February sales were up year-over-year in every Northern Virginia county with the exception of Arlington County, where sales were down 34% (to a record low for February with only 90 sales). Months of inventory in Arlington reached an 11-year high, but inventory showed a year-over-year decline in every other area, the most dramatic being Prince William County with a decline to 5 months' from 16 months' worth last year.
Tuesday, March 10, 2009
Northern Virginia February Housing Sales
Posted by Harriet at 2:47 PM
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Tsk Tsk Harriet the headline here wasn’t Arlington, but Alexandria! Plenty of firsts here, Alex median price drop is not only its worst ever, its also the first time its worse than the drops seen in Fairfax & Loudoun! Now, last summer it was able to post several moderate numbers to give it an OK year, but can it do it again?
Alex MOI is OK (still best in the region outside of foreclosure laden PWC), and yes median prices are probably skewed by high end not selling while foreclosures move quickly. Still, the fact that high end isnt selling is a sign of the malaise of the market. It looks like “the recession” can do to Alex what “the bubble” could not.
This does lead back to Arlington – Other than the small price drop, it doesn’t look good. MOI is a record high (any month), and the highest of the big 5 (first ever). More importantly to me, it has now decoupled from its twin Alex. For years now, those two held on while the rest crumbled. Now that Alex is gone, can Arl hold on?
The other big news as I see it is PWC. For 3 months now, the rate of median price drop has gotten smaller. Also, the median price rose from Jan to Feb. I find this significant because while MOM numbers are generally useless because of seasonality, PWC was different in that Median prices dropped MOM for 17 straight months.
Now, that streak has been broken as median price rose MOM (almost like a regular market). MOI is tops in the area. Another month or two of this for PWC, and I will come out and publicly say “bottom” for PWC.
A little OT, in PG county there is currently a 24 month inventory, bad enough right? But check out the February 09 statistics for houses over $500k: Listings:526, Sales:1.
1 sale from 526 listings, a 43 year inventory, lol.
CRT - calling bottom when unemployment rate is rising? I'm really surprised.
CRT,
on the other hand Arlington's C&C was 171, which is much more reasonable than the whisper numbers, so that's kind-of-sort-of-a plus...
"Ronnie said...
CRT - calling bottom when unemployment rate is rising? I'm really surprised."
You should be Ronnie - it surprises me, and frankly I am not 100% on board with the idea myself.
My rationale here comes from my understanding of the business cycle. The one thing I am fairly certain of is that unemployment is a lagging indicator. From what I have read, unemployment does not peak til the last part of the recession. Thus, once employment does turn around, and us regular Joes think its OK to come out of hiding, the fact of the matter is the recesion is actually over and (in some cases) has been for a while.
Now the news to me is that some economists suggest that residential investment is the leader INTO and OUT OF recessions. It seems strange I know, and I am a bit leery of it myself. However for the time being, lets just say I am willing to defer to those that have studied the issue more than I have.
Also, this call is for PWC median prices only. PWC is very much an investor driven market right now. Thus, if it is true that residential investment is a precursor to the beginning of the bottom, I am just about ready to make that call.
CRT,
I thought about writing all of that but I didn't want to make the closer-ins feel *that* bad. :-)
CRT,
I think your logic for calling a bottom in PWC makes sense, but I don't see it on the ground here. I still see tons of empty houses. I think D.C. is insulated enough from the job market problems that there won't be as impressive a second leg down, but I was floored by the price drops last spring selling season.
This spring selling season looks much the same. I may not be floored again, but I think prices will continue to drop as a result. If I'm wrong, we'll know in a few months.
"Cara said...
CRT,
on the other hand Arlington's C&C was 171, which is much more reasonable than the whisper numbers, so that's kind-of-sort-of-a plus..."
Thats true Cara - in fact thats a potential saving grace for both Arlington & Alexandria. In both cases C&C is high, suggesting people are still "wanting" to buy, but are having problems for some reason.
Still, this is a new issue (one we havent seen before) and frankly I dont know what to make of it jst yet. I can see several potential rationales for why this isnt all bad, yet the fact that the sales arent being consummated is concerning nonetheless.
