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Friday, November 21, 2008
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83 comments:
http://franklymls.com/FX6926407
Foreclosure
Great investor opportunity. Rehab only. Lots of potential. Hurry won't last long.
List Price: $425,000
Rehab only? what does that mean, everything's (copper, nails, insulation) been taken out in the last 2 months?
Last Sale: 09/29/08
Sales Price: $669,608
The google street view on that one is priceless. It's a neighborhood of entirely 1950's ranch houses with this single new McMansion. Good Luck selling that with the fabulous timing of the 3 person slaying in North Springfield on the morning news.WaPo
Of course it's not even close to the same neighborhood, but it sure doesn't help having the same town name. They said on NPR the other morning that the rise in crime during a recession or depression is a myth, but our attributing crime to the economy and personal financial woes certainly rises.
Rehab only? The place was built in 2007!
I agree that the neighborhood sucks. Maybe that's a bit harsh, but I'd feel really awkward living in that large house surrounded by much smaller 1950s ranch houses.
Novawatcher,
I looked around a bit further on the fabulous bird's eye view on Frankly and there are a sprinkling of other tear-down jobs in the neighborhood. It's just not a great location intrinsically in the first place. $425k is really cheap for a brand new large home within the beltway though, even if it is a totally uninspired McMansion. It's hard to say what rehab only means and how this might effect other people's prices.
i agree, living in the McM would feel awkward and i'd feel like the neighbors were always looking at and hating me. but i dont think the location is too bad, it's walkable to the vre in the beltway.
thanks for the link cara. i have been getting listings in that north springfield location by lake accotink. i think i will take north springfield off my listing notifications.
Interested in buying a modest sized lot crammed with a lot of water features and hardscape?
http://franklymls.com/AR6924995
Oh yeah, there seems to be a house on the land too, though you'd never know from the photos. And it's "walk to metro" - if a 1.3 mile hike or so is your idea of "walk to." Hope you don't mind the 395 noise either, for your $1.2 mill.
What weirds me out about the tear-down McMansions is that all of the windows are the exact same size...Am I the only one with weird repulsions like this one?
Question:
In the Prince William insert of the Post yesterday, there was an article about property taxes being raised, which will actually still result in a tax reduction, because property values have dropped so much. The article stated property values have dropped about 30% this year.
But PWC-wide, prices have dropped about 40%. In Manassas, they have dropped almost 60%.
I guess property values may not drop as much as the median sale prices, because median sale prices reflect which houses are selling (vastly on the lowest end of the scale), and not the value of property per se.
Does anyone know what kind of formula is used to determine how much property values have risen or fallen?
BTW, we are back in the househunt, because my husband accepted a job offer. Looks like we will all be neighbors for some time to come!
We're actually thinking of just trying to buy the house we are currently renting, but we might try one more time for a bigger house that has been vacant and on the market for almost three years. They're the ones who tried a "10 day sale" gimmick recently. Didn't work.
Ace, It's more than a little odd that there are exactly zero pictures of the inside of the house in that virtual tour of AR6924995. Twenty pictures of the outside, not one of the inside. Hmmm???
Tabitha,
Congratulations on your husband's new job!
Ace, jf,
Well I guess the point of all the water/landscaping pictures is that if you buy this house, these water features are what you're paying for. And if you don't like the idea of the upkeep they will take, the current owner has too much pride invested in them to sell it to you.
The real question is do the koi convey???
My wife and I are just starting to look into houses in the Arlington area and I'm amazed that prices are still so high. I guess this area is still too appealing to homebuyers. We went to an open house here last weekend (I couldn't find it on franklymls):
http://www.zillow.com/homedetails/5730-8th-St-N-Arlington-VA-22205/12073681_zpid
It wasn't particularly nice, was much smaller in usable space than the numbers would make you think, and is right next to a condemned house with boarded up windows (to the right in the picture).
That's worth $500k? I don't believe it. At this point we're considering waiting until things really come down. You can't just double the price of houses in a few years when the income of the people buying those houses doesn't change.
Jeff, I hear ya. We've been "watching the market" for over a year now, and it is amazing how the prices haven't budged much in N. Arlington. We keep renting our small 1-br and saving up a downpayment.
We could afford a 2-br condo, but it would be stupid to buy something that we're going to outgrow in 5 years. And we both work downtown, so there's no way we'd move out to somewhere like PW county. It's depressing.
I recognized that listing you posted. I can't imagine anyone spending $500k on that dump.
WW it sounds like we're in pretty similar situations. We're currently renting a 1BR, ~700 square foot condo in Courthouse and are buckling down the budget to add to our downpayment.
500k is the high end of what we can afford and it blows my mind how little you can get for that much money in this area. On principle I can't see myself paying current prices even if they stay steady for another year.
Jeff--we rent in Courthouse as well and have the same budget as you!
We're still casually looking, but we've pushed back looking more seriously until next fall.
Hi Jeff B and WW: We were living in Ballston while looking (<900sq ft 2bd with cats). We got our house 28% off original list and 8% off list when we purchased...and closing costs. I'm sharing this b/c it sounds like you two have the power of negotiation on your side!! Also, we got 5 low-ball offers turned down...not even countered. So keep that in mind.
"Jeff B said...
At this point we're considering waiting until things really come down. You can't just double the price of houses in a few years when the income of the people buying those houses doesn't change."
Jeff B - I would be careful about making comparisons of income to home prices in urban areas - my conclusion is they dont work very well.
Case in point, in 1999 the median income in Georgetown (DC) was $70,815, yet the median home price was $497,500. There was certainly no bubble in Georgetown in 1999, yet the median home price was more than 7 TIMES median income!
I found a similar thing in urban areas all across the US, but its not like that everywhere. In suburban Ashburn, the mediian income in 1999 was $88,133, yet the median home price was $234,300. (a much more normal 2.7 times income).
Even though median incomes are higher in Ashburn than they are in Georgetown, no one really thinks Georgetown will ever be (or should be) cheaper than Ashburn.
Over the course of history, something happened to Georgetown to make it go from a typical 3X income to where it could support prices of 7X income. My answer is georgetown became "Georgetown" the desirable place that a lot of people want to live.
Demographically, is Arlington Georgetown? I certainly dont think so - not by a long shot. However, is Arlington 2008 similar to Georgetown 1999? I think you could make a case that the answer is yes.
Bottom line is so long as you and I and so many others want to live in Arlington, it will never return to income parity it had even a decade ago.
I do think it's possible that Arlington has just become a very desirable place to live - I think the difference between 2008 and 1999 though is that there is definitely a general housing bubble now.
There's a formula in every home buying book out there for determining what you can afford mortgage-wise on a monthly basis. You add up your gross monthly income, subtract expenses, and 36% of that is what you can afford in a mortgage. It seems like that has been a formula for safe mortgages for a long time. In order for average housing prices to go up you either need increased incomes or a change in the way 'safe' mortgages are doled out. It seems like this should have been a pretty clear indicator that things were out of whack in the last 5 years and the problems have been exposed in the last year. Incomes have barely increased at all in the last few years so it is unsustainable mortgages that were driving prices up.
It seems like it is definitely causing price correction in the outer suburbs, the question is whether Arlington prices increased naturally or were also affected by this craze. I can't believe that the price increases in this area in the last 5 years were purely a result of a natural improvement of the desirability of Arlington. My guess is that it is a combination of both.
I agree with you, I guess I just believe that there has to be more influencing the Arlington market than a change in appeal.
Jeff B, it's really a bit more complex than that. In a huge metro area like this one, you have to consider that people who have wealth (not just income) such as equity from a prior home, an inheritance, substantial savings, etc., may decide to move to an area like Arlington from further out. This could occur for a variety of reasons. For example, I have friends who lived in Springfield, retired, sold the Springfield house and bought a smaller but more expensive place in Arlington because they would be closer to the Kennedy Center, to tennis playing friends and facilities, to the good county management/services, to the metro and the freedom it offers, etc. In a smaller metro. area, yes, it would be necessary for incomes to keep up, because there would not be enough people from all over the area who could take their wealth and bid up to get into the convenient/desirable places. I think that happened in Georgetown, and that this is part of what is happening in Arlington. In other words, it isn't just desirability and incomes that make a place more expensive. It could also be a factor a large enough number of wealthy, i.e., with the ability to buy for cash or with a big down payment. They find the place desirable and have the capacity to indulge it.
