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Friday, January 30, 2009
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61 comments:
Residential rents are dropping in NYC in Boston. No mention of DC in the article:
http://tinyurl.com/astcva
Uh, that should say "NYC and Boston." Serves me right for typing before I had my dose of caffeine.
I would expect the extremely low unemployment rate here compared to the rest of the country would help to support the rental prices.
I thought it was funny advice they gave:
Go for a Long Lease
"If you've got job, it's a great time to be a renter and to sign the longest lease possible," said Ron Johnsey, president of Axiometrics.com, a Dallas apartment data company.
Can we say, self-serving advice? The underlying assumption here is that rents will shoot back up soon, or that if you sign an even longer lease, you'll get a lower rent. But rents aren't going to go up soon, hello, everything is in a deflationary spiral right now. This sounds more like a blatant ploy to keep tenants longer.
But I agree with dgg, that the areas that are suffering most are also suffering job losses. The new luxury apartments coming online, and the disappearance of the speculators asking wtf prices to cover their I/O mortgages, to be replaced by new landlords who can buy now at cash-flow positive (in my neck of the woods, anyway) will be the drivers here, rather than unemployment.
I think they're going to try to keep it "sneaky" for as long as possible with 1st month's rent free and such, to keep the list-rents constant.
I just refinanced the 30-year mortgage on our N. Arlington house at 4.875% and no points. That will reduce our monthly payment by more than $300.
We're thinking of buying a 2-bedroom condo in N. Arlington as an investment property. With interest rates this low, now seems like a good time.
Tom,
4.875% with no points is excellent, congrats!! Good to know that's still possible, my mom needs to look into refinancing AFTER she's done a real budget for herself (she needs to decide between another 30 or going to 15), and I'm just crossing my fingers that these types of deals will still be available then.
Did you start up a new 30 year term, or keep the current remaining length? If you did extend the term, how much of that $300/month is from the increased term and how much of that is from the decreased interest rate? If this is too specific to answer on a blog, I understand.
Go for it Tom. Put your money where your mouth is. When you say investment, do you mean to rent out, or for appreciation? If it's to rent out, keep in mind that you need to find something with an even lower ratio of rent/purchase, like a gross rent multiplier of 120 or so. I see there are some Arlington condos popping up in the "steepest discounts" list these days, but these may not be your cup of tea.
Tom: "With interest rates this low, now seems like a good time."
Of course, for that reason, during the past five years, it's ALWAYS been a good time to buy. Until six months later when you realized you jumped the gun. Then a year later when you're underwater. Then two years later when you don't even want to think about the terrible investment you made. Just saying, all my friends have bought at various times over the past several years, quoting the interest rates as the best reason. It matters much less in this kind of market than people think.
Two things I think are more important: Arlington's long term RE outlook, and potential monthly cash-flows (trends in rental prices);
rents are starting to fall - everywhere. If they decrease 20%, that could greatly impact your monthly cash-flow significantly..
I would argue that Arlington is correcting much slower than other areas, and will reach its bottom much later. No argument about desirability or location takes away from the fact that Arlington prices skyrocketed during the bubble almost as much as some of the outer regions. If nothing has fundamentally changed in the area (and not much has), it's not unreasonable to expect prices to inevitably retreat, even if it takes a decade for them to do so. I'd feel safer buying in Prince William County right now, where many prices are at bubble-corrected levels, than I would areas like Ballston that are in bubble-denial land.
I've bought several properties over the years, all in N. Arlington. I've rented them all out and sold most of them. I've also lived in all of them at one time or another.
If I buy an investment condo this time, I'll obviously be seeking an overall cash flow number I can live with, but I'll also be looking at future appreciation. That is key. That's why all of my past purchases (and I expect all of my future ones, if there any) are always within walking distance of the Orange Line. I've found that that single factor is overwhelmingly the most important in the minds of most renters.
As many folks here probably know, a rental property has a lot of desirable tax-deductible features that an owner-occupied property doesn't have. In addition to mortgage interest, you can deduct repair and cleaning costs, management fees (if any), transportation costs, and a lot more. You can (in fact, must) deduct depreciation, which can be a pretty big figure. If you wind up with a loss for the year, that loss can reduce your taxable income.
