Please post your local house search updates, MLS finds, on-topic ideas, and links here.
Thursday, June 5, 2008
Subscribe to:
Post Comments (Atom)
Northern Virginia Real Estate Statistics
REAL ESTATE SEARCH
County Assessment Websites
Buy/Sell Without an Agent
Local Real Estate Agents
Housing Economics Blogs
Local Interest
Housing Bubble Links
Eastern Regional Blogs
Western Regional Blogs
- Bakersfield Bubble
- Bay Area Real Estate Blog
- BubbleInfo (N. San Diego)
- Burbed (San Francisco)
- Dr. Housing Bubble (SoCal)
- Patrick.net (San Francisco)
- Portland Housing Blog
- Professor Piggington's Econo-Almanac
- Rancid Truth (Orange County)
- Sacramento Land(ing)
- Seattle Bubble
- SoCal Real Estate Bubble Blog
- Socket Site (San Francisco)
Real Estate Blogs
REAL ESTATE AUCTIONS
69 comments:
Lawrence Lindsey makes a persuasive argument that housing won't turn around any time soon (i.e., it's the inventories):
http://tinyurl.com/4z7322
""If you can find a decent home, for a price that you can afford then by all means buy. In this current market, it's just not going to happen, especially for the first time home buyers."
You're not giving yourself enough credit. Of course you can. It may not be your ideal place, but it rarely is for a first time buyer. However, it will be the place that 5 - 10 years from now will provide you the equity to get a lot closer to that ideal home by "moving up." Also, don't shy away from creative financing techniques. They exist to help someone specifically in your circumstances. Houses back in the early 80s were substantially LESS affordable because of interest rates approaching 20%. (Look at page 27 of Shiller's report to see how only 80% of people earing a median income could afford a median-priced house back then vs. something approaching 120% of people today.) People used financing means such as seller-financing with baloon payments due in 10 years. Just like today, people could have said "and what will I do in 10 years when the note is due?!" ... Well, things sorted themselves out then ... Just like they will now. The trick is to get into something you can afford today by buying something less valuable today (e.g., in a transistional neighborhood) and using whatever financing will get you in there. As the years go back and your salary doubles triples quadruples --- and your starter home builds equity --- you'll be able to go out and move up closer toward your dream home. Just note that there'll always be something nicer out there, but you need to start somewhere. And there really never is a bad time to buy, just people who don't know how to buy ... and find it easier to blame everything around them than to look inside themselves and realize the problem ... and the solution ... starts at home." -lance 4 sept 2006
There you have it... in Sept 2006 first time buyers should buy in transitional neighborhoods using "whatever financing will get you there" and then they can just wait until their "equity" rolls in so they can move up...
"nikki said:
"I hate to break it to you, but a couple earning $75K a year hasn't the means to repay a $500K loan using anything other thatn the collateral of thier home and the potential profits from selling it."
Nikki, did you even attempt to do the numbers before making this statement? I just did ... and you're wrong. An interest only loan at 6.50% would result in payments of $2,708 per month (or $32,500 per year)... and this is 43% of gross income add in property tax and you are at something like 45% ... That is still less than the 46% - 49% that most lenders use as the upper limit of acceptable. So, you're not comfortable with an interest only loan? Then don't buy that big of a house (or in that nice of a neighborhood) that you're going to need a $500,000 mortgage. Buy less ... but weigh the consequences of your actions. Personally, if I had to choose between the "comfort" of an amortizing loan and getting a lead-free house in which to raise my children, I'd pick the latter even if it meant doing an interest only loan."- lance oct 26 2006
500k house on a 75k income? Why not? Go interest only!
"Terminator-X said...
Lawrence Lindsey makes a persuasive argument that housing won't turn around any time soon (i.e., it's the inventories):"
What does that mean for this area given that our peak (absolute) inventory was 2006, and our inventory is now below the national (i.e. bubble and non bubble markets alike) average?
I wouldn't put too much faith in MRIS inventory numbers:
1) Many banks are holding their REO properties for auction rather than listing them.
2) New condo projects often list only a few units, even though many are available.
3) It appears real estate agents may be playing games with the inventory -- see "Northern Virginia Weekend Bits Bucket 5/31-6/1, 2008"
4) Some frustrated sellers take their homes of the market and re-list later.
5) Pent-up supply -- many would like to list their properties now, but are holding off for "better timing." Some will not be able to hold off forever.
6) We haven't really seen the Alt A, Option ARM, Prime ARM, etc. rounds of foreclosures yet -- they're coming.
7) If inventory was in short supply, we would see spec builders getting back into the game instead of getting out. They were going strong in 2006 despite "peak inventory."
8) If inventory was in short suppply, we wouldn't be reading about construction workers unable to find construction jobs.
9) If inventory was short, Mr. Toll would be talking about the bright spot that is the Washington DC Market -- but he doesn't talk about that. Instead, Toll is cutting back here. Apparently, he sees a multi-year housing depression.
10) Prices are going down now much faster than they did in 2006 -- not a sign that inventory is falling is falling.
11) Except for PWC (where prices have fallen the most), sales have slowed considerably -- so where is all the inventory going?
12) Don't be fooled, real estate agents want people to believe inventory is contracting (to get people to jump into the market).
