Yesterday's "Bits Bucket" is a good read. Tom posted an opinion piece from the Wall Street Journal calling the housing crisis over, and Zerodown noted Calculated Risk's response.
We're all anticipating April sales numbers from MRIS and some of those are leaking out now. Narl reports that April sales in Arlington totalled 182, which would be a 10-year low. The pendings (listings under contract in April) are reported at 287. Likely some of those won't go to closing in May, and could also be a 10-year low, depending on how many close. Here's a decade of May sales.
The April sales story will be out in a few days, but the more interesting story seems to be upcoming in June when the May sales are reported. I've heard reports of a rapidly increasing absorption rate in Prince William County (Tabitha reported 5 months of inventory from her agent, and another real estate agent told me the same thing).
CRT noticed what I think is the most interesting development, and that's the "spring bounce" that didn't occur with inventory numbers in Northern Virginia. It seems they're "dancing on a plateau" (to paraphrase Robert Toll's "dancing on the bottom"). I've been keeping track of these for this year and Zerodown posted a few:
Source: Virginia MLS
National pending home sales will be reported at 10:00 a.m. today. They're forecasted to fall 1.8%
Update: From CNNMoney: "The number of homes under contract for sale fell in March, hitting a record low for the second consecutive month, according to a report released Wednesday. The National Association of Realtors' (NAR) Pending Home Sales Index fell to 83 in March, down 1% from a downwardly revised reading of 83.8 in February."
Wednesday, May 7, 2008
Waiting for April
Posted by Harriet at 9:43 AM
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88 comments:
Harriet, dare I say that it seems like you are becoming less of a bear, at least with respect to Arlington? Some of the bears like Fontain are really grasping for credibility at this point, though they have succeeded in driving off some of the more informed posters such as fd.
If those numbers are accurate that isn't merely a decade low. That would be far below the previous decade low.
Again, if those numbers are accurate that is not a positive sign for Arlington, even if listings are down. That isn't a recover, it is just a sign that fewer people are listing. There is a big difference.
It will also be very interesting to see what PWC shows. Perhaps word has gotten out that prices are way down in PWC and people are now taking advantage of that fact. We have always known that if the price were right houses would sell.
Narl,
If more sales occur in PWC on lower prices, is that being bearish or bullish? I can't quite figure that out. Likewise, Arlington's prices are holding up to some degree, but sales are not.
I don't think I've taken sides on the endless inner vs. outer area arguments. I try to function as more of an observer of present data.
I think it's premature to judge the bears' or bulls' "credibility" based on present data. They're making arguments for the future, which is an academic exercise.
I agree with Leroy on his point above. I'm not sure how the April numbers are positive for Arlington.
Assuming PWC absorption rate is actually improving - which wouldn't surprise me - that's bad news for the closer in areas. That implies that increased differential in price between PWC and Fairfax or Arlington is driving buyers out to pick up bargains - the classic substitute good.
Put another way, the 20171 ZIP I live in is more desirable, in general, than 20170 Herndon on the other side of the Toll Road. Better schools, nicer homes, etc. As of right now prices are more or less holding up here, and are collapsing in 20170 due to foreclosures and short sales. Result? Nothing is moving in 20171, while inventory is clearing in 20170 due to the lower prices.
I think that's a microcosm of what's happening across the region - as sellers and banks capitulate on price in the less desirable areas, the gap widens between nice and not so nice, and homes in the nice areas stop selling. Logical conclusion? Prices in the nice areas eventually have to drop proportionally until the price delta between regions returns more or less to its historic ratio.
LOL, the secret it out, cheap homes in PWC! Forget about having a 10 minute commute to DC living in Arlington when you can get a foreclosed POS in PWC for cheap!
I'm not saying that PWC directly affects Arlington. It doesn't. But does 20170 affect 20171? Yup. Does Manassas affect Centerville? I think so. Does Centerville affect Fairfax and Chantilly? Sure. And so on, and so on, until it ripples into the desirable areas.
The conceit that someone who is looking to buy in Arlington would never buy anywhere else no matter what the price difference is pretty dumb, and will be proven false. Econ 101.
They will never consider PWC if shopping in Arlington.
Common Sense 101.
Get some before you post please.
Jason said...
"Assuming PWC absorption rate is actually improving - which wouldn't surprise me - that's bad news for the closer in areas. That implies that increased differential in price between PWC and Fairfax or Arlington is driving buyers out to pick up bargains - the classic substitute good."
Jason, if your argument is correct and all those people closer in are buying the houses out in PWC, doesnt that mean that there should be a corresponding increase in close in inventory. (i.e. they need to sell their current house dont they)?
"Garvey, who moved from Tallahassee, said he was attracted to Manassas because real estate taxes are lower, the neighborhood is nice and it's close to his government job."
"The conceit that someone who is looking to buy in Arlington would never buy anywhere else no matter what the price difference is pretty dumb, and will be proven false. Econ 101."
Yep... this has been sufficiently explained that anyone who does not yet understand doesn't want to understand.
It is not that complicated a concept. Arlington can remain the most desirable area of its type in the region even while its prices fall.
Harriet,
That WSJ article's author is a Hedge Fund manager and appears to hold huge portfolio positions in stocks of builders and financial companies.
Someone posted the details in Felix Salmon's blog. If that is true, it was poor journalism on the part of WSJ to publish the opinion without disclosing his stock ownership.
"Jason, if your argument is correct and all those people closer in are buying the houses out in PWC, doesnt that mean that there should be a corresponding increase in close in inventory. (i.e. they need to sell their current house dont they)?"
Not necessarily, there are as always many first time buyers waiting to enter the market. The available numbers are clear that listings are way down in Arlington so it is obvious people arne't selling houses in Arlington and moving anywhere in large numbers.
However, that doesn't mean that significant numbers of first time buyers or new arrivals in the area aren't deciding to target PWC because of its attractive pricing.
Again, the lack of knowledge of most of the people here of North Arlington and the type of people who live there is pretty funny, though it does essentially kill the board's credibility.
One last time, the competitors for North Arlington are McLean and to a lesser extent Great Falls. Maybe, maybe Vienna and Oakton if someone works in Tysons (in which case living in North Arlington doesn't really make a lot of sense). When you start seeing home prices fall in close in McLean, then I will believe 22207 is next (not being sarcastic--that is what I would be looking for as a signal). And when 22207 prices start dropping, then 22203 and 22201 Orange Line homes are next.
Ok, I did some quick number crunching.
I compared the relative prices in Arlington, Fairfax, and PWC in March 2000, March 2006 and March 2008. (From the decade of sales numbers)
March 2000:
Arlington 215k
Fairfax 195k
PWC 127.5K
Difference between Arl and FF: $20k, 10%
Difference between FF and PWC: $68k, 53%
Difference between Arl and PWC: $87.5, 69%
March 2006:
Arlington 470k
Fairfax 477k
PWC 385k
Difference between Arl and FF: -$7k, -1.5%
Difference between FF and PWC: $92K, 24%
Difference between Arl and PWC: $85k, 22%
In March 2008:
Arlington 485K
Fairfax 395k
PWC 260k
Difference between Arl and FF: $90k, 23%
Difference between FF and PWC: $135k, 52%
Difference between Arl and PWC: $225k, 87%
This is obviously only a quick and dirty bit of analysis. A graph of the relative difference in prices would be the best way to look at this data I think.
This does appear to show that during the bubble the relative difference in prices between the inner and outer areas shrank when compared to the presumably more historically representative numbers from 2000.
Since the beginning of the bust the price differential between the inner and outers areas has grown far larger than it was either during the bubble years or before.
Lets make it clear.
Price reductions in PWC will NEVER affect Arlington real estate.
Arlington real estate values may very well fall, due to sophisticated buyers looking to stretch their dollar and put the heat on the few desperate sellers.
