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Wednesday, June 17, 2009
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157 comments:
"Little Saigon got priced out and moved further into the burbs."
Yeah, that's what I miss about Arlington.
There're still interesting places in Del Ray, Alexandria.
Like you, I'm not knocking those who think Whole Foods, Starbucks are the good life.
It's just not me, neither are the 'burbs. I grew up in an International city, which Washington DC is evolving towards. Just not in a straight line.
I agree the Nats thing is stoo-pid but then, I don't like NASCAR either.
Schools? I attended private as did my progeny. Home schooling seems to work too.
It's variety that makes a quality of life, more so than uniformity. My opinion.
With regard to the inflation / deflation argument:
Paul Krugman -- whose analysis of why an expanding money supply in Japan did not prevent deflation there during the "lost decade" won him a Nobel Prize in economics -- makes the point that the US economy is in a liquidity trap (the Fed has dropped interest rates to zero) and under those precise circumstances, an expanding monetary base does not lead to inflation (at least short term; ten years down the road, who knows). The fact that many elements of the market are bracing for inflation as result of massive government spending merely illustrates, yet again, that markets are no smarter than the individuals that make them up.
Oh, and just to keep this going: Deflation, in contrast to what a number of people have posted here, is merely the opposite of inflation: It's a general decline in prices. That's it. Its impact is profound and is propelled by a negative feedback loop: Decline in demand leads to a decline in prices, which leads to decline in production, which leads to declines in pay / employment, which decreases demand, and so on. In other words, exactly the opposite feedback loop that fuels an inflationary cycle. That's all deflation is; there are other implications for an economy as a result of deflation, because once these feedback loops get started, they can be very hard (and expensive) to stop, but the actual process of deflation is well understood. Deflation in general is extremely painful for most members of a society; it can be very profitable for people who have cash, as their cash increases dramatically in value (they can buy more stuff with the same amount of cash). Conversely, it can be very bad for people who have traded all their cash for stuff, as their stuff is worth far less than what they paid for it, and it is catastrophic for people who are highly leveraged, as the stuff they bought on credit is worth less than what they are obliged to pay for it with future money.
well said gruntled. I think we're still in the minor deflation stage, where there is no spiral yet.
There is also such a thing as an inflationary spiral, and we haven't had one of those in a while either (in the US), so one wonders whether there's actually much more risk of a deflationary spiral when we're at small deflation rates, any more than there is a huge risk of an inflationary spiral when we're at modest inflation rates. I guess the difference is that this is currently being led by wage-deflation whereas wage inflation has been minor, so having wages going in the same direction as the general trend is a concern. But perhaps wages aren't going along with the underlying trend, they're just tipping the balance towards minor deflation, and hence things really aren't spiralling they're balancing (not well, but offsetting, maybe).
I'm with gruntled. There may be inflation down the road, but the massive unwinding of debt is preventing it at this time.
I guess I'm taking a bottom-up approach: I can't see how we can have massive inflation at this time -- all of the driving forces have been destroyed.
British Airways asks staff to work for free for a month:
http://tinyurl.com/npfvqz
"Accidental" Slumlord
or why being a long-distance landlord to low-income tenants is no fun, and possibly not such a great investment.
Those 3,5 year ARMs? Are coming on as short sales.
Ticonderoga Ct, Burke VA
5yr:
http://franklymls.com/FX7086207
sold:
9/10/2004 $340,000 -$5,000 $335,000
list:
6/16/2009 $275,000
3yr:
http://franklymls.com/dynamicHtmlGen.aspx?Id=FX7085836
05/24/2006 $440,000 (tax records)
list:
6/16/2009 $275,000
I'm not seeing a tsunami of them, but they're here and they are contributing to the otherwise limited inventory.
I don't know for a fact that these people had ARMs or what kind of mortgage they actually have, but the timing and the fact that they're shorts (especially on the one that was purchased in 2004 for not much more than than the current price) is a strong hint.
Maybe no one who doesn't have to sell will be selling next year, but I think there are still plenty of must-sells yet to come to provide that continuous stream of inventory.
Nova-
Although you are correct that the private sector is unwinding its debt the government is adding debt at a faster rate. So the net effect is our country actually is becoming more levered than it was before. The only difference is that debt is more manageable for the government than the private sector, because in the worst case it can always just print money to get out of its debt.
Right now the fed it obviously printing trillions to by Treasuries and Fannie/Freddie bonds. I am curious if and how much of this "liquidity" will be removed when the economy recovers. I would not be surprised if the feds keep some of the money floating around as a way to pay off a couple hundred billion of the national debt.
housebuyer,
The two (government's increasing debt and private sector deleveraging) are about even, check out the third graph in this post in
Krugman's blog.
The rest of the blog is a good read too. I especially liked his take on the banks needing more "skin in the game".
WaPo good and bad "news" on the Washington area economy.
Nothing we don't already know. They do however remind us that DC's REO/NOD levels are higher than the national averages. As was the size of our run-up and size of our decline. Such that looking at the national picture may not be so irrelevant as a proxy for our own afterall.
Cara-
I am pretty sure you are misinterpreting the picture. The picture was showing YoY increases in debt. So consumers are deleveraging at 1-2% a year while the government is levering up at 20% a year. Although there is more private sector debt than public sector debt these numbers do not even come close to offsetting each other.
I agree that banks need more skin in the game.
I disagree with his idea that you can compare this to Japan. Don't get me wrong housing prices here were too high thus a little deflation is needed. But comparing us to Japan is just silly. In the 1990s the land value of Japan was 50% greater than the land value of the rest of the world combined. Seeing that Japan makes up less than .1% of the world and has virtually no naturally resources this obviously made no sense.
Foreclosure Radar's report
Banks can and do delay foreclosure evictions if it suits them. (I know this is CA, not NoVa, but if you think banks are inherently different here, I've got a bridge to sell you).
Cara-
I wish the article said why the banks said they delayed the foreclosures. It wouldn't surprise me particularly in CA if they were foreclosing people as fast as they could, but are falling behind due to the massive number of foreclosures. I am pretty sure a lot of work goes into each foreclosure and banks are behind on all of the paperwork.
This is part of reason short sales take forever right now. Banks are working on foreclosures and are not worried about houses where people are still making payments.
Anyone have thoughts about CR post on tiered CS index? Certainly no one would disagree that low-end has suffered most so far. But, going forward, this makes it look as though high end will suffer greatest losses in the future, unless it doesn't revert, which is possible.
eponymous,
It does indeed show that all three tiers have now come back together in terms of percentage gains over pre-bubble times. Whether that means that they will now all track each other and the high-end will see more losses going forward than it has experienced thus far is another question. With them all converging, it's hard to predict just from the graph, what will happen, they may all rediverge again.
Has anyone seen something like this:
Short sale, but current owner wants a 12 mo. lease with purchase option. (It's in Howard County MD.)
http://franklymls.com/HW7085960
So, basically, current owner bought at the peak ($612k), wants a strawbuyer to help get a principle write down via short sale, then will take ownership later at a reduced price?
Dream on.
I don't think the bank will consider a short sale in the range they have it listed. Seems like a huge waste of time to me.
Randy,
Thats a new one. Quite a find.
You could say he's looking for a charity to step in and help him. There've been stories of charities doing just this in the Boston area.
Or you could call it a straw-buyer.
Ballsy either way.
Cara,
I still don't think that the high-end (except, maybe, new construction in the boondocks) saw the huge price increases. Do we have data by tier on price run-ups during the boom years?
Randy,
Certainly a creative idea. I doubt he will be able to buy back in 12 months given the credit hit,
A better idea would be to have a relative buy it short; then do a land contract.
Perhaps he is thinking Land Contract to begin with (?)
Could work.
Cara, housebuyer:
I've told this story here before, but it bears repeating since it is VA and a bank foreclosure delay issue, if only anecdotal.
My in-laws purchased a foreclosure in Manassas. Since that time their neighbors have all jetisoned their homes. This story in particular deals with their immediate neighbors to the right. The old man who owned the house passed away. His widow 'inherited' the house which was underwater. So she mailed the keys to the bank. Nothing happens for three weeks, then some bank reps come out, winterize the home and post a note on the front door. "This house is the property of [bank]; we are investigating our options."
It's sat that way, vacant, for about 9 months now. The sign on the door hasn't changed, though one of the storm doors has fallen off. They sent someone out to mow the lawn about two weeks ago, which is actually pretty impressive since there's no HOA, so no marginal authority demanding it. But the grass was so overgrown that the yard looks like a truck was making donuts.
