (think big dogs such as Charles E. Smith/Archstone) can/will take advantage of this? i.e. Lowball the rents to drive those who bought high on the bubble into foreclosure and then buy and consolidate more property? Or is that too much of black helicopter conspiracy theory?
"Or is that too much of black helicopter conspiracy theory?"
It is, for several reasons...
First, it would require a level of cooperation between a number of rental owners that is just implausible. How many companies and individuals would you have to get on the same page to pull something like this off? A huge number... (you would need a huge portion of the total market)
Second, I doubt it even makes economic sense. The bubble will pop regardless of what the rental owners do. Why throw away money trying to drive down rental rates for an uncertain payoff years down the road?
Thanks, leroy. I heard Senate Square condos is going rental, and there is an absolutely massive apartment complex being built next to the Pentagon City Costco. Both of these locations tend to Hill staffers and federal workers (including military) and I was just wondering what impact so many new rental units in prime locations would have on the market.
Funny-
I just down-bid the rent $400.00 per Month in my fab-o gated community we just moved into, plus made the landlord pay the $150.00 HOA fee.
There were so many houses for rent (or rather, flippers that flopped) in this neighborhood, you can virtually name your price
I KNOW our rent is only covering about 1/2 of the Mortgage payment on this house
BTW - this house had fallen out of escrow TWICE and lost another renter as well, before me
Who said rents aren't dropping?
Thank goodness for oversupply!!
Yes, Spunky, I have found tremendous values on rentals. The market is flooded with unsold SFHs, townhouses and condos.
My landlord rents below his mortgage payment. "Something is better than nothing." And something is better than nothing. He can't sell it and there are rentals all over. He has to stay competitive with the other units that are rented.
I am in a private golf community. It is absolutely beautiful. Almost bucolic. No highways, interstates, diesel fumes, dirty streets. The crime is almost nill and for those with school-age children, some of the best public schools in the nation.
The rent? For a new condo with 3 bedroom, 2.5 baths, 1950 sq ft, private garage, gourmet kitchen,...$1500 and NO condo fee. This is just fine and my landlord...he's wealthy and plans to wait the market out. He gambled and he lost on this one. That is what happens when one get "caught up" in a buying fever. Bad decisions are made. Where is this condo? 13 miles from DC. Too far for some, just right for many.
Are there other rental bargains out here? You betcha. More than anyone could have ever believed 2 years ago.
My fiancee and I just put in an offer on a rental that has been on the market for a few months. We offered less than the asking price, and fully expect to get it, because we are 'immediate occupancy', she and our stuff will move in, I'll follow in December. They can take our money starting now, or hold out for another month and pray someone else actually makes an offer at their asking price. Rents are coming down in my area (Woodbridge/Lake Ridge/Dale City) very fast. Smart landlords are dropping their prices to keep up interest. One property we looked at had lowered price three times in three weeks. It was the cheapest available, and remains an excellent backup for us if our first choice says no to our offer.
Comparing the rents were offering, and even the ones being asked to a mortgage payment is a no brainer. Even assuming a great rate loan (6%) and a large 'buyers' premium, the rents being asked can't support a price for these places above $250,000. Current asking prices are $300,000+ for equivilent units. And as I noted above, those rents are falling, and a lot faster than asking prices are.
Traditionally, renting is cheaper than buying. Thus, landlords shouldn't expect to be cashflow positive at first. (To cite Doug's example, $1800 would not cover a $300,000 2BR when you factor in condo fees and taxes). In '98 when I started I was, but as many noted here, the market was slightly undervalued then. By 2005, we have the other extreme, and as "not me" astutely points out, we are having a correction to return prices to more "normal" levels.
I agree with Lance that the area is unique and has peculiar strengths, which explain the doubling of prices from 2000-2004. But the tripling of prices by 2006? It's not that strong. I guarantee rents didn't double, let alone triple, from 2000-2006.
I am worried that the new supply of rentals in Arlington (overleveraged owners and failed condo projects) will hurt me a little in the future. Last summer was pretty good, but the supply has changed.
kcwood / others,
Any suggestions on where to look to find good rental deals? Yours sounds great, kcwood..