But PWC and N. Arlington are so different both in the class of buyer, and in physical location, that one will NEVER affect the other.
Nobody is considering moving out to PWC from their DC or N. Arlington rental. The uptick in sales in PWC is NOT coming at the expense of Arlington homes.
Once again, Im not denying that prices are under pressure in Arlington, I am saying that its a different market from PWC and its own supply/demand will dictate the sales.
narl,
What part of North Arlington are you talking about? Are you only talking about sfh's? I really don't think Mclean is the competition for North Arlington. Are you only talking about the million dollar homes in North Arlington?
I also don't think you understand the mentality of the people who live on the orange line. It is mostly young professionals, like myself. Even with high paying jobs, it doesn't make sense for most of us to buy a place, due to the fact that we are young and our personal situations could change very quickly.
I would add some parts of falls church to your subsitute list, the closer in portions.
Your post sounds arrogant and out of touch. You must be a millionaire the way you are talking, thinking you know the mentality of everyone who lives in North Arlington.
I see condo prices plummeting. I saw a foreclosure sale at 880 Pollard Street, I think it went quickly because it was priced about $80K to $100K below the other units on the market. To say that prices in Arlington are staying where they are is ignoring a large part of the market, the condos that are coming on the market right now.
I have a friend who just bought a sfh in Arlington, and he said there have been bidding wars on every house he has tried to buy. Maybe your property values are safe, maybe they are not, but to think they are completely immune from going down is arrogant.
"Again, the lack of knowledge of most of the people here of North Arlington and the type of people who live there is pretty funny, though it does essentially kill the board's credibility."
More of the same...
Take a look at the areas you just listed and see how they are selling. I have posted several updates on McLean and the market there is almost completely frozen with the exception of a few fringe areas in a completely different price bracket.
There is no "lack of knowledge" about the people who live in Arlington. The suggestion that the posters here don't understand that "type of people" is frankly arrogant and more than a little childish.
Sales have fallen to the lowest level in who knows how long. Prices so far have been sticky but that matters little if nothing is selling.
Leroy said...
"However, that doesn't mean that significant numbers of first time buyers or new arrivals in the area aren't deciding to target PWC because of its attractive pricing."
Leroy - In some ways this is my point. There seems to be a big difference between the first time homebuyer and the existing buyer as relates to the substitution effect. For example, a first time buyer has to choose between houses in area A or area B. All his choice does is effect the demand for both areas, nothing more.
By contrast, an existing owner from Area C has to choose between area A and area B. His choice not only effects the demand for area A or area B, but it also affects the supply of area C.
Im not an economist so dont kill me on this, but you see where I am going with this dont you? It seems that if you want to get the true measure of the substitition effect, you would look at buyers who affect not only demand, but supply as well.
"Lets make it clear.
Price reductions in PWC will NEVER affect Arlington real estate. "
Lets make it clear,
We have explained this to you more than enough times.
Price reductions in PWC absolutely DO affect areas on its border strongly. These areas in turn affect their neighbors...
Arlington and PWC can and do affect each other without competing directly.
The two areas can affect each other even if nobody actually compares them directly.(and despite your denials some do.)
What is so complicated about that concept?
narl,
If your premise is that having an abundance of rich people prevents the areas you mention from seeing serious price corrections, that is demonstrably false. One needs only to show you counter examples.
However, if you are saying that the population of such wealthy people hasn't had enough stress or pain yet to stop overpaying for houses, that is a plausible argument.
Because data about people's wealth, their geographic distribution and whether they are in the market to buy homes, is not available anywhere, it is hard to argue one way or another on that.
What Bears are doing is making a general case that just because there are rich people in an area, that area is not immune from serious price corrections. That view is supported by the basic laws of human nature and of markets. And precedents.
You sound like a reincarnation of fd :-)
Doug, with all due respect, you are missing the larger point Leroy and Jason are making. No one says Arlington affects PWC. However, what they are saying (and I agree with) is at the margin, Arlington, affects McLean, which affects Fairfax, which affects Springfield, which affects PWC. (not exactly but you see the point dont you) again, this is not to say everyone in one place will live in another, it does say marginal buyers will.
And to all, this so far has been a pretty constructive thread, and I encourage you to keep off hand comments to a minimum. Its usually at this point, where the hyperbole gets out of hand and you start seeign comments like "protected core" "its not immune" etc. Keep your comments as focused as possible and we all could possibly learn a thing or two.
Jason: 20171 isn't holding up, it's been collapsing. I wish I had a way to post graphs, but prices for 4br SFH in 20171 are down to 79% of their peak price, and there is no indication that the price decline is pausing.
This is from a sample of resales from the Fairfax tax database. SFH with basement, 4br 2000-2500 sqft (excluding basement).
Note that these are sales, not asking, prices.
Percentage of peak price:
1998 39%
1999 41%
2000 47%
2001 54%
2002 60%
2003 68%
2004 81%
2005 98%
2006 100%
2007 89%
2008 79% <- this is YTD
"One last time, the competitors for North Arlington are McLean and.. maybe Vienna
narL: here are my numbers for Vienna
2000 52%
2001 59%
2002 61%
2003 68%
2004 78%
2005 94%
2006 100%
2007 96%
2008 90% YTD
Before you dismiss these, what's interesting to see is these same numbers graphed by area (e.g. Vienna vs. 20171 vs. Ashburn, etc.). When you do that, you can see a clear domino-falling pattern, with outer areas getting hit first, then a delay until the next area, and the next area, and so on.
Also, keep in mind that most of these places (these are YTD) were actually 'bought' last year, but the final closing didn't occur until 2008. I remember one I was particularly interest in when off the market early last October, but didn't officially close until March of this year.
I believe that the available inventory #s for Arlington are artificially low, because some people who would like to sell their homes and move up (in Arlington or elsewhere) have grown frustrated with the sticky prices of move up houses for sale, or the lack of inventory of houses that are suitable and appealing (e.g., not 1500 square feet or 6000 square feet (like many of the new homes built during the bubble but not yet sold), fully updated vs. fixer, not on a tiny lot on a busy street). Or they are fearful that they won't be able to sell their house for "their price", or are worried about financing, etc. So they are sitting on the sidelines for now. This may also be true for other areas.
"What is so complicated about that concept?"
Its not complicated, its just that nobody here has shown one bit of evidence that its occurring.
You show me inventory increases, but no evidence that buyers are buying other homes further out.
In fact just the opposite, the towns/counties surrounding Arlington are showing just as bad or worse.
So, the logical explanation is that there is no "substitution effect".
The illogical conclusion is that there is one, its just not apparent yet.
narl said: "When you start seeing home prices fall in close in McLean, then I will believe 22207 is next (not being sarcastic--that is what I would be looking for as a signal). And when 22207 prices start dropping, then 22203 and 22201 Orange Line homes are next."
You make it sound like prices in 22201 aren't yet falling, which isn't true. The median and average for March 2008 fell 13% and 6%, respectively.
A couple of weeks ago, I posted a list of 4 or 5 houses in 22201 that are currently on the market or that have recently sold for less than 2005/2006 prices. That's just the way the market is going right now.
I am sure someone will correct me if I am wrong, but I think that the increase in PWC sales has little to do with (if you will) an increased substitution effect in Arlington as of this moment in time. I should note, if you look at absolute inventory, the county that was relatively weakest in comparison to earlier years was Fairfax (I think it is still a shade above 2006 numbers). This could be evidence of homeowners selling in Fairfax, in favor of PWC, and if so, maybe this will start pushing up Arlington & Alexandria inventory at some point down the line. The point is, as of right now, this hasn’t happened yet. Whatever substitution effect Arlington was under before (which I am not denying), it’s the same now as it was before the increase in sales in PWC.
