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Tuesday, March 24, 2009
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41 comments:
Hey, the Dow shot up yesterday. Happy Days are here again.
Let's take some of our home equity, buy stock, and get rich quick!
Or, lets take some of our stock winnings and buy too much house!
Everyone, get rich quick!
"We're in the money,
We're in the money...."
@J@ just having some fun.
This was getting some air on WTOP this morning:
"The results of the survey are based on 1,005 interviews conducted March 6-8:
Despite the economic downturn, 18.1 percent said they plan to buy a home this year to take advantage of the $8,000 tax credit recently passed by Congress...
More than half of those planning to buy this year are first-time homebuyers, compared with 41 percent in 2008...
Americans also are changing their views of home ownership. The survey found about two-thirds (62.5 percent) considers their home primarily a place to live, as opposed to an investment."
http://washington.bizjournals.com/washington/stories/2009/03/23/daily16.html
By the way, how do you post hyperlinks here?
T,
HTML is your friend. < is an opening for a tag, > closes it. So using cornered brackets [a] is the start of HTML code for a link. [/a] closes the link.
An example:
[a href="http://www.somelink.com"]SomeLink[/a]
Would appear as SomeLink
More help with HTML code in general can be found at sites like: WebMonkey
We were in Lynchburg this weekend for a retirement celebration for one of my wife's professors. One of her classmates who was also there spent some time catching up with us. She works for AIG now. Or, more accurately, for some portion of what used to be AIG now operating under another name, so as to avoid bad PR.
She mentioned a time when back in September she was spat upon by a passer-by as she was leaving the building to go home.
I'm as upset about irresponsible bailouts as the next guy, but that's just insane. Not only was this just a grunt--a cog in the corporate wheel--but it's not like we even have any reason to be upset with AIG over those bailouts. If you're drowning and someone offers a financial life raft, it's not unreasonable to accept it. It is unreasonable to refuse it.
It was irresponsible to offer it.
But unfortunately, we cannot spit on the politicians. They have body guards, and most are lawyers, so we'd end up on assault charges.
T,
I saw the same thing reported via Housing Wire yesterday:
Housing Wire 1 in 5 americans plan to buy a house
I didn't link to it because without a historical comparison, I don't know how to interpret it. Is this larger or smaller than in a normal non-bubble market? How do these numbers usually translate into actual purchases? Etc, etc. It says something, but it's hard to tell how much.
To post links, use the '<'a' href=""'>' link text '<'/a'>' format removing all the 's but not the "s and putting your link between the quotes...
@J@
I was wondering when someone would bring this up.
Are we all avoiding it because it might signal the beginning of the end of the housing downturn, and therefore we only have the slow bleed to look forward to to get the prices we want? Are we filtering out the good news? Or are we just skeptical of the meaning of any market gyrations and unsurprised that Wall Street would repsond positively to a deal that gives investors huge upside potential and limited downside risk, while simultaneously making a whole bunch of traditionally conservative bank stocks seem more palatable to small-time investors again? (and therefore that it says nothing we didn't already know).
Thanks for the tips guys.
I agree, it is hard to know what to make of the numbers. My uneducated perspective is that when you tell me that 1 in 5 families wants to move in 2009 simply to take advantage of the $8000 credit, that is a very high number. That credit didn't exist in any other year so its got to account for an increase that otherwise would not exist (and has not existed before).
I don't know if the yearly avg is 1 in 10 families move, or 1 in 15. I mean, just look at each and every "starter home neighborhood". Those who have been renting likely are not going to be buying into $600k 1st time houses. My guess would be that out of a 200 house neighborhood, maybe you saw 10 sales per year. Maybe 15 tops? (I have no idea if these are good numbers, just guessing). Even with 15, that's 7.5 percent. If this study is even remotely accurate, it thinks that that number can almost triple. Instead of 15 sales, that NH might experience 36.
Maybe someone else has an idea of the percentage of all families who buy houses each year. I think 18% in one year just is very high...
