Please post your local house search updates, MLS finds, on-topic ideas, and links here.
Thursday, August 7, 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
42 comments:
U.S. pending home sales unexpectedly rise 5.3 percent
Expect the unexpected! (no regional data though)
"With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009," Lawrence Yun, the group's chief economist, said in a statement.
5116 27TH ST N ARLINGTON VA 22207 @ $599,000 is back to Active. Failed inspection???
Ah, the joys of spin. Gotta hand it to NAR, they can spin a ball a yarn with the big boys.
Rise 5.3 percent month over month after May's numbers were revised down!
"Rise" despite the whopping year-over-year 12% drop.
""Rise"" when 1/3 of all sales are or recently were REOs.
Spin baby spin, if we can get the headline we can make the sales!!!
Cara,
Agree. I'm happy to see the interest in the REOs, but the price point is so much lower on those which is what generates the interest.
August 14 2008: NAR 2nd Quarter Metro Home Prices/State Resales will be released
Dc Metro Area Median Single Family Home Price
1st Quarter
371k
2nd Quarter
My guess
345 k
3rd Quarter
350 k slight rebound for 1 quaret then down again
Anyone else?
I dunno - but I did see this which left me a bit dismayed. PMI (mortgage insurer) says that 2 years from now - there is about a 21.4% chance DC prices will be lower, meaning there is a 79.6% chance prices will be higher. (see page 4).
http://www.pmi-us.com/media/pdf/products_services/eret/pmi_eret08v3s.pdf
This concerns me because this isnt some mere pontificating blogger. These guys have some skins in the game. Essentially they go out of business if they are wrong.
Incidentally, 3 years ago, they correctly put us near the top of the bubble markets. They still say there is a 95% chance for further doom out in California (up from 94% last quarter). However they are becoming more and more bullish on DC every quarter.
If they are hedging a 79.6% chance prices are higher summer 2010, they must think the price drops we have had are about all we are gonna get. Yet 2003 prices in arlington remain a distant memory. Time to go shoot myself...
Essentially they go out of business if they are wrong.
Why would they go out of business? Mortgage insurers did fine in previous bubble busts that I'm familiar with. In fact, if they'd been used more often for high LTV mortgages in the recent runup the current batch of loans probably wouldn't suck so badly... It was partly skirting around MI by getting piggy backs and seconds that caused our current problems.
"Sarah said...
Why would they go out of business?... In fact, if they'd been used more often for high LTV mortgages in the recent runup the current batch of loans probably wouldn't suck so badly... It was partly skirting around MI by getting piggy backs and seconds that caused our current problems."
I think you answered your own question. They knew they were losing business 04-06, to piggybacks, yet they didnt try to stay relevant because they thought it was becoming too big of a bubble.
Only now, that prices have fallen, are they seeking to step back in. Even still, it looks like they wont touch California with a 10 foot pole.
The Anonymous,
Interesting link, thanks!
2 points
1) The Risk Index is for OFHEO housing only, not Case Schiller, hence tracks an inherently more stable portion of the housing stock.
2) 21.4% chance of downward appreciation for 2 more years does not imply 79.6% chance of appreciation. Other options include remaining flat. Since the mortgage insurers are not in general adversely affected by staying flat, it is hard to immediately ascertain what percentage they would assign to rising versus flat prices.
This report was centered on determining when the acceleration of price declines will stop. And the conclusion for the D.C. area is that there's about a 1/4 chance that things are going to continue to worsen. However, no worries (for home buyers) this report says next to nothing about the chances that prices will skyrocket again. Given that the affordability index has barely improved from 2007, I think it's safe to say that incomes will not support a rapid price increase in the near term.
"Cara said...
21.4% chance of downward appreciation for 2 more years does not imply 79.6% chance of appreciation. Other options include remaining flat. Since the mortgage insurers are not in general adversely affected by staying flat, it is hard to immediately ascertain what percentage they would assign to rising versus flat prices."
Good point Cara - "not down" is not necessarily "up" - it very well could be flat as well. As far as prices "skyrocketing" I feel confident the chances of that happening is zero - that I am not worried about at all.
