Please post your local house search updates, MLS finds, on-topic ideas, and links here.
Real Estate Market stories (h/t Zerodown):
Gloomy Outlook -- NYT
Time to Get off the Fence? -- WP
My favorite quote from the Post article:"Nonetheless, they will both miss the thrill of the hunt.
'I actually just find it an interesting hobby at this point,' he said. 'I am a little addicted.'
'You get into search mode, and it's kind of hard to stop,' she said.
57 comments:
We know we are in a tough economy. Unemployment rates for the nation are pretty depressing, although they have not reached the level of the 1980s yet.
For Washington DC, the employment picture looks less depressing. The stimulus package will create many government jobs, and other related jobs, in the region. The government is the reason the area has fared better in past recessions.
No one can tell what will happen. The downturn in home prices may dip below what would have been the normal growth appreciation for the region because when there is a bubble some times the correction can undershoot.
Having said that, for those who were wondering how incomes and home prices may have compared between 1999 and 2009, I have the following stats.
A couple making $150K today (two people making $75K each), if they worked for the Federal Government Executive Branch, they made $100K ($50K each) in 1999. This is a mid-level GS-12, step 2 position in the Executive Branch.
That same couple may have been able to buy a house for $300,000 in 1999. First-time home buyers have always had difficulty saving 20 percent of the price, so chances are the couple did not buy anything above that.
Large homes in large lots with two car garages (10 year old or more for the time) sold in Annandale for $350,000. This was a split level contemporary, not a colonial. At least that was my experience at the time. New homes in Vienna sold for about $500,000, but these were in tiny lots where you could see your neighhohrs bathroom from your kitchen. New large townhomes in nice developments sold for about $300,000or more in close in Fairfax County.
Let's not forget that interest rates in 1999 were about 7 percent for 30-year fixed loans. Secondary piggy-bank loans (if you wanted to avoid paying PMI) were about 9 percent. Conventional loans were about $240,000 if I recall correctly. So it was more expensive to borrow in 1999 than what it is today. That also affected what you could afford back then.
So, it was hard for a couple making the equivalent of $150K in 1999 ($100K) to buy as a first home a large home, with a two-car garage, in a large lot in many parts of Fairfax County (including Vienna).
Prices may become more affordable than what they were in 1999. It all depends on the local economy. But the point is that every buyer, particularly first-time home buyers, does not necessarily get to buy their family's dream home at their dream price in their dream location. We all have to make compromises once we see what we can afford. Sad, but true.
With time and savings buyers can afford larger homes. Don't forget that if you buy something under what you can afford today, you will be able to save more over time and sustain the economic blow in the event someone loses a job, etc.
Some people did overstrech in 1999and bought at the top of what they could afford and did fine because their incomes continued to go up. Despite the dot com bust none in their households lost their job. But that is not the case for everyone always. You need to have that emergency fund for the unexpected.
In closing, I think there are a lot of good buys currently in the market at equivalent or better pricing than they were in 1999 adjusted for inflation or the normal appreciation for the reagion.
last word, "region," not reagion. I hate when that happens.
BTW, I consider normal appreciation about 5 pecent annnually from 1975 to 1999, nationally. I do not know what it is for the region.
tiredbubblewatcher,
What you expect to pay for a house is not what everybody else expects to pay for a house or is willing to pay for a house.
Lots of people are paying above assessments in close in Fairfax County, McClean, Arlington, etc.
Your strategy is fine for you because that is what you have decided. It does not mean it is correct for everybody else.
The assessment in itself means nothing. Did you forget what happened last year with assessments in Fairfax County. They fired the assessor who lowered the prices of homes and bumped the prices of lands. So much for their expertise.
See the link on assessments that Novawatcher put the other day. It gives you a better idea of what to make out of them.
Again, I posted two similar homes with a difference is assessments of over $400,000 in Vienna. I can guarantee that the house with the lower assessment would sell today for much more than what it was assessed, at the very least $200,000 more. So it is a case-by-case basis if all you are looking at is the assessment.
Along the lines of what dc2 wrote (an excellent comment)...but from the perspective of a single person.
I live in a studio in DC and keep an eye out on studio prices.
A place near me has been listed on the market for several months at least at 199,999. Nice place, Adams Morgan, 400sf., great street. A year ago the asking price would have been easily $220,000-plus. But I just saw it listed at $190,000.
