Continuing to examine and hold a lively discussion of the Northern Virginia Real Estate market.
Please post your local house search updates, MLS finds, on-topic ideas, and links here.
Hi,I'm new here. I've read each and every post from yesterday's bucket. I thought I'd make a splash by starting this bucket.Some personal info: I have a family of 4 with two young children. My wife have given me the ultimatum that if we still can't afford Arlington by Summer 09 we're going to Rockville/Fairfax.At this rate, I'm not too optimistic.
"Ace said... Hey guys and gals, Harriet's Bits Bucket thread for today looks lonely, with 0 posts, while this thread is getting verrrry long. Should we continue this discussion at that location?"Sounds good Ace. A few posters (Sarah, TedK, et al.) have wondered about the premium for close in areas and what if anything has changed. In addition to gas, nightlife, short commute, metro, etc., I think one aspect of that that is overlooked is the premium associated with (a) architecture and (b) history that the close in areas have in abundance. Arl, Alex & DC have a good % of places that are truly unique. When I walk down the street, I can see cracks in the gutter where the old cobblestones still lay - placed there by hessian prisoners under the supervision of George Washington. My house, like 2 others on my block of that era, survived the brutal brittish assault during the war of 1812, and the latter occupation by union soldiers during "the war of northern agression". In DC, A few years back, some guy knocked on the door of my friends house and wanted to see if he would sell because (his words) the house was one of the "finest examples of Flemmish bond brick he had ever seen in the US". I have no idea what that is but it was obviously very important to him (my friend wasnt on the market so he didnt sell, but he took the guy's card). Same thing with Arlington - you want to see an absurd premium, look at the prices that an authentic "sears house" will command. You could build the same house today house right next to it and it still would not get the same price because it didnt come from the sears catalog!So even if you account for things like square footage, shape, color, etc. these premiums are something that will always be attributable only those houses that cannot be reproduced. They truly are unique. Same thing could go a respectable way to show why rents do not justify ownership prices. In these cases, the owners are looking for something other than mere shelter, they are seeking scarcity, that a renter may not. Its kinda like the Mohican tribe cradle you see on the antiques road show. I look at it and think, to me its worth 100 bucks top - then an appraiser comes in and states its worth 60 grand! To use the renting example, something tells me that the cost of leasing out that Mohican tribe cradle will not justify its purchase price. Whoever wants to have that cradle wants to own it and will not accept anything less, except at a very substantial discount. Not a perfect example I know, but you see my point.Now you could argue that these premiums were always there, they didnt command the premium before, why do they now? Good point, but consider, it took a few brave souls to come in and "gentrify" the area before others would even consider paying premium, or in some cases, ultra premium prices depending on the unique aspects of the house. In sum, that premium was always "there" it was only recently that it was realized.Again, this in and of itself probably does not explain all of the premium these counties seem to have, but it is something clearly unique to them (in large percentages) that cannot be found elsewhere. Something to consider.
Random end-of-day thoughts:Crt said something about close-in not rising as much as outer during the bubble and I have a theory: close-in houses are weird. They were built a long time ago and were altered/expanded over time in ways that did, or did not make sense, or were over-improved and thus expensive for size. Bubble buyers perhaps preferred farther out places that were larger and conformed to our newer sensibilities. Kob pondered if those buying now are less informed. I would argue no. Here are some reflections from my recent purchase and hope that Cara plays hardball when she goes to buy as it pays off! We have good credit and put 20% down (MoCo bubble money). We purchased a SFH near metro which was a lifestyle choice for us and may protect value a bit. We looked at over 100 homes, both in open-houses and with a (bad) Realtor. (have you noticed that nobody can recommend a realtor?) We made 6 offers. Only the final was countered and all of those other houses sold for more than we offered. We used modeling to determine what we thought fair market value was for the house in every offer. The seller understood “old fashioned” market forces and so saw a fair deal when she was offered one. We stuck to our modeling, even when we “insulted” buyers with our realistic offer. 6. We offered below asking and asked for closing help. Remember when that was normal? That time is back; we got it and a lot of “comps” included similar. Finally, I’m curious: When people predict drops, do they factor in that, if the bubble began in 2000 and ended in 2006 then the return to “normal” should be 2000 price+ a 3% annual increase at least (inflation) or 6%(historic near-city annual house returns according to Case-Shiller)? Even though I bought, I still think ARL has a 10% drop left to go from today…
amy,In some areas (like Ashburn), the pendulum may swing back and hit pre-2000 prices, especially with rising mortgage rates and sane lending standards.