What I am lamenting though is I was hoping to see 2002 prices in Arlington which is increasingly unlikely. Not buying in 03 because I was told to wail til the bubble burst looks more and more likely to be a huge mistake.
Still, I am glad to see prices continue to fall. I am resigned to buy next year and be glad I got to see some drop off from the absurdity of 06!
I should mention too. Its not just this report and prediction from PMI that got me down. Its also the futures markets in Chicago - The markets (i.e. more of those same "skin in the game" types) are increasingly predicting a divergence in prices:
The major bubbles (CA, NV, AZ & FL) are going to continue to get worse next year.
The minor bubbles (BOS, CHI, and DC) have seen the worst of it and will be slightly up this time next year.
Im not saying this is certain by any means however. If anything, they are wrong on the optimistic side. That said, I learned a long time ago, the markets are pretty smart and I am not inclined to bet against them.
Incidentally, I am watching a show on the travel channel. Samantha Brown is revealing the "hidden side of DC" and is in the Shaw/U street neighborhood. Talk about jumping the shark - once a main stream show like this profiles the neighborhood you know the "gentrification" has gone mainstream. Next thing you know it will be "Disneyfied" the way times square was 10 years ago.
http://washingtondc.craigslist.org/mld/reb/787747284.html
You really have to be kidding me
anonymous . . .
I'm going to pick on you for just a sec (okay more than a sec) . . . I'm not even sure why I feel the need to jump in here; I in no way harbor any ill feelings or ill will, however you are hitting on something that strikes a nerve with me and this whole mess that is going on right now.
It seems to me (again I might be completely off-base, as I am only interpreting from several comments made here and that is very faulty and risky), that you seem to blame others for the actions you took in 2002 regarding housing. You seem to keep wishing for something that may or may not happen-and that as far as it has not happened to this point it has become the fault of those who gave you "bad advice".
If I may be so rude as to interject a few observations.
#1) No one can "make" you do or not do something. To lay the blame at someones feet b/c they gave you bad advice and you took it, is incorrect. The blame lies not at those who gave the incorrect advice, but on those who listened. The blame for any action or inaction lies solely upon the person who committed or did not commit the action.
#2) God, Creator, Allah, natural rights (I prefer God) or whatever you call a higher power gave man free will, the freedom to choose. It is an impossible force to overcome, and thus each person is completely responsible for his/her own actions (I'm omitting the obvious people who sadly have mental issues, and whose will may or may not be entirely their own).
#2a) It is therefore imperative for everyone to take responsibility for their own actions. Without doing so, one is never able to grow and learn and one robs oneself of the opportunity to do so.
#3) For an action that is one of the more important ones in life (behind marriage/family, education/job), it would be extremely advisable to do as much research and individual investigation as possible, an exhaustive research even. Someone who treats buying a house like trying to buy a stock based upon a "hot" tip from a "reputable" source is IMHO asking for trouble.
#4) If you did an exhaustive search of the particulars of the housing market, where it was at, where it might go, what could you afford vs. rent vs. what you internally believed you should be able to afford in you current status, etc . . . . and came out believing that it was a bubble (i.e. confirming the "advice" you received) . . . then I don't see what the beef is. You (at this point, who knows what the future may hold, and you may ultimately be right) were wrong . . but based upon everything you had available and could reasonable calculate it was the right decision. Humans are wrong all the time . . . but just b/c you were wrong on the price doesn't mean it wasn't the right decision.
#5) If you did not do the above, well you have no one to blame but yourself. You are blaming others for being wrong when in reality you should be blaming yourself for not personally confirming or disconfirming the "advice" you received. Letting others "make" the choice for you is only doing you a disservice as you deprive yourself of the opportunity to educate yourself. If you choose to do so, be prepared to lose big, no one cares more about your money and well-being than you, by abrogating this responsibility to others you are trusting that they care more about you (or that it is in THEIR best interest to care more about you) than you care about you.
#6) Another major factor is what did you do after you came to the conclusion that prices where out of whack (by either #4 or #5). Did you actively save for a house, or just wanted to wait things out?
If you did not save more, then again you have no one to blame but yourself. You must have known from #4 or #5 that there was a chance prices could rise . . . the only way to offset that is to save, so not taking into account and mitigating those risk factors falls squarely on your shoulders.
