The Washington Post put out their annual "Housing Outlook" special report today. I find these reports to be readable and interesting, but more of a backward-looking recap of the year rather than an "outlook".
John here on the blog pointed out a glaring factual error in Elizabeth Razzi's piece entitled "Opening Doors for First-Timers"
"But there's still a big hurdle for first-time buyers to overcome: It's tough to find something affordable that isn't in greater need of rehab than Amy Winehouse. For example, a quick search for condos or houses priced at $350,000 or less in Fairfax County showed only six properties. Six!ZipRealty shows 2,575 condos and houses priced under $350K in Fairfax County out of a total of 7,348; over 1/3 of the available listings. There are 1,054 condos and houses priced under $250K.
On average, the Washington area has high incomes to go with those high prices. That means the income caps for qualifying for government help to buy a first home are also high, so don't assume you earn too much until you check".
Hopefully we'll see a retraction or they'll be notified by readers tomorrow when Real Estate Editor Maryann Haggerty and columnist Elizabeth Razzi hold their online discussion.
75 comments:
I see how she arrived at the six figure. If you use the Post's Real Estate search capability, type in fairfax, limit your search to single family home, and look for any number of bedrooms, any number of baths, no bottom, and a max of $350K, you get nine hits....
Somebody can check me if you like:
http://tinyurl.com/yv9f6y
Hmm. But her text clearly says "condos or single family homes." So if you just do a search for condos using that same criteria you get 79 hits.
If you do a search for all housing in fairfax usng the same criteria you get 148 hits.
Looks like whoever did that search had "single family house" checked, which isn't in line with the article's guidelines. Silly mistake.
So basically she doesn't know how to use a search engine... that isn't so bad.
What is pathetic is that she didn't immediately realize something was wrong with those numbers.
I mean it would be one thing if she was incorrect on some little detail in her article, but how could you not instantly recognize that there are more than 6 homes for sale in all of Fairfax county for less than $350k?
She even made a point of highlighting how few there supposedly were... how could she look at that number and not know it was wrong?
Leroy,
Exactly. Seems out of touch for a local real estate columnist.
And when I worked for a publishing company, nothing got put into print that wasn't run by our type-A editor-in-chief who drowned everything in red ink. So I'm guessing that more than one person in the real estate department didn't question the statistic. I wonder if Post employees live in Fairfax County. Perhaps they don't.
There's no such thing as fact-checking or double-sourcing anymore--they probably don't even teach it it JOURNALISM school anymore. As if anyone willing to work at a paper at those wages even has GONE to journalism school anymore.
And after all--if they stopped to check the facts--the TV news might beat them to the story!
No, every page is an editorial page now--the editor assigns a "slant" to be reported on, and only checks the "message" when it comes back in--not the facts.
Which a main reason why the government and financial industry has run amok--the PEOPLE are no longer being protected or advocated for by the fourth estate.
I would argue that given there were only 148 hits using the Post's real estate search feature even if he search had been done properly, the fact that nobody caught the error in editing process isn't all that surprising. I'm actally a little stunned that the figure is so low; anybody have any explanation?
Incidentally copy editors typically don't ask reporters to recheck the facts they're reporting.
So we're agreeing Real Estate editors don't question the statistics?
But the fact remains, first time buyers feel very priced out. We'll see a number of affordable homes appear long before they feel 'priced back in.'
And $350k requires quite an income... Well above DC's median...
Got Popcorn?
Neil
I went and ran the Washington Post search Gruntled pointed out. I'm guessing she must have been searching only single family houses, and typed in "Fairfax" which the search engine interpreted as Fairfax City, a small location with only about 9 houses currently meeting her criteria of $350K.
Probaby an Oops, but I wonder how many people reading the paper will believe it. That's the scary part, because there are "affordable housing" policy decisions in the works by the County and the U.S. Congress.
I agree that it sounds like she just made a mistake while using their search engine, but she is supposed to be a real estate expert.
Anyone who has any experience with Fairfax county real estate should know without even needing to check that there are more than 6 homes available under $350k.
You'd need an income of $140K to buy a $350K house. That's not a starter home.
I agree, writer of the article is very out of touch, in more ways than one.
ADA Backlash said...
"You'd need an income of $140K to buy a $350K house. That's not a starter home.
I agree, writer of the article is very out of touch, in more ways than one."
Check your calcs. You've made a mistake somewhere. With 20% down (which is what BHs seem to advocate as a minimun), your payments are $1,679/mo. for a 30yr 6% fixed rate mortgage. If you think it takes $140,000 income to make that payment then perhaps you need to take a closer look at your budget and what you're spending it on.
Yeah she is nuts.
A 1 bedroom w/den apartment in Ballston is ~1600/month. I guess you need to make 140k to afford that also?
"Exactly. Seems out of touch for a local real estate columnist."
you guys still read Razzi's advertising pieces? i stopped after she called Redfin too "stat heavy" for buyers and recommended a dumbed-down site.
$350,000/2.5 = $140,000
That's not nuts, that's called living w/in your means.
ADA Backlash said...
"$350,000/2.5 = $140,000
That's not nuts, that's called living w/in your means."
I suspect what it really means is you're not willing to give up the daily lattes at Starbucks or the trips to the Carribean in the winter time.
Ada,
Where did you get that 2.5 number?
What if someone has saved enough for a 30% or 40% down payment?
Affordability should be calculated based on what % of the net income goes to mortgage payments.
On the basic point of this thread, Razzi and Haggerty have been clueless in many of their articles; the Post will have even less credibility with readers on real estate issues.
"I suspect what it really means is you're not willing to give up the daily lattes at Starbucks or the trips to the Carribean in the winter time."
2.5x income was the old rule of thumb. Of course people then also expected to pay off their house completely and save for retirement while doing it...
I think we can agree that 2.5x is pretty conservative by today's standards, especially if we are talking about a young couple who can expect to see their income grow in the future.