PARANOIA
Main Entry: para·noia
Pronunciation: \ˌper-ə-ˈnȯi-ə, ˌpa-rə-\
Function: noun
Etymology: New Latin, from Greek, madness, from paranous demented, from para- + nous mind
Date: circa 1811
1 : a psychosis characterized by systematized delusions of persecution or grandeur usually without hallucinations
2 : a tendency on the part of an individual or group toward excessive or irrational suspiciousness and distrustfulness of others
"on the part of an individual or group"
"irrational suspiciousness"
Zerodown - I dont dispute anything you say. However, you will note that everything you say is true on a local and national level as well. None of that is specific to the DC market.
What is specific to the NOVA market (and not the national market or even the Suburban MD market for that matter) is that despite all these shenanigans (here and in all bubble markets), our peak inventory was 2006.
So far, according to MRIS, inventory peaked in 2006. But, isn't 2008 inventory generally above 2007 inventory? Perhaps 2009 MRIS inventory will exceed 2006 MRIS inventory, perhaps it won't. I think it's a little early to call a peak.
Personally, I do not believe that the MRIS numbers paint an accurate picture of the actual inventory available in this market. I don't know how any distortion in this market compares to distortions in other "bubble markets." I simply note that real estate agents have a self-interest in promoting the idea that supply is tightening up.
When the facts are on one's side, one argues the facts. When one resorts to personal attacks and amateur and misguided psychological diagnoses, s/he has just trumpeted to the world that s/he has lost the argument.
lance:
I guess the "paranoia" has gone "pan-global:"
Crash: The housing crisis is just beginning
As Britain wakes up to the nightmare of negative equity, we are facing a housing recession far worse than that of the early 1990s. Iain Macwhirter has a warning: don't buy a house now, at any price. Just say no. You have been warned
Gosh, even that Global City known as London:
You need only look at estate agents' windows to see that the sums don't add up - London prices average £320,000 and are out of all proportion to ability to pay. Gross median full-time earnings in London last year were only £587 a week, according to government statistics. Many young families took out self-certification "liar loans" at five or six times their income as the only way to get on to the housing ladder. Now the banks are forcing them to remortgage at a higher rate and demanding large deposits. Real fear is stalking the capital's nappy valleys.
This is going to be far, far worse than the housing recession of 1990-92. Fuelled by irresponsible bank lending, UK house prices nearly tripled in the decade to 2007 - a more lunatic rise even than in America. British prices have been running at nearly eight times average earnings against a historic average of 3.5. This was never going to be sustainable. But right at the moment the bubble burst, in August 2007, a combination of related events conspired to turn this boom into an epic bust that is likely to consume the British economy and lead to a depression. You may think the credit crisis is over, but the real crisis is just beginning.
http://tinyurl.com/54rpu9
Novawatcher said...
So far, according to MRIS, inventory peaked in 2006. But, isn't 2008 inventory generally above 2007 inventory?
As of Jun 2, its 4% below 2007 and 16% below 2006.
"Perhaps 2009 MRIS inventory will exceed 2006 MRIS inventory, perhaps it won't. I think it's a little early to call a peak."
If you look at the trend lines, its highly unlikely we'll ever see 2006 again, but I guess anything is possible.
"Personally, I do not believe that the MRIS numbers paint an accurate picture of the actual inventory available in this market. I don't know how any distortion in this market compares to distortions in other "bubble markets." I simply note that real estate agents have a self-interest in promoting the idea that supply is tightening up.
Agree - but again, this distortion is not specific to this market. Lindsey's point was about the national market which is behaving the way NOVA's market was behaving in 2006. My point was is Lindsey's comment about the national market - which is running contradictory to our local market - relevant?
the anonymous:
Actually, I said it.
I am not defending Lindsey, but his points are interesting. I'm sure every individual market has its own nuances.
Personally, I think this housing crunch is far from over, even in this area; however, none of us know for sure how things will play out.
For some analysis of the Lindsey article (he may be too pessimistic), you may want to look at CR
http://tinyurl.com/4bkqqd
I was so completely boggled by the statement, "only 80% of people earing a median income could afford a median-priced house back then vs. something approaching 120% of people today" that I just had to go back to David's blog for that date and look it up. Sure enough, word for word.
Good old Lance...
Some interesting stuff on that thread, by the way, including a very knowledgeable response to Vainvestor's claim that neg.am. loans had been around since the '80's. (They were, but only through private banks to wealthy investors-- and certainly never for 'affordability'!)
The anon: >>As of Jun 2, its 4% below 2007 and 16% below 2006.>>
Just as it is not right to use national stats to discuss local markets, it is not right to use MRIS stats for the whole NOVA region or the whole DC Metro region to discuss specific local markets.
PWC, Loudoun and cities like Herndon and Springfield may skew the stats. In places like Reston, Vienna and Fairfax, the last time I checked inventories continued to rise into April 2008 at higher levels than in 2006. I am sure there are many other places in this region that will show the same trend.
Sarah,
Let's review again what was said:
"Houses back in the early 80s were substantially LESS affordable because of interest rates approaching 20%. (Look at page 27 of Shiller's report to see how only 80% of people earing a median income could afford a median-priced house back then vs. something approaching 120% of people today.)"
The numbers are comming from Shiller's report. Shiller is the Bubblehead "saint" who keeps getting quoted by Bubbleheads ... HE says that affordability of a house was harder in the early 80s than it was in 2006. What about that statement "boggles" you? Yes ... despite all the griping by certain posters on here, it was easier to afford to buy a house in 2006 than it was in the early '80s. And people somehow made it through the '80s ...