#7) If you did everything right, you evaluated the advice, you took the risks into account, tried to mitigate them, etc, then Congratulations, seriously. Unfortunately, life is not risk free and/or fair and sometimes no matter what we do even when we make the right decision, and when we have done everything possible things still turn out sour. That's life . . . you can't change the past, no amount of bemoaning will change it . . . all one can do is evaluate the methodology used, analyze the situation for anything else that could have been done or missed and take corrective action. And if you've done everything right . . . and that in your heart you know that you had a sound plan, you evaluated everything to the best of your ability, you executed it . . . and it just didn't work out . . . then move on . . . life is too short to worry about the coulda shoulda wouldas if you did things the right way! If you didn't do things the right way, then change the procedure, learn from it, grown from it, and move on.
As a personal note, I moved here in 2005, in 2002 it would have been a very difficult decision, but I prob. would not have bought until I had 20% down, +6 months of savings, 2-3x annual income 30 year loan, and not in a TH or condo (I LOATH THEM!!).
My mitigating plan however was to save 50% of my take-home. Unlike some HHs who prefer to be house-poor while they own a house, I prefer to be poor BEFORE I own a house, I sure as heck don't want to be poor owning a house. After struggling, + getting married, + new-born child, after 3 years, I have enough saved up to put at least 50% down on a place in the price-range I'm looking at. I haven't bought yet b/c my work location is a little unsure right now and I believe the market still has a way to go. I am not rich, I make less than the median household around here, my only "investment" is in metals, besides savings. I'm actually seriously contemplating trying to save up enough in the next 3 years to just buy a place outright . . . my goodness no mortgage at all, that would be awesome! If I had been working since 2002 in the area, I would be very, very close to being able to buy out right the price range of a place I would look at.
It's not easy, we don't eat out, we don't buy a whole lot, we scrimp and save, but shoot, so far it has paid dividends gallore.
I just get so sick of the whoa is me attitude, I am a victim, it's never my fault, I'm not to blame, please someone take care of me b/c I can't, I need a bailout b/c I can't handle my own mistakes, etc. attitude that permeates much of our culture.
I mean my goodness, I have ancestors who crossed the Atlantic on rickity boats, who spent months and months walking thousands of miles crossing the plains and the rockies. After reading about them, they were very independent, reliable, hard-working, never give in people. Many would have rather died vs. taking hand-outs, many of their lives were cut short, born in hardness, or not fair. The vast majority took responsibility for their actions, and most importantly principle was something that they would not and could not compromised. They would rather die than to compromise their principles.
We think most of this is "glorified" or they really weren't that way, read their journals, their stories, their history, while some were not, many, many were.
I have tried to type this respectfully and without attacks, I hope I was successful.
It was partly skirting around MI by getting piggy backs and seconds that caused our current problems.
Concur. Mortgage insurers kept to a better grade of loans than the 80/20's. Thus, they're seeing a more optimistic side of the market.
The Alt-A resets start in 2009. Subprime was only the first blip.
Its not a question of if credit will be tighter for the next two years, but how much tighter.
Got Popcorn?
Neil
the anonymous: It's funny, I feel badly for being one of those people advising others to not buy in 2003, or to sell a condo in 2003. I still feel my analysis -- incomes hadn't kept up with housing prices; people simply couldn't afford a 400K mortgage on their incomes -- was valid. What I didn't understand was the prevalence, the *normalization*, if you will, of the nonsensical mortgage terms that would keep payments low for a few years before it all collapsed, and the offloading of risk by lenders to "investors."
If I didn't already own I'd wait another couple of years if could possibly do so. I firmly believe one of two things will happen: 1) Inflation will make housing affordable (houses will still cost 500K but the average car, for example, will cost 50K; put simply the currency will be devalued, halting the decline in apparent value, but the decline in real value will continue unabated for some time) or 2) The economy really falls into the toilet and the price of everything drops with it.
Anonymous,
That's interesting about the futures market. But those are what I call the gamblers, which is not the same level of skin in the game as those with downpayments that we've scrimped for and who are going to live in the houses, so their guesses are intrinsically more volatile than the real thing.