It's not 1 in 5 plan to buy this year it's 1 in 17ish this year, 1 in 5 over the course of the next 5 years:
"The Move survey found the housing downturn, now entering its third year, has created demand for homeownership especially among first-time homebuyers. While 5.8 percent plan to purchase a home in the next 12 months, 12.8 percent of Americans say they plan to buy a home in the next two years and 11 percent plan to purchase a home in two to five years.
"
In Calculated Risk you can find the graph of what you're looking for in terms of historic turnover rates:
Existing home sales turnover
by eye, it looks like normal is between 5-7% per year and in slow times it can go as low as 3%/year. So the 5.8% want to buy this year is pretty typical of home many actually do buy.
"Cara said...
Are we all avoiding it because it might signal the beginning of the end of the housing downturn, and therefore we only have the slow bleed to look forward to to get the prices we want?"
Thats what I thought when I saw that David over at the bubble blog is calling DC bottom this year
http://bubblemeter.blogspot.com/
I liked the comment - it was 1,397 days ago (1,682 posts ago), he said the bubble will burst soon.
http://bubblemeter.blogspot.com/2005/05/bubble-will-burst-soon.html
This entry yesterday, the bottom will be here soon would be a fitting bookend...
Sigh...
Cara,
Good find and tie-in. I'd just argue that the 'normal' is probably closer to 4-6% with 3% being the low (slow) and 7% being the high (fast) markets. Those 8-9% years were the bubbliest of the bubble. The parts that no one anywhere denies is bubble anymore.
People like me tend to mark the late 90s (7%+) as bubbly as well.
So 5.8% is a high-ish number for a normal market under that metric.
xpovos,
yeah, it's a judgement call to decide what consititutes "normal" from that graph. But I can agree with your range.
In fact, 5.8% being on the high side agrees well with T's statement earlier about pent-up demand. One would expect a little higher demand than normal as prices come in line with what people who have been saving up can afford. (Not to mention people who've partially acclimatized to high prices)
"Cara said...
Are we all avoiding it because it might signal the beginning of the end of the housing downturn, and therefore we only have the slow bleed to look forward to to get the prices we want?"
LOL! Like you even had to ask, Cara? The desperate gloom-oriented outlook on this blog is one of its endearing features!
tom,
I "moved" here from IHB when the outlook there became too one-sidedly bearish.
For those of you that want to maintain your bearish outlook:
via patrick.net the biggest doom and gloomer I can stand to read:
Newsweek, comparison to past banking recessions
It's a good and fairly balanced read. I have hopes that the world economy has become more inherently shock-resistant with a larger number of wealthy players, but I could be wrong.
This could be a bear market rally (in the stock market) or it could be the beginning of the recovery, I couldn't tell you. We're half in stocks half in goverment bonds for our retirement contributions right now, for whatever that's worth as an indicator. Enough skin in the game to not feel bad about not catching the bottom, but not the whole kit and cabooddle to fret over.
The price correction of the houses till date is much better in Loudoun county and Manasas, as compared to Fairfax county.
Why is this difference in rate of correction? Only cause of location/
Heh, a judgement call it is. Indeed.
Like personalities, there is no normal. There is only more or less insane. Until you get dangerously so.
"Vinny said...
Why is this difference in rate of correction? Only cause of location"
Mostly it looks that way. We have had hints for a while that the speculative element of purchasing got progressively more severe the further you went from DC (i.e. the further you go, the more sales jumped over long term averages, the more junk loans used, etc.).
Also, thanks to the recent census info that Cara provided us, it looks like the amount of overbuilding (to match this perceived "demand") got even worse the farther you went, relative to the new number of households added in the last 7 years.
Finally, her stats suggest that the income gains seen in the last 7 years were very healthy inside the beltway, much more so than the prior stats we were operating from.
So I would say it was a mix of increased speculation further from the beltway, along with relatively increased fundamentals inside the beltway that have caused this geographic aspect of the bust.