But at its new price, the numbers aren't bad when compared to a comparable rent.
Financing $180,000 (assuming 10K deposit), the mortgage comes to $996 a month at 5%. It's a coop, but taxes and fees are low, just under $300. Add in PMI, $100, for a montly cost of about $1400.
That's slightly above a rent but after taxes, you should be ahead. I'm estimating a rent on that unit between $1200 to $1350, which is a fair range for a street view, especially. Anything less is typically a basement.
So there's an argument to buy it, but should you?
Even though I would like to see prices not decline (from a personal self-interested standpoint), I see no real reason to buy for a year, at least, if waiting is an option.
Although I think there's a fair chance that studio will sell at its its new price, I wouldn't be surprised to see another 10K or more reduction. The market is in a stall right now, at least in my neighborhood. Most people I know aren't selling, which means rents won't be climbing anytime soon. But I do think that prices, at least among studios, are now being offered at prices at least equal, or close to, the cost of a rental, assuming the buyer can get financing at a good rate.
dc2-- Yes, Vienna & McLean were pricey in 1999-- but many other areas that are now expensive were not. We bought a town house in Del Ray for $119,000 in 2000. Lots of places in DC that have since gentrified were dead cheap-- & you could get a new house in places like Stafford for less than $100,000. Lots of Arlington was similarly cheap.
This is one reason why I expect a lot of these places to come way down: yes there are still a lot of well-paid two income families out there who can afford them, but there are also a lot more such 'pricey' neighborhoods-- and the competition from areas only a little further out-- and still on a metro line-- is getting stiff.
Also, I am wondering if there is not going to be a second wave: people who have been buying in the last year or so-- both for themselves and as investors-- at prices that penciled out at the time may still find themselves in trouble as layoffs continue and rents fall.
I saw this happening a lot with Manassas townhomes: investors started snapping them up as prices fell to the mid $100K range. But prices continued to fall, and soon I was seeing a lot of them in foreclosure, where the previous sale was '07-- and the new price was about half of the previous one.
I think I'm seeing the beginnings of that here in the outer reaches of Montgomery county. It's one thing that's making me hesitant about jumping back in the market. I'll be a cash buyer, and I won't be selling any time soon, but I would still kick myself if it turns out I could have waited another 6-8 months and gotten it for half the price. If the economy really goes bad I may be needing that money...
kob: In your calculation, you excluded transaction costs to buy and sell the condo. Are you planning to stay in a studio for 5 years? If you have a long enough time period you could find a deal that makes sense for you, but I think the smaller the place the higher risk it is.
The assessment process in Arlington co. is not a comp. based process in the same way that a Realtor would do a comparative market analysis or that an appraiser for the bank would do it. I don't know if this is true for Fairfax or other counties but the info should be available on the website. To the extent the processes are similar, some of what I've read on this board about accuracy of assessments really misses some key points.
Arlington notes several key features of your house - e.g., location (pretty narrowly -- by a small neighborhood), square footage of the house, square footage of the lot, garage or not, exterior improvements such as a patio or deck, basement or not, age, style (e.g., full 2 story is valued more than a Cape Cod, everything else being equal), etc. They then use regression or something similar to determine the value of these features relative to the sales prices beginning 18 months before the assessment and ending 6 months before it, sometimes with a few tweaks for houses sold within the prior 6 months. So, for example, if houses with a 4th bedroom are selling for about $20K over what houses with just 3 are selling for, everything else being equal, your house with 4 BRs will be treated accordingly.
ArlCo does NOT measure or incorporate into its assessment most interior improvements to your house, i.e., if you redid a kitchen for $100K but added no square footage, and that was all you did, Arlington generally does not change your assessment at all. This is because it doesn't have time to do thousands of individual assessments that would required interior inspections.
Therefore, if you bought a dump and invested $200K into it without increasing the square footage or doing other things that might make Arlington decide to do an assessment inspection (e.g., maybe you had to have a lot of permits), chances are that Arl Co. OVER-valued your house when you bought it (because it was in worse condition than the average house) but now, to the extent that your $200K is reflected in what you could sell your house for today (which we all know usually produces only a partial return) Arl Co. may now UNDER-value your house.
