Thanks to blog reader Ace for the link to no less than 44 local real estate agents giving their opinion about the market's future in the July 21st edition of the Sun Gazette.
They're all over the place:
"Sherry Schaffer, Long & Foster Arlington: 'Inside the Beltway, the market is doing very well. Buyers are out there, because there are good deals and the interest rates are good.'
Ann Wilson, Re/Max Allegiance Arlington: 'Yes, I agree the market has bottomed out - particularly in Arlington. I'm not sure that Arlington will ever really experience [a drop].'
Beth Slucher, Long & Foster Vienna/Oakton: 'I'm afraid I'm going to sound more dismal than most - I really think we're not at the bottom.'"
46 comments:
Thanks for the link Ace, what a bunch of looneys (for the most part)
This one was glaringly counter-factual:
Nick Kuhn, McEnearney Arlington: “What I've noticed is lots of increased activity in close-in properties in Arlington and Alexandria. Traditionally, summer is a slower season, but I am seeing lots of activity now. I'm seeing the market rebounding. Some properties are getting multiple contracts.”
Really? Summer is the slow season? On what planet?
Others are making a little more sense. Good to have a list of agents to avoid....
Sun Gazette:
"Reaching the most affluent audience in the Washington D.C. metro area"
Ahh, I should take their intended audience into account... Some of the agents are speaking from their gut (and thinking that movement equals rebound) some are speaking their true minds (and saying something non-committal or semi-dismal) and some are speaking for their intended audience of $1million dollar plus home owners.
This one didn't make a whole lot of sense:
"Ann Romer, Weichert McLean: 'It definitely hasn't bottomed out in the outlying areas, but it probably has in the close-in areas like Vienna, Arlington and McLean'
Arlington and Alexandria's July sales weren't exactly robust, although they are small areas and number of sales don't tell the whole story. The months of inventory are consistently lowish there. But for excitement in bottom-feeding sales Prince William is the example.
You're welcome! I thought you'd find it amusing.
They are correct in that its been a great summer for selling homes in Arlington.
Look at the inventory - massive dip since the spring.
Sorry folks, Arlington is still the cream of the crop in this area and people are NOT moving farther out for better deals or lower prices.
The prices probably will fall even more in Arlington, but they will NOT experience the same declines as PWC and Loudoun have - all you bubbleheads are simply wrong!
Oh just to re-iterate, there are a bunch of people on this blog that claim a "SUBSTITUTION EFFECT" where by the huge declines far out will make homes in Arlington less desireable, thus bringing Arlington declines to the same level as PWC and Loudoun.
IMO, its total BS.
Arlington declines will be determined by the supply and demand for homes in Arlington, not by the low prices in PWC and Loudoun.
Hi Doug,
I agree it's a great time to sell your house in Arlington, before the prices really start to deteriorate this winter into next spring. :)
I have gathered that you think the substitution effect is B.S. okay. Care to weigh in on the conversation Anon, Tom and I were having on whether it's new richer demographics keeping Arlington prices up (relatively speaking of course), or move-up buyers? Because if it is move-up buyers, a lot of those will be coming from condos (more substitutable than other structures and overbuilt recently) or from the less desirable neighborhoods. Thus while direct substitution may be laughable on an individual decision basis, those forced out further by the high prices will no longer be able to build the equity needed to feed the more desirable market.
If on the other hand its just new rich lawyers fresh out of law school and now ready to be first time buyers, then substitution is hooey and the loss of equity further out is irrelevant. Is that your thesis, or do you have something else in mind?
"Doug said...
...Arlington declines will be determined by the supply and demand for homes in Arlington, not by the low prices in PWC and Loudoun."
What about DC market? Wouldn't you say Arlington (and all neighboring towns/cities) is merely a substitution for DC for many folks? For the condo market I think this is especially true, and I don't think Arlington could sustain the decline when DC goes down (which seems to be happening right now).
I think they should have interviewed some Agents from Loudoun/PWC as well!
Of course, that Market is doing well too, since all the Knife Catchers are out buying up the Foreclosures.
Actually the knife catchers are probably about 85 % of the Metro DC RE business right now, truth be told
And I agree Cara, Fall & Winter will get worse, a lot WORSE.
( I may even throw a few low-balls in mid January, on those poor Sellers that have been on the Market 300 DOM or more...)
The substitution effect is one of the basic economic principles you learn in your first econ course. That's if you want to bother with a university education, which, of course, you don't in a bubble economy where you can go from grocery bagger to earning 6 figures as a mortgage broker.
To go back to an earlier discussion-- I do expect to see nominal prices at 2003 levels and yes, even close in. The reason is the fundamentals have not only not changed-- they're getting worse. The new buyers are going to be fewer and farther between, and at least a portion of the 'move ups' are going to be decimated by losses in former enclaves of wealth like Loudon. Where are they going to come from? Of course there are a lot of high end buyers in the DC area, but a huge new influx of them since 2003? That's what you'd have to see in order to maintain these prices.
It seems pretty clear to me why some of these areas haven't had significant falls yet and why you typically don't until much later in the process. High end buyers are (usually) fairly well off people who have a lot of resources. There's no pressure on them to sell, and even if they move elsewhere they're in a better position to hang on than most people. They may rent something cheap in their new city and keep their DC home, spend down their 401K, or rent it out and pay the difference out of savings. I knew someone who did that for 8 years after the Texas bust. Some people take the more drastic step of leaving part of the family here and having one spouse commute. I have in-laws who've done that.