However, I don't believe it is happening to the extent that many sellers (and apparently, their Realtors who keep listing and paying to advertise and show their properties) believe. When we start seeing market clearing (e.g, home sales at levels more closely resembling those over the past decade rather than the decade low) and houses with many days on the market (not the phony low DOM) finally selling, then I think I'll have a better handle on where Arlington values really are. Right now, the staredown suggests that the values aren't as high as would-be sellers believe.
John F, that's exactly what I thought too. Crazy.
"In order for average housing prices to go up you either need increased incomes or a change in the way 'safe' mortgages are doled out."
Or, a change in the incomes of the people that desire that area. I didnt realize this until I started playing around with the median income calculators a bit. In some urban areas, pre bubble prices shot up rapidly because of renewed interest by relatively wealthy people - yet median incomes barely budged.
I guess what I am trying to say is the median income stats are worthless in the urban areas where you got a lot of people making 25K and a lot making 230K. In these instances (especially where you have a large renting populaiton) it looks like you can have situations where median incomes appear to increase barely at all, yet housing prices (historically) are all but out of reach save for a select few.
At the same time though, you are right, there certainly was a craze in Arlington - and lets not forget prices are coming down (not as fast as we'd like, but thank god it isnt 2005 anymore).
I also see no chance they are going up anytime soon so time is clearly on our side.
Thats a good point Ace, maybe its not income as much as it is wealth. The two are clearly not the same thing.
The other thing is, those coming from the decimated suburban areas may no longer have the weath to sustain the prices this area commands. The question then is, do enough of the suburban "move up buyers" lose enough of their wealth to quit supporting the price premiums.
Those are all good points, I'm new enough to all of this that there's still a lot I'm not aware of. It doesn't help that so much real estate information is hidden, disguised, or just flat out false. It's really hard trying to analyze prices with the data available.
I guess I'm running into the reality that our two good salaries, a good down payment, and good credit really won't get us much in this area.
On a lighter note, out of curiosity I went to a Williams & Williams auction in Falls Church two weeks ago. It was a pretty interesting experience, about 50 people showed up and 2-3 people ended up bidding on the house. It was a bank owned property I think and sold for around $380k in June of 2008. The final auction price was $209,000.
http://www.williamsauction.com/Property/ViewProperty.aspx?PropertyId=198352
Click on the "View More Images" link on the right side of the screen, there are 36 photos available. Notice there aren't any of the back yard...because a tree had fallen on the back of the house and they didn't bother to clear it away. I walked through the house and when I looked out on to the deck I saw...a tree about 2 feet from my face. It was pretty big and had utterly demolished the deck. Everything was still sitting there like the day it happened. If you know what you're looking at you can see it in some of the photos, like the 2nd one of the side of the house.
They also sold a 1BR apartment nearby for $76,000, originally sold in March for ~$179k I think.
Stick around Jeff - this blog is a great source of info - I know it has been for me!
Also it may be presumptious of me to say, but may I suggest you expand your horizons a bit? I live in N. Arl now and was for a while focused on only buying here, but I am now looking in other close in areas south of here - particularly Del Ray.
The housing is still horrendously expensive, but you can probably get a bit more bang for your buck - especially if you are willing to buy a rehab and put in some elbow grease to make it more your style.
If youve looked at that area before, and its not your cup of tea, fair enough. However, I wasnt even really aware of the area until it kep being mentioned on this blog, and went to check it out myself.
I think it's a little simpler than that (i.e. the median income discussion). This is a situation where you have a greater number of people vs. houses compared to someplace like Loudoun. All things being equal, when you double the number of people, you double the number of rich folks. A similar thing happens when you halve the number of properties. In that case, the people don't double, but since there are the same number of people chasing fewer houses, that means that the average income of the folks that do buy is going to be higher.
Having said that, I just heard of lay-offs at a law firm, so I don't think that rich lawyers are going to save local real estate.
The Anonymous - I definitely think I'll stick around, it's nice to have a localized discussion like this.
It's funny that you mention Del Ray, we also hadn't heard about those neighborhoods until a few weeks ago and we visited some open houses there last weekend. We really like the neighborhood and it's one of the top places we're watching now. I think it's somewhat unknown because of its "walled" location - it's hard to stumble through that area on your way somewhere else. We're pretty open to new ideas and we're visiting various places as we learn about them. There were a number of open houses last sunday around the intersection of Commonwealth and Mt Vernon. Most of them in the $600-800 range but a few in the 500's. This one was pretty nice and was only (only!) $540k:
http://franklymls.com/AX6902364
We weren't seriously interested but it's a heck of a lot more value in my opinion than the $500k house I wrote about in an earlier post.
Jeff B,
I own in Del Ray, and love it. But you can wait; prices aren't going up any time soon, given the economy. And Del Ray has indeed been "discovered," as it were. You'll find that prices are comparable to N. Arlington.
Ace said: "Jeff B, it's really a bit more complex than that. In a huge metro area like this one, you have to consider that people who have wealth (not just income) such as equity from a prior home, an inheritance, substantial savings, etc., may decide to move to an area like Arlington from further out. This could occur for a variety of reasons. For example, I have friends who lived in Springfield, retired, sold the Springfield house and bought a smaller but more expensive place in Arlington because they would be closer to the Kennedy Center, to tennis playing friends and facilities, to the good county management/services, to the metro and the freedom it offers, etc.:
Yes, that sounds about right. I've been a homeowner in N. Arlington since 1987, and I can tell you that LOTS of people with very big incomes have bought in the neighborhood(s) I live(d) in (especially the one I own/live in now) for those reasons. I would also note the excellent schools and low crime in N. Arlington are huge factors; when you couple that with the incredible convenience of living so close-in, it adds up to a heck of a premium people are wiling to pay to live here. That isn't going away.
Thats great for you two, Tom and Ace. I put my pants on one leg at a time. Perhaps you two should get someone to write on blogs for you, or rename yourselves Biff, Chip and or Lance.
John said: "Thats great for you two, Tom and Ace. I put my pants on one leg at a time. Perhaps you two should get someone to write on blogs for you, or rename yourselves Biff, Chip and or Lance."
John: Please understand, I'm not bragging. I'm simply trying to describe aspects of Arlington that I think account for the high prices here. I realize there's a strong bias on this site that ascribes this to stubbornness of Arlington homeowners or some other such things; and there's a certain expectation (and hope) that N. Arlington homeowners will meet their comeupppance soon. I think these biases are misplaced and in time will be so shown -- but that's just my opinion.
"JOhn said...
Thats great for you two, Tom and Ace. I put my pants on one leg at a time. Perhaps you two should get someone to write on blogs for you, or rename yourselves Biff, Chip and or Lance."
All - interesting comments. Also, John, if you look carefully, Ace has a history of very even handed comments on this board - some very pro Arl - some very con. It is this even-handedness that causes me to put a lot of credibility in his posts. As such, I wouldnt be so quick to dismiss his posts as mere "Lance Speak"....
I don't mind if the Arlington area is priced as high as it is because of legitimate demand. I'm certain that's part of the equation.
My gut feeling though is that it would be awful coincidental if Arlington housing prices followed the national trend of crazy increases over the last 5-6 years but weren't linked. If the general market is a bubble and it is collapsing I'll be very surprised if Arlington holds up under the pressure.
Some areas more than others, for sure. I think N. Arlington will continue to be strong, like you guys said it's desirable in many different ways. The area around Del Ray, and farther west along Wilson/50 though?