It's just a normal real estate cycle. No one called what was happening then "a bubble" .. why call it that now. I think what happened is that folks saw the true bubble of Dot com stocks occur and they thought "hey, the same thing can happen with house prices". But it can't for many many reasons as we've discussed before. Yes, you can re-define what bubble means and try to say there was a bubble ... But if you are honest to the true meaning of a bubble, then there is no similarity between what has occured with house prices and the totally lacking value of some business ventures that got sold as stock. That was a bubble that burst because many of the investments there truly had no substance ... no value. You show me an imaginery house that got sold that pushed up the value and then you have a chance of convincing me that this was a "bubble" and not just "business as usual".
the anonymous:
In regards to 2008 v. 2007 inventory.
I don't know if June 2 is a representative date to use for a comparison; however, the inventory is up slightly in Fairfax and Arlington. Overall the drop in the NoVA area was 774 between the 6/2/2007 and the 6/2/2008 inventories. PWC's inventory decreased by 338 and Loudoun's decreased by 492. It appears that the decreases were mostly in areas that experienced the largest drops in pricing. It is also possible that these counties have more shadow inventory as they have experienced far more foreclosures and have far more REO homes. I will also note that, according to VirginiaMLS, the City of Alexandria's inventory decreased by 116 homes between the two dates.
HousingTracker.net
Hi All, looking for any advice people may have. We've signed a contract on a home that was listed (in the database and in their brochure) with a rough-in, among a few other claims that have turned out to not be true upon inspection. The owners/agents are not admitting that there is not a rough-in even though our inspector couldn't find it and we couldn't either (the basement is full of boxes so just maybe it is there but likely it's not). They are stonewalling on admitting it does not exist. What recourse do you think we have? We want the house and want them to just reduce the price by the amount of a rough-in (we're willing to ignore their other exaggerations). How should we force the issue? Our agent has been helpful in trying to get this resolved but perhaps not forceful enough when talking to them. Plus their agents like to play the phone tag game and delay, delay, delay. Thanks for any advice!!!
TedK, Zerodown, and AlexA, I thought we had all seen and discussed all this before. Just to make sure we are talking about the same thing, here is what I am looking at:
http://www.recharts.com/nova/nova.html
The source from these charts is here:
http://www.virginiamls.com/charts/index.htm
Now, I dont want to discuss everything you all said, point, by point, but I want to make a few comments so you know where I am coming from.
1. I dont usually refer to Zip realty or Housing tracker or any other site that includes the entire MD, DC, NOVA area (thus, they show an inventory count 2 to 3 times as high). First, this is because the YOY increase they cite for the entire metro area are due to the recent explosion in MD (which happens to be following the nationwide trend). Second, this is a NOVA blog - Harriet focuses on the big 5 counties Arl, Alex, FX, Lou & PWC. As it so happens, Virginia MLS does too.
2. Everyone noted how we (we meaning NOVA) started this year well above Jan 06 and Jan 07. The assumption was, we would rise all spring and blow by both those prior year's numbers. That did not happen. Instead, it looks increasingly likely that we have flattened out - it didnt fall last winter like it mormally did, it also didnt rise this spring like it normally did.
3. Of the big 5, the only place that is up as of June 2 (the most recent date available) is Arlington which is up over 6/2/07 by about 2% (14 houses). Personally, I dont consider this very significant.
4. As to the big 5, if you look at the trend lines, it is highly unlikely any of them will ever reach peak (summer 06) levels again. I will note however that if they truly are flattening out, they likely will rise above 06 in the late fall (back in 06 inventory rose and fell following seasonal patterns - that doesnt happen in flat markets).
5. If you look at other bubble markets like PHX, LV, etc. you see a layer cake phenomenon, 08 is higher than 07, which is higher than 06. Generally these lines do not cross (i.e. never got below the prior year's levels). This area did not follow that trend.
6. If you look at the national picture (bubble and non bubble markets alike), you will note (as Lindsey did in his article) that we are at a higher point now than at any time in the past. Again, not true for NOVA.
Now, I am NOT saying this is bottom and I am certainly not saying we are headed for a recovery. All I was trying to point out was Lindsey is noting a national trend that this area went through in 2006 - no more no less.
the only place that is up as of June 2 (the most recent date available) is Arlington
Fairfax is up slightly as well. Further, if you pick a different date, the results will likely differ.
As I stated, I don't believe the MLS numbers accurately reflect the current inventory in Northern Virginia. For reasons set forth above, I think the MLS inventory numbers are significantly understated. If you think they are accurate, that's fine.
I don't buy into the arguments that DC, Arlington, McLean, NoVA, ect. are different. I see no good reason to believe that these markets (sub-markets) are immune. Generally, people believe that their city, neighborhood, etc. is unique. However,the crazy lending went on in all of these markets and all will eventually be affected. It will take some time for things to play out.
It's fine with me if you believe otherwise.
Time will tell.
Do you guys just keep a wordpad of Lance quotables around anymore, so yo u can throw the latest Lance quote of the day out there?
Novawatcher said...
"Fairfax is up slightly as well."
I stand corrected, there are 15 more houses on the market in FFX on 6/2/08 than 6/2/07 (a difference of 0.002% in case you are scoring at home).
"Further, if you pick a different date, the results will likely differ."
Why would you want to do that? Why not take the most current information available even if it is not what we would like it to be?
"As I stated, I don't believe the MLS numbers accurately reflect the current inventory in Northern Virginia. For reasons set forth above, I think the MLS inventory numbers are significantly understated. If you think they are accurate, that's fine."
