Source: MRIS
Monday, March 10, 2008
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38 comments:
As much as median prices have fallen, they are only back to levels seen between 2004 and 2005 according to the "decade of" list. This tells me we've got a long way to go before this price correction is complete (I personally believe we'll correct back to 2002/2003 levels, but markets can and do overcorrect sometimes so we may go back to 2001 levels).
Tabitha - I provided more info on the p/r ratio in the March 7th 'bits' posting.
Look at the months supply. It strongly implies a rapidly declining market housing in Northern Vireginia. The months supply is MUCH worse then 2007.
is this what happens when you have to prove your income and provide a down payment to get a loan?
This is interesting. For the last 2 years inner beltway areas were consistently showing 4-7 months of inventory, while the outer (loudon & especially PWC) counties were regularly reporting somewhere between 8-18 months of inventory overhang for quite some time. For believers in the laws of supply & demand, this discrepancy was key to why the outer areas were experiencing severe price pressures that the inner areas were not (at least thus far).
If you recall, last month for the very first time, months of inventory increased dramatically for inner beltway areas. It looked like the inner areas had finally fallen (mostly due to slack sales) and would now regularly report double digit months of inventory, just as their suburban & exurban counterparts have been reporting for a while now. It now looks like the inner areas have pulled back a bit from that cliff edge, but the picture as to which way they are headed is still unclear.
As I noted before, one month does not make a trend, so I don’t put too much stock in this modest improvement (much like I didn’t put too much stock in last month’s precipitous decline), so it is premature to say the inner areas have dodged a bullet once again.
So for PWC/Manassas, there are fewer sales than any year since 2001 (462 2001/402 2008), but there is about seven times as much supply now as there was then. I don't know what exactly that adds up to, but it can't be good. And the number of sales still contains a large number of bank takeovers, which skews the numbers by making it look like there are sales when they are actually added inventory--also, it keeps prices higher, since banks usually take over properties at a higher price than their current value.
Thanks, John, for the tip!
YOY median price increase is misleading because it includes new inventory. Any data that specific to existing homes?
That said, it looks like prices will fall 30% in the next 12 months...add to that tighter lending practices and neil will need to find something besides popcorn
I did a quick and nasty regression using the 2007 & 2008 February data from Alexandria, Arlington, Fairfax, and Loudoun. The end result is that each additional month of inventory reduces prices by almost 2% from the peak.
That's great data. Does anyone know where I can find similar data for other areas, like northern New Jersey and Philadelphia?
Novawatcher Said...
"I did a quick and nasty regression using the 2007 & 2008 February data from Alexandria, Arlington, Fairfax, and Loudoun. The end result is that each additional month of inventory reduces prices by almost 2% from the peak."
Novawatcher - when you say "each additional month of inventory", what do you use as a baseline (i.e. each additional month past 6 months)?
Also - if you had to guess, how long would guess that each additional month of inventory would have to be in play, to cause the 2% drop? (i.e. a sustained period of 1 year of 7 months of inventory would presumably be far worse than briefly hitting the 7 month mark).
I realize this isnt exact science, but picking others' brains helps me figure this out myself.
CRT:
Like I said, it was quick and nasty. Here are the two regression equations.
m = months of inventory
p = percent of peak (peak for region)
p = -.0179m + 1.027
r2 = .81
Excluding Alexandria 2007 (just 'cuz I don't like it)
p = -.0212m + 1.06
r2 = .94
plugging in p =1 for both equations gives you an intercept at 100% of 1.5 & 2.8 months, respectively
Here is how they translate to English: for every month beyond 1.5 (2.8) month of inventory, the median sold price is 1.8% (2.1%) less than the peak. For example, with 11.5 months of inventory, the median sold price for a county would be 82% (100% - 1.8 * 10months) of the peak.
Just an interesting observation that may or may not hold in the future.
That said, it looks like prices will fall 30% in the next 12 months...add to that tighter lending practices and neil will need to find something besides popcorn
Got Scotch? ;)
Its killing me that I'm behind a firewall that won't show me the data. So I've been perusing the comments to see the trend.
I actually predict a *lower* price drop in 2008 than Buck. Why? Real estate takes time for people to accept reality. I expect 2009 to be worse than 2008.
Got Popcorn?
Neil
Ack! Scratch some of those numbers, as I made an error when I calculated the percent from peak for Alexandria and Arlington (I used Manassas peak, instead of Alexandria and Arlington Peaks, respectively).
The new numbers are:
p = -0.0163m + 1.0179
r2 = .51
100% intercept = 1.1 months.