Incidentally, just goes to show you cant always rely on whisper numbers. The idea that Arlington had only 50 should have been a tip off that something isnt right.
Xpovos - in case you hadnt looked at the last thread, I should stress bottom in terms of PWC MEDIAN prices. Fact of the matter is Median in PWC has been dominated by REOs for a long long time. Things like price seasonality have disappeared as the banks have been dumping REOs in an effort to find a happy median of new foreclosures vs price elasticity.
I should say too, that in terms of higher price points, bottom may be a ways off. My only point is, years from now when someone is sifting through the median price data looking for "the bottom" they will probably call it at this point.
In fact, for those questioning my bottom call for PWC, you really really should look at the 2nd graph down on this link:
http://www.recharts.com/mris/mris_9.html
Not only does it show a distinct flattening of prices, notice too how it EXACTLY fits on the 1998-2000 line for inflation adjusted prices. Its like an economists dream!!!
This is largely more of the same, sellers in the inner areas, are still clinging to the idea that their area is "different." Buyers are going where they can find deals.
It is very hard to interpret the medians we are seeing. How much of these declines is due to reduced prices and how much is due to the higher priced homes not selling?
Measuring from peak to today...
Arlington's median is down from $515k to $408K.
Alexandria's is down from $429k to $299k.
These numbers are actually very similar to those we got last month.
Arlington down from $523k to $411k.
Alexandria down from $434k to $322k.
Going back one more month to Dec's sales numbers...
Arlington was down from $500k to $430k.
Alexandria was down from $435k to $407k (not much of a drop here)
There is little question medians are down a good chunk from their peak in the "immune" areas, but what exactly that means is open to debate. Have values really dropped, or have the more expensive houses simply stopped selling?
Both are "bad," but in different ways.
CRT,
In order for the median to rise, we need to have something happen. I'll posit a few cases though certainly not an exhaustive list which could lead to a rise in median prices, then I'll see if it fits for PWC.
1) The price of REO could rise, holding the % of REO to other sales the same, and the median would rise. This would happen if REO became more desireable. That is, higher quality REO, or an influx of cash investors looking for rental properties.
2) The % of REO could decline compared to higher priced non REO sales. Either because there aren't enough REOs left, or becuase the REOs left are truly undesireable, or the non REOs are highly desireable.
3) The price of non-REO could increase sufficiently to pull up the median, despite REO sales. This works better for mean, but still works if there are a larger number of normal sales than REO.
Basically, only options 1 or 2 work on the median, and in my opinion neither is likely. #1 is predicated on REO price rises. The trend has been down, and is stabilizing, but if we see another strong spring selling seaon, it could take another leg down--this is what I expect. If REO prices continue to go down, it will be hard for the median to increase, though not impossible.
Option 2 seems more likely to work. The prices on non-REO have taken a hit in PWC as well, and are reaching a level where the premium is worth it to many homebuyers to buy a nicer house, or avoid the troubles associated with REOs. However, the biggest snag in this option is the supply of non-REOs that can be sold at the requisite price. Are there sufficient owners who are willing/trying to sell, who bought early enough and didn't cash-out re-fi, and hence able to sell at the current prices without bank intervention (short sales are still a disaster area). Given the rates of sales (see my comment a few threads back) I think this is probably unlikely. If the average is 7% of homes being turned over every year and we're still at 10% you're going to exhaust re-sellers more quickly, even if they can price it right. A lot of that action has been at the lower end, yes, but that's the ratio we're talking about.
I hate to use anecdotal evidence for a statistical argument, but this one just fits too well. There are 31 townhouses on the street where I rent. At least 5 of them are vacant. Most of them for as long as we've been renting here. There's simply too much REO left for the ratio to go down, and too much left for the prices to go up. They may not go down much more, either. But when REO bottoms, re-sale and new sale still are falling.
By this summer we could see median price in PWC at $150K.
Not only does it show a distinct flattening of prices, notice too how it EXACTLY fits on the 1998-2000 line for inflation adjusted prices. Its like an economists dream!!!
Which chart are you referring to here? The second one that shows median price and inflation adjusted median price? I think the way they make this chart, adjusting backwards from the present for inflation, these lines have to converge.