I dont think they are accurate either. Hidden inventory is certianly an issue. But it is an issue with all bubble markets (and even non buble markets). Even with the hidden inventory problem inventory is building and creating new records (as Lindsey notes). That is not happening here.
"I don't buy into the arguments that DC, Arlington, McLean, NoVA, ect. are different. I see no good reason to believe that these markets (sub-markets) are immune."
Where did I say that? All areas have fallen - even Arlington - not as much as I have like, but it has fallen.
"Generally, people believe that their city, neighborhood, etc. is unique. However,the crazy lending went on in all of these markets and all will eventually be affected. It will take some time for things to play out."
I hope you are right as I missed my chance to buy in Arlington back in 03. I have some hope that we will see 03 prices again but I am not sure how. If we see those prices again, what will do it? Alt A resets? Maybe. Rescession? Maybe. That said, here is what I do know (and my whole point starting in post #3 above) - it wont be because of inventory as suggested by Lindsey's article.
lance said: "... only 80% of people earing a median income could afford a median-priced house back then vs. something approaching 120% of people today...What about that statement "boggles" you?"
Is that a typo, or am i just not thinking straight? I'm confused by "120% of people today".
hog
Correction - I am responding to "Zerodown" not "Novawatcher". I got a bit testy in that last comment, and do not want to provoke a non-involved blogger.
Is that a typo, or am i just not thinking straight? I'm confused by "120% of people today".
hog
Yes, I think most people would be a little confused about what on earth 120% of the people earning a median income could mean. Not all of the people earning that income, mind you-- 20% more than all of them! And I suppose it is fruitless to ask Lance to explain it to us, since, he says, he is just quoting Shiller.
Do you guys just keep a wordpad of Lance quotables around anymore, so yo u can throw the latest Lance quote of the day out there?
All this talk about absolute inventory levels and what they portend for the market going forward seems a bit misguided to me. Don't sales volumes have to be taken into account to get anything meaningful out of the data?
For example, even if jurisdiction XYZ's inventory is down 10%, it doesn't mean that jurisdiction's market is healthier if the sales volume is down 30%, right?
And aren't sales volumes down way more than inventory?
The anonymous...thanks for the links. I wish it also had the demand on those charts as well (closed properties).
john f @ 5:01 PM
"All this talk about absolute inventory levels and what they portend for the market going forward seems a bit misguided to me. Don't sales volumes have to be taken into account to get anything meaningful out of the data?"
Yes. Looking at absolute inventories tells only part of the story. The health of the market is best presented through months of supply, i.e., inventories divided by monthly sales. And even then, one must look for a trend over several months. That will tell you whether buyers and sellers are having a meeting of the minds based upon current asking prices.
John Fountain said...
"All this talk about absolute inventory levels and what they portend for the market going forward seems a bit misguided to me. Don't sales volumes have to be taken into account to get anything meaningful out of the data?"
Absolutely. From what I have seen, the "classic" bubble scenario is you have (a) ever building inventories with (b) continuing sales declines not too soon (like a few months) afterwards. In places like PHX, MIA, LA, LV, this is exactly what we are seeing. Even nationally, that is what we are seeing.
With the exception of PWC, here it is not a "classic" scenario. Around here sales volumes are now bottoming whereas absolute inventory peaked 2 years ago. Thats not to say its not a bubbble - the prices we have seen clearly show it was and is. However, it doesnt look like a "classic" bubble, and is unlikely to play out here for reasons Lindsey suggests.
As to your second question, "aren't sales volumes down way more than inventory?" the answer is yes and no.
The "yes" part of the answer is is, on a YOY basis, April "months of inventory" is the highest its ever been for ARL (5.37 mos), ALEX (6.02 mos), FFX (7.90 mos) and LOU (8.45 mos). PWC is down in months of inventory, but given the sales spike there, thats no surprise.
Now, the "no" part of the answer is all our markets are trending down in months of inventory. Nationally, the reverse is happening. In fact, nationally, the mix of bubble and non-bubble markets alike is something like 10.5 months of inventory and rising. Thus, by comparison all our markets look pretty good, and even our most bubbly market (PWC at 9.36 mos) is beating the national average.
Sarah said:
"Yes, I think most people would be a little confused about what on earth 120% of the people earning a median income could mean. Not all of the people earning that income, mind you-- 20% more than all of them! And I suppose it is fruitless to ask Lance to explain it to us, since, he says, he is just quoting Shiller."
You see that is the problem with Leroy's taking quotes out of context ... We were discussing this report at the time, and AT THE TIME we all knew what was meant by "medium income" in the context it was being used ...
It would have been nice if Leroy bothered to pull out the entire conversation so that we could go back and see the context ... and the particular report that was being discussed. Perhaps then we'd all remember what was being discussed and what Shiller meant by his words in the particular context being used. But of course that won't happen because Leroy is more concerned with appearing to be correct then he has at seeking knowledge.
AlexA - you are welcome. As to demand, you are in luck. Check this out.
http://www.recharts.com/AroundDC.htm
Enjoy.
Terminator X said...
"The health of the market is best presented through months of supply, i.e., inventories divided by monthly sales. And even then, one must look for a trend over several months."