The bank in question is definitely delaying putting the house on the market. They may be delaying to investigate their legal options, or to wait out the market, or because they're totally swamped. But they are delaying.
Worst part about it from my perspective is that since it was deed in lieu of foreclosures, there's no public notices. No foreclosure sale. Just another REO property sitting vacant in Manassas.
Cara,
That WaPo article puts DC Metro in the top 20% of strongest regional economies.
I notice that DC is the only bubble region in the top 20%.
Housing is dragging us down? Not true. Transaction are up, although prices are down, but at this moment real estate is having a 'neutral' effect on our economy. YOY transaction volume is nearly identical as last year.
TBW, I also notice they look at the employment base and not just the unemployment rate. Something we've talked about. A larger employment base, say 2M, with 5% unemployment generates more wealth (some of which is available for RE) than a 1.8M base with 2% unemployment.
Va_investor,
Sorta. Take a look over at Calculated Risk. it's just the usual Case-Schiller graphs by tier. (He doesn't usually post DC area but he did this time).
However, it does all depend on how you define high end. These tiers are simply defined by dividing the real estate market into thirds. So, the bottom end of the upper tier may not reach your definition of "high end". Because for the DC metro area the upper third started at 398k in 2000 prices. In 2000 I would call that solidly in the move-up/ very nice starter category, but it's probably not what you mean by high-end.
Other than constructing graphs ourselves on rebuilds in certain Arlington neighborhoods this is about the best proxy we can get without doing all the work ourselves.
Another one you could pick would be the SFH neighborhoods in Kingstowne. Kingstowne collects it's own data on sales, so you could graph that:
http://www.kingstowne.org/propsales.htm
BRADFORD (Single Family)
Address Date Price
recent:
6711 Donegan Court 03-13-09 $ 640,000
5316 Trumpington Court 12-15-08 $ 665,000
5306 Trumpington Court 11-03-08 $ 720,000 5319
high-water mark:
Trumpington Court 07-25-06 $ 895,000
eye-ball typical 2000/2001
5309 Trumpington Court 12-01-00 $ 469,900
eye-ball typical 1997ish
5327 Trumpington Court 11-21-97 $ 385,459
If recent builds in Kingstowne aren't enough of a proxy for the high end, feel free to go find other examples.
oh woops I missed a 975k in September 2005.
so, yeah from 350-400kish in the late 90s to 850-975k in 2005/2006. Otherwise known as more than doubling in 5-7 years.
But this may not have been the market segment you were looking for.
Cara,
The kingstown numbers look pretty close to what I have seen in other areas. Perhaps a slightly greater amplitude variation (lower starting price, higher peak, slightly lower now) than some areas, but pretty close all in all. So, where does that $720 kingstown house end up in 2011? I obviously don't know the answer. My guess though- $670K nominal dollars. Any other guesses?
Robert,
Yup, the other thing is they don't give mechanism for HOW housing price declines will impact the DC area economy. I mean, I've been seeing furniture stores and bathroom/kitchen places going out of business and reopening and going back out of business for 3 years now. How much of our local economy is this really? And in the close-in counties, they really will need to start building more new houses nowish to sop up demand 9-12 months from now. So, I'm not seeing the mechanism. Or at least, it's not as big of a factor here as elsewhere.
Stock prices making everyone scared again, however, is another matter.
eponymous,
Well 4% appreciation yearly from 470k in 2000 works out to 723k in 2011, so these have already reverted to a touch below trend. There are 10 buyers in the 2004-2008 price range, none of whom have sold yet. Whether it falls further under trend depends on how many of them (and others like them in similar kingstowne neighborhoods) over-reached their own finances when buying. There are certainly enough sales during the boom that those 3/5 yr arms are a worry, and have the potential to push prices below "where they should be".
Ya contrarion, I saw that thing about the airline employees working for free.
I also saw a report about producer prices being down, and they used the word "defation" also.
Just more daily examples of USELESS NOISE from the MSM, calculated to distract you from the fact that they are trying to distract you from their bewildered HEAD-SCRATCHING, and have been for years--at least since the famous 2005 Time Magazine article about how great the housing market is. If you are relying on the MSM, NO WONDER you are all twisted up.
Scott,
Whom exactly should we be listening to?
If you're looking for reliable sources I would say Calculated Risk is a pretty darn good choice, and he's not scared of inflation and thinks it's a long ways off.
Data needs context (such as airlines have always been going bankrupt and it's a mystery how thier business model survives at all), but the internet is still the best way to get the data.
Cara,
I'd classify that Kingstown/Lorton area as "bubble" territory.
I talked to a reMax friend of mine a couple of days ago and was told "no inventory". Frankly, I never saw the appeal of that stuff down there...but, to each his own.
I spend alot of time at the Parks down that way and was "shocked" at the housing and prices happening in "Lorton". But, whatever...
I guess we just add those to the list of outlandish prices.
I'd be far more interested in areas without new construction. Areas with less turnover. "Destination" neighborhoods.
Maybe the dark days are ahead; but does anyone really care? I'm "planted" for 15yrs, and I would guess most of my neighbors are, too. Where would we be going?
Va_investor
Kingstowne lumped with Lorton???? One has walking distance metro access, one does not.
I understand it's not your cup of tea, and it may not be the market segment you were interested in, but that's no reason to grossly miscategorize it.
This stuff is very very close in if you work in Alexandria or the Pentagon. Sure, it's not a destination, and it has a lame-suburban feel, but the strip-mall Kingstowne Town Center is hopping, with waits at all the restaurants every weekend, so I would hardly discount it as a reasonable barometer for well-to-do areas.
You may not live there, and I may be moving away from there, because it's too expensive for what it offers, but I wouldn't dismiss it's data so lightly if I were you.
You asked for data on the high end and I showed it to you, and then you see that yes, there was a bubble run-up and yes it has come back down to trend, and your reaction is
"Maybe the dark days are ahead; but does anyone really care? I'm "planted" for 15yrs, and I would guess most of my neighbors are, too. Where would we be going? "
Can someone say "ostrich"?
These neighborhoods are the canary in the coal mine. They're more sensitive to changes than more established ones, but it doesn't mean that the oxygen isn't being swept out for all of us. This is not PWC or Loudoun which was massively overbuilt, this is Kingstowne.
Sorry, rant over.
Cara,
I'm afraid you are the ostrich.
Housing inventory is collapsing, prices are rising, investors are getting back in the market, there is low unemployment and falling, the government is in the midst of hiring orgy, local job listings are exploding, massive local 'shovel ready' infrastructure projects are funded, the USG is committed to rising property prices, and the word is out -- the jobs are in DC -- causing people from all parts of the country to flock here.
what is with KH/$J$ always posting first, bringing up some topic from the previous day?
Cara,
"these neighborhoods are the canary in the coal mine".
I don't agree. They are not "settled" long-term nabes.
Make your own conclusions.
As an aside; I have a beach house that I have owned 18yrs. I would guess that 50% of the owners are 2nd or 3rd generation. Prices have hardly dropped - big surprise!
It all comes down to $$$$$. Do they NEED to sell?
Va_investor,
If these don't suite your question, go to the tax records, pick a cul-de-sac (or other well-defined street) in a neighborhood that you think is homogenous and established enough, search for the sales on that street and post it here for another perspective.
I don't live there, so I don't know the neighborhoods enough to easily find a good choice to run this on. I don't think you'll take Burke's 1970s neighborhoods, that are equally well-established, because it's clearly a suburb not a destination. So I won't bother.
Robert,
cute. I am watching these things. There's nothing I can do about them, job security comes first. If I have to pay another 20k for my caution, so be it.
Robert,
True, but one must consider the risk that treasury will fail an auction and suddenly DC will look a whole lot like the rest of the country. Granted it's still a small chance, but if the UK and (I think it was) France are hiring synticates to place soverigns it's certainly non-zero.
Robert,
http://www.recharts.com/mris/mris_3.html
Fairfax county inventory and prices and stuff. Inventory is still elevated compared to 1999. And at a wild guess? There's a lot larger percentage of distressed inventory now than there was then. Hence Novawatcher's constant refrain of, MOI or even total inventory shrinking does not stop prices from falling. And the average days on market for things that sold is still 60, way above what it was in the true seller's market of the boom years.
The rest of it? The good economic news for DC? Is still in the future, and hence is unlikely to effect this fall/winter/next spring's market much.
I've actually been telling my friends to move to DC for the jobs though, so you better be right! ;)
Cara-- Yes, I agree. If the idea, as it was for some time on this blog, is that people have decided for whatever reason, that being 'close in' is important and therefore carries a premium it's not being supported by the steep drops in a lot of areas that are within easy metro-walking distance and only a little further out. I noticed it first in the Fall of '07 in my sister's Montgomery County neighborhood.
