The S&P/Case Shiller® composite index (graph here (pdf file)) for the month of August was released today.
"'The downturn in residential real estate prices continued, with very few bright spots in the data,' says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. 'The 10-City Composite and the 20-City Composite reported record 12-month declines. Furthermore, for the fifth (5th) straight month, every region reported negative annual returns. This started when Charlotte, NC, was the last region to have been in year-over-year decline for 20 consecutive months. Of the 20 regions, 13 of them had their annual returns worsen from last month’s report. As seen throughout 2008, the Sun Belt markets are being hit the most. Phoenix and Las Vegas are both reporting annual declines in excess of 30%, and Miami, San Francisco, Los Angeles and San Diego are all in excess of 25%.'”
32 comments:
As per Zillow the average home value in Zip code 22315 (Kingstowne?) is at $400,000 from a peak of $503,000 in early 2006. For zip code 22310 (Franconia?) it peaked around $490,000 and is currently $380,000, a 22.4% drop.
A.D.
Interesting.
Zillow values tend to be a slightly trailing indicator, making the ~20% drops all the more impressive.
But, relative to the D.C. region as a whole, that would seem to say that Franconia is tracking the area-wide trends fairly closely. Which makes sense, as it's location at the end of a metro line makes it somewhat of a mixing bowl, and neither it's housing stock nor it's location are sufficiently posh or established to command the premium that has allowed other areas to remain _relatively_ immune.
Have you noticed what I have lately? That the Bank-owned properties coming on the market no longer put "bank-owned" in the description? Most of the townhouses in my redfin mailings these days have been distressed sales in one way or another, but are no longer advertising that (except the short-sales who kind of have to warn you). Is this just my strange slice, or a wider trend?
I haven't tracked that. But I do know that Fairfax schools are a lot better than the commuter friendly Alexandria City schools. If you want to quantify location as a function of radius from DC's center, then how would quantify the quality of the public schools?
By the way, how about buying a 2 bedroom/1 bath charmer in Oakland for around $700,000? Check this out:
http://www.zillow.com/homedetails/5215-Manila-Ave-Oakland-CA-94618/24752945_zpid
What did your sister pay for her Oakland home? By the way, my brother in law and many of his colleagues commute via their Toyota hybrids from Oakland to San Jose.
A vast majority of the people who bought between 2003 and the peak (mid-2006) in various townhome communities have moved out over the past 8 months. I did some research on my own looking at transacation records examining such communities as Runnymeade.
Cara, I received this from Patrick: "If rents in some area already justify purchasing (ie, annual rent > 7% of
purchase price) then prices are unlikely to fall more there."
He has been pretty harsh on the San Francisco housing market, particularly the outlying areas. He said he was going to be posting his 20/20 interview on his website. I hope you all get a chance to view his site.
A.D.
I would track location as proximity to a metro line and time on the metro to get to one of the downtown stops, combined with frequency of trains, track-work interruptions...
Yes, I would say one of Franconia's main pulls is it's schools relative to similarly well-located areas. But I guess what I was trying to say before is that Franconia/Kingstowne has pluses and minuses, enough age for less development, enough turn-over for bubble influences and bubble mortgage products to make it a good amalgam of the DC market.
That's incredibly interesting that the "vast majority" of owners who bought between 2003 and 2006 have moved out in the past 8 months. I hadn't tried to look at that, but it certainly jibes with the purchase date of most townhouses that have been on the market. So, I guess from this you surmise that the distressed owners have mostly already gotten out? Or maybe even, all of them have gotten out? That would definitely be worth researching more... Follow-up questions being, what will sellers who can accept less (because they paid less) set their prices at and accept as offers, will the recent buyers also go underwater enough to become distressed themselves (particularly 2007 when funny-money was still being handed out willy-nilly and price declines hadn't barely started), will price declines on the SFH's in the area pull demand away from the townhomes? And the disjoint but always relevant question or how much will the recession impact the job market in our area. Judging by the crowds at Bonefish Grill last Friday night, it hasn't hurt anyone in Kingstowne yet.
A.D.
re: Oakland/SF
really? they commute from Oakland? Wow, people are nuts. I've driven that drive in my sister's prius and yes, it's fun to watch the mpg meter go from 50 to 100 when going downhill, it's still a long and painful commute. (my grandparents were in Cupertino)
My sister's 2/1 1920's craftsman bungaloo was in the $550k's when she bought it, I don't know the exact price however. It's at least $100k less than that now, if not more. Everyone else in my immediate family is adversely affected by the bursting of the housing bubble. That's part of why I am hesitant to put all the down-payment money into a down-payment. I made need to help out financially, or rather may want to.