And therein lies the problem as I see it (at least for me to get significantly reduced prices). In January, sales were so low we had compelling evidence that we were entering a new, even more severe phase of the bubble. Since then everything has improved dramatically. For example
ARL ALEX FFX LOU PWC
Jan 9.1 10.2 13.2 15.0 17.2
Feb 6.8 8.0 9.8 12.6 16.1
Mar 5.5 8.0 8.6 10.0 11.6
Apr 5.3 6.0 7.9 8.4 9.4
Nationally, it is going in the other direction, although the most bubbly of the bubble markets are also experiencing months of inventory declines (like from 30 months to 25) like we are.
"Is that a typo, or am i just not thinking straight? I'm confused by "120% of people today"."
That is true, he appears to have misunderstood it at the time as well.
While lance seems to be trying to single out the one part of his post he thinks he can defend... the real reason I pulled those out was to show off a little bit more of lance's track record of terrible advice.
Advising people to pursue exotic mortgages at the top of the bubble as a solution to a lack of affordability?
Advising people to purchase half million dollar houses on $75k incomes with the aid of interest only loans?
To say his advice has proven to be terrible is a gross understatement...
Leroy said:
"While lance seems to be trying to single out the one part of his post he thinks he can defend..."
NO ... that is specifically the part Sarah asked about:
Sarah said...
I was so completely boggled by the statement, "only 80% of people earing a median income could afford a median-priced house back then vs. something approaching 120% of people today" that I just had to go back to David's blog for that date and look it up. Sure enough, word for word.
Again, when you realize your ground is slipping, you quickly change the facts to suit you.
Uh oh. Possible supporting evidence for Lance's "Location, location location still applies" arguments...
http://tinyurl.com/6nmxaj
By the way, I'm referring especially to the video on that page, about San Francisco's nicest neighborhoods still having bidding wars at upscale prices even with sales volumes down.
"Uh oh. Possible supporting evidence for Lance's "Location, location location still applies" arguments..."
You mean like the advice quoted above where he advises buyers to look to buy in "transitional" neighborhoods?
"Again, when you realize your ground is slipping, you quickly change the facts to suit you."
My ground is slipping?
You were telling people to use exotic mortgages as affordability measures at the top of the bubble... your brilliant advice at the time was to leverage yourself up to your eyeballs and just wait for the appreciating market to save you...
...real brilliant advice that turned out to be.
From Boston.com's housing blog, a discussion about bidding wars caused by listing agents and sellers who deliberately list the house for well below market value, a/k/a, "The Hurry Up Special":
http://tinyurl.com/6yf455
Good comment section there; they have their own Leroy v. Lance battle.
http://www.recharts.com/mris/3_dm.gif
http://www.recharts.com/mris/3_nc.gif
These charts can tell an interesting story.
From 2000 - mid 2005 (the peak for FF county), inventory was about 2000 off-season and 3250 on-season. The contracts and contingents line up - I thought there'd be a 1-3 month lag? Anyways...
You see clearly that inventory tripled and C&Cs cut in 1/2 on-season for 2006.
We see the same behavior in 2007, except inventory is about 10% less and C&Cs are off 15% from 2006.
The story for 2008 is still developing, but we see something interesting - the inventory doesn't drop off nearly as much in Jan. This is due to the lowest C&Cs shown on the charts, about 750.
Will be fun to see the May and June numbers. Will inventory stay below 9 months (3M MA) in FF county!? The drama goes on!
Lance, please defend your statement from Oct 2006 - the one where you said one should get a $500K I/O loan with a $75K salary for a home.
Not only would that person almost certainly have negative equity (possibly quite large), they would not have even started paying down the loan.
If you only argument is "you'll make more salary and you have to wait until 2011 to assess", well...I don't buy it.
As a note, our household income is well over $75K and I would never take on a $500K mortgage unless I knew our salaries would double in the next couple years. That much leverage is just not safe even for a "lead free home".
Just for reference, a $500K 30 year @ 6.25% with $5K down is ~$3,500 PITI assuming no PMI. With a $75K salary, that is 56% of gross pay - an outrageous number. $400K? 45% $300K? 34%...getting closer. ;)
I can understand pushing your budget some or choosing a risky I/O in anticipation of inflation and increased salary, but push too hard and you can be in real danger.
I was going to wait until tomorrow when there is a fresh thread to post this, but I think there is more to the inventory numbers than the numbers themselves.
A number of people have noticed the odd "flattening" of the normal seasonal trends in the inventory.
This flattening does not appear to signal a bottom emerging but rather increasing desperation. The steepest price declines began after PWC etc began to exhibit the steady level of inventory it is currently showing.
I suspect what has been taking place is that large numbers of sellers who would normally want to sell their house but do not NEED to sell it are not listing their houses.
Those that have chosen to go forward with trying to sell their home in the current market are disproportionately motivated sellers. That probably has a lot to do with inventories not dropping much in the winter, and not climbing much in the spring.
We know that sales volume is way way down YoY and at decade+ lows across the region. Clearly the inventory isn't being sold off, the houses simply aren't being listed in the first place. (We aren't even seeing pre-bubble sales levels.)
I don't think that signals a healthier market, it just means that there are large numbers of potential sellers that are waiting on the sidelines hoping somehow that "next year" will be "better" time to sell.
If it adds some perspective, it is clear that in the very affluent beach neighborhods of Los Angeles (Manhattan Beach), it is possible to do SOME manipulation of the data.
Sales volume in our city is on the order of a few dozen sales a month.
A local real estate blog noted that BROKERS were recording sales prices at higher values than the local tax recorder.
Don't forget, an individual enters the data into a computer when he books the sale. He does not get into trouble if he bumps up the price or transposes some numbers.
The sales prices were subsequently changed after the blog busted the broker.