CRT, thanks for your comments and support. Like many others here, I am simply trying to understand and, if possible, explain what is going on in Arlington, what factors account for the price drops or lack of them, etc., and predict the future. Obviously not everyone will agree, which (along with all the great info here) is what makes this blog interesting.
sundry folks,
Echoing things already stated, the desirability is real, but the price is inflated. If people move-up to arlington, you must consider the fact that those move-up buyers have had way more appreciation equity in the past few years than they otherwise would have without the bubble. When the people who bought in 2003-on come to move-up they won't have any equity for two reasons, (1) they overpaid in the first place and (2) the appreciation they thought they had has evaporated. So, if the price support for N. Arlington's most desirable neighborhoods comes from move-up local buyers, there will be a time delay, but the support _will_ falter.
Yes, it's not the direct income argument, but it's no less real for it's indirectness. First-time buyers ability to pay are the engine for the entire market, because someone along the chain has to sell to them. Thus, the 20% YoY gains for multiple years is bubble money either way. Yes, it was appreciation that had been made fungible, so there will be far far fewer foreclosures, but buyer support going forward will falter, because they don't have that appreciation money. (or they only have a non-bubble amount of it for life-long owners retiring to someplace more convenient).
From CNBC this morning, as discussed on Friday by Tabitha:
http://articles.moneycentral.msn.com/Investing/StockInvestingTrading/why-your-property-taxes-are-going-up.aspx
Property taxes are likely to go up, even as housing prices continue to decline.
tom said: "I've been a homeowner in N. Arlington since 1987, and I can tell you that LOTS of people with very big incomes have bought in the neighborhood(s) I live(d) in"
How do you know this? Do you go around asking people that move into your neighborhood what they earn? And they actually tell you? Or are you just surmising?
Two years ago, the "everyone in the DC metro area is a high earner" reasoning was used to explain why prices were high in Loudoun and all other areas. That didn't hold up to well.
I agree with Cara when she said, "the desirability is real, but the price is inflated." Nothing has changed in Arlington since 2000. Desirability was high then, just as it is now. It's proximity to DC was good then, just as it is now. The only thing that has changed is the price, which more than doubled while incomes barely rose over that same time period.
I think this desirability argument is best addressed by looking at the Price/Rent ratio. If a place is very desirable, not only am I willing to pay more to buy there, I'm also willing to pay more to rent there (e.g. rents in Manhattan NY are higher than rents in Manhattan KS). Thus, if it were just a highly desirable area, Price/income might be high as people are willing to pay a higher percentage of income toward housing for the privilege of living there, but price/rent should be normal. I don't think this is the case in N. Arlington. It certainly isn't the case <1mi away in McLean.
"John Fountain said...
Nothing has changed in Arlington since 2000. Desirability was high then, just as it is now. It's proximity to DC was good then, just as it is now. The only thing that has changed is the price, which more than doubled while incomes barely rose over that same time period."
John - I think we need to be careful using that metric - especially in urban areas. In places like Brooklyn, NY, some neoghborhoods have a median income in the 40K range, yet "historically" home prices were 10X income. Same thing in Georgetown & really lots of DC where historically, median home prices were 5-10X incomes. Translation, some people looking at price to areas in certain neighborhoods, waiting for prices to come down to 3X income will be sorely disappointed.
Also, recall that survey Harriet did a while back - where would you want to live? About the same percentage of people wanted to live in Fairfax as they did in Arlington. That wasnt always the case - there was a period in the 1980s where arlington population was falling & it didnt start rising until the 1990s. Given that the housing stock in Fairfax is 5X the size of Arlington, that means we have a similar demand as Fairfax, yet 1/5th the supply.
As I see it, prices will continue to come down, but I dont see the prices going all the way down to historical levels so long as the area remains as popular as it is.
the anon said: "In places like Brooklyn, NY, some neoghborhoods have a median income in the 40K range, yet "historically" home prices were 10X income. Same thing in Georgetown & really lots of DC where historically, median home prices were 5-10X incomes."
With all due respect, your examples make no sense. If, as you suggest, we should be looking to the "historic" ratios of price to income to evaluate the sustainability of Arlington's frothy prices, then a massive correction is in the cards because "historic" ratios don't support today's prices in Arlington. This was exactly the point I was making when I said, "The only thing that has changed is the price, which more than doubled while incomes barely rose over that same time period."
Now I suppose you could say you didn't really mean "look at historic ratios" - that you really meant "it's possible that historic ratios are worthless" and that, because some other places like the Bronx have high price to income ratios, maybe Arlington should have a high price to income ratio too!!! Well, if that is your argument, then it would sound like you are suggesting a "new paradigm" in which historic valuations don't matter at all and "it's different this time."
So which is it; do historic valuations matter or is it a new paradigm?
You are right, I think I should have said, it could be (and I stress could), that Arlington should have higher income to pricing ratios.
For example, at some point in its history, a place like Georgetown went from being affordable to not affordable. When did this happen? How long did the transformation take place? Is it still taking place today?
If the transformation was relatively rapid, (say 8-10 years) some people who could afford to buy there before, could not afford to buy there later. In a word, yes some people were "priced out forever". Could the same thing be going on to some degree in Arlington, masked by the fact that there was a bubble in pricing? I say yes...
So in a way, yes I am suggesting "new paradigm" and "its different this time". I say this not to be inflammatory, but to suggest there may (and I stress may) be an element of truth to the whole thing. In the 60's & 70's people were moving out - no one wanted to live in Arlington - In the 90s & beond people were moving in - now, some people do want to live in Arlington. Something tells me this change will affect prices.
Again, prices will continue to come down. If Arlington was historically at 3X income in 2000, and was at 9X income in 2005, that doesnt mean that 9X prcing is appropriate. Again, there was a bubble, prices are coming down. However they may stop at 4X, 5X (or whatever) income instead of going all the way down to 3X.
So as I see it, yes there may be something to the whole "new pardigm" thing. I know lance first said it, and thus it is largely deserving of ridicule. However, to completely dismiss it altogether is, in my opinion, a mistake.
Where you *want* to live and where you *can* live are two different things.
Both the "X times the median" and "it's different here" crowd are missing the point. I'll attack the median side first, but it will become obvious why "it's different here" argument doesn't make any sense either.
median argument:
The price must be dependent on incomes. People will only pay what they can afford (ignoring the lax underwriting standards of the past few decade). This is very true and a fundamental point.
However, the median price in an area can increase while the median income stays the same. For this to happen, you need a scarcity of housing. For example, the top 10%'s incomes could double, but the median income could stay the same. If there are enough SFHs for everyone, then this will have no effect on the median price. On the other hand, if there are only enough SFHs for 15% of the population, then the increase in the top 10%'s incomes would definitely have an effect on the price of the median SFH. This also implies that the median income rents.
Likewise, you could have an increase in prices -- driven by fundamentals -- even if the median income and the shape of the income distribution stayed the same. For example, if there are enough SFHs for the top 20% and the population doubles (but the income distribution stays the same), then it's no longer going to be the top 20% that is fighting it out for the SFHs, but the top 10%. And the top 10% can outbid the next decile, so price will be higher.
Having said that, I don't think anyone has demonstrated that the top-tier of incomes in North Arlington has increased disproportionately in the last few years. Didn't we go over this in the summer and came up with nada?
anonymous,
just because it's not income, doesn't mean there isn't a verifiable prediction to be made.
If price to income goes above 4x income, then equity must have been put into the transaction, not loaned money.
Thus, take the time series of median prices in the areas that you think are contributing the move-up buyers, and calculate the amount of money they had to bring to the table as equity in 2003, 2005, 2007 and predictions for 2009. You can do this using the median prices, say 10 years earlier, and assuming 10% down, and 25% additional loan repayment equity on a 30 year loan (depends on the interest rate if you want to make it more precise with the actual amoritization). This will tell you how much more money a move-up buyer hand in 2005 freed up by the sale of their previous home, than such a prospective buyer will have in 2009. From this you should be able to calculate how the multiplier to incomes should change.