I don't mind a little negative cash flow each month, for the reasons above. I've always come out ahead in the end. But, as I said, there's no point in doing this unless you calculate the property is going to appreciate in value within a reasonable timeframe. And what I assess, from surveying the current N. Arlington-within-walking-distance-of-the-Orange-Line scene, is that we're at or near the bottom. I know, I know, plenty of people here will be tempted to react with sarcasm or scorn, and reel off statistics and names of properties that are sitting there despite big price cuts. I realize all this. I simply feel, from my experience in this sub-slice of the market, that the time to buy is fast approaching. I've always trusted my RE instinct when it comes to buying property in N. Arlington and it's never failed me.
Tom, fair enough, but all the warning signs are right there in front of you. If you are buying a place within walking distance to the metro, and that place's value literally doubled between 2002 and 2006, then that should be a glaringly obvious sign that since it was always within walking distance to the metro, that it will fall accordingly. I just view the this-area-is-special viewpoint as a fallacy if the conditions making it special were pre-existing and the values rode the bubble wave like everywhere else.
That aside, how many properties have you owned at once? Is it time-consuming? Do you hire management companies to deal with the tenants? I ask because I'll at some point be looking to purchase rental properties, and would like any input from somebody with experience.
Tom,
Sounds like you've got it under control, and there are deals starting to crop up in the condo segment, even in Arlington.
You remind me of my landlord in New Brunswick, NJ. He was excellent, and making quite good money buying and selling nice rental properties in a slumlord town. Too bad he sold to a crazy Cuban who was out to fleece his compatriots, and built another apartment in the basement without permits, renovated the downstairs apartment (that didn't need it) such that their bedroom was moved to being under our living room, while turning off the gas multiple times without telling us (our oven didn't automatically relight....) Moved out of there as soon as we could, and I'm sure he moved in new tenants paying at least $300 more a month for the privilege of a spanish speaking landlord...
Sorry, unrelated rant off.
Best of luck, I'm sure you'll let us know when/if you do buy another one.
Tom said: "As many folks here probably know, a rental property has a lot of desirable tax-deductible features that an owner-occupied property doesn't have. In addition to mortgage interest, you can deduct repair and cleaning costs, management fees (if any), transportation costs, and a lot more."
I've never understood this fascination with the so-called "benefits" of business expenses because of their tax deductibility. Since when is paying $1 in order to get $0.30 back something to cheer about? If the deduction is such a benefit, I assume you offer to pay the repairman double his normal fee so that way you'll be entitled to double the write-off, right? Or you look for the highest interest rate mortgage so you'll get the highest interest deduction, right?
"I don't mind a little negative cash flow each month, for the reasons above."
Just so everyone is clear, an investment should put money into your pocket, not take it out.
"But, as I said, there's no point in doing this unless you calculate the property is going to appreciate in value within a reasonable timeframe."
I'm ready to learn. Please tell us how you "calculated" that the property would appreciate. What were your assumptions and methods of calculation?
"I simply feel, from my experience in this sub-slice of the market, that the time to buy is fast approaching."
And all good investment decisions should be based on feelings rather than logic and hard numbers. I think it says that in my copy of Graham's Security Analysis.
"I've always trusted my RE instinct when it comes to buying property in N. Arlington and it's never failed me."
How long has that been?
"If I buy an investment condo this time, I'll obviously be seeking an overall cash flow number I can live with, but I'll also be looking at future appreciation."
What do you consider a cash flow you can "live with?"
Kevin said: "If you are buying a place within walking distance to the metro, and that place's value literally doubled between 2002 and 2006, then that should be a glaringly obvious sign that since it was always within walking distance to the metro, that it will fall accordingly."
well, I won't buy anything at 2006 prices, of course. Only a place that's got an appropriately discounted price. And there are plenty of places like that on the market now.