Ok "1 in 5 Plan to buy in 2009"
This means 2 things to me
1) First time purchasers using the 8K credit/loan - (no move up buyers are concerned with this 8K, as it is a drop in the Bucket in the move-up market)
2) Buyers planning to "get their deal" on an REO or a desperate Seller that's been on the Market > 300 days (my plan!)
Now, it boils down to :
1)Who's got a job and feels secure enough to buy
2) whos' got 20% down & great credit
me thinks there's not a whole lot more of these folks sitting on the sidelines anymore
Vinny - FWIW, Per the most recent census ACS, here are the median income gains by region (2000 vs. 2007).
Arlington
2000 $63,001
2007 $90,047
Gain +43%
Alexandria
2000 $56,054
2007 $77,797
Gain +39%
Fairfax
2000 $ 81,050
2007 $102,460
Gain +26%
Loudoun
2000 $ 80,648
2007 $102,460
Gain +30%
PWC
2000 $65,960
2007 $85,538
Gain +30%
Off the bat, you notice that there were some healthy income gains across the board over the last 7 years. Certainly better than the national average which (I think) is up +19%.
Second, and I think most notable is the way the inside the beltway gains have outperformed the rest of the region. Alexandria outgained the rest by +9 pts and Arlington by +13 points. In fact, in the cursory review of bubble areas elsewhere, it looks like Arlington may have the highest gains of anywhere.
To be sure, this doesnt explain all of it. Fairfax actually underperformed a bit, but the lack of overbuilding, seems to have helped saved parts of it from experiencing the same fate as Loudoun or PWC (where the overbuilding was extensive).
Also, this doesnt explain all of the home price gains. You dont need to look further than declining prices to see that the bubble component is being removed as we speak. However, given the outperformance of income gains in Alexandria & especially Arlington relative to the rest, its no surprise they have held up relatively better to the rest.
CRT,
It will be interesting to see how those numbers go over the next 7 years. That is, how much will this recession take a bite out of household incomes, or at least slow the growth rate.
Xpovos - we shouldnt have to wait that long. This here is essentially a picture of peak (2+ years ago) The 2010 census should be ready in about 18 months. I think that will show much of the damage.
Upside potential is inflation and (locally) federal spending. It appears 9-11 & programs related thereto added quite a bit to this areas bottom line, so it will be interesting to see what all the bailout plans do.
Downside potential is deflation and the complete drying up of incomes related to construction & related industries. In 2007 in PWC for example, 12.4% of all jobs were related to construction. I cant imagine it will be anywhere near that high when the 2010 picture comes out.
Careful CRT. There's a hardcore group here that is desperate to see Arlington house prices take a major hit and their frustration over the fact that that hasn't happened is palpable. Any facts that stand in the way of their worldview is like a red flag to a bull. LOL!
This is absolutely a bear market rally. I'm on the record. :-)
I don't think many people realize just how bad things have gotten. Everything looks calm on the surface but underneath it's boiling like you would not believe.
The Fed would *never* have done Quantitative Easing (which is the nuclear weaponry of the Fed arsensal) unless they were in a desperate situation.
Maybe so Tom, but I wouldnt get too sanguine just yet. Lets recall that Arlington just posted its worst MOI ever this last month, so Arlington still has problems ahead of it.
The good thing for Arlington btw is I was way too hard on its lesser twin Alexandria last month. Turns out that Alex -27% was due to condos driving the mix whereas NVAR states individual housing types (Condos, Townhouses & SFH) were down -8%, -14% & -12% respectively - so Arlington still has its lesser buddy "canary in the coal mine" to help it out.
Bottom line is, the lack of income gains was the one part of the picture that wasnt clear & this (understandably) led to many calls of its just not hit Arlington yet.
However, now that there is some strong evidence to suggest Arlington incomes were much more robust than the rest of the area, its becoming more and more clear that the fundamentals (or the potential for the fundamentals) in Arlington are driving the relative lack of decline.