Xpovos - good analysis, and I agree #1 is not possible. However #2 could be - in fact it may be happening in DC proper (it looks like theres alot of undesirable stuff out there that just sits). #3 is possible but I think only if regular sellers drop their prices (thereby attracting buyers), but not as much as REOS obviously.
All are possible, but the one thing you said struck me:
I hate to use anecdotal evidence for a statistical argument, but this one just fits too well. There are 31 townhouses on the street where I rent. At least 5 of them are vacant. Most of them for as long as we've been renting here. There's simply too much REO left for the ratio to go down, and too much left for the prices to go up. "
What you are talking about here is the so called shadow inventory, and thus the question is, how much is there and what do the banks do with it?
A. Dump it all now - list them all, flood the market and drive the median down that much further.
B. Hold on to it and dispense it slowly on MRIS over time. Dont dump too many at once as that will decrease competition and drive down prices.
C. Hold onto it and dispense it NOT via the MLS, but in bulk to venture capitalists (who are starting to emerge there BTW). Selling 50-100 homes at one time - thus not affecting the MLS median prices you and I see one way or the other.
I think a mix of B and C is much more likely, and frankly what we are seeing now. I do not think prices will rise anytime soon - reason being, once they do, banks will try to speed up their time release of REO, only driving the median back down again - at which point they let back up on the throttle causing median to stabilize again. They will continue to make minor adjustments til all that REO disappears, be it months or years.
Thus, I think that the beginning of the bottom is here, but if it is it is longer and more exaggerated than necessary because of the REO.
That said, if Median rises, its because of your #3 above in that REO is gone. If median drops, I actually think its more a proxy on deflation or rents than anything else.
keithk,
You're looking at the right plot, but the wrong half.
The two lines do converge for that reason, but CRT is referring to looking back at the left hand side of the plot and seeing that it's at the same level as the current median if you pick the white line.
"KeithK said...
Which chart are you referring to here? The second one that shows median price and inflation adjusted median price?"
Yes.
"KeithK said...
I think the way they make this chart, adjusting backwards from the present for inflation, these lines have to converge."
Which lines? My understanding (and someone correct me if I am wrong) is that the darker colored line is nominal price, and the lighter colored is real (inflation adjusted) price.
If so, notice how the lighter colored line (circa 1998-2000) hovers right at about 175K, while the darker green one rises ever so slightly? Thus, for PWC median prices to get back down to about 175K today, which they have done.
Note, if the price today, gets down to the dark green line of 1998-2000 (about 130K), that would mean that inflation for the last 10 years is non-esistent and prices are (in real terms) cheaper than ever before.
Thats my understanding of this chart. However, I this is kinda important, if I am not reading this correct, will someone please pipe up. Thanks.
I am not convinced the bottom is in at all. If anything, I feel the crash may be over, but we now proceed to "death by a thousand cuts".
A slow, steady general downtrend that may last years.
"joelandsonia said...
I am not convinced the bottom is in at all. If anything, I feel the crash may be over, but we now proceed to "death by a thousand cuts".
A slow, steady general downtrend that may last years."
Joelandsonia, can you elaborate? I am presenting a case here with regard to PWC median pricing only. On an inflation adjusted basis it looks like it is exactly where it was pre bubble. Do you think it wont stay on that trend?
Personally, I also find it remarkable the way it suddenly & abruptly turned to flat a few months ago. For a long time the trend looked to undershoot - I though it would undershoot for sure. Yet there are a few economists I respect who said an undershoot was not possible - maybe they are right.
In any event, are you suggesting PWC Median is going to decouple from its inflation adjutsted pricing (i.e. deflation)?