The most properties I've owned at once is two. I've always managed them myself, with one exception (when the manager was a neighbor and friend who's also a RE agent, who was competent and gave me a 50% discount). I've never found managing the properties to be very time-consuming, perhaps because, before renting them, I made sure they were thoroughly repaired and painted, and any old, likely-to-fail applicances were replaced with new ones. When something needs fixing, I don't give the tenant any argument -- I simply have it fixed immediately. From observing other landlords' operating procedures, I believe firmly the landlord has an obligation to keep the tenant happy. That way, you keep the tenant in the property; you have a better likelihood the tenant won't leave if you raise the rent; and the tenant is less likely to cause damage. Also, remember, any repairs are fully tax-deductible in the year they are made, and add to the value of the property. I think it's nuts for landlords to nickle and dime tenants on repairs (which includes fresh paint between tenants, I might add).
Tom:
What lender did you go with to get such a great rate?
The lowest quote I can get right now (with a local lender) on a 30-year FHA loan is 5.0% with 1 point or 5.5% with 0 points. This is for a new home purchase.
My credit score is slightly above average.
from what i see the unemployment rate in this area will increase sharply. all the tech companies will do layoffs, places like fannie and freddie did a lot and will do more. military contractors and places like homeland security will definitely be hit hard. it will be compensated by the consequences of the stimulus, but it will take sometime to get down the pipeline, at least half a year.
as empricial evidence --- much less traffic during rush hour into dc and out of dc. and this given a huge drop in gas prices.
Hello, I've been following this blog for a while and would like to get people's advice.
We would like to move up from a 2 bdrm(well-located) DC condo to a 4 bdrm NoVa house, preferably around WFC or Vienna.
We have a 1-2 year time horizon, depending on how quickly our family grows.
Is this a good time to sell now, even at a loss, (we bought 1/05) and buy up, or should we wait (risking further declines in our condo value) or sell now, rent a place, and wait for another year? If we wait, do we risk missing out on low mortgage rates?
It's all very confusing.
Thanks for any of your thoughts.
John: "And all good investment decisions should be based on feelings rather than logic and hard numbers."
Yup, that's what put a lot of my friends underwater in their houses. Not to mention millions of others, past, present, and future.
Wanting to move,
It's my opinion that properties closer to DC, including DC, are falling at a slower pace than those outside of the beltway. I believe your property might be at the beginning of the downward value curve, and that the sooner you can sell, the better.
Also, SFH properties have fallen considerably in ffx county. If I were you, I'd sell, rent something close to work for six months, and see what happens. The further out you go (Fairfax, Centreville), the more "bubble-corrected" prices seem to be. That's my opinion at least.
wanting to move,
I second basically what Kevin said. The DC condo market is only starting to see any correction. So, if this is purely a financial decision, price it right and get out now, with as much of your equity intact as you can.
Rent for 6 months to 2 years in the community you're thinking about buying a house in. And buy when the price is right for you.
Yes, interest rates will head back up. However, I think this will be slow, because low interest rates increase buying power so much, and the fed is trying to slow the housing correction and induce buyers. On a theoretical level, prices should come down to compensate for rates going up, but it doesn't always work out that way.
Since you're trading from a market that's only fallen a tad into a market that does have some steep discounts available, you might be able to do this in one go, if the convenience of moving only once means a lot to you.
Another thing to keep in mind is the number of new condo developments opening in the next few years. Getting your condo sold before this competition comes on line definitely seems worth it since you know you're going to want to sell within the next few years anyway.
Tom Said:
I just refinanced the 30-year mortgage on our N. Arlington house at 4.875% and no points. That will reduce our monthly payment by more than $300.
Tom,
I did refinance as well for 4.75% for 30yrs but paid 1 point. Could you please share who was your lender and Loan origination firm?
Wantingtomove,
I have one major piece of advice. Do not purchase your next home until you have sold your previous one. The absolute last thing you want to do is end up with two mortgages.
Others have already said that if you are moving from DC to somewhere farther out it might benefit you to get your current place sold quickly.
On the other hand, it might make more sense to save your pennies and put off the new purchase for a while. There are a lot of factors here.
Thanks everyone for your comments so far.
Leroy - Yes, we will wait to sell our place before we buy anything.
Cara and Kevin -- your comments reflect my general observations, that condos are just starting to come down in DC and will fall more. I just wonder how much of that expected decline is already being priced into the market.