This is an older, established, residential area with a new 'town center' under development around the metro stop. I frankly didn't expect it to go down much-- or if it did to bounce right back-- otherwise I would have tried to talk them out of buying in '05.
I'm currently looking a little further out, near my parents-- where prices are down to about '03 levels. I'm hesitating about putting in an offer on a 3 bdrm. 2 bath foreclosure because of what I saw in Manassas over the last couple of years-- people jumping in when prices went down to the low 100's on townhouses-- only to turn around and do jingle mail a year later when the prices went down to the 50's.
Since I'm planning to do a cash purchase jingle mail isn't an option-- even if I were okay with using it. So I'm thinking I'd better find something I like enough that I won't kick myself too much in a year if prices go down a lot further from here.
Sarah,
Thanks.
Do you mean Rockville? I love Rockville (used to live there).
But yes, in a market that is uncertain, you need to really have found what you want that meets your needs well in order to commit to buying. Hence why this spring's craziness is such a terrible time to buy.
But, I'm looking at 02-03 prices and feeling comfortable both with paying those amounts and with what I can afford to buy at them.
Burke is doing ridiculously well in sales though, and it's clear that landlords are coming in at the 180-210k level for the THs for rentals, so I think there's a pretty well-defined bottom that I don't need to worry about going past. If that's the case where you're looking, then I'd be pretty comfortable if I were you. But if it's more thinly traded, it's a lot harder to judge price support levels.
Robert's view of USA 2015 is interesting. Imagine, every major city in the US looking like Detroit, except the DC metro area having only 4% unemployment. High-rise condos surrounding the beltway to allow 10+ million people to live in the area and work for the federal govt with very little work in the semi-private sector.
Sounds like another country in another era, but I think we have a screenplay on our hands.
Robert said...
Cara,
I'm afraid you are the ostrich.
Housing inventory is collapsing, prices are rising, investors are getting back in the market, there is low unemployment and falling,….
Streeeeeeeetch…. Yaaawwwwnn….wha?..whaz at?...Huh?...did I wake up this morning circa 2005? Someone wake me when Lance gets back.
Can someone get me a stick? The floater won't go down.
O be nice guys. Yesterday or the day before Robert told T to calm down about selling too soon because even the optimists on the blog had not predicted the rapid decline in inventory. He is not Lance.
A theme bubbling around the past couple of posts (including @J@ at the top of this one) involves people bashing Nationals Stadium.
Well, I am glad it is there. I saw that part of town pre-stadium and it was GROSS. The sort of place where broken glass would be on the streets. Boarded up houses. Homeless everywhere. No thank you.
It's now very nice. And a safe walk from the Navy Yard station to the stadium.
The condo developers overshot when building there (as many did almost everywhere) because of bubble mania. Because of 395-295 that area is cut off from the rest of DC and many jobs will require a transfer (basically the bane of the Green Line). So it never could be the really fancy schmancy housing they thought it could be. But it certainly can be a place with midlevel apartments and condos.
As for the Northern Virginia connection, I can say that it was a pain to go from anywhere in Northern Virginia to Camden Yards. It's a different city! Now people can get on at Vienna or Franconia-Springfield or Huntington and have a nice easy Metro ride to see baseball. Yeah the team is so-so but let's give it some time.
tbw,
As someone who drove to and from an orioles game last weekend I say, here, here!
Though it would be nice if the team were worth watching... But hey, 5 guys burgers, Ben's Chili bowl, what more could you need for a nice day out at a baseball game.
NOVaWatcher,
You left out the key part in your housekeeper (whose husband is a landscaper) who bought a McMansion in Woodbridge and is now being foreclosed tale.
Is the couple now renting in Woodbridge or moving back to Arlington, Alexandria, Annandale (etc) (or did she never live in one of those areas to begin with?)
Cara,
I have had exceptionally good luck and 75% of the Nationals games I have attended have been Nationals wins. Even some games where the Nationals got home runs.
Wow, you'll have to keep going then, huh?
I got a great Orioles game this weekend, totally like Globe-trotter baseball, complete with a stolen base, a double play, a grand slam home run, it was fabulous.
Cara--
My sister's place is around Twinbrook. I think ultimately they'll do okay-- it's basically a desirable area and it didn't have as much of a bubble as most of the surrounding areas. And of course, they ignored their realtor, who wanted them to buy something for around 5 times combined income and bought, instead, at a price they could easily afford on one salary.
My parents, though, are in Gaithersburg-- they're in a retirement home-- and I'm not at all sure about how the area will do long term. Still, I really want to have a place of my own to come back to-- and to be close enough to take them shopping and to appointments whenever I'm here.
Looks like I'm going to be shuttling back and forth between here and Europe for at least the next 5 or 6 years, since my husband's retired to his home country now. And HIS mother's in her 90's... Much as I love to travel, I'm not sure how this bicontinental thing is going to work out...
Sarah,
My mom was flying back and forth to CA, practically monthly for the last 4 years of my grandmother's life and the next two of my step-grand-dad's. It would have been really helpful and more restful if she could have stayed somewhere with a little piece of mind for herself rather than in my grandparent's 2 bedroom Cupertino condo.
So, yeah I definitely think buying your own little oasis of sanity and calm for when your here makes tons of sense if you can swing it. (which it sounds like you can). I would focus on something with low-maintanence costs/responsibilities and possibly even a condo with good management if I were you though, for better piece of mind while you're away and simplicity while you're here. But condos in Gaithersburg could get whacked hard if that hasn't happened sufficiently yet.
Robert,
The Washington Post has an article noting Virginia was dead last in asking for stimulus money for road construction. So apparently we are going to be getting those projects going a little later than other areas.
Side note -- stimulus money for infrastructure went to all 50 states (and DC). So I'm not sure I follow why you view this as a positive for the DC area alone. Sounds like every area will have road jobs.
Frankly, I'd expect that to be more of a boon for other areas than the DC metro area (or really any place on the east coast). Someone in construction cannot really afford a home in this area so their job numbers are sorta irrelevant.
Newsflash from Bubble Meter. Longtime blogger David -- one of the first guys to warn of the bursting of the bubble has now bought!
http://bubblemeter.blogspot.com/
Sure he slowed down alot over the last year, but he did a lot of good over the years. Alot of us here who got our start over there should tell him congrats.
Okay, I finally got around to reading the WaPo article Cara linked (for some reason the site was down for me for an hour or so).
I just see bad news. Let's parse what is in here:
The region had the 10th-lowest rate of employment decline
Plain English: people are losing their jobs but at a slower rate than in many cities
and the 11th-lowest unemployment rate
Plain English: DC, which has for the past 30 years had a ridiculously low unemployment rate as compared to other cities, continues to have a ridiculously low unemployment rate. The unemployment rate in the DC area is still higher now than it was previously.
and it recorded the third-smallest drop in gross metropolitan product.
Plain English: Gross metropolitan product has gone down.
These are all *negative* economic indicators. These are not the sort of economic indicators that correlate with stable or increased home prices.
Cara--
That's exactly what I had in mind-- on both accounts! Getting a condo with at least two bedrooms, finding a roommate so the place won't sit empty (and to help pay condo fees) when I'm gone... But then condos tend to get hit the hardest-- and they always recommend you NOT buy all cash...
On the other hand, the foreclosures have been going for as low as $55,000-- so if I can get a decent deal I think I'll just do it.
The Anonymous,
His post states he expects prices to fall another 5-10%.
Also, given Silver Spring is a lower end market I suspect it's deflated much quicker than Rockville or Bethesda.
I think many of us think the low end areas have bottomed out but the middle and higher end have not yet bottomed out. If someone asked me whether it was safe to buy in Manassas I would say yes. If they asked me if it was safe to buy in McLean I would say no.
Sarah,
sounds like a plan!!
Here's a whacky idea. Buy it with a mortgage and 25% down, and then just pay off the mortgage. Why? So that you can find out if the condo complex still qualifies for Fannie and Freddie financing.
Definitely look over the condo finances very carefully to see if they're likely to run into trouble, because that would defeat the purpose of buying a condo if you can't help turn the condo board around, but otherwise just keep your eyes open and it should be a reasonable plan. And not that expensive either.
TBW - thats fine. Im just pointing out he bought. For longtimers here, that blog makes us wax nostalgic.
Also looks like this guy, the king of data. went ahead and bought in DC
http://www.dchousingprices.com/
He never got much traffic, but I think alot of us here were aware of his site.