As to a separate point some are making that slack sales is still a big concern for Arlington – in some ways I disagree. At the end of the day it all comes down to supply and demand which really is Econ 101. If these new sales numbers from Narl are true, and Arlington has 4.7 months of inventory supply and demand is not currently out of balance. In some respects, if sales were to grind down to a mere 10 a month, as long as inventory remained at 47, you still have 4.7 months of inventory, and supply and demand dictates that this hypothetical market is no worse off than the current market.
Some are saying this lack of inventory is because potential sellers are staying off the market. Well, with all due respect, so what? If anything I take that as being a sign of strength for that market, in that (unlike some other markets around here) Arlington’s potential sellers are not so desperate that they have to move in now, flood the market and drive down prices.
Others have noted as soon as sales pick up, all the guys on the sidelines will move in, thereby increasing inventory. Yes that is correct, but the question again becomes how does this affect the supply demand balance? If they all rush in there is too much supply and months of inventory increases from 4.7 to something like 10.0, prices will fall, no doubt about it. However, if these guys on the sideline move in slowly over a period of many many months, the market can absorb them and (maybe months of inventory increases from 4.7 to 5.3 if you will). In this case supply and demand does not get so out of balance that it will cause prices to fall.
Again, before everyone jumps on me, prices can certainly fall when months of inventory is at 6 or below - I think the substitution effect has proven that thus far. However, if you want to get a serious fall, you have got to have a prolonged imbalance of supply and demand, and as to the Arlington market as a whole, its simply not there yet.
"Its not complicated, its just that nobody here has shown one bit of evidence that its occurring."
This is basic basic basic economics. Perhaps the rest of us are just taking the obvious as obvious while you seem to require "proof" of the obvious.
"You show me inventory increases, but no evidence that buyers are buying other homes further out.
In fact just the opposite, the towns/counties surrounding Arlington are showing just as bad or worse."
That is in no way inconsistent with what we have explained to you. Obviously in order for the substitution effect to function a price differential must exist to incentivize buyers to substitute. The smaller the price differential the smaller the incentive to substitute similar goods.
As the price differential widens a greater incentive will exist. This is fundamental and frankly beyond question by someone who seems to lack a grasp of basic economics.
The substitution effect is not a "theory" it is one of the most basic principals of economic behavior. If you don't know that then you don't know anything about economics. The very concept of a free market is dependent on free willed actors making independent evaluations on values of similar goods.
...it works for iron ore of varying qualities, it works for diamonds of various grades, it works for wines from different vinyards, it works for various paintings by different or identical artists, it works for farmland on different sides of the same hill, it works for horses with the same parents, it works for houses on different ends of the same street... and yes, it works in Arlington....
Arlington may be more valuable than its neighbors, but if the price is right people will substitute a similar house elsewhere. There is a question of how large a price difference will be required, but there is no question whatsoever that the substitution effect is real and is taking place every day.
If you really want to argue, give up on arguing against the existence of the substitution effect, because anyone educated with dismiss you immediately if that is your argument.
Instead you might try to make an argument that supports a widening price differential. Explain why Arlington is becoming more valuable relative to its neighbors than was the case historically.
"So, the logical explanation is that there is no "substitution effect".
The illogical conclusion is that there is one, its just not apparent yet."
The obvious example here is that you are simply refusing to believe what you don't want to believe.
Having a daily commute to Rosslyn, I would prefer to purchase in Arlington, but there are few if any acceptable properties in my price range. While there are some very nice properties at attractive prices in Prince William or Loudon, given the commute, those properties might as well be on the moon.
As a prospective buyer, I am currently focused on a select few close-in Fairfax neighborhoods where there are acceptable owner-occupied properties now listing for 5-10% less than they were in January when I seriously started looking. Those same neighborhoods are easily off 20% from last summer (2007) when I considered them overpriced and out of my price range.
Now in May, those neighborhoods are dotted with short-sale and bank-owned properties currently listed at 30-45% off their previous (bubble-inflated) sale prices. Those are substantial price reductions commanding serious attention with the immediate effect being that I can now afford an acceptable property in a nice neighborhood inside the Beltway, when 9 months ago, I could not.
I know there aren't too many homeowners (unless forced) who can accept a 30-45% price reduction, but until the market is cleared of the bank-owned properties (2008? 2009? 2010?), that is the future. Since my family needs a home now and we plan to live in it for the next 10+ years, we're going to purchase a home this summer relieving the Fairfax market of at least one short-sale/bank-owned property...if the price is right!
"Be fearful when everyone is greedy and be greedy when everyone else is fearful" - Warren Buffett.
"I am sure someone will correct me if I am wrong, but I think that the increase in PWC sales has little to do with (if you will) an increased substitution effect in Arlington as of this moment in time."
Without a doubt... Arlington is simply far too small. With ~180 total monthly sales a huge percentage of Arlington's sales would have to be moved to PWC to generate a noticable increase for PWC, and as was already pointed out there is going to be little direct substitution between Arlington and PWC.
"I should note, if you look at absolute inventory, the county that was relatively weakest in comparison to earlier years was Fairfax"
Yep, but I don't think this means people are selling houses in Fairfax and moving to PWC exactly. I think a better way of stating this would be to say: "A greater proportion of buyers choosing between FFC and PWC are choosing PWC than was previously the case. "
Some of these people will be new to the area. Others will have sold somewhere else in the area, etc
The substitution effect doesn't require someone to sell option A and buy option B. It just means that a potential buyer chooses B over A.
"If these new sales numbers from Narl are true, and Arlington has 4.7 months of inventory supply and demand is not currently out of balance. "
This, and everything else you said(that I am not quoting for sake of brevity) sounds good to me but I have some thoughts to add.
While it is true that taken in isolation a market with a small demand and a small supply is balanced... that ignores the historical information we posses on Arlington.
We know that this level of sales is far below historical norms and inconsistent with a healthy market.
I think what we are seeing here is a market in transition. It is common for volume to drop sharply prior to prices dropping in a market like this. If you look back at the other regions we have data on you should see that sales volume fell well before prices.
Arlington and other wealthier areas seem to be much better equipped to play the waiting game than places like PWC but that can't go on forever. It may be the case that the correction will be much longer and more gradual.
Novawatcher, I would LOVE to see the charts you mentioned, especially for 20171. Maybe ask Harriet to post them, or put them on Google docs?
-Jason
arlington didn't really deal in subprime.
just wait till all the regular ARM jumbos reset.
there will be hell come oct/nov
re: doug
Nobody is considering moving out to PWC from their DC or N. Arlington rental. The uptick in sales in PWC is NOT coming at the expense of Arlington homes.
I wouldn't say "nobody", seeing as I am someone who made the jump from Alexandria/Arlington out to PWC precisely because I could get a 3 bedroom, 2.5 bath townhouse 10 minutes from the VRE for far far less than a 2 bedroom 1 bath in Arlinton. And yeah, I left a pretty nice (and cheap!) 2 bedroom rental in the process.
I think PWC prices will have an effect on the overall area, Arlington included. I don't think it has anything to do with "class" of buyer per se, but much more to do with people's individual needs.
The more positive exposure PWC gets for reaching a level of affordable housing, the better off PWC will be. There will be a competetive advantage that some people may find worth it (and I reiterate some, not everyone).
Arlington prices are just too ridiculous IMO for young couples wanting to start families or young families wanting to buy a home. 320K+ for a 1 br/1bath condo just doesnt cut it for most couples, let alone young couples with kids. Granted this is just one slice of the population, but PWC is a very viable alternative if you are looking for something affordable with more than 2 bedrooms.
Hopefully we continue to see positive trends in Prince William through the end of the year; however, if the prices continue to drop it will only increase the price desparity and reinforce the idea of getting more bang for your buck.
I think that young couples with kids are not exactly prime candidates to live in 1Br/1Ba on the Orange Line...come on...have you ever been to the Ballston Golds or HT?