The houses I've looked at have been reduced from the 650-700K range to the 600K range, but it seems like they are still much more expensive than they were only 5 years ago, and I wonder if they still have a ways to fall.
wantingtomove
Yes, if the range you're looking at was 650-700k in the recent past, that segment has moved the least. Take a look at the case-schiller tiered data. In each price bracket the percent increase in the bubble was different. The entry-level saw the most appreciation, the move-up level (where you're looking) saw a little less, and the bulk of the high end saw even less. The stuff that's 500k now I expect to come down to $350 by the bottom, so I would guess that the $600k now stuff will come down close to $425k. So the short-selling scenario (in the wall street sense) of selling now and buying later seems the most prudent course.
But, first and foremost you need to get an accurate assesment of what you can sell for now and what position that would put you in. You're going to take the 6% hit from the commisions, and you might need to take another 5-10% hit from price drops (at a guess, there's a DC condo page linked on the front page of this blog). However, a complete erasure of the last 6-8 years of gains (over CPI) is possible, even in DC, and I would say that deflating to at best half the bubble peak (over the inflation adjusted level from 2000) is likely within the next 2 years.
You said your condo is "well located". If that's true, then it's unlikely that buyers are really "pricing in" declines yet. It's also possible that you've laid the golden egg and that the condo will keep appreciating...
Run all the scenarios and see which ones you can live with. Personally, if you can break even or only pay out 10-20k to sell the condo now, and then go rent where you're planning on buying your 15-30 year home, I'd say do it. The money you might get in appreciation is not worth the anxiety, and you can get a lot of that back just through the cash-flow advantages of renting. But that's me.
if anyone still has any doubt that N Arl sellers are in denial, check out this 4.8 MM beauty!
(this one really won't last at this price. wink wink)
mm,
Very funny. Maybe they wanted to escape the posted realtor pictures of the inside. DOM(p) 0/169.
I think they just missed a decimal place and want to charge that extra 99 cents.
Contrarian - From the article about the Georgetown house:
"The current sellers, asking $9.95 million, are Paul and Terry Klaassen, co-founders of Sunrise Assisted Living, a McLean, Va., firm that houses and cares for the elderly."
Sunrise stock two years ago: $42.00/share
Sunrise stock today: $1.23/share
No wonder they are trying to sell it.
Damn, the crooked house is back again. And this time at an even higher price!!
I went in that dump of a house just for the curiosity factor. It was extremely tiny, as was the lot on which it sat. It's worth no more than $250k IMO (and that is being generous).
This is probably worthy of its own topic...
"Freddie Mac to rent foreclosed properties
WASHINGTON – Mortgage finance company Freddie Mac said it will allow some borrowers to rent out their homes after losing them to foreclosure.
The goal of the new policy, announced Friday, is to prevent properties from becoming vacant so they won't fall into disrepair.
...
Both Fannie Mae and Freddie Mac also said Friday they would extend a previously announced suspension of evictions through the end of February."
http://news.yahoo.com/s/ap/mortgage_giants_renters
I wonder who exactly is calling the shots at this point, and whether or not they care if they turn a profit.
They can't just keep putting off evictions forever. Is there any economic justification for delaying evictions?
Of course they don't want houses to sit vacant, but can they sell them while they are occupied?
They can't honestly think the market is going to strengthen in any reasonable timeframe...
on another semi-related note, I found this number really interesting:
Housing Wire refi report
In the fourth quarter of 2008, borrowers cashed out $17.5 billion in home equity by refinancing — the lowest amount since the first quarter 2001, according to Freddie’s quarterly refi review, released Friday. In another indicator of how homeowners are using their refis, Freddie saw 14 percent of refinancing borrowers pay in additional money at the time of refi, reducing mortgage debt and suggesting consumers are moving toward debt-reducing habits and away from debt-building habits apparent in cash-out refis.