CRT, excellent post. Good insight into why Arlington/Alexandria command such a hefty premium -- and why they are particularly unsusceptible to the "substitution effect."
crt: >>...not sure I understand what you are getting, but I do agree with your larger point...>>True, but the issue I raised had to do with your explanation to Doug on why, even with less than 6 months of inventory, prices are falling in ARL. You said that the basic rule of thumb on supply/demand is violated by the substitution effect. My point is that when you are thinking of basic law of demand, you have already accounted for the substitution effect in that demand--.e.g., suppose the current inventory is 5 months. Without substitution effect having happened already, it may be even tighter--3 months.So, with or without substitution, it is less than 6 months of inventory. So the rule of thumb saying prices will increase when the months of inventory is less than 6 is invalid in certain cases, but that is due to other reasons--substitution effect cannot be used to explain why that rule is violated in ARL.
"Tom said... CRT, excellent post. Good insight into why Arlington/Alexandria command such a hefty premium -- and why they are particularly unsusceptible to the "substitution effect."Thanks - Ive long believed that the substitution effect plays close in, but perhaps not to the same degree as between 2 other similarly situated areas farther out. The first reason is non-monetary. If your #1 determinant is an "urban/walkable" lifestyle, there are only few places that can be replicated. Thus, if that was my primary determinant, if Old Town, Arlington & DC were too expensive, my next choice would not be West End Alexandria, or even Annandale, but perhaps farther out to Reston Town Center where the experience is an "inferior good" in economic parlance, but still replicatable to some degree. By contrast, if I wanted to live in suburban McLean, there is a nearly unlimited number of places where that suburban experience can be replicated, both farther out, north, south, wherever. Thus all things being equal from a non-monetary perspective, I think the substituion effect plays less on the urban areas than suburban areas.I also think it plays less from a strictly monetary perspective too. Case in point, my sister in law & husband sold 1 of their cars when they moved to Clarendon. If they had to move 1 mile farther out, the price at that place would have to be so much cheaper that it would justify the cost of purchasing, insuring & maintaining another car! (no way they would consider riding the bus). This is a pretty huge discount that has to be realized for a mere 1 mile difference. This isnt true, if you are moving 1 mile further out in the suburbs. That couple already had 2 cars to begin with whats a one minute longer commute worth? I dont know but this goes to show that the price differential for a 1 mile relocation can make a huge difference depending on whether that mile is in an urban or suburan setting.
"Ted K said...So the rule of thumb saying prices will increase when the months of inventory is less than 6 is invalid in certain cases, but that is due to other reasons--substitution effect cannot be used to explain why that rule is violated in ARL."I see where you are going now, and you are 100% right. That is really interesting and something to think about. No idea what the answer to that is, but again, great point.
my few words:housing prices in inner suburbs will adjust to the year where outer suburbs will adjust. Its a chain reaction and will take some time to feel the effect inside beltway.The exploding factor is ARMs reset which is saved by intrest rate cuts but eventually the mortgage rates are going up due to inflation. these arms will reset to higher intrest rates which are not affordable and at the same time refinancing option will cost those who have negative equity in home. This prolonged process may take sometime.