This is a cheap and easy way to do assessments, and they figure it all evens out in the end - which it does for the County and for you *IF* you hold the house a long time, make market-desired improvements, etc. But it also means that while buyers should definitely look at the assessed value, they really must take into account the value of the improvements (or deterioration) (or whether the house is in a very undesirable location (e.g., a busy corner) in an otherwise high priced neighborhood) and anything else Arl. Co. does NOT take into account. Then they have to adjust for these things, since the market will too.
Therefore, as NovaWatcher interestingly documented, housing sold values in general will correlate strongly with assessed values (if lagged) because the things the County considers are often what buyers value, but for an individual house, the assessed value may be WAY off relative to the current market value, because of the improvement/deterioration etc. factor.
Sarah--
I have seen the same thing in Manassas, with new forecosures happening on places purchased in 2007, and even in 2008. Knife-catchers who dropped the knives.
And now, there seems to be some irrational exuberance going on. The February numbers will be telling, and I need to see how many of these homes actually close, but the contract activity is getting ridiculous. Don't these people read the news?
But this activity is limited to the bottom of the market, at least it has been so far. We'll see Tuesday.
"New homes in Vienna sold for about $500,000, but these were in tiny lots where you could see your neighhohrs bathroom from your kitchen."
$500k went a heck of a lot farther than this in Vienna in 1999.
I can't say there weren't new homes on small lots in Vienna asking $500k in 1999, but with a $500k budget a buyer would have had a lot of choices.
In the mid-1990s, new houses on lots over a half-acre could be found in Vienna and Oakton for @$500K. By the late 90s, for $500K, the lots were starting to get smaller or only older houses could be found at these prices. At least that's my recollection Not all the appreciation was after 2002.
Much of this has to do with the quality of the schools. While Vienna kids attend a range of schools, most are considered either top-notch or very solid (Langley, McLean, Madison, Marshall and Oakton). The only question mark has been South Lakes, and it's expected to improve.
Leroy,
"I can't say there weren't new homes on small lots in Vienna asking $500k in 1999, but with a $500k budget a buyer would have had a lot of choices."
We agree the same is true today for areas further out. Herndon for example.
I like that Wapost article. Guy waits four years to buy a house, and pays over $700k for a rambler. It's like the people jumping off of the fence want to bailed out some day.
I fished through my database for houses that sold for around $500k around 1999. Here's what you could have bought for $500k in 1999:
[1998]
www.zillow.com/homedetails/birds-eye-view-map/51766154_zpid/
[2000]
www.zillow.com/homedetails/11213-Cranbrook-Ln-Vienna-VA-22124/51796154_zpid/
or slumming it at $434k back in 1999:
www.zillow.com/homes/map/10305-Lewis-Knolls,-oakton,-va-22124_rb/
all > 3000 sqft (ignoring basement) on 1/3rd acre or more and backing to parkland.
dc2 said, "New homes in Vienna sold for about $500,000, but these were in tiny lots where you could see your neighhohrs bathroom from your kitchen."
And then NovaWatcher dropped this link to what $500K bought you in Oakland:
http://www.trulia.com/homes/Virginia/Oakton/sold/697508-11734-Saddle-Crescent-Cir-Oakton-VA-22124
Wow.
It's so much harded to B.S. with the internet, eh dc2?
Oh, here's the bird eye view that home in which dc2 said, 'New homes (in 1999) in Vienna sold for about $500,000, but these were in tiny lots where you could see your neighhohrs bathroom from your kitchen.'
http://www.zillow.com/homedetails/birds-eye-view-map/51766154_zpid/#birds-eye-view
Stocks are now at 1996 levels. Why is it so hard to believe home prices why go down that low?
If anything a business has more ways to protect itself: hire cheaper labor, downsize, enter a more profitable line of a business.
But a house just sits there. Why is it so hard to believe when stocks are at 1996 levels, that houses won't also fall down to at least 1999 levels?
You guys are good sleuths, but the houses you found were consistent with my recollections. They weren't new houses in 1999 or 2000, but houses built 5-15 years earlier, and some were on smaller lots than many Vienna lots (which are 1/2 acre or more) Which is not to say you'd necessarily be staring into your neighbor's coffee - a 1/4 acre lot is pretty standard in McLean (inside the beltway) or Arlington.
Who cares if they are new or not? If you can get a 3200 sqft 5-year-old house on an acre, why buy new?
thoughts on increase in conforming loan limits from $625,000 to $729,000?