Anyway, prices don't have to come down to 2003 for your decision to be the correct one. If you've continued to save for a larger downpayment, then that's interest-free principle! There's no better kind. And given the higher interest rates, your cold hard cash will go much further than other people's leveraged loans. I also think it _will_ go down to 2003 + 3% inflation by the end of this winter. Given the run-up before 2003, and how many people made the opposite decision as you and stretched for their house, I don't see how it's possible that in a fall we won't go back to 2003 prices. Heck, slightly further out we're already near 2001 (plus 3% inflation).
If market psychology can stabilize enough by people collectively believing "we're not CA!!!" (which we aren't anyway) then our wind-down will be much more extended. Of course I also expect CA to fall into the ocean before spring, with I/O loan resets, so anything will be slower than that.
And GTE, Right with you on the heck with this mortgage grrr, why don't I just save up for a few more years and buy the friggin house. Right now, we are likewise putting 2/3 of our take-home to rent and downpayment savings, but there's no way I'd be willing to sign up for a mortgage payment of that total size. And we just got a nice new(to us) apartment with a great location for commuting to our jobs, so renting and being able to move flexibly was absolutely the right thing for us.
All - I am one of those rare types where money was not the prevailing issues for me. I am lucky in that regard.
I was ready to buy as I could easily afford it back then, and to me that was all that mattered. My analysis was simple - either you could afford it or you coudlnt. I could so why not.
Then I was told to wait because prices would come down - i figured heck, why not wait a bit and get a deal - so I did some research read newsweek & other articles about the bubble - and I felt comfortable with waiting. Then prices kept going higher. At that point, it became almost an issue of pride for me... I'm gonna wait it out dammit. Then prices kept going higher.
Finally, things did turn in 2005-06. It was almost an "Aha!!!" moment as I felt I would be vindicated... and then we got this weird divergence on close in versus far out property falls. I chalked it up to just taking a while to get here - but now it just looks like it is just a smaller fall overall.
Funny thing is, I have a friend who was in the same boat as I am. He capitulated in 2004 and bought waaaay out past Loudoun. Turns out he made a huge mistake. He now wants to sell and is essnetially trapped. I made the opposite decision from him - not to buy. Ironically it now looks like we both made mistakes.
The problem about doing the research is everything I read once I started doing research said simply "DC" or "DC metro area". Back then NO ONE was predicting "Arlington will be much better off because they had less flippers" or "Alexandria will be better because they had far fewer ALT A loans"...It was all metro DC was screwed.
In the end, I accept that it was MY decision not to buy. I made the mistake, and I have to live with it. Still it just gnaws at me because I was literally just days away from entering into a contract when I heard about this whole bubble thing.
anonymous,
Hopefully the venting here helps. Everyone makes good and bad financial decisions over the course of their life. Your's doesn't seem to have been too terrible, and certainly easily recoverable. That's about the maximum level of sympathy I can have for your plight.
Coming from someone like myself, who makes combined well over the median, and yet would still have to get a 1,200 sq ft townhouse practically under a major highway, in a non-desireable area in order to have a house payment we'd be comfortable with, I just can't muster more than that for someone who could afford 2003 prices.
My turn to vent:
The market asking me to put up that much of our joint income to get something we'd actually like, leaving no room for day-care, and no way we could afford any serious amount of time off for kids, or to put up with extremely marginal housing makes me angry. Bitter as hell. Thus my feeling that prices must continue to come down. Affordability has not been reached, even for over-educated middle income folks like myself. I could be wrong. But I'll be dmnd if I'm going to buy the junk that's out there available to me. We'll keep our mobility and save until we can buy it outright if we have to, but I'm not paying these prices.
(end vent)
Hmm, I disagree that "no one" thought Arlington would be hit less hard than PW, for example. It may have been that most of the pundits on TV and the mainstream media might have grouped the entire DC region together, but I recall many individuals at cocktail parties, in blogs, etc., proposing that the close-in areas (especially single family homes) would be hit less hard than the outer regions. I would hazard a guess that many if not most posters to this board saw this coming as well.
You could see the factors that would affect different places differentially several years ago; we just didn't know to what extent or exactly when the **** would hit the fan.