Another factor is that it's still early in the bubble bust-- prices in much of the area were just reaching their peak around last fall-- and many people are expecting a fairly near term return to price appreciation. Under the circumstances it seems to make sense for anyone who can to 'wait and see' if the optimists who think their particular area is immune are right.
But sooner or later some people who don't have the resources to hang on lose their houses. Then the long-term owners will start settling for much more modest gains and the high end will begin to catch up to the losses in surrounding areas.
But that's just my take on things. I'm perfectly happy to let time settle the argument.
"They are correct in that its been a great summer for selling homes in Arlington.
Look at the inventory - massive dip since the spring."
Oh yeah, a really excellent summer for selling houses, unless of course you look at how many houses have sold.
I mean... just because Arlington has been selling well below decade low levels for months doesn't mean the market is bad or anything... no no... that would be a silly conclusion to draw from that data.
Clearly falling inventory means sales are strong, even when we know sales are the weakest they have been since who knows when.
(Does anyone have an answer on how long it has been since Arlington has seen 232 sales in July? That is >20% below late 1990s levels.)
Sarah said...
"Of course there are a lot of high end buyers in the DC area, but a huge new influx of them since 2003?"
Sarah - I think you need to look back earlier than this. Take DC proper for example and how much has changed there in the last 10 years. For the first time in a generation, population in the district has actually increased.
Same thing goes for arlington & alexandria where populations are only started to increase in the early 90s. How much of that demand (all done without the help of funny money) was an indication of real demographic change, and has that change continued since 2003?
Think back too to the poll that Harriet did a few months ago (if money was no object where would you live). The vote for Arlington alone was essentially equal to that of Fairfax which has 5 times the population and was for a long time, "the" place everyone aspired to live in.
Sure money is an object, but thats not the point. A generation ago, my bet is most people (with money or not) would not even consider moving into the close in areas. Now, it is something that a greater percentage of people not only consider, but also do.
In some ways you might be the perfect example of this. If memory serves me, you are looking at Del Ray as a possible place to buy. If you had seen what it was like 10 or 15 years ago, can you honestly say it was still something you would consider?
In sum, there is now demand for areas that were once considered too old, too outdated or too dangerous to even look at. Clearly some of that was the result of the bubble, but a good portion of it was real and is likely to continue.
Cara said...
Really? Summer is the slow season? On what planet?
Others are making a little more sense. Good to have a list of agents to avoid....
Yep, typical realtor double speak. Looking at the data we all know when the selling season is. However, as defined by the REI…..it’s not. They identify the “selling season” as needed to prop up ridiculous claims and more times than not, do not indicate when the selling season “is”, only when it is “not” such as:
“Traditionally, summer is a slower season”
as to avoid the pitfalls of actually identifying the time period, only to have a not so stellar season.
Leroy said.
"Clearly falling inventory means sales are strong, even when we know sales are the weakest they have been since who knows when."
As Harriet noted above, sales do not tell the whole story. The real question is, as pathetic as those sales figures are (and they are pathetic), are they enough to take down the standing inventory?
The answer so far appears to be yes.
The Anonymous said...
Sure money is an object, but thats not the point. A generation ago, my bet is most people (with money or not) would not even consider moving into the close in areas. Now, it is something that a greater percentage of people not only consider, but also do.
Not so fast there Anon. If money were not the point, we would not see a rise in foreclosures.
Every time you make a purchase, you are substituting/foregoing one thing for another. Same with housing. If there’s a home that has all the attributes I desire save one, and at a discount; I’m pretty sure I’d be ready to demonstrate the substitution effect.
According to Arlington census data, population has been growing steadily, about 10% per decade, since 1980. Over the course of that time there was a fairly small (by California standards) bubble that deflated to its minimum in the late 1990's. At the beginning of 2000, Arlington had a median price of roughly $200,000, in 2003, roughly $350,000 and until the recent price declines around $500,000.
If anyone can give me an explanation of the correlation between this kind of steady, predictable population growth and housing prices I'd love to hear it, because I must say, I'm just not seeing it.
"Sure money is an object, but thats not the point. A generation ago, my bet is most people (with money or not) would not even consider moving into the close in areas. Now, it is something that a greater percentage of people not only consider, but also do."
The data we have on incomes in Arlington and Alexandria does not support this. There has not been a dramatic increase in incomes in those areas over the last few years. (either through higher earners moving in or current residents making more)
Robert - Im not sure I understand your post. I did not say anything about the substitution effect, and for the record I believe it. Perhaps you are confusing me with Doug?
Sarah - that report you posted has some clues in it. Yes the populaiton grew between 1980-1990 but when did it really get going 83? 88? (I dont know, personally just a hypothetical).
Second, at what point did potential buyers decide that population growth was more than just a one time blip and a fundamental change regarding the future of arlington (92? 96? again I dont know).
One big clue shown in the report is the vacancy rate - between 1990 and 2000 the vacancy rate dropped from 7.5% to 4.5% and its probably lower now. A drop in vacancy rates are highly correlated with increases in prices, and drive up rents - especially in fully built out places where the only choices are destroy and rebuild, or build vertically.
