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Tuesday, July 8, 2008
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58 comments:
family, if you're here...
4 bed 2 bath, near high school, elementary and middle school, large yard. Short sale that's been chasing the market down, but is now at a good price and is acceptably far from the major highways as far as ashma and children (over 300 yards is my unsubstantiated rule of thumb). If you think the bank will accept the short sale offer, take a look:
FX6721562
6101 FRONTIER Dr
SPRINGFIELD, VA 22150
Price: $270,000
Beds: 4
Baths: 2
Sq. Ft.: -
Lot Size: 9,525 Sq. Ft.
Type: Detached
Style: Split Level
Year Built: 1960
# of Stories: 3
Subdivision: SPRINGFIELD ESTATES
County: Fairfax County
MLS#: FX6721562
Source: MRIS
Status: Active
On Redfin: 92 days
Unsold in 90+ days
REDUCED!SHORT SALE! SUBJECT TO 3rd PARTY APROVAL. SPECTACULAR 4 BEDROOMS AND 2 FULL BATHROOMS. THIS HOUSE HAS BEEN UPDATED COMPLETELY. IT HAS A NICE BANK YARD, PORCH AND A BIG PATIO. THE 495,95,395 AND THE SPRINGFIELD MALL ARE REALLY CLOSE.
Date Price
Apr 07, 2008 $480,000
Apr 17, 2008 $400,000
May 05, 2008 $350,000
May 13, 2008 $310,000
Jul 07, 2008 $270,000
good find cara, thanks much, seems ideal for families.
and the price drops are incredible - 210K in 3 months. if this is not bubble bursting i don't know what is.
Thanks cara! The house looks great and, if this marks the beginning of a trend (and you can bet I hope it does), it gives me something to look forward to when we start looking in earnest next spring.
We're tossing around all sorts of ideas right now (very easy to do since we have a year to stew about it), but the gist is probably similar to many first-time home buyers:
1) Buy an older and/or smaller home closer to work, 2) buy a newer and/or bigger home further away, or 3) rent until things settle down a bit.
Things get more complicated in the current market and with individual families rather than generalizations. We, for example, now find it almost within our grasp to purchase a 1980s town home outright in Manassas, thereby allowing us to bank our "mortgage payment" until the market settles down. Hmm.
"IT HAS A NICE BANK YARD" lol
I haven't been watching that area so don't know the comps, but somehow I doubt the bank will approve a short sale for that much of a reduction. Probably wishful thinking on the seller and realtor part, combined with desperation.
Joshb,
It's close to comparable sales in the area, though mostly of 1940s and 1950s homes, they've been between $260k and $320k for that particular neighborhood.
However, I don't think the bank will approve a $205,000 loss on a $475,000 loan. My guess is they will foolishly let it go into foreclosure and then put it back on the market with a price increase to say $320k and let it sit and rot some more. I think it would be smarter to take any money they can get and run, and maybe they will be smart, but I wouldn't count on it. This does reek of desperation, but 80% of the non-REO listings in the area (in this price range) stink just as bad.
family-- The Manassas option is one I've just started to consider, thanks to this blog. Since you're looking, perhaps you know the answer to the question I asked on an earlier thread, about what Georgetown area within walking distance of the VRE and Old Town is like.
Also, have you noticed that a number of recent (2008) foreclosure sales are back on the market again within months at sizable discounts off the last sale? I can only think that the buyer preferred to let it go back to the bank again when they realized prices were still falling and their 'bargain' was now priced higher than its comps.
All - thank you for the impromptu travel advice last week for my quick trip overseas.
Shifting gears, it looks like the MRIS inventory chart has recently been updated and that peak inventory for this year is down in all 5 of the big counties.
http://www.recharts.com/nova/nova.html
It also looks like inventory will likely (barring another catastrophe) decline for the rest of the year. In fact some areas like Loudoun and Alexandria may even pass below their 2005 inventory levels towards the end of the year.
This got me thinking, does anyone know where inventory levels should be (i.e., at what point can we say that an areas inventory level is "normal")?
Clearly, it is still too high everywhere right now. However, the inventoy levels noted on the chart for the first 1/2 of 2005 were the result of an overheated market and thus, far too low.
Thus, the question is, what is the point at which inventoy levels are again normal on a historical basis. Thoughts?
Are the inventory numbers perhaps depressed by REO inventory that hasn't yet made it to the MLS? Also, are there any other changes in methodology - or RE practices - that is depressing this number?
Even something as simple as minimizing numbers of listings for new developments? (I found a 40 or 50 unit townhouse development last week in western Alexandria that had just one MLS listing for the whole project).
I look at Alexandria inventory numbers all the time - however - and I've noticed inventory - at least as reported - does seem to be moderating. And - just from driving around - no more signs that I would normally see. (Although I don't drive around the Eisenhowever/Van Dorn/Carlyle area much - where there is more newer stuff than in some other parts of Alexandria).
crt: i've heard 6 months. more than that it's buyers market, less than that, well, good luck!
0.0 - there is certainly some hidden inventory out there, but this is nothing new. Developers always list only a handful of units to say "hurry, just a few units left"!!!