Tom,
It just proves that Arlington is a desirable place to live. From what i see there are plenty of people who want to buy a home there, but they became much more realistic recently. Nobody stretches too much to buy a place, so higher-end market is almost dead, in the lower end condos are getting cheaper every month and it is almost impossible to sell a shabby place for anything close to 2006 prices.
spunky,
The thing is, there are more of those people (secure job, big DP available) in this area maybe than anywhere else in the country. As we are going into our 4th year of the bust around here, IMO there is starting to be a backlog of people who are itching to buy. I see it with my friends and coworkers and extended networks of people. Everyone that was priced out in '04-'06 and then waited the fallout in '07 and '08 are now sitting on decent downpayments, looking at a market where the interest rates are absurdly low, inventory includes a ton of foreclosures and short sales, and on top of that the gov't is going to give them $8k just for buying.
joelandsonia,
Yes, this is a bear market rally, which are traditionally very sharp, but you also have to consider the carnage that has already occurred. The stock markets going back to 96/97 prices do reflect some (most?) of that "boiling" that you describe.
Konstantin said...
Tom,
It just proves that Arlington is a desirable place to live.
You know thats also a bit debatable too... Theres an assumption that Arlington has been desirable for a while, but now im not so sure.
Chris Lienberger was on the radio the other day talking about "the remarkable transformation" that took place in Arlington in the last 10-20 years from a (his words) "down and out" area to one that is vibrant with good jobs & amenities.
Census figures seem to bear him out. Earliest figures I have show Arlington was losing population as late as 1980 - thats almost never a sign an area is desirable.
Also, it looks like until recently Arlington has been suffering for a few decades from "white flight". This is frankly shocking to me, as you normally dont see this outside of core cities like DC, Baltimore Detroit, Cleveland, etc.
Rightly or wrongly, fact of the matter is, white flight has never been a sign that an area is desirable. However, there is now some evidence that this trend has turned around dramatically in places like Arlington. Im trying to get more census data on this, and when I do I will elaborate some more.
Incidentally, Cara - thanks again for finding this info. There is a ton of stuff in there if I ever take the time to dig it out!
Fred: "The thing is, there are more of those people (secure job, big DP available) in this area maybe than anywhere else in the country. As we are going into our 4th year of the bust around here, IMO there is starting to be a backlog of people who are itching to buy. I see it with my friends and coworkers and extended networks of people. Everyone that was priced out in '04-'06 and then waited the fallout in '07 and '08 are now sitting on decent downpayments, looking at a market where the interest rates are absurdly low, inventory includes a ton of foreclosures and short sales, and on top of that the gov't is going to give them $8k just for buying."
I was making this exact point last week. I was relating it to those who have been in the "working world" out of college since 2000-2001 and could not afford to buy until now. These people have been working for 7-9 years, have 20% to put down, and should have relatively stable jobs. But you are correct, it does not really have to be these people, it could be anyone with a job and some savings who finally can buy. I too agree that there likely are more of these people in NoVA than most other suburbs/locales in the entire nation.
I spoke w/ my lender today, and she said they have started to see activity pick up even from late Feb/early Mar, when it was doing much better than it had been in Jan. Yes, it is seasonal, but I think we (in this area) may see a larger "push" this season than in spring seasons past (obviously non bubble).
I, for one, am hearing a ton of new ads on WTOP and on TV for NAR and Re/Max, prompting people to "get out and buy". Of course, husbands all around the area are stalling wives on spending their weekend house hunting until March Madness is over...