“Borrowers who have owned their home for many years often have substantial equity in their homes,” Nothaft said. “We found that, on average, borrowers who refinanced were replacing a mortgage that was 3.6 years old and over the time they had that mortgage their home value was up by 9 percent. In the fourth quarter of 2008, homeowners who refinanced lowered their coupon rate by one-quarter of a percentage point based on the refinance report’s median ratio of new-to-old interest rate.”
17.5 billion was the lowest equity extraction since 2001. 14% put in additional cash to pay down the debt during refi. And the median rate decrease was only 1/4 of one percent? Yikes. That doesn't seem like that would pay off anytime soon... Sounds like a race to safety to me. (not that that's a bad thing)
Leroy, I've been mulling these choices too, on the part of Fannie and Freddie, the renting out to former home-owners is a new twist (long suggested, but new to reality). Haven't decided what to make of it yet.
Pacman and Leo James: I got my refi from the same man/company I've been using for years: John Melnick of National City Mortgage. John's at: John.Melnick@ncmc.com
Shadow inventory is the number one reason I haven't bought yet. Just imagine what'll happen when they release it.
The crooked house rears its head again! Looks like they're lowering it in $10k increments, which means there will be another 20 or so of them before it sells :)
Regarding the Edwards house in Georgetown, do you think that's a 4 million famous owner premium? Or did they just do that much in the way of renovations...
"Kevin Said...
It's my opinion that properties closer to DC, including DC, are falling at a slower pace than those outside of the beltway. I believe your property might be at the beginning of the downward value curve"
Years ago, I tulip had a paper suggesting the reverse - close in areas are last to get hit and first to recover. Case Shiller recently suggested this too:
http://www2.standardandpoors.com/spf/pdf/index/052708_Housing_bubbles_collapse.pdf
So far, the forward looking indicators (DOM & MOI) seem to bear them out...
Tom - regarding the refi at 4.875% w No points, I got that too. However, I was told I got that only because I had a better than 60/40 debt to equity ratio.
I think if you are over the 60/40 ratio the refi rates are slightly higher.
Contrarian - thanks. I love me some Mr. Mortgage!!!
for investment properties especially smaller condo why not buy in DC???
MM,
yeah, you can rent it out for so much more money in DC, than in n.arlington. my friend bought a tiny 600 sq.feet condo in Kalorama for 330k and rented it out for $2500 a month, you will not get anything close to it in terms of rent in n. arlington.
"Cara said...
14% put in additional cash to pay down the debt during refi. And the median rate decrease was only 1/4 of one percent? Yikes. That doesn't seem like that would pay off anytime soon... "
Cara - word from one of my bank clients, its just everyone getting out of ARM loans and into fixed. (i.e. out of IO at 5%, into a 30 yr at 5.25%.
His words - the general public is now aware of the risk of "ARM resets" so if they need to pony up some cash or pay a slightly higher rate to get into a fixed loan - diminishing the risk is worth it.
As you said, its a flight to safety.
The former Edwards' house has a great new kitchen, but DC says the place was worth less than $5 million in 2008.
http://franklymls.com/DC6946095
It seems highly unlikely that the renovations cost the current owners another $5 mill. IIRC, the Edwards had also put a lot of money into renovations while they lived there. So a lot of what looks nice in the photos may have been reflected in the current owners' purchase price.
CRT to Kevin...
>Years ago, I tulip had a paper suggesting the reverse - close in areas are last to get hit and first to recover.<
Agree on that. Arlington & DC NW are not a PWC-in-waiting, the last in line to board the roller coaster down. As far as what a correction means, let's just wait and see.
Regarding Cara's advice: >Rent for 6 months to 2 years in the community you're thinking about buying a house in.<
It's good advice.
There are plenty of rents in DC NW and decent deals if you have the time to investigate.
Here's yet another reason to delay buying: See what the Obama administration/Congress will do.
The tax credit approved last year, $7,500, is more of a loan than credit. I think a possibly sweeter approach may emerge in the months ahead. And you can't assume it will be retroactive. The $7,500 was only retroactive to about six months.
Konstantin said: "yeah, you can rent it out for so much more money in DC, than in n.arlington. my friend bought a tiny 600 sq.feet condo in Kalorama for 330k and rented it out for $2500 a month, you will not get anything close to it in terms of rent in n. arlington."