People who were paying attention could see then that riskier buyers, including flippers, were buying in certain areas than in others. It was clear that traffic was getting worse, and when the trans. mgt. tax initiative was declared unconstitutional and the Metro extension to Dulles got fouled up, it was no surprise that close in areas' housing prices would benefit. The only thing that people didn't foresee was that energy prices would go up so dramatically when they did, which accentuated this housing gap effect, at least temporarily (because commuting would be even more expensive as would heating and cooling those McMansions in the outer suburbs versus those small older homes close-in that some of the big home owners used to say they would never want to own).
So, anon, I know you're not seeking advice, but I'll offer some anyway. I personally do not believe the Arlington prices will ever drop to 2003 real values or below, for a variety of reasons, although I do think there will be drops in the high end homes from the current listing prices (as opposed to the market rising to meet them as conditions improve) and that this will force some drops in lower cost houses, but I don't know how big the drops will be. If you are determined to live in Arlington, then pick criteria to determine when you will jump in, and do it. Otherwise, consider alternatives to Arlington.
PS Anon, another way to look at it is that you were absolutely right to want to try to buy in Arlington or nearby rather than Loudoun. I know you don't wish your friend ill, but look at how much worse off he is than you are. I have a friend who did the same thing as you and is in the same position. Fortunately for him, he has a stable job and his family is happy here so he can stay put.
oops, I should have said "did the same thing as your friend."
Ace, I totally agree with your comments, especially:
-- "It was clear that traffic was getting worse, and when the trans. mgt. tax initiative was declared unconstitutional and the Metro extension to Dulles got fouled up, it was no surprise that close in areas' housing prices would benefit."
-- "The only thing that people didn't foresee was that energy prices would go up so dramatically when they did, which accentuated this housing gap effect"
-- "I personally do not believe the Arlington prices will ever drop to 2003 real values or below"
-- "If you are determined to live in Arlington, then pick criteria to determine when you will jump in, and do it. Otherwise, consider alternatives to Arlington."
As a SFH owner in N. Arlington for the past eight years, I know the reasons you cited have helped insulate our neighborhood from the ravages of the post-bubble meltdown, in addition to such things as excellent schools, low crime, and the renowned amenities of the Rosslyn-Ballston corridor. As I've noted elsewhere on this blog, N. Arlington is probably permanently priced above the means of most folks, in the way Georgetown and Old Town Alexandria are. Bargains can still be found, but they are the exception. I think your advice on seeking alternatives is sound. For example, though it's a bit further out, folks may take a look at Falls Church.
"Ace said...
but I recall many individuals at cocktail parties, in blogs, etc., proposing that the close-in areas (especially single family homes) would be hit less hard than the outer regions. I would hazard a guess that many if not most posters to this board saw this coming as well."
Ace - your advice is appreciated and I take it to heart. As to the cocktail party chatter - I heard it to but to be fair, until recently, I think it was reasonable to dismiss those people as falling under "its different here" spell and it was a matter of time til that spell was broken.
As to this blog specifically, I dont know if "most saw it coming" is really correct. For me, the "oh shit" moment was when Novawatcher posted records that showed the amount of flipping (and junk loans) was heavily concentrated in the outer county areas. This was only a few months ago and if I recall correctly, it seemed like it was a bit of a shocker to many on this board.
That said, perhaps the blogosphere and long time bloggers picked up on this earlier, and most of them were gone by the time it was "rediscovered" a few months ago. I have said, that this blog has been the best source of informaiton on the bubble by far. I only wish I had know about it much much sooner.
Anon, I understand where you're coming from, but I don't think it is *ever* reasonable to dismiss information that is contrary to what you may be hearing from Big Media, especially where people are being quite specific about cause-effect relations they believe exist. It is reasonable to *investigate further*, and the information was out there, at the time, as I noted in my prior email. Dismissing these views sounds as if you are guilty of the very thing you accused them of. But if you can see this now, then you're going to be in an even better position to take advantage of future conditions, and I hope you can.