I'm with Leroy. As long as the YOY sales volume #s are so different from Arl. vs. Alexandria, it's very hard to interpret the differences in their median sales #s. One possibility that we've repeatedly discussed (in addition to other good ones) is that Arl. sellers (at the higher end particularly) are simply unwilling to face today's realities and lower their prices (note huge volume sales drop in Arl.), so the recession and/or bubble burst right now is showing up in reduced sales, whereas the Alexandria sellers may be more realistic about price and are making their sales. Once we see whether those C&Cs actually close, and at what prices, we may be able to sort this out more clearly.
oops, meant to say "in their median sales price numbers." (lines 3-4)
Does anyone care to speculate where March will FINALLY be the month where I no longer receive price drop alerts where higher end Arl sellers take 10% off a price inflated by 30% or more, and start receiving alerts showing owners' taking at least 20% off to move the house into the price at which it might realistically appeal to buyers who DO have the ability to pay for it (through down payment reflecting equity from prior house or other source, and a sane loan)? Non-first time buyers are approx. 60% of all buyers, according to the Realtors (you may not have faith in that #). Hope so. That would go a long way to finding a stable equilibrium and (maybe) ridding us from the relentless denial messages of "Things are still selling here! Don't be left out! Because the one house three blocks over sold for $500K - but don't bother me with the full set of statistics."
One last question - how do we know cash buyers in PWC and elsewhere indicates that the investors have moved in? I have heard of a LOT of conservative retirees and near-retirees and other people who prefer to buy a smaller house for cash. They also would be the type of people who would be looking for a deal to lock in to keep their retirement costs low, especially given the likely hit their retirement accounts have been tking.
I know this is a Nova blog, but I've been looking at these #'s for DC (and commented on DC earlier today), but I would like to point out that at 257, DC saw the lowest number of sales of any February going back to and including 1997 (when there were 261 sales).
That's stunning to me, considering all of the growth and development DC has seen since then.
Based on all the comments above, the one thing that is clear...is that it isn't clear yet what is happening.
"Ace said...
how do we know cash buyers in PWC and elsewhere indicates that the investors have moved in? "
Ace - I was going to discuss this later, but I know for a fact they are out there.
Without giving anything away, lets say I have a new project involving 50-100 SFH all purchased in bulk directly from one of the banks. Ive heard there are others out there like this too. Once this closes, I will expand on this a bit.
Anon 412. That isnt surprising in DC. In fact, outside of NOVA, I think most areas are at decade low levels. Personally, I think they are a better indicator of what the market is really doing. Put another way, take away all the foreclosures we see, much of the NOVA market very well could look the same.
"I am not convinced the bottom is in at all. If anything, I feel the crash may be over, but we now proceed to "death by a thousand cuts".
A slow, steady general downtrend that may last years."
Here are the reasons why we're not at a bottom.
1) Unemployment is rising at a fast rate.
2) We still have the Alt-A loans resetting later this year through 2011.
3) The new tax assessments will give seller less ammo to hold up prices.
4) According to Warren Buffett we're in a massive bubble in the treasury market, and the bailout will lead to big inflation. Interest rates are going significantly higher over the next couple of years.
Without giving anything away, lets say I have a new project involving 50-100 SFH all purchased in bulk directly from one of the banks. Ive heard there are others out there like this too. Once this closes, I will expand on this a bit.
Which beg the questions:
How much inventory have the banks held off the market?
How will dumping properties on the market, in bulk, affect prices?
"Which beg the questions:
How much inventory have the banks held off the market?
How will dumping properties on the market, in bulk, affect prices? "
Or my question, what on earth do they intend to do with these properties they've bought up in bulk?
Renovate and resell them? Buy them cheap and sell them to suckers like in the NY Times article about Cleveland? Or renovate and rent them out?
None of these does "good" things to the market.
(a) More, renovated properties would be nice for buyers, but it will push down prices even more when that inventory hits the market, so it seems the least likely scenario.
(b)Un-renovated, unknown condition stuff being sold to buyers "cheap" who can't buy in bulk themselves will really drag down the market (or at least the median or average if any of this stuff sells)
(c) New rentals? Hundreds of new rentals? I think we'll see that bizarre arbitrary floor of it costs $1000k to rent in the greater DC are no ifs ands or buts, fall like a rock unless they get direct deals with the county to directly subsidize them. Even still, it should affect the larger rental market eventually with increased supply.
So, in summary, while a current floor may have been reached, bulk buyers are not a force that can keep prices above the inflation adjusted mean trend line if more houses have been built during the bubble than are actually needed by the population.
Sorry, part c could have used a proofreading... please translate as best as you can into proper English.