News Flash: Federal Employees to get a 0% (that reads ZERO percent) pay increase next year. And yes, it is a real increase because there will be a slight amount of deflation for the fiscal year.
As such, housing unit prices will not increase next year--and most likely will fall instead of staying flat....
Did anyone see that our fav realtor's house is back on the market.
1495 Evans Farm Dr
List: $1.79 mil
MLS#: FX6965360
http://www.redfin.com/VA/Mc-Lean/1495-Evans-Farm-Dr-22101/home/9836666
previously mentioned:
http://novabubblefallout.blogspot.com/2008/06/northern-virginia-bits-bucket-662008.html
wash post artilce
http://www.washingtonpost.com/wp-dyn/content/article/2008/05/30/AR2008053001502.html
zillow home Q & A with answers from the OWNER (no not the bank --not yet) http://www.zillow.com/homedetails/home-qna/60379104_zpid/#comment-438470
from $2.49 mil to $2 mill to OFFER of $1 rejected to auction with min price of $1.5 (not received) to a now list price of $1.79 mil and 55 days and counting....
9 months holding --- 9 months interest and taxes ---2008 Property Tax: $17,675 ---HOA $264 *9 = about $2,400 ---and counting
either i need to get a life --sleep or both ....just look at an ariel of the 1495 Evans...it is like a few feet from Chain Bridge road...may be really noisey and the air may be bad....
is this the correct last sales data?
Sold 08/30/2002: $1,364,730
http://www.zillow.com/homedetails/1495-Evans-Farm-Dr-Mclean-VA-22101/60379104_zpid/
seem like it would be. that the owner held onto it for 2 years and "lived" in it for 2 of the past 5 to get a tax FREE profit....
so lazy math $1.36 + 6 1/2 years of carrying costs = 1.36 + 78K for taxes (12k * 6 1/2) + 18K for HOA (264 * 78 months) --it's late I forgot about a little thing called interest or forgone interest (whihc may be a good thing given what other risky assets have done recently) so say 20% down for jumbo loan of $1.04 mil at 6% and we have 390K in interest (60K for 6 1/2 years) and we have
1.36 + .39 (interest) + .078 (taxes) + .018 (HOA) = $1.846
although...I forgot about interest deduction so interest should be amended with a 35% write off (the RE prob was in the highest tax bracket--owning a small biz and paying out profits in the form of cap gains instead of income, so the interest deduction only saves 20% instead of 35% for our high earner..then again it might be 35%)
so,
1.36 + .312 (80% of .39 interest) + .078 (taxes) + .018 (HOA) = $1.768 and our RE still has a profit at $1.79 only if it sells in the next month....
ps: sorry for high-jacking the board
Buck, I think housing prices will continue to go down, but it is likely that federal employees will see at least a 2% raise next year. That is the amount the President has proposed and it is likely the unions will fight fiercely to get closer to 2.9% (the amount military members are proposed to get). This doesn't even factor in additional monies for locality pay. There is no doubt that being a federal gov. employee right now is a good deal. However, as others have commented, I think people overestimate the percentage of government employees in this area. Also, since for most families it takes 2 salaries to buy a house, even if one is a gov. employee they might be hesitant to buy a house -- especially a $500K plus house.
Given that the stock decline is nearly a timeline mirror so far of that during the Great Depression (where stocks ended down 80-90%) and housing may decline on a path similar to Japan (again 80% retraction in extreme bubble areas) I'd have to say many of my friends are scared witless.
They are putting cash into savings, gold, whatever at a rate I've *never* seen. Absolutely no interest in long-term purchases.
DC does not seem to have suffered as much so far, but I wonder how long that can happen. Everyone said New York was immune as well -- but it just cracked.
"joelandsonia said...
Given that the stock decline is nearly a timeline mirror so far of that during the Great Depression (where stocks ended down 80-90%) and housing may decline on a path similar to Japan (again 80% retraction in extreme bubble areas) I'd have to say many of my friends are scared witless."
Here's a chart that illustrates this bear market to the worst bear markets of the last 100 years... http://dshort.com/charts/bears/four-bears-large.gif
RE: Government employees and real estate demand
We've discussed this before. The real estate market has already priced in the effect of government employees. The private sector, however, accounts for far more than half of the local economy, and the private sector is tanking. This will cause demand to further diminish, and I suspect supply will began to increase in the immunozones as a critical mass of owners there are, at last, forced to sell at whatever market clearing price then exists.