Too busy to do this myself right now. One major thing is getting the median years of ownership right, as obviously the delay time in the effect on the move-up market is strongly dependent on this. In fact this delay time will vary depending on conditions and market psycology, right? Recently move-ups have been possible and perhaps prevalent in as little as 3-4 years, whereas historically it may have taken as long as 10-15 years, this will effect demand rather than money available directly.
Price to rent ratios and price to income ratios make simpler predictions, but that does not mean this prediction is impossible, just requires a little more thought.
Novawatcher - I agree with you 100%. You noted that in order for median income to remain the same while median prices rise, you have to have a scarcity of housing. As to condos, that is certainly debatable - I have no idea how many were built. However in the SFH world, you had a built up county and likely very little increase due to the scarcity of available land. Thus, condos is debatable, however I think SFH in ARL is suggestive of a long term shortage.
You also said this "implies the median income rents". I think there are 48K rental units in arlington & only 37K owner occupied units - assuming this is true, by definition, the median would rent.
As such, I think it is as you suggested - we have a larger population pool, and a stagnate SFH pool. Thus there is a greater amount (not percentage but amount) of top income earners fighthing for a largely stagnate SFH pool - a greater demand, and a stagnate supply - thus prices increase until a new market clearing price is reached.
Also, as to whether the top tier incomes in Arl have increased proportionately, I will need to go back and look at the stats, however I seem to recall finding a stat saying population increased by say 20K. Of that 20K, we had no stats on incomes, but we knew about 1/3 were caucasian/asian while the other 2/3 were black & latino.
Now, if you suspend political correctness for a moment, and go by pure ugly stereotypes, you could assume the 1/3 caucasian/asian population was wealthy, and the 2/3 black/latino population was not. If this was true, it may be surprising median income rose at all...yet we now had 1/3 more high income earners competing for the same SFH housing stock - could this not explain at least part of what we are seeing?
anon,
Any convenient links for the necessary data? (like population numbers, owner-occupied versus rental units, income quartiles)
So I guess your thesis is that it's the 75th percentile that buys the median home in Arlington. (which would be why you're ignoring the move-up analysis)
But the possible scarcity isn't happening in isolation. Scarcity and high prices in Arlington also create demand in other less expensive less built up areas.
I'm sorry, but I'm extremely skeptical of these hand-waving theories on market demand and buyer capacity when they're not backed up with data. Heck, we could even get the data on the size of downpayments, to test my theory.
Cara - the concept I am suggesting is a bit different - more in line with what novawatcher is discussing.
Novawatcher - another thing to consider is the dispersal of incomes in each area. For example - heres the profile of Ashburn (zip 20147)
0.5% make under 10K a year
0.8% make 10-15K a year
3.1% make 15-25K a year
4.2% make 35-45K a year
9.7% make 35-50K a year
19.7% make 50-75K a year
21.5% make 75-100K a year
26.5% make 100-150K a year
8.6% make 150-200K a year
5.5% make 200K plus a year
MEDIAN INCOME = $88,133
Here we have what looks largely like a bell curve - no real poor people, and a very small % of very wealthy. Here nearly 50% of the population makes between 75-150K. If housing stock remained the same and population increased, you would move very very slowly up the income ladder as people competed and priced each other out. Here, since so many income earners are similarly situated - you hardly notice the increase in price in relation to income.
By contrast heres the income profile in Georgetown (zip 20007)
8% make under 10K a year
2.5% make 10-15K a year
6.3% make 15-25K a year
8.5% make 25-35K a year
11% make 35-50K a year
16% make 50-75K a year
11% make 75-100K a year
14% make 100-150K a year
8.7% make 150-200K a year
14.6% make 200K plus a year
MEDIAN INCOME = $70,815
Notice how different this looks from Ashburn. Large populations of very poor and very wealthy - the median income is less than Ashburn - there is no bell curve here.
Here about 50% of the population makes somewhere between 75K and Over 200K. Also notice how much larger the 200K+ group is than the 150-200K group, suggesting there is some very very large discrepancies in income in the 200K+ group. If housing stock remained the same and population increased, you would see prices increase very rapidly because of the huge spread in incomes - here you could see people getting priced out very quickly.
The reason I bring this up is, the income profiles of Fairfax & Loudoun are a bit like Ashburn (20147). Here there are very few poor and very few ultra wealthy - a bell curve if you will. Plus, with there being more open land on which to develop, you dont see as much pricing out as the population increases.
By contrast, Arlington & Alexandria dont look like this. Here they have a good percentage of poor and wealthy, and lesser of the true middle class. Further, since the amount of available land is constrained, as the population increases, it would be that much easer to see the pricing out mechanism.
Anon - where are those numbers from? Surely a huge portion of the Georgetown numbers are students with little to no income, unless none of them live in that area.
Jeff, don't mean to nose into your discussion, but yes, students do jam into rental units in Georgetown (there is also on-campus housing, and many graduate students commute from Burleith, Dupont C. or Arlington, or other parts of the region). The student Geo. residents tend to be segregated away from the bourgeoisie Geo. residents. Of course many of the student Geo. residents are from families with a lot of wealthy, even though the students are not earning high incomes.
oops - "wealth", not "wealthy."
And I meant to add that I agree that this contributes to the odd distribution. But that also makes Anony's point about why looking only at median income relative to housing prices is overly simplistic.
Cara - I am still looking for the stats.
Jeff B - the income breakdown stats come from zip skinny
http://zipskinny.com/index.php?zip=20007
Note, the georgetown income spread may be due to students (good point). However, type in any urban zip code, and you get a similar picture. Huge divergence in incomes. Zip Code 22314 (old town Alexandria) looks a lot like Georgetown, but its likely due to the large public housing ghettos just north of the town (south of del ray).
Yeah it seems like a tough task to get a grasp on the incomes of home-buying persons in very mixed areas like the ones near D.C.
The Ashburn numbers are probably more accurate because they're mostly commuting professionals.
I still think the *concept* of an income to housing price ratio is pretty valid though, whether you can accurately get numbers on it or not. There are areas of Arlington (between columbia pike and shirlington, for instance) that really don't strike me as being full of high income individuals. Yet the housing prices down there are very high. I think that's due to the extremely easy availability of credit in the last 4-5 years rather than an influx of wealthy buyers.
anon said: "If housing stock remained the same and population increased, you would move very very slowly up the income ladder as people competed and priced each other out. "
So how has the population in Arlington changed relative to its housing stock over the last eight years? This site says the population has grown 9% cumulatively since 2000:
http://www.arlingtonva.us/departments/CPHD/planning/data_maps/CPHDPlanningDataandMapsProfile.aspx?lnsLinkID=1150
Since I don't see too many folks living in hotels or on the street, I can only surmise that the housing stock has increased sufficient to keep up with population growth. And if that's the case, I can't say I understand how a "new paradigm" of higher house prices based on population growth stands up to testing.
Cara - here is one of them
http://biz.loudoun.gov/Portals/0/PDF/growth/growth_summary_2006/b_2.pdf
Also, here is the link for the owner vs renter population by county:
http://www.co.arlington.va.us/departments/CPHD/planning/data_maps/Census/report90_00.pdf
As you can see on page 9, the only 3 area jurisdictions where the there are more rental units than owner units are Arlington, Alexandria & DC.
"Since I don't see too many folks living in hotels or on the street, I can only surmise that the housing stock has increased sufficient to keep up with population growth. And if that's the case, I can't say I understand how a "new paradigm" of higher house prices based on population growth stands up to testing."
John - no one is living on the street. The real question is what type of housing stock was added?
As you said, popluation increased 9%. Look at page 4 of the 2007 report (your link).
Detatched SFH stock rose only 353 units (+1.2%)
Multi Family units (condos & apts) rose 8067 units (+13%).
Assuming the same percentage of the population wanted detached single family houses as before, you now have a proportionate increase in the SFH homebuying population fighting over a mere 1.2% increase in the SFH detatched housing stock - an increase in demand and a pretty stagnant supply.