A perfect example of what high vacancy rates can do to an area is detroit. Income to purchase prices and rent vs buy calculators all strongly suggest prices should rise - yet they dont because of the extrordinarily high vacancy rates. Simply put, there are more houses in detroit, than there are people to fill them.
Im not saying this is the answer nor am I saying any one thing is the answer. The point is, there is a lot of change that has taken place in the last 20 years - and even moreso in the last 10 years.
Go back to 1991 when DC was the murder capital of the US and Marion (mayor for life) Barry was in charge. Poll 1,000 uber high income types -- where would you live -- my guess is 999 would choose Fairfax over close in areas.
Fast forward 17 years and poll the same 1,000 high income types. Maybe now the answer is 950. Still an overwhelming preference for fairfax, but a monumental change for the formerly dying areas closer in.
"As Harriet noted above, sales do not tell the whole story. The real question is, as pathetic as those sales figures are (and they are pathetic), are they enough to take down the standing inventory?
The answer so far appears to be yes."
That is not really an accurate way of describing what is taking place. It is clear that large numbers of would-be sellers are not listing their houses in the first place, or if they are, they are pulling them from the market when they fail to sell.
Just because inventory is dropping does NOT mean those houses are selling. We see the same thing every winter when the inventory drops while sales remain low.
Leroy said...
"The data we have on incomes in Arlington and Alexandria does not support this. There has not been a dramatic increase in incomes in those areas over the last few years. (either through higher earners moving in or current residents making more)"
Leroy - let me go with pure ugly stereotypes for a second, just to try and suggest an explanation. Lets assume that whites are high income earners far more likely to buy and hispanics are low income earners far mor likely to rent.
The data Sara provided us with shows that the white population increased by about 6,000 whereas the hispanic population increased by 12,000. Thus, any increase in wealth among potential buyers you might see was washed away by the huge influx of low income types more likely to rent. Couldnt this go a long way to explain that paradox???
Leroy said...
"It is clear that large numbers of would-be sellers are not listing their houses in the first place, or if they are, they are pulling them from the market when they fail to sell."
Leroy - I would be far more inclined to agree were it not for the perfect counter example across the potomac - montgomery county.
Just a reminder Arlington Co. peak inventory was summer 2006 - it was down about 30% in summer 2007 and down another 3% now. This is the same pattern we have seen in hard hit areas like Loudon and Fairfax.
By contrast, we have wealthy Montgomery County. Mo Co's peak inventory is now. Think about that for a second, not 2006, not 2007, but now.
This begs the question, why can Arlingon sellers hold out but Mo Co sellers cannot? What special abilities do Arlington sellers have to keep inventory from rising (or at least staying flat) when it is exploding in Montgomery county? I have asked this many times and thus far, I dont think anyone has even attempted to answer.
Please note, I do not disagree with you that there is some holding out - clearly that is happening. However, given the seller behavior we are seeing in Mo Co and the resulting explosion of inventory - I think it is clear there are not enough holdouts to keep inventory from falling farther.
In fact, while on the subject, let me re open the question to everyone about the issue of holdouts.
For the uninitiated, it is suggested that the reason that Arl & Alex inventory is falling is not because of sufficient # of sales, but more and more poetntial sellers giving up and deciding not to list their property.
This answer has a certain appeal given the fact that Arl & Alex sales are at decade lows. On its face it makes sense - sales are too low to cause inventory to fall - inventory is falling - therefore people must be choosing not to list.
Problem #1 with this theory is that it is suggested by some that as inventory declines (via sales) former holdouts will enter the market thus causing inventory to increase or at least stay flat. Again, the peak inventory was 2006 - there have been problems in this market (via sales) since 2006 - yet for all this time, inventory keeps fallng.
Problem #2 is we have a perfect counter example in Mo Co. Take a look at these charts:
http://www.recharts.com/mris/mris_4.html
Look at the 5th chart on the site which is sales...Just like Arlington sales are pathetic. Just like Arlington, they are well below any other point in the decade. Since sales are so low, can thus conclude that people here will be holding out and cause inventory to drop.
However, take a look at the 8th chart which is inventory. Low and behold, we see something different. Inventory here is NOT dropping, it is INCREASING, and it is at its ALL TIME HISTORIC HIGH!!!!
Now what could possibly be an explanation for this aberrant behavior. Could it be income? Well we know that Mo Co is wealthier than Arlington on average so that cant be it. Could it be a later hit date? Perhaps, but the credit crunch hit everywhere at the exact same time - it did not discriminate by geography.
So if its not income, and its not credit availability - what could it be. Well, absent any other plausible explanation I have to conclude that despite the pathetic levels of sales in Arlington - those sales are enough to cause the inventory levels to fall - even with holdouts.
Again, for the uninitiated - if you can come up with some other even more plausible explation for this aberrant behavior, I am open to hearing it. I do not claim to be an expert on this - I just see this as being the most LIKELY explanation for what is going on.
"Leroy said...
We see the same thing every winter when the inventory drops while sales remain low."
This is anoter key point that Leroy brings up. In years past inventory rises all spring, peaks around June or July and then gradually declines arond October or November. This year that did not happen.