Also, even with the delay in REO inventory levels are still down. The vast majority of REO's were once swelling the inventory ranks as regular sales (that didnt happen), and they are still there as REO's now. Case in point, last May in PWC there were only 28 houses for sale in the MLS for under 200K. This May, 2,201!!! No doubt this is the REO's back en masse. Yet even whith the REO's back on the market en masse, the inventory is still down YOY.
Putting that issue aside for the moment, I am still curious as to what amount of inventory is considered "normal"???
MM - your point is correct, but a bit different than what I am looking for. I am more curious about absolute inventoy (exclusive of sales). What was it, say 1990-2001, and where should it be now, accounting for changes in population?
crt,
I have read that three to six months of inventory is "normal", i.e. a healthy real estate market.
To piggyback off of ace’s point a bit, if you use the mris.com website to check out some of the “far out” places, they are at five months of inventory. For example, 20147 and 20148 (old and new Ashburn, respectively) are each showing about five months of inventory (active listings/sales). Does that make Ashburn a healthy real estate market? My personal opinion is no, especially with declining prices across the board and low sales volume on high-end homes. The highly coveted 22207 zip code is a little higher at six months of inventory. Ashburn is certainly not in better shape than Arlington. :-)
Also, new homes are still coming onto the market. In Ashburn, Centex is selling brand new condos and townhouses (they are bombarding me with flyers) and yet I don’t see them all on the MLS system. How will this affect current sellers who are trying to sell (or wanting to sell) their 10-year-old home at a higher price than a brand new home?
And finally, there will be fewer buyers, given the new lending standards. Thus, I think months of inventory can be misleading and shouldn’t be the leading indicator of health.
This is interesting: 34 cities where it's still better to rent and 66 cities where buying makes sense. I take this with a grain of salt, but it's an intriguing read nonetheless.
http://realestate.msn.com/rentals/Article2.aspx?cp-documentid=8377648>1=35000
http://realestate.msn.com/Buying/Article2.aspx?cp-documentid=8378117>1=35000
Kristina - your comments are noted, however I am asking a bit of a different question here. Take a look again at this chart:
http://www.recharts.com/nova/nova.html
Again, putting aside months of inventory, and things like new developments which have never been a part of this index, my question is simple - the trend YOYOY is down, peak inventory was summer of 2006, at what point are the inventory levels "healthy"
For example, the first chart shows us listings in NOVA Peak inventory was around 23,000 summer 2006, last year at this time there were about 19,500 listings - still to high. Now we are down to about 17,000 listings probably still too high.
In summer 2005, there were about 6,000 listings, a number that was way too low. Thus, where historically between 17,000 and 6,000 should we be? Is 15,000 summer listings historically normal, or is it around 12,000? Thoughts?
kristina, good points, and those articles are interesting. The lists remind me of the "where you can/can't build wealth" quickly articles, and of the comment that one poster here (sorry, I can't remember whom to credit!) made -- that places where it makes sense to buy/where you can build wealth are generally cities considered pretty undesirable relative to the cities on don't buy/can't build wealth.
crt: just a random thought - the problem (but nothing new) i see with inventory level is that you get a pretty solid handle of # active sellers, but no way can you get a reading of # of active buyers.
so yes historically inventory level is a good indicator (and that flaw is neglectable), but is it still the case in this market?
when you can't confidently see where the demands are, knowing the supply only gives you half the picture.
i have no doubt that buyers are out there for 22201/22205/22207/22209 properties. while every potential buyer is trying to find the price point that makes sense individually, i don't think the level of inventory (homes to choose from) plays a big part of making sales happen right now.
"Ace said
The lists remind me of the "where you can/can't build wealth" quickly articles, and of the comment that one poster here (sorry, I can't remember whom to credit!) made -- that places where it makes sense to buy/where you can build wealth are generally cities considered pretty undesirable"
That would be me. Unfortunately it seems like every one of those things says "go to detroit, you will be rich"!!! Maybe so, but I would rather be poor in a place I want to be than rich in an area where I want to kill myself!!! (no offense to detroit fans)
CRT -- I dont know, but if I had to guess, (and this is a pure guess) I would say 1/3 less than present. This would put NOVA at around 12K, Alexandria at 530, Fairfax at 5,000, etc. Again, I just pulled it out of the air but it seems to "look" ok to me.
crt,
Sorry, I’m not trying to be redundant, but wouldn’t it depend more on buyer activity, not availability?
The reason I ask this is because the real estate market is completely different today than two years ago. First, the buyer pool has shrunk. Second, buyers (and would-be buyers) are continuing their price standoff with sellers. Third, we are heading into uncertain economic times and pocketbooks are shrinking. In contrast, in 2006 we had a lot of buyers, sellers were getting top dollar, and we had a somewhat healthy economy. So I’m not sure it’s entirely accurate to assume inventory levels should fall between 2005 and 2008 levels based solely on historical data. Buyers are controlling this market, not sellers.
FWIW - some new whisper numbers are out:
http://www.caseyonealteam.com/
Arlington
Listings - 812
Sales - 209
Months of Inventory - 3.88
Alexandria
Listings - 722
Sales - 188
Months of Inventory - 3.84
Fairfax
Listings - 6454
Sales - 1414
Months of Inventory - 4.56
He has no info for Loudon or PWC.
Now, if I recall correctly, this dude is always a bit off on the optimistic side (apparently he has a counting problem when it comes to the MRIS). Thus, I expect Harriets numbers to be a bit worse than these above when she gets them in 2 days.