The DC price to income ratio was hovering in the high 2's before the bubble sent it as high as 5.
TedK
Originally those numbers were tied to the amount you owed on the mortgage which makes a lot more sense.
I guess with all the 100% finance people out there the rule changed somehow.
Personally I think 3x is fine, although thats about as high as I would push it if you have kids.
anyone know of a nice 1BR condo in arlington within 3 blocks of a metro--under 300K?
Buck, I ran a search and there isnt much there. This was the only thing close...
AR6682664 for 309k.
Here’s Razzi’s response to the question about only 6 properties showing up for $350K or less . . .
No correction/retraction yet?: "For example, a quick search for condos or houses priced at $350,000 or less in Fairfax County showed only six properties. Six!"
I'm curious to know what search engine you used so that I will NOT use it in the future, as there are a lot more properties on the market in Fairfax County at or less than $350,000 than just six.
"Elizabeth Razzi: I had trouble believing that myself -- which is why I searched again just before the column went to press -- and it showed five. Clearly there are more homes on the market -- as many agents have pointed out since the column ran yesterday. A search for Fairfax County properties priced between zero and $350,000 on McEnearney's website this morning showed 2,521 listings. Long & Foster's website continues to show five. Weichert's site does not allow searches by county, nor does Realtor.com. I will be talking about the 2,515 listings I missed in next Sunday's column."
Razzi: "I had trouble believing that myself...."
Well, in that case, she should have used numerous other sites to check or withheld making any point based on that result. Especially in a new major newspaper like the Post.
"Well, in that case, she should have used numerous other sites to check or withheld making any point based on that result. Especially in a new major newspaper like the Post."
Perhaps if she read her own newspaper's real estate section... you know the section she writes for?
http://tinyurl.com/2zxsey
That one sales update, which I believe is a weekly update, contains dozens of properties that sold for <$350K in Fairfax County.
Leroy said:
"Perhaps if she read her own newspaper's real estate section... you know the section she writes for?"
But "her own newspaper" has succumbed to the belief of a bubble. Given that known fact, why would she think "6 homes priced under $350K in all of Fairfax" would be unusual? Hasn't the lack of low-priced housing been a favored mantra of the the BHs?
It is though nice to hear BHs admitting that there are thousands and thousands of low prices homes available out there in Fairfax ...
Not one of your better strawmen lance...
No Lance, you think they are low priced homes only because you overpayed for yours.
JOhn said...
"No Lance, you think they are low priced homes only because you overpayed for yours."
No, I think they are the low priced homes because they are the ones below the median price. Ergo, by definition they are the low priced homes. Do you want to change the definition of low to be what you think low should be? Go ahead. It won't change anything ... but it might make you feel better.
Sellers can ask for any price they want, it does not mean anyone is going to buy. A house is only worth what some one will pay for it. Seeing that I only intend to buy one house, or not buy at all, I get to decide what is expensive and what is not. Just like I decided people were fools to buy during the bubble.
"It is though nice to hear BHs admitting that there are thousands and thousands of low prices homes available out there in Fairfax"
"No, I think they are the low priced homes because they are the ones below the median price. Ergo, by definition they are the low priced homes. "
Simply stunning lance...
Would you mind explaining a situation then when there AREN'T homes priced below the median?
You know what the definition of "median" is don't you?
Quit trolling the board.
Lance,
Yes, there *are* 2,500 properties for sale in Fairfax County priced under 350K.
So where are the buyers, if they're so low-priced?
"Hasn't the lack of low-priced housing been a favored mantra of the the BHs?"
Sure, because an economic bubble is when prices are higher than intrinsic values.
This is the part of the blog when Lance runs away. He likes the pain, but only so much. Oh he will be back... He will make up a statistic or try to evoke an emotional attachment to home buying. Or he might even cry to the blog owner he's being atacked by "evil" posters.
But I am NOT a sadist, I just do not like bold faced liers.
Have any of you actually sat down and done the numbers? First off, we're talking about all places priced at $350K and below (including those at $200K), but for the sake of argument, let's look at $350K ... the worst case scenario for the median priced home.
BHs say one should not be buying unless one is willing to come in with a minimum 20% down. In the case of $350K, that means a down payment of $70 ... leaving $280K to be financed.
At 6%, 30 year, fully amortizing, fixed rate, that payment comes to $1,678.74. Add $200/mo for taxes, and you now have $1,878.74.
BHs say one shouldn't spend more than 28% of gross household income on mortgage expenses. That means you'd need a household income of at least $80,523 for the worst case scenario.
These are very conservative numbers. If you are willing to sacrifice like most current homeowners have done at one point in their lives, you can go to 46% of gross household income. How many of you out there really wouldn't qualify for this ... the worst case scenario? I'd suspect that those of you renting are probably paying far more in rent ... and that isn't deductible.
lance—where are people on this blog living? There is a reason why people pay $1,700 a month to rent a 1BR apt in Ballston or Court House—the commute is easy. It is unfair to compare $1,700 per month spent in Arlington to $1,700 per month spent in Loudon or PWC, where the commutes are death.
" If you are willing to sacrifice like most current homeowners have done at one point in their lives, you can go to 46% of gross household income."
Good idea, lets put 46% of our gross income into a depreciating asset.
Would could possibly go wrong?
It is a darn good thing your delivery is as ineffective as it is. I would hate to think you actually convinved someone to pursue such an arrangement.
Housing is an expense. Housing costs should be minimized so that investment can be maximized.
If someone wanted to "sacrifice" they could also put 46% of their gross income into a luxury car... but is that a good idea?
In a normal market putting 46% of your gross income into housing would be stupid. In a declining market it is all but financial suicide.
BubbleBoy.
The $350K median number was for Fairfax.
Leroy said:
"Housing is an expense. Housing costs should be minimized so that investment can be maximized."