Times they are a changin...
Just a side note . . .
Back in 2006 people in NYC said there was no bubble. Then by 2007 it became well no bubble in Manhattan because it's Manhattan.
Then late 2007-early 2008 it was "yeah, few people can afford these prices, but so many rich foreigners want to live in Manhattan and the dollar is so weak it's easy for someone from England or continental Europe to afford it."
And so on. Robert and others are just doing the same here. First they claimed there was no bubble in the DC area. Then they claimed the bubble was just the outer areas. Now they are claiming a deux ex machina just like the NYers. Instead of rich Europeans, it's an alleged ability of the federal gov't to run trillion dollar deficits, create more GS jobs, and somehow keep interest rates at 5% forever.
That's not going to happen just as Europeans were never going to buy up all the condos in Manhattan.
The Anonymous,
I got an ad from 1010 Mass in the mail yesterday. They offered to pay any fees from breaking my lease, pay my moving costs, and offer low pricing on remaining units.
Condos don't offer to pay moving costs and costs for lease breaks in stable markets.
On the bubblemeter page there is a link to where Cramer says that housing prices will no longer down. If he said it it must be true ;)
Ok obviously that is in jest and I don't really respect his show that much, but is generally correct on the timing of major trends so who knows...
Good for David! Though I often disagreed with him I really admire him for hanging in there through all the taunts and abuse. It was certainly more than I could take, even as a commentor.
I wonder if any of the housing heads will have the grace to apologize for taunting him all the time about being 'afraid to pull the trigger,' insisting that he would never have the 'courage' to buy? Or admit they were wrong that he would soon be 'priced out forever'?
housebuyer,
I have nothing against Jim Cramer. I think he's amusing and people get too mad about his show. Anyone day trading off of his advice knows (or should know) it's risky.
As for the housing bottom call, he's made that call at least two or three times before.
NEW SURVEY OUT TODAY...
Foreign investors in real estate expect to spend significantly more in 2009 than they did in 2008.
By a wide margin, survey espondents said the U.S. continues to provide both the most stable and secure real estate investment environment and the best opportunity for capital appreciation.
Respondents also overwhelmingly pointed to the U.S. as the primary target for their real estate investment dollars and said that as an average, 45 percent of their portfolio is invested in U.S.
real estate.
In the 17th Annual Survey, released in January, respondents named Washington, D.C., New York, and San Francisco respectively as the top three cities for their investment dollars.
"The perception that Washington, D.C. will be the first to recover has risen dramatically since the Annual Survey. Twice as many respondents named Washington as their city of choice over second-place New York."
MarketWatch Article
Association of Foreign Investors Survey Results
Robert,
It's like you didn't even read my comment above... :'(
Also, I'm about 100% positive when those investors said DC they meant DC. Telling them Arlington and Alexandria were part of the original DC square is not going to convince them those areas are hip. They'll take one step off of the Clarendon Metro, see the Cheesecake Factory, and run back screaming to Georgetown.
housebuyer and tbw-- Here's Calculated Risk's response to Cramer: http://tinyurl.com/kqc5lm
CR has been saying that housing busts go through two distinct 'bottoms'-- and starts, new homes and residential investment as a percent of GDP (all of which track one another closely) may bottom years before prices do.
TBW - like I said im just pointing it out. These guys arent/werent fools. Many of us here cut our teeth on these blogs. These were the guys who educated all of us about the perils of the bubble and the specifics of this area.
Can I ask how long youve been at this? That point about manhattan has been posted numerous times over the years, as was your point yesterday about the latino fraud & foreclosures in pwc.
My theory is that everyone when they start "bubble-sitting" start fresh and full of energy, many thinking that if it hasnt happened yet in my area, it must just be only getting started there. They then make the same points that have been made here since what seems like the beginning of time. Lord knows I did back in the day.
Maybe everyone needs to go through this indoctrination process. If this blog is around 2 years from now and we get a new crop of bloggers, im sure they will be here thinking its got a long way to go.
I really dont know what the hell my point is here. Dont take any of this personally, it really has nothing to do with you. This whole thing (the bubble) seems incredibly played out and frankly im just sick of it.
"Sarah said...
Good for David! Though I often disagreed with him I really admire him for hanging in there through all the taunts and abuse. It was certainly more than I could take, even as a commentor. "
Same here Sarah. The guy took a mountain of abuse in the early going. Worst of all was probably lance who not only disagreed with him, but would use every opportunity to insult him. Talk about an ugly period.
I cant help but notice he bought in silver spring. IIRC, I think he really wanted to be in DC. I hope it was just his preferences changed (as mine have) not that he was effectively priced out.
In any event, im really happy for him. Couldnt happen to a better guy.
The Anonymous-- That's the way it is with bubbles. I remember with both the stock market and the housing market watching the astonishing rises for years thinking, "Surely this can't continue..."
And, of course, it couldn't... but that didn't mean I or anyone else was going to have much luck predicting when it was going to stop-- or how much over what time period it was going to go down.
That's the meaning of the saying, "The market can stay irrational a lot longer than you can stay solvent."
Sarah-
I agree that his methods for predicting the bottom may not be great I was mostly pointing it out for fun. I know bringing up his name tends to start humorous conversations
TBW-
Do you actually have a link to him calling the bottom before now? I don't watch the show, but I have not seen articles about him saying this.
The Anonymous,
I've been in this area for about three decades. I have been saying there was a bubble since 2005 or so. I've been reading this blog for a while but did not post comments until recently.
I don't think I'm restating things that have been stated before. Some people brought up that between 2000 and 2007 the Latino population in Arlington went down. That is true, I've never contested that. Maybe some people did in the past?
I'm saying that there are a lot of anecdotes in the Washington Post and elsewhere that some of those Latinos are moving back to Arlington and other inner suburb area. No one has shown us 2008 or 2009 data.
You are tired of the bubble thing? So is everyone. It's why I picked this name. I've been wanting to buy a place since 2007. It's with much consternation that it looks like it might be another year or so before things settle. As I've said a million times before there is nothing I'd like more than the ability to go out and buy a house and not have to worry about the price going down another 10%.
Also, another thing that happened while I was waiting for the bubble to end . . . a HUGE RECESSION. A few of you want to deny it but it's here. It's hit the DC area. It's not over. Even sans bubble a huge recession like this would be a drag on home prices.
Cara said...
The rest of it? The good economic news for DC? Is still in the future, and hence is unlikely to effect this fall/winter/next spring's market much.
Why do you think people like VA_Investor are getting into the market now? He can speak for himself, but you want to get out ahead of the economic picture.
Despite what Novawatcher says, I know you know MOI does matter.
Cara said...
I've actually been telling my friends to move to DC for the jobs though, so you better be right! ;)
I'm right.
GT said...
Robert's view of USA 2015 is interesting. Imagine, every major city in the US looking like Detroit, except the DC metro area having only 4% unemployment. High-rise condos surrounding the beltway to allow 10+ million people to live in the area and work for the federal govt with very little work in the semi-private sector.
Sounds like another country in another era, but I think we have a screenplay on our hands.
Note to GT, please check real estate prices in London and Paris and get back to me.
housebuyer,
http://www.nuwireinvestor.com/
blogs/investorcentric/2008/08/
jim-cramer-says-now-is-time-to-
buy.html
Multiple links can be found showing him calling a housing bottom in August 2008. There are other earlier calls.
What is the value of having the ability to refinance? We do all of these rent vs. buy calculations, but you have to add some value for the capacity to refinance and lower your monthly payment. It can't be worth zero.
The Anonymous--
No, I think he wanted Silver Spring all along. That's where he was renting, and that's the area he knew best. I think it was just Lance's constant DC boosterism that got him to focus more on that area. And some of the others, too-- as soon as he said anything about any of the surrounding areas they all jumped on him. So he stopped.
Same thing happened to me with my 'Sarah in DC' moniker. I'm glad he didn't throw in the towel like I did-- but I sure wouldn't have traded places with him!
Oh Robert that's a good one. DC equivalent to London or Paris? Also, do you really think London and Paris are government based economies? Do you deny that there's a massive banking industry in London and a massive fashion industry in Paris? (and other industries in those cities).
Also, I'm pretty sure housing prices have gone down in London and Paris.
NYC is the London-Paris of the USA.
Which city is more famous? Sydney, Australia or Canberra, Australia? I bet most Americans know of Sydney and have never heard of Canberra. Few would even know Canberra is the capital of Australia.
That's a good one though. DC as a cultural center. Hahahhahahahaha. Everyone knows it's been a national shame with the crackhead mayor for life, urban blight, and mostly illiterate population in 2/3rds of the city.