So, every month of inventory beyond 1.1 months yields (causation, yadda yadda) a drop of 1.6%. But, my R2 now only accounts for half the variance
"(I personally believe we'll correct back to 2002/2003 levels, but markets can and do overcorrect sometimes so we may go back to 2001 levels)"
If gasoline prices shoot up to $4 or $5 per gallon or more, a lot of the outlying areas will fall WAY below 2001. In fact, if things get bad enough I envision some of the cookie cutter subdivisions in the outer exurbs becoming virtually worthless.
This thing has only just begun...
Anyone have thoughts as to where older condo (units were built in 1963 and is in Fairfax City - Foxcroft Colony) may go?
Much of the data seems to be about TH and SFH. Condos sometimes seem to suffer more in a downturn.
Don't get me wrong, I am not trying to time the market here. Just want to be able to have some equity perhaps 10 years out.
John - looking at your p/r ratio for my condo unit that I would like to go far. The 135 factor says that with the average rent of $1250 that was actually paid last year - the price of the unit should be $170K.
But at that price the mortgage, taxes, insurance, and condo fees comes up to almost $1500 a month. Does the 135 factor take in to account the potential tax savings for an owner occupied unit? Should note that the condo fee includes all utilities.
Chip,
What would be the difference between renting and buying one of those? Would it be a lot more to buy? Is your job and commitment to the area fairly secure?
I've met people over the years who bought condos in Fairfax County through thick and thin. Some of them saved a lot by living there and were able to move up. Others ended up getting stuck (I'm thinking of Northgate in Reston) when the market turned in the early 1990's.
If you're young and want to wait a bit longer and save, you might find yourself affording a townhouse which is often a better investment and sometimes easier to live in. But if you like the condos and think they're affordable for you, one can only worry about the future so much.
Update: I saw you figuring a difference of 1,250 in rent or 1,500 in mortgage payments. And yes, you will have to see how the taxes work out for you personally (I'm assuming the deduction will more than make up the difference). That's very close, but perhaps verify that rents aren't falling.
In the outer suburbs/exurbs, the difference between renting and buying has been several hundreds of dollars for the past few years. (And in some cases still is -- I noticed a property listed simultaneously for rent for $1,450 and for sale for $450K).
Chip:
The 135x includes recurring costs. For a house, that would be PITI + HOA. For a condo, that would include PITI + Dues.
Chip,
My concern with something like that is that already properties built in the 1950's are having a tough time getting sold.I am seeing many older condos in Fairfax city remaining unsold for long. Even some 1950's SFH's are being sold as teardowns.
Nobody knows what will happen to properties built in the early 1960's in 5-8 years when you are ready to sell and move. But unless your other options are limited and your tax saving makes it advantageous, it seems to me that one cannot expect to have significant equity by buying old condos in the current market. It might have worked well during 2000--2006 but, in my opinion, unlikely in the next 5--8 years.
"If gasoline prices shoot up to $4 or $5 per gallon or more, a lot of the outlying areas will fall WAY below 2001. In fact, if things get bad enough I envision some of the cookie cutter subdivisions in the outer exurbs becoming virtually worthless."
We all know prices are declining but worthless??? Fair Fax and PW are in the top ten income counties in America. Only job growth was government. Belvoir growing (FairFax). Don’t get too excited. I feel bad for anyone that purchased in 05 06 that’s for sure.
One thing no one talks about. A vast majority you see of major price declines are house that where clearly being overpriced.
Example (I only know PW)
Older townhouses and sfh's built in the 60's and 70's (Very small, split foyers) where being priced right along with houses built in the 90s and 01,02. A majority of the foreclosures are in theses neighborhoods. These homes are also the major cause of high inventory. In the nicer areas the inventory is not so high and some properties still sell. Don’t get me wrong they have also taken a prices beating too, but worthless no.
Pre 01 price would be low 2s for a 3000 sqf single family house built in 2000 (+ or – 2 years) Give me a break. If all you can afford is 150k in this area go buy a town house! Get a better job and pay your bills if you want a single family home on a quarter acre lot. Or just simply move.
350k with 10 percent down + tax saving is about 2k month payment
24k a year
This buys you a nice single family home
If you and your family make a close to a 100k a year and you still can’t afford??? Quit going to best buy.
Another thing I noticed, I’m half European and I have never seen such lack of respect people have for their home and land since I moved here. What’s up with that!! Where is the American pride? You don’t need money! Just a little elbow grease and pride in your property no matter what is happening to the market. You don’t need granite countertops for have a nice home.