How very true. And waiting for interest rates to go up isn't in line with minimizing that expense. Some people have been saying for years that "all houses are going to go down substantially in value ... just wait and you'll be able to find whatever you like at whatever price you want to pay for it", and that just hasn't happened.
lance--take a look at any number of rental databases. There are hundreds of places of all sorts in Fairfax County for under $1500 per month.
"How very true. And waiting for interest rates to go up isn't in line with minimizing that expense."
lol... right right. Lets get one thing straight. Prices are dropping. If interest rates rise prices will drop even more. You can stop running in circles on the whole price/interest rate issue.
"Some people have been saying for years that "all houses are going to go down substantially in value ... just wait and you'll be able to find whatever you like at whatever price you want to pay for it", and that just hasn't happened."
Lol, "some people" huh?
Another of your wonderful strawman arguments.
Find me a quote where somebody on this board said: "You'll be able to find whatever you like at whatever price you want to pay for it."
Of course you won't be able to because you are just lying again.
As for "some people," how about your fairy tale about rowhouses doubling in price from $1 million to $2 million over 12 months... You claimed you visited examples of such houses and yet you have never been able to actually document any such house.
bubbleboy said...
"lance--take a look at any number of rental databases. There are hundreds of places of all sorts in Fairfax County for under $1500 per month."
1) $1,878.74 after tax deduction is well under $1,500 for most inviduals. (It's more like $1,200/mo. when you factor in federal and state tax deductions.)
2) $1,500/mo is the starting cost for the rental. $1,878.74 is the known cost for 30 years.
3) What you get when you rent is not the same thing you get when you buy. (And I don't mean just the amenities of the place.)
There are lots and lots of good reasons someone may hold off on buying (e.g., you think houses in the neighborhood you want are going to go down in price) ... but the fact that rental prices appear to be less isn't one of them.
Leroy said:
"As for "some people," how about your fairy tale about rowhouses doubling in price from $1 million to $2 million over 12 months..."
Ah .. Leroy is playing with the facts again. Which is the only way he can seem to make an argument.
I never said that prices had doubled. I said they had gone from the low Million (i.e., for $1.1 or $1.2) to "close to" $2 M (specifically, I gave $1.8M ... Going from $1.1 or $1.2 to $1.8M isn't "doubling".
I also acknowledged that I had erred in saying "12 months" and was referring to the 24 months or so since I'd been out looking. (Which was what we were discussing.)
I also specifically said that these were NOT "average rowhouses in the District. We were talking specifically about Dupont and Logan rowhouses.
And though you may not want to hear it, these row houses did indeed go up in value from "low Million" to "close to 2 Million" from 2005 to 2007 ... That's "only" a 50% increase. And in case you'd forgotten my original point in that post, it was that while BHs were out waiting for prices to burst, certain areas like those in the District were continuing to go up in value. Of course, you'll never admit you were wrong. You'll just continue to misquote me and anyone who doesn't agree with your "wait wait wait" mantra.
Here is your quote lance...
"Robert ... open your damn eyes! I looked at a couple open houses today in the District. Prices are up by a high degree. Houses that last year were going for $1.0 to $1.2 million are now just under $2.0 million ... That is a HUGE increase ... in only a 12 month period. And we aren't talking about McMansions ... just your average rowhouses in nice areas. And no, I'm not saying these homes are for everyone ... just that the "leading indicator" properties are going through the roof in price ... imagine what that means for "median" home prices. The Bubblehead theory is dead ... without question. And those that listened to David and waited are now screwed." -lance March 25 2007
You were quite clear that you were talking about over a year's period. You said "last year" then "12 months" if that wasn't clear enough.
lance--your calculus is truely idiotic. Work in property tax and maintainance. Then compare comparables properties. Until very recently I owned for three years in fairfax county. It is simply cheaper to rent there, as it is in Arlington and Montgomery counties. The only reason to buy right now is if you place a personal internal value on owning. I fully recongnize there are people like that. You certainly seem to be one of them. I, however, am not.
Bubbleboy,
Property tax IS included. You weren't following the discussion earlier, were you?
Yes, it can be cheaper to rent than to own (discounting the intangibles) for a given short term period, but of course that presumes that you'll be able to time it "just right" when you are ready to be a homeowner again. Good luck.
"Yes, it can be cheaper to rent than to own (discounting the intangibles) for a given short term period, but of course that presumes that you'll be able to time it "just right" when you are ready to be a homeowner again. Good luck."
Ah, the old "time it just right" garbage again.
You don't like facts that get in the way of your efforts to promote real estate do you?
The bottom is going to be easy to recognize and long in duration.
As for rents being cheaper for a "given short time," well nobody here is proposing renting forever. Just until it makes sense to buy again...
Funny how a little bit of patience and personal responsibility can go a long way...
Leroy said:
"Funny how a little bit of patience and personal responsibility can go a long way..."
Funny how it hasn't helped those waiting since 2000 for "the bubble to burst". 8 long years ... and what to show for it ?
Lance: "... but the fact that rental prices appear to be less isn't one of them."
"Funny how it hasn't helped those waiting"
Lance, give it up. These are static thinkers, they don't understand inflation and the effect of time.
From the tenant's perspective, which is year by year, renting is always cheaper. They can never buy the place as cheaply as they can rent it.
The reason is that if rents were high enough and real estate was cheap enough, a bunch of dentists would buy all the places before the tenant can, rent them out. This drives up the prices and drives down rents.
One example is Tabitha losing a house to an investor with cash, probably a dentist; if not a lawyer.
They would do that because it makes sense, over the long term.
From the landlord's perspective, over a 30 or 40 year ownership, they lose money for a year or two or three, then quickly make it up.
About year 5 or so, the landlord shifts into the black. It just gets better and better after that.
After year 30, when the place is paid off, the rent is profit. At that time a year's rent can be half the original purchase price or more.
However, even in that case, the rent will not support the current price.