>In these cases, the owners are looking for something other than mere shelter, they are seeking scarcity, that a renter may not.<Good post CRT. Regarding the idea of paying a premium. I think the entire concept of premium is disconnected from the prices. Here is my illustration: In 2001 there was a townhouse on a side street in Foggy Bottom, where I lived, selling for $170K. Snows Court, off 25th. It had two bedrooms, but barely, and a basement. Small little backyard. No parking. Living area less than 600sf. It sold for $171K in 2001.I thought this house was a very good deal and its price was typical for Snows Court. But why was so it inexpensive? It's in Foggy Bottom -- right near the Metro, a short walk to the Lincoln Memorial, Georgetown and nine blocks to the White House. The location is outstanding. I recall another property -- a condo that was as close to the Foggy Bottom Metro as you could get. Second floor and a beautiful view from the window looking up 24th to Penn Ave. The sign in the window? "Lease to own." The owner couldn't sell it. This was in 1999-2000I had moved from a depressed Connecticut city where housing was selling for more than in Foggy Bottom. I couldn't believe the prices in Foggy Bottom. But regarding the $170,000 townhouse. Assume there was no bubble but good appreciation over the past six, or seven years (Just for the sake of argument). If the value of that Snows Court house increased by 6% in each of those years it would be valued at something over $255,000 by now. But houses on Snows Court have sold in recent years from around $330,000 to $450,000.Is this increase in price entirely the result of the bubble? The price certainly rode the bubble, but I don't think the bubble explains the price increase perfectly. I think the perception of the city has changed, the premium that people are willing to pay to live in the District has increased. That's an intangible, but it is real.The bubble collapse in housing pricing will certainly test that idea that people are willing to pay a premium to live in certain District neighborhoods. But I don't think desirability and the premium it adds is connected directly to prices. Had that been the case, I don't think you would have been able to negotiate a "lease to own" deal right next to the Foggy Bottom Metro or have bought a townhouse with backyard right next to the Kennedy Center for $171,000.
kob: If the value of that Snows Court house increased by 6% in each of those years it would be valued at something over $255,000 by now. But houses on Snows Court have sold in recent years from around $330,000 to $450,000.If you run the calculation over 15 or 20 years, the appreciation to $450K is likely only about 6 or 7%.Those with a "short view" miss that. Is this increase in price entirely the result of the bubble? The price certainly rode the bubble, but I don't think the bubble explains the price increase perfectly. I think the perception of the city has changed, the premium that people are willing to pay to live in the District has increased. That's an intangible, but it is real.Written more directly, leaving off the "I think", "perception", "willing", it's "The city has changed. People pay to live in the district."
amy,Don't worry, every last red cent of that downpayment has been saved while renting. We'll be playing hard-ball. That's our money, that's our money that we didn't spend, we will not part with it lightly. Curious, did you look at everything that met your needs regardless of list price, or did you limit your search to those within shooting distance of your fundamental values? At the moment, we have no one to insult, because anything within bidding distance is a bank. I feel this must change, because we make twice the median income of Franconia/Springfield, we should not have to buy next to the highway or less than 1200 sqft, or totally unrenovated 1950s. But at the moment, there are only 4 properties I'd even bother stepping foot in within spitting distance of our price range. This must be everyone else's bubble money talking, but that will evaporate soon enough.
"Kob said...But I don't think desirability and the premium it adds is connected directly to prices. Had that been the case, I don't think you would have been able to negotiate a "lease to own" deal right next to the Foggy Bottom Metro or have bought a townhouse with backyard right next to the Kennedy Center for $171,000."Interesting poing Kob - As to the premium being related to prices, I think it is, but the real question is when did the city "mature" enough to start commanding premium prices. For example, if your foggy bottom case happened in say 1996, I would say, yes there really was no premium because back then district really wasnt on alot peoples minds as a viable place to live.In my mind, the city became an option some time around the year 2000. By then, that scumbag Marion Barry was gone, the financial control board had disbanded, and suddenly, there was a sense of optimism about the cities future. I actually knew of 1 or 2 brave souls who actually moved into the district. Suddenly, the idea of moving there didnt seem completely insane to me. The timing for me at least was 2000-2001. At that time though, I still wouldnt pay a premium for any place in the city because, I thought this could be a "false start" and things could slip back to the way they were. However, by 2003-2004 there was more of a palpable sense that hey, maybe this thing is for real, maybe the city really is coming back. Thus at that time, I probably would pay a premium.As it so happened, it was around 03-04 that the funny money started working its way into the system. I still think the cities recovery would have continued without the junk loans. The question though, with regard to pricing 2004 & beyond, is how much of that is real and how much was illusory? I dont doubt that the junk loans and speculators infiltrated the city, but I am really surpised it hasnt fallen harder and quicker than it has. Clearly some of that "premium" was from funny money which is now gone, but it does also seem to me like a good majority of that premium was real and likely here to stay.
