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"Does anybody want to call this as the bottom because of the Fed cut?" "Robert Toll asked analysts at the Credit Suisse 2007 Homebuilder Conference. "I don't think you can call it yet."
He said homebuilders closely watch the sales and traffic at their housing developments and would be the first to spot an upturn. Toll, CEO of the nation's largest luxury homebuilder, said until the Horsham, Pa.-based company's internal reports show a definite uptick on business, he can't say housing has seen its worst.
"When that Sunday report gets a bump up, we can call a bottom," Toll said. "Not yet."
But Toll, famously optimistic about a housing rebound that has yet to materialize, poked fun at himself, telling his audience that "anything I say should be viewed with suspicion. Use your mind. Don't believe me."
But Toll said the Fed's move to cut both the federal funds and discount rates by half a percentage point Tuesday won't bring the subprime and Alt-A, or limited documentation, loans back to equilibrium. He said it would take a return to more conservative underwriting standards to right the ship -- and it would take time.
"I don't think the Fed's move is going to bring back subprime, going to bring back Alt-A," he said. The mortgage lending system "got away from underwriting," he said.
and more on the
Fed cut:
"I would have done a quarter instead of a half because it signals we're in deep doodoo"
27 comments:
Moody's Economy.com forecasts a price drop in DC area real estate of 11.5% by 4Q of 2009.
http://tinyurl.com/39nvhb
Talk amongst yourselves.
not to nitpick... but they actually predict a decline of 11.5% in "Washington-Arlington-Alexandria."
So in this case they are only talking about the close in areas.
Could you pick a few more nits please.
"35 Washington-Arlington-Alexandria DC-VA-MD-WV 07Q3 09Q4 -11.5"
What does -MD-WV have to do with Arlington-Alexandria? What are they saying? Do they know? Did you ignore the text on purpose?
It's obvious that WV and the boonies are getting mixed in. Also we're still Sept 07 aka 07Q3.
That article is not "reporting", it's a mixture of wishful thinking, speculation, and confused geography. Follow that with mis-interpretation and you have a fine game of "telephone".
It could turn out the way they're guessing but my guess is that if you restrict the area to DC-proper, Arlington and Alexandria, prices will be up 10 or 20% by 2009.
I actually didn't notice that part. I wonder which definition of DC they are working from. Even the "metro area" isn't generally considered to extend to WV.
If they are working from the broader definition their prediction is pretty meaningless. We already hit 7% down early this summer on the Case Shiller index. We may already be within a couple percent of their prediction.
"That article is not "reporting", it's a mixture of wishful thinking, speculation, and confused geography."
"It could turn out the way they're guessing but my guess is that if you restrict the area to DC-proper, Arlington and Alexandria, prices will be up 10 or 20% by 2009."
Well, you have certainly got the wishful thinking part down don't you?
"It could turn out the way they're guessing but my guess is that if you restrict the area to DC-proper, Arlington and Alexandria, prices will be up 10 or 20% by 2009."
Hey, KH has given his "guess," i.e. his prediction. Good for him. Now, if his "guess" is way off, he will have to his beliefs about housing accordingly. If not, then others (like me) would have to adjust their beliefs.
We've got a hypothesis from KH, and now we will use data will test KH's hypothesis.
Thanks Keith and Leroy for the well considered comments.
By my reckoning, a -11.5 adjustment will cost me 55K.
The question is, will a 500K SFH in Alexandria lose 55K?
Duplexes on E Reed are 600K and 3/2 penthouses at Eclipse Condo are 850K. A lot twice the size of mine sold for 600K; there was a house on it but they knocked it down.
You do realize that outside of the last few years a 10-20% gain in two years would be considered a huge boom right?
It is one thing to say that you think you area will escape the bust relatively unscathed, but saying you expect a giant increase in values even as the rest of the city, region, and country experience the worst RE market in 50+ years just makes you look silly.
BTW, a 11.5% decline won't cost you a thing unless you sell. It is just like the "gains" people have seen over the last few years.