Take a hypothetical 2/2 condo. Buy it for $25K in 1975, rent it out for $250/month. The tenant is renting for less than the mortgage.
About 1990, the place is worth, say, $75K but the rent is $600/month. The PITI+condo fee might be $800/month. The wise tenant is still "taking" the landlord.
Well, except that the landlord is paying a mortgage of $350 (PITI+condo fee), 1975 numbers.
Today, that 2/2 condo would be paid off, worth about $350K. If you were to buy it today, it might cost about $3,000/month (PITI+condo fee) but you'd be lucky to get $1,700/month in rent. Subsidizing that tenant again.
Or?
$1,700*12 = $20,400/year.
Original price = $25,000.
A smart tenant might have put their savings in Microsoft, Oracle, or some other high growth company and made even more.
But they probably didn't, depends on the individual.
An unlucky landlord might be holding property in PWC and is scrambling to meet their mortgage.
But they probably hold close-in Arlington property on the Metro and are doing fine.
The fact is, even in this blog, even those with BH leanings have admitted that close in, convenient to the city, places are holding their value.
I've looked hard for collapsing prices and the closest I've found is 10 W GLEBE and it sold in 10 days.
Older commodity TH's are going for 10% off the 2005 peak. If I owned one, it would not make sense to sell in 2005, rent for a few years, try to time the bottom, and buy back in.
For one thing, the vigorish is too great.
For another, I can't call the bottom, no one can. That's a hallucination of the same class as stock charters.
Prices could fall further; they might hold at this level; they might turn up. We won't know until after the fact.
lance--luck has nothing to do with it. Common sense does.
kh . . . . where to begin . . . goodness. . . you obviously aren't a business owner/investor. . . or if you are you should make sure you stay out of the rental business.
"From the tenant's perspective, which is year by year, renting is always cheaper. " -- absolute hogwash . . there are plenty of times when renting is more expensive than buying and justified. In fact, I'll wager that before this bust is done, RE will be so dead that buying will be cheaper than renting.
There is a MAJOR flaw in your thinking, called the time value of money. Sure 30 years time you can nominally make more (thanks to inflation) . . but 30 years is a LONG time in the investing world.
There are PLENTY of other places to put your money that will give better returns than having to wait 30 years. If you are an investor, you are an idiot to buy and hold in the stock market. A good investor aka "smart money" determines where the best place for money is now that will give good returns within 5-10 years, and is completely willing to switch sectors be it RE, stocks, bonds, commodities.
This is where the "dumb money" comes in. You see dumb money stays wedded to an idea far too long and gives up at the very bottom.
Why would a dentist or a lawyer go through the hassle, pain, of being a landlord-which can be a full-time job itself-when they can make money in stocks, bonds, commodities. Unfortunately this is what most people-John Q.-aka dumb money does. They are the last ones on the bus and they ride it until it completely breaks down. They aren't investors, they are hack investors, get rich quick types, everyone else is making money at it its so easy. The same type of people who bought into Naz in late 99 are the same type who bought in housing '05, and the same people who bought Naz '02 are buying housing now.
You see back in '04-05 I realized housing was going to blow up . . . I also did some research and decided that commodities in-particular metals would be going up. I made my plan and started investing & saving money that would have gone to a house into metals and savings. Over the past 3 years, I've doubled the value of my holdings, so much so that I will take the money that would have gone to a house (and went to metals) and use it for my entire downpayment.
Additionally, you completely forget the hassle of being a landlord . . .such as 1) finding tenants 2) finding GOOD tenants 3) fixing crap that good or bad tenants break 4) fixing normal crap. 5) don't forget any rental income is taxable.
#1 is especially crucial considering that many times you might go 10-20% of the time without tenants, meaning no money to pay the mortgage
In all my years of renting, I have yet to find one of my landlords who is "rich", they are living okay, but hardly rich. Granted it is anecdotal, but still. Generally speaking you aren't going to get rich being a landlord.
Now looking at the property to live in compared to an investment . . .if it costs 1700 to rent but the mortgage is 3000, you can save 15600 a year. Let's use a the 90s bust where housing was essentially flat for 10 years. If we assume housing is flat for 10 years, rents go up at 3% and I can get 3% on my savings. After 10 years, I will have accumulated ~117k in savings if I rent. If I buy, after 10 years I will have ~300k left on a 350k mortgage. So after 10 years of savings I could buy the house and have 233k left if I had rented or have 300k left if I bought. . .
Not that I advocate renting for 10 years . . . but incessant banter that if you rent for any length of time (>2-3 years) you will come out less is just false. It is entirely dependent on multiple factors, if one had wise money management skills you can come out ahead.
kh, I understand inflation perfectly well, I have probably read more books, studied more about our messed up system then most.
a few good books to start you off:
"The Road to Serfdom" Hayek
"Mystery of Banking" Murray Rothbard
"The Case Against the Fed" Rothbard---excellent primer
"History of Money" Rothbard
"Causes of the Great Depression" Ludvig von Mises
"Socialism" Mises
"Funny how it hasn't helped those waiting since 2000 for "the bubble to burst". 8 long years ... and what to show for it ?"
Like who?
Oh wait, yeah, this is just yet another of your strawman arguments...
"Lance, give it up. These are static thinkers, they don't understand inflation and the effect of time.
From the tenant's perspective, which is year by year, renting is always cheaper. They can never buy the place as cheaply as they can rent it."
LoL
ok ok, I get it KH. We should all run out and buy RE no matter what it costs because to do anything else would make us "static thinkers."
Why do you ever bother going to the effort of typing this stuff out?
It shows you for a troll, or someone in need of remedial reading comprehension classes.
Geez whats with all the BH rants> Dont get so upset folks - after all in a few more months you might actually be able to afford a home in the DC area - you should be happy!
"After 10 years, I will have accumulated ~117k in savings if I rent. If I buy, after 10 years I will have ~300k left on a 350k mortgage. So after 10 years of savings I could buy the house and have 233k left if I had rented or have 300k left if I bought. . ."