That said, it looks to me more of the same in the close in areas - sales still a good clip off last year, but sales relative to inventory still strong.
Fairfax is an interesting case. I know it beat YOY sales last month, but I didnt think it would even come close this month. Still there were 1423 sales last June, so if 1414 is the sales figure this month, you can pretty much call that a wash.
I will post any Loudon or PWC results I find, otherwise, we will just have to wait til Thursday for the official numbers.
the anonymous,
Hey! I’m from Detroit and take great offense! :-) Ironically, I’d like to move back: affordable housing, nice people, and less traffic. Unfortunately, yes, there is a stigma associated with my hometown, but believe it or not, it’s actually nice in the suburbs. Ann Arbor is very charming. I just need a job that’s not in any way associated with GM, Ford, or Chrysler. :-)
Kristina - your not being redundant. You and MM are (correctly) trying to see the forest thru the trees - I on the other hand am trying to get info on this one tree (absolute inventory). If it helps, your point is exactly what I have been discussing in the "Arlington on the market" post with Leroy, Sarah, Ace, et. al.
Now as to this one tree, the reason I ask is because the way I understood the bubble to play out was:
1 Absolute inventory would climb (done)
2. Sales would stay the same or even drop (done)
3. Prices would fall (done)
4. Sales would pick up YOY (happening in some places), and
5. Absolute inventory would fall to a point where it stabilizes.
Now in super bubble places like phoenix, this is exactly what you see. Out there inventory kept rising all through 2005, 2006, 2007, and 2008, and is only now starting to fall (thanks to increased sales and crashing prices). Moreover, Phoenix is following this pattern despite hidden inventory, developers not listing units, REO's off the market, (just like here).
Out here, this is not how this played out. Our peak inventory was summer 2006, it was less, summer 2007 and even less summer 2008. Thus, you can conclude in relation to super bubble cities like Phoenix we are far ahead or perhaps more correctly, will never get as bad.
As I see it, items 3,4&5 above are simultaneously happening to this market. However my question is, when looking at #5 and #5 only, where should absolute inventory be it be when it "stabilzes"?
CRT --
I would throw out the possibility that the numbers are actually showing a false bottom. Some fence sitters have decided that they are willing to get in at these prices (maybe they are fearful of rising interest rates) but once those fence sitters are out of the equation then I question who the buyers will be. In short, IMO it comes down to AFFORDABILITY and I'm not sure we are there yet (see the MSN article among others for indicators). Moreover, while DC may be a good place to live, the downturn in the economy hasn't even fully been felt yet. It is just now that companies are starting the layoffs, which is where John Q Public really first truly feels the hardship.
Here is one way to look at it.
1. Sales drop sharply. (This is the demand disappearing.)
2. Prices drop, first on forced sales, then on everything. (This is sellers coming to terms with the new market.)
3. Volume begins to return as buyers see value and the market balances. (More moderate price declines/stagnation continue for years.)
These steps will most certainly blend into each other and the transition from one to another can be months long.
Depending where you look in the area we are either in step 1 or in step 2.
I think in the hardest hit areas we are somewhere relatively late in step 2. Prices have dropped dramatically and volume appears to be returning. Price declines will continue over the next year and we will move into stabilization. (Stabilization does not mean the absolute end of price declines.)
I think in close we are still in the latter part of step 1. Volume is tiny, prices are falling, but the population in general still hasn't come to terms with the new market.
Lookingforskee - this very well could be a false bottom. Interest rates could rise significantly, fannnie and freddie may fail, job layoffs, etc. There are a number of things that could reignite this bubble and show this as a false bottom - no doubt.
That said, if you want to see real fireworks, you need to have gunpowder and alot of it, when the flame hits. 2 years ago, that inventory overhang was a huge keg of it. If jobs, or interest rates or other match fell into the market at that time, the result would have been a huge explosion. I shudder to think what this would do to a city like Phoenix where it is still huge.
Over time however, that DC powderkeg is getting smaller and smaller and smaller. If the jobs, or interest rates, or other match were to hit now, the explosion could be dramatic, but not nearly as dramatic as it was 2 years ago. Further, if the match doesnt get lit for another year and by then alot more gunpowder is removed from the system, how dramatic can it be?
To be sure, the situation could reverse itself. If one of these things happens, I expect to see inventory rising again. However, as inventory is not doing that, I have to ask at what point is it no longer a powderkeg?
leroy,
I would add that the outer areas will not stabilize until the inner areas stop declining; your 3-step cycle should last much longer in "far out" areas (i.e., start earlier, end later).
CRT said...
"2. Sales would stay the same or even drop (done)
3. Prices would fall (done)"
not sure these are "done" in Phoenix.
where is PWC/Manasass on your model?
crt, if you're trying to find the bottom, then i think leroy has it right - look no further than affordability.
area avg income has not increased 3 folds in the past decade so it doesn't make sense to see avg housing price to increase that much. besides cheap and easy money, people in bubble years were willing to dedicate a much bigger portion of their disposable income to housing expense because, well, price will always go up so it's a home as well as a sound investment.
now if you remove that delusional ROI from buying/owning a home in this market, there's no reason why people will spend more (taxes and inflation adjusted) on housing than they thought necessary a decade ago.
there, i said it, i'm calling for another 50% drop in 22201/22205/22207/22209. now i'm officially a lunatic on this board.