You guys see a trend???
"Fair Fax and PW are in the top ten income counties in America."
I assume you meant Fairfax and Loudon - PWC is no where near the top of any such list.
PW is #30 in the entire country
http://en.wikipedia.org/wiki/Highest-income_counties_in_the_United_States
Per forbes Mag.
Remember PW isn't just Manassas and Woodbridge.
Sorry PWC is #19 I was looking at 2000 data.
Amazing that half of the top 20 richest counties are in this area.
I shouldnt have said, PWC was "nowhere near" the top of the list. I was thinking of the recent article where Fairfax and Loudon just recntly swapped places for the top spot overall. Sorry.
I remember when we first moved here and rented a house in Fairfax, my in-laws, who are from India originally, were so impressed that we were going to get to live in Fairfax County, one of the richest counties in the country. They care a lot about things like that. They were less than pleased when our landlord called us two weeks before our move date and said he had been unable to enroll his sons in an American school in Dubai, so his wife was going to stay behind with them and we could no longer rent their house. Hence, Manassas, and PWC.
But Loudon, Fairfax, and Montgomery counties are the top three still, right?
What does that say about the falling real estate values in those counties, especially Loudon and Fairfax? Is it less significant to see PWC tanking, since there are more poor people here, and therefore less desirable housing? Don't Fairfax and PWC contain over 50% of all the foreclosures in all of VA?
Also, while I agree that lots of the inventory around Manassas comes from very unpleasant areas (Loch Lomond, Point of Woods, Georgetown South), where little split-levels and ranches were getting half a million dollars in 2005/2006, rest assured that very nice neighborhoods are hurting, too. Owens Woods/Robnel has not seen a single house sell in over two years. Almost nothing has sold in Wellington/Great Oak/Muse Hill, and prices are already $200K off peak there. The new neighborhoods, like Mayfield Trace and Coles Run, have taken some of the worst beatings, down 40-50% from peak, and still not selling.
And it is unnecessarily cruel to tell people that if they cannot afford $24,000/year in mortgage payments (not to mention property taxes, insurance, utilities, and upkeep), they should just work harder or move. The ridiculous prices of the past several years were FAKE, and unfairly left most people unable to dream of living in a decent house. The wrong people profited from this situation. Hopefully, the end result of this sad episode will be prices returning to sanity, and you won't need to make about six figures to live in a nice family home with a lawn to play on...at least not an hour away from D.C..
"And it is unnecessarily cruel to tell people that if they cannot afford $24,000/year in mortgage payments (not to mention property taxes, insurance, utilities, and upkeep), they should just work harder or move. The ridiculous prices of the past several years were FAKE, and unfairly left most people unable to dream of living in a decent house. The wrong people profited from this situation. Hopefully, the end result of this sad episode will be prices returning to sanity, and you won't need to make about six figures to live in a nice family home with a lawn to play on...at least not an hour away from D.C.."
First I already said all areas in PW are going down; don’t confuse me with some people who claim the market is not going down. Second clearly you don’t understand free market. 24k (Already adjusted for current market!!!) a year in this area is not much sorry and that includes taxes and insurance. You can have a single family home for less then 2k a month. But the problem is "SOME" people want it all. The big home on the big lot, another cause of the crazy market. If you want a yard but don’t pull the income for the area, should the prices be lowered for you! Cleary the median income supports 2k a month for the nicer areas.
The point is missed though, what I’m saying is there is plenty of affordable housing available at this time. The market went to high from everyone jumping in (to include bad lending practices) and now the market will go to low from everyone getting out. Basically a buying opportunity will be created. In my opinion a normal house with yard in the 200s is not high. Investors with cash are going to make a killing from this mess. I guarantee you realtors are licking their chops, its their business:)
I never understood priorities from many people. I know several people who cry they can’t buy but own a BMW. Please no one take offense if you are not one of them. But everyone here knows there are plenty of people out their crying about prices but they have 30 - 40k car, big HD TV’s, etc.... This is what I mean 24k a year for one of the NICER houses in PW. WTF do people want a $1000 house payment for a 3000 + sqf, big yard, granite countertops, McMansion while you work at Macy's?? Don’t forget your two car garage for the Beemer.
By the way a mid rank ENLISTED military serviceman makes over 2k a month on BAH (Housing allowance). At least the ones stationed in the D.C. area.
I just went over my post, Im not a realtor, work downtown. And no I did not buy in 05 06. No I dont not have a arm, 30y fix. Just a hard worker with laminate countertops, but have the big yard and house. I guess I couldnt have it all! SOB!