Don't forget, it is the LOCAL realtors collecting the data and disseminating the information. If it is different there, maybe you should watch the data collection?
Alexa said... As a note, our household income is well over $75K and I would never take on a $500K mortgage unless I knew our salaries would double in the next couple years. That much leverage is just not safe even for a "lead free home".
Absolutely. And what's more, banks know it. They never lent in that insane manner when they were expecting to keep the loan on their books. The rule of thumb passed down from parent to child for generations is that you shouldn't be spending more than a quarter of your pay on housing.
Banks, in my own and my parents' experience, stretching back to their first purchase just after WWII, never allowed greater than a 33% debt/income ratio-- and they'd only go that high if you had substantial 'skin in the game' in the form of a down payment.
My sister and her husband have twice that $75,000 income and they wouldn't buy a $500,000 house, despite their realtor's urging. They bought well within the traditional rule of 'affordability' in a nice, older neighborhood within walking distance of the metro. Unfortunately they bought in 2005-- and the value has now fallen by close to $100,000. Of course they should still be all right... as long as they give up any idea of retiring any time soon.
Leory @ 10:42:
As long as I can't sleep, I might as well reply to your post.
"I suspect what has been taking place is that large numbers of sellers who would normally want to sell their house but do not NEED to sell it are not listing their houses."
This is likely true, but impossible to prove without some serious research. [Look to dodge some pot shots from the trolls.] Home owners tend to anchor themselves to peak prices, which is why home prices are so sticky on the way down; price anchoring (also common with stock investors) is an irrational emotional response whereby an owner cannot accept that the equity that he once considered "in the bank" has disappeared. More significant than total inventory are sales, which even in the "hot" areas are below 1999 levels. Current prices aren't generating the same amount of demand as existed 10 years ago, despite our economic and population growth, and increased traffic. Dismissing this is like whistling past the graveyard.
"Those that have chosen to go forward with trying to sell their home in the current market are disproportionately motivated sellers. That probably has a lot to do with inventories not dropping much in the winter, and not climbing much in the spring."
The remaining sellers can't be too desperate (yet) in the nicer areas since prices there don't reflect desperation. I've perceived a 10% drop since peak in my neighborhood (Del Ray), especially with the duplexes/condos or homes that need updating. My guess is that this drop has been sufficient to remove from the market the eager buyer and the price-anchoring seller. Buyers are on the sidelines, waiting for more desperate sellers to lower prices further; sellers are on the sidelines, waiting for more eager buyers to return. The question is: Who will blink first?
I wouldn't say "desperate" just "motivated." These are the people that have a real need to sell their house rather than people who just want to move up(or down) or whatever.
The inner areas are obviously running behind the outer areas, but they are starting to show the same pattern. It will be interesting to see if it signals the same thing.
Sarah said:
"My sister and her husband have twice that $75,000 income and they wouldn't buy a $500,000 house, despite their realtor's urging. They bought well within the traditional rule of 'affordability' in a nice, older neighborhood within walking distance of the metro. Unfortunately they bought in 2005-- and the value has now fallen by close to $100,000. Of course they should still be all right... as long as they give up any idea of retiring any time soon."
hmmm ... maybe they should have listened to that realtor who urged them to buy something better within their means. Your and AlexA's postings have reminded me that BHs tend to be penny wise, but pound foolish.
Leroy said...
"The inner areas are obviously running behind the outer areas, but they are starting to show the same pattern. It will be interesting to see if it signals the same thing."
That is what I find interesting. Inner areas are "running behind" in prices but not necessarily in buyer and seller behavior (i.e. as seen in inventory & sales numbers).
For example, line up the inventory numbers for Loudon (which has been hit hard) and Alexandria (which has not). There really is no lag between the two. In fact if you print them out, put one on top of the other, and hold them up to the light, it is scary how close they line up. The really have moved in lockstep since 2005.
If this truly was a "wave" that was moving inward, I would have expected to see a more significant lag in buyer and seller behavior. For example, if Loudon's peak inventory was summer 06, a wave would suggest it hit Alex maybe later that year, or perhaps because of the seasonal aspect of inventory in summer 07 or summer 08. That simply did not happen.
Further, we are now seeing a flattening of inventory everywhere. If inner areas were behind in behavior, why would they not show more seasonaility (i.e. where was the run up in inventory we all expected this summer)?
Put another way, suppose you had not paid any attention to the markets at all for the last 3 years. If someone put inventory charts of Alex, Lou, and even Arl & FFX in front of you, but removed their names and numbers, could you tell them apart? I'm not so sure I could.
"AlexA said...
Will be fun to see the May and June numbers. Will inventory stay below 9 months (3M MA) in FF county!? The drama goes on!"
Glad to see you are having fun with those charts, I know I have!
CRT,
Are you suggesting then that, because the inventory charts are behaving in a similar fashion, that the inner areas have already experienced their equivalent price drops akin to the outer areas?
Thanks,
My $0.02
Sarah,
I just wanted to explain what I meant by penny wise, but pound foolish in regard to your sister and her husband.
When they bought, they had to know that the boom would shortly end and that there was a risk that lower end things would fall in price. I mean, even prior to that in 2005 when I first started blogging on David's site I was predicting up to 20% drops (on average) for single family houses in new developments such as those PWC.