"If you really want to argue, give up on arguing against the existence of the substitution effect, because anyone educated with dismiss you immediately if that is your argument."
Im arguing that while this works for TVs and Refrigerators, and may work in some real estate markets, it is not CURRENTLY happening in Arlington because there isnt a shred of evidence to support it.
In fact, the only evidence out there suggests its not happening because the surrounding counties and cities are doing worse.
"arlington didn't really deal in subprime.
just wait till all the regular ARM jumbos reset.
there will be hell come oct/nov"
Oh, you mean when they reset DOWN to the current rate? LOL! Yeah Im sure it will be hell when all they have to pay less each month!
Seen LIBOR lately?
"I think what we are seeing here is a market in transition. It is common for volume to drop sharply prior to prices dropping in a market like this. If you look back at the other regions we have data on you should see that sales volume fell well before prices." - leroy.
Exactly.
Who other than a VERY motivated seller would place their home on the market in this environment?
re: bubbletrouble
That's my point. Young couples are not going to be candidates for smaller living arrangements, especially those considering starting families in the near future. Moreover, those same couples are very unlikely to be able to afford a nice townhome or single family home inside the beltway that affords them the desired space for a family.
In turn, when price declines like those occuring in PWC begin to garner attention, people such as these will look to fill their needs outside the beltway in areas including, but not limited to, PWC.
Will everyone want to uproot and move? No. Will the price difference create a larger substitution effect? Yes, most definitely. The larger that difference grows (which is what we are starting to see happen), the larger the effect it will have on potential homebuyers.
I think it will have much more of an impact, either directly or indirectly, on folks who do not currently own/first time homebuyers without a cash cow to roll into a hefty new purchase inside the beltway. Conversely, people who own inside the beltway won't feel as inclined to sel and move out just for cheaper prices.
Doug - I really do hate to pick on you but as to evidence of the substitution effect in Arlington look no further than the slight price drops to date.
As I mentioned before, the things that can affect any market are (a) first and foremost a sustained imbalance in supply and demand and (b) the substitution effect. There may be others, if so someone correct me.
To date, we have seen scant evidence of a sustained imbalance in supply and demand to explain the small price drops we have seen. Thus, if its not supply & demand that is driving prices slightly down, I dont know what else it could be but for the substitution effect.
Leroy - I agree that sales cannot grind down to nothing and sustain prices. I acknowledge that while my hypothetical works fine on paper, it certainly doesnt pass the smell test.
Also, you said "If you look back at the other regions we have data on you should see that sales volume fell well before prices." In these instances was it only falling sales volume, or was it also falling sales volume with static or slightly falling inventory. Specifically, if you can ptoint to an example where prices fell after sales volume alone fell (and months of inventory did not increase), I would be interested to see it.
Bas - excellent point! If arlington is especially heavy in jumbo arms, they could be in serious trouble in the fall (talk about desparate sellers). The problem as I see it though, is I see no reason why Arlington would be more heavily concentrated in jumbo arms than would be Loudon or especially Fairfax. As leroy himself showed, Fairfax was temporarily more expensive than was Arlington. However, Loudon & Fairfax "fell" a long time ago, and Arlington has not. Do you have any evidence that Arlington had a greater percentage of these loans than did Loudon or Fairfax?
Doug,
What does this mean?
In fact, the only evidence out there suggests its not happening because the surrounding counties and cities are doing worse.
The fact that surrounding counties are cities are doing worse, in terms of real estate prices, means that they would draw the marginal buyers out there. Hence the substitution effect you keep saying doesn't exist.
My $0.02
Leroy said: "Explain why Arlington is becoming more valuable relative to its neighbors than was the case historically."
Well, as someone who has owned several properties in N. Arlington and currently owns a SFH in 22207, the answer is obvious: traffic. If you live in 22207, you're immune from the daily traffic horrors that ebb and flow throughout the outer suburbs and main roadways. As commute times and gas prices skyrocket, the attraction of N. Arlington neighborhoods located within walking distance of Metrorail is similarly being bolstered. Which, in my judgment, explains much of the reason why values of SFHs in those neighborhoods have done just fine, and will continue to do just fine.
http://en.wikipedia.org/wiki/Substitute_good
Here's the key quote: "While someone could argue that Ford trucks are much different from Toyota trucks, If the price of Ford trucks goes up enough, some people will buy Toyota trucks instead."
Once again, Econ 101. Arguing that there is no substitute good for Arlington housing is just silly.
-Jason
William & Bubbletrouble. The candidates that arlington seems to attract (and probably has) is the stereotypical high income professional, or dual income, no kids (i.e. DINKS). The stereotype that has floated around here forever is the 2 attorneys or some other upper income type.
If that stereotype is true, than your both correct. The 1/1 condo in arlington has little appeal to the young couple looking to start a family. Conversely 3/2 in manassas has little appeal to the Single or couple who is years away from starting a family, or who may choose not to.
CRT,
Regarding your 1:31 PM post, I would say the following.
For the sake of argument, let's just say that 22207 is the center of the most desirable area. And as you go out in concentric rings, places get increasingly less desirable and, as a result cheaper.
(In reality, there are several such "centers" of desirability as well as troubled markets but I'm trying to illustrate a point.)
The out-lying less desirable areas get hit first. Sales stop. Inner ring, sales slow. At the center, no one notices anything.
Let 3 quarters of reality sink in.
Out-lying area now has significant foreclosures, prices are dropping. Inner ring, sales have stopped, inventory is growing. Center, sales have slowed - maybe significantly - though prices hold.
2 more quarters.
Out-lying area is bottoming out, foreclosures are in full swing, distressed sales are driving the market down though it's flattening. Inner circle is now seeing foreclosures and depressed sales prices. Center is finally experiencing depressed prices, though perhaps not a whole lot of distressed sales.
Another 2 quarters, first time buyers and investors are beginning to prop up the outer layer creating a floor.
If you continue this rough analysis, the center area has about 2-4 quarters left to "tough it out." Either sit on the sidelines, hold out for their wish price, or maintain that monthly note at any cost.
So my point in all this is the center area is last to be effected and is most likely to be able to mantain sticky prices. The biggest issue though is, how quickly can those first time buyers back fill from the outside in to hold up those inner prices?
So I keep coming back to first time buyers. It's their influx of money that supports the base of the pyramid of real estate from low desirability to high desirability.
This was a make it up as you go thought exercise so please feel free to pick it apart.
My $0.02
William makes an excellent point. Up until about 2001-2, a working professional couple, not just 2 highly compensated lawyers, could afford a small SFH in 22205, 22207, or townhouses in 22201. Falls Church around EFC and WFC metros was the same.
Has the demographic for these areas changed that drastically? Has the pool really been that severely limited to only lawyers now? If so, then the infusion of cash by the first time buyer in those neighborhoods has been cut off.
I suppose it's possible that the demographic that is attracted to that size house has changed. I find it more possible that the market will stay flat until wage inflation catches those first time buyers back up to current prices (as current owners are more likely financially able to weather the current storm and avoid a distressed sale).
My $0.02
My Two Cents makes some excellent observations in his posts. Again, as a longtime 22207 homeowner, I would say the 22207 neighborhoods within walking distance of Metrorail aren't going to see any meaningful price drops for the reason I mentioned. Also, Two Cents' observation that the typical working professional couple (mid-income, I'd guess) can't afford a SFH in 22207 is probably true. I think that's not going to change; 22207 will stay out of reach of mid-level income people because property values are going to stay very high -- and again, the metro area's crushing traffic woes will be a part of that. Another part, by the way, is the remarkable improvement of Arlington public schools, which US News and World Report this year ranked as the best public school system in the Washington DC area -- even ahead of Fairfax!
$0.02 I can find only one potential problem. This is where you said that as you move out from these desirable centers, places get places get increasingly less desirable and as a result cheaper.