"Cara said...At the moment, we have no one to insult, because anything within bidding distance is a bank. I feel this must change, because we make twice the median income of Franconia/Springfield, we should not have to buy next to the highway or less than 1200 sqft, or totally unrenovated 1950s."Cara - im a bit confused by your post. Are you saying the banks arent pricing things right, or that the homeowners arent pricing things right?
I think one aspect of that that is overlooked is the premium associated with (a) architecture and (b) history that the close in areas have in abundance. The problem I have with this explanation, at least regarding Arlington, is that the premium seems to apply to properties that are not architecturally interesting or have any particular historical significance.Most of the 22207 zip code is post WWII development. My house was built in 1952. It's a "Broyhill colonial" model duplicated or nearly duplicated probably hundreds of times in Arlington. It's solidly built, but quality and craftsmanship reflects the rush to build that marks this era. A house just like it very nearby on a similar lot sold for almost $700,000 last fall. There's no particular historical significance. And in case you think the the buyers saw some value to this 50's building style - they tore the house down and are building a new one in its place.Northern Arlington is filled with similar examples. People are paying premium prices for colonial, cape cod and ranch houses built in the 50's with no architectural or historical significance. Sometimes they renovate, sometimes they tear down, and sometimes they just live in the houses.Sears houses typically do command some premium to other houses, given their size, in Arlington. But build a quality "Craftsman" style (Note: named after a magazine in the early 20th century that published similar house plans, and not after the Sears Craftsman brand) house next door with modern amenities and another bedroom and bathroom and you could probably sell for more. While it's nice to have an original Sears Craftsman home, people are still looking primarily for a nice place to live.Arlington is not Old Town. While there are some older neighborhoods with interesting architecture or historical backgrounds, much of Arlington is just run-of-the-mill 50's and 60's development. Prices are still high in these nice, but relatively uninteresting areas.The "truly unique" argument may fit Old Town. In Arlington, I don't think it's much of an issue. Unique and interesting places cost a lot. Boring houses cost a lot. Custom Infills and teardowns cost a lot. I don't see the premium paid for the unique and interesting or the percentage of such houses in Arlington being high enough to explain the overall appeal, and resulting housing price premium, in Arlington.
crt,I'm saying that the only things for sale in our price range have already gone back to the bank. There are only a handful of similar properties for sale by owner (through real estate agents) that are of similar housing type 9i.e. the townhouses next door) and those are $100-$200k more than comparable REOs. It's a bloodbath in the low end of Franconia Springfield, and most of the bloodletting apparently happened last year, given that they are on the market as REOs now.
crt,oh yes, but there are banks with wtf prices as well. The "I made a stupid loan in 2006, now make me whole again". Not with my money. Really it's "I'm getting slammed on my CA book, I can't afford to mark to market in D.C. this year too, I'd rather have it sit and rot, and not reach the book as a loss until 09"
The "truly unique" argument may fit Old Town. In Arlington, I don't think it's much of an issue. "KeithK said...Unique and interesting places cost a lot. Boring houses cost a lot. Custom Infills and teardowns cost a lot. I don't see the premium paid for the unique and interesting or the percentage of such houses in Arlington being high enough to explain the overall appeal, and resulting housing price premium, in Arlington."I agree, Arlington is the toughest case to make of the 3. Truth is, a ton of it is WWII housing stock & beyond that is really not very attractive to look at. Outside of the "sears house" premium and perhaps some of the 1930's style bungalows, there really isnt much to buoy the rest of the Arlington market. Cara - OK I was just curious - its interesting that some banks still are holding out for wishing prices. You would think they would be beyond that by now.
Here's a foreclosure with 'wtf price' that i've been dutifully tracking.MLS # AR6729454 List Price $749,900Status Active Subdivision ODYSSEYIt was originally listed at $879,900. Can you believe that? It's a 2-yo 3/2/1 condo near Courthouse in Arlington that was sold new for $650K in 9/06 and foreclosed on 3/08. And the bank originally wanted to rip $230K profit out of it? Talk about wtf pricing... Two months and a $130K price-cut later, at 750K it is still sitting...I'll report back when there's new development on it.