And yes, the prices in the Bay Area always do make me glad to live somewhere else. I'm not sure that curbside composting makes up for it...
The scary part is that rents here are comparable or more than my sister was paying in CA. This alone tells me that rents themselves need to fall. We don't live in NYC, we don't live in SF, we shouldn't have to pay these insane rents. It's just crazy. I don't understand how people who make less than me live here. And since we're above the median, that's half the people I'm talking about.
Anyway, my belief that rents must fall (just because I want them to) aside. Yes, we will be buying soon because owning versus renting is starting to begin to start to make sense. Townhouses need to hit $260k for that calculation to not need some emotionally motivated fudge factors in favor of owning, though.
Even if prices overshoot rental parity a bit, rental parity does define where they can reasonably be expected to come back to in 3-5 years though.
p.s.
she bought in 2005, the price on her previous 2/2 condo had stayed completely flat from when they bought it in 2001 to when they sold it in 2004. And her new house is fairly comparable to the one you pointed out, but with a large yard and a detached 1 car garage with a studio/workshop room off the back. So, there must be a neighborhood difference between the two, given that hers was over $200k less than this one is estimated for now. She's not in the distressed neighborhoods though...
Cara, you said people are nuts to commute more than 40 miles? How many folks commute from Harpers Ferry or from Fredericksburg? Or even Front Royal, VA or Frederick, MD? I know a lot of people who commute from those places or from Severna Park, MD to downtown DC. I have noticed an increase in commuter buses servicing those areas. I have followed the proliferation of hybrid auto purchases and the use of HOV lanes for I-95.
My in-laws bought in Oakland back in January 2003. I can understand how your sister lost $100k value if she bought in (Month?) 2005. Zillow shows that prices are steadily declining there. When do you think prices will bottom there? at 2003 levels?
I don't know what you refer to as far as median family income. You have referred to data provided by non-profit organizations. Fairfax claims median income is around $105,000 for household $120,000 for family in 2007. I don't consider Kingstowne and Franconia to be that much below the median level. And I am not judging along by local high school SAT scores or by % holding bachelor and graduate degrees.
Homedatabase.com states that the median income for 22315 is around $97,000 and $92,000 for 22310.
Cara, you asked a lot of good questions and I will try to suitabily answer at least a few of them. I don't think we'll see that bad of economic conditions here. I don't see a major adjustment like we did in the early 90's during the cold war drawdown. Plus you'd be surprised how many Democrats work for as well as support big defense contractors. Just the other day I talked with a Lockheed Martin weapons designer who is campaigning for Barack OBama. A lot of that $ (i.e., building schools, roads and hospitals) for Iraq occupation will be reprogramed into hardware purchases for troops thereby affecting the local government contractors. Even OBama promised to give the troops better equipment.
Consider also Kingstowne's proximity to Fort Belvoir, and that approx. 16,000 civil servants and 5,000 military personnel to be transferred to Belvoir by 2011.
http://www.belvoir.army.mil/brac.asp?id=default
That is why I would recommend to sellers to hold off until 2011. I'd recommend to sellers at least to rent to early 2011.
People also commute from New Hampshire to Cambridge MA. That doesn't make them not insane. The difference with Silicon Valley is that we're not talking about people commuting inwards to an ever-sprawling city like DC, we're talking in this case of going from one part of an extended metro area to a more far-flung part of it. So, yes, of course some people do it. But I still would think the vast majority of people who work in Silicon Valley, live near Silicon Valley, except those who are balancing 2 commutes.
I really don't know how far back in time SF/Oakland will roll back to. They seem to be willing to sustain a higher debt to income ratio than the rest of the country, so I would put it as that they'll go back to 4x income.
This time I was being intentionally vague on the median income definition, because I don't feel like stating my own income randomly on an open forum online. But our combined incomes are above any of the medians you've listed. And mine alone is above many I've seen. But my point was simpler than that. The median is by definition the point at which half the people make more and half the people make less. Hence my confusion as to how half of people in Fairfax who make less than me manage to make rent every month. I mean the minimum income requirement on our new apartment was laughably small in terms of how much money that would leave you after rent.
Oh and month was November 2005. Prices were already down $75k at the time from peak in that particular neighborhood. (according to her)
Cara, good posts. You wrote: "I really don't know how far back in time SF/Oakland will roll back to. They seem to be willing to sustain a higher debt to income ratio than the rest of the country, so I would put it as that they'll go back to 4x income."