"The same type of people who bought into Naz in late 99 are the same type who bought in housing '05, and the same people who bought Naz '02 are buying housing now."
Absolutely true.
The problem is that many "investors" get sloppy and make a bad bet, like holding Enron, dot coms, or Bear Sterns.
Many metal investors were and still are bag holders after the Hunt Brothers.
You are obviously different and will do well. Good for you.
From the landlord end, they make it slow and steady.
I know many people who lost big in metals and stock, a few did well in equities but mostly by buying Fidelity Magellan 25 years ago.
Everyone I know who bought real estate for the long haul has done well.
I'd play the house odds. The house always wins.
kh .. .
"I'd play the house odds. The house always wins."
Cute . . .I don't necessarily agree, but very witty :-).
I 100% that investors get sloppy, and end up not following their plan (which contain entry, exit points, with profit goals and loss margins)
I also agree with the underlying thesis of the house . . . which is that physical STUFF is where true value/wealth is located.
I would submit that obtaining physical stuff builds wealth but doesn't create wealth. For example real estate/housing appreciates long term (>30 years) at approximately inflation +1-2%. Stocks long-term are slightly better inflation +2-3% .
You can argue that you can become a landlord and that way create wealth. That's true . . . but to do it right as a landlord so you make decent money is a full-time job. My wife worked for a time as a financial secretary to a man who was a landlord/RE investor-he had anywhere from 8-15 properties. He made money during the good times, but is in a load of trouble during the recent 2 years.
You aren't going to get rich being a part-time landlord, just like you won't get rich being a part-time stock investor. Can you make some money at it. . . sure, enough to retire on . . . probably not.
"From the landlord end, they make it slow and steady.
I know many people who lost big in metals and stock, a few did well in equities but mostly by buying Fidelity Magellan 25 years ago."
I disagree on the landlord thing . . .first off you've got to remain solvent until the rents are more than the mortgage. If that takes 5+ years . . . that's a long time to feed the alligator. If you bought in '05 . . . it could easily be 10 years until rents catch up with the your mortgage payment . . .that is quite a loooonnnng time.
I'm sure in 20 years when the next RE bubble hits people will say the same thing about RE . . . they knew plenty of people who lost money in '05 and didn't recover for 15-20 years. And you obviously don't know anyone from the 1980s when the bust hit.
My main point is that there is NO sure investment vehicle in life. Thinking so is a fallacy.
The key to getting rich/"making it" is to develop a skill (it could be a full-time landlord, or full-time investor), become proficient at it, and then save, save, save. With those savings, do some analysis, realize where is a relatively safe place for your money (inflation-protection) and put it there. In addition don't go into debt . . . debt is not wealth.
In general real estate is good place to protect your savings, however it is not so good right now. I would also say that in general metals, such as silver/gold, Silver Eagles, and the like are another good place---gold and silver are still money. They will eventually shoot up in a parabolic fashion, and come crashing down, but I don't think that will happen for a little while.
Everything goes in cycles, housing, stocks, bonds, commodities, metals . . . the key is identifying which one is a current bust and which one is not. Over the long haul I doubt if anyone is "better" than the other . . . each has different advantages/disadvantages.
GTE said:
"There is a MAJOR flaw in your thinking, called the time value of money. Sure 30 years time you can nominally make more (thanks to inflation) . . but 30 years is a LONG time in the investing world."
GTE, are you prospective home buyer? or a day trader? Do you understand why approaching a home purchase like a day trader is a very very dangerous thing?
lance . . . you must be an idiot.
Nowhere in my postings did I mention anything about daytrading . . . which I despise with a passion. If you want to daytrade, buy a blasted seat on the stock exchange floor, or the commodity floor move to Chicago/New York and trade there.
I specifically mentioned 5-10 year timeline.
1) I will only be in DC for at most 5 years . . . and then I will get the heck away-many, many places in the world that are much, much better to live than your precious "international" DC.
2) Based upon that fact that I will move in ~5 years, which is better renting or buying. For now renting unless either rents rise a lot (not happening) or prices drop a lot more (happening)
3) I will likely be looking to buy this winter . . . maybe I will maybe I won't depends on the numbers
4) If I can rent for half what it would cost for the mortgage I will rent until I die. I can easily take the money I save, put it somewhere earning 5% and after a while I can outright BUY a house with no mortgage.
5) At least I can have a somewhat civilized conversation with kh-even if I disagree
6) Investing is not the same as daytrading. . . worlds apart.
7) You are a troll and an idiot.
"GTE, are you prospective home buyer? or a day trader? Do you understand why approaching a home purchase like a day trader is a very very dangerous thing?"
You really need to get some new material lance.
There is no similarity whatsoever between what he was discussing and day trading. For that matter there is no similarity between what any of us are saying and day trading.
Housing prices are falling. They will continue to fall for the foreseeable future. There is simply no good financial reason to rush out and buy right now.
What about that is beyond your ability to understand?
Leroy asked:
"What about that is beyond your ability to understand?"
Could it be that I don't see where "prices are falling" as you claim. Yes, I know, you can provide much anecdotal evidence of foreclosures that have sold for less than before. Or of houses so far out of town that you need to buy a GPS to find them. But the fact remains that the housing that most of you BHs are waiting to "come down significantly in price" isn't falling in price. Were it, you would have already purchased by now. But you haven't. And yes, GTE is speaking of purchasing a house as if it were a shortterm investment. And like KH pointed out, he can't seem to understand that that it's over time that buying is such a better deal than renting. He doesn't even seem to understand that if he doesn't see himself staying here for longer than the 5 years he's planning to stay, he shouldn't even be looking for a house. But of course, he's looking to buy to make a short term profit (i.e., day trader) and not really looking for a home. Wasn't he the yahoo who sold his townhome in 2005 because he wanted to "Sell when it was high"?