David said:
"Here are the reasons why we're not at a bottom.
1) Unemployment is rising at a fast rate.
2) We still have the Alt-A loans resetting later this year through 2011.
3) The new tax assessments will give seller less ammo to hold up prices.
4) According to Warren Buffett we're in a massive bubble in the treasury market, and the bailout will lead to big inflation. Interest rates are going significantly higher over the next couple of years."
Agreed. Also, I don't think the real wave of foreclosures on the market has even begun to hit.
The next few years may be the worst of both worlds -- major asset deflation combined with currency inflation.
Translation: hard assets (houses) could continue their decline ala Japan while the prices paid for commodities (food, oil, etc) increase dramatically.
Disclaimer: I own in Reston but haven't sold because I purchased well before the bubble and I'm within three years of paying it off. You do need to live somewhere, and if you can get your dream house at a good rate, price and location and plan to live there for over a decade, it may work for you -- but I would not stretch to do it.
joelandsonia said...
David said:
"Here are the reasons why we're not at a bottom.
1) Unemployment is rising at a fast rate.
3) The new tax assessments will give seller less ammo to hold up prices.
4) According to Warren Buffett we're in a massive bubble in the treasury market, and the bailout will lead to big inflation. Interest rates are going significantly higher over the next couple of years."
As noted above IF residential investment leads into and out of recession, the things above are not relevant.
"2) We still have the Alt-A loans resetting later this year through 2011."
Possible threat - especially in PWC. However, the number of foreclosures PWC has seen thus far constitutes at least 80% of all Subprime and ALT A loans ever made. Surely not only ALT A & Subprime defaulted, but are there enough of these left to really have much of an impact?
"The next few years may be the worst of both worlds -- major asset deflation combined with currency inflation."
Thats a real possibility, and yes a real threat. In a way though that was my point. It looks from the graph line the long term trend line has been re-reached. If it goes down, its probably more of a proxy on rents (i.e. deflation) than anything else.
Sorry my comment should have been
"As noted above IF residential investment leads into and out of recession, the things above are lagging indicators and thus not relevant to finding the bottom."
I didnt want anyone to think I am diminishing the importance of the overall economy.
Probably pretty close to bottom for PWC. Arlington is just getting started though. Time for a nose-dive.
"Kevin said...
Probably pretty close to bottom for PWC. Arlington is just getting started though. Time for a nose-dive."
Kevin - why do you think its just getting started? Do you have any data to support that, or is it just a hunch?
MRIS data tells me Arlington, like everywhere else in NOVA started seeing price declines in 2006:
http://www.mris.com/reports/stats/monthly_reti.cfm
Inventory tells me Arlington, like everywhere else in NOVA, saw an inventory spike and subsequent decline in 2006:
http://www.virginiamls.com/charts/Arlington.htm
http://www.virginiamls.com/charts/Loudoun.htm
http://www.virginiamls.com/charts/PrinceWilliam.htm
Everything I have looked at tells me that nowhere in NOVA is "just getting started", and very likely they are pretty much all in this thing together and have been for years.
That said, you are relatively new here, and its good to get new perspectives to look at old data and see if you can find something here we may be missing. We very well could have missed something along the way.
Thus, if there is something in the data that suggests Arlington is just getting started, please let us know.
"Kevin - why do you think its just getting started? Do you have any data to support that, or is it just a hunch?"
Median price in PWC in 1999 was ~$125k, shot up to ~$400k, and is now at ~$175k.
Median price in Loudoun C. in 1999 was ~$200k, shot up to ~$500k, and is now at ~$300k.
Median price in Fairfax C. in 1999 was ~$200k, shot up to ~$550k, and is now at ~$300k.
Median price in Arlington in 1999 was ~$200k, shot up to ~$550k, and is now at ~$400k.
What do you think will happen here? What was done with the housing bubble will be undone. That, and the YoY price declines for Arlington are the only ones growing at this point tells me that buying a house in Arlington is like going back in time and buying a bubbled property. For whatever reason some areas have corrected much faster than others.
And yes, I always form my market assumptions based on numbers and data.
http://www.recharts.com/AroundDC.htm
"Kevin said...
For whatever reason some areas have corrected much faster than others."