Prince William and Facquer county should not do well. I keep my eye on areas that are more popular...in particular, Old Town Alexandria (I rent there now). Some places are still selling, but some home prices are coming down DRAMATICALLY. A place at the end of Prince street (very popular area) has dropped from $950K to $750K. Other places have dropped $50K+. Some of the places that are selling though...I simply CANNOT understand why they are being bought. Of course, I'll have to wait for the closing cost to see what they really sold for. For example, I want to track this one:
http://www.mcenearney.com/search/listing.php?subloc=map&listing_type=res&listing_key=10409461325
My guess is it sold around/under the assessed value ($665K for 2007). Oh well, I will continue to keep my eyes out. From the closing costs I've seen thus far, prices are down just as stated, 7 - 10%.
BTW, I rent a condo in the Reston Town Center area...I have little trouble finding a tenant. In fact, I just got $75 more per month then my last tenant.
Link redone :
http://www.mcenearney.com/search
/listing.php?subloc=map&listing_type
=res&listing_key=10409461325
Put it together...too lazy to tinyurl it.
I found mine using a Realtor. I told her what I wanted: immaculate condition, 3 bedrooms, private garage, storage, minimum 1600 sq ft., northeast of DC, extra large master bedroom and bath, the max I would pay, NO condo fee and within 10 miles of my office. It was brand new when I moved in. Still looks it. (The rent is less than the max I would have paid, but only a fool would have argued that with the owner!)
She & I looked at 8 condos/townhouses in the Herndon-Reston-Sterling-Great Falls area. At that time there were no "for rent" signs around. Now is a different story. They are everywhere.
Use a real estate agent you trust. Do a proper check on the owner and the owner's situation. Many of these people are not able to sell and may not for many years. Good properties are scattered all over the place.
Alexa said:
Link here
Some of the places that are selling though...I simply CANNOT understand why they are being bought.
Mr. Lance can explain it to you.
It has to do with the reason that you own a place in the 'burbs but live in Old Towne and are looking to buy there.
Touche, KH...but I'm still surprised. :)
"Mr. Lance can explain it to you."
Yeah, right after he explains that his house fell in value since he bought it.
Or do we need to, once again, explain what happened the median and average prices in 20009 between August 2005 and August 2007 to a moron like Lance and his lame enabler KH?
kcwood said...
"I found mine using a Realtor. I told her what I wanted: immaculate condition, 3 bedrooms, private garage, storage, minimum 1600 sq ft., northeast of DC ..."
"She & I looked at 8 condos/townhouses in the Herndon-Reston-Sterling-Great Falls area ...
So, your rental house in PG County? And you'd been looking in Reston-Sterling-Great Falls ... but finding nothing at your price ... ? That's probably because the latter tends to be a much more expensive area than PG county. Even for rentals it's all about location, you know. Either way, it's nice you found something you liked in the way of a rental. When you're ready, you can do the same with a purchase.
Alexa said:
...but I'm still surprised. :)
I'm completely baffled by this whole thing.
It's like this, I have a close in place. I'm doing some minor upgrades as I have time.
Friends who are not in this area are screaming at me to, "Sell, darn it, Sell while you can." They've been talking about it since 2002 but the frantic yelling started in 2005.
Each year, my assessment has gone up. I check MLS every month and watch for sales and the price. There are more places available today than last year but that number is still way below the historic average. Asking prices are firm to rising.
That's in my area. I don't care what's going on in Manassas.
I come here, read a little. People are still claiming that, any day now, prices will fall.
I figured that there might be a 5%, 10%, maybe, pullback. I guessed that prices could go flat for 5 or 10 years. Sorta like a rerun of the 1990's or the few years around 1980.
For my zip code, prices have gone up since the late 1990s. Even the 2006-2007 assessment was up a little.
There is no flood of places for sale.
Some claim that prices have fallen. (they haven't.)
We have this thread. The "DC MSA -7.2% YOY in July"??? MSA?
Does the MSA include the -35% places in Manassas?