Quality is quality and with the exception of the very very high market where there are few buyers at any time (I mean the Bev Hills places), better quality houses (like anything else) will naturally be less vulnerable to economic swings. Looked at another way, when money is tight (for whatever reason ... such as the credit tightening going on now) it is tighest for those at the lower end of the spectrum. It follows from that that demand will drop greatest too at that lower end of the spectrum. So ... faced with the choice (i.e., the ability) to finance something at the higher (i.e., "quality") end of the spectrum, or be "penny wise" and spend less to get something at the lower (more economically vulnerable) end of the spectrum, why did they go with the lower end? To me this would have been a no brainer ... especially at the time they made the purchase. Actually, you could say that same advice holds true today.
I see. So now in Lance-speak 'bubble-heads' are not just those who 'refuse to buy' but also people who did buy -- and near the peak at that!-- but just use conventional financing and the traditional measures of affordability? Interesting. Does refusing to lie about income on a liar loan also make one a bubble-head, I wonder?
"mytwocents said...
CRT,
Are you suggesting then that, because the inventory charts are behaving in a similar fashion, that the inner areas have already experienced their equivalent price drops akin to the outer areas?
Thanks,
My $0.02"
Could be. Take a look at Montgomery County for example:
http://www.recharts.com/mris/mris_4.html
MoCo was not long ago held up as one of the areas that would do well. I remember Jim Kramer on Mad Money singled it out in early 07 as "doing well". Furthermore, its relatively close in, and wealthy, thus it should be similar to both Arlington & Alexandria.
However take a look at Montgomery Co inventory (the 7th chart). It was high in 06, but even higher in 07 and even higher in 08! Nationally this is what we see as well. Again, this is not some po dunk county we are talking about here - this is MO CO, the one of the wealthiest, most established, and "close in" areas you can find in MD. Why does Mo Co now show ever increasing inventory when Arlington & Alexandria do not?
Why is this happening? I think the answer is the credit crunch. The credit crunch was a national phenomenon - it hit everywhere at the same time. Around the middle of 07 right? Well sure enough, if you look at MoCo months of inventory (again the 7th chart), you see a massive spike up around August 07.
As it just so happens, if you look at Arlington months of inventory, you will see the exact same thing - a huge spike in months of inventory starting around Sept or Oct 07 (maybe that was "the lag" if there was one). But look too at where months of inventory both settled in. In Mo Co, it has found a new home at about 10-12 months of inventory. By contrast in Arlington, it settled in at about 6-7 months. Again, both were hit, both are close in, both are wealthy. Further, we were told that Mo Co was lagging in this thing. Why then are we now seeing mo co suffering under the strain of 10-12 months of inventory when Arl is at a very moderate strain level of 6-7 months? To me it looks like they both took the hit, yet one of them absorbed it far better than the other.
What is left from "out there" that needs to work its way in, that will change that situation going forward? Sibstitution effect? Sure, I will buy that. But again, it looks to me that the Substitution effect is already at play. What is left that is going to happen that is going to make it worse?
To answer my own question, I think a lot of this divergence really boils down to one thing - speculation. Everywhere in nova had it to some extent, but where exactly and how much?
If you may recall, a while back Novawatcher and I looked at county by county sales records to look for spikes (flippers). Even when you account for population increases, it seems pretty clear that they were concentrated in the outer counties. Sure there was some speculation close in (mostly in condos I would suspect), but even when you accounted for population increases, it was still a fair degree higher the farther you went out.
Now, take a look at the inventory levels in Nova. Everywhere had their biggest spike in summer 06. What was that? I think that was the speculators moving out of the market en masse. That spike, if you will, was the ugly scene of the body of the pig passing through the snake.
Close in, it looks like that pig was more or less absorbed and the inventory levels have subsided. Farther out, they had more problems absorbing it (higher months of inventory) and got a bit overwhelmed. In PWC, it was too damn big to absorb and thus inventory increased year, over year, over year.
No matter how you slice it I think - that part of the problem is out there and is now being finished off in the form of REO's & foreclosures (for which there are very few close in).
So as I see it, the speculative part of the element is out there, and has already hit everywhere (it just hit ouside harder). These problems were exacerbated by the credit crunch. Well the credit crunch is out there and it hit everywhere simultaneouslyn (look at MoCo for example). So what else is "out there" that needs to be "worked in, in close" (other than substitution effect)?
Ah yes... lance strikes again...
As usual the time to buy is now, and the price to pay is "as much as possible."
Pretty much all of the rest of his post is more of him trying to revise history.
In 2006 he was advising first time buyers to seek out "transitional neighborhoods" and exotic financing. (as seen in his quote above)
Now in 2008 he claims he predicted price declines in areas where they have since taken place and that obviously buyers in those areas shouldn't have bought... (but they shouldn't have waited either!)
So lets get this straight... a family looking to buy in Manassas shouldn't have bought in 2006. Instead they should have leveraged themselves to their eyeballs and bought in North Arlington.(because obviously they must work in DC right?)
What is hilarious is that at the time of course he was threatening "bubbleheads" with being priced out forever and claiming that there was no bubble in DC etc etc... new paradigm.
Between 2006 and now he has claimed the bottom has already passed several times...
I think the real lesson of lance's advice is, have a good laugh, but use your head.
crt,
Re: MoCo, there are a number of things I would take issue with.
The first is that MoCo should be compared with FFX, not ARL or ALEX. Second, their bubble started a bit late and turned a bit later there than in FFX. Third, though it is considered a wealthy county, more of that wealth is concentrated in the Bethesda/Potomac/Rockville areas, which also tend to have the better schools. There are many places in MoCo that may be just like Herndon, Springfield, etc. e.g., Takoma Park, Gaithersburg, Germantown...having similar issues with distress sales as well as transient immigrant communities.