CRT,
I can bet it works like this: they build new apartment/condo building where a lot of med/law students live and a lot of people who relocate to DC for government service/contracting stay for a while. They see the neighborhood with decent schools, close to work, they tend to stay. Still do not see how the houses in Arlington in 700k+ segment will keep their values (and this will put some pressure on lower tiers eventually). I have plenty of friends who bought $1 mil houses or $700k condos in 2005-2006, but honestly, most of them thought that this was a great investment opportunity. Not much of increase in equity for them last 2-3 years, trust me. All of these friends of mine won't be able to pay all their bills from the single income, so if economy gets worse they can be in trouble (actually prefer for them to be safe and prices staying at current inflated levels, i will personally take care of myself all right, but not sure if it will happen). So learning from experience of others it's a nice idea to buy a house that one income can support. I do not think that we'll have a depression here, but I see a lot of potential in terms of cost cutting for many government and quasy-government agencies.
Particularly for Arlington --- I think if Chertoff's circus will be slightly reduced in size, some of his clowns will have to move and prices may go down a bit.
Xpovos,
I was saddened by your friend's story but not surprised. I think she could have charged the person with assault, but it's not always easy to think that fast. I pray that spitting is all it comes to, and that a child doesn't lose a Mom or a Dad who happens to be a bank teller or a system administrator. Or, even the dreaded "rich banker".
As for the market-turnaround, I'd rather have seen an honest bottom. I'm too jaded to trust this government-sponsored bounce.
I know you've all seen this by now: Bernstein, Bank of America’s chief investment strategist, wrote in a research note: “Financial stocks will be attractive when the government tries to speed up that inevitable process. However, to the contrary, the government continues to attempt to stymie that inevitable consolidation.”
Konstantin said...
I can bet it works like this: they build new apartment/condo building where a lot of med/law students live and a lot of people who relocate to DC for government service/contracting stay for a while."
This is probably true, but true historically.
"They see the neighborhood with decent schools, close to work, they tend to stay."
This might be the new part the Census data suggests, but if so, it is a (relatively) new trend. Incidentally, and related to this point, the median family income in Arlington grew by an even more imprssive +53% 2000-2007 - highest in the area by a long shot.
"Still do not see how the houses in Arlington in 700k+ segment will keep their values"
I think the 700k+ segment is in trouble, but this is not "Arlington specific". For the reasons you mentioned high end is indeed frozen in Arlington, but its even moreso frozen elsewhere.
This gets back to one of my main points for a long time now. Theres this strange suggestion that Arlington is somehow "behind" in this correction. It started last year with the suggestion that inventory went down in Loudoun because they capitulated, but inventory went down in Arlington because they just got better at holding out. Huh?
I dont think you hold this view, but that was my point regardless. Its defensible to say high end everywhere in NOVA has capitulated, or high end nowhere in NOVA has capitulated yet. Its also defensible to say low end everywhere in NOVA has capitulated, but not that just outside the beltway low end has capitulated.
So if all NOVA areas really are all in the same point in time, something must have changed to make them more or less affordable/desirable/etc. relative to each other than they were before.
Thats where this income info comes in, and thats where this demographic info comes in. It doesnt provide all the answers, but it stongly hints that something has indeed changed dramatically in parts of the NOVA region in the last 10 years.
T,
An alternative explanation to march madness, is that both buyers and sellers in the TH regime have kids and don't want to move during the school year, so there's no point in looking until April or May. I'm hoping this will bring out more TH listings as spring continues, since move-up buyers are really likely to be those with kids. And likewise, for your 4 bedroom place, the most likely buyers will be those who do need at least 3 out of 4 of those bedrooms on a daily basis. So while right now it seems as if a larger portion of the contracts are on the extremely low end in Burke, I think that reflects more investors than it does families, and things should pick up even more as spring continues.
I don't think Burke is the same beast as Arlington, largely because the prices are within reach. Thus a spring rally might be self-sustaining.
Hi all,
Just thought I'd introduce myself anonymously, as I hope to leave an occasional comment here. I'm one of the regular lurkers (I assume there are many).
My wife (government contractor, temporarily disabled to Lyme) and I (attorney) are hoping to be in the market in 6 to 8 months, undecided where to live or even what to do.