Are people manipulating the data to prove to themselves that there is a DC area price fall?
I can look out my window as well as check reference prices in MLS and at the City's database.
Here's an interesting place near me. It's got 2 bathrooms (my place has one) but my lot is larger. I have a garage, they have a driveway. Other than that, it looks like mine. $599,900? I figure my place at $500K.
Will they get an offer? What will it sell for?
2006-2007, there was a slight pull back in the prices in the part of Alexandria that is near the Beltway. There was a slight increase in my area, which is the part of Alexandria closest to DC.
Asking prices are way up but that might be wishful thinking.
Take a close look at 207 MacArthur. Is that going to sell for under $500K? It sure looks like my house, that is, once I finish my $20,000 paving job, which includes a landing as well as a steps. I love upgrading my place. I enjoy the work, saving money, and adding to the value.
Is that a BMW sports car in their driveway? I'd keep it in my garage, but they don't have one.
If you're looking to buy, check out Rosemont and Beverly Hills. The smaller SFH's are still only a half million or there abouts.
-kh
Do you still think you are going to do $20k worth of brick work yourself in 12 days with $200 worth of materials?
You aren't exactly helping your credibility here...
Here's the long term price history of 207 MacArthur. The numbers are like my place but a little higher. Might be that 2nd bathroom.
Here's the city's description. I was wrong. Their lot is slightly larger. That might explain their higher price.
Like everyone, I'm doing my research, studying the market. I don't put much in the vague reports like "DC MSA -7.2% YOY in July".
Since MLS and the city's DB's show the local prices, I can see for myself what's going on.
kh,
I dont' get your reference to 207 MacArthur. These are the assessments, not the price history. The assessment shows a 4.25% decline from 2006 to 2007. How does that show that prices are not falling? Alexandria seems to think so. But what do they know. Their budget is dependent upon these assessments.
All 7 of my assessments dropped in 2007 after skyrocketing in '05 and '06. Arlington knows what they can get away with and the assessments change yearly. As Caveat says, the localities budgets are tied to these assessments and they are loathe to lower them. Arlington built a $100 million high school for goodness sakes that was funded by the real estate boom (originaly budgeted for $60 million, but the limousine liberal sheep around here vote for every f'in bond).
No, my rental in not in PG. I live NW of the district 2 miles from Great Falls.
Lance...please. Reston-Herndon-Great Falls-Sterling are NW. Forgive my typing slip..good grief.
Let's throw in some real numbers and drop the links. Even in Old Town Alexandria, one of the most expensive and desirable places to live in NOVA, prices have declined. I'll start micro, then go macro.
I gave an example of 103 Prince St. I'll paste it here so no one has to click a link :
01/2007 $708,100
01/2006 $730,000
01/2005 $649,700
01/2004 $581,800
(assessed values)
The home started on the market at $943K :
06/07/07 -- $942,900 to $949,999
07/13/07 -- $949,999 to $928,900
07/21/07 -- $928,900 to $878,900
07/27/07 -- $878,900 to $850,000
09/15/07 -- $850,000 to $750,000
Obviously the owner was trying to see if they could get top dollar. It was bought 05/26/2004 for $616,000. Is it possible it will roll back to 2005 or 2004 values? Maybe, maybe not. County already states a 3% loss.
I'll just randomly choose another one so as not to be accused of cherry picking - 709 SOUTH LEE ST :
01/2007 $727,323
01/2006 $700,200
01/2005 $593,200
01/2004 $513,300
(assessed values)
As you can see, the county decided it was worth 5% more. Now for its sales price history :
04/23/07 -- $779,900 to $769,900
05/12/07 -- $769,900 to $759,900
05/26/07 -- $759,900 to $749,900
08/03/07 -- $749,900 to $739,900
08/17/07 -- $739,900 to $729,900
09/06/07 -- $729,900 to $699,900
Notice it is below the assessed value now and still not sold. This home was bought 02/28/2003 for $445,000.