I think the much sage Patrick would disagree with you. In regards to San Fran bottoming at 4x ratio of home price to income, what do you think makes San Fran so insulated compared to the DC area, especially in regards to job market stability? By the way, have you ever seen rental rates significantly decrease in the DC area over the course of more than 2 years?
Yes, I would not be surprised that rental income being a large % of net income in the Kingstowne and Franconia areas. Ridgeleigh (at Van Dorn Metro) 2 bed/2 bath condos are starting at $1725 per month. Ridgeleigh's metro shuttle service makes a big difference.
SF is not more insulated job-wise than DC, but it's my impression that it has commanded more of a premium over the rest of the country historically in terms of housing price to income ratio.
The basis of my impression?
1) My sister has lived there since 1989, and aside from a couple of years, housing has never been cheap there. She says that as recently as 2001 it was within reach though, down near $200k for a SFH in the outer areas of Oakland where she's now living.
2) I just pulled 4x out of the air, really. It's also what Irvine Renter uses for Irvine. Though the consensus on that blog is that he's being too bullish.
3) This one is just my sense, and not based on much of anything, but my feeling is that people move to San Fran because they love SF, people move to DC for the good jobs. Hence, DC's fate is tied to jobs, while SF is tied to people's willingness to continue to overpay for housing. This is going to come off wrong, but there's an entire country worth of gay people who want to move to SF. If 10% of the whole nation (perhaps an underestimate) want to live there it will command a premium, even if they have to take lower paying jobs to stay there. Places like Boston and SoHo and Miami and Austin compete for this crowd, but SF is the mecca. What I'm worried about for my sister is the unsustainability of the loans people have been willing to take on to buy there. I know how hard it's been for my sister-in-law to find jobs over the years and so my impression is that the job-market there is pretty tough. So we'll see, it could indeed crash further.
Glad to know Ridgeliegh is $125/month more than I'm paying at the Elms. I drive by it everyday and wish my commute ended there. It is insanely convenient, so it's good to know I made the right choice. Is the walk under 495 that scary that people actually take the shuttle? It's a pretty short walk, but I don't know about the safety near Van Dorn.
(my husband's work is metro-accessible, mine? not so much)
Cara, I saw online the Elms 2 bed/2 bath 1017 square foot apartment rents for $1619 - $1819. So based on this 13 x 12 x $1719 = $268,164 a comparable condo should be valued around $268,164. I have read the ratio is more like 14 to 16, but I will concur it should be 13.
Applying the rule from Patrick, it should be no greater than $1719 x 12 /0.07 = $294, 685.
Are there comparable 2 bedroom/2 bath condos that fit this description? I checked homedatabase.com for zip code 22315 and the closest is $290,000 for a 2 bedroom/2 bath listing, its MLS#: FX6885395
D EVEREUX WEST townhome community in zip code 22315 has some short sales listings around $230,000 to $250,000.
Cara, you wrote "Glad to know Ridgeliegh is $125/month more than I'm paying at the Elms. I drive by it everyday and wish my commute ended there."
Perhaps your savings of $125 is translated to that extra commute. I hope it is not more than an extra 15 minute commute for you each way. That begs the question how does one put a price tag on commuting distance?
I sure hope your 4x price to income ratio assumption works out for San Francisco. Patrick says that it is way above that level now.
As mentioned various times on this blog by other sage posters, Arlington, and other posh places like San Fran may start to feel the pain was well.
We got a move-in discount, so ours is $1604. I don't think anyone pays those list prices, they always have a special to make you feel as if you're getting a deal and need to sign on the dotted line now.
And indeed Surrey and the like are now routinely under $250k.
I've run all the calculators online, like Ginnae Mae, or the new one on IHB, as well as made my own spreadsheet of everything, and all the calculations point to $250-$265 being the break-even point for buying. However, I should point out another kink in my calculations. Which is, while I'm perfectly willing to rent a 2/2 1100 sq ft apartment for the time being, I'm not willing to buy one and live in it for 5 more years. So, the calculation on when is the right time for me to buy is not making an apples to apples comparison. It's the right time to buy when I can get a home I want to live in for more than 5 years for less than the cost of renting a place I don't want to stay in much longer. So, one of the emotional fudge factors available is to use a comparable place for the rental, rather than our current place. However, the townhouses for rent are (exclusively to my knowledge) by individual owners, hence lack much of the convenience of a good management company. Which probably explains why they are often listed at $1800/month. So, if I want to self-justify a higher purchase price I can, by using a higher rent number.