This year, we saw inventory peak in outer counties around April, and then start declining. We looked at this and thought - aha - price discovery has occurred!!!
Problem is, we saw the exact same thing in Arlington and Alexandria - their peak was in April and now they are falling too. Why did it not rise all summer like it used to? Again, given the inventory drop, why arent the holdouts reappearing and causing inventory back fill? Could it be that despite the pathetic sales seen recently, it is enough to cause inventory to decline naturally? Absent some other more plausible explanaiton (especially given the counter example in MO CO). I say the answer is yes.
Is MoCo much larger than Arl? Has bigger supply? Higher rental ratio? More flippers?
Incidentally, for those that follow the daily MLS inventory (Ace), it just updated - its down again.
http://www.virginiamls.com
Arl increased its rate of drop to 8% YOY - Alexandria is now dropping at a rate of 10% YOY. If this continues, both hard hit areas and close in areas will fall below 2005 inventory around November this year.
crt, I think people have repeatedly answered your question about why Arlington County inventories are low, but you just don't want to accept the answer. Sellers who don't have to move are not putting their houses on the market. Period. Other sellers may try to sell but pull the property off the market when they don't get the price they want - or get no offers at all.
I fail to see how the fact that Montgomery Co. inventories may be high now relative to prior Montgomery Co. inventories has anything more than minimum relevance to Arlington Co. There are few people who would make a home purchase choice between Arl. Co. vs. Montgomery Co. Arl. vs. Alexandria, Arl. vs. Fairfax., Arl vs. the District, maybe. Many Marylanders refuse to consider anywhere in NoVA, and probably vice versa. This list could go on and on...
The factors that determine inventory may be different in Montgomery Co. For example, maybe there are more employees of companies that are requiring transfers in one county versus another. Maybe the average age of owners and length of ownership are different, etc., such that more owners in MoCo MUST move than in Arl. Co. These two counties also are not geographically very similar--Montgomery Co. is more analogous to Fairfax Co. when you are talking about physical proximity to downtown DC.
MM said...
Is MoCo much larger than Arl? Has bigger supply? Higher rental ratio? More flippers?
MM - most of this should be immaterial. That chart compares Mo Co to Mo Co only and on a historical basis - its all time peak is now (Most places in NoVA - hard hit or not saw their peaks in summer 2006).
crt-- I don't really think Montgomery Co. can be compared to Arlington in a very meaningful way. It has about 4 times the population and encompasses several decent sized cities. You'd probably get a closer comparison by combining Fairfax Co. and Arlington Co. combined to Montgomery Co.-- and I suspect you'd find the statistics are more similar, too, when you compare closer-sized populations.
I see several areas within Montgomery Co. that look like they have similar statistics-- including fairly low inventories-- to Arlington's. One is 20850, the main area code of Rockville. On the other hand, several metro stops closer in-- Twinbrook, for instance, have seen bigger inventories and double digit declines.
Parts of Montgomery Co. have all the problems of Fairfax Co.-- more new housing developments, and thus more recent-vintage toxic loans. Other parts of it, like Bethesda, are still appreciating.
So to answer your question of why rich people in Montgomery Co. don't seem to be able to 'hold out' and Arlington residents can, my answer would be that the wealthier and more established parts of Montgomery Co. seem to be holding out in much the same way as those in Arlington. It's just that there are more and larger areas of not-so-wealthy and newer places to counterbalance them.
Far be it from me to defend dopey statements from self-interested agents but I do see a little justification for one of the controversial comments. It is true that fewer contracts are signed in August than in other months, isn't it? However, I realize that the agent who talked about the usually slow summer season was quoted in July, when sales closings should have been pretty high.
I'm not sure what the data show, but Realtors have told me pretty consistently in the past, that in this area, March is a big month for people to start looking (or even a little earlier) and that if you haven't sold by June, you're probably going to have to drop your price substantially. Then in Sept., there is a lot of activity for a couple of months. Things slow down just before Thanksgiving and remain slow until mid-Jan.
Does anyone know if the data support this?
"crt, I think people have repeatedly answered your question about why Arlington County inventories are low, but you just don't want to accept the answer. Sellers who don't have to move are not putting their houses on the market. Period. Other sellers may try to sell but pull the property off the market when they don't get the price they want - or get no offers at all."
Correct, but if these types exist - dont they have to come back in at some point? Wont they get desparate at some point? If they exist in large numbers, why arent the out in force like they are now in Mo Co? Why can Arl sellers hold out and Mo Co sellers cant?
"I fail to see how the fact that Montgomery Co. inventories may be high now relative to prior Montgomery Co. inventories has anything more than minimum relevance to Arlington Co. There are few people who would make a home purchase choice between Arl. Co. vs. Montgomery Co. Arl. vs. Alexandria, Arl. vs. Fairfax., Arl vs. the District, maybe. Many Marylanders refuse to consider anywhere in NoVA, and probably vice versa. This list could go on and on..."
Thats immaterial - I am not trying to make any comparison between where a buyer elects to buy. I am only asking about the amount of pressure on sellers in various areas.
The factors that determine inventory may be different in Montgomery Co. For example, maybe there are more employees of companies that are requiring transfers in one county versus another. Maybe the average age of owners and length of ownership are different, etc., such that more owners in MoCo MUST move than in Arl. Co.