"Leroy said...
I think in close we are still in the latter part of step 1. Volume is tiny, prices are falling, but the population in general still hasn't come to terms with the new market."
Leroy, if Arlington & Alexandria inventory looked like Montgomery county, I would agree with you. I feel like a broken record at this point, but this 8th chart (Mo Co inventory) deserves another look
http://www.recharts.com/mris/mris_4.html
What you see in Mo Co is that peak inventory is now. Not 2 years ago, Not last year, but now. Talk about not "coming to grips" with the market, Mo Co sellers (along with PG & some others) is the poster child for denial.
Again, if close in sellers needed to come to grips with the market reality, why does their inventory look a lot more like Loudon (where reality is setting in fast), and a lot less like Montgomery?
just came across this old sales record. can you top this transaction?
1690 N QUINN ST ARLINGTON,VA 22209
SALES DATE SALES PRICE
8/29/2003 $940,000
6/12/2003 $727,588
78 days, $212,412 profit.
oh how i miss the good old days....
MM, sorry to keep repeating myself, but I keep seeing the repetition of a practice here that is a pet peeve of mine.
UNLESS YOU KNOW whether there have been any significant improvements to the home during the time period, you have no way to know what the level of "profit" or loss actually is. Capital improvements (such as a new kitchen, big landscaping changes, additions, new HVAC or windows, etc.) are just as much a part of the cost of a house as the original purchase price of the house. For those of you who live in new areas, this may not seem like a significant factor, but it is a huge factor in Arlington, where many houses are old and people buy them and fix them up or not. Two houses that may seem identical from a distance could easily have cost bases that are 50% or more different. Notice that I'm not even considering the costs of the sale itself, such as the 6% to the agents.
Because so many things in an old house require time and money especially if they are compounded by neglect, these costs can EASILY exceed the price changes I often seen cited here. Even in a relatively new condo, an owner could put in a new kitchen and baths that might run $50K-$100K.
I'm not arguing that this kind of investment is always or even most of the time done, but I am arguing that it is simply not correct to call a sales price at time X vs. a sales price at time X-1 a "profit" without knowing about improvements.
The burden of proof is on the person making a claim that some price difference is a profit that it actually is.
sara, I have noticed a bunch of bank-owned properties coming on in Manassas that were purchased only slightly earlier this year. I suspect you're right, that people are walking away as the prices continue to decline.
This market appears to be making it easier to decide to just walk away. A few days ago a was reading an anecdotal report (sorry, no link because I don't remember where I read it) about homeowners who, recognizing they are about to default on their home, go out and purchase another one - this time one that they can afford - from a different lender while their credit is still good, and then mail the keys of the first home back to the bank.
sara, I just returned from a little venture to Manassas area and took a look at the area you're interested in along with a few of mine. As for the Georgetown area, it was not my cup of tea, with (what seemed to be) a quarter of the units for sale or rent, a garbage problem in some areas, and tot lots with equipment from the Depression era (okay, not that old, but I'd make sure my kids had all their tetanus shots). That said, there were a lot of families out, several people sitting on their porches relaxing, and many residents seemed to know each other, so that gave it a nice feel.
ace: good point. i don't know what improvements were done prior to the sale. but the tax record shows it's a new construction on 5/1/03.
05/01/2003 09- New Construction
so, it's a three-month old high-end TH by Ed Peete. i think it's safe to say there wasn't any $210K worth of improvements made. if fact, i bet little was done prior to the sale.
and the seller was a RE agent herself so no 6% fee involved there.
MM - As to phoenix, perhaps done is not rhe right word - the better word is happening.
The same goes for PWC (which is was a classic bubble by the way). In my mind steps 1 and 2 are done (and here I mean done). Steps 34&5 are simultanously happening (not done but happening).
As to your point about affordability - aah yes the soft underbelly of my argument!!! The massive price drops in PWC suggest affordability is near. Truth is, however, the the stats are against me when it comes to the close in markets.
The best I can do is come up with an amalgam of arguments about how the close in area is changin, different mix of demographics, significant amounts of true gentrification, gas prices driving up rents, etc. The ususal stuff. That said, I have no solid evidence for any of that stuff so I so not defend those arguments nearly as strongly as I do about months of inventory, sales records indicating flipper concentrations, etc. Truth is, on affordability, my arguments are weak at best.
Ace - I am surprised you think the 78 day 200K+ profit example MM brought up was due to improvements. In my mind, 78 days is too short a time. Thus, that dramatic an increase in such a short a time is either (a) bank fraud or (b) greater fool type flipping (or a combination of both). Even though there wasnt as much of that stuff close in, it was real and this it seems serves as exhibit A to prove it.
Either way however, price increases like that are simply not sustainable, nor were they ever. In cases like that, there is no doubt those prices will unwind, and unwind significantly.
Random question for any statistics buffs out there:
Median housing prices include town homes, yes? Does anyone track median town home prices, particularly how they relate to an area's median income? As I think about a potential town home purchase (again, very hypothetical at the moment) I find myself wondering what a townhome represents in terms of median income, and what that might mean for any potential price adjustments.
If not town homes specifically, perhaps average price per square foot (but allowing for lot size and the age of the home)?