However, my sense is that generally (in a healthy market) one of the reasons people buy is to get something bigger and/or nicer than they have been renting. For instance, my brother-in-law in TN (a bubble area thereof) is paying less on his mortgage on a 3 bedroom ranch house than he could find in a 2 bedroom rental, by about $200 a month. So, I don't think I'm being unreasonable in expecting more house in trade off for loosing the 24 hour repair service that you don't have to wait for, etc. So, I'm sticking with my $1600 comparison point.
p.s.
Oh yeah and the extra commute is about 10 minutes (for 20-25 total) so I can't complain. I've cut my gas consumption in half by moving down from MD (and bought the civic hybrid, so they weren't that bad to start, just the car payments are bad).
Cara: you wrote: It's the right time to buy when I can get a home I want to live in for more than 5 years for less than the cost of renting a place I don't want to stay in much longer.
I am sure you wouldn't mind the 2 or 3% price annual price appreciation after you buy.
The Elms is about 3 miles south of Ridgeleigh. I suspect you are not getting caught up in the traffic on Van Dorn Street especially at Franconia and Van Dorn.
What do you thinking of BRAC coming to Fort Belvior by 2011? You never gave your insight on that.
A.D.
The 2-3% appreciation is already in the calculators. If you zero that out you get an even lower number. I'm risk-adverse, remember? To have bought this summer I wanted $225k in order to still come ahead versus renting after another 20% haircut. If I get appreciation, that's gravy. I just want a house (in the right neighborhood with good schools and an easy commute and room for tomato plants...)
At my commute times it's not an issue. I'm a 7-4 person (by choice). But I can imagine that intersection gets much worse after I'm gone (at either end).
BRAC. It's interesting, and I think worthwhile to keep in mind. Still, that gives me at least another 2 years to find some place I like at my leisure. By 2010 it should start getting priced into the market.
In any case, I have been coming to the conclusion that the area near FS station is approaching the bottom, at least for the entry-level properties. If we could have survived another couple of months commuting from MD, we probably would have bought this fall, because indeed there are properties at or near rental parity that at least online we'd be interested in. So it now seems extremely promising that we'll be able to buy something we'll be happy with late this summer or next fall.
So fundamentally I think buying in FS (for the right price) is not a bad idea nowish. However, supply and demand and external market forces will affect short-term prices as well, and may cause an overshoot. And there are a lot of townhome neighborhoods that are asking a larger premium than I think is reasonable. $25-50k for a 1 car garage?? another $25-50 for 1 more bedroom? another $50-100k for "luxury" stylings? Are these sustainable? And if these do fall in price, will they push the less desirable places down even further?
Sorry to everyone else on the blog for absurdly specific discussion, but it's been great to have someone else knowledgable in my particular area of interest to chat with.
Perhaps there needs to be a blog started for Franconia-Springfield area. I agree a $50,000 upgrade (i.e., new floors, kitchen applicances, new bathrooms, etc.) should at most translate to a $20,000 boost. However, what increases value is adding another bedroom or bathroom. For example, a finished basement/family room with walkout door can be converted to a bedroom and its closet can be converted to a full bath since plumbing may already exist. A closet can be built into the room. That would add an extra bedroom and bath.
You questioned $25k to $50k for an extra bedroom. That is a good point as I don't know the formula for such an assessment. I'll take a SWAG and say an extra bedroom should fairly boost the value 7.5% for a mid-range townhome in your area.
Do you mean prices overshoot on the decline? That is why I recommend to sellers in the area to hold on to at least 2010 and get out the welcome signs for incoming Fort Belvoir personnel due to BRAC. I know of a few local papers that plan on doing stories about Fort Belvoir's BRAC in the next 6 months or so.
in reverse order:
yes, I did mean overshoot on the downside.
If a bottom can be reached, then people will be able to buy and sell on their own life-time-frames, rather than timing the market, and that would be a good, healthy thing. Besides, who knows? All the Fort Belvoir people may decide to live out in Woodbridge and further where they can truly get a good value for their money. (based on the Oakland Silicon Valley precedent).
;)
going from 2 to 3 bedrooms is a big deal, but 3 to 4, 4 to 5 start to decrease in the premium, one would think. 7.5% seems about right...
I personally strongly dislike bottom-floor bedrooms, and would greatly prefer my walk-out level to be tiled, not carpet or hardwood, because in my experience bottom floors will flood at some point, almost inevitably. So, I'd rather have a family room, which can service as a guest room, than a more permanent bedroom. There was a nice 3 level foreclosure in Manchester Lakes with a finished tiled bottom level this spring, but it was well-over $300k, which was simply not an option at the time.
Anyway, so for me a downstairs bedroom is a potential deal-killer, while for others it provides a premium.