"Could it be that I don't see where "prices are falling" as you claim."
LOL, and you wonder why people don't take you seriously? What color is the sky in your world?
"Yes, I know, you can provide much anecdotal evidence of foreclosures that have sold for less than before."
Lance, it is way way beyond "anecdotal evidence" at this point.
It is in the local news. It is in the regional news. It is in the national news. Heck, it is in the international news.
Nobody is going to twist your arm and make you admit the truth, but we also aren't going to pretend you are here to hold an honest discussion if you refuse to join us in the real world.
"But the fact remains that the housing that most of you BHs are waiting to "come down significantly in price" isn't falling in price. Were it, you would have already purchased by now. But you haven't."
At this point I can't help but pity you.
Is this the best you can do? Intentionally misunderstanding the discussion and lying about the market?
Are you just too stubborn to admit you were wrong and too stubborn to give up?
You know very well that the readers of this blog are looking at numerous neighborhoods in northern va, including some of the hardest hit. Just because the correction has started doesn't mean it is finished, but why should I bother explaining to someone who refuses to learn?
"And yes, GTE is speaking of purchasing a house as if it were a shortterm investment. And like KH pointed out, he can't seem to understand that that it's over time that buying is such a better deal than renting."
I will let GTE speak for himself, but it is abundently clear that his understanding of what is taking place is far beyond yours.
If you are moving in 5 years you should definitely not buy a home now! You would be very lucky to get your deposit back and might end up getting stuck here for another decade before you can move.
@lance . . .
wow, you've seriously got me mixed up with someone else.
1) I've never owned a house/condo/TH.
2) On average people move every 5-7 years. So by your own admission . . .it's a HORRIBLE time to buy right now!!!
http://homebuying.about.com/od/sellingahouse/qt/0207WhyMove.htm
3) No lance, I don't want to "flip" a house, I want to own one. My goal is to build wealth . . . which is a long process and can't be accomplished in 2 years. Eventually, I would like to own 30 acres, with a 2 story brick house in the middle of nowhere where I can raise my family and live my life in peace.
@doug
3) I 100% agree with you. I still look and if . . . and its a big if I could find something that is either at or less then equivalent rent, I would consider it.
3a) There is some merit to "building equity", but it is entirely dependent on the costs of rent vs. costs of owning. I'd have to run the numbers again if I found a place. . . but at that put it might make sense to buy.
I would say that in a normal market you should stay at least 2 years.
My parents lived in the first 3 places they bought for 2 years each and they were able to recoup their costs after each move. It's only in a crazy market which we just came through, with a bubble and a crash that you need to stay for 5-10 years.
"My wife worked for a time as a financial secretary to a man who was a landlord/RE investor-he had anywhere from 8-15 properties. He made money during the good times, but is in a load of trouble during the recent 2 years."
He's pushing too hard. The trick is to do what you did, across the board. Kind-a kick back and watch the ebb and flow, don't let "them" tell you what to do.
I'm certain that some landlords got into trouble after the run up between 2002 and 2005. They made easy, fast money and got sloppy.
It's the same hubris that equity investors developed between 1990 and 1999. When things turned against them, they couldn't see it coming.
Look at bill-the-landlord who occasionally posts about Arlington. He runs his numbers, carefully selects lower maintenance, easy to rent places.
I knew a guy who did the same thing; he looked for 0/1, 1/1 condo's in older buildings.
"Based upon that fact that I will move in ~5 years, which is better renting or buying. "
Hard question.
Depends on which house and the location. If I were looking, I'd have made a run on 10 W GLEBE,, drop $70K for the down, upgrade those white and black appliances, new counter, maybe not granite but freshen it up, Put a couple grand a year into it, if I had the scratch.
Sand and reseal that deck. Install a $900 LCD TV which would convey. (Why would I take a 42 inch 720P set with me?)
Live in it for 5 years and maybe, maybe, walk in 2014 with my down payment and a couple hundred grand.
No way to tell but given that 0 W GLEBE should be sold out this year (they're asking $499K.) 10 W GLEBE might command $559K in 5 years.
Look at what sold in a month, they were asking $424K. Ignore the fish-eye lens.
Easy to pay too much or buy in the wrong area. But like you said about equities, stock, metals, and other investments, if you do your homework and have a little luck, you can do OK.
In spite of all the talk about plunging real estate prices, value places, close in, smaller SFH and decent sized THs in better neighborhoods are selling at higher prices.
You think that house is going to go up >50% in the next five years?
You try so hard to sound thoughtful and then you spoil it all by throwing out numbers like that.
Yes KH, I am sure over the next five years, in the midst of a major RE downturn, that house is going to go up 56%. Sounds perfectly reasonable to me...
Leroy,
You don't see what KH (and I) see because you're too busy looking for bad news rather than good news/ opportunities. Kinda like looking at a glass and saying it is 1/2 empty.
KH knows Arlington ... and has a great track record having invested in rentals for many years. I'd bet s/he's on to a good thing.
If I were GTE and serious about buying something shortterm, I'd follow up what KH is saying. Of course, I know you'll instead suggest he "wait" for that ever illusive time when everything falls in price everywhere.
"You don't see what KH (and I) see because you're too busy looking for bad news rather than good news/ opportunities. Kinda like looking at a glass and saying it is 1/2 empty."
No lance, the problem is that you are looking at a completely full glass and saying it is going to get 50% fuller...
After all of KH's rambling about long term investing and patience and blah blah blah he finishes out by saying that you can make 56% in 5 years in the midst of a downturn with no particular special effort.
"KH knows Arlington ... and has a great track record having invested in rentals for many years."
Is that so?
KH?
kh . . .
while I disagree with you on a lot of issues, I do find the conversation enlightening. I think you are probably too optimistic . . . maybe I'm too pessimistic . . . ah well such is life.
lance on the other hand . . . I'm not sure if he really believes all the crap he spouts or if he is the true definition of a troll. I try my best to ignore his idiotic ramblings.