Kevin - thanks for responding. That is a reasonable assumption - i.e. it just takes longer in Arlington.
The reason I dont think this holds water is that we have the perfect counterexample over in Maryland.
Lets use that wonderful site (which thankfully you are familiar with) and look at NOVA inventory (the red bars, 8th chart from the top).
http://www.recharts.com/mris/mris_15.html
http://www.recharts.com/mris/mris_17.html
http://www.recharts.com/mris/mris_3.html
http://www.recharts.com/mris/mris_7.html
In each case you see a very clear and consistent trend, total inventory is continuing to decline in every NOVA county - hard hit - hardly hit - or otherwise. This is the correction process we see in front of our eyes. Potentially problem inventory is disappearing.
Now, some suggested last year that while inventory going down in most of NOVA is a sign of capitulaiton, in Arlington it means people are just getting better at holding out (i.e. its crash comes later).
Ignoring the near absurdity of that for one second, lets look across the river at inventory in MD. If that was true, we would see the same thing in other hardly hit areas such as in MD. Yet when we look at inventory over the river thats not what we see:
http://www.recharts.com/mris/mris_4.html
http://www.recharts.com/mris/mris_6.html
http://www.recharts.com/mris/mris_8.html
http://www.recharts.com/mris/mris_16.html
Notice how we see the exact oposite of what we see in NOVA. Over here, peak inventory was not in 2006 - peak inventory (YOY) is now!
So why is it that people in Arlington have the ability to "not list" whereas the people in MD do not?
Now as it turns out, prices in MD are only now really starting to decline now (increasing rapidly YOY). It also looks like inventory is starting to decline too. Thus, I can see a case being made for why MD price declines are later. Inventory is at or near an all time high.
However, given that Arlington has inventory that looks nothing like MD but everything like NOVA, I cant think of a good reason why its just taking longer in Arlington.
Also, re: your question what do I think will happen here?
I take my cues from case shiller and others who have looked at the geographic aspect of this.
"During market downturns, home prices fall the least in the most desireable areas of a metropolitan region. As home affordability improves, home buyers who were previously priced out of their preferred towns and neighborhoods will be able to purchase properties in these areas. So, even as overall sales volume drops, relatively stonger demand for housing will limit price declines in neighborhoods with shorter work commutes, better schools, and easier access to parks, recreation, and retail centers....When combined with large inventories of undold housig on the edges of urban areas, this shift in preferences will mean that prices in outlying neighborhoods will continue their more rapid decline and will be slower to rebound when housing markets finally start to recover."
Sounds alot like what we have seen around here given the inelasticity of Arlington prices. Thus, while I have little doubt prices in Arlington will continue to fall, I think its highly highly likely they will also fall the least relative to further out areas like PWC.
http://www2.standardandpoors.com/spf/pdf/index/052708_Housing_bubbles_collapse.pdf
Kevin - there have been other researchers who have come to the same conclusion:
"Our best estimate is that eventual price stabilization will be transmitted from the outside in, just as price declines were. This does not mean that prices will stabilize at the same levels relative to their peak prices in all areas, however. Prices will tend to fall dramatically from their peaks in rural areas, less so in suburban areas, and even less so in metropolitan areas, largely as a result of the relative lack of employment opportunities in rural versus metro areas and relatively high commuting and energy costs."
http://www.itulip.com/housingpriceregionscascade.htm
Again, very similar to what we are seeing here. There are other studies out there that seem to suggest the same thing.
Given that theve been accurate given what we have seen from 2005-2009, I dont expect them to start failing now.
crt,
An interesting consequence of this picture is that with every bubble, metropolitan areas (or the desirable spaces therein) become successively more expensive. Which goes a long way to explaining NY city, where normal people rent their primary residence and eventually save up to buy their vacation/retirement home. Other potential outcomes include buying shares of apartments like in Paris, or the random crash of rich neighborhoods like in LA and the rich suburbs of NY when successive bubbles leave them at unsustainable prices even under this rubric.
You must admit its a depressing thought though. That someday, none but the elites will be able to buy in greater DC. We'll have to start exhalting the bohemian lifestyle of renting then.