But I reiterate that the immunozones will not "crash" in the way that PWC crashed. What you'll see instead is a slow, steady decline, as marginal buyers will swoop in to buy houses priced slightly less than comparable available units, e.g., Mr. Hertz from the Saturday Post article. And, of course, busy open houses and the odd quick sale will be offered by some as proof that the slow, steady decline isn't really occurring.
Sara said...
Yes, Vienna & McLean were pricey in 1999-- but many other areas that are now expensive were not. We bought a town house in Del Ray for $119,000 in 2000. Lots of places in DC that have since gentrified were dead cheap"
Sarah - I think you are underestimating how much and how rapidly gentrification can affect an area.
Case in point, without giving too much about myself away, a block near me is mixed use - 23 homes & a few businesses.
In 1999, one of the businesses was a "free clinic" - it caused alot of panhandliers & sketchy characters to inhabit the block. A realtor I know would bring buyers by to look at homes. He said you could "see the fear in their eyes". A few were so freaked out they wouldnt even get out of the car. Simply put, many, many, many, buyers would not pay anything to live next to panhandliers & sketchy characters - period...
By 2001, the free clinic was gone - replaced by a dentists office. Suddenly all the panhandlers & sketchy characters disappeared. The realtor said the same type of buyers who two years earlier would not even get out of the car now described the block as "charming". He estimates that each and every one of the 23 residences got an instant and dramatic boost - and the sales prices reflect as much.
Of course, some areas had worse problems than others. But the fact of the matter is, when the problems disappear, the areas are worth more than before and sometimes dramatically so.
Now clearly there was a bubble - even on the free clinic block prices are falling. However, unless the panhandlers & sketchy characters, I dont think its unreasonable to say people will pay more now (inflation adjusted) than before.
Tom said:
"dc2 said, "New homes in Vienna sold for about $500,000, but these were in tiny lots where you could see your neighhohrs bathroom from your kitchen."
And then NovaWatcher dropped this link to what $500K bought you in Oakland:
http://www.trulia.com/homes/Virginia/Oakton/sold/697508-11734-Saddle-Crescent-Cir-Oakton-VA-22124
Wow.
It's so much harded to B.S. with the internet, eh dc2?"
The house listed in Oakton was not a brand new home. It was built in 1994. That is a big difference. When I said new a meant newly built in 1999.
Also Oakton is not Vienna. Oakton is further out than Vienna for many people.
I do not understand your point. If you are implying my anecdotal statistic is not correct, that is your problem. I know exactly what the prices were for the houses I visited. There could have been other houses that were cheaper. I am just giving a general account of MY experiece.
Oakton is one block over from Vienna. Heck, some of the houses I posted were closer to the Metro and 66 than parts of Vienna.
And, really, who cares if a house is 5 years old? Unless, you are implying that houses depreciate (much like cars).
The main point I was making in my commentary (which resulted from the discussion last week with Gen Y DINK, who was complaining that with an income of $150K could not buy a big house, in a big lot, with a two-car garage in Vienna), was that people making the equivalent money in 1999 ($100K) did not have an easy time finding those homes for $300,000 in Vienna in 1999. That was the point of the commentary.
Many of you need to get some perspective. As I said in my original post, I recognied the bubble was deflating in June of 2005. Many didn't. I tried to persuade many friends against buying at the time. I suceeded with some, and not with others.
I agree prices were too high, and they are too high still in many areas, particularly high-end homes. In other areas they have reached bottom.
But prices are sticky on the way down. Many sellers have equity, savings and/or income that allow them to stay in their homes and do not have to undercut their prices severely unless they are forced to.
So patience is golden. A lot of people feel they are entitled to immediate gratification. That is what got this country into the current mess.
If you do not have enough income or savings to buy the house you want today, then do not buy it. Wait until you find a better deal, your income goes up, or re-adjust your expectations and buy a smaller place.
But do not expect sellers to meet you X price today just because you feel entitled to that X price. Life does not work that way. Some people get lucky and buy in a depressed market big homes early in their lives and careers. Others do not, and even at age 40+ have not been able to buy the home they wanted.