In a way you just answered my question, why MUST mo co sellers move but not ARL sellers? If they dont need to reappear now - do they EVER need to appear? OR are there so few of them in ARL that they are unlikely to be so massive as to cause another drop down in ARL prices. Put another way, has the tiny drop ARL seen enough to get all the pressure out of the market forever?
AGAIN - FOR THE RECORD HOLDOUTS EXIST. That said,
(1) some believe the holdouts will have to capitulate, will have to re enter the market and will cause inventory to rise and will cause prices to have another big drop down. I think Leroy is in this camp and I thought you were too (although perhaps I was mistaken)
(2) some believe the holdouts will capitulate, will have to re enter the market, and will not be enough to cause inventory to rise appreciably - thereby causing prices to take another big drop down.
I happen to fall into this latter camp latter based on the evidence that they continue to come out in force in Montgomery and are poising that market for a big drop. Here, I dont see them coming back in those sorts of numbers - do you?
crt-- I don't really think Montgomery Co. can be compared to Arlington in a very meaningful way. It has about 4 times the population and encompasses several decent sized cities."
Again Sarah this is immaterial - I am comparing Mo Co to Mo Co inventory on a historical basis vs Arl Co to Arl Co inventory on a historical basis. Arl Co peak 2006 - Mo co Peak 2008
You'd probably get a closer comparison by combining Fairfax Co. and Arlington Co. combined to Montgomery Co.-- and I suspect you'd find the statistics are more similar, too, when you compare closer-sized populations.
THATS THE IRONY OF IT!!! Hard hit, beat down Fairfax shows the EXACT SAME INVENTORY pattern as softer hit Arl. This begs the question - was that it?? Was that the big beat down Arl is going to see?? By contrast, Mo Co looks poised for a big drop going forward. If Arl was also poised for a big beatdown in prices it should look more like Mo Co. It doesnt.
"I see several areas within Montgomery Co. that look like they have similar statistics-- including fairly low inventories-- to Arlington's. One is 20850, the main area code of Rockville. On the other hand, several metro stops closer in-- Twinbrook, for instance, have seen bigger inventories and double digit declines. "
Fair enough and probably true - I have not tried to compare zips. I am just comparing the whole counties. Again, you can see a strange pattern (strange if you believe inventory will come back and drive down ARL prices) Arlington is not acting like Mo Co. It acts like Fairfax, Loudon and even PWC.
"So to answer your question of why rich people in Montgomery Co. don't seem to be able to 'hold out' and Arlington residents can, my answer would be that the wealthier and more established parts of Montgomery Co. seem to be holding out in much the same way as those in Arlington. It's just that there are more and larger areas of not-so-wealthy and newer places to counterbalance them."
That may be true, but understand what that could mean - that could mean without those not so wealthy areas in Arlington - we wont see inventory rise again, and big drops in median prices.
All - in a nutshell, I do believe there is holding out going on everywhere - hard hit, mildly hit, decimated, wherever. My point is this:
1. Earlier this year, it was assumed based on the charts we all saw that in NOVA 2006 inventory was high, 2007 was a bit lower, but (thanks to the credit crunch) 2008 would be an EXPLOSION. This was a very logical assumption (of bulls and bears alike) given the very high inventory start in 2008. I thought that was the case my self.
2. Then in about march or april. I pointed out that despite the high start, inventory was not increasing but flattenning. It was at this point that some bears switched their position and assumed that it just means that more people are holding out and choosing not to list - the assumptin being they will have to come back eventually, in full force and drive down the market again. Leroy in particular has cited the paucity of sales as good evidence for this.
3. I thought this holding out in large numbers was a plausible assumption until I saw what is happening in MO Co. In Mo Co we also see a complete oblivion of sales relative to historical figures - just like Arlington. The question though is, are those tiny, miniscule, amoutn of remaining sales enough to drive down the standing inventory? The answer in Montgomery is NO - The answer in Arl is YES.
4. Again, it may be argued that they are just holding out in greater numbers in Arlington than in Mo Co. and this makes the inventory to make the inventory go down here and not there. Maybe so, but this is a very very very hard case to make.
5. The more likely case is that as small as the sales have been, and as small as the drops have been - the fact remains that when you look at Arlington & Alexandria inventory, their levels behave EXACTLY LIKE Loudoun & PWC - and NOTHING LIKE Montgomery.
6. Virtually no one thinks people are holding out in large numbers in either Loudoun & PWC - yet they do in ARL & ALEX despite the fact that the inventory levels and patterns behave exactly the same. The more likely explanation is that Arl & Alex are just as far along in their grinddown as are LOU & PWC - its just that it took far smaller drops to get there.
Last thing but you have to look at these charts
http://www.recharts.com/nova/nova.html
Look particularly at Arl, Alex, Lou & Ffx charts (PWC is a different story but its now behaving similarly)
Can anyone explain why in Lou, FFX, ARL & Alex show the EXACT SAME PATTERN - rise was late 2005 - peak was 2006 - flattening was 2007, - drop was 2008. Again they are identical.
Now, how is it that softly hit Arl and Alex are able to jettison inventory just like hard hit Lou & PWC - the answer is I DONT KNOW!!!