You may be right, at least for now -- but I remember the Marion Barry years when the D.C. government was so totally dysfunctional that scores of renters were opting out of D.C. and paying a premium to live in N. Arlington. I simply don't know D.C. from a RE perspective, but I do know N. Arlington, so I'll stick with what I do know.
One reason I live in virginia is because of DC's high income tax (which goes to a corrupt government). I got a raise of a few hundred a month just by moving a few miles away to virginia AND my rent was cheaper!
kob: "Agree on that. Arlington & DC NW are not a PWC-in-waiting, the last in line to board the roller coaster down."
Wrong.
Median sales price in:
2000 2006
PW County 150k 450k - 3x
Arlington 200k 500k - 2.5x
Fairfax 200k 500k - 2.5x
Wash DC 150k 425k -
2.8x
Source: MRIS
They all jumped at about the same amount. Nothing about the areas changed, just the impact of the housing bubble. DC and Arlington are slow to correct, but it is inevitable. Nothing has fundamentally changed except for the misperception that certain areas are immune. Buying in DC or Arlington right now is just like buying in Prince William during the housing bubble.
I'm a very surprised that you guys haven't picked up on this yet.
http://www.recharts.com/mris/mris_11.html
http://www.recharts.com/mris/mris_15.html
http://www.recharts.com/mris/mris_3.html
http://www.recharts.com/mris/mris_5.html
Kevin,
Respectfully disagree.
DC is not about to become PWC.
Yes, prices are getting soft in NW DC and the data clearly shows it. But the price gains over the last 10 years are not going to vaporize, PCW-like.
In 1987 I bought a multi-family house (with a friend) in Connecticut for 150K. It was during a bubble, although I was somewhat clueless about the market dynamic (I was trying to get in before prices went too high. I just wanted a place to live). By 1992, that house value had easily declined by one third. Easily. In the early 1980s, when that property was sold last, it went for about 60K. A one third decline in value was steep, but it didn't retreat to the 60K level because other things worked in its favor: the area was seeing job growth and the neighborhood, thanks to investments, had really increased in desirability.
Ditto for DC. This isn't Marion Barry's DC. The investment in investment in DC's NW neighborhoods won't disappear.
For sure, prices are softer. For instance, a studio that may have sold for $220-230 in early 2008 are now listing for about $200K in my little section of Adams Morgan, where I live. That's a serious drop and it could be steeper, for all I know. Eight or 10 years ago that same property may have sold for anywhere from $40K to $100K depending on street, condition of building, basement or not, etc.; But I don't think the prices are going to going to zip back to 1998 levels, because of the substantial improvements in this neighborhood and most of NW.
I do think -- if the recession continues for three years -- that $160K will very likely be the bottom for a unit that sold for $220K in 2008.
What I believe is this: the close in areas will decline by a third or possibly better, depending on the overall economy, but they will also recover faster. Some of the price gains over the past 10 years weren't completely ungrounded; that's not making an immunity argument, but it is factoring things that will never turn up in the PWC data.
This is an old argument and I probably should keep my mouth shut for the next three years and see what actually happens, but I really do believe that close-in will not erase all its gains, and when it does recover it will among the first.
I
kob, those are some good points, but quantitatively it looks obvious (to me) that despite the slower decline of DC and Arlington prices, those areas should retreat from this point at a greater amount than the outer areas. That is, Loudoun and PWC are closer to the market bottom than the inner areas.
The region has enjoyed a robust job growth over the years, but I haven't seen any household GDP growth that says that a 250% increase in DC property values should only see a decrease of 30%. That doesn't make any sense at all.
Buying in DC or Arlington is longer-term much more dangerous than the outer areas that are seeing a quicker return to fundamentally supported housing prices.
Right you are, Kob.
The hunger among potential homebuyers to buy in N. Arlington is almost palpable. I stopped by an open house in my N. Arlington neighborhood last Sunday to see how the market is doing. It was a very unpretentious Cape Cod with three bedrooms and two baths, no garage, at a sale price of 639K. The place was so jammed with people you could hardly get in the door. The RE agent ran out of fliers and was reduced to giving people the website address to view the info online.
