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Tuesday, December 30, 2008
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23 comments:
On the heels of last weeks article predicting 19% price drops in DC, I see this article out today
http://www.businessweek.com/lifestyle/content/dec2008/bw20081223_927689_page_2.htm
It discussing the pain spreading to wealthy areas, areas not hit, etc., yet I get a bit disheartened when I read this blurb:
"But a few places are poised for a potential recovery.
The housing market in and around Washington, D.C., which suffered greatly in the wake of the housing bust, could begin to recover, largely because the nation's capital has so many recession-proof government and defense contracting jobs, said DiNatale of Moody's Economy.com."
My take on the whole thing? The 19% off prediction last week, the recovery prediction this week, all of it is just a bunch of guesswork by self appointed gurus who no nothing more than the average blogger.
I tend to agree with your "take on the whole thing", Anonymous.
We "still have the jobs" - the same 'ol D.C. area mantra.
The same mantra that was supposed to make us immune to a RE bubble in the first place, back in 2005.
So, with a "good D.C. Government job" will people still want to purchase homes in the current Economy ?
IMO, the financial fundamentals are still stacked against property values in this area for quite a while.
Now that's telling it like it is! I was reading the Patrick.com site yesterday after Cara mentioned it and boy did I walk away with a jaded feeling about the real estate industry and business media in general...either they're self serving, conflicted, or just making wild-ass guesses.
I am getting ready to move to the DC area, and want to buy a house. Yet, I can clearly see that it is not time to buy, and luckily I will have till at least April to make a decision on buying or renting. Do y'all agree that the new administration coming in will create a lot of churn in the local housing market and delay some of the anticipated drops in pricing? I am thinking that the flurry of buys and sells from the two administrations changing places will put some artificial activity into the market for the short term. I wonder what that will look like...
On another note, if you were going househunting in the periphery of the Navy Yard, what would be the best central location to use as a home base considering traffic and normal congestion? A short term condo rental in Alexandria, or Vienna, or???
Tom
I have always heard that change in Administrations has very little effect on the D.C. Metro RE market. (Something about party-proof jobs for the most part or people getting new local Government jobs if they get canned)
I had the same thought when I first moved here 9 years ago !
Anyone have any statistics?
A little update:
All my landlord said in his reply was that they were disappointed in the appraisal, and that they are getting farther away from the lowest they had thought they could go. Then he said we should just make an offer they can accept or reject, and be done with it.
So that is our task tonight, I guess. But the one house for sale on our side of the neighborhood just went under contract a couple weeks ago: a foreclosure the bank fixed up with new carpet, new paint, new kitchen. It is a bit bigger than our house, on a bigger lot, on a culdesac, and its last asking price was $249K. If that has closed by the time we get the next appraisal, it will be the newest and nearest comp, and will drag us even further down from the just-under-$270K we are now. Not to mention the other foreclosure just around the block, which is our exact model, whose bank is fixing IT up right now, same thing of new flooring, new paint, new kitchen. For what will it come for sale, and how soon?
So do we anticipate these further declines? Or do we just make a fair offer for the moment, and tell ourselves that getting a low interest rate makes up for the expected further depreciation? Or do we get spooked and just ask if we can keep renting?
Wish I had looked closer into that crystal ball in the Smithsonian's gem exhibit yesterday with my kids...
Tabitha-
I'd wait (heck I am waiting too!)
By the comments your Landlord made, it appears they don't want to be lowballed in the least ("getting away from the lowest...")
As you know, the current/pending foreclosures surrounding you will do nothing but kick prices down further.
If you buy now - can you live with another 50-75K instant equity drop on your new home ?
Is it the home you want? Really?
Is it really big enough?
Think 5 years from now when all your kids are bigger & require more space (and they do, believe me!)
Tabitha, I don't want to tell you how to do things, because I know everyone has different priorities, but from a business standpoint I think you have put yourself in a disadvantaged position.
From a strictly business perspective it would be best not to try to buy something you are emotionally involved with, and not to try to do business with someone you don't want to offend.
I would suggest waiting until near the end of your lease, and getting the best deal you possibly can on the open market.
Is avoiding moving really worth tens of thousands of dollars?
"Contrarian said...
I agree with Mr. Dent on the fact that the coming corrections are going to be really severe, but I believe they will be worse than what he is suggesting."
Ahh yes, another self styled know nothing guru.
"His target for the Dow is 40,000--which he believes it will hit somewhere around 2008."
http://www.businessweek.com/2000/00_13/b3674175.htm
Nice call Harry. You really nailed that one! Then again, there is 1 trading day left in 2008 so maybe the dow is going to have a 31,500 point surge tomorrow and prove him right...
So despite this horrific call in the past we are supposed to belive him now?
Tabitha,
I agree with Leroy's advice. Why not move to one of the foreclosures if you like the neighborhood? If the first sold for 249k you could probably get the second for somewhat less in a month or two.
Tabitha,
"getting away from the lowest they thought they could go"
They as in the market, or they as in the owners?
I understand his sentiment of just wanting a solid offer to accept or reject. It's one thing to have a bird in the hand and make a real decision to turn down liquid money now and another to contemplate the possibility.
There's no way you'll close before those other sales become comps for your mortgage, so you'll have to factor them in at least far enough that you have the cash to make up the difference and still get a mortgage at 3.5% down for the assessed value.
My advice? Low-ball him. Low-ball him with a real price that you'll be able to easily get funded with no mortgage insurance.