So take it all with a grain of salt, be patient, be smart. But overall do not believe you have a right or are entitled to a certain price, because life is not PINK it has lots of GRAYS.
dc2 - Agree with much in your post. A lot of this discussion feels very inter-generational, with younger posters suggesting that a prior generation had it much easier than they do. In some ways, yes; in others, no. Some of the younger posters here have very discriminating tastes as to where exactly they'll deign to live. As you pointed out, it's not always realistic to think that one's first home will be in one of the more expensive areas of a very expensive county.
At the same time, I'm very impressed by others' diligence in doing their homework, looking for bargains or at least properties they are satisfied are reasonably priced, and carefully evaluating the pros and cons of renting vs. owning.
"The main point I was making in my commentary (which resulted from the discussion last week with Gen Y DINK, who was complaining that with an income of $150K could not buy a big house, in a big lot, with a two-car garage in Vienna), was that people making the equivalent money in 1999 ($100K) did not have an easy time finding those homes for $300,000 in Vienna in 1999. That was the point of the commentary."
That is an interesting theory, do you have any evidence to support it?
All the data I am aware of says affordability in places like Vienna has a LONG way to go before it reaches a similar level to what existed in 1999.
Prices in Vienna went up a whole heck of a lot more than 50% between 1999 and today.
CRT said...Sarah - I think you are underestimating how much and how rapidly gentrification can affect an area.
CRT I think you miss the point of what I'm trying to say. I'm probably not putting it clearly, so I'll try again.
Many of the neighborhoods that were cheap in 1999-2000 as you point subsequently and rapidly gentrified. This means that there are a lot of neighborhoods with expensive homes that well-off people who can afford them wouldn't have considered before. But the population of well-off people has not grown significantly in that time, as far as I'm aware. Also, nothing has happened to offset the increase in expensive housing in the 'new' rich neighborhoods. Georgetown, McLean, Bethesda... all the neighborhoods that wealthy people gravitated to before still exert the same pull.
The mismatch between the number of wealthy buyers and the increased number of 'premium' neighborhoods suggests to me that something is likely to give. And between the old, established neighborhoods and the newer ones, I'm guessing it's more likely to be the newer ones that give the most.
Leroy,
"That is an interesting theory, do you have any evidence to support it?
All the data I am aware of says affordability in places like Vienna has a LONG way to go before it reaches a similar level to what existed in 1999.
Prices in Vienna went up a whole heck of a lot more than 50% between 1999 and today."
I do know whose post you are reading, but you are obviously not reading what I posted.
I am not talking about current affordability. I am talking about prices may never go down to a level where someone making $150,000today can find easily a huge house, on a large lot, with two-car garage in Vienna. That would be a home at the price of $450,000, or maybe a little more since interest rates are lower now.
As far as proof, I only have my experience. You can counter that argument with searches for those years in Vienna and see what you find. I would be interested to see it.
I'm open to the idea of some appreciation each year. But there was nothing that should have caused 20% increases each year.
Actually, mortgage rates dropped from north of 8% in 1999 to 5.5% in 2002, a factor which increased the amount of loan people could afford by 35%. Throw in some "normal" appreciation and 45% in 3 years is the result. When people see that kind of profit being made, well, the rest of the bubble is history.
"tiredbubblewatcher said...
CRT,
I don't think anyone here is contesting that Logan Circle or U Street (etc) should cost more in 2009 than it did in 1999."
Actually there are. You dont see them post much anymore but you still see them from time to time.
"I'm open to the idea of some appreciation each year. But there was nothing that should have caused 20% increases each year."
I agree, certainly nothing close to 20% a year was justified. In the end, I believe all bubble gains will be stripped away, but the real gains, whatever they may be will remain.
"I might buy an argument that between 1999 and 2009 the Ballston-Rosslyn corridor has gotten hotter. There certainly was a lot of growth there. But Ballston-Rosslyn was not the ghetto either in 1999."
Yeah - of all the places I am thinking of the "fear factor" that exisisted in other areas should affect Arlington the least. There certainly were more pawn shops and "se habla espanol" car dealerships back then, but it really wasnt all that "scary".
Still, theres the question of the future. Say you were a new to town buyer in 1999-2000, you had to ask, whats the future of this area? If it looked like the area was going to go the way of S. Arlington, I dont think you would pay as much as you would if you thought it would become a closer in version of reston town center.
"I am not talking about current affordability. I am talking about prices may never go down to a level where someone making $150,000today can find easily a huge house, on a large lot, with two-car garage in Vienna. That would be a home at the price of $450,000, or maybe a little more since interest rates are lower now."