Mike,
You must not be too familiar with BAH rates. "Mid-range" enlisted personnel with dependents get $1614 (E-4), $1704 (E-5), and $2055 (E-6) a month for the D.C. metro area. That is only $400 or so more a month than single enlisted of the same rank. BAH is supposed to cover all housing expenses--rent, utilities, insurance. And an E-6 is a staff sergeant, who is usually well more than halfway to retirement. These guys have been to Iraq, probably more than once. I'm not saying they deserve a McMansion, or even a single family home, for their service, but do not exaggerate their housing allowance to make a rhetorical point.
When we moved here in the spring of 2006, it was almost impossible for us to find a decent house to rent anywhere close to our BAH. We looked at the available military housing, and the sad-faced people who worked in the housing office advised us not to accept military housing, because shortly after we moved in, our car would be stolen, our kids' bikes stolen, our house broken into, and then we would move out. Do you know where Marine housing is located for D.C.-stationed Marines? In the parking lot of the Redskins' stadium and in a high-rise apartment complex off Rt. 1 in Woodbridge. Both places were almost empty, because the crime rates were so terrible, people would pay to move themselves out after trying to live there.
Our nation's fighting forces are used to living in military housing that would make your skin crawl.
And even with prices coming down, I would venture it is still incredibly hard to find a SAFE, well-maintained SFH for around $200K within a decent commute to D.C. I've found a few, but those damned investors keep waving their cash around and getting in the way of families who need to borrow from a bank...
Actually E-6 is a Technical Sergeant (TSgt), if we are talking Air Force.
"When we moved here in the spring of 2006, it was almost impossible for us to find a decent house to rent anywhere close to our BAH"
Yes you are correct 06 was a terrible time to buy, everyone knows. But I’m talking now.
Lets do the math...
300k house
10% down.
270k
You won’t pay PMI because of the VA
Or have a second loan because of the VA
5.99%
$1620
Insurance about $70
Taxes I don’t know lets say $300 a month.
$2000 - TAX Savings. BAH cover, plus some for bills.
Now lets see the scenario for the E-6. Can be accomplished in today’s military in about 7 - 9 years
Join at 18 - 20 years old.
26 to 30 year old buying a single family house in the greater D.C. area. (Just a scenario)
200k - 10%
is $1300 dollars a month?? (That is with insurance and Taxes)
C’mon, I’ve been reading these boards forever. I just hate all the comments how prices need to be pre 01 to be fair. Gimme a break. Maybe they will fall that much but that is not the fair price for the area! Prices will realistically stabilize mid 03prices. (Very nice SFH mid 300s or a Very Nice townhouse for high 200s) Grab a deal around that time frame. Don’t waste your time waiting for 01 prices. I’m only talking PW because I’m unfamiliar with prices in the other areas. If prices go pre 01 buy a shotgun and guard your potatoes and apples.
**Rough estimates**
Thanks all for the comments so far. Hope that some that responded will look for my direct comments/questions.
Harriet, what I would hope for is keeping everything at about $1200 a month for the mortgage and all. The tax savings would be my cushion and savings for keeping the place up. I have been pre-approved for $170k, so my options are limited in the NOVA area I know.
Unfortunately I am no longer young, LOL. And work in the service sector as a Retail Manager. I am one of those that are being left behind in the soaring median incomes that this area has.
Done the TH, but with my hours at work, and my life as an active single now - the extra yard work of a TH is not what I am seeking.
TedK, don't have long term sales data for the Foxcroft condos - but seat of the pants feeling is that they have sold decently over the years. They are just a mile from the Vienna Metro and have easy Cue Bus access to that station.
The concern I have is that between 1985-87 the values were in the range of $49K. Between 1990-92 the values spiked to $76K. Between 1997 thru 2000 they settled in the $60K range. In 2003 it spiked to $109K, then the top of the market placed it it at $259K in 2006.
Actual comps in 2007 places the last 2 br unit sold at $200K. Throwing out the high unit and the low units the average was $213K in 2007. Nothing has sold in 2008, so far. But at the asking price average (throwing out the high and low) the average is $198K. But that is skewed - I think the median is now approaching approaching $180K.
Thanks for your insight on older condos. This is why I have held off even putting in an offer on a unit that I really like. It is nicely updated, with everything but new windows. Even if I could get the owner to accept the $170K that in a "perfect" market that I think this unit is worth. The numbers from the past do not add up for me to even go that far.