Also, I should say, im not getting this "new paradigm" idea from Lance. It actually comes from former perma-bear Neil (aka Wannabuy/got popcorn).
On his blog, he showed how as it goes through cycles of booms and busts, thanks to its desirability, LA becomes less and less affordable to a greater percentage of the population.
Early on he said Arlington home prices would come down by 40%. Now he has lost interest as he now thinks Arlington will come down by "at most 20%". Why the change? In his own words:
"Notice something about DC. Of the large markets identified as bubble markets, it looks like it is having the least pain. Its quite possible that it has matured into a large enough urban area that the fraction of the population that can afford a home has dropped (a la LA, NYC, and the bay area). I could only speculate on where its final affordability plateau will be; but I do not expect it to ever hit 80% again!"
http://recomments.blogspot.com/2008/05/quiet-before-summer-storm.html
Now, Im not saying hes right, but I do think this is something to consider - over time, places do become less affordable than they were before, and thats something we need to be cognizant of.
John - now that I am thinking about it some more, theres even more to it. We know how many people have moved here in the last 10 and 20 years, but we do not know (nor can we really know) how many would have moved here but for the fact that they could not find affordable single family housing stock?
Take a look at the 2008 estimate (also from your link) on page 4 they suggest that the total increase of the SFH stock has gone from 27,668 (in 2000) to 27,965 (in 2008). Meaning there are now297 more SFH units than there were 8 years ago.
What you need to ask yourself is, has the demand for SFH in Arlington increased by more than 297 units in the last 8 years? If the answer is yes, you have a shortage, prices rise.
Again, question of how much greater the demand is, is debatable. Yet if the answer is greater than 297 over 8 years, the fact of the matter is some people will indeed be priced out and ARL will not be as affordable as it was before.
Wow, The Anon., those #s are really interesting. That's a dramatic difference in new condos vs. detached SFHs. And it certainly seems reasonable to propose that a lot more people wanted SFHs during 2000+ than before, but gave up or chose not to compete with the additional bidders.
thanks for the numbers anon,
There are still aspects of this that seem more like wishful thinking than reality.
For instance, why does increased rental construction indicate to you greater demand for single family homes? Isn't it just as likely to indicate increased demand for rental properties (as well as increased cash-flow in them) due to slackening demand for over-priced homes? Isn't that an equally likely explanation?
You have to take off the rose-colored glasses and look at it from another side. Rich people don't get rich by overpaying for houses. An essentially flat income distribution doesn't translate into a 3x higher price than surrounding areas. The almost exactly parallel bubble rise strongly advocates for linked systems, not a new paradigm for Arlington. That linkage may be further up the food chain and hence have equity cushioning for Arl/Alex.
But the idea that the lower half rents and the upper half owns is a load of baloney. There are other reasons not to buy, like transience, feeling the prices are absurd. Being able to get someplace much swankier for less money renting while saving money hand over fist. And seriously, Arlington is not Georgetown or Capitol Hill. For example by you links, Arlington County is a very normal Bell curve.
The entire "they are making any more land" argument relates to peoples desires to live in certain places, it does nothing to change what size mortgages they can handle. Nor what size mortgages banks will trust them to handle. The steepness that you're suggesting the price/demand curve be is implausible for such an iliquid inherently depreciating (due to the need for maintanence and continually rising taxes) asset. The move-up equity argument provides a mechanism by which prices would rise that much and with similar timing to outlying areas, in both the rise and the more shallow decline. Yours, has nothing but the wishful thinking aspect that if you're right, then Arlington really does have that cachet of being able to pay 500-750k for a glorified shack. Rich people have more self-respect than that.
well anon, at least you've completed step 1 and backed off the theory that population rose while housing supply remained constant ("If housing stock remained the same and population increased...").
Now on to step 2. you now say: "Assuming the same percentage of the population wanted detached single family houses as before..."
Why is that a proper assumption? And is it supported by an equal and opposite change in the price of multi-families and condos over the same period (2000 to 2008)(assuming that the demand for SFHs is disproportionately higher for new residents compared to available supply, then demand must be disproportionately lower for all other new housing stock for new residents, right?)??
Curiously, the "non-desirable" housing stock you reference (condos) appreciated at the same or greater rates than SFHs over the same period. I'm sure to you this is just a coincidence, right?
Listen, the fact that you are reworking your theories on the fly as old ones are dismantled doesn't strike me as too convincing. Come on, anon, this is common sense. There was a mania for housing of all forms. People lost track of underlying values and overpaid for everything. Certain stock is stickier than others, but nothing is exempt from the laws of gravity (no matter how much some would hope it would be).
Cara and John Fountain - I think you are both making one major mistake in responding to what I am saying...I am not saying all this IS THE CASE...I am saying this COULD BE THE CASE...please dont make it out to be more than that.
As to your specific comments:
"Cara said:
for instance, why does increased rental construction indicate to you greater demand for single family homes?"
It doesnt, increased vertical construction (condos or apts) suggests it was more cost effective to go vertical rather than horizontal - thats it.
"Cara said
Isn't it just as likely to indicate increased demand for rental properties (as well as increased cash-flow in them) due to slackening demand for over-priced homes? Isn't that an equally likely explanation?"
Yes. In fact Ill go one further and say its MORE likely than my explanation.
"Cara said...
The almost exactly parallel bubble rise strongly advocates for linked systems, not a new paradigm for Arlington. "
Agree. Again, I am discussing what COULD BE, not what IS, or what is even LIKELY...
Cara said...
That linkage may be further up the food chain and hence have equity cushioning for Arl/Alex.
Not sure I agree - there are similar areas outside the beltway -with lots of equity cushioning...yet they dont show this. Why? I dont know...
"Cara said
And seriously, Arlington is not Georgetown or Capitol Hill."
When did "georgetown" become GEORGETOWN? When did capitol hill become "CAPITOL HILL"? I dont know but they were able to become unaffordable over the course of their lifetimes. Could it not be the case that more areas (maybe N. Arlington, or even more specific Lyon Village) are joining these ranks...OR to put the shoe on the other foot, why not?
"John Fountain said...
well anon, at least you've completed step 1 and backed off the theory that population rose while housing supply remained constant ("If housing stock remained the same and population increased...")."
John - be carefull where you are going with this. In the beginning I said "IF (emphasis added) housing stock remaied the same..." I never said SINCE housing stock remained the same. This is the essence of a theory...
"John Fountain said...
Now on to step 2. you now say: "Assuming the same percentage of the population wanted detached single family houses as before..."
Why is that a proper assumption?"
I dont know that it is, I am throwing it up here, because I dont know. If you think its otherwise, I would be interested to know why.
"John Fountain said...
And is it supported by an equal and opposite change in the price of multi-families and condos over the same period (2000 to 2008)(assuming that the demand for SFHs is disproportionately higher for new residents compared to available supply, then demand must be disproportionately lower for all other new housing stock for new residents, right?)??"
No, its not right because if there was a BUBBLE (which there was) builders could (again emphasis "could") read increased flipping rates as a sign of demand, and build to suit it. If so, they overbuilt to suit a demand that was not there - prices will fall to an even greater degree to meet the new market clearing price...
"John Fountain said
Curiously, the "non-desirable" housing stock you reference (condos) appreciated at the same or greater rates than SFHs over the same period. I'm sure to you this is just a coincidence, right?"
John - for starters I didnt know they increased more than SFH - but if they did, that would add to what I am saying. During the bubble, when the flippers flocked to the condo market, they bid up prices even moreso than the market would bear. The whole thing was flippers selling to flippers to flippers, each taking their cut. Again the demand (the end user) wasnt there - so now prices should fall even greater than they do in SFH (unless the builder can convert that condo to some greater use, such as hotels or office space - whatever the market will bear).
"John Fountain said...