I'm not sure, but I believe the YOY number quoted is just the median of lasts years sales price minus the median of this years sales price for a particular month. It doesn't actually track same home sales (which would make it very accurate), but that's nearly impossible to do as people live in houses for over a year. Yes, it must average the shit with the desirable - but you can't argue with the overall numbers. Here is an excellent place to find out price trends in a given area or NOVA :
http://www.mris.com/reports/stats
Here is the zip I watch (22314) :
2007 2006
Avg Sold : $541,787 $689,598
Median Sold: $507,000 $525,000
Total Units Sold: 47 69
Avg Days on Market: 97 75
Avg List Price: $578,616 $742,707
2006 2005
Avg Sold : $689,598 $601,521
Median Sold: $525,000 $550,000
Total Units Sold: 69 90
Avg Days on Market: 75 18
Avg List Price: $742,707 $610,505
Now let's look at this in a clearer chart :
AVG Median
2006 -21.43% -3.43%
2005 -10% -7.82%
The percentage is the change from 2007.
These are actual sales, not asking prices. Of course, I believe they should be even lower in 2007 because they do not include sellers paying for closing costs and other such sales price hiding tactics in this buyers market.
Don't get me wrong, I'm not trying to ARGUE with anyone - I want to understand the numbers too. It could be worse or better in other areas of NOVA. My thoughts are that if an area as desirable as Old Town (which is inside the beltway, < 10 miles from DC, and right next to metro) is down, then other areas must be worse! I've read Prince William and Fauqier are getting hit very hard.
If anyone wants to add to this, please do! Sorry that the charts don't line up, but this blog software don't make it easy to line up properly.
To get an overall, I told it to give me a report of Fairfax County, Fairfax City, Arlington County, Alexandria City, & Falls Church City. Want to know what's interesting?
Average and median prices are up from 2006 3.61% and 3.49% respectively! Not easy to argue with those numbers. Can't say I won't post both sides. :)
When I look at the charts, it break out prices based on the type of house and how many bedrooms. Seems sales are up for "2 Or Less detached" and "Condo Coop and Ground Rent" but down for everything else.
"If anyone wants to add to this, please do! Sorry that the charts don't line up, but this blog software don't make it easy to line up properly."
This is terrific, thanks. It helps put things into perspective. My read is that close in, and I'm several miles closer in than you, has been essentially flat.
I'm not fretting about a seller tossing in a couple grand towards closing or a plasma TV.
That's small change when you're talking a half mill to one mill for a house.
Similarly, the couple % up in my zipcode or the city's assessment of my place (up a little) is just noise.
Some folks are trying for big bucks over their 2007 assessment and are not getting it. Didn't they get the email?
"DC MSA -7.2% YOY in July"
or
"Average and median prices are up from 2006 3.61% and 3.49% respectively! "
Reality slams the big thinkers and book hawkers.
"I gave an example of 103 Prince St. I'll paste it here so no one has to click a link :
01/2007 $708,100
01/2006 $730,000
01/2005 $649,700
01/2004 $581,800"
Here're the longer term assessments from the city.
2007 $708,100
2006 $730,000
2005 $649,700
2004 $581,800
2003 $520,300
2002 $451,600
2001 $386,000
2000 $353,100
1999 $322,700
1998 $316,600
1997 $315,700
1996 $264,600
1995 $259,400
1994 $264,500
1993 $279,800
1992 $296,800
1991 $319,000
From 1991 to 1999, the assessment went up gigantic $3,700. After that, it made up for lost time.
Look at the 1991 to 1995 plunge! $59.6k!!!! Ow!!!!
That's a pretty big percentage too. 59.6/319 = 18.6% Who says real estate always goes up?
Strange, I don't remember wise renters grabbing those cheap places when strapped home owners were forced to sell at a loss in the mid 1990's.
103 Prince is on a 680 square foot lot. Land value is "about" 200K. That puts the dirt at $300/square foot.
Or about $13 Million an acre. Seems high to me.
Hey Alexa, are you checking out 103 Prince? The mcenearney listing is wrong. It's says 3,000 square feet.
The city says it's 680 square feet.
Google shows a very narrow row house, it's to the left of the arrow, the one on the upper side of Prince with a black car in front of it.