It could be that they are all holding out - fair enough. It could be that none are holding out - fair enough. But to assume they are holding out in large amounts close in, but not large amounts far out (i.e. the inventory drop close in is fake but the inventory drop far out is real). I have no idea how you can glean that from this.
I thus have to conclude - as pathetic as close in sales are - they are enough to make the drop real and permanent.
BTW - whoever made these charts - thank you you are a huge service to all of us!!!
crt:
great arguments all around. i can see you've put much thought in this. so, allow me to offer something, well, not so well thought.
you said "...but to assume they are holding out in large amounts close in, but not large amounts far out... I have no idea how you can glean that from this."
my theory - human nature is to holdout. but, in general, far out owners are in a bigger hole for variety of reasons, and selling at loss is the most sensible out. close in, the pressure is somewhat less, again for a variety of reasons, so people don't go the last resort. it could be that all it takes is cutting back - selling one car and start taking metro, easier for a close in owner, but not an option for a far out family. or, renting out a room/basement to generate new cash flow; again, easier for close-in, harder for far out.
if that's making sense, then my conclusion would be similar to yours - those 'holdouts' are not coming back to the market soon. but slowly but surely they are, so it'll be long road to recovery.
MM - thanks. And BTW your argument is not bad - not bad at all...Best anyone has offered thusfar IMHO.
And it makes very good sense too. Far out its "im so far down - there is no hope - just rip the band aid off and sell"...Close in its still "Im not that far down - I can get out of this...I will just wait it out."
The only problem is still, why dont we see it when comparing Arl - Alex - Lou & Ffx inventory?
Then again, maybe we are. Looking at this chart you could argue that Arl & Alex inventory isnt decreasing as fast as Ffx and especially Loudoun which is disappearing at a very rapid pace.
http://www.recharts.com/nova/nova.html
So maybe we are seeing the increased % of holdouts and this is why the inventory is not falling super fast close in...
By the way regarding your comment:
"my conclusion would be similar to yours - those 'holdouts' are not coming back to the market soon. but slowly but surely they are, so it'll be long road to recovery."
There is an issue to consider here - critical mass. Lets say there are 2,500 sales in a given year. Say too there are 1,000 close in holdouts. If they all try to sell in 2009, coming out on average 100 a month - ARL its toast the market simply cannot absorb all that additional stock and the adjustment will be a big drop in prices. If you will, a critical mass in downward pressure has been achieved.
Now same situaiton but say those 1,000 holdouts come out at the rate of 10 a month for the next 100 months (8+ years). In this case, the market can much better handle the addl workload if you will and at some point, inflation will pull everyone out of this. In this case, no critical mass was built, and the declines will not be as big.
My guess at this point is it will be the latter and not the former, and the longer we go without a increase in inventory the smaller that total holdout number is going to be - but I guess we shall see.
CRT,
Bifurcation of outcomes is not necessarily an indication of large divergence in initial characteristics in a highly non-linear system. And real-estate as I think we've seen in recent years is highly non-linear. I think that the MoCo data comparison is an important one to have brought up, but I think that it should scare you more than reassure you. I.e. things aren't that different between the two places, which means if things have gotten a lot worse there, they have the possibility to get a lot worse in NoVa.
Sarah's point about Rockville and Bethesda being more appropriate to compare to Arlington and Alexandria in terms of ability to hold out is an important point I think.
There's two interesting points that I take away from the fact that Arlington and Alex are following PWC Loudon and Fairfax, while MoCo is on a different trajectory. (1) People really don't choose indiscriminately between NoVa DC and MD. Given that Arlington would suck to commute to NIH or NIST or FDA, while Rockville is equally horrid to get to the USPTO or the Pentagon, this means that MoCo nice areas are substituting with Beltsville and Gaithersburg, while Arlington and Alexandria compete with Manassas. Thus while extremely similar in characteristics, there is not enough movement in between them to equalize their market forces and inventories. I forgot my second point, but that was sort of two in one, MD and NoVa are similar but distinct, and substitution is definitely real (if Doug's around).
I still think it's all a matter of whether there will be enough buyers once the Alt-A's hit. In such a small inventory, they will be a larger factor. And I say the "shadow inventory" to worry about is not hold-outs, it's those limping along only 30 or 60 days behind on their mortgage, catching back up only to fall again, and banks being slow to put foreclosures on the market.
"Cara said...
Bifurcation of outcomes is not necessarily an indication of large divergence in initial characteristics in a highly non-linear system. And real-estate as I think we've seen in recent years is highly non-linear."
Correct, but we have 2 theories for what we see sellers givng up, or sales being enough to take them down. I recognize that either one of these could be correct. However, given the evidence presented (and the inability to come up with a cogent argument against it) I think its more reasonable to assume the latter than the former. No more no less.
"I think that the MoCo data comparison is an important one to have brought up, but I think that it should scare you more than reassure you. I.e. things aren't that different between the two places, which means if things have gotten a lot worse there, they have the possibility to get a lot worse in NoVa."
On the contrary its exactly that which I find compelling. The argument was for a long time, "its moving in". I believed it and thought it was still moving in early this year. Then I noticed that "it" had spread to Mo Co., even Howard, and other high end places in MD.