If I am reading you correctly, those desirable centers (which I do concede are many) could not only be Clarendon, but also Chantilly (both have wealthy areas have high prices and appeal to first time buyers singles & dinks in clarendon, young families in Chantilly. However, this is where we might run into problems.
If it was merely price (and even possibly income) dictating the desirable centers, it seems to me chantilly would be holding up roughly the same as Clarendon. It might be, but something tells me Chantilly has not held up as well. Thoughts?
Tom - good observation about the traffic woes. There is little doubt in my mind that the explosive growth in the outer counties whose residents (of which probably not many but some) commute all the way in have worsened traffic, especially since NOVA govt has done little to improve roads during the same time.
The schools is a decent point, but lets not forget, in terms of holding up, Alexandria and DC are nipping at Arlington's heels. In fact if you look at YOY inventory reduction Alexandria is the league leader by a long shot. At the same time however, DC and Alexandria schools SUUUUUUCK like no one's business.
Not really sure what to make of that, but FYI.
Here's an excellent quote from money.cnn.com -
"In real estate, new neighborhoods built farther out from town (PWC, Loudon?) are especially vulnerable because no one's had 20 years to build up equity. In more established areas, people who resisted the urge to treat their home like a piggy bank (Arlington?) experience only paper losses and can, for the most part, sit tight."
At a recent weekend inspection of a short sale property, I walked past a new Lexus SUV parked in the driveway and found a nanny in recently remodeled kitchen cooking for the kids who were watching the largest flat panel HDTV I had ever seen...which I viewed as symbolic for any number of poor choices the absentee parents had made.
But hey, I guess at some point, even liars realize they can't get cash when the ATM is closed...
a lot of good points have been made. I would like to add a few things.
@interest rate resets
they are low today, but what is the likelihood that they will continue to be low. Do you honestly believe they will be lower or the same in 5 years? With the recent bout (and soon to get worse) of inflation, at some point the Fed will have to raise IR. The whole reason for them dropping was preciously b/c of the housing prob. At some point they will start to rise. They can't go much lower than they are today, so if I were a homedebtor I would lock in my rates now.
As far as the Arlington market. The price of any market is determined at the edge by marginal buyers and marginal sellers. If the marginal buyers leave (it doesn't have to be a majority of those who buy, it just has to be marginal buyers) then prices will sooner or later fall. Finally, I fundamentally believe price/income is still way out of whack, so to me it really doesn't make a difference if Arlington falls 10-15% or stagnates for 10-15 years, the outcome will be the same: a return to a reasonable price/income ratio.
I'm not sure current ARM borrowers will have any equity to refinance with the depreciating home values.
Hmm.. they'll be SOL
GTE811i said "Finally, I fundamentally believe price/income is still way out of whack, so to me it really doesn't make a difference if Arlington falls 10-15% or stagnates for 10-15 years, the outcome will be the same: a return to a reasonable price/income ratio."
GTE, are prices of, say, brownstones on the Upper East Side in Manhattan "out of whack" because the average worker can't afford to buy one? Of course not, because the demand and desirability of such properties ensure the price will always be stratospheric. Now, I'm not suggesting a typical SFH in 22207 is equivalent to a Manhattan townhouse, but the principle is the same: if an area is inherently desireable enough, its price will reflect that. And I believe that's exactly what you're seeing in 22207, for the reasons I stated in my previous posts on this page. One of the flaws in the many posts that contrast and compare N. Arlington with PWC and other areas is their underlying assumption that properties in all these N. Va. areas are roughly equal. That simply isn't the case when it comes to N. Arlington, and those N. Arlington neighborhoods within walking distance of Metrorail in particular.
As of now, I can say based on personal experience (i.e. I just refinanced) that plain vanilla homes in 22207 are able to be refinanced with an assessed value more or less equal to the peak value.
I'm not sure I wrote that clearly, so let me be more specific: in 2003 I bought a new builder home with a 5/1 ARM, which I recently re-financed to a 30-year fixed. As part of the re-financing, there is obviously an assessment done, and the assessed value was identical to the sale price of a sister home (same builder, same lot, same interior luxury level, 2 houses over) in October 05 (more or less the peak). I was curious what the assessment would come in at (and honestly I think I could probably get the assessed value but it would take a LONG time to do so).
Narl:
Just a couple questions:
You have excellent credit ?
They didn't require you to get up to 20% equity?
Are you are paying PMI?
According to OSG Hardtrack, the average size of SFHs for sale in Arlington is around 3500 sq ft. That's a big house & people who have traditionally bought big houses are less sensitive to interest rates & tighter lending standards. May explain some of 22207's apparent stability. Of course, most people I know who are predicting price declines expect urban centers like Arlington to only go down after the outlying areas & this party isn't over yet.
In some of the other areas in Arlington asking prices are coming down to Fairfax Co levels. Nice, solid middle-class areas too. Places you can raise kids. Clarendon was nice when I was right out of school, but I'd rather raise my kids elsewhere.
By the way, PWC and Arlington do complete. There are enough people who work outside of Arlington and the District to make either place viable.
Yup, I am around 800 on the FICO scale. I put 15% down when I bought the house, and given the run-up in values my equity was well over 20% prior to the refi; I took out cash to get it down to 20%, I'm not getting the deduction b/c of AMT so it's a smart cash management move if nothing else.
And Ralph, I don't really think it is fair to call 22204 (the part of Arlington where prices have come down for quite a while) "solid middle class areas." They are not exactly what most people think of when they hear that term.
And I agree with you on raising a family in Clarendon; though many of the richest people in Arlington do so right in Lyon Village; but I wanted a bigger yard.
"GTE, are prices of, say, brownstones on the Upper East Side in Manhattan "out of whack" because the average worker can't afford to buy one? Of course not, because the demand and desirability of such properties ensure the price will always be stratospheric. Now, I'm not suggesting a typical SFH in 22207 is equivalent to a Manhattan townhouse, but the principle is the same: if an area is inherently desireable enough, its price will reflect that. And I believe that's exactly what you're seeing in 22207, for the reasons I stated in my previous posts on this page. One of the flaws in the many posts that contrast and compare N. Arlington with PWC and other areas is their underlying assumption that properties in all these N. Va. areas are roughly equal. That simply isn't the case when it comes to N. Arlington, and those N. Arlington neighborhoods within walking distance of Metrorail in particular."
I don't think anyone is saying that all areas in northern VA are roughly equal.
As I have said on numerous occasions, places like northern Arlington are more desirable than most areas in the region. Arlington will probably always be one of the more expensive and desirable areas in the region.
That doesn't mean northern Arlington is immune to price drops.
(and while we are on the subject Manhattan has had some pretty nasty housing busts itself...)
Narl:
I highly doubt all the other peeps aren't near 750 and only have 5% equity. :(
my $0.02-
Thanks for articulating my point a little better than what I did.
Priced as they are, the close in areas simply aren't friendly to the average professional couple bringing in 150-200k. In addition, the young professionals that typically flock to areas such as Arlington because of the social life are realizing just how costly it is to rent, let alone purchase, in desirable areas.
Those are 2 major demographics that I beleive will help begin to prop up outer areas such as PWC (particularly the Woodbridge and Manassas corridors along hte VRE). If you're looking for townhomes or single family homes, first time homebuyers and people that lack elite-type incomes will simply find it hard to crack into the inner markets compared to what they can get further out.
I realize this doesn't apply universally, but it does lend itself to thinking that desirable reas in the outer counties could start to see some bottoming out quite some time before inner areas experience their biggest drops.
All - great discussion sorry I missed it. Re: the question are the winds o change a blowin, look at this latest news out of Las Vegas.