I glanced over 22314, Wow, are those places pricey!!! You sure pay a lot for a historic location.
You might be calling me bubblehead if I see many more two million dollar row houses.
kh...I always keep my eye out for 22314. Yes, prices here are insane.
Your (recent) comments are interesting, I can't actually tell if you think prices will go down or up. Here are your numbers with %'s :
2007 $708,100 -3%
2006 $730,000 12%
2005 $649,700 12%
2004 $581,800 12%
2003 $520,300 15%
2002 $451,600 17%
2001 $386,000 9%
2000 $353,100 9%
1999 $322,700 2%
1998 $316,600 0%
1997 $315,700 19%
1996 $264,600 2%
1995 $259,400 -2%
1994 $264,500 -5%
1993 $279,800 -6%
1992 $296,800 -7%
1991 $319,000
1997 was in interesting year. Possible a renovation? From 1999 to 2006, the value went up 126%. I don't consider that normal for RE.
If you have the buy/sell history, maybe we can indeed find out if someone took advantage of market swings. I'm curious to see what it'll sell for. My guess is $700K, which is still insane to me no matter how desirable the area is.
I still can't explain the rise in median/avg for all of NOVA though...it defies everything I'm seeing. It also contrasts the stats in the article. This can probably be explained by the fact that the -7.2% includes Loudon and Prince William and maybe even Maryland.
I look at the chart I mentioned in my previous post and see this:
2007 Avg Sold Prices
$638,651 | $ 386,307
2006 Avg Sold Prices
$578,073 | $ 394,288
Avg Sold % Change
10.48 % | - 2.02 %
These numbers represent 2BR or less detached/attached. First off, why are the detached prices ABOVE the 3 BR detached avg sales price? And how the heck did this go up 10%? The histogram doesn't seem to support it though :
$200,000-$249,999 1 | 1
$250,000-$299,999 0 | 8
$300,000-$399,999 1 | 31
$400,000-$499,999 10 | 15
Over $500,000 7 | 7
AVG $638,651 | $ 386,307
(detached | attached)
It seems the sample here is just too small to really mean anything. And the "above $500K" hides what the high numbers were (maybe there is a mistake where someone put $10,000,000 instead of $1,000,000?)
All the other numbers make sense to me : 3 and 4+ BR attached and detached are down anywhere from 1.5% - 6%, while the condos are up 4%. The latter makes sense because they are more inline with salaries around here (the avg sales price went from $330,616 to $345,186).
One thing is for sure though, sales are down 15.57%.
All the above numbers are comparing Aug 2006 to Aug 2007. I'll look into other months as well...
Ah, I figured out how it went up as the MLS does allow for more details :
$1,000,000 - 2,499,999 1 | 0
$2,500,000 - 4,999,999 1 | 0
That solves why the avg is so high. I'd love to know what 2BR detached was sold for over $2.5 million. :)
Alexa said: "I still can't explain the rise in median/avg for all of NOVA though...it defies everything I'm seeing."
The Bill-like fellow who was grabbing 1/1's for investment 20 years ago asked me, "KH, could you buy a house in Tokyo, London, Paris, New York ..."
He went down the list of world cities.
"Why is it you can buy a house in Washington?"
He continued, "It's because it hasn't happened yet."
"But it will. I'm buying everything they let me."
The way he explain it, it's part a perception thing. People decide they're not selling unless they get their price.
It's part "limits to growth", you can drive 2 hours each way to work but why would you?
15 years ago, I saw farms near the beltway. The cheap buildable land is gone.
Then there are the trendy places, Georgetown, Dupont Circle, Capital Hill, Old Town Alexandria.
I'm priced out of those markets.
Here's some news. I drove through E REED today. The city is closing it for paving. I noticed that the new street lamps on the south side by the condo's are the "dressy ones".
I wonder if they'll change out the rest too.
Oh my, here's a new bubblehead tool
for example, someone claiming to live nearby wrote in, anonymously, to say that the area is an open-air drug market with frequent gunfire.
Actually, E REED used to be called "the Hole".
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