Cara - yeah. Thats why when you look at metrics like price to income, you can get some absurd results in urban areas where many many people rent, and only a few own. Even in 2000, Arlington was at 4.16 X HH income, even more popular (and land constrained) areas like San Francisco & LA had 7-8X income. Most absurd was NY at 21X income.
Of course the reverse can happen when places are on the decline - urban detroit was at 2.15X income in 2000. Some areas in DC are still very affordable. Yes Georgetown and Adams Morgan are at 9X income, but places across the river are still affordable at like 2X.
The bigger problem I think is what some refer to as the "middle class squeeze" in urban areas and how that leaves the cities less vivacious than before. Joel Kotkin in particular laments about the loss of middle class brooklyn to gentrification.
Of course, the recession can certainly things back a bit. And long term, it wont always be like this. Robert Shiller noted that eventually that demand will be met by (and yes he is serious about this) building more cities. Its just going to take a while (like decades), to get to that point, and it doesnt help those who have to wait til these places are built.
That said, what really is so bad about renting? Sure I own now, but when I retire, I may do so overseas. If so, I will certainly be renting. Europeans have been doing it forever, and seem nontheless quite content doing so. I think in this regard it would be helpful for all the US, if we were to take a page from their book.
"However, given that Arlington has inventory that looks nothing like MD but everything like NOVA, I cant think of a good reason why its just taking longer in Arlington."
I can't either. Inventory isn't unimportant, it's just a temporary driving factor and subject to all kinds of phenomena (new developments, etc.)
I just don't see anything that is fundamentally different about Arlington compared to a decade ago. How much higher is the household GDP from then? I'll bet not much. Certainly nowhere close to double. It makes zero sense to me that they won't see serious drops in property values over the next several years.
A lot of people think certain areas are protected from the housing bubble deflation or are "special". I'm sure that their house or street or town (Arlington) is very desirable and special, and is worth more because of those things. But if those conditions were all pre-existing, then they're essentially a non-factor in the long term. A new metro stop down the street will increase the value of a house. Artificial run-ups in all properties do not create long term wealth. All asset bubbles correct.
well,
what is the explanation for the ratio of high price to income in nyc/sf, etc? how the owners generate enough return on their asset (rental property) if it's price is so high compared to income? is it just based on a belief that rents will be increasing a lot in the future?
konstantin
that's a good question. Sometimes the answer is they don't own it. They own part of it say ~30% and have in interest-only loan on the rest that they never intend to repay the principle on until they sell the building, meanwhile skimming what profit they can off the difference between the tenants rents and their expenses. It's more complex than this of course, but that's the general idea.
yeah, but in current environment a lot of these guys cannot refinance and can very well go bankrupt. also in 1990s for example, loan rates were quite high, not sure that you can get a nice roi from rent, unless it grows fast and eventually supports initial high price to income values.
Kevin said...
"I just don't see anything that is fundamentally different about Arlington compared to a decade ago. How much higher is the household GDP from then? I'll bet not much. Certainly nowhere close to double. It makes zero sense to me that they won't see serious drops in property values over the next several years."
Kevin, you ought to poke around the ACS reports Cara provided us with - there are indeed a few things about Arlington that do seem to stand out.
First from 2000-2007 Arlington median & per capita income both went up by 43%. Family income went up 53%. These numbers are the most for any county in Nova - the only one close is Alexandria.
Another interesting quirk about Arlington is its changing demographics. From 2000-2007 the number and percent of white and asian residents increased while its black and latino populations decreased. Most stunning the number of whites grew in number and percent - first time in at least 27 years. This is contrary to the trend in the USA and certainly contrary to the trend in all of the DC burbs where the black, latino and asian percentages are increasing while whites are declining. The only other areas to have an increasing white population are DC and Alexandria. I do not wish to make generalizations about various ethnic groups, but this is a very interesting trend in that it runs contrary to everywhere else outside of the urban core of DC.
Finally, the thing I find most interesting is the number of new high income households. From 2000-2007 7,348 households making more than 200K moved into Arlington. Those making more than 100K increased by 16,849.
Why is this important? Because the total number of new residences built in Arlington between 2000-2007 was a mere 6,970.