A foreigner will visit to see the Mall, White House, Congress, etc, but they aren't coming here for the plays.
You are hilarious Robert. Keep it coming.
housebuyer,
on frankly's blog he calls in to Cranmer, who then called the bottom for Frank's birthday (late? June) which is the same bottom call he's making now.
that's the extent of my knowledge of Cranmer's bottom calling of the housing market.
Robert,
Well there's ways of dealing with lower inventory, (a) widen your search area (b) allow yourself more time without putting an artificial deadline on it.
If I expand out to West Springfield, even with adding in the price of a second car sooner rather than later, I can get a lot more house for my money, so I'm not too concerned.
Here's the thing, as T pointed out the emotions of buyers who are buying now is extremely anxious about grabbing a house before their all gone. But once those buyers have bought, settling for what they could "win" and overpay for, they'll be gone, and it will be fall/winter, and those of us with patience will be left. First we have to go through this painful stage of clearing out the under-bidders turned scaredy-cats, but what matters going forward is not the mentality of current buyers, but the mentality of people who were fully willing to wait out the storm.
Sure, there will be a fresh crop of eager buyers next spring, but that's always true.
TBW - I was talking about your point about PWC implosion being due to latino brokers fraudulently getting latino buyers into homes they couldnt afford. That one we have all known for a long time.
Regarding the recession. I will admit it did put a bit of wind in my sails. However, the discouraging thing is seeing the price trend in PWC which went flat then up starting in October. Then all the rest of the counties started posting much smaller YOY declines. Then arlington which had posted 13 months of negatives has broken through and now posted a positive. I never thought this was possible last October when the world seemed to come undone.
The real dagger though was learning the recessionary "order of operations" which suggest one of the first things to recover is residential investment. I did not know that, and it still doesnt make sense given the recession (until recently) was intensifying. Still, I will defer to others who have done the research on that.
I dont know, I wish I had the optimism you do. After watching this thing unfold it just seems a heckuva lot closer to being done than it did even 6 months ago.
TBW, stimulus money, 1 in 6 dollars of the green buildings initiative -- $5.5B -- is going into the local economy.
Sure, the infrastructure money will be spread out all over the country. Still for every $, there is a requirement for management, oversight, and auditing, per The President. The Inspector General's offices of every agency that gets stimulus are all getting a funding boost.
The Anonymous,
Unlike some commenters on this blog, I will admit if I end up being wrong.
There's a lot of hard data still yet to come out. Let's see what comes.
Let's also see what happens after this recent mortgage interest rate boost.
One month of data where it's spring (peak buying time) + $8500 tax credit + record low interest rates does not interest me much.
Let's see what happens when interest rates go up. Last time that happened the housing market started to fall apart.
And let's see what happens when they continue the $8500 tax credit. People might think "geeze, this is probably going to be around for the next few years."
Robert-- VA_Investor is not 'getting into the market now' -- she has always been in it. She is one of the people, along with Lance, who kept the Bubblemeter 'conversation' so-- um lively. Although she has recently said that she predicted a decline of-- I believe it was 40% -- top to bottom all along and that she was warning friends not to buy at the height of the bubble it is interesting that those of us involved in the 'discussions' recall quite the opposite. Leroy has provided links in the past if you are not sure whose memory is at fault.
"Robert said...please check real estate prices in London and Paris and get back to me."
"TBW Said...That's a good one though. DC as a cultural center. Hahahhahahahaha. Everyone knows it's been a national shame with the crackhead mayor for life, urban blight, and mostly illiterate population in 2/3rds of the city. "
OH DEAR GOD! Its the Leroy Lance show all over again!!!
Cara said...
Here's the thing, as T pointed out the emotions of buyers who are buying now is extremely anxious about grabbing a house before their all gone. But once those buyers have bought, settling for what they could "win" and overpay for, they'll be gone, and it will be fall/winter, and those of us with patience will be left. First we have to go through this painful stage of clearing out the under-bidders turned scaredy-cats, but what matters going forward is not the mentality of current buyers, but the mentality of people who were fully willing to wait out the storm.
Since you couldn't predict the Spring, why don't you have at least SOME self-doubt about your Fall/Winter prediction?
The Anonymous,
I'm sorry if I'm bringing back some old dispute. But honestly, would there even be a Northern Virginia economy if DC was a vibrant, cultural center?
Correct me if I'm wrong, but few cities in America have suburbs with *more* office/jobs than the city.
Obviously there are some nice parts of DC but I think we all agree it's limited and only a small part of the city. And it was *extremely* limited pre-2000.
As Chris Matthews sarcastically put it in response to the RNC's attack on the Obamas trip to Broadway instead of the Kennedy Center, "geeze, why would *anyone* [eyeroll] prefer Broadway to the Kennedy Center?"
Personally, I think the Kennedy Center is nice and very much enjoy this area. But we all know who the hipsters and internationals think is the cooler city.
housebuyer, tbw
30 year rates are trending back down again btw. Good news for housebuyer!!! Best of luck on the short!
If the stock market does fall again, it may suck up some of the confidence of homebuyers but it also may help keep treasuries low and hence mortgage rates low too. And perhaps, perhaps we're reaching the end of eligible refinancers sucking up banks time.
Robert,
yes, refinancing should be considered. This is part of why I claim that house prices are not as sensitive to interest rates as most people on here seem to want them to be. People know that the purchase price and amount of principle are what really matter. Refinancing is one aspect of that, rates relative to inflation is another aspect.
No one seems to agree with me on that argument though. And even I think rates matter a lot for buyers who are trying to stretch to afford that house.
Robert said...
Note to GT, please check real estate prices in London and Paris and get back to me.
Sorry folks, I ain’t buying it. This sounds like regurgitated drivel. What’s next, “paradigm shift” ?
Having lived in London for a brief stint just recently, I have to say I totally laughed out loud at the thought of DC and London in the same category.
DC doesn't even come close.
Compared to London, DC is a sad, pathetic little town, and I say this as a big fan of the DC area (I do choose to live here).
But if the spouse and I had the opportunity to move to London permanently, we'd do it in a heartbeat.
Robert,
I do have doubts. Which is part of why I find it useful to have these discussions with you. But there's a large margin for error built in, and I have no reason to doubt that those will be exceeded.
I mean really, inventories going to a quarter of what they are now with demand levels remaining constant? Implausible. Prices going up another 30k in the fall/winter? Not with investors as the main market participants, the properties wouldn't cash-flow anymore.
Besides the structure of blog arguments makes everyone look as if they have no doubts. It's just inherently polarizing.
And what would I do about it? Buy now, before my husband's probabtionary period at his job is over? Are you crazy? Pay more than we feel we can reasonably afford? Why would we, we can still afford to keep renting quite nicely. Buy something that would feel cramped after 2-3 years? Recipe for disaster, we're way too risk-averse for that.
So, really it doesn't matter what I think will happen, or what doubts I have. I have to "deal with what the market hands me" to put it in terms of the NAR myths.
What action could I take? Buy now with a 5 year I/O loan hoping to fill in the gaps with roommates looking for work in the fabulous DC job market? Nah, my friend in NJ will never be able to sell her condo...
Am I missing something?
Hey fudge-paka,
From the article I posted earlier...
International Preferences: Washington, D.C. Reigns; Brazil Leaps Toward the Top
After two years, Washington, D.C. deposes New York to reclaim its status as the top global city
for foreign investors’ real estate dollars. London and New York were in close second and third
positions respectively. Receiving approximately half the votes of the top three cities, Tokyo and
Shanghai were more distant fourth and fifth place choices. Half of the investors’ top ten global
cities were located in the U.S.; last year five of the top ten cities were in Asia.
We're talking about making money in real estate here. I'm not sure what you are doing.
"TBW Said...I'm sorry if I'm bringing back some old dispute. But honestly, would there even be a Northern Virginia economy if DC was a vibrant, cultural center?"
Its not your fault. Its just sorta ironic that after saying that you just happened to hit upon one of the most drawn out issues this blog ever dealt with.
By the way, if either you or robert mentions the word "pan-global" I will reach through this computer screen and strangle you both :)
The Anonymous said...
By the way, if either you or robert mentions the word "pan-global" I will reach through this computer screen and strangle you both :)
Hey, that's Robert, not robert!!
Robert said...
We're talking about making money in real estate here. I'm not sure what you are doing.
I think you’re looking for the Carlton Sheets office. That’s two blocks over.
Robert,
Maybe you, Va_Investor, and a few others are looking to make money in real estate. I think the rest of us just want to buy a house that does not go down in value.