Do I hear crickets chirping out there in the silence?
Family - there is info out there on townhouses. On this chart, pick the location you are looking for (PWC, Loudon, etc), and then where it says Report Type, pick one of the options that says "real estate trend indicator - detach/attach"
http://www.mris.com/reports/stats/monthly_reti.cfm
To my knowledge, no one has tried to suss out the price differentials between SFH and townhouses - most of us stats jockeys dont even differentiate between residences and condos (even though we probably should).
That said, if you want to put in the legwork and see if you can find anything interesting, please knock yourself out. Good luck.
crt, that is not what I said. Go back and re-read the post.
"Ace said...
crt, that is not what I said. Go back and re-read the post."
I re-read and I stand by what I said. Am I missing something? Let me paraphrase:
MM - this guy made 200K plus in 78 days.
ACE - MM, how do you know those "profits" are not really just improvements?
CRT - ACE, 78 days seems too short to me. My guess would be this was fraud or flipping, either of which arent sustainable. (note I wrote this before MM's reply but it didnt show up til 1 minute later).
Perhaps my post want clear enough?
Ace - please dont misinterpret the tone of my last post. We may disagree on things, but I happen to personally put you in pretty high regard when it comes to the quality of entries from regular participants on this blog. I truly just didnt understand what you were trying to say. Regards.
family, thanks for the info. I'll try to get over to Manassas when I get back to the DC area in a few weeks. It's awfully far from friends and family, so I'm still lukewarm about the idea anyway, even though the prices are tempting.
crt-- When I look at months of inventory for Montgomery Co. it looks like it was under 6 months until just before the price drops started.
As prices have come back down some in places like Arlington I do think we're probably seeing some substitution effect of people who would have bought further out a few years ago now feeling able to afford closer in. I'm thinking of people like my sister and brother-in-law who 'qualified' for an $800,000 loan but instead bought something that they could actually afford for less than half that in Montgomery Co. If they'd been buying today they might well have bought in some place like Bethesda, which in May 2008 had 13 single family homes on the market in their price range where back in Oct. 2005 around the time they bought there were none.
The thought of all the people with incomes like theirs who did pay attention to their realtors and the amount the lender said they were qualified for makes me think that Arlington and other nicer, close-in places still have a ways to fall.
I tried to post yesterday about tracking increases in contingent sales in the "nice" areas. I view contingent sales as similar to decreased sales; they are a leading indicator of trouble in the market. Specifically, they are a sign that the asset class has become more thinly traded, which means that sellers are having more difficulty finding buyers, and that the market is more susceptible to disruptive events (e.g., job losses, spike in rates, REOs). [WRT to the discussion between Ace and CRT concerning months of inventory, I think that CRT needs to consider that the asset class, being more thinly traded, is more vulnerable to disruption even though supply has also fallen such that months supply is still < 6 months].
The most common status of listings are: ACTIVE, CONTRACT, CNTG/KO, CONTG/NO KO. According to MRIS, CONTRACT refers to houses where there is either a non-contingent contract or a contract contingent only on the buyer obtaining financing. CNTG/KO and CNTG/NO KO refer to houses subject to sales contracts typically conditioned on at least one of the following contingencies: inspection, radon, third party approval, buyer's home sale, and document review. "KO" means that the home seller can accept other offers while the contingency is open, while "NO KO" means that the buyer has exclusive right to purchase the home for a certain period. Although the list of possible contingencies is the same for both KO and NO KO contracts, Ace pointed out yesterday that a buyer-home-sale contingency will most likely be reflected as "KO." Thanks again, Ace.
I'm specifically looking for evidence of buyer-sale contingencies and contracts falling though. There's been discussion here about the substitution effect between, say, North Arlington and Fairfax. But there's been little mention yet of how price decreases in "less hip" areas can slowly reduce the pool of buyers in more expensive "move up" areas. One area may effect the other not because marginal buyers are substituting the cheaper area for the more expensive, but because marginal buyers are stuck in the cheaper area.
One source of frustration: while MRIS reflects whether there is a contingency, it does not set forth the specific contingency.
Terminator-X: while i understand what you're saying, i just want to caution you the status might not be current. i'm speaking from my personal experience. earlier this year we entered into a contract of a property that had a KO clause - the entire negotiation went on for about almost two weeks until we backed out, but the listing agent never bothered to change the status from KO to NO KO even after our contract were rectified. And she didn't change it either after our contract was void. In the meantime the price was dropped once. Finally it went under contract/sold about a month later. So the entire time - from mid-Mar to mid-May, the status stayed as KO even though in fact it's changed a couple times.
i don't know if this is exception or the norm, just my experience.
"Terminator X said...
I think that CRT needs to consider that the asset class, being more thinly traded, is more vulnerable to disruption even though supply has also fallen such that months supply is still < 6 months"
Term X - absoutely. Case in point, back in January, sales were less than 100 total (I think it was like 93 total). When that thinly traded (i.e. with such a small margin of error) every sale really counts.
At that point, I was predicting doom for the close in market. Even the next month sales went from like 93 to 115 (still bad but with so little inventory, the difference between 9.something mongths and 7.something months. (again every sale counts). Either way it turned out to be more of an anomaly than a new trend.
That said, if a mere 20-50 sales leave the close in market again, it very well could be curtains for them.