Who is saying prices will go down to a level where a couple making $150k can afford a huge house on a large lot in Vienna?
I guess what is throwing me off is that you seem to be trying to argue with something nobody has said.
There will always be expensive areas in this region, there were before the bubble as well.
"Sarah said...
The mismatch between the number of wealthy buyers and the increased number of 'premium' neighborhoods suggests to me that something is likely to give. And between the old, established neighborhoods and the newer ones, I'm guessing it's more likely to be the newer ones that give the most."
Sarah - I see what you are saying now and yes, I agree with that. There are areas like H street that really are iffy. They very well may not have enough "critical mass" such that they now backslide.
I guess I was thinking more of Del Ray. The first time I went there was probably 2000-2001, and I remember thinking, "a little sketchy, but has potential". However, my wife was not sold on it. I rember too telling friends about it & them telling me in no uncertain terms "do NOT move there - that place is falling apart". Their impressions of Del Ray were formed from 5 or more years earlier when it was considered a rough area & those impressions die hard (and affect pricing).
Today, I dont think there are many people who are thinking about Del Ray that way. I think Del Ray has reached the point to where buyers will price with the expectation it will not turn back into the rough area it once was.
"Today, I dont think there are many people who are thinking about Del Ray that way. I think Del Ray has reached the point to where buyers will price with the expectation it will not turn back into the rough area it once was."
This may be, and I am not trying to predict the future for any one neighborhood...
...but I do wonder about how much of the "gentrification" we saw during the bubble years will vanish with the bubble.
The bubble drove countless buyers from their designed neighborhoods, both to the exurbs, and marginal neighborhoods.
Suddenly, "gentrification" was everywhere... new "luxury" condos were being thrown up on blocks that were considered virtual no-go zones right up until the line formed to put down the deposit money. Giant new mansions were built in marginal neighborhoods throughout Arlington, Alexandria, and Falls Church. etc etc
As we know from income statistics, the number of "rich" people didn't increase massively during the bubble years. Now that the bubble is gone there are going to be a lot of excess McMansions, Luxury condos, etc.
I guess my basic point is that I expect many, perhaps most, areas that saw rapid gentrification during the bubble to backslide. I am not trying to predict which specific areas will backslide, and I am not trying to predict anything at all for Del Ray, but I don't believe most of the gentrification was real.
There are elements of a zero-sum game here. There are only so many people in the upper income brackets, and they each only need one house per family.
Got a real estate assessment in the mail for my old townhome in Van Dorn Village in Franconia/Alexandria.
2008 value: $377,520
2009 value: $311,920
The final price include cash back to buyer was around $303,000 on January 21, 2008. I figure I'd share this info which is public info (i.e., go to Fairfax County records) as one data point.
CRT said: "Say you were a new to town buyer in 1999-2000, you had to ask, whats the future of this area? If it looked like the area was going to go the way of S. Arlington, I dont think you would pay as much as you would if you thought it would become a closer in version of reston town center."
Good point.
It's interesting to see how the interface of N. and S. Arlington is changing, as the 1990s wave of illegal aliens crested and is now receding (at least in Arlington). Recent county demographic figures illustrate this trend. Driving many of the illegals out are such nationwide factors as the recession and lack of construction jobs, but also the high cost of housing in the county.
I have been watching this site which tracks the median house price for the Greater Washington Area for two plus years now.
The median in the area was $500,000 in October of 2005. It started going down since, then when up back for a little bit in 2006 (but under $500k), and then down again with no improvement since then.
This is the first time that I see the median home price going up in the area for one month, from $309,000 to $313,000. I know it is not much and it is only one month, but it may be an early idication of the median home price having reached bottom in the area. Time will tell.
See link, http://housing-watch.com/home.aspx?d=30
My forecast for a 37 percent downturn in the area was based on another expert's forecast predicting that kind of downturn as a worst case scenario (from $500k to $315K).
Also Boston, which I have been tracking started going up last year. Experts predicted Boston will go down to about $380,000. It is now at that level although it was under that level for some time last year.
It may be too early to tell, but the Case Shiller index also showed the rate of deceleration slowing down for the Greater Washingotn DC area last month. A Forbes article quoted the area as one which should rebound sooner than later.