Also, I think many of us have one or two neighborhoods that are reaches now but were totally affordable in 1991-2002. I think many of us are waiting to see if we can buy there again or are we "priced out forever" there.
Buy now with a 5 year I/O loan hoping to fill in the gaps with roommates looking for work in the fabulous DC job market? Nah, my friend in NJ will never be able to sell her condo...
Good point -- and one often overlooked. This is one of the reasons why housing busts tend to hit the economy much harder than other kinds-- people who would like to move to a place with more or better jobs can't because they can't sell their house.
That doesn't stop acting as a brake on mobility until people reach the point of desperation-- as they did in the early 80's when unemployment reached double digits for the first time since the Depression. Reagan gave his famous speech, waving the newspaper and telling everybody there were jobs in California-- and it seemed like half the Rust Belt packed up their truck, gave the house keys to the bank and headed out our way... Pretty soon we had 5 families living in cars and campers in back of our local grocery store.
Oh and I'll add that I care about housing costs because I've lost many friends to cheaper cities in the past five years. All of these people could have afforded a home in the 1991-2003 prices but feared they were "priced out forever" so they moved south and west. Many will move back to the area if prices go back down to more affordable levels.
Nice, Robert.
BTW, the stress is on the second syllable, not the first. It's my anglicized way of spelling Пока, which means "goodbye" (informal) in Russian.
TBW,
Must've struck a nerve for you to write something that sarcastic.
Washington can't be compared to Paris because it doesn't have a fashion industry?
But, you're right. I did pull up some figures and the 2010 UK budget is 677M Pounds or $1.1T whereas Obama's is $3.6T. So more than 3x money flowing through Washington than London as a result of government spending.
Okay, we're not talking about making money in real estate, but WE are talking about NOT losing money in real estate.
Going back to specifics-- anyone know anything about the Sequoyah area of Alexandria? Is it really bad enough to warrant sales of under $50,000? http://tinyurl.com/njod6l
Robert,
The US has 5x as many people as the UK. So the fact that our budget is only 3x as large shows our gov't spends a lot less per capita than the UK.
Also, because the UK does not have the reckless debt policies the US has it probably can continue that level of spending much longer than we can.
The Anonymous,
Regarding the recessionary order of things, my understanding was that housing downturns typically follow a recession.
This most recent housing downtown actually preceeded the recession and, one could argue, the implosion of construction and banking actually helped cause it.
The reason I point this out is typically there is recession, job loss, and then foreclosure/home loss. Given that we had a foreclosure wave before people started getting laid off, I expect a secondary wave of foreclosures.
Unlike Robert, I know of highly compensated lawyers, lowly compensated lawyers, and many tech workers who have either been laid off or have seen their work drop off tremendously. This is only just happening in the last 3-6 months.
The first wave was stupid lending and no one paying attention to what they had to pay as loans reset. The second wave will actually be people losing homes through job loss.
These things take forever to unfold and, as such, I feel no pressure to buy anytime soon.
My $0.02
TBW: I don't know what they're doing. I inherited the house keeper from my wife when we got married. Kinda like the Brady Bunch, except she doesn't live with us, comes every other week, and we don't have 8 kids or a cousin Oliver.
Anyway, we unexpectedly had to mail her a cheque last year, and out of curiosity I googled the addressed she gave us, which is how I found the realestate listing for the foreclosure.
Robert said...
Okay, we're not talking about making money in real estate, but WE are talking about NOT losing money in real estate.
Can't speak for anyone else, but no, for me it's not about either making or not losing money in real estate. It's just about what's the most sensible way to put a roof over my head.
In 2000, with rents in the Del Ray area where our apartment was comparable to mortgage payments and with no plans to move in the next five years, that meant buying.
In 2005, with prices having nearly quadrupled and with the expectation that a) there would be a housing bust and b) my husband would be wanting to retire-- probably to his home country-- in the next few years, that meant selling and renting.
In 2009, with prices in the area I want to move to again comparable to rents and the expectation that I will be spending about half my time here for at least 5 years, that probably means buying again.
I will believe that this bust is nearing the bottom when people again begin to think of a house as a place to live and not as an investment.
S
Sarah,
We all interpret things differently and remember things differently. I happen to have an excellent memory and stand by everything (pretty much) that I said on David's Blog.
And, to be accurate, I said 25-40% down overall.
Wow, this really is a lot like back in 2005-2006.
VA_Investor is back and regularly telling us what a huge success she is, while pretending she wasn't giving out awful advice for years.
KH is back, now as @J@, but with the same tendency to bold words seemingly at random in her various posts about "Beverly Hill$!!!"(VA)
...and now we have Robert trying to fill Lance's shoes and claim that DC is going to become some kind of "international city" that will be mentioned in the same sentence as London, Paris, NY, LA, Tokyo, etc... (which makes me wonder if he has ever actually been to any of those cities)
"Is it possible that, as a region, we drop 10 or 20%? Sure. Is it likely we drop 40 or 50%? Now that would be unpredented and, absent some severe blow to the economy that brings on an all-out depression, highly improbable. House prices didn't drop over 30% even during the Great Depression.
The more likely scenario is one we have seen before. Prices, generally, drifting lower, follwed by some years of stagnation. I sure wouldn't bet on a crash. But then, I don't have David J.'s (or David L's, for that matter) crystal ball or economic acumen." - VA_Investor, 26 March 2007.
http://tinyurl.com/ljv9p3
"This "owning vs. renting" debate is getting old. Most of the people who rent claim that they want to own eventually, but the timing is wrong. They await the "big crash", as they have for years now. Good luck with that.
Others are just too nervous to pull the trigger. Lance is right. Anyone can come up with an excuse. If you wait long enough, you will never own your home free and clear by retirement. A depressing thought." - VA_Investor, 4 July 2006
http://tinyurl.com/n873gj
"I agree that you need to plan to stay put for at least 5 years. I do not agree that some vague thought that you might prove out of the area prior to that is a sufficient reason not to buy.
Any one of us "could" move, lose a job, get hit by a bus, etc. All just excuses masking FEAR." - VA_Investor 4 July 2006
http://tinyurl.com/n873gj
"The bubbleheads have been calling the peak for 4 years now. I am not sure that the economic conditions that exist today portend a repeat of 1990.
In the end, it is just an attempt at timing. As Lance correctly pointed out; if your house drops 100K, so will your replacement house. So, unless you have a crystal ball - what are you actually losing?" - VA_Investor 4 July 2006
http://tinyurl.com/n873gj
"A 50% reduction would make a depression. Better have alot of cash because you may not have a job or stock portfolio." -VA_Investor 4 May 2006
http://tinyurl.com/m2hzhx
"rents have never = buying costs in this area. This is my 25 yr experience in N.VA."- VA_Investor 4 May 2006
http://tinyurl.com/m2hzhx
"I still haven't heard from any desperate, bitter, mislead, lied to, homedebtors. Only hearing from bitter renters.
No reasonable person (this includes me) has ever denied that real estate is cyclical. We've peaked (spring 05) and are heading down. Big yawn.
Fritz - good "steak" analogy. David does have that socialist big brother thing going on. BTW, going to Morton's tonight to celebrate annivers. - think I'll have the steak."- VA_Investor 20 June 2006
http://tinyurl.com/my27ok
"James said "If you buy a house for $400,000 and it falls to $300,000,then you have still lost $100,000."
And, you could get hit by a bus tommorrow or lose your job or get divorced or or or or or or or....
Better not risk buying a house!" - VA_Investor 20 June 2006
http://tinyurl.com/my27ok
"dc_too,
I said nothing about ARM's. Pretty stupid, IMO, to get an ARM with today's fixed rates being what they are.
I don't WANT to convince anyone to buy. Afterall, I am a landlord. I just don't want to support you renters in your old age through social welfare programs.
Oh, I forgot. You renters are saving copious amounts of money every month for retirement." - VA_Investor 20 June 2006
http://tinyurl.com/my27ok
"002 Said...Regarding the recessionary order of things, my understanding was that housing downturns typically follow a recession."
That was my understanding (or at least my assumption) too. However after reading calculated risk (as well as a few other sites) I did find ample suport for the position that, regardless of whether the housing downturn led or lagged the entry into the recession, it has a respectable history of being the first things to emerge at the bottom.
The most salient example I think is the price chart over in PWC.
Recall that the big hit was the devolution of lehman brothers in the Sept/Oct timeperiod. At that time, the assumpton was, this would lead to "another leg down" in housing. Yet look what prices have done there since:
http://www.recharts.com/mris/mris_9.html
They went from nearly straght down to flat, and now up. Part of that is likely seasonal, but still, think of what was going on 6 months ago. Think about how unbelievably skittish people were about nearly everything. I was nearly certain, another leg down was coming - yet it never came.