Every once in a blue moon, he says something halfway intelligible . . . but I'm sure it's just a mistake.
So kh, while I disagree with you, I can at least respect your line or reasoning-as you are willing to admit your wrong, like me (I don't like to admit it, but if I have to I will), unfortunately when you associate with lance that respect goes out the window.
Unless of course you and lance are one and the same :-), you never can tell with these internets :-).
"KH knows Arlington ... and has a great track record having invested in rentals for many years. I'd bet s/he's on to a good thing.
"
Couple corrections. I'm interested in the part of Alexandria that's nearest to Arlington.
I do own several rentals but more as a silent partner/passive investor.
After 3 years, prices are still holding up 22305.
10 W GLEBE is the only place that looked like a bargain and it sold fast.
As you say, Lance, interest rates are falling, affordability is up.
Buy now if you can swing it and if you see something you like.
Unfortunately, I don't see any screaming bargains in 22305. I look at MLS through Mcenearney every day.
3/1 THs that were $120K in 1999 are selling for $400K today. Here's one.
10 W GLEBE has more potential for appreciation than the average TH. Someone is going to do well on that place.
Short haul, who knows what's going to happen. All you can do is gather your data, make your best guess. If your horizon is 2 or 3 years, rent.
Long haul, I'm bullish on places close to jobs and especially the Pentagon.
KH - After 3 years, prices are still holding up 22305.
Can you show me where you are getting your data? mris.com is difficult to sort through and the sales numbers for that zip code are so low that there are HUGE swings is sales prices. Look at this, for example :
June 2007 2006
Average Sold Price:
$710,613 $533,138 33.29%
Median Sold Price:
$687,500 $424,750 61.86%
Total Units Sold:
16 26 - 38.46 %
Average Days on Market:
51 72 - 29.17 %
Average List Price for Solds:
$733,312 $550,798 33.14%
Basically unusable. :)
"Basically unusable. :)"
I track individual houses and groups of houses built from the same plan.
2 W GLEBE through 34 W GLEBE are comparable; drag the city's sales records and learn the actual price trends over the last 7 years. Few of those houses have been resold since they were built.
There are 605 row houses with the same 1,000 sq ft upper two stories and 500 sq ft basement in 22305. I know which streets they are on. One or two or three sell every month so it is possible to learn which way the wind is blowing.
I have records going back before 1990 so I plot the trends and adjust for recessions and interest rate changes.
Sometimes I attend open houses and verify for myself that the place has not been extensively expanded or upgraded.
I walk my area in the evenings and have watched houses being rebuilt. I discuss this with my neighbors.
This gives a picture of what's going on.
This is trumped by sales in West Virginia as calculated into a regional "index" by a guy who doesn't live here. Ditto the guy who lives in San Diego.
I'm kidding myself as is Lance, Doug, you, and others who comment on their neighborhoods.
What makes us think we have any idea what's going on? We only live here.
AlexA: "Can you show me where you are getting your data?"
Here's more info.
Start at the Alexandria City Assessment search page. If you have an address, you can find the assessments, previous sales going back a decade, and tax records.
The Study groups summarize the previous years sales. Group 1005 is the key to understanding zip code 22305.
Group 1005 is a huge mass of 50+ year old brick 'n block TH. All built from one blueprint. Oak floors, 3/1 plus basement. Some have been fancied up over the years but there's only so much you can do to a TH.
Group 1005 shows a sales volume at roughly historic levels (I have paper records going back into the 1970's) and a stable price across 2007.
From the peak in 2005, the prices in 1005 might have drifted down 10%.
An excitable flipper might call it a bubble bustin' but a person who buys to hold for 5 or 10 years would shrug, BFD.
I mentioned 10 W GLEBE. I looked at the sales history of every TH on that block.
Here's the raw data from Alexandria:
10 W GLEBE
ARIAS VARGAS ROGER ALEXIS LOPEZ HECTOR
07/24/2006 $508,000 HO MINH N
05/02/2003 $305,000 PUDENTIAL RELOCATION INC
04/02/2003 $305,000
01/28/2000 $190,331
4 W GLEBE
QUINN MATTHEW D OR NICOLE L
05/14/2004 $395,000 JEWETT ROBERT ANDREW
01/25/2000 $180,269
14 W GLEBE
BRIGGS RAYMOND S OR STEPHANIE N
12/27/2006 $515,000 ERICKSON DAVID CLINTON
04/28/2000 $190,562 W GLEBE GATE VENTURE LLC
28 W GLEBE
BROOKS STERLING O OR YOLANDA LOVITT
10/10/2003 $357,500 ERBER JEFFERY OR PHILLIPPA JILL
30 W GLEBE
BICKLE LAUREN E
08/04/2005 $499,900 GOTSCH THEODORE G OR PATRICE SONBERG
06/09/2000 $200,952
32 W GLEBE
CLAPTON CHARLES M AND KUHLS ERIN M
04/30/2004 $425,003 RHODES DONALD RICHARD JR
06/09/2000 $199,678
4, 10, 14, 28, 30, and 32 turned over since the places were built in 1999-2000.
2, 6, 8, 12, 16, 18, 20, 22, 24, 26, and 34 are still owned by the original owners. Strikes me as a stable neighborhood.
Three recent sales were at the $500K level, about what the new, similar looking places on 0 W GLEBE are going for. The $549K places on 0 W GLEBE are bigger.
Assuming that the owners didn't HELOC out their equity, 14 and 30 walked with about $300K, that's almost real money. (I'm kidding.)
1 mile to Crystal City, Pentagon City and the Pentagon. 2 or 3 miles to Federal Triangle and K street. Location, location, location.
0 W GLEBE at $499K puts pressure on every other place in 22305. In 1 year, 0 W GLEBE will be fully sold.
In 5 years, 0 W GLEBE will be 5 years old and just another resale like 2 - 34 W GLEBE. 2 - 34 is a mile closer to Route 1 and Crystal City.