I've seen this sort of scene in N. Arlington in recent months. Last Sunday, I asked as casually as I could to several couples what they were looking for in a house. Number one response: a place where they could walk to Metrorail in a close-in neighborhood.
This doesn't surprise me. As the DC metro area's traffic nightmare has metastisized across major arteries and suburban enclaves, lots of people are willing to do most anything to be relieved of it. For most, I suspect, walking to Metrorail is the holy grail of commuting.
"Kevin said...
I'm a very surprised that you guys haven't picked up on this yet."
Kevin - if I may, I think we have all picked up on it for quite some time now. In fact, the fate of the core areas has been the #1 debate on this blog for as long as I can remember.
I think you will find its not nearly as clear cut as you might suspect. I do not wish to repeat them all here, the arguments for and against are nuanced, compelling, data packed, and fascinating.
I encourage you to go back and look at some of the earlier threads in this blog to get up to speed, so to speak. Generally, the longest threads, and those titled "a decade of sales" are good sources of info.
While I dont want to necessarily pick favorites, I think you will find the remarks of CRT, Leroy, Cara, Novawatcher, Terminator X, MM and Ace quite insightful.
I think skepticism is good, but if you approach those threads with a sense of intellectual honesty, I think you might find them to be a good source of information. Good luck.
The Anonymous, thank you for including me with such good company - and The Anonymous should be included in that list.
I really enjoy this blog because I learn something new every day.
Well, Tom, all I can say is that the 711 Barton house I think meets the criteria you mentioned, and it was JAM-packed with people when I attended the open house (John F. attended a later one too, and may want to comment on it). That, and its interesting modern design, are what deluded me into thinking that it would be sold quickly, despite some serious practical flaws and a high price. But it sits, like quite a few others. Look at the most recent MRIS data and you will see some price drops even in the best zips in Arlington, and you will see extremely sluggish sales particularly in what I would consider higher price ranges.
My point? I agree with you that there is pent-up demand for certain houses in close-in, near-Metro neighborhoods, but to sell, they must be priced competitively. Not bargain basement as in foreclosure-driven neighborhoods far away, and maybe not even "reasonably" per the metrics often cited here (at least not at this time), but fairly relative to what else is available nearby and relative to the flaws and features of the house. For example, a great house on a very busy street, or a small, un-updated house, has to offer a pretty considerable discount relative to comparable houses without these shortcomings to sell, even in your choice neighborhoods. Seems pretty obvious, but when you look at DOM of many homes, it's clear that many sellers aren't "getting it."
Ace - thanks for the inclusion. I agree, this has been quite the learning experience.
What I find interesting is that there is almost a learning curve that we have all gone through on this blog. A few years back it was the bullish "no place will drop" versus the bearish "all places will revert to XYZ level".
Today, I think you would be hard pressed to find a long timer here who still believes either positon.
I still remeber with astonishment when we looked at the data how the flipping was generally more prevalent the farther out you went. Same thing with the junky loans & their concentration. Later it was the simultaneous inventory peak & decline, difference in foreclosure rates, etc. etc. All those revelations have shaped the general consensus of this blog. (i.e. its not a matter of if they will hold on some of their gains, but how much)?
Still, I think its good to have "fresh blood" like Kevin here to go over all those revalations and get himself up to speed. It could be, there is something we have all missed, and it would take a new set of eyes to see it.
I will say, its a bit of a herculean task to go over all those exchanges, but I for one think is pretty important to allow somone to view the evidence, digest it, think about it, and decide for themselves. Especially if the alternative is a bunch of random bloggers saying "trust us - it aint going ALL the way back"...
Tom: I had the same experience at an open house in Herndon a week ago or so: it was utterly jam-packed with people.
I guess you could say that the hunger among potential homebuyers to buy in Herndon is almost palpable.
;-)
this is the jam-packed house Tom went to.
Yep, that's the house, MM.
NOVAWatcher: I realize your post was meant to be sarcastic, but I'll take it on its merits. I really don't know Herndon. Perhaps the demand within its market segment is as intense (or more so) than what I've seen here in N. Arlington. I'm very familiar only with N. Arlington -- it's the only place I've ever owned real estate.