Listen, the fact that you are reworking your theories on the fly as old ones are dismantled doesn't strike me as too convincing. Come on, anon, this is common sense. There was a mania for housing of all forms. People lost track of underlying values and overpaid for everything. Certain stock is stickier than others, but nothing is exempt from the laws of gravity (no matter how much some would hope it would be)."
I said it before and I will say it again - there was A BUBBLE - PRICES ARE COMING DOWN AND WILL CONTINUE TO COME DOWN...end of story. What I am saying (and for which I am being criticized as wearing "rose colored glasses" and "reworking my theories") is that there could (again emphasis COULD) be an alternative explanation to this.
Obviously, ace seems to garner a shred of conceivability from what I am suggesting. Your posts seem to suggest that this is not even a conceivable outcome. With all due respect, there is something wrong with ALL our assumptions.
There is no reason why Arlington housing prices are holding up the way they are. There is something here we are all missing, and mine is one of many many many possibilities as to what COULD be the case. Now, do I think that my theories are likely to be the explanation - NO. However do I think what I am saying here could be correct - YES - end of story.
None of these theories that try to explain how it is that Arlington's prices could have shot up with the prices of every other part of this region, and yet possess some fundamental backing that the rest of the region didn't do not strike me as very plausible.
Arlington is clearly not a healthy market right now. Prices are falling and sales are at decade lows and have been for months. It is not as if business as usual has continued in Arlington while everywhere else has experienced a correction.
What we are seeing in Arlington, and similar areas such as Mclean, is that the sellers there are more willing/able to hold out for higher prices. In the long term prices will still correct, they are just doing so more slowly.
If in another couple years Arlington's prices are still hovering above those of the rest of the region it may be time to start trying to come up with an explanation for what has happened. I think what we will see is a continued steady decline that will ultimately restore something similar to historical relative pricing. (Arlington may have become somewhat more valuable relative to the rest of the area, but there is just no way it moved this much this quickly.)
anon,
Sorry for jumping down your throat.
One more thought I had last night. If the primary contributor to higher prices in Arlington is higher incomes being the only people buying then we will start to see foreclosures at a slightly higher tick as interest-only loans reset. It still won't be as high as outlying areas (under the false assumption that higher income people default at a lower rate under similar percentage burden).
If on the other hand it was move-up money funding these purchases then there will continue to be fewer foreclosures but the price support will slowly erode and stay down for an extended time of at least 5-6 years past the bottom in the starter home areas until more people have built up equity the old-fashioned way again.
Presumably the buyers in Arlington were a mix of both. But I would say a sharp uptick in foreclosures would support your hypothesis and a continued nother year of the stare down would support the existing equity hypothesis.
I think the other thesis you're articulating is basically that in bubbles there are winners and losers created. And that until the dust has cleared we can't tell if Arlington has been one of the big winners. I would say that just the fabulous new fake craftsman home stock makes Arlington a winner in the bubble building lottery. (I'm a sucker for those even if I can't afford one, even if it were in Chattanooga, TN).
However, what happen to G-town and Capital Hill was an externality. Decreased crime rates. Which is a pretty strong incentive. Is there a similar external change since 2000 for Arlington? I don't know the history of the schools, just that they're good now. Is this a recent development?
leroy,
good point, we are getting a bit worked up over nothing.
To add to the numbers aspect, Redfin has links to community info, which includes turnover rates, median residency times, incomes, education levels, crime rates etc. Which is pretty cool, although no citations are given which annoys me.
But anyway, I was looking at this to figure out (a) how long should we be considering for the move-up buyers, and (b) how fast the turnover is to fuel the bubble and (c) to be certain for myself that there will be homes coming on the market in the neighborhoods I like for myself.
So in the 22315 area, turnover is 25% of homes yearly, median residency just over 3 years!!! Yikes! That's way out of whack even for starter homes.
In 22207 it's still high, 16% turnover annually and 4.92 years median residency.
I think for the move-up buyer equity calculation (which I still haven't done) we should use something slightly longer than the average turnover since a sizable percentage of that is moving to a another city for a new job or new posting.
So indeed Arlington has a lower turnover (hence less speculative fuel) than the particular area of Fairfax I'll be buying in, as we've all assumed, but the turnover was still pretty fast and furious, given that the national average peaked just above 9% (CR today).
Anon - I think your point is well taken, and we shouldnt be too quick to dismiss it.
I recall about a year ago, a one time poster stated that while it looked like PWC wasnt selling, there was a lot of stuff moving that was priced right, it was just dwarfed by the stuff that was overpriced and sitting.
At the time, there were many more venomous posters on this blog (now gone), who quickly dismissed this guy, called him a realtor, and he ran away, never to be heard from again.
6-9 months later - we get regular reports from reliable bloggers like Xpovos and Ace - some stuff moves fast, other stuff sits and sits and sits. So in hindsight, the guy was right, yet we didnt "learn" it here until 6-9 months later. Im not an immediate convert to your position, but it is something I will consider nonetheless.
Cara - regarding the externalities that make G Town and Cap Hill, what they are today, I cant speak for Arlington & its condition 10-20 years ago, but I do know a bit about Alexandria.
As late as 1989 my old time neighbor reports prostitution and drug use were pretty rampant in the streets of old town. He said you would find at least one used condom or hypodermic needle on my block each saturday morning.
By 1993 or so things started to noticably improve, but there were setbacks. As late as 1997, most everyone knew someone who was mugged.
When I moved here early in 2000s, the crime was (largely) gone, but some abandoned buildings remained - there were 3 on my block. It wasnt until Dec 2007 that the very last abandoned residence on my block was re occupied.
In sum, the Old Town you have expressed a fondness for is nothing like it was even 20 years ago. Its is only a generation removed from being nearly unlivable.
Now I dont think that Arl was ever that bad, but there has been some pretty rapid change in these areas that needs to be accounted for. The amount that needs to be accounted for (vs the amount that was bubble pricing) is still an open question.
Regarding median income figures ... I would remove all the incomes below 50K, and then limit income data to only those people who moved into Arlington/Georgetown... over the last eight years.
If that data set were possible, it would probably give a more accurate view of actual income levels of buyers.
And while I'm constructing my fantasy data set, I would also exclude first time homebuyers as well, with the assumption that anyone who is buying their second home (but primary residence) has more money downpayment/equity.
Another way is just finding out how buyers overspent is to see how many mortgages in these areas are actually underwater.
All thanks for the comments - and sorry I got a bit snippy too - its just im itching to buy and Goddamn close in areas arent cooperating!
Recall my background - I hesitated to buy in 2003 because of the sky high prices - grew increasingly worried as prices continued to skyrocket into 2005 - relished the impending doom in 2006-2007 - and now watched in amazement as the rest of the metro area is in free fall while Arl is in slow burn mode.
My fear is that I am the ultimate contra indicator - I show an interest in an area it skyrockets - I finally pull the trigger and ONLY THEN it plummets - the gods are out to get me!
As leroy pointed out, if this small drop in pricing continues for a "few more years", then there may be something too it. For me, I may be at that point after only 1 year. Credit was taken away everywhere at the beginning of the year - when it left, some areas crashed, some areas largely held - why?
Its the "why" that I find frustrating and vexing, and all the tried and true real estate rules we know dont work on a local scale. 6 months inventory = healthy? Even CRT had to modify that theory to fit what we see. Median home prices = 3X income? There are huge and glaring exceptions to that rule.
What I proposed, is that areas can and do change in desirability over the years. Unless it was preordained to be special from day 1, at some point in its history, Adams Morgan went from 3X income (affordable) to 6.9X income (unaffordable) in 1999. At some point in its history, Del Ray went from 3X income (affordable) to 4.5X income (moderately unaffordable) in 1999.
As leroy noted: "Arlington may have become somewhat more valuable relative to the rest of the area, but there is just no way it moved this much this quickly"
This was my point from the beginning. Prices are too high and will continue to come down - period. My suggestion is that the more gentle rate of burn down COULD (emphasis "could") be an indication it will not make it all the way back to where it was in terms of pre bubble affordability. However, to deny that anything has changed since 1999 to make Arlington even slightly less affordable than it was before is like whistling through the graveyard.