I think it's also important not to engage in all-or-none, black-and-white thinking where people insisted that either (a) there is not going to be ANY drop in Arlington prices or (b) the drop in Arl. prices will be equal to the drop in PW, we just have to wait it out. We already know (a) isn't true, and the evidence now suggests that (b) won't be true. But if (b) turns out to be true, it wouldn't be the first time I'm wrong.
Ace,
How does one define equal? Same roll-back date? Same percentage mark-up for premium neighborhoods as existed before the bubble? I do think that it's a good point that the black or white options are too simplistic.
I think PWC and the like will fall to under national median prices, (because of the building glut), and fall to under 2001 + 3%/year inflation. Thus my feeling that Arlington etc will fall to below 2003 + inflation (within the next 2 years) is still a less nasty prediction than for the outer areas.
2003 prices were already high relative to same zip local incomes. People stretched because they believed 7-8% appreciation was normal for the area. Since buyers now and in the near future do not have that expectation, but do have the same incomes, they will not be willing to pay that premium, hence with time, 2003 levels (after income inflation) will return.
In the truly ritzy areas like Georgetown or Old Towne Alexandria, "income" to price ratios will remain higher for the reason that really rich people don't report all their income (or rather offset it), and some of their spendable cash isn't "income" at all. Is the bulk of North Arlington really that level of rich to make the affordability index skewed? Or does everyone who moves to Arlignton already sit through the first rung of the housing ladder on a 15 year loan in a townhouse somewhere else and have accumulated a 50% downpayment? It's possible. And self-perpetuating... Sigh. I don't know why I care, since N. Arlington would be a terrible commute for me.
Good points Ace. I wish I could remember back to those conversations as to whether people were saying (a) or (b). It very well could have been (b) and I was assuming they were under the (a) delusion.
Switching gears for a sec. Remember the house I showed you that had been of and on the market for 10 YEARS? I have another potential candidate (sorry, I cant see franklyrealty from work):
http://www.realtor.com/search/listingdetail.aspx?zp=22314&ml=3&mnp=32&mxp=31&typ=7&sid=355f9470267f4e51a0ec949dfa4a8882&lid=1099361722&lsn=7&srcnt=20#Detail
The owner just died. Tax records indicate he bought it in 1961 for $7,500. I went through it the other day and it looks like it hasnt been touched since 1961.
(a) It got its first kitchen and bath ever in 1961. Not very uncommon for the time...but the kicker was is the plumbing lines were not encased in the walls (i.e. intake pipes and giant drain pipes run down the interior walls like conduit)
(b) the place caught on fire at some point around 1977-79 - no repairs were made to this day.
(c) the walls and floors have giant 2' wide holes - termite damage that the guy lived with for years and years!
The place has good bones and with 4 fireplaces has the potential to be awesome. However, it needs soo much work I dont think its close to worth 580K.
The heirs are 6 kids out of state and the mortgage has been paid off for years so its no skin of their nose to split the minimal carry costs 6 years - no need to worry about maintenance costs!!!
Thus my prediction is if it doesnt sell in 6 months, we are looking at another 10 year sitter. Clearly these people have no motivation to move this place.
Cata said: "Is the bulk of North Arlington really that level of rich to make the affordability index skewed? Or does everyone who moves to Arlignton already sit through the first rung of the housing ladder on a 15 year loan in a townhouse somewhere else and have accumulated a 50% downpayment? It's possible. And self-perpetuating... Sigh."
Cara, as a longtime Arlington homeowner, I think both are true, actually (there's also a third category: people who bought here decades ago and have been content to simply stay put). I know that I bought our SFH in N. Arlington fifteen years after buying my first property (at Colonial Village in Courthouse), selling it to buy a condo in Rosslyn, and the selling IT to buy the SFH. I've met plenty of fellow homeowners in our neighborhood who went through a similar many-year ladder like that so they could afford to buy a house in N. Arlington.
"Cara said...
Is the bulk of North Arlington really that level of rich to make the affordability index skewed? Or does everyone who moves to Arlignton already sit through the first rung of the housing ladder on a 15 year loan in a townhouse somewhere else and have accumulated a 50% downpayment?"
Cara - I dont know how exactly it factors in but I think you need to consider the gentrification factor and how that may skew price to income ratios in areas under change.