"Sarah said.
As prices have come back down some in places like Arlington I do think we're probably seeing some substitution effect of people who would have bought further out a few years ago now feeling able to afford closer in."
Sarah - turns out the guys at Fistserv (parent company for Case Shiller) agree with you. To quote (with my emphasis added):
"As housing affordability improves, home buyers who were previously priced out of their preferred towns and neighborhoods will be able to purchase properties in these areas. So EVEN AS OVERALL SALES VOLUME DROPS, relatively stronger demand for housing will LIMIT PRICE DECLINES in neighborhoods with shorter work commutes, better schools, and easier access to parks, recreation, and retail centers...this shift in preferences will mean that prices for homes in outlying areas will continue their MORE RAPID DECLINE and WILL BE SLOWER TO REBOUND when housing markets finally start to recover."
http://www2.standardandpoors.com/spf/pdf/index/052708_Housing_bubbles_collapse.pdf
Sounds alot like what we are seeing in places like Arlington now. Will this continue in the future? I dont know... However, given these guys track record so far at predicting the fall out of this bubble, I am not going to start beting against them without a good reason to do so.
"Leroy, if Arlington & Alexandria inventory looked like Montgomery county, I would agree with you."
You are looking at inventory, I am looking at sales.
When you see sales drop to the lowest level in more than a decade and then stay there for months(during the spring selling season) the buyers are not seeing value.
It is obvious the volume of buyers is not constrained by a lack of supply.
The reason supply and demand look balanced is that the number of sellers has dropped sharply along with the number of buyers.
The problem is that we have data on the volume of sales seen in a "normal" market in these areas and we aren't even hitting those levels. Instead, sellers appear to be avoiding listing their homes, presumably because they think the market will improve later.
This is very much a buyer/seller standoff. The buyers aren't buying because they don't think prices are where they should be. Sellers aren't selling because they don't think they will be able to get the price they want.
As you have pointed out inventory is lower in close, but that doesn't mean a standoff isn't taking place.
Ace said...
“Capital improvements (such as a new kitchen, big landscaping changes, additions, new HVAC or windows, etc.) are just as much a part of the cost of a house as the original purchase price of the house……
…..” The burden of proof is on the person making a claim that some price difference is a profit that it actually is.”
MM said...
“ace: good point. i don't know what improvements were done prior to the sale. but the tax record shows it's a new construction on 5/1/03.”
Ace, point taken. We do not know what profit was made, if any.
However, neither does the REI, but be sure that realtors gladly used/use this markup as a comp.
crt - thanks for the info and link. I'll be (slowly) working with the stats to see if I find anything interesting.
terminator,
It's a great idea, please do persue it. In the Franconia Springfield area (which of course is already distressed at the low end anyway) I've seen a lot of Contingent/Kick out as well as "Short sale approved by lender! contract fell through!!! back on market please save us before we get foreclosed on!!" (okay so that's not a direct quote...) So it would be very interesting to get some numbers on that (but I'm way too lazy/busy to do it myself).
"Leroy said...
sellers appear to be avoiding listing their homes, presumably because they think the market will improve later."
Leory, look at Harriet's decade of sales data for May. In Arlington, for most of the decade there were 3-400 active listings in May. Prior to 2005, the alltime high was 678 active listings in May. Now, there are 1,054 active listings, yet you claim this is evidence of sellers "avoiding listing their homes"???
Normally, I see where you are coming from, but this one doesnt make any sense to me. Can you please elaborate on how or where you see evidence of sellers not listing?
OK, I'm going to show my ignorance here...what does REO stand for? I know it was an early-model car, but in this context all I can tell is that it isn't something good.
Thanks all!
REO real estate owned (by the bank). That may not be the correct acronym wording, but it essentially means a foreclosed house that was "bought" by the bank.
Okay, now I'm confused. crt, I thought you had been saying that inventories are too low in Arlington to permit any large price declines. But if the number of active listings is larger than it has been in years, that seems to suggest the opposite-- unless sales have been particularly strong, which it doesn't look like they have.
Could it be that Arlington 'normally' has quite low inventory levels and that the four and a half months of inventory it has now actually represents quite high levels? Looking back to May, 2005 I see that Arlington inventory was incredibly tight-- 1 fewer active listing than it had sales, that month.
So even as overall sales volume drops, relatively stronger demand for housing will limit price declines in neighborhoods with shorter work commutes, better schools, and easier access to parks, recreation, and retail centers.
Actually what I expect to see as a lot of dancing back and forth. For the moment, I think things are favoring the close-in, high-end neighborhoods, not just because price declines have put them in line with what the outer suburbs were at the peak but also because of what has happened to those neighborhoods since.
High income people, who are practically the only ones buying at the moment, will be avoiding all the places that have been hard hit to date out of fear of further price declines and also because, as my BIL said when I told him about the townhouses in Manassas we could afford to buy outright, "But who would your neighbors be?" (I told him, "All the school teachers, administrative assistants and construction workers whose lenders qualified them for half million dollar loans-- who have now lost their houses." -- But I'd guess this is not going to occur to most people with six figure incomes, and they'll be imagining crack houses and gang warfare.)