Actually the Odyssey has been doing very well in re-sales, probably the best in Arlington, check out the sales page on the County site. Certainly a lot better than 1021.
"bubbletrouble said...Actually the Odyssey has been doing very well in re-sales, probably the best in Arlington, check out the sales page on the County site. Certainly a lot better than 1021."hmm.... i don't know much about 1021 (other than tons of listings), but here're the comparables in Odyssey2001 15th ST N 107 (2/2)sales date 8/3/2006sales price $445,000yesterday's listing price $587,000 (if i remember correctly since it's not on MLS anymore)2001 15th ST N 1114 (2/2, luxury)sales date 8/29/2006sales price $744,900listing price $689,900don't know, maybe #114 will be sold at hefty premium. i just thought the original price was insane.
Cara: I looked in Arlington and "stalked" houses. I stalked the one I own and we made an offer (7%off) when it dropped 20%. Your comments remind me of me when I was looking. for ex: I saw this 750K 1950's ARL colonial on some major road. The seller was conducting the open and she gave us her sob story and I actually said "we are probably not the buyers for your house." It never did sell...ALL: As for ARL home-styles... There are a lot of weirdly updated homes in ARL and a million "westover colonials"...i'll give you that. I told my husband that we couldn't buy a "red box" b/c that might be too hard to differentiate at resale...
KH, can you comment on Cara's writings?"I feel this must change, because we make twice the median income of Franconia/Springfield, we should not have to buy next to the highway or less than 1200 sqft, or totally unrenovated 1950s. But at the moment, there are only 4 properties I'd even bother stepping foot in within spitting distance of our price range. This must be everyone else's bubble money talking, but that will evaporate soon enough."
Alexa: can you comment on Cara's writings?I think you mean my observation that several neighbors own their homes outright and have no intention of selling ever, at any price.Two are retired. They are the traditional fixed income types with some savings and income, more than enough to live comfortably.The third still works, way over there in Crystal City, 2 miles away. While this is anecdotal, it explains why "area demographics show that prices must fall" is weak thinking at best. They're not selling because they don't want to and don't have to.I do agree that prices seem out of whack in the close-in neighborhoods. I can't quite reconcile the asphalt driveway and the white appliances with EIGHT HUNDRED SEVENTY-FOUR THOUSAND DOLLARS. That might just be me.Want to pay a half mill? OK, OK, a quarter mill then.Prices are consistent across the range. It is high but the prices are set by the market.
I actually didn't mean that observation, but what you eventually hit on :"I do agree that prices seem out of whack in the close-in neighborhoods."I guess they will stay this way? They are probably still "out of whack" for almost ALL areas. I wish someone could survey all the people who have owned for 8 or more years :"Could you afford to buy your home at your current salary?"I know you are big into the "long term advantage" of owning, but one would suspect that someone who has bought into an established community would be able to afford their own home at current market value (assuming they aren't retired).Is that not a fair assessment? I can understand folks who bought into a risky area that became really nice later or someone who put in a lot of work to rehabilitate a home MAY not be able to afford their own home now.
Alexa,Thanks, that was pretty much exactly my point. For illustration. My boss, started at the same job as I'm in now, 10 years ago, comfortably bought on one salary, a $200k SFH, 4 bedrooms, 3 baths, spacious, three story, recent build. Fast forward to 2002, a colleague started a similar job, settled for a 1,200 sqft town house in a lesser neighborhood for 30k more. In 2006? When I moved down here and first considered buying? I would only have been able to buy 1 bedroom garden style apartments in Beltsville or further.Same job. Starting salary has only gone up at 1.9% per year. This war has got to end. Luckily it is ending.
"This war has got to end. Luckily it is ending."It isn't the war... though the war has likely played a small role. We have the relevant income statistics. The war has not lead to anything near the level of income growth that would be required to support bubble level housing prices.This is just a bubble... they have happened before and will happen again.
I don't think Cara was actually referring to the Iraq war...
Alexa: I wish someone could survey all the people who have owned for 8 or more years :I've had periods of flat income and occasional big jumps. I had a jump recently so I qualify to buy my house with 10% down. That doesn't say anything about the overall market in this area. I don't think places will get more affordable, that's barring a real economic depression. The current inflation might "rationalize" prices around here. Who knows.
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