A few days ago, I noted from the home price ceiling calculator in 1999 the median income in Condo Canyon Huntington was 78K and in Old Town it was 71K..we know that is not right but its hard to argue with a calculator.
Consider too the house I just posted that sold for 7,500 in 1961. The guy that owned it was destitute - he had no money for repairs. Yet whoever buys it will likely be someone from the highest income group. How does this factor into the price versus income calculators?
Consider too the varying demographics that moved to these areas in the last 10 years...North Arlington has absolutely filled with lawyers and other high income folk in that time. While South Arlington became little ElSalvador. One group very wealthy, the other group very poor. If they came in at roughly the same rate - median income would not change much...yet home prices could rise precipitously as the first group is likely to buy whereas the other group is more likely to rent.
Im not saying this is the answer or really if any of this proves anything. I do think however that the price income calculators do not do a good job of accounting for change in an area - some of which is very rapid and really monumental. I dont have any stats or anything to prove my point - but I do think it is something to consider.
Thanks Tom and Anon,
I think the housing ladder explanation is much more likely to work out numerically. There's long-term owners everywhere (except newly created ex-urbs). They may be a slightly higher or slightly lower percentage in various places.
To test these theories we should look at age distributions, income distributions and initial CLTV distributions. That could show evidence of people with similar incomes but who've already gotten equity being a greater proportion of the Arlington. Looked quickly using Hotpads, their numbers seem out of whack, so I'll have to look someplace better later.
I think part of my problem is, due to my own career choice that involved the extended poverty of a PhD, and then mobility required for postdocs, I'm starting the "game" so late that I really resent this whole "housing ladder" concept. My parents bought their first house even later than I probably will (also in science), and we got a beautiful but modest home built by an architect for his own use outside St. Louis, Mo. and it just pains me how much more I'm getting paid than my father (even factoring in inflation) and that I don't stand a chance of getting something comparable here.
Cara - a little OT, but I know in the past you have looked at not only price to income but also price to rents... I came across this article (1 year old) that did a comparson of prices/rent ratios to predict where prices should be in 5 years:
http://money.cnn.com/magazines/fortune/price_rent_ratios/
Unfortunately this raises more questions than answers:
(a) He has a 15 year historical price to rent chart for various cities and it is all over the place. Why do prices support 32X rent in one city but only 11X rent in another? Second, I assume at some point long ago, all these cities had a similar price to rent ratios. How long ago did they change, and when they did change, how quickly did the change take place?
(b) Usint this analysis, some of his predicitons (admittedly only 1 year into a 5 year trend) look pretty good, but others look absolutely horrible. For example:
He suggests Baltimore (which so far is relatively unscathed) is poised for a much bigger drop than already hard hit Greater DC???
He suggests Charlotte, NC and Phx, AZ are supposed to drop about the same amount 22.9% and 23.5% respectively. Yet according to Case Shiller, in the past year Phoenix is already down -26.5% whereas Charlotte is only down a mere -0.2%???
The inland empire is down probably close to 50% - probably the worst devastation in the US - nothing else comes close to it. Yet his calculation suggests it will not be as hard hit as about 1/2 of the cities in his index???
In Detroit prices are down -17.4% per case shiller YOY. Yet he suggests prices will actually rise 7.1%???
I am obviously raising far more questions than answers. We are only 1 year into their 5 year predictions, but so far, their calculators are in some cases grossly inaccurate. My point being, there are obviously factors at play here which are not easily capturable in price/rent calculators, and possibly other calculators too.
In sum I think we all need to be flexible in our thinking (the guy who did this calculator surely should) and we all need to pay attention to what is happening versus what we expected to have happen - its obvious this bubble is breaking the mold. Regards...
If anon is right and the primary factor is changing income demographics for those moving in now, then N. Arlington will be fine, since those incomes will be similar going forward.
If it's mostly move-up market for single family homes in N. Arlington that allowed for the price premium to develop and maintain itself... Then there's your mechanism right there for why prices will drop. No substitution effect needed. Because the first rung type homes, oldish townhouses and small condos in Metro convenient areas with good but not excellent schools? They're back at 2003 and earlier NOW. So, your future move-up market just evaporated. It will take time for this to have an appreciable effect, but 3 years of stagnation will take 2004 equivalent prices back to 2003 just due to inflating those gains away. Add a dash of Alt-A's (just a pinch) and some financial sector job losses? And with the small percentage of exiting homes that actual consitute the market at any given time, and the nice immune areas will comply with reality too.