This is currently limiting high end buyers to a few areas which haven't yet experienced dramatic price declines. But as prices go much lower in some of the areas a short distance away more I think you'll see more high end buyers doing the math and deciding that $150,000 discount for an extra 10 minutes on the metro is well worth it. Then Arlington will take another leg down and a bunch of decently-paid but not rich people will start to say, "Hmm... I could actually afford to buy there now..." and prices will stabilize again for a time.
Of course this scenario leaves out the people I mentioned before-- the ones with the $150,000 household incomes who bought $700-800,000 homes in Arlington during the bubble years. I expect those foreclosures, when they come, to make the price declines steeper-- though probably still less steep than they will be elsewhere.
"Sarah said...
I thought you had been saying that inventories are too low in Arlington to permit any large price declines."
I believe inventory RELATIVE TO SALES (i.e. 5 months of inventory) is too low to permit large declines. Calculated risk suggest that you need to have a sustained period of above 8.7 months of inventory in order to have serious price declines. I have seen another study (NAR mind you), suggesting 8 is where it starts. I dont take 8 as gospel, but every outer county has spent at least 7 months above that mark - PWC spent 20 months above that mark. By comparison, Arl & Alex spent 1 month above that mark and are now far from it.
In any event what I am saying now is that inventory is declining YOYOY. The more it declines the harder and harder it gets to have a sustained period above the 8 or whatever months of inventory.
"Could it be that Arlington 'normally' has quite low inventory levels and that the four and a half months of inventory it has now actually represents quite high levels?"
This has been suggested in the past. I scoured the net to see if there was anything about needing tighter absorbtion rates in order to maintain prices in some areas, but was not able to find anything. I suspect others that would like to believe that have searched for the same thing.
I will grant that places like Arlington need tight absorbtion rates is in fact "conceivable". That said, no one has put forward a remotely logical theory as to why the "6 month rule" would work in most areas around the US, but when you get in close, you just need tigher turn times. Recall too that we are talking about areas 20 miles or less apart. Why this rule would work in one area and not in the other area so close doesnt make any sense.
Actually what I expect to see as a lot of dancing back and forth.
I agree but I think thats implicitly implied in what they are saying. The dance will go back and forth for each area first far out and then close in. Then again far out and then again close in. The point they are making is that long term, the declines close in will always be less.
Recall too that Rob Shiller is a big urban planning type guy. He is highly critical of suburban land use policies and often cites people like Chris "suburbs will become ghettos" Lemberger. Thus, I think as far as they are concerned there will be a lot of dancing back and forth, but for each round of the dance, the decline is bigger, the farther you go.
I agree with you on the 150K family with the 800K house will lose them to foreclosure, wherever they are located.
"Normally, I see where you are coming from, but this one doesnt make any sense to me. Can you please elaborate on how or where you see evidence of sellers not listing?"
We have had several consecutive months of sales at 10+ year lows. I don't have the time to check right now but I think in the case of Arlington we have been at 10+ year lows for the last 5 months at least.
The fact that inventory isn't shooting up with sales at levels that low tells me that sellers aren't listing or are pulling listings.
I am kind of rushed right now and don't have the time, but you might want to crunching out a quick "Year to date decade of sales" to see how many fewer homes have sold this year as compared to years past.
I suspect we are about 30% off pace in Arlington, but how many houses is that?
Inventory in Jan was 859.(According to MRIS)
Inventory in May was 1050.
Inventory only climbed by 200 in that time period even with sales at decade lows?(and it is normal for inventory to climb in the spring) This suggests sellers aren't listing, or are pulling their homes from the market.
"Could it be that Arlington 'normally' has quite low inventory levels and that the four and a half months of inventory it has now actually represents quite high levels?"
This is something else I have wondered about.
We all know the rule of thumb, but does it apply equally well everywhere?
It does not appear to be predicting well in the case of the innermost areas.
Robert, I agree that Realtors use both improved and non-updated houses as comps, BUT if they are competent, they use the information that they have available for homes recently closed, which is much more info than is on the county websites. They have information about the improvements, for example, that were used to market the property - what you see when you look at franklymls and more, such as flyers distributed at showings, open houses, and in MLS but not on frankly. So let's say that you interview 3 Realtors about possibly listing your home and heard that your neighbor with the same floor plan recently sold for $500K. You have not updated your house, which you have lived in for 20 years, but your neighbor put in a new kitchen, baths, roof, etc. When those Realtors pull the comps to discuss what your listing price would be, they are not going to tell you they think you'll get $500K (unless they just want the listing and figure you'll "get real" after it sits awhile). They'll point out tactfully that they would have to deduct from the $500K to reflect the improvement value.
My point of course consistently as been NOT that we should assume all price jumps are due to improvements. Obviously irrational exuberance, loose lending, fraud, etc. factored into some sales. My point is that, especially in neighborhoods with a substantial number of older homes, we need to have info about these improvements as well as other info in order to interpret the price increase correctly.
To add to Leroy's point about evidence, the fact that Realtors don't systematically collect data about would-be sellers and buyers does not mean these people are non-existent or insignificant in number. In absence of good data, I suggest that anyone interested in spending the time talk anecdotally to Realtors in the neighborhoods we've discussed. They will tell you that it is very difficult right now to get anyone who does not have to move to list their home. And why shouldn't they believe this? I would hazard a guess that people here believe that as well. Some Realtors even blame the media for scaring people out of the market. What is the effect of this? Would be sellers don't list, and then they aren't in the market for a new, move up (or move down) home.