KH,
I have to echo Leroy's point and ask, "What, apart from wishfull thinking, makes you believe that housing prices in Alexandria will appreciate 10-20% by 2009 Q4?"
I am genuinely interested. As far as I can tell, you are relying on and enless supply of lemming in the market to pay whatever sellers want to ask.
My point is that the credit crunch in the real market for jumbo loans is going to prevent lemmings from overpaying. By requiring 20% down payments again, people are not going to be able to come up with the money, or are going to be much more discriminating.
Before, if I wanted to buy a $750K house, I only needed to come up with 3%, or $22,500. No problem, write a check out of my savings. But now, I have to come up with 20%. Write a check for $150,000? Wait a minute. If I can get the house for $700,000, I only have to write a check for $140,000. I can think of a lot of things I would like to do with that $10K, like buy furniture, put on a deck, or fix the wiring in the 1940's piece 0'crap I just bought. If I was only required to pay the 3%, the down payment delta of $750K and $700K is only $1,500. Not enough to get concerned about for your typical lemming.
Is your argument that people will pay whatever sellers close in want to ask because "cool people spend money as though it didn't matter." In theory, you may be right, because marketing and image are powerful forces. But how are these people going to get the money?
That DC_VA_WV_MD is used generically to refer to the region in many surveys, but their estimate is only for the cities mentioned.
Notice they are giving 2007Q3 as the peak. Well, except for Arlington and portions of Alexandria and DC, the peak for most areas was sometime in 2005.
There are a few things to note--
1. Moody's estimate is usually conservative.
2. They are probably talking about only a nominal drop. In real terms it will be higher.
3. What happens after the drop? It is likely to stay flat for a considerable period. And when your savings put into this asset is not producing a return--while the money if invested in another asset could produce a significant return--there is an opportunity cost.
Ultimately those who think they won the lottery will find that their average returns on their assets over the years is not significantly higher than what the same asset class has produced historically.
The Fed rate cut will have only a marginal impact on mortgage rates and the housing situatiuon.
Subprime used to mean higher rates for peope with slighly worse credit histories. Those loans will come back because the higher rate is for the added risk. But the no-doc and wierd negative amortization stuff is over, right? Does subprime now include those kinds of loans? It seems like those loans existed to generate fees for mortgage brokers and banks went along with them because they could be packaged and sold as securitized debt. But then again, the market has dried up for that kind of mortgage debt, right?
I got my first investment mortgage through Countrywide. It was pretty tough and they gave me a hard time about the lack of equity I brought to the table (I put down 20 instead of 25% on a 105K purchase--it was a 7.125% 30 year fixed). What the hell happened to them? When did they get so loosey-goosey?
"You do realize that outside of the last few years a 10-20% gain in two years would be considered a huge boom right?"
That's ~5% a year to maybe ~10% a year.
~5%/year for the next two years is 10% over two years. ~10% over two years is 20% over two years.
I have a half million bucks on the table. If Moody's is right, I lose 55K. I'm guessing I make 50K.
Conceivably my house could go to zero but that's unlikely. The bubbleheads have been yelling about valuations plunging 30 or 40%, that hasn't happened. Now we're discussing a possible, maybe, Moody's is predicting drop of 11.5%.
If my SFH on 5000 sq ft normalizes to the 600K duplex on near by E Reed, my valuation goes UP 100K. I figure, if they sell that duplex for 500K, my place is worth more.
(600K for E Reed seems high at the moment.)
"That DC_VA_WV_MD is used generically to refer to the region in many surveys, but their estimate is only for the cities mentioned."
How do you know that?
"It was pretty tough and they gave me a hard time about the lack of equity"
15 years ago, I knew a man who was buying small condos for rentals. He was getting 1/1's for $30K-$40K, efficiencies for a little less.
When he scraped together $4K-$6K, he'd buy another one, mostly he got a positive cash flow right off.