My opinion is that the time to buy is when the hystericals are screaming in fear that prices are falling.
KH...OK, that's what I thought you were doing. So you are seeing roughly 10% loss since 2005 and you consider that "holding up". What bothers me is all the houses you listed do not show someone who bought in 2005 and sold in 2007. I know you are a "buy and hold for 10+ years guy", but this blog is focusing on the trend for home prices within the last few years and into the future. It's EASY to have made money if you bought between 1992-2003. You'll be up anywhere from 50-300% if you didn't buy garbage. Somehow I doubt we will see that kind of short term gain for decades to come (barring excessive inflation).
Cool, now we just need to wait to see what happens in that area. :) I'm guessing you maintain it will drift sideways, then head up at your calculated pace of 7% a year.
As for me, I haven't been following the prices that closely, just the trends. The trend is down, but so far, not that much. Folks are still overpaying for newer (1980s) THs in good areas that have large monthly HOA fees. There are many beautiful buildings that are sitting for a long time - I think the owners are just asking for too much. I've also seen a couple of short sales. The number of available homes for sale is starting to climb again as the spring selling season is upon us. I'm excited to see what happens!
Interestingly enough, I'm seeing people starting to sell buildings that were converted to rentals. Their asking price would not be covered with the rental income though.
One place has five 1BR/1BA apartments - the asking price is $1.25 million. Assume each unit makes $1,200 = $6K a month. The mortgage @ 7% = $8.3K plus ~$1K for taxes and $200 for insurance (I'm guessing on the ins). Assuming zero maintenance costs and 100% occupancy per year, that's a loss of $42K per year. Even with a $250K down payment, you lose money. The owner bought late 2000 for $630K. Back then, the rental rates were about the same, so the cost benefits were obvious. In case you were curious, the county has it assessed at $1,340,609 for 2008. I know you want this link. :)
AlexA:"Interestingly enough, I'm seeing people starting to sell buildings that were converted to rentals. Their asking price would not be covered with the rental income though."
That's similar to the slumlords on E REED selling and trying for a quarter mill or whatever.
Perhaps they see today as the right time to take some money off the table.
Neither group is giving it away.
Losing $42K/year on 5 units is not that bad.
$8K/year/unit? We've done that. The question is whether you have a long view, the resources to ride it out, and see an opportunity.
I would not carry 5 units in that state but there are people who can do that.
For a place like that, I'd find 2 or 3 silent partners who would underwrite the purchase and operation, they get benefits for a few years and hopefully a profit in 2018 or there abouts. Dentists.
What I've seen people do is buy a rental every couple years, that's a 0/1 or 1/1 condo. As rents rise and it goes into the black, they look for another place, which they will rent for a loss for a while.
Over 10, 15 years, they end up with a couple places producing a profit, a couple breaking even, and a couple operating at a loss.
It's not quite that clean and linear (like the 7% appreciation rule for this area) but that's the idea.
Over 30 years, they end up with 10, 15, or 20 units. If you started in 1970, say, 10 units might be paid off and producing $12,000/month or $144,000/year which is not a bad retirement.
You can argue that 10 units could be sold for a couple million which is "more money than there is in the whole world, I'll live well on that forever."
I've seen people burn through money like that in a couple years.
There's something real about real estate and paper tends to burn fast.
Wanted to add that I've seen people get overextended and lose their entire investment.
That was about 1990 during the S&L crisis.
While the overextended were losing, others were buying in the same market and creating the basis for making their fortune.
KH...maybe I'm not as experienced as you are, but a $42K loss a year does not seem trivial for 5 units. Maybe 20 units? It will take a LOT of "riding it out" before you soak up that loss and much of it will be absorbed with inflation money, not "real" money.
From the people I've talked to that have a lot of real estate, when they bought, they had it all setup to break even or even profit a little AT THE ONSET and with tough conditions like - 10% not occupied at all times, 10% maintenance fees, etc. *None* of them ever mentioned losing significant amounts of money upfront unless they made a mistake or the place needed a lot of upfront renovation.
You are right, no one wants to lose a cent but $42K/5 units = $8K/year loss per unit.
For example, if you have 5 or 10 other units paying well and another unit won't break you, you "might" be willing to carry an $8K loss for a few years.
A big investor with 50 units might be willing to take a $42K/year negative cash flow.
That's if it fits their long term strategy.
An investor or a consortium with dozens of fully paid up rentals might see this as an opportunity.
Big investors might buy the building to knock it down. They might do an extensive renovation and double the rents.
This one is out of our league but it might make business sense to someone with deep pockets and a long view.
Here's an example from down the street of an investment that makes little sense to me.
The $2.2M spec house at 3107 Russell Road has been a cash drain for the RANDOLPHs for over two years.
They bought it 3/2006 for $575K and knocked it down. This winter, they started building the spec house. $2.2 M is more than any other house in this area.
This area is mostly $500K-$800K SFH with few exceptions over $1M.
The old house was big but weird looking. It had green painted cut stone block.
The RANDOLPHs have lost more than $42K/year to date. Perhaps they will make it back but that's not a certainty.
More comments on
"3107 RUSSELL RD
ALEXANDRIA, VA 22305
Subdivision: BEVERLY HILLS
Price: $2,200,000 - For Sale
MLS ID: AX6502616
County: ALEXANDRIA CITY
Status: ACTIVE
List Date: 08/09/2007"
2 years since they bought the lot, they've been fishing for a buyer for 7 months.
This project is bleeding cash.
The house is up and they are working on the interior. It does not look much larger or different from its neighbor, 3103 RUSSELL RD which the city assesses at under $900K. Both are on the "wrong" side of RUSSELL RD.
The listing is inaccurate. 3107 RUSSELL is not in BEVERLY HILLS. It's across the street and that's an important distinction in 22305.
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