It appears that other markets are exhibiting this trend too, but its not as easy to see as in blugeoned PWC. So yes, housing can lead you in, or lag you into a recession, but it looks like it is among the first things to lead you out...
Yes, and so what?
I don't see any lies. Just my thoughts. I got the two best deals of my life in 2004 and 2005.
Leroy,
That last quote is especially precious given the study contrarian put up that showed the average baby boomer homeowner has less wealth than the average baby boomer renter. Looks like va_investor is going to be having his tax money go to paying for those people's social welfare programs.
He did have one thing right though. Back in May 2006 he said if we had massive price drops we should have a lot of cash because the stock market would be bad and we'd lose are jobs. Stock market bad? Check, that happened last fall. Job loss? Happened for some, not happened to others.
My down payment nest egg has slowly morphed into "money to live off of if I lose my job."
I'm feel bad for the co-workers with no savings (and often student debt, mortgage debt, etc). They will face a lot of trouble if they lose their jobs. If I lose my job I think I'll take a trip to London or Paris. ;)
If there's one thing I'll take from the current economy is that I should always have at least one year's worth of living expenses to have peace of mind. Also, frankly, I don't have to put up with recession workplace nonsense. I'm not going to beg for my job and work 80 hours a week. I'll take my funemployment.
Sorry, I see now from other comments that Va_Investor is a she, not a he. Please revise my last comment accordingly.
Robert said Despite what Novawatcher says, I know you know MOI does matter.
My numbers don't lie. I presented data from Manassas and McLean. Would you care to refute them (something more than "it's different here" or "you're wrong")? Go ahead and mine the data yourself -- it's all there on the MRIS.
TBW said Oh Robert that's a good one. DC equivalent to London or Paris?
New York, London, Paris, Munich...
nope, DC isn't included in the list.
I would like to know what the price differential was between places like McLean, Georgetown, Bethesda and various farther out areas in 1998-1999. Assuming that CRT is right and Arlington and Alexandria have now joined the ranks of these rich enclaves I would nevertheless expect to see that differential return in the next few years. I don't think it's likely that we are there yet with price declines on the order of 50% from the peak in places like Manassas, and less than 15% in the upscale areas.
Also, since the price peak was separated by a couple of years in the two areas I don't see why we wouldn't expect to see the bottom reached at different times as well.
Of course it may be that the better off areas didn't bubble as much, as some have suggested. It may also be that more of the decline in the richer, inner areas will come through a long, relatively flat period. This fall and winter should make it clear, one way or another.
Robbie said
"Okay, we're not talking about making money in real estate, but WE are talking about NOT losing money in real estate."
to second sarah, again, no, i am not talking about making money nor not losing money in real estate. "it's the P/E stupid" as some blogs put it. it's cash flow, monthly rent roughly equaling piti.
i am also curious if Robert has been to Paris or London, to equate DC metro to the London metro and Paris metro areas?
"Sarah said...
Assuming that CRT is right and Arlington and Alexandria have now joined the ranks of these rich enclaves I would nevertheless expect to see that differential return in the next few years."
Why would that be Sarah? We know for instance that median houehold incomes in Arlington & Alexandria outgained the rest of the area by a fairly wide margin. Do fundamentals not matter?
Is the "London, Paris" thing from a list of NVAR talking points?
Hot, Hot, Hot!
Dead cat bounce or over the hump?
Bottom in for only the low end OR are we going to be flat all around?
OR, is Contrarian right and it's all bs? (hoard? what? cash...gold..wheat???).
I am putting some chips on the table, but I don't claim to know more than the rest of you. I can only go with my personal experience and thoughts and in no way intend to influence anyone.
Yes, renters "saving" the difference - not in my experience. But, then again, that's just me.
TBW said ...
Also, I'm about 100% positive when those investors said DC they meant DC. Telling them Arlington and Alexandria were part of the original DC square is not going to convince them those areas are hip.
Yeah, I guess you're right. Experts in foreign real estate investment have probably never heard of Tyson's Corner, Virginia, even though it is the 11th largest business district in the United States.
CRT said Why would that be Sarah? We know for instance that median houehold incomes in Arlington & Alexandria outgained the rest of the area by a fairly wide margin. Do fundamentals not matter?
CRT- Perhaps I didn't phrase that clearly: I'm not talking about Alexandria and Arlington going back to levels similar to what they were before, I'm talking about the price differential between the 'run of the mill' areas and the 'premium' areas returning to what it was.
Did household incomes in Alexandria and Arlington really far outstrip those in Georgetown, Bethesda and McLean? If not, I would expect the price differential, assuming you're correct about Alexandria and Arlington now having the same 'cache' as those areas, to be similar to the one that existed pre-bubble between those areas and 'non- premium' areas.
I don't understand why conceding your point that Alexandria and Arlington may now have joined the ranks of these rich enclaves and expecting that they will, in the future, behave like those areas behaved in the past is 'ignoring fundamentals'.
GT,
Did you even read my link? Foreign Investors said DC is #1 over London, Paris, Tokyo. Maybe they've never been to this backwater. They just read my posts on this blog and call it due diligence.
Please read again...
Real People with Real Money Choosing WDC over EVERY City in the World!
Novawatcher,
MOI is an excellent indicator of future price direction. Black clouds are an excellent indicator of rain. Your handle to start a post on this blog is an excellent indicator of vacuousness.
TBW,
The US has 5x as many people as the UK. So the fact that our budget is only 3x as large shows our gov't spends a lot less per capita than the UK.
Also, because the UK does not have the reckless debt policies the US has it probably can continue that level of spending much longer than we can.
Well, it's the Brits that are having unsubscribed auctions of their debt, not us.
London is a single city. Washington is a single city. Much more money in absolute terms is flowing through Washington than London. Granted, London has a financial district -- a liability right now -- and Washington doesn't.
I was about to rip Wembley stadium vs. National's Park, but it looks like they've built themselves a new one since I was last there.
Robert said...
MOI is an excellent indicator of future price direction. Black clouds are an excellent indicator of rain. Your handle to start a post on this blog is an excellent indicator of vacuousness.
Yes Robert. MOI is an excellent indicator. But not the only. If all BH’s had to go on in 2005 was MOI, I would have said the hell with it and purchased the largest house I could not afford.
So now we know you’re looking at Jobs and MOI. Great start. Now take into account tighter lending standards, income, foreclosures, recession, phantom inventory, interest rates, massive U.S. debt, etc..etc…etc..
Bring some data to the table…If not, you’re just another Lance come lately and pretty soon Va_invester will leave again and you’ll be back to square one with “pan globa” *chough**wheez**gasp*……Let go Anonymous! Let go! I’ll not say it!
robert,
Put up or shut up, please.
"Sarah said...
I'm not talking about Alexandria and Arlington going back to levels similar to what they were before, I'm talking about the price differential between the 'run of the mill' areas and the 'premium' areas returning to what it was."
Im not either. Im talking about the price differntial too.
"Did household incomes in Alexandria and Arlington really far outstrip those in Georgetown, Bethesda and McLean?"
Yes, as far as we know. To be fair, we wont know about GT Bethesda & McLean til 2010, (the data isnt granuluar beyond counties) but by and large, weve found the highest of the high end did not grow all that much (median income looks to be up 19-24%). By contrast, Arl & Alex went up 43% and 40% (#1 and #2 in the nation of all counties in the U.S. that I have looked up - and far better than any other county locally, the highest of which went up 30%).
So yes, while they will not be as expensive as the ultra tawny areas, everything suggests they will hold on to more of their gains than anywere else in the area by a decent amount.
Cara-
Thanks and I was glad to see them falling the last couple of days. I am still trying to decide if I want a 30 year fixed or a 5/1 or 7/1 ARM. I find it high it highly unlikely I will still own the house in 7 years so saving a little over .5% a year should save me 15K. Well I guess I need to get the house before the decision matters...
TBW-
I am pretty sure Britain actually has much worse debt problems than us. They are not substantially worse, but it looks like their debt to GDP is about 10% higher than our and rising at a quicker rate.
http://online.wsj.com/article/SB124294765770445275.html
Robert: You continuously skirt around the issue. Figures don't lie, but liars figure. I've pulled out price and MOI history for various zips around NoVA, and much to my surprise, none of them show correlations with price changes. Nor are any of them correlated with future price directions (i.e. time-series analysis). If I've made a mistake in my data analysis, please point it out, but you refuse to analyze the data yourself.