He told me that he was always fighting with the banks for the same reasons. He was a GS-15 attorney and a Navy Captain (Reserves).
Owned a house near the metro, big stock portfolio, but the banks thought he was "overextended".
I've lost track of him but he's probably worth 10 or 20 million by now.
Say, you weren't in the Navy, were you "bill"?
kh,
"How do you know that?"
Because it is obvious. If you read carefully, Frederick-Gaithersburg-Bethesda area is included separately. It is not counted as the DC region.
So why would areas of WV or Gainesville be part of the DC Metro when Bethesda and Gaithersburg are not? And why would they say Q3 of 2007 as the peak for, say, Gainesville, Manassas or Herndon? These areas have already seen greater than 11.5% price drop from their peak in 2005.
Keep in mind that Moody's has been revising its predictions--this year's estimates show deeper drops than last year's. And what makes you think next year's won't be even bigger?
I don't understand why you should spend your time here arguing--you bought several years earlier and nobody is saying you will lose all the appreciation over the years. You will do fine, although you will see in a few years that it won't be like winning the lottery.
Most people spend time here because they are looking to buy or they like to look at the market rationally.
"15 years ago, I knew a man who was buying small condos for rentals. He was getting 1/1's for $30K-$40K, efficiencies for a little less.
When he scraped together $4K-$6K, he'd buy another one, mostly he got a positive cash flow right off."
Yes, when you're smart enough to buy when a 10-20% down payment gets you positive cash flow right off, you will get rich.
That hasn't been true in this area since 2003 at the latest.
So, the smart ones are the ones who knew better than to buy in 2004-2006.
"That's ~5% a year to maybe ~10% a year."
and you think that is normal why?
"and you think that is normal why?"
I didn't say it was normal. I said that a 20% increase over 2 years was about 10% a year.
Some of you are hard over on knowing the future, which is fine.
Where we can get into trouble is believing the bull, on either side.
Bull = "Real Estate always goes up", no it doesn't and realistic non-bubbleheads don't claim that.
Bull = "Moodys, some other authority, or my hallucinations tell me that DC, Arlington, Alexandria will plunge 11.5% by 4Q 2009", it might but that's called a WAG. (why 11.5 and not 11 or 13?)
As to why I think my place and other places close-in have a shot at an increase, I've said why and so has Lance.
The jobs are in the city. Remember the AOL report. AOL execs are moving to NYNY because their customers and trading partners are there.
There is QOL in the city. I drive from my place out bound to a job in Fairfax. I drive on beautiful park-like roads. My area is heavily treed. There're restaurants and shops near by. I'm not saying it trumps Dumfries or Warrenton. It's that it doesn't look like "Escape from New York".
If it made sense to live in Manassas, why not move to Idaho or West Texas, where it's really cheap.
Add in the ever climbing gasoline prices, ever worsening traffic and it adds up to compelling reasons to buy in the city.
It doesn't take a swarm of buyers. There are few places being built, close in. What we have is what we have.
Potomac Yards is coming on line but they aren't giving those places away. The Eclipse Condo, with all its problems, is asking 500K-850K for something that a couple might live in.
E Reed? That was "Escape from New York", it's changing, getting gentrified. 600K for a duplex?
The real question isn't, "How can I prove that there is a bubble and it's bursting so I can afford to buy."
It's "how can I get mine with minimal downside risk."
Lance said it. Start somewhere.
There's a 1/1 179K asis in Auburn. You could pay more for an efficiency. Perfect for a single, tight but a couple could do it. I've known families with a child who made do in a 1/1.