I wonder if there will be any cheap Woodbridge (Route 1 corridor and outlying area) properties left by 2010. I suspect we'll see how much change has taken place by monitoring school SOL scores, etc.
Besides how even with the new mixing bowl design, traffic is horrendous along that 18 miles stretch or so from Woodbridge to Alexandria. That is what is being report by colleagues of mine who live down there and commute 6:30 am - 3:30 pm.
I forgot to mention that a fair amount of those moving to Fort Belvoir will want to ensure their children attend good public schools.
Somehow I imagine BRAC not having that big of an impact. (1) A lot of these folks already live in the metro area, they'll change their commute and not their neighborhood, and (2) military folk aint that rich.
BRAK:
http://www.adultswim.com/shows/thebrakshow/index.html
On another note: is it just me, or is concentrating so much military and other government stuff in 1 metro area stupid? It it were me, I would put new government "thingies" into different metro areas, both for security (distributed infrastructure, ala the SAC air bases) and cost reasons. To me it would make more sense to put a new government entity in Peoria, rather than in the DC metro area.
NOVAwatcher, how many of those 20,000 personnel are already in the area? I think a large amount are being transferred from Fort Monmouth, NJ, and a few other NJ installations. Granted a few may get their offices transferred from Crystal City to Fort Belvoir.
The incoming folks will be GS-12's and GS-13's, with annual salaries around $100,000. You right, that is not rich by Joe Biden's standards (i.e., <$150,000).
NOVAwatcher, as far as streamlining and consolidating the military forces, you bring up some good points. Perhaps just like our universe, it will consolidate and then expand, and then repeat the cycle. Of course this will be over 100's of years and not billions.
many interesting unknowables.
I think the most interesting knowable is still the one you brought up at the very beginning about what percentage of homes that were purchased in the 2003-2007 period have already changed hands in 2007-2008. Maybe I'll take the time this weekend to research that more thoroughly, make a google spreadsheet and post it back here later.
But as for Woodbridge yes, it seems as if every single morning, there's an accident reported along that stretch. And yet, people still live there. Are the schools there really that bad? It's not amongst the commutes I've considered so I didn't research that.
Cara, another factor is that for those remaining there may be a facet of variables which may dispel any assumptions about foreclosure risk. One being that they may have taken in family members like cousins to help pay for the mortgage or they may rent out their basement, though some bloggers detest the fact of having a bedroom living space. Also, I know in my community information is being sent out about the HOPE for Homeowners program.
You as a likely Democrat (i.e. your comment about being a socialist or latte liberal) know that the OBama administration will make strong and authentic overtures to get this program running right after November 4.
Cara, in regards to schools in the Woodbridge area, I'd study the data. Look at how much English as a Second Language (ESL) is offered in the public schools. Examine the pass rates for SOL's. Look at the median and average SAT scores. You have been very adamant about analyzing data, so I'd recommend you do this.
Yes, as I have been told by many the commute is horrendous along the I 95 corridor from Woodbridge. I actually get to see the horrendous traffic when I am traveling in the opposite direction in the morning and afternoon.
How does a Woodbridge townhome buyer factor in price for the commuting time?
Treasury, FDIC Near Deal on Mortgage Aid
I don't think that has anything to do with which party is in control at this point. Real support for distressed home-owners will come from the Bush administration. I guess the presumption is that everyone who already lost their home were the truly risk-taking or speculators, while those now being hit were the victims of the rising market and simply did what they had to do to buy when the time was right for them.
But fair is not the issue, economic catastrophe is the issue.
What the eventual plan will mean for prices and incentives is murky as of yet, but it's presumed to slow the price declines by keeping people in their over-priced houses longer. If however, the rengotiated amounts are reflected in comps, it's possible to make a plan that would create a step-jump reversion of prices back to the trend from 2000 or so. (Not that they'll choose that)
Cara, I doubt they'll start with 2000 and then adjust the price based on an average appreciation of CPI + 2.5%. I would think if they do follow that methodology, then they should start back in 1998 when the prices started to recover from the 1989 bubble bursting.
They're not going to do it that way anyway...
As for the price-trade-off for Woodbridge, I really don't know how buyers in Woodbridge think. Unless we lost a major fraction of our income, I wouldn't choose that commute for any amount of money.
A few months ago, someone on here was trying to illustrate one logical extreme substitution effect, by putting forward the hypothetical that if someone paid you money to take a house in Woodbridge (or much further) off their hands, that you'd take it. For me, they'd have to pay me enough so that I could pay taxes on it and pay a management company to rent it out, but you couldn't pay me enough to live there (unless it was enough to make me permanently independently wealthy).
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