"For the first time since September 2005, sales of single-family homes in Las Vegas rose from the same month of the previous year"
http://www.lvrj.com/business/18721109.html
This is Flip Vegas the Fraudster Huckster capital of the world. Its a place that would put PWC to shame. If their YOY sales are increasing, it may suggest last months sales for PWC was not an anomaly.
On the larger front what does all this latest evidence (declining inventory, good early reports on sales) tell me? While prices are likely to still go down and down for a while, there is increasing evidence that the worst of the downturn may just be behind us.
Of course, this is bad news for me as a potential Arlington buyer. My decision not to buy back at the beginning of the bubble is looking more and more likely to haunt me. The more I look at all of this evidence(in total) I am having an increasingly hard time to come up with possible reasons why Arlington will get back to 2003 prices. 3-4 more months of this and I quit - its over. I will just buy and leave this blog (I bet this makes alot of people happy)!
In fact if you really want to know when the worst of it is over, just look at the collective attitude of those still blogging and posting on these housing blogs. I saw some study - take 100 know nothings of the street ask them "how many jelly beans are in this jar" - their answers are all over the place, but when you average them together, they are suprisingly accurate. Could the same principal be at work here?
Look at David's blog, its all but dead now - its clear he's losing interest in the whole thing. On this blog, the bulls carried the day today. Heck even neil the (what i thought) perma bear had this to say:
"notice something about DC. Of the large markets identified as bubble markets, it looks like it is having the least pain. Its quite possible that it has matured into a large enough urban area that the fraction of the population that can afford a home has dropped (a la LA, NYC, and the bay area). I could only speculate on where its final affordability plateau will be; but I do not expect it to ever hit 80% again! (Yes, a bear stating a city might have moved to a new threshold.)"
Now this latest "change in sentiment" may be a false alarm. All it takes for me is a few solid bits of bad news for me to keep hope alive a bit longer. But long term this day will come, there is no doubt about it. Lets face it once the worst of this is over, its simply not as interesting as it was before.
When that day comes will we recognize it? I think there are some people here who will never concede its over, even when everyone else has left. It possible Harriet may just decide one day to say to hell with it - quit updating and thats the end of it. This is probably the most humane way to go. The alternative is she keeps it alive having sympathy on the perma bears who still post. Problem is the rest of the posters will be long gone by then, leaving the perma bears here to preach to each other "just wait its coming - you'll see"
This is not a crack at anyone in particular. I think the overwhelming % of people who post here are pretty reasonable (and Harriet let me say - when you do decide to call it a day - the service and effort you have provided to all of us idiots is commendable).
The point is, barring nuclear war, a depression, or other similar catastrophe this is probably the way this issue and the blog plays out. When that happens, recognize it and go out with dignity - dont be the last bear on an otherwise dead blog.
Sorry for the long post.
Contrarian:
I would like to know how prevalent Option ARMS are in this area as they seem to be particularly toxic:
“Option ARMs allow for the choice of the size of the payment. Homedebtors can choose to pay an amortizing payment (such that their mortgage balance is reduced), an interest-only payment, or a negative-amortizing payment, where their mortgage balance increases. Recent data from Countrywide (CFC) indicates that 71% of borrowers with option ARMs are only making the minimum, negative-amortizing payment. Option ARMs have provisions such that when the mortgage balance exceeds the original mortgage by 10% to 15%, the loan converts into a fully self-amortizing loan. Considering that many of these loans were made over the last few years (beginning in 2005), we should start to see a number of recasts. When a mortgage recasts, the payment size can easily double or triple. Those who could afford their payments before will no longer be able to do so.
Option ARMs are highly prevalent, especially in the most bubbly markets.”
http://tinyurl.com/4kosx4
These loans are the cause of much trouble and large writedowns at Countrywide Financial, Washington Mutual, Wachovia Bank, Downey Financial and First Fed Financial.
"What’s Are the Risks of an Option ARM?
For those electing the minimum payment option, the major risk is "payment shock" – a sudden and sharp increase in the payment for which they are not prepared.
The rule that the minimum payment can rise by no more than 7.5% a year has two exceptions. The first is that every 5 or 10 years the payment must be "recast" to become fully-amortizing. It is raised to the amount that will pay off the loan within the remaining term at the then current interest rate – regardless of how large an increase in payment is required.
The second exception is that the loan balance cannot exceed a negative amortization maximum, which can range from 110% to 125% of the original loan balance. If the balance hits the negative amortization maximum, which can happen before 5 years have elapsed if interest rtes have gone up, the payment is immediately raised to the fully amortizing level.
Either the recast provision or the negative amortization cap can result in serious payment shock."
http://tinyurl.com/6qgh5a
After reading the thread, I would say bullcrap carried the day.
Saying that Arlington prices will not drop becasue of traffic is....stupid.
Check out the median price chart for Arlington. It went hyperbolic in 2001 at precisely the same time that everywhere else did.
To make a believable argument that it was because of increased TRAFFIC, you are going to have to point out what caused the change in preference in precisely 2001.
Now that the bubble is popping across the country, the proper argument is that the reason Arlington prices went hyperbolic in 2001 is because they participated in the runup.
It doesn't matter that they have not dropped as much as Manassas, the outer areas always drop first.
And the news that came out today (lowest pending home sales ever recorded for march) point to the downturn WORSENING across the entire country.
So relax. Everywhere else is popping. Volume is dropping. Just wait. It'll happen.
Anyone telling you that anywhere is different is full of crap. Just ask that what what changed in their neighborhood to rapidly increase the price.....there has to be something. Or else prices would have been higher in 2000.
Leroy said...
“As the price differential widens a greater incentive will exist. This is fundamental and frankly beyond question by someone who seems to lack a grasp of basic economics.”
On a grand scale, how about the national market? All real estate is local? I don’t think so. My bullish co-workers are counting on local job growth and more folks from out of state moving locally to prop up prices. What they don’t realize is that nationally, if sales/prices are down, that leaves fewer potential buyers able to sell their current home at a price in line with local prices. I can’t imagine many folks in Phoenix being able to sell their current home and have a decent down payment for a home in the NoVa/D.C./Maryland area. Even further, if they are moving because their local economy is tanking, that puts everyone in the same boat, adding further pressure on their local prices.
I agree about the babyboomers. But they are in most of the more expensive areas, so it is hard to find a desirable neighborhood that will not be impacted by the retirement waves.
I will say, the neighborhood that I am in Los Angeles has a median age of 46. I believe Arlington is about the national average of 35.
A lot of the younger ones are probably in condos. The retiring boomers will conveniently empty the larger homes for the echo boomers. But not for the Gen-Xers.
One this is for sure, it will throw fuel on the fire. The babyboomers that are old enough (and saved enough) will get out first.
The babyboomers (and the rest of us, me inclued) will be left.
Anonymous... I disagree with almost everything you said there.
In the case of the bubblemeter blog... it has been going downhill for at least a year. The quality of the updates has been simply terrible and David can't be bothered to even let comments post for days at a time. Why bother posting there? If I submitted something right now it might be visible this afternoon... it might not be visible until the middle of next week. He had a good thing going but he has killed it.
Obviously the day will come when the bubble really has bust and things are just sitting on the bottom. Obviously there will be some that will remain perma-bears... there always are. I think it is obvious that point is still a good ways off. PWC might be showing the first signs of bottoming out... but that doesn't mean it is "at" the bottom. The real estate market moves slowly. PWC first began showing signs of the impending bust in 2006 with prices still rising... a full year later we had people like lance calling the bottom because the median had fallen $15k...
If we are seeing the first signs of stabilization in PWC today I suspect it won't be until at least a year from today before it will really be there. (and that means sitting on the bottom, not rising again)
The worst of this is not over, but I do think that Manassas is currently in the midst of the "worst" I suppose. FFC is only just now starting to get hit hard and the innermost areas are still hanging on with relatively small declines.
"Saying that Arlington prices will not drop becasue of traffic is....stupid.