209 GLEBE RD E #209C
ALEXANDRIA, VA 22305
Subdivision: AUBURN VILLAGE
Price: $178,000 - For Sale
MLS ID: AX6525465
County: ALEXANDRIA CITY
Status: ACTIVE
List Date: 09/04/2007
ADC Map: 17G13
This is a fine 1BR/1BA in a GREAT LOCATION! Moments to Crystal City and Reagan Nat'l Airport! PRICED TO SELL NOW! BEST DEAL in Auburn Village! Hard to find LARGE WINDOWS IN KITCHEN & BATHROOM.It needs some TLC cosmetic stuff mainly! REMEMBER THAT THE SALE PRICE IS VERY LOW -"as is"- so that buyer can decorate their new home their way! L/B on railing to front of BLDG.& L/B on 2nd floor door!
Jump on it. $15K? Take the PMI hit.
With a little luck and work, that place might yield $50K equity in a few years. Step up from there to a TH, then watch for a SFH.
No guarantees it'll pay off but it might.
Wow, well I think your advice is hearfelt... but I think your heart has played a much bigger role in it than your brain.
You just said you expect prices to rise 10-20% over the next two years in the midst of a major downturn. How do you justify this questionable conclusion?
"It doesn't take a swarm of buyers. There are few places being built, close in. What we have is what we have."
They aren't making any more... or other similarly sophormoric theories.
I mean you look at actual analysis done by actual analyists that predicts a 11.5% decline in your area...(which is relatively conservative) and you dismiss it completely and instead predict a huge increase in prices... why?
Because that is what you want to happen.
Then... to top it all off you suggest I buy a tiny condo for what reason? I don't work in DC. I very rarely go to DC. Even if I did you would have to be nuts to think a 1/1 condo is the best place to "start somewhere" today.
Even a simpleton should be able to look at the condo market in this area, yes, --even in Arlington-- and realise it is a terrible idea to buy right now.
There is a huge glut of condos in the area. Condo projects are being cancelled left and right. Where possible condo developers are switching to apartments as quickly as they can.
From this you conclude that in a "few years" it "might yield 50k in equity."
You could hardly have come up with worse advice.
leroy said:
"Even a simpleton should be able to look at the condo market in this area, yes, --even in Arlington-- and realise it is a terrible idea to buy right now.
There is a huge glut of condos in the area. Condo projects are being cancelled left and right. Where possible condo developers are switching to apartments as quickly as they can."
Most simpletons would realize that the best time to buy anything is when there is a glut of it. What does one call someone who isn't even capable of making that simple realization?
Most simpletons would realize that the best time to buy anything is when there is a glut of it. What does one call someone who isn't even capable of making that simple realization?
Ahhhh, so good. So good.
Lance actually makes a good point. If I was in the market for condo, I would research all the condos I wanted to buy and I would then start making offers 30% off asking price. In this glutted market, eventually you're going to find a desperate seller. And a condo at 30% off the asking price is a pretty good deal.
Kh,
Thanks for staying true to form and helping expose the real estate myths for what they are.
Here is the latest I would like to expose: Your quality of life is greater if you live close in.
In that same breath, you say people with a child could "make do" in a 1/1 condo sold "as is" that needs work. If this is your idea of quality of life, you can have it.
My guess is that buyers who now have choices will see that this is not as good of a deal as you propose, because they can buy a larger place that doesn't need work. Its a little further out, but it only adds 10 minutes to their commute.
I looked at a house today, the comps for which earlier this year were $1.2M. The listing advertises that the owners have already relocated (essentially begging for an offer), and they have dropped the price to $975K, which is about late 2004 comps. And no one is buying it. I timed it this morning, and it would add 7 minutes to my commute.
Now, if this house were in north Arlington, it would probably sell today for 1.2 or 1.3. So I could buy a house like that in Arlington, or I could buy the house 7 minutes out, and buy a rental condo that produces income.
Eventually, these buyers choices are going to put preassure on close in prices. I have already seen evidence of it, which you chose to ignore because there is an overpirced duplex on Reed street.
Thanks, I have my answer to the question I posed earlier and you avoided. Its all wishfull thinking based on myths.
"Lance actually makes a good point. If I was in the market for condo, I would research all the condos I wanted to buy and I would then start making offers 30% off asking price. In this glutted market, eventually you're going to find a desperate seller. And a condo at 30% off the asking price is a pretty good deal."