One of the things I am looking at is that I am paying $1100 for 1 br apartment near by the Foxcroft. Having a 2nd br would give me more space now, but a hedge in taking in a roomie if I needed to if the economy really goes sourer.
I am seeing I need to wait and see how the market moves this year. Yes, I would like to own again. But not willing to go broke either.
What I am sensing is that the Foxcroft MAY see a major correction if there is not an intervention by the government to prop up the prices.
To some that think that think that those below the median might need to move further out. My 2003 car is nearly paid for (early at that! And that with only under 33K since 10/03). My commute is about 14 miles RT from either my apartment or the Foxcroft. Double my commute for my total personal travel per a month.
At $4 a gallon that is about $120 in gas alone. Moving out further would at least double that cost and double my maintenance costs as well.
Just some random thoughts going here....
Tabitha, thanks for mentioning the plight of those serving our nation. Unfortunately folks earning the 92.6K median want the protection and services offered by those that are way below that. In particular with those that are single.
"those damned investors keep waving their cash around and getting in the way of families who need to borrow from a bank..."
Dentists! Those dentists are everywhere. If not them, it's the cardiologists and anesthesiologists, they work together you know.
" Unfortunately folks earning the 92.6K median want the protection and services offered by those that are way below that. In particular with those that are single."
Those people below the median want the people making over the median for their protection services Also.
I’m former military and been involved with the military for 30 years. On enlisted side. The plight of our military is Ops Tempo and the stress placed on the family from the current world situation. Over $2000 for housing is not one of their problems.
For those unfamiliar with military pay. One of the problems that exist is this. When stationed over seas they get paid exactly what the rent is. There is still a cap but if the rent $1500, you get $1500.
Stateside you get all the money regardless of your rent or house payment. There is a natural desire to pay less because the rest is money in pocket tax free. $2100 is enough to rent! And it also covers a good house payment. BAH was never designed to PAY YOUR mortgage. It’s for RENT. I was pointing out how you can pretty much make a house payment with it.
Affordable housing for under the median is obviously a big problem. But this problem is not uncommon in any big city all over the world. Check out Potomac Club
if you ever think about moving further out. 2-3 bedroom condos can be purchased I think starting around $150k. Right across the street they are building Potomac Town Center. Wegmanns, Macys and a bunch of other high end retail stores plus several thousand sq feet of office space. Wegmanns opens in April, not sure about everything else, still building.
No I do not live there.
If gasoline prices shoot up to $4 or $5 per gallon or more, a lot of the outlying areas will fall WAY below 2001. In fact, if things get bad enough I envision some of the cookie cutter subdivisions in the outer exurbs becoming virtually worthless
With inflation already roraring and not going anywhere for the forseeable future thanks to 0% Ben, what will the value of homes be when all is said and done?
My point is something like this: If I buy a house now, even in a depreciating market inflation will help to eat away at that deflation of my asset.
If the house is held onto for 5+ years, you're likely catching the market on the upswing and you may even realize some appreciation.
The key is buying something that is discounted a good margin off of peak prices.
With inflation the way it is, I think if I found a good deal on a house now, 5-10 years from now that debt will seem much smaller because of high inflation.
Maybe I'm wrong since I'm more of a novice at this stuff, but it just seems like common sense to me.
To clarify my point above a little, I think that if you have a need for housing and plan on staying put for a few years (5+), buying is not bad option. If you think you're gonna turn a profit quickly, however, I think you'll be very disappointed.
William: Unlike the past, wages are not inflating. In other words if you are going to base home pricing on inflation, use wage inflation, not the price of corn.
William,
You're right on the money. (Literally).
Novawatcher,
Just because your (or my) wages haven't gone up, don't think the wages of others haven't gone up. They've soared for the type of high-level people moving to the Washington area. No, they're not yet at the NYC or London levels, but those are the kind of folks moving in here. And since land is a limited quantity over at least the medium term, we can expect these high salaries to be driving up the prices ... as they've done. And no, as KH aptly pointed out, we're not "entitled" to affordable housing. Housing will sell for what it sells as determined by the forces of supply and demand. And demand in this area continues to grow ... irrespective of whether your salary or my salary has kept pace.
Lance:none of those high-level people are looking for 3br split-levels, nor are there enough of them to drive the entire market.
I actually know at least one "high-level" couple (one is a lawyer, the other a PhD scientist at a big firm), and they are NOT buying. In fact, when they moved here, the senior folks in the law firm told them not to buy, as houses were wildly overpriced.
Even more to the point: I know of a lot of folks that want to get out of here, because they think the area is crap. World class city? More like void of culture, overcrowded, and over priced.
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