Check out the median price chart for Arlington. It went hyperbolic in 2001 at precisely the same time that everywhere else did.
To make a believable argument that it was because of increased TRAFFIC, you are going to have to point out what caused the change in preference in precisely 2001."
I agree... the traffic explanation is real, it is a very real concern in this area and without a doubt contributes to the value of Arlington. (and I give that poster points for coming up with an argument that doesn't stand at odds with basic economics...)
However... traffic didn't suddenly change dramatically in 2001. Arlington was already more valuable than most areas in 2001. Then the whole region doubled... the argument that the bubble was everywhere else but that Arlington's doubling was "real" is... wishful thinking.
It isn't that different from lance's old argument that sure there may be a bubble all over the rest of the country, but not DC. DC just happened to double in price during the exact same time period but here of course it is due to DC suddenly entering a "new paradigm"...
Actually, traffic has gotten exponentally worse in 2001, in large degree b/c of 9/11 and the resulting explosion in HS $ going to GCs. Recall that after the tech crash and before 9/11 many thought Reston was dead.
So many clueless posts on this page.
Did ANYONE read my post on ARM resets?
ARMS are restting DOWN for prime borrowers. As of right now, ARMS are resetting to around 4.75%, and the latest Fed rate cut hasnt even taken hold - that will likely drop it to 4.5%. Most ARMS were taken out at 5.25% - 5.75%.
Payments will be LOWER - nobody is going to foreclose on a lower payment!
Also...
"Here's the key quote: "While someone could argue that Ford trucks are much different from Toyota trucks, If the price of Ford trucks goes up enough, some people will buy Toyota trucks instead."
Once again, Econ 101. Arguing that there is no substitute good for Arlington housing is just silly."
Ive never seen such a ridiculous argument.
Hello - Ford Trucks do not equal Arlington real estate!
Like I said - there are MORE inventory gains in Falls Church, Mclean and Alexandria than Arlington.
That means there ie NO substitution effect. If their inventories dropped, or rose more slowly, your arguments would make sense - but they are gaining more homes than Arlington. So buyers are not moving out further for better deals - because the prices are approximately the same in those areas!
According to OSG Hardtrack, the average size of SFHs for sale in Arlington is around 3500 sq ft. That's a big house & people who have traditionally bought big houses are less sensitive to interest rates & tighter lending standards. May explain some of 22207's apparent stability..
I'm a 20+ years resident of the 22207 area of North Arlington, the part not within walking distance of the Metro. I've spent some time recently driving around this part of the county (mainly north of Lee Highway) looking at houses, as I'm considering a major renovation or a teardown/rebuild. Though I've noticed it before in my neighborhood, I've been struck by the number of very large houses recently built and under construction in North Arlington. Even in this affluent part of the county, a 3500 SF house was unusual when I moved to the area. Many of these houses, at least the ones nearest to me that I'm familiar with, are spec houses, meaning they came on the market or will be coming on the market as soon as construction is complete.
I wonder to what extent this has affected the median sales price. While the bigger affect of having a lot of these sales would be on the mean, adding a lot of sales to the top of the distribution would also shift the median.
The question of interest to me is how has this building boom affected the sales distribution in this area, and in Arlington in general. If these large houses are roughly the same or an only slightly higher proportion of sales than in the past, they probably don't affect the median sales price much. If they are a large and increasing part of the sales mix, than the median sales price could be rising, while the value of individual homes are falling.
Just anectdotally, I'd say that a clear majority of the houses sold or for sale in the last couple years within a few blocks for mine are major renovations or new construction. Of course, as they say, the plural of "anectode" is not "data". It would be interesting to see what proportion of home sales in Arlington in recent months were houses which had undergone major improvements since the last sale, or were new, versus the same number two years ago. The Case-Shiller index account for this problem on a larger scale, but there is no Case-Shiller index equivalent for just Arlington or for 22207.
kiethk said...
"I wonder to what extent this has affected the median sales price. While the bigger affect of having a lot of these sales would be on the mean, adding a lot of sales to the top of the distribution would also shift the median."
I actually was thinking the reverse. If anything the median will be dragged down by the ocean of condos built in the area.
That is true for Arlington in general but not for 22207 (very few condos, a few more small THs but not enough to make a difference).
Keith, not sure where specifically you are located but if you are east of Glebe and even east of Harrison or so, north of Lee Highway and on a nice sized lot, building a new home is a good deal I think. If in a more marginal area (or an area with WL instead of YHS), maybe a bit less so.
"Hello - Ford Trucks do not equal Arlington real estate!"
It was an example to help you understand what is taking place. You are obviously too emotionally attached to Arlington real estate to think rationally about it.
"Like I said - there are MORE inventory gains in Falls Church, Mclean and Alexandria than Arlington.
That means there ie NO substitution effect. If their inventories dropped, or rose more slowly, your arguments would make sense - but they are gaining more homes than Arlington. So buyers are not moving out further for better deals - because the prices are approximately the same in those areas!"
You really don't understand what we are talking about here I don't think.
You don't need shrinking inventory in the outer areas for there to be a substitution effect. I don't know where you got that idea.
The substitution effect has been taking place every year... this year, during the bubble years, and before. The substitution effect occurs any time potential buyers weight costs against benefits. It happens all the time, period.
Second... your "proof" that the substitution effect isn't taking place is completely without merit. Arlington is TINY in comparison to its neighbors.
If Arlington loses 20 houses to Fairfax county that is >10% of Arlington's total sales. What is 20 sales to Fairfax? A drop in the bucket...
You could transfer EVERY SINGLE ONE of Arlington's 179 sales in March to FFC and FFC would STILL have fewer sales YoY.
You could subtract EVERY SINGLE ONE of Arlington's 179 sales in March from FFC's inventory and FFC's inventory would still be up a huge amount YoY.
You need to think these things through a little more.
KeithK,
Yours is an observation similar to something I posted a while back that seemed to exasperate KH. I pointed out that if you go to the MRIS website and plug in 22207 you'll see 35 sales with 7 of them (20%) $1 million+ sales. My -admittedly - guess is that these are spec homes and they are driving averages and medians up. Or they are potentially majorly upgraded homes - I see this all over the place in 22207. Huge 2 story additions and the like.
So the numbers look good for the zip code on the whole but it says nothing about the smaller homes that have been there for decades.
As I said earlier, I know people that have purchased in this zipcode on much more modest salaries than compared to DINK lawyers as recently as 2001. It's because they bought a small 2/1.
This entire demographic of purchaser needs to be replaced by high income DINKs for property values to stay as high as they are. I don't see this substitution effect being rapid enough to prevent prices from languishing and dropping over the next 12-18 months.
This is really pretty funny. When presented with any bit of evidence, you guys seem to be instantly able to turn it into evidence supporting the thesis of price erosion in 22207. Thanks for the laugh.
Oh, and Leroy, not to let facts get in your way, but you need to look well north of 1MM in 22207 to get to spec houses. Try north of 1.5, unless it is on no land. But don't let something like facts or actual knowledge of the places you are writing about get in your way.
Oh, and Leroy, FFC is "Fairfax City"; you mean Fairfax County, i.e. FFX; but again, don't let any actual knowledge of the area interfere with your amusing posts.
"Oh, and Leroy, not to let facts get in your way, but you need to look well north of 1MM in 22207 to get to spec houses. Try north of 1.5, unless it is on no land. But don't let something like facts or actual knowledge of the places you are writing about get in your way."
When you said "leroy" there did you mean to be insulting someone else?
I haven't said a word about spec houses in this thread.
"Oh, and Leroy, FFC is "Fairfax City"; you mean Fairfax County, i.e. FFX; but again, don't let any actual knowledge of the area interfere with your amusing posts."