Sorry anon, the waiting game is extremely painful, hopefully this has been a good place to vent.
I think there are some landmarks to look for by which you can judge whether Arlington will ever drop the way you want. (1) When PWC, Loudon and other counties actually start appreciating again. (2) when all the option-arms of 2004-2007 have expired by 2012 (3) when the stock market is back above 12500 (4) When there has been one full year of no YoY declines in Arlington.
If you're really adverse to jumping in too early, any or all of these signs will be ones that won't happen until near or after the bottom.
But what's most painful about the bubble cycle is the feeling that one needs to time your housing decision based on the market rather than based on your own natural time-frame. You did the right thing not buying in 2003, prices were too high. And more importantly they were indiscriminately high. On the way down, houses with inherent unfixable problems will have to be priced accordingly, the wheat will be separated from the chaff. Even without the level of declines you might like, the buying condition will be much better (if just as stressful in a different way).
anon said: "However, to deny that anything has changed since 1999 to make Arlington even slightly less affordable than it was before is like whistling through the graveyard."
One big thing that has changed is interest rates. The abnormally low interest rates we've seen for the last several years have driven the price to income ratio through the roof because lower rates allow buyers to pay more for a house while keeping payments "low." This is probably the biggest factor driving the price to income ratio up over the last 8 years.
This is why I think evaluation of the p/i ratio is far inferior to evaluation of the price to rent ratio, which excludes factors such as interest and really focuses on demand for housing stock (true increases in demand are seen in both the stock of rentals and owner-occupied properties).
So if we believe the theory that "Arlington is just in more demand now than ever before," we should have seen both rents and hosue prices leap by the same spectular bounds. One little problem - we didn't. Sure rents rose some, but nowhere near the amounts the home prices rose. This is pretty clear evidence that a large portion of the rise in home prices is attributable to something other than "Arlington is now in much greater demand." And I think I know what that something is - a housing bubble whose reversal in Arlington is stickier than in other areas largely due to folks still convinced that it's different here.
wow
i didnt read through most of this arlington talk as it is unnecessary. here is why arl is holding up:
It has old wealth.
Sellers think like tom, North arlington is different, and hold out for longer for higher prices.
It is close in to DC but not DC proper.
Good Public Trans.
That's all.
I"d like to add that it is where I live which makes it extra special. Kidding! Happy Thanksgiving!
"John Fountain said...
This is pretty clear evidence that a large portion of the rise in home prices is attributable to something other than "Arlington is now in much greater demand."
Agree John - Arlington rents havent risen enough to account for price gains. Hence as I have said many many times, prices are falling and will continue to fall.
"John Fountain said.
And I think I know what that something is - a housing bubble whose reversal in Arlington is stickier than in other areas largely due to folks still convinced that it's different here."
John - this is the far more interesting question. Here we are late 2008 - the bubble has clearly burst - the stock market is in shambles - the world is on the edge of economic collapse. Yet, dispite all this wreckage and carnage, the buyers in Arlington show up in decent enough amounts to prevent prices from falling precipitously. Why?
Again, think of where we are - late 2008. Low down payment is still here, but no/doc, low/doc loans dont exist anymore. I assumed all along that many of the Arlington residents were qualified - still I would have thought that the lack of junk loans would have thinned the ranks of ARL buyers much much more. Yet each month they still show up, perfectly content to buy at prices a few percentage points below last year.
The more interesting question is, what if they keep showing up and prices continue to gently slide for years to come? How long can they continue this steady progression? This downturn has what 2 maybe 3 years left in it? What happens if they never go away and suddenly all those ominous clouds on the economic horizon are gone?
My guess is you are going to respond in a manner suggesting, "that wont happen, I know they are going to go away". Well, no you dont, and neither do I.
Outside factors all suggest impending doom for Arlington. Fundamental factors like rent to income and price to income have been suggesting pending doom for arlington. Thing is, those outside factors and fundamentals have been suggesting doom for years now, and yet they havent had as big a factor as we had hoped. Thats why Im trying think outside of the box - what are we missing here?
You know, George Costanza once said "its not a lie if you believe it" - maybe this personifies the typical arlington buyer circa November 2008. What if they all believe its different here? Even worse, what if they all continue to believe its different here for years to come? At what point are they proven wrong?
anon,
To add to your worries, what if it's a self-fulfilling belief? What if the sustained high prices in Arlington alone stand out to make Arlington schools an even greater contrast to the rest of NoVa? What if the lack of price declines makes people flee here from Rockville and other similar areas that are now already in serious trouble?
But I would say wait until at least this summer before panicking. If banks really are holding back inventory, they'll be bringing it on line for the full spring and summer buying season, after any home-buying initiative by the new administration are rolled out. If the increase in transactions drives prices lower (through dominance of distressed sales, or simply through the price-discovery effect giving low-ballers more ammunition from comps) then you'll be all set. If Arlington survives the spring and summer, then worry.
(someone probably told you this last year, didn't they?)
Anon -- good post.
There's too much focus on trying to determine how far prices will fall and the variations among neighborhoods.
As you point out, there are gaps and questions in every analysis about the decline in housing prices. Bottom line: No one knows what Arlington prices will bottom out at.
But I do think people can agree on a list of conditions for determining when the bottom is reached in Arlington or anywhere else. Someone earlier in this thread laid out some possible conditions for answering that question, and I think that's a better way to approach the problem.
"If Arlington survives the spring and summer, then worry.
(someone probably told you this last year, didn't they?)"
Cara - you took the words out of my mouth! If nothing else, thank you for giving me one of my biggest chuckles of the day!!!
I hestiate to jump into this flogged and dead horse thread, but the discussion has for the most part ignored the real market. Do a search on franklymls for 22201 clarendon under 600k. Look at the under contract rate - about 1 out of 3 properties! There are some price declines here, but in the -5% to -10% range, not as drastic as outlying areas. Here is a good example:
http://www.franklymls.com/AR6893661$440k
I think rent of a comparable unit would be around $2400. Absurdly high you might think, yet check out the rents from some of the managed apartments, such as Archstone, in this area.
When you run these numbers through a rent vs. buy calculator (i used usaa's linked below with 5.625% interest rate, 20% down) you can get a net house payment (PITI after tax deduction) of $2050 plus $375/month for HOA. Total of $2425. No one should be buying with the thoughts of making a profit renting out, but someone who puts a premium on owning could justify it.
The unit went under contact with a 9 DOM. Price essentially flat to last sale of $430k in 2004. (assuming low discount because of 9 DOM). The seller probably did lose money on this after commission. On the other hand a similar investment in the stock market could have done worse.
You can find more examples like this. Like it or not, people are willing to pay high prices to live in Arlington.
Short of some massive layoffs in the area or big increase in interest rates (both looking unlikely in the short term) the high rent and high sales prices are supported, even if this is risky from a long-term investment view. But as I said on an earlier thread 22201 is a standout area in Arlington where prices will be supported more. If you try this same search on 22202, you get a very different picture, despite close proximity.
My opinion: Clarendon saw dramatic price gains 1998-2004 as the result of good development, demographic changes and an influx of population based on this area's very good job market.
http://usaa.mortgagewebcenter.com/ResourceCenter/Calculators/DisplayCalculator.asp?PID=78&Q1393=MortgageRentvsBuy&bhcp=1
anon said: "Thats why Im trying think outside of the box - what are we missing here?"
It may very well be that we aren't missing anything. I remember warning my friends during the tech bubble to sell all of their tech stocks. No one would listen to me and I couldn't find a single person i personally knew who agreed with me that stocks were headed for a huge crash. It was an almost everyday occurence for me to wonder, "what am i missing here." Turns out, I wasn't missing a thing.