So again, 16,849 new high income households (7,348 of which make more than 200K) are forced to compete over 6,970 new homes? Looks like a shortage to me - and when there are shortages we all know what happens next...
CRT, thank you. Those are numbers that I was unaware of and to me definitely show that Arlington won't fall like surrounding areas. Market fundamentals, good stuff.
Also I should note the exact reverse happened regarding high income households versus new homes outside the beltway lets look at new 200K houeholds vs residences created (years 2000-2007):
Arlington
200K Households - 7,348
Homes built - 6,970
Clearly a shortage but not by much. Next:
Alexandria
200K Households - 4,346
Homes built - 5,683
Here we have a surplus, enough residences for the 200K bracket, and some for the next bracked down too.
Fairfax
200K Households - 32,745
Homes built - 35,844
Again, a minor surplus, next:
Loudoun
200K Households - 8,140
Homes built - 35,844
UH OH! Looks like a lot of new McMansions were built out in Loudoun. Clearly there arent enough new 200K households to sop them up so they must go to the next lowest income category.
PWC
200K households - 7,328
Homes built - 31,356
Again huge problem. Plenty of new homes and not many high income families. Even if you assume PWC chases a lower income demographic - if you expand it to 100K new households, you get 27,171. Still a surplus - not good.
Now, I am making a few assumptions which clearly arent true. I am assuming all these people want to own when certainly some want to rent. However, you see the point here. There is a very high potential for a shortage in Arlington that doesnt exist elsewhere.
Over time, Arlington can increase to go vertical and there are a few unbuilt lots left, but the problems arent resolved overnight. In any event, so long as there is a shortage which there certainly seems to be in Arlington, its perfectly reasonable to assume it will have higher prices til supply & demand come back into balance.
Lastly, it is normally at this point when someone responds claiming I think Arlington is immune. One more time for the record - prices will decline, but not as much as the rest...
Kevin - really the one we should all thank is Cara for providing us with this ACS info:
http://www.census.gov/hhes/www/housing/ahs/ahs.html
We have long suspeced some of these things, but it was hard to compare demographic "apples to apples" over time because of different sources. I thought we would have to wait til the 2010 census to make an apples to apples census comparison but it looks like we have a good same source estimate til then.
CRT,
do you have #s of high income households move out of each jurisdiction? or are they so little they're negligible.
"MM said...
do you have #s of high income households move out of each jurisdiction? or are they so little they're negligible."
MM - unfortunately, this is just a net number. I read somethig a while back from the brookings institution - DC proper has a large high income inflow and large high income outflow, (but obviously, given the net number is a positive the high income inflow is larger).
Arlington (and Alexandria) seems to be doing the same thing with many of these demographic trends so I assume its similar picture in Arlington (large inflow and outflow, but a clear net positive).
Incidentally, FWIW heres the same picture in DC (2000-2007)
DC Proper
200K Households - 12,129
Homes built - 12,056
Very slight shortage - probably a reason DC hasnt totally tanked which is incredible given it had near PWC type gains (up 165% 2000-2005) with Arlington type losses (-5.2% 2005-2008).
I do think DC is in trouble - inventory is too high for comfort there (looks kinda like MD), but even with a 20% decline this year, it would be up about the same amount since Arlinton since 2000 (approx 100-105%).
No, thank you, CRT, I was way too lazy to actually mine through the reports to get the relevant info.
That's amazing. I think you chose well for the income criteria for the oversupply, since the vast majority (?80,90%?) of the new housing was built to sell for half a million or more, regardless of location.
Those numbers really make it all make sense... And give me a modicum of hope that some of the better stock in FFX County will come down to be obtainable to my income range, but a good perspective on the fact that it won't need to come down too much further to find buyers. I would still have to count on the mindset of buyers changing to more hunkered down household balance sheets to make prices reach what I would like them to.
food for thought:
1-not nice (and verv misleading) to use 1 or 2 hundred data points to calculate prices (Arl & Alex 2009)- did anyone ever consider statistical significance?
2-not your fault, but the freshest sold numbers are AT LEAST 2 months out of date - you need to point this out - the important point in time is when deals are negotiated, not after they close
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