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H/T Calculated Risk: "David Crowe of the National Association of Home Builders said he was quite negative in his housing and economic outlook last year, but not negative enough. ... Crowe said he expects prices to fall another 29 percent this year and new home sales to decline 14 percent. ... The nation has an excess "overhang" of 6.2 million homes for sale, about 1.5 million too many, he said".
Wednesday, January 21, 2009
Northern Virginia Bits Bucket 1/21/2009
Posted by Harriet at 9:43 AM
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17 comments:
Yeah, I've noticed that NAHB seems to be much more grounded in reality than NAR. Maybe that comes with building an actual product rather than being purely a middle-man. Who knows? But that was certainly an impressively dire outlook.
It probably has to do with the fact that builders put their own money at risk when they make a decision to build. They want to know the real risks so that they can make an informed decision. If they act on an overly optimistic forecast they can suffer financially.
The NAR numbers seem to be more for PR. No matter what the forecast, realtors will continue to make an effort to get listings and sell houses, in most cases as, as many as possible. If the NAR forecast is too optimistic the realtors don't have to worry that they've lost money by selling too many homes based on this forecast. Their only concern is that the NAR forecast does not scare buyers away.
contrarion,
Nah, wait til your barber tells you never to be a landlord, you'll loose to much money on the depreciating asset.
From patrick.net
New Battle Affects Home Values: No-Rental Rules
I found this article interesting for its summary of assumptions about renters and the reactionary and counterproductive behavior taken in some communities (but not in NoVA as far as I know). I am always surprised about how casually prejudiced people can be towards renters. What I've heard:
1. Renters don't care about their property and treat it badly.
2. Renters are more likely to engage in bad neighbor behavior than owners.
3. Renting is just throwing your money away. (i.e. renters are stupid)
4. Renting is only for when you are young. (i.e., renters are stupid and irresponsible)
Certainly we've seen some of these prejudices appear on this blog :-). As I've rented alongside owners in condo communities, I've seen my share of bad behavior by both owners and renters. I personally find that renters are usually friendlier than owners! But maybe the owners could tell I was renting :-)!
The financial incentives to buy vs. rent clearly disappeared in this area years ago, yet it was somehow incredible news last year in the media that this ratio mattered.
I'm guessing that the origin of these prejudices is that for a very long time (1940s-90s?) it really was a great thing to buy with only minor hiccups in the increase in home values. If true, 60 years is a long time to cement prejudices like that in conventional wisdom. I wonder how long it will take before attitudes change to reflect the current reality.
blacksilver
Wow. That's a breathtaking amount of prejudice. "renter's don't maintain the property" Bah! Slumlords don't maintain the property! It's not the renters, it's the landlords.
The converse of not wanting renters, or admitting there's such a thing as a rent to buy ratio is also not understanding that there is such a thing as a floor.
I was talking to my mom this weekend. She's normally somewhat even-keeled when it comes to mortgages and home-buying. But althought she thought the DC market should be fine because there are so many jobs (okay, sure, relative to Detroit or Cleveland) she also didn't see how one could ever know when the bottom in prices had been reached. The 60-year established conventional wisdom of buying being better than renting also means that unless you've been paying attention to the rent to buy ratio, you won't know when prices have fallen far enough for buying to be a good idea financially. Thus, the market can just as easily overshoot on the down side as it did on the up side, especially in market-segments and locations where renters are rare. (and hence landlords are rare).
Deflationary spiral here we come.
Closed the sale of our townhome today in Van Dorn Village (6010 Hydrangea Dr) in Franconia. Final sale price within 10% of the asking price of $330,000. The home was on the market since early October, and a contract was issued a few weeks later.
A.D.
Congrats!
So, what do you think of the walk up to Van Dorn from there? My husband wants to restrict our search to the proximity of the Franconia Springfield station, and I'm trying to convince him that's silly. But from my drive it's not clear how one safely walks up Van Dorn when you get to the 495 interchange. Your thoughts?