The same thing is happening now. The way I know I'm not missing anything is because two years ago it was "well, prices may slip a bit outside the betlway, but inside the beltway they won't fall at all." Then it changed to "well, places inside the beltway other than Arl/Alex may fall a bit, but Arl/Alex won't." Next it was "Well, south Arlington may fall, but not by much. And north Arlington won't fall at all." And now it is "Well, south Arlington may get crushed, but north Arlington won't fall that much more."
With each iteration, those who thought it was "different this time" for a particular area came to realize it wasn't different after all. We're down to a very small geographic area left clinging to the "gravity doesn't apply here" notion. It's only a matter of time.
"You know, George Costanza once said "its not a lie if you believe it" - maybe this personifies the typical arlington buyer circa November 2008. What if they all believe its different here? Even worse, what if they all continue to believe its different here for years to come?"
Good point and good question. Knowing how the folks in every single one of the other "it's different here" areas has fared so far, I think I'll take my chances. Worst case, I'll continue to rent in Clarendon for half the cost to own until such time as rents finally catch up to ownership costs. That doesn't sound like a bad outcome to me.
blacksilver...
Those are all apartments. (okay all but 5). And I count 10 contracts out of 40 properties under 600k.
Archstone is overpriced because its overextended and about to go under. It does not reflect the market. (besides-which if you actually go into the rental office they'll always give you a "discount" or special promotion they happen to be running, no one actually pays those list prices...)
I maintain that if one is _buying_ an apartment it has to be substantially cheaper than renting because you're loosing flexibility and gaining financial risk.
But quibbles aside, yes indeed there are plenty of knife-catchers out there saving our asses by preventing complete financial collapse. You're right. And seriously, some market data wouldn't hurt. I say that the rapid movement amongst the only stuff that's affordable only indicates the lack of support higher up, people would rather buy an apartment than pay an arm and a leg for a shack.
This same discussion continues. It may be revealing to google the terms "immune AND housing bubble." What results are boards concerning the same discussion that we're having now, but about upscale areas in other cities, such as Boston, NYC, LA or San Fran. DC is not special in this regard.
This is really about basic math, and it always will be. In 2004-06, those of us who warned about the nationwide housing bubble pointed to unsustainable distortions in fundamental valuation metrics, such as price/income or price/rent. We were told by many idiots that things were different this time; however, prices will always revert to the mean. It's only a matter of when, not if.
Turning to the immuno-zones in NoVA, we all know, based upon research that has been posted here, that home owners tend to overvalue their properties. Arlington and Alexandria will revert to historical levels of fundamental valuation, eventually, but home owners there tend to be more affluent, and have greater reserves of wealth than the average subprime buyer. Thus, those affluent homeowners can hold out, refusing to sell at current demand levels. That's why we're seeing sales diminish in those areas while sales are increasing in areas where sellers have capitulated. But Arlington is not healthy: low sales volume means that each consummated sale has that much more influence over perceptions of the market's current status. When capitulation finally arrives (and it will), I believe that it will happen more quickly than expected.
Something that can't go on forever, won't.
It is indeed very curious that DC is following the same pattern as Boston, NYC, SF, etc. regarding large declines far out and small declines close to the cities.
It bears repeating that one of the clarion voices warning of unsustainable distortions in fundamentals were our friends over at case shiller, the same ones who noted this trend in the cities you noted. Their conclusion is that even as overall sales volume drops, relatively stronger demand for housing will limit price declines close in.
http://www2.standardandpoors.com/spf/pdf/index/052708_Housing_bubbles_collapse.pdf
Their reasons were more than mere gas prices - citing demographic changes and the like. Given their predictive abilities thus far, perhaps it is wise to consider what they have to say about the fate of these close in areas...
And regarding the wealth and ability to hold out of the Arl/Alex homeowners, it bears repeating that the wealthiest county in the US is nearby Loudoun county. So whatever holding out is taking place close in, I can only imagine how much more prevalent it is in the wealthiest county in the united states.
The statistics bear this out.
In Alexandria, Sales/Inventory in the high end categories (700K-2.5MM) for the last 3 months is as follows.
Aug 28/150 (5.4)MOI
Sep 19/159 (8.4)MOI
Oct 24/153 (6.4)MOI
For the record, there were 74 sales in the same time last year vs 71 now - however the inventory is less, meaning the bid/ask spread is slightly less than last Autumn.
What about #1 wealth loudoun?
Aug 41/581 (14.2)MOI
Sep 35/540 (15.4)MOI
Oct 23/510 (22.2)MOI
For the record there were 148 sales a year ago vs 99 now. In fairness, inventory has dropped, but not as much as sales - the bid/ask spread has widened.
Capitulation is a certainty - yet it is unclear if it is here now, or if it is some time in the future (I havent made up my mind on that yet). That said, if these stats have any predictive value, I can only imagine how much more severe and how much worse the price declines will be for the wealthy in places like Loudoun.
crt,
how do falling home values figure in Loudoun's wealth? i don't know much about Loudoun but am curious whether people's net worth have changed significantly after the RE collapse.
CRT -- good post.
I love the word capitulation; it's an emotionally loaded word that evokes images of despair, regret and surrender as people turn their homes over to the uncapitulated at bargain prices.
That's an aside.
But what you point out is the fundamental problem with the argument that the bottom will be reached when prices are aligned with the fundamentals.
If the fundamentals were clear then the bottom should be an easy math calculation, but that obviously isn't the case. And that's because the data isn't complete, it's probably flawed in ways we can't imagine, and it's subject to variables we can't even grasp. It's a murky soup.
So while I won't argue with Terminator and others on the list about the primacy of fundamentals, I'm not convinced they are known in anyway that is complete. If the fundamentals were truly known, then we should be able be able to spell out that capitulation will happen when x and y occurs, but obviously, no one can do that.
If the forecast are not precise, and they aren't, then the data that people believe make up the fundamentals is flawed as well.
What we're are actually dealing with here is something akin to weather modeling; the further out we are from the storm track, the less we know about its strength and direction. And you won't even really know the storm's impact until after it hits. It's no different here.
MM - thats a good question. I think I heard that Loudoun may have slipped from the #1 wealthiest to #2 wealthiest (behind neighboring Fairfax), but I dont know if its due to the collapsing real estate market.
Kob - I agree. By some measures, you can say capitulation is here. The huge increase in sales out west suggests the same. However, as I suspect these sales are by and large foreclosures - meaning this tells us little about the attitude of current homeowners.
The reports I hear recently by prospective buyers on this blog are akin to saying "prices are down/ affordable in the last month or two" - is this what we are looking for, or is this just more REO activity?
The other concern is capitulation is an individual event by each individual homeowner - to some degree it happens every day and has been happening for years. I think if we want to "see it" (i.e. have it show up in the data), I think you will need to see a big group of owners, and then a sudden increase in sales from such owners (again not REOs).
Its possible that its gonna be like the bottom - we wont know it until its past.
OK off to catch a plane - Happy Thanksgiving!
Kob,
I would put forth that it's more like quantum mechanics. It's easy and relatively straight forward to calculate the ground state energy level, especially at absolute zero(i.e. the fundamental clearing price), however the calculations for the transition rates, probabilities, emission wavelengths, density dependence, temperature dependence etc. are much much harder. So you don't know how long it will take to reach the ground state, and you don't know what will happen along the way.
I do like the part in the storm analogy about nobody knowing what will happen until the storms already past. And especially since things like 30% chance of rain actually sometimes mean that 30% of the area will get rain fall, and 70% will get none, such that if you could forecast it precisely you could get actual rainfall amounts by location.
I just wouldn't say that the fundamentals themselves are so murky, yes incomes will change and rents will change too, and there is feedback, but I think the current expected clearing price is pretty well known. What seller's don't know is what's the highest price they could ask and still sell in today's market.
My metaphor is far less evocative however, which is a major flaw.
Cara,
I'm so happy you raised quantum. There's a lot of weird properties in it, such as the ability of electron to be in two places at once. This explains some of my past relationships, and possibly the housing market as well.
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