Thus, at that point you have again 2 theories (a) The credit crunch moves in from outer county VA, pauses, circiles around the beltway mind you, hits wealthy, relatively flipper free MD next and then comes back in for the less wealthy inner areas; or (b) the credit crunch hit everywhere and it just hit some less hard than others. Im being a bit dramatic with the descriptions, but you see the point. Again, I now think its the latter and not the former.
"There's two interesting points that I take away from the fact that Arlington and Alex are following PWC Loudon and Fairfax, while MoCo is on a different trajectory. (1) People really don't choose indiscriminately between NoVa DC and MD. Given that Arlington would suck to commute to NIH or NIST or FDA, while Rockville is equally horrid to get to the USPTO or the Pentagon, this means that MoCo nice areas are substituting with Beltsville and Gaithersburg, while Arlington and Alexandria compete with Manassas. Thus while extremely similar in characteristics, there is not enough movement in between them to equalize their market forces and inventories. I forgot my second point, but that was sort of two in one, MD and NoVa are similar but distinct, and substitution is definitely real (if Doug's around)."
The substituion effect is real and I am one of its biggest champions. I also recognize that (in general) people around here dont like to cross political borders (Marylanders like MD, Virginians like VA, etc) however I still dont see how that is relevant to this discussion. Why does everyone bring this up - what are you all trying to point out that I am missing?
"I still think it's all a matter of whether there will be enough buyers once the Alt-A's hit. In such a small inventory, they will be a larger factor. And I say the "shadow inventory" to worry about is not hold-outs, it's those limping along only 30 or 60 days behind on their mortgage, catching back up only to fall again, and banks being slow to put foreclosures on the market."
Could be. Yet once again we know foreclosures (in terms of foreclosures per thousand homes) is lowest inside the beltway - same thing goes for 30-60 day late pays. Here too, Mo Co was once far better than Arl & Alex, but now they are doing far worse.
Mind you this is not just subprime either to date, 35-40% of all Alt-A has reset. Will the remaining 60% do what the first 40% cannot? Maybe, but so far the evidence says no...
crt: "Virtually no one thinks people are holding out in large numbers in either Loudoun & PWC - yet they do in ARL & ALEX despite the fact that the inventory levels and patterns behave exactly the same."
Actually even in PWC, Loudoun and FFX--especially FFX, lots of people are holding out. Look at the Mantua area of 22031, Oakton, or even some areas of Annandale and 22032. It is the high levels of distress sales that explain the story so far.
The rest of the story--fundamentals, credit tightening, sellers' denial of reality, recession, etc. are still being written and have a long way to go.
CRT,
Thanks for the feedback.
Correct, but we have 2 theories for what we see sellers givng up, or sales being enough to take them down. I recognize that either one of these could be correct. However, given the evidence presented (and the inability to come up with a cogent argument against it) I think its more reasonable to assume the latter than the former. No more no less.
For clarity I should state that, given the similarity of inventory changes across NoVa, I for one agree that at the moment, demand is high enough to move the inventory listed. I also think your earlier point about how quickly the pent up normal supply reaches the market is well taken. I don't think that the non-distressed owners are going to push down prices. (we're not Detroit)
"I think that the MoCo data comparison is an important one to have brought up, but I think that it should scare you more than reassure you. I.e. things aren't that different between the two places, which means if things have gotten a lot worse there, they have the possibility to get a lot worse in NoVa."
On the contrary its exactly that which I find compelling. The argument was for a long time, "its moving in". I believed it and thought it was still moving in early this year. Then I noticed that "it" had spread to Mo Co., even Howard, and other high end places in MD.
Thus, at that point you have again 2 theories (a) The credit crunch moves in from outer county VA, pauses, circiles around the beltway mind you, hits wealthy, relatively flipper free MD next and then comes back in for the less wealthy inner areas; or (b) the credit crunch hit everywhere and it just hit some less hard than others. Im being a bit dramatic with the descriptions, but you see the point. Again, I now think its the latter and not the former.
This one I'm a little confused about. Price declines are spreading from out to in. PWC is back at 2001, Franconia is near 2003, Arlington is still above 2004. I think I also agree with (B) that the house price un-affordability crisis is hitting different areas differently. However, what I mean by "scare you" is that while we can't know the exact reasons for why MoCo is getting hit at a slightly different time than inner NoVa, the fact that it is getting hit, either directly or indirectly is reason to believe that the house price crash will spread.
I also recognize that (in general) people around here dont like to cross political borders (Marylanders like MD, Virginians like VA, etc) however I still dont see how that is relevant to this discussion. Why does everyone bring this up - what are you all trying to point out that I am missing?
In this case it just came up because it explains the similarity in inventory pattern. Nothing bigger than that. It's just that similarly wealthy but distinct markets are likely to show similar final outcomes at the end of this bust, but can easily see large differences in the short term (apparently).
Mind you this is not just subprime either to date, 35-40% of all Alt-A has reset. Will the remaining 60% do what the first 40% cannot? Maybe, but so far the evidence says no...
There's a major difference between now and then. The credit underwriting standards have significantly tightened. Look back at the Fannie and Freddie posts here and at CR. Buyers and potential refinancers going forward will have a harder time obtaining the sums needed to sustain the current prices.
Cara - nice post. 2 things I wanted to point out.
"However, what I mean by "scare you" is that while we can't know the exact reasons for why MoCo is getting hit at a slightly different time than inner NoVa, the fact that it is getting hit, either directly or indirectly is reason to believe that the house price crash will spread."