Yes, because what lance doesn't seem to understand... is that when there is a glut of something generally prices drop significantly. I have said it before and I suspect I will have to say it again.
RE markets move slowly.
It is obvious prices will have to fall a long way to move the current inventory of condos but it is going to take time for that to take place. If you are interested in buying a condo today the best course of action is to lowball very aggressively.
At the right price a condo is a good choice for many people, but if you are buying a 1/1 condo at these inflated prices and hoping to see a 20%+ gain in a "few" years you are nuts.
In that same breath, you say people with a child could "make do" in a 1/1 condo sold "as is" that needs work. If this is your idea of quality of life, you can have it.
Ah now I understand. You don't realize that any house is continuous work. A happy home-owner's other home is Home Depot.
No kidding here. I spend one full day a month fixing or upgrading something. I spend about $1,000/year on replacement parts or more modern fixtures.
This is in addition to normal household chores, cleaning, and yard work. I do that after work since living close to the office, I'm at home by 4:30 most days and I'm not worn out from a 3 hour commute.
Month by month, my goal is to make my place into something beautiful and more like "Architectural Digest".
Lance once said that his first place wasn't that great but to him it was a palace.
I have dreams too and might move again. Even if I don't, I'll keep upgrading and improving my place.
You would be amazed at what a paint job, new sink, medicine cabinet, quality faucet, and designer lighting fixtures will do to a bathroom. I finished that job this spring, it took 3 months, one day here and there, when I felt like it.
I'm doing what "flippers" do but my schedule isn't a couple months, it's several years.
When something needs fixing, I replace it with better. When my klunky old fridge died, I got a nice stainless steel model, $800!
As a tenant, you don't pay for the fridge but you also don't have a choice as to the quality. You get the $495 "jobber" replacement or $100 used off Craigs List.
I'd write more but it's nice out and I have to go work on my current project. A mason quoted $20,000. I'm doing it myself with $200 in materials and 6 weekends of my own labor.
"Ah now I understand. You don't realize that any house is continuous work. A happy home-owner's other home is Home Depot.
No kidding here. I spend one full day a month fixing or upgrading something. I spend about $1,000/year on replacement parts or more modern fixtures. blah blah blah"
What the heck are you talking about?
Any home will require maintenance. Some more than others.
The basic point is that a 1/1 condo is hardly a good option for a family with children. It wouldn't suit their needs well, and it would be an absolutely terrible "investment" at this point.
Your advice to go out and buy an overpriced condo in "as is" condition and then count on the magic of real estate always going up to bail you out is simply terrible.
"I'd write more but it's nice out and I have to go work on my current project. A mason quoted $20,000. I'm doing it myself with $200 in materials and 6 weekends of my own labor."
Uh huh... consider me a skeptic. You either found the most expensive mason on earth, or you just don't have a clue what you are getting into. Look at it this way...
if you are able to do $20k worth of masonry in 12 days with $200 worth of materials... you need to give up your day job.
Either you got an amazingly inflated price quote... or you are thinking about doing a job that really does require a professional mason.(In which case I wouldn't recommend the do it yourself route, unless of course you are a mason.)
"I wouldn't recommend the do it yourself route"
I started doing-it-myself when I discovered what tradesmen bill per hour.
So far, I've done sheetrock ( entire small work room in my basement, framed/sheetrock/paint), painted my entire old TH, wall paper, copper plumbing, PVC plumbing, electrical (lights, outlets, sump pump), concrete, dishwasher install, replaced garbage disposal (the old one was frozen on), gutters, replaced furnace' circulating pump, entire bathroom(from wax seal under the toilet to the overhead lights), ceiling fans, built shelving using a router and chop saw.
I'm sure the $20K bid was high but much of it was demolition, which I've completed.
To renters, this might seem like magic but it's not.
Home repairs are common sense and planning the work out. It takes about 1 full day a month to keep up with a house. You can pay tradesmen, a landlord, or do-it-yourself and put the savings in your pocket.