Why? Because you and he have a relationship now, but as soon as he sells the house to you, that's over. He's your landlord, he's not going to be a longtime family friend for years to come. You don't owe him anything. But you do owe your family the most financial cushion you can get.
And for him, he's already "lost" over $200k on paper. If he sells now he has to realize those losses. Compared to the existing paper loss, what's another 20 or 40k, when he's collecting income from the asset already? If he doesn't like your price, he doesn't have to take it. He can ride out the risk, for the reward he obviously thinks is eventually coming, and collect rent in the meantime.
If I remember correctly, he's paid off the mortgage, right? So his carrying costs are just maintanence and property taxes. So for him this is a money making assest. If yearly rent exceeds the decline in price each year going forward, then there is no incentive for him to sell. Thus you would have to overpay in order for it to make sense for him. You have plenty of other options of what to buy, thus, you don't have to overpay. So, I just don't see how there could be a price at which this transaction would happen that's both fair to you and advantageous to him.
Tabitha,
I believe it's possible to find out 'through the grapevine' the contract price of that other home, if you really need that piece of information to work up your offer. Agents gossip, just like us. :)
Good luck.
Tom C,
re: change of administration- Several sources have said that it doesn't make a difference. I think (personal opinion here) that may be the case for most past changes as there are usually roughly the same number of newcomers as there are people leaving. I think this year it might actually push prices down. Many close-in neighborhoods have had very few sales to create any comps. Houses have languished on the market, then been pulled off. Now there will be a large number of houses that need to sell. Even if those only sell for current market price (without postulating a net change in supply or demand) it will create new comps that are going to be lower than the existing comps from 6 months ago. In effect, it won't change prices, but it will reveal how they have already changed.
Just my theory.
Tom C,
I don't have the stats, but the change in administration never shows up as an appreciable blip relative to the greater metro population. It may matter for Capital Hill itself though.
For a semi-central location between Navy Yard and the outer areas you might consider buying I would actually suggest near me at either the Van Dorn or Franconia Springfield metro stops. There's the Ridgeleigh at Van Dorn, the Elms at Kingstowne, and plenty of others that have short term furnished rentals. They'd give you the option of the metro, but also easy access to the beltway and major routes.
Thanks for your suggestion Cara, I will look into the temp housing in that area. Regarding the administration change, I like what eponymous said, it does seem likely that the flurry of sales at the lower prices of today will bring down the comps in the affected areas, most likely the district.
Contrarian, wasn't the guy in Hitchhikers Guide to the Galaxy named Arthur Dent...likely a relative of Harry...infinite improbability physics et al. I don't put much stock in 5 year forecast windows.
Good stuff and thanks all.
Tabitha, I would consider waiting too. Landlord doesn't seem too hungry and things may get contentious so I like the waiting till your lease is up idea.
Tom C,
I also agree with eponymous. Increased transactions should help create price discovery, and might make the market a bit more manageable in the sense that people might start listing their homes closer to the eventual sales prices.
Technically, adding equal number of buyers and sellers will help sellers now, because it's the ratio of the two that matters, and adding equal numbers brings that closer to one. This math makes me more pessimistic about greater transactions bringing sales prices down, but comps are extremely important. Where I've been looking what's happening is neighborhoods are falling one by one once 2-3 immediate comps happen and pull down the other listings. Sellers have a ridiculously fine scale for what they consider comps these days, and don't want to consider one block over built 10 years apart. Appraisers however, will have to consider them, which results in all the "back on the market after sale fell through" incidents.
As always, thank you all for your excellent advice. Cara, you're like the little angel on my shoulder, saying what I know to be true but have a hard time articulating!
I do agree that the closeness of this arms-length negotiating is problematic. My brother who works for Booz Allen is constantly chiding us for even attempting a transparent, "try-to-satisfy-everyone" transaction. We're just not business-minded the way he is, and our desire to stay put is obvious.
However, again, the Marine Corps would pay to move us, so as much as I dread moving yet again, at least I am between babies, and we would not be paying out-of-pocket.
We are paying for location above all else: close to the VRE, church, friends, kids' activities. There is a nicer part to the neighborhood that we would prefer, but most of the folks over there are original owners, so the chances of any houses coming on the market when it's a bad time to sell are pretty slim.
The conservative move would most certainly be to rent until an even more ideal house came along. This assumes our landlord would allow us to extend our lease past April, if necessary.
As soon as we make up our minds, I'll fish for one more round of input, thank you!
Contrarian, clearly you were unaware of Mr. Dent's imbecillic prediction of Dow 40,000 in 2008. After all, why cite the work of someone who has been so incredibly wrong in the past and assume "this time" he is right?
If anything, he may be a good counter indicator. His stock call for a stock "boom" was in March 2000, the absolute peak of the bubble market. Given his track record of some horifically wrong calls, what does that say about the state of housing?
Bottom line is, this guy is another know nothing guru with a track record of getting some things right, and some things horribly and spectacularly wrong. Why are we to assume that "this time" he got it right?
Contrarian,
I was completely joking about the Dent thing, mixing him up with the Hitchhikers guide...didn't think it would so offend. Apologies.
Your points were well taken, and I am no expert in this field.
Peace.
Contrarian - I listened. Sounds good. Then again, it sounded good when he predicted the dow would hit 40,000, by 4PM this evening, yet we all know how that turned out.
So thats the issue - the methods he used to predict the 40,000 dow are the same ones he uses to predict the demise of housing. Garbage in, garbage out...
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