(not that this changes that it still would have been the right choice buying in 2003 and having a ton of principle paid off by now given a 4% interest rate, sorry.)
thanks for the link anon. I've seen similar things linked here before. I think part of it is what you mentioned, in Old Town the lower incomes rent and only the upper incomes buy.
In case that prior link was broken:
http://money.cnn.com/magazines/fortune/price_rent_ratios/
that's a really good one though Anon!
I like the idea of predicting all three tables!!!
(with many salt grains, yes)
(gotta go watch the olympics with someone who can afford TiVo) :)
cheers!
Cara - I like your analysis there - and I agree, if its mostly "change", Arl its going to be OK, but if its the "move up market" Arl is toast and its only a matter of time...
I would say that the stability of neighborhoods in N. Arlington is quite strong. Especially in the last 8 years, in my observation in my neighborhood, most people who can buy here just don't leave. One factoid: when we bought our SFH eight years ago, there were practically no small children on our street. Now there are more than two dozen! When the neighborhood as a whole has a kids' street party (Halloween and Easter Egg Hunt are the biggies), there must be more than a hundred pre-teen kids there. The old-timers who've lived here for 40+ years say it's like it was in the 50s and 60s. I think the nationally-ranked Arlington public schools are a big reason for that, but so are high gas prices, the never-ending traffic nightmares in farther-out suburbs, and our walking-distance proximity to Metrorail.
One final factoid: when many people in our neighborhood "move out," it's only temporarily. I personally know five families who left their houses for up to 18 months while their residences underwent major expansions. Then they moved back in!
Anonymous said: "North Arlington has absolutely filled with lawyers and other high income folk in that time. While South Arlington became little El Salvador."
Yep, you got that right, Anonymous. My only comment is that middle class and upper middle class folks are slowly penetrating into S. Arlington, starting with the border areas between N. and S. Case in point: the Buckingham area near Rt. 50 (the official boundary between N. and S. Arlington). More than half of the 1940s-era Buckingham garden apartments are being demolished and market-price townhouses are being built; the first townhouses are on the market now. Many low-income families (mainly Hispanic, many illegal aliens) have been forced to move out of the county altogether due to rising home prices (yes, even during the post-bubble era). So I expect S. Arlington will slowly gentrify. I suppose if a homebuyer wanted to adopt a long-term view, buying a SFH in S. Arlington (depending on the neighborhood) might make a lot of sense!
"North Arlington has absolutely filled with lawyers and other high income folk in that time. While South Arlington became little El Salvador. One group very wealthy, the other group very poor."
I'm a long time lurker and South Arlington resident, and I just couldn't let this one go.
Anonymous, this statement confirms what gte811ie said upthread about you not doing your research. Let me assure you that there are plenty of people of means who live south of Route 50 and that neighborhoods such as Arlington Ridge, Fairlington, Shirlington, Park Fairfax, and Arlington Village are hardly barrios.
Cara, what I meant in referring to a comparison of price drops between Arl. and PW, was a Case-Schiller comparison in percentage terms, or something similar, from peak to trough.
jules, I totally agree; I've pointed this out previously and suggested that people who believe otherwise check out the values at the Arlington County website. There are plenty of homeowners in the areas you described who are paying every penny of real estate taxes comparable to similar homes in North Arlington, because they are of similar value. There certainly are rough areas, probably more of them than in NA, bringing the overall average land value below that in NA, but Tom's statement is an inaccurate characterization of South Arlington as a whole; it's much too extreme.
oops, should have said anon's statement and Tom's agreement and elaboration.
Gee, I wish we could edit!
I will admit - I dont venture down into south arlington much. My experiences are limited to the areas where Glebe Rd. intersects with Rte 50.
I go there because there are some fantastic Pupuserias around there - no menus and you have to have a working knowledge of spanish to order but well worth the effort.
I will admit too I am speaking in generalities. If those generalities are wrong I stand corrected.
Post a Comment