Actually, I think we do know why but this was discovered back before you were on this board.
Based on sales records (i.e. increases in sales in excess of increases in population), we know that there were far more flippers the farther out you went (PWC worst ARL best). By contrast, sales records indicate Mo Co was largely flipper free (yes they had junk loans too, but they were used by stretching buyers, not a bunch of jackasses with clipboards who moved in packs infecting the burbs).
Now, lets go back to that chart again:
http://www.recharts.com/nova/nova.html
Wanna know what that huge spike in inventory was starting in 05 & peaking in 06? It was flippers headed for the exits en masse. The ponzi scheme of flippers selling to flippers ended in late 05 and they knew it so they all scrambled to get out while they still could. If you will, that spike was the ugly scene of the pig moving through the snake. In some places like Arl & Alex (where there was less flipping and more true demand to begin with) it looks like they got out. In PWC they didnt and they simply overwhelmed that market.
By contrast, since MD didnt have the hordes of clipboard idiots, the party continued until the credit crunch at which point the stretchy buyers got hit and are now taking it on the chin.
Thus, that is why there is a 2 year lag in peak inventory. It turns out places like NOVA were the cause of the credit crunch in the first place. It was us NOVA idiots that caused places like Mo Co to now get hard hit, just 2 years later (more like the rest of the country I might add).
I should note too that back in early 07, Fairfax was also performing well and considered one of the "close in" markets. By late 07 however, it was clear that they too could not withstand the credit crunch, hence their demise we see today.
SECOND
"There's a major difference between now and then. The credit underwriting standards have significantly tightened. Look back at the Fannie and Freddie posts here and at CR. Buyers and potential refinancers going forward will have a harder time obtaining the sums needed to sustain the current prices."
I should say I agree - I believe any number of things could still sink these markets. My point was based on current conditions and current behavior. There are any number of things that could cause it to get a whole lot worse going forward. But, one of the first places we will see it will again be rising inventory (not everyone goes straight to foreclosure) - thus we should watch this as much now as any time before.
"Ted K said...
Actually even in PWC, Loudoun and FFX--especially FFX, lots of people are holding out. Look at the Mantua area of 22031, Oakton, or even some areas of Annandale and 22032. It is the high levels of distress sales that explain the story so far.
The rest of the story--fundamentals, credit tightening, sellers' denial of reality, recession, etc. are still being written and have a long way to go."
Thats a reasonable and defensible position Ted. Buried in all my ramblings above, I said it could be either their holding out everywere, or their holding out nowhere, but to assume they are just holding out in Arl & Alex and this is the reason why their inventory to fall just like outer counties is just isnt right.
Incidentally, glad to see you are back!
Thanks CRT,
Yeah that was before I started reading. Thanks for the brief summary of the path of destruction so far.
And yes, at some point a pick up in inventory will be expected leading up to the "next leg down" as IHB says. (assuming it happens)
Admittedly I haven't had time to read all of the posts about this but -- did anyone say they are assuming that holdouts are occurring ONLY in Arl/Alex.? It's not an all-or-none variable. It's a matter of degree and proportion.
It seems to me that the question being raised keeps changing. At one time, the argument seemed to be "it's a good year for sales in Arlington, because inventory is low relative to sales." Leroy pointed out that, no, sales levels are the lowest they have been in a decade. Then the argument seemed to be that prices in close-in areas are holding steady or aren't dropping as much as you might expect, and that's probably because inventory is low. That is probably part of the story. But in another thread I highlighted data showing that the sales mix is very different in Arlington this year vs. last year. Condo sales in particular in Arlington are much further down relative to last year than are SFHs, which because condos tend to have much lower prices than detached SFHs, may account for why total median prices appear to be staying high.
So the question then became, how can prices fall further, if inventory is low relative to sales? And several of us replied, they may not, but because sellers who don't have to sell now aren't listing now, and those who wanted high prices but were unsuccessful pulled the houses off the market, the inventory levels may be misleading now relative to other periods.
Then the question became how could Arl/Alex be different from other counties? It's been noted that there are no direct measures of reluctant sellers so all of us are guessing about this. However, it's very easy to imagine how the selling conditions could vary from one county or neighborhood to another. There are probably many would-be sellers in Loudoun and Prince William, etc., but there are many more sellers (than in Arl/Alex) who HAVE to sell there--probably a much higher proportion of all people interested in selling than in the close in counties. So the "voluntary" sellers in Loudoun, PW, etc., are staying out too, but there are so many "involuntary" sellers (and squeezed, recent buyers) that the inventory is relatively higher, and prices are dropping much more dramatically.
This isn't to say other factors aren't at play. It's just to try to clarify what's being argued.
The big picture, people!...Socialism. The Change has come in NOVA. The "elite" get out and the low to middle class move in. After all these houses where available only to a minority who could afford them, now... who so ever, ecspecially when the drop comes (40-45%) and the new administration takes affect in January. Oh, and if you don't believe me, Fanny Mae's stock is on the rise. Fanny was created by the Dems, It can't fail as long as we keep bailing it out...and we will... and as far as i can see, no new policies for Fanny or Freddy. Don't worry, Obama land is here and you all will get your cut. One way or another, just put your hand out.
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