I suppose this is according to the official registry of acronyms and abbreviates right?
lol
FFC is a common enough abbreviation for Fairfax County...sometimes abbreviations can be a little bit ambiguous, try to approach them like an adult.
Sidelined said "Saying that Arlington prices will not drop becasue of traffic is....stupid."
Check this out (includes a photo of Clarendon as an example of a neighborhood within walking distance of Metrorail, no less!):
http://www.npr.org/templates/story/story.php?storyId=89803663
Home Prices Drop Most in Areas with Long Commute
by Kathleen Schalch
Economists say home prices are nowhere near hitting bottom. But even in regions that have taken a beating, some neighborhoods remain practically unscathed. And a pattern is emerging as to which neighborhoods those are.
The ones with short commutes are faring better than places with long drives into the city. Some analysts see a pause in what has long been inexorable — urban sprawl.
The Washington, D.C., metropolitan area has been hit hard. Prices tumbled an average of 11 percent in the past year. That's the big picture. But a look at Ashburn, Va., about 40 miles from the center of town, finds a steeper fall.
In parts of the county, housing prices have dropped 18 percent over that same period. New construction has ground to a halt.
Realtor Danilo Bogdanovic surveyed two rows of neat, new, brick townhouses on Falkner's Lane. "These were selling for about $550,000 at the peak, which was about August '05, and they're selling right now for about $350,000," Bogdanovic said. "Fifty percent of this community has been ether foreclosed on or is facing foreclosure."
For residents who work in the city, their commute is around an hour on trouble-free days. But that can extend upward toward two hours.
At a recent auction of foreclosed homes north of Washington, in the Maryland suburbs, there weren't many takers. All of the addresses are far from downtown, and average commute times are among the highest in the nation.
It's a different story for properties that are closer to the city's center — in areas of Montgomery County that are on the edge of Washington.
"When I have a listing in this neighborhood, there are often 40 to 60 people coming through the open houses," said Pam Ryan-Brye, an agent with Long and Foster Real Estate.
Inside the city, median home prices are actually up 3.5 percent from a year ago.
Jonathan Hill, vice president of Metropolitan Regional Information Systems, which tracks home sales, sat in his office recently, clicking through page after page of price data sorted by ZIP code. There were a lot of negative numbers, but not in places that are close in or near public transit.
The 20912 ZIP code, for example, showed almost a 10 percent increase in average sales price, Hill said.
David Stiff, chief economist for the company that produces the Case-Shiller Home Price Index, saw the trend in other cities, as well — including Los Angeles, San Francisco, New York, San Diego, Miami and Boston.
Stiff recently matched home resale values against commute times and found that in most of these major metropolitan areas, the trend is the same. The longer the commute, the steeper the drop in prices.
Stiff says home buyers' attitudes have changed. The old rule was, "Drive 'til you qualify" — meaning they should go out from the city until they could get what they wanted at a price they could afford.
Stiff says buyers are now asking different questions: "What is the cost of gasoline? What is the cost of my time?"
Recent studies suggest that buyers underestimated the costs of their long commutes. Those expenses can add up to more than the buyers saved on the home. Developers also miscalculated, lured by cheap land and rising home prices. They overreached, "partly because the bubble collapsed, but partly because these developments were just bad ideas to begin with," Stiff said.
Many of the projects were simply too far away from places that people need to go.
Builders have already shifted gears. David Goldberg of Smart Growth America, a national coalition of planners and environmentalists, points to what his hometown, Atlanta, was like in the 1990s.
"Atlanta was recognized as the fastest-spreading human settlement, probably in the history of the world," Goldberg said.
But while the suburbs spread, the city was losing population. Now the tables have turned. In the past two years, new construction in what had been forests and farmland has slowed by more than 70 percent, but construction in town has held steady.
Goldberg sees other cities rebounding, too, including Baltimore and Philadelphia.
"Philadelphia was losing downtown housing and in-town housing until very recently," Goldberg said. "And now that's the hottest part of their market."
Goldberg expects the trend to continue, even after the current housing crisis ends. Throughout the country, the percentage of families with children is shrinking. The share of empty-nesters, seniors and young people living alone keeps heading up. Those groups don't typically seek big green lawns.
"We don't live in the Ozzie and Harriet era anymore," Goldberg said. "We live more in the Seinfeld, Sex in the City era, in which young people find cities to be compelling."
So for now, at least, it seems that sprawl may have stalled — but not everywhere, and probably not forever. Experts are waiting to see what the next housing broom brings.
mytwocents: This entire demographic of purchaser needs to be replaced by high income DINKs for property values to stay as high as they are. I don't see this substitution effect being rapid enough to prevent prices from languishing and dropping over the next 12-18 months.
I don't think you can keep prices where they are just by bringing in high income DINKs - high income, yes, but not necessarily just DINKs. If you've seen the excitement when there is an attempt to change school boundaries, you know that a lot of parents pay extra to live in certain Arlington school districts. Whether this is good or bad is irrelevant, it happens. People pay extra to be in Jamestown or Taylor (and I'm sure certain other) school districts. This premium doesn't make as much sense if you don't have kids. [I know a lot of realtors recommend buying in a good school district, even if you don't have kids, because good schools raise the value of your house. This never made much sense to me. Yeah, you get more when you sell, but you pay more when you buy. Unless you expect these homes to appreciate at a faster rate - and not just maintain their premium - you're better off spending that premium on something you get use out of - a better view, a more convenient location, a nicer house, etc.) Back to my point, a lot of these new, larger houses are also better suited for families than couples. To keep prices up, in addtion to the DINKSs, this area has to continue to attract relatively affluent people with kids ... more affluent on average than those moving in when I bought 20 years ago.
As far as traffic and gas prices go, I'm sure that that's a major factor in keeping prices up. That doesn't eliminate the substitution effect, it just changes the balance in Arlington's favor. I work south of the city, and a large number, and probably the majority, of the people I work with live in PWC or further south. Even though I could have bought a larger, nicer house on a larger lot for half the price at the time I bought, I never considered PWC. I was familiar with the traffic. I did consider Falls Church, Alexandria and Fairfax County, though. Other people I know would never consider Arlington, Alexandria or Falls Church or even Fairfax County. They can't see spending so much money on such a little house on such a small lot. Some people did weigh plusses or minuses of cost vs. location and made a choice. If some of these people chose PWC when the cost difference between it and a closer-in location was 2:1, you'd expect even more to do so if the difference is 3:1. On the other hand, if some chose the closer-in location over PWC when the commuting difference was 30 minutes, all else being equal, even more are going to choose it if increased traffic has made the difference 60 minutes. As prices in the outer counties drop they become relatively more attractive when compared to closer-in locations. As traffic increases, the closer-in locations become more attractive compared with outer counties.
Rising gas prices, and even more so actual shortages if they occur, will definitely boost the premium for houses in the 22207 area. Still, it takes a lot of gas to make up a difference of $500K in house price.
I'm still amazed at the prices in my area. I probably would not buy in the same area at the current prices if I was starting out fresh (but I wouldn't settle in PWC or Stafford either). Still, there seem to be plenty of people left that don't seem to mind. At least for now.
As he says, DINKs don't really fit the 22207 profile, that is more Ashton Heights and Lyon Park; people usually leave those two areas for 22207 when it comes time for school (though Long Branch is excellent).
Coming in late in this thread. But the first article hit on my experiences in buying my first home in 1993 and now in 2008.
My first TH was bought in '93 for $110K - about 1/2 what others bought during the peak. When I sold the place in July of '05 - mine was one of the last ones sold within hours in that neighborhood.
My new condo was last sold for $242K in '06 and I got it for $157K. I was one of those that did cash out a couple of times. In the end I did have a decent nest egg to help get this new place and have some savings for the future.
Turning 50 this year, I look at this as being my last purchase of a home. I just hope that the values increase enough that in 10 years if I have to sell that I come away with some money.
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