TedK said...
crt,
Re: MoCo, there are a number of things I would take issue with.
The first is that MoCo should be compared with FFX., not ARL or ALEX. Second, their bubble started a bit late and turned a bit later there than in FFX. Third, though it is considered a wealthy county, more of that wealth is concentrated in the
Bethesda/Potomac/Rockville areas, which also tend to have the better schools. There are many places in MoCo that may be just like Herndon, Springfield, etc. e.g., Takoma Park, Gaithersburg, Germantown...having similar issues with distress sales as well as transient immigrant communities."
Ted K - no doubt. Its not the best comparison out there, but it is the best I can find for this area. My only other close in option was PG but it is far worse (looks alot like PWC).
As you noted however, Mo Co's "bubble started a bit late and turned a bit later there". In a way thats my point. Not to pick on Leroy but he most recently suggested "running behind the outer areas, but they are starting to show the same pattern".
This may be true, but has this "running behind" and "same pattern" skiped over Arl & Alex & moved on to late comer MO CO, or has it already hit (as can be seen in the strikingly similar inventory patterns) and it just wasnt very strong?
Lance: even prior to that in 2005 when I first started blogging on David's site I was predicting up to 20% drops (on average) for single family houses in new developments such as those PWC.
My guess was a drop of 10%, maybe 15% in my area. 20%? donno. This was based on the historic record, what actually happened in the early 1990's.
Condo's and some lower end TH's have fallen that much but SFH's in my area have not.
As you say Lance, this is just the economic cycle.
Everyone notice that the Dow fell on Friday and that oil is up again? That's another small turn of the economic wheel.
lol...
right right... so when the federal reserve... homebuilder CEOs, realtors, billionaires, economists, etc all agree this is an extremely atypical situation we should just ignore them and listen to you and lance right?
Afterall, he was dead on when he called the bottom in 2006, and 2007 and you did that ground breaking research that proved housing is never overpriced as long as you calculate the appreciation required to reach the current level and declare that that is "normal."
Why bother even posting stuff like this. The people here read the news....
kh said:
"As you say Lance, this is just the economic cycle."
Leroy has a hard time understanding that because this is his first time at the rodeo. One day a couple years ago he woke up from a dream and said to himself "If everything just crashed like happened with the stock market --- and blue chips could be picked up for cheap --- I'd be set for life!" What he didn't get was that as a part of the normal business cycle there were pros and there cons to this crash occuring. He thought he was smarter than everyone else who was out there bidding to buy before the crash/"boom ending" ... but that was only because never having been at the rodeo (and not having the humility to listen to his elders who had), he really and truely couldn't see any downside to waiting ... and waiting ... and waiting. Not that he needs to worry about that anymore ... with his dream not playing out fast enough, he's made other plans to while away the time while he waits and waits and waits. He's going abroad for 2, 3, 5, who knows how many years! Bon voyage Leeeeee-roy!
Lance said...
“He thought he was smarter than everyone else who was out there bidding to buy before the crash/"boom ending”
Sure Lance. Those 1.1 Million foreclosures look real smart.
Lance: Leroy has a hard time understanding ...
They all seem to have a hard time dealing with reality.
2005, 2006, 2007, 2008 and they're still waiting for 40% off in the prime, close in locations. What's with that?
Alexandria and Arlington is loaded with people who've been there for 10, 20, 30 years, many have paid off their places but the mantra is still, "those stubborn HH refuse to put their place on the market".
Well, no. I've asked a few neighbors and they say, they'll never sell.
Then there's the idea that everyone is eager to ride the rails or drive for two hours a day to get to work. Most people who live close in, don't want to commute.
The recent conundrum, why is Monkey-County priced differently from Del Ray, what's with that?
It's different because it is. Rockville Pike is nothing like Mount Vernon Ave.
We did see prices go flat for 10 years in the 1990's and there was a 10 or 15% pull back but that took an S&L crisis to trigger.
And now with Hillary formally conceding, our date with inflation/stagflation is sealed. If McCain wins, his political interests won't allow him to do what little might be done to avert a terrible cycle of inflation followed by stagflation. If Obama wins, his lack of experience will prevent him from doing what needs to be done ... no matter how much he might like to see it get done. Either way, we should be prepared for an inflationary/stagflationary period possibly greater than the last one. Whether you believe housing prices will go up or down, or stay the same. I have one simple piece of advice: Lock your nominal housing costs in asap!
lance says that "something approaching 120% of people today(people who are earing a median income can afford a median-priced house)" can afford a median priced house.6/5/08 12:44 PM
120% of the people.....
wwwwwwwwwwwaaaaaaaaaaaaaaaaaaaaaaaaaaaa????????????????????????
kh said...
“We did see prices go flat for 10 years in the 1990's and there was a 10 or 15% pull back but that took an S&L crisis to trigger.”
Wheeew. Good thing we only have a credit crisis, rising foreclosures, lender failures, rising gas prices and a sagging economy.
Robert: Good thing we only have a credit crisis, rising foreclosures, lender failures, rising gas prices and a sagging economy.
Two wars, bin Ladin, peak oil.
Robert you have a good point but is it possible to compare the 1990's and today?
If we continue to explore the two eras, we get back to Lance's viewpoint which is that the city is different today and there are more people contending for premium housing.
Post a Comment