Tom: I was being saracastic, but at the same time I'm not kidding when I say that the house in Herndon was jammed pack. The wife and I found it hard to maneuver around the place, and we never really got a chance to examine things in detail like we normally do. We also visited a place in Oakton that had pretty good foot traffic.
That surprised us, as last year it wasn't unusual for us to show up and be the only folks there. Heck, we'd stop by at 2-3 o'clock only to find that there was only one other name signed in.
I don't know what the increased traffic means. Maybe the huge amount of traffic is an indication of the desirability of the area. Or maybe folks are just bored and want cheap entertainment on a Sunday.
At the risk of sounding bullish on the overpriced homes throughout the inner metro area...
Things the move-up market has going for it.
1) 30-40% of the money put into it during the bubble was fungible funds retrieved from the starter-homes, so that's real money that isn't burdening owners with debt
2) It's been obvious since at least 2006 that the bubble was going to burst and that sizeable down payments were going to be the new norm. Hence there is a population of fence-sitters who've been saving up for a minimum of two years, possibly longer, possibly with equity from a 2004/2005 sale.
3) By definition the move-up market is more liveable, and hence owners are less pressed to sell for anything other than job or life reasons.
4) Money is cheap now, they can refinance and sit tight
5) They have the seniority and experience to avoid much of the layoffs (if that's how they're handled) and quickly get new jobs if not.
The only forces pushing on this middle market are (a) the softening of prices below and above them (I think the 2+ million dollar homes involved a lot of silliness too and were so difficult to price that they will be volatile)
(b) the tighter credit conditions for buyers
(c) the lack of move-up money available to be liberated going forward
This would predict only a small amount of continued softening for the ~$600k properties, but a fall in sales volume both in inventory and sales. Similar to what happens when interest rates go up, one would think sale prices would go down, but really just volume drops significantly and prices stagnate.
If you want to walk to the Metro, move to Kingstowne. (and collect your $200k less debt). I think most buyers will be forced to that, before any true softening occurs in the areas perceived as superior (or at least priced that way).
This is why I got so excited about the prime jumbo and conforming jumbo defaults, because if those happen here they would be the first sign of intrinsic weakness in the much lauded N. Arlington area.
(oh and thanks anonymous)
mm, i guess the hunger from the throngs of buyers wasn't palpable enough to generate a contract on that property. probably mostly neighbors out looky-looing.
"Contrarian said...
The correction in housing is still early, in time and price."
Fair enough. You have stated that housing will go down 90% so in order to get there, yeah, this would have to be early.
At the same time, regognize yours is an extreme position on this blog (housing down 90% dow down to 400 points, etc). I dont think there is anyone here as bearish as you.
Note - this does not mean you are wrong. Years from now, we may all look back and say Contrarian was right.
So let me amend my statement...Today, with the exception of Contrarian, I think you would be hard pressed to find a long timer here who still believes either positon.
1-30-2009
kevin has been consistently wrong and giving bad advice on this blog. Here are a few clips from a thread on January 30th, 2009:
Tom, looking to buy, gets kevin's advice whether he wants it or not...
Tom said: "With interest rates this low, now seems like a good time."
kevin said...Of course, for that reason, during the past five years, it's ALWAYS been a good time to buy. Until six months later when you realized you jumped the gun. Then a year later when you're underwater. Then two years later when you don't even want to think about the terrible investment you made.
Well it IS six months later. How's it lookin' kevin?
Here is kevin's mantra up until about a month ago...
Shadow inventory is the number one reason I haven't bought yet. Just imagine what'll happen when they release it.
Yeah, just imagine.
Inventory January 30, 2009 = 11018. Inventory June 18, 2009 = 7889
kob said.. "Agree on that. Arlington & DC NW are not a PWC-in-waiting, the last in line to board the roller coaster down."
kevin said... Wrong.
Here kevin is looking for 80% style PWC collapses in DC and Arlington.
Buying in DC or Arlington right now is just like buying in Prince William during the housing bubble.
I'm a very surprised that you guys haven't picked up on this yet.
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