My neighbor is a doctor, I saw him digging up his yard to fix his plumbing. You know the joke, plumber hands the doctor the bill,
"That's ridiculous, I'm a doctor and I don't earn that much."
"I didn't earn that either when I was a doctor."
"I started doing-it-myself when I discovered what tradesmen bill per hour.
So far, I've done sheetrock ( entire small work room in my basement, framed/sheetrock/paint), painted my entire old TH, wall paper, copper plumbing, PVC plumbing, electrical (lights, outlets, sump pump), concrete, dishwasher install, replaced garbage disposal (the old one was frozen on), gutters, replaced furnace' circulating pump, entire bathroom(from wax seal under the toilet to the overhead lights), ceiling fans, built shelving using a router and chop saw."
Uh huh...
That is all basic handyman work. Good for you if you can do it yourself but it is hardly noteworthy.
You could also go to 7-11 and ask the guys standing there who knows how to paint and wants a days work painting your TH for $100.(They will all know how to paint, probably better than you do.)
"I'm sure the $20K bid was high but much of it was demolition, which I've completed."
You are sure the bid was high huh?
Much of it was demolition?
lol
Paying a few hourly types to swing sledgehammers for an afternoon doesn't cost anywhere near $20k.
Assume for a minute you hire four guys and pay them double minimum wage(very generous for demo) for 8 hours each...
How much of $20k is that? (~$400)
Either you got the most ridiculously inflated bid ever, or you are just lying and didn't expect someone to call you on it.
$20k worth of work from a brick mason is a major project and it isn't something joe handyman is going to take care of in a few weekends with $200 worth of materials.
To put this in context... suppose you and the professional brickmason can both get the necessary materials for $200. That means you are paying $19800 for labor.
Now lets suppose you are paying a competent brick mason $50 an hour and paying his assistant $20 an hour. (both very generous)
How many hours of work does that give you in $20k?
(19,800/70= 283 hours) That works out to be 7 weeks of full time(40 hours) work for both the brickmason and his assistant.
Two competent professionals working full time for 7 weeks. Not one guy working on the weekend. Like I said before, if you think you can do $20k worth of brick masonry in 12 days by yourself... you ought to switch careers.
"To renters, this might seem like magic but it's not.
Home repairs are common sense and planning the work out. It takes about 1 full day a month to keep up with a house. You can pay tradesmen, a landlord, or do-it-yourself and put the savings in your pocket."
You aren't exactly selling me on your expertise here with this whole brick masonry joke.
This might seem like magic to you, but I clearly know a whole heck of a lot more about this than you do.
I could at least make up a plausible lie and avoid looking stupid.
KH,
While shopping for houses, I have come accross some of these "Home Depot/Handyman Specials" and if you think you are improving the value, you may be sadly, sadly mistaken. In my experience, the professionally done rennovations command about a 15-20% premium. ($90-100K)
But back to the topic, quality of life. If a family with young kids has to live in a 1/1 and spend their weekends with chop saws, construction dust, and paint fumes, just so they can go to a trendy restaurant with other self-important people, again I say, you can have it.
But you do raise an iteresting point. Most people who bought in the last 2-3 years used creative financing to max out thier monthly payment to get into a house at the peak. And they did it without obtaining a home inspection.
Maybey these people can afford $250 a month at Home Deopt on paint, but can they write a check for $10K when the roof needs to be replace, or $5k when the heating craps out in Februrary? Many people who bought at the peak with creative financing under the assumption that they had to buy now or be priced our forever failed to take into account the true cost of home ownership.
I beleive these people will either forego making the repairs, or do as you are doing and DIY with wildly mixed results. Fortunately, I can do an inspection before buying these houses.
And just for an FYI, I am seeing August sales figures for houses inside the beltway for $10K-15K below 2007 appraised value. ONe sold for $50K below 2007. And these are not fixer uppers.
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