This does not mean that some residential areas will not see price declines. But on average the area may have reached bottom for now in median home price terms, unless the economy really tanks further locally.
I know now you will all say: "It is only one month, the economy is terrible, it has to continue going down, etc, etc."
It may very well go down further or the median may stay at this level. We will see.
FHA loans, the new subprime?
With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency's overall growth in new loans, according to a Washington Post analysis of federal data.
. . . .
The spike in quick defaults follows the pattern that preceded the collapse of the subprime market as some of the same flawed lending practices that contributed to the mortgage crisis are now eroding one of the main federal agencies charged with addressing it. During the subprime lending boom, many mortgage brokers and small lenders milked the market for commissions and fees by making as many loans as possible with little regard for whether they could be repaid.
Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if the FHA cannot make good on guarantees from its existing reserves. And those once-robust reserves are showing signs of stress, raising the possibility that taxpayers may have to pick up the tab for the first time since the agency was established in 1934.
More than 9,200 of the loans insured by the FHA in the past two years have gone into default after no or only one payment, according to the Post analysis. The pace of these instant defaults has tripled in one year. By last fall, more than two dozen FHA home loans on average were defaulting this way every day, seven days a week.
The overall default rate on FHA loans is accelerating rapidly as well but not as dramatically as that of instant defaults.
http://tinyurl.com/azpheu
zerodown,
holy smokes!!!
dc2,
another thing to consider is that things like Case-Schiller may be a better indicator than the median for actual pricing trends because the median is determined by the distribution of houses that are sold, not just the value of individual houses. As such one can easily manufacture scenarios in which the median is skewed "too low" to begin with as only cheap houses are selling, to skewing "too high" later when all the cheap houses are moldy and only the "nice" houses are considered good investments anymore. (for instance). But just because such a scenario is plausible, it doesn't mean it's true.
For Boston, the NYTimes graph of the bubble is particularly interesting, their gains have been "baked in" a lot longer than here, it's been going up at like 8% a year or more for over 10 years with smaller recent gains. This will effect borrowers ability to stay current and refinance.
dc2, thanks. Two comments:
--real estate is micro-local; what is true for the region as a whole may mask pretty substantial differences by county and neighborhood.
--the change in the number of sales is as important as the median price change. If far fewer houses are selling (in a given neighborhood) than typical, that market is likely not at equilibrium; that may be reflective of too-sticky prices, suggesting that prices will drop further. We see from other data posted here, for example, that prices have dropped substantially in PWC, while sales have soared; in Arl, in contrast, house sales are very low and many houses have been sitting on the market a long time, especially in certain ranges. Prices have declined somewhat but may need to decline further to clear the inventory.
dc2: Yes, the point of inflection on a sigmoid (e.g. the cumulative distribution on a Gaussian) is where the rate of decline starts slowing ("rate of deceleration"?). Just don't forget to integrate the right side of the distribution.
Or, in human-speak: if we're half-way there, it doesn't mean that we're done.
From the same article:
Among FHA loans with instant defaults, the upward trend is especially pronounced in refinanced deals. The number of refinancings that defaulted after zero payments or one have more than quadrupled since then end of 2007 and now represent two-fifths of all instant defaults.
The FHA is attractive to borrowers looking to refinance, in part because the agency allows for cash-out refinances, a practice Apgar called "particularly problematic." It has become rare among conventional lenders, who fear that borrowers will take the cash and walk away from the loan.
The FHA also permits "streamlined" refinancing, in which established FHA borrowers get lower rates without verifying their income. The thinking is that borrowers who are on time should stay that way if their rate drops.
"Leroy said...
I don't believe most of the gentrification was real."
I may be more inclined to agree with you if the timelines were more in sync. The first signs of local gentrification really picked up in the 2nd half of the 90s, before there was a bubble to price people out of their preferred neighborhoods.
Also, if as you said, "the bubble drove countless buyers from their desired neighborhoods, both to the exurbs, AND marginal neighborhoods" (emphasis added), I think we would have seen a two point implosion, both in the Exurbs and DC. Yet thats not the case.
Think too of foreclosure rates. In DC in particular, we have one of the lowest foreclosure rates around - 10X as good as PWC and 2-3 times as good as "premium" places like Fairfax. I dont see why people in DC - a place that many presumably dont want to be in the first place, could or would do so much of a better job of avoiding foreclosure than they could in the more desirable areas.
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