We are currently underwater on the smallest, least expensive thing my wife could buy in Western Fairfax at the height of the bubble. I'm sure it sounds familiar, at least in the abstract for those here who read CR etc. But if not, I assure that its a bit shocking to get married and "inherit" a 33% loss (80k so far, and counting) incurred on a no money down, interest only loan from the height).
And we are the lucky ones. The income is there to get us unburied in 6 to 9 more months, maybe more if prices continue to decrease. I can't imagine what its like to be sitting on that 33% loss on a 750k home.
From watching things between western Fairfax and Springfield for a few seasons, my impression is that there is a bump in the market the last few weeks, and a decent amount of existing inventory below 500K is getting soaked up. In our complex (500 units or so), 15 or so units are on the market, some for more than a year, and it looks like half are under contingent offers the last few weeks. Likewise, I know of two townhomes in Springfield that have been on the market, one for more than a year, that both were offered in the last 3 weeks for betweeen 400k to 500k.
Not sure what it means, but my guess is that its a temporary blip, perhaps due to buyers hoping to receive the 8K tax incentive.
Anyway, I'll try to keep my comments less rambling in the future. Just wanted to introduce myself. I've enjoyed reading the discussions here for several months now.
welcome JP.
I haven't been looking at the 400-500k market, but your observation of increased activity has certainly been the case even amongst long-term sitters in the TH market below 300k in the Springfield and Burke areas. The uptick started significantly back in January.
Best of luck on your situation and for your wife's healthy recovery. It definitely could be worse (as in the 750k 33% loss scenario) and many on here have recovered from similar magnitude losses or debts (at least after normalizing for income) so I'm sure you will too. Thanks for sharing your background story with us.
(says me, self-designated must answer everyone's posts, poster)
Thanks CRT for your clarification.
JP,
What you have observed is partly seasonal and partly due to the stimulus. I have observed the seasonal pattern the past few years, so it doesn't surprise me.
Overpriced homes are still sitting for several months.
CRT,
If the 700k+ segment is *in trouble* (I interpret that as the correction is yet to come), then one can argue that Arlington is 'behind' the correction simply because there're more 700k+ listings percentage-wise than the rest of NoVA.
Vinny - your welcome and sorry for the excessive explanation.
MM - thats fair. Yes there are a greater percentage of 700K+ homes in Arl so by that measure they are behind.
Hey Fred
"Yes, this is a bear market rally, which are traditionally very sharp, but you also have to consider the carnage that has already occurred. The stock markets going back to 96/97 prices do reflect some (most?) of that "boiling" that you describe."
Yeah, the frog is still comfortable. :)
If this were a normal bear market, I'd agree -- but it's not. I guess we'll see, but I've followed people who have nearly called this to the nose since 2001.
And they're telling me this game is not anywhere near over.
"After a brief rally in stocks, the next shoe to drop will be in the corporate debt market. Remember the LBO bubble? While the de-leveraging may be over on a corporate credit market wide basis, the pricing in of business fundamentals – sans the miracle of debt securitization and leverage, and teetering atop a still over-priced mortgage debt market -- has just begun, and the stock market is lagging. An additional 30% to 40% drop from here is coming."
To be honest, I hope they are wrong, preparing in case not.
Joelandsonia,
Which people would that be please? There seems to be huge uncertainty about the direction from everyone given the inconsistent policies by the feds. But once a decision is made, I expect them to follow through with it even if it is bad - chalking it up to politics and human nature.
itulip.com
11/98 -- Internet bubble warning
8/99 -- Y2K will not be an issue
3/00 -- Internet bubble has topped
9/01 -- Buy gold at 270
8/02 -- Housing bubble forming
6/05 -- Calls Housing top
12/07 -- We are entering a recession
03/08 -- market top (get out NOW)
If I'd listened more I'd be retired now...
The best parts of the site are subscription, but easily the best investment money I've spent. But, look for yourselves....
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