Wish we could edit posts--in my last pgh above, I meant to say "I would hazard a guess that many people who read this site also believe now is not a great time to put your house on the market if you don't have to move." It might be a great time if you missed out on selling at the peak and now want to move to an inexpensive Midwestern town/city, for example. For owners who want to stay in the area but move up, you are taking a risk that few qualified buyers will be interested, so you have all the hassles of fixing up and cleaning up for sale, then may not be able to sell for a price you want. Or if you get lucky and sell, a house you want (if you can find one) may have a seller who still believes it's 2005. Are you going to pay up - AND take the risk of further declines in the market price after you buy - or are you going to move into a rental and later have to move again? Why would you put yourself through this upheaval and stress, if you don't have to? Maybe you would have considered it in 2000 when home prices were considerably lower relative to your income and you might have had a nice stock portfolio but it's an even riskier proposition now.
The point is many people believe now is not the time to sell and buy, that it might be better and less costly to wait until some of the turbulence and uncertainty sorts itself out. If this weren't true, I would expect more people here would be jumping on the pumper bandwagon and urging others to buy now. This is just one example of the would-be-sellers-and-buyers- waiting-on-the-sidelines factor that I think is playing a role.
"Leroy said
We all know the rule of thumb, but does it apply equally well everywhere?
It does not appear to be predicting well in the case of the innermost areas."
Ive said it yesterday and Ill say it again today. Ive heard 6, Ive heard 4 ive heard 7. In new construction ive even heard 12 months (systemic issues i.e. obtaining U&Os) but this neither here nor there.
Some have suggested that the breakpoint may be different depending upon whether it is a normal or a bubble market. This I get it makes sense. Not one economist or otherwise has ever posited a shred of evidence as to why the rules are different depending on geography.
Second, outer areas have experienced higher and longer periods of elevated inventory relative to inner areas. I thus think it is no suprise to anyone that median prices have declined the most in the areas that had high prolonged periods of elevated months of inventory and least in areas where it never got that high nor stayed high very long.
Leroy (and Ace) it is obvious we are talking past each other at this point. I ask you to focus on inventory, you ask me to focus on sales (you say tomato I say tomato).
I too am a bit rushed (actually tired) but let me say this. If you are right, at some point, the hold out sellers have to capitulate, at some point they will have to subject themselves to the market. When this happens, we will know it because inventory levels would rise.
The problem as I see it, is that each day that this continues and that inventory doesnt show up, the more you have to question if it really is out there. We are 2.5 years into this. The pressure builds on hold out sellers day by day by day. Sure some sell, but more have to wait....Yet despite this pressure, close in inventory is still not rising - it is falling YOYOY.
As it so happens, your theory appears to fit perfectly with respect to Montgomery county. In Mo Co, inventory is rising YOYOY. Over there the pressure is rising by the day, inventory gets bigger by the day, the pressure behind the dam builds and builds and builds.
So what can we learn from Mo Co as it relates to close in VA? I think there are 2 logical choices:
(A) - somehow, someway (perhaps even incredibly I say), Arlington & Alexandria sellers are able to hold out (i.e. declining inventory YOYOY) much longer than the affluent Mo Co (rising inventory YOYOY). If so perhaps next year is the year the Arl Alex inventory builds and the dam breaks.
OR
(B) - Arlington & Alexandria are NOT different than Mo Co. They are NOT able to hold out more or longer than late comer affluent Montgomery. As such, the close in sellers ARE capitulating, they ARE listing and its just not that exciting because a good % of their stuff is being absorbed.
The choice to me is an obvious B, but if you believe it is A, fair enough. If so, I respect your choice - just understand that the stats seem to suggest otherwise.
“Ace said...
Robert, I agree that Realtors use both improved and non-updated houses as comps, BUT if they are competent, they use the information that they have available for homes recently closed, which is much more info than is on the county websites. They have information about the improvements, for example, that were used to market the property - what you see when you look at franklymls and more, such as flyers distributed at showings, open houses, and in MLS but not on frankly.”
Ace, I somewhat agree with you. However, speaking specifically of the “boom” years, realtors did whatever to drive prices further upwards. That usually meant not doing a full workup of “real” comps, and doing little more than matching bed/bath/sq ft and calling it a “comp”. I agree with you at this point in time that yes, realtors may be researching the comps a little further.
My anecdote: I was driven almost to the edge and actually decided to put an offer on a home in 2005. I asked MY realtor to work up the comps for the area, and in the mean time, I did cursory research of the resent sales and decided on a ball park figure. When MY realtor came back with 6 comps justifying the asking price, I was shocked, confused, but decided to press on and make the offer. I literally called up my realtor to tell her to make the offer, got her voice mail and hung up instead. Something was nagging at the pit of my stomach about the whole thing. I took a second look at one of the 6 comps MY realtor provided and noticed it was for the next neighborhood over. As a matter of fact, all 6 “comps” where for the next neighborhood over, 5 years newer, larger homes, on bigger lots. These where supposed to be “comps”. I dug deeper and found recent sales in the proper neighborhood, sq ft/lot size and found the sellers asking price about $50K over proper comps. I called her back furious. And thus, a bubble head was born.
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