Cara, take the bus if you can. I think it stops across from Van Dorn Village every 30 minutes. If not, you can walk as there is a sidewalk/walkway on the eastern side of Van Dorn St. A good amount of folks from Ridgeleigh and Van Dorn use that walkway. You and your husband should do a trial run over the weekend to try that walkway to the metro. I think my buyer got a 4.5% rate, or something that real low. Her monthly expenses (PITI) are going to be close to the average rental expense. The townhome across the street recently rented for $1700.
AD,
Yeah, we've been walking a lot of neighborhoods and their commutes on weekends.
Unfortunately, our DP fund won't be 20% of $300k until early 2010, so we're looking at the under $250k market this fall, but if there's nothing we like, we'll just hold off another 6 months. I know, I know, all the good houses could be gone, but I'm not too worried.
At this point it really is a matter of expectations. If the market is going to at least appreciate at 1% a year, and rents are going to continue to go up at least 1% a year than $300k is indeed a fair owner-occupied price. And if stability sets in at that rational price point, I'll be fine with that (and just waiting a tad longer for our own finances). But if you try to price in any future drops, you get prices at or below $250k to make buying cheaper than renting by enough to cover your losses and transaction costs.
So, we'll see. But I definitely think it's wise to keep our search broad in terms of locations.
And I think you've made a very wise choice to sell when you did, to avoid the risk of any further drops. If I remember correctly the primary motivation was moving to MD for the commutes, but still, all in all pretty smart timing.
Cara, that sounds good. It is unlikely Franconia townhomes will appreciate greater than 3% over inflation within the next few years. But I don't think values will drop (much) below summer 2003 levels based on my analysis (6.5% annual appreciation since 1998). Your approach is not excessively risk-adverse.
Here's my most recent update on our townhouse purchase. We are trying to buy a TH in the Centreville/Clifton area. We made an offer on a short sale months ago and it was finally approved by their bank. When the appraisal was finally done, the appraised value was ~ $45,000 less than the earlier offer price. The seller's bank knew there would be a problem due to the huge price declines over the last few months. They had their own appraisal done a week before we did ours and their appraisal came in $15,000 higher than ours. Still they've decided to accept our banks appraisal and sell it for that amount. We should get the final paper work on Friday and be able to close in a few weeks. With interest rates as low as they are, our payment including homeowners ins,taxes and HOA fees will be ~$300 less a month than what it would cost us to rent something comparable. I am a little concerned about a continued decline in prices, but think we'll move forward given all these factors: renting would cost $300 more, the price we'll be paying is ~ $85,000 less than what the previous owners paid in 2004 (they pd ~ $375,000), and we really like the area. We expect to be here in NOVA at least 5 to 7 years so hopefully we'll come out okay. Any thoughts?
dgg,
If you like the place and your numbers are correct, then you got a great deal. You should enjoy it and stop following prices since it can only lead to pointless anxiety after the fact. Anyway, it is very unlikely that prices will drop far below rental parity
enjoy
dgg,
2nd eponymous.
If your new cash-flow is $300 below rent? Then you're sitting pretty. Yes, things might fall a little below rental parity, but they should recover to it quickly. The only concern is that whoever's buying from you in 5-8 years won't be getting the nice 4.5% interest you got, so that may reduce their price a touch, but really that should be compensated for over the regular course of inflation. So, if you like this place and you like the neighborhood and it's convenient for you, it sounds as if you've made an excellent and sound financial decision.
Thanks for sharing the details of how the short-sale process progressed. That's excellent news that the selling bank was so accomodating. Which bank was it, if you don't mind my asking?
Thanks for the feedback. In spite of the fact that I believe it is a good move, I still have my insecurities regarding the market. Thanks for the encouragement to move forward. The seller's bank was Wells Fargo.
dgg,
It ia agonizing. Because, yes, things may very well continue to slide lower for a year or so. But, $300 a month?? That's a good decision. Even Michele Singletary would applaud it.
Take that $300 every month, put it aside in an interest bearing account, and when 4 years have passed and real estate prices are back up to what you paid, buy yourself a new car, with cash! Or insert your fantasy reward for such prudence here. In the mean time you'll have that savings, building up, reminding you that this was the right decision for you and yours.
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