Instead, you cheerlead with no historical data or technical analyses to back up your claims. You are like a broken record.
I report and don't distort.
Here is some more data showing no relationship:
http://novawatch.blogspot.com/2009/06/more-moi-data-vs-price-direction.html
Robert says:
"investors are getting back in the market, "
At what Cap Rate? Are these cash flow investors
or Specuvestors?
CRT-- I think we are talking at cross purposes here. Are you saying that income levels are higher now in Alexandria and Arlington than in places like Bethesda and Georgetown? What I thought you were saying is that the relative increase has been much greater in Arl/Alexandria than in those other rich areas.
That is certainly true. I watched it first hand in Del Ray while we lived there. When we moved there in '99 more than one person warned me it was a 'bad neighborhood'. By the time we left it was regularly in the news as one of the most popular neighborhoods in the metro area-- and even made the national news as a 'best place in the US to invest'.
What I am saying is that I am guessing (I have no data and may be wrong) that there is a bigger gap now between areas such as Bethesda and nearby areas like Rockville than there was before the bubble. My thinking is that that gap as a percentage-- what I called the price differential-- will slowly return to what it was.
If we assume that Arlington and Alexandria are now in a similar category with Bethesda then I would expect it would at some point come to have a similar relationship with its neighbors, in terms of the price 'premium' that people are willing to pay to live there.
Of course I may be wrong on any number of accounts-- perhaps the 'premium' people pay in different areas varies wildly and can't be quantified; perhaps it is already at pre-bubble levels for Arlington and Alexandria, considering their new popularity.
I have followed the data you've presented with great interest and thought the discussions very valuable. I'm rather dismayed that you seem to have drawn from my -- admittedly sometimes less than clear-- responses that I don't care about the evidence.
Va_Investor said...
robert,
Put up or shut up, please.
Pleeease is right. Are we to sit around and wait for one of your “normal market” diatribes once more? The ramblings of an “experienced” person in real estate which has yet only to ramble, and not once discussed market indicators with insight that an “experienced” person should have.
I’ll give you some credit, you had me goin’ when you were talking about the $10K quarter acre lots in Westmoreland County (nice MRIS numbers by the way). You did sound like you knew what you were talking about, but it was all down hill after that.
Call Lance. Have a drink, and revel in this “normal cycle”.
Robert,
If you are talking about foreign investors putting together a REIT or investing in an already existing REIT then I could buy they will have some money in commercial real estate in Tysons Corner.
However this is a *residential* real estate blog. So I assumed that's what you were talking about.
Foreigners are not going to buy an American vacation home in Tysons Corner. Frankly, I'm also skeptical there are many foreign home buyers these days. Many were burned with their Ireland or Spain real estate investments (or Manhattan condos). Many of the rich in the various western European countries are losing their jobs and don't even have the money to buy a home.
Plus most were just buying it for bubble reasons -- seemed like you'd get a guaranteed 10+% rate of return. Few people want to buy a place that you have to fly to let alone fly across the Atlantic Ocean to get to.
Robert,
The press release you linked is from January 2009 and is just the result of a survey and not what anyone has done. But even assuming it's what will/has happened this year you have a fatal flaw. Here's the key quote:
"Survey respondents said the multi-family sector was the preferred property type for their investment dollars followed by office, industrial, retail, and hotel properties. For the last two years, multi-family had been in second place and office properties ranked first. Industrial properties remained in third place, while hotels dropped into fifth place and retail rose into the
fourth slot."
I don't see anything about SFH or TH there. Sounds like at best some foreigners are buying up condos in DC. Considering you and your ilk don't believe in the substitution effect, I'm not sure how this affects the price of Burke THs for Cara or SFH in Fairfax County for some others (and so on).
It is becoming obvious that Robert really is just another real-estate pumper that is never going to say anything else.
"what is with KH/$J$ always posting first,"
OK, I won't start a new day at zero.
Is that what you want?
Pffft, fed up with the peanut gallery.
I think the Fed should stop worrying about deflation and start worrying about inflation in the next couple years.
In news of the media deciding that home-owning is not so attractive anymore, they've chosen to report this Canadian survey which shows that after correcting for age and children, female renters weigh 12 pounds less.
No causality implied, nor particular believability, but it does show that the media bias and cultural bias towards owning is shifting.
Sarah - we may be talking past each other. If there was anything I said to indicate you ignored the data, I can assure you that was not my intent.
Ill see if I can put this in a different way. My intent was to show that one thing we have learned is that while the fundamentals have improved everywhere over the last 7-8 years, that improvement in the fundamentals was greatest in Arlington and Alexandria.
Thus, so long as that improvement remains, the "differential" as it were between those areas and other areas has likely been permanently altered.
robert,
I've got 5 of those lots. You couldn't find any on the MLS? Well, I bought 3 at tax sales. The others you should be able to find as past sales. Sorry, I am not putting out MLS #'s for obvious reasons.
As to whether it's cash-flow investors or specuvestors buying. I suspect most of the latter have little cash/credit to buy anything.
CRT-- Yes, I think we agree that Arlington and Alexandria, from all the evidence, are now very much 'upscale' areas-- where 10 years ago they were not-- or at least not to nearly the same extent. The 'good areas' of both, that were fairly popular among the well-to-do are now very popular among that group and the marginal or bad areas have gotten much better -- and in some cases become popular in their own right.
So we would certainly not expect them to return to something like the same levels they were before-- unless the trends in those areas reverse. What I was trying to say is that I think (I'm not at all sure) that the differential between the 'rich' areas and the middle of the road and poorer areas in general is now considerably greater than it was historically-- due to the extreme fall off in some of those areas and the much more modest declines in the rich, mostly fairly close in, areas.
One way or another I would expect that gap to eventually return to its historical average-- whatever that might be.
"Sarah Said...What I was trying to say is that I think (I'm not at all sure) that the differential between the 'rich' areas and the middle of the road and poorer areas in general is now considerably greater than it was historically-- due to the extreme fall off in some of those areas and the much more modest declines in the rich, mostly fairly close in, areas."
OK NOW I think I got you. Basically you are saying the disparity between high end and low end properties is greater than before. Here I think not only is that reasonable, its probably correct.
So yes, I do think that differential needs to lessen, but for every high end property in Arlington or Alex that needs to fall, there is another one in high end ashburn or whereever that needs to fall too.
So I think there is clearly a high end low end disparity that needs to be resolved. But a close in far out disparity is looking less likely.
I do think the most likely way for it to be resolved is drops in the high end. Especially in places like Lou & PWC where the high end seller delusion is still far worse than anywhere else.
Sarah and CRT,
I've wondered about this for a while as I've tried to determine if there was another shoe to drop for the close-in neighborhoods that I had looked in. Are there any drivers that might have changed the fundamental desirability of one area relative to another? Some might include gas prices, worsening traffic (certainly affected my decision), and development of ammenities as CRT mentioned for Arl, Alex but might also help change the fundamentals of Reston or Rockville.
Only 3 possibilities exist. Close in falls more than the area in general, far out rises more than the area in general, or there is a new gradient of desirability. I had hoped for #1, not I think maybe, mostly #3
robert,
Sorry to ramble on about RE being cyclical and such. Sorry to predict/anticipate falls of 25-40%. Sorry to discuss inventory (starting in the summer of '05) and suggest.....
VA_Investor,
You are one of the most insufferable posters on these blogs. You prattle on and on denigrating "renters" who are looking to make an informed, well considered purchase, the whole while not making purchases yourself. You've made various claims about not having purchased anything from 2004-2007 while at the same time mocking "renters" for doing the same.
I'm not about to dig through the posts, other's here seem to have a much better collection of your windbaggedness, but you should really consider your tone when you're doing the same thing as the people you mock.
It stinks of hypocrisy.
My $0.02
mytwocents,
Is that your NW? I've wracked my brain and really can't remember one useful thing I have learned from you.
Please don't confuse confidance/arrogance with ignorance.
"Eponymous said...
Only 3 possibilities exist. Close in falls more than the area in general, far out rises more than the area in general, or there is a new gradient of desirability. I had hoped for #1, not I think maybe, mostly #3"
Epon - I think is likely more 2 and 3. For a long time, we understood the most desirable areas will hold up best, its just only recently we had enough evidence to add Arl & Alex to that "desirable" category.
I do think that 2 is a distinct possibility, especially in the sense that some areas may have undercorrected. The fall in PWC was so much more severe than Loudoun. Yes loudoun is more desirable than PWC but this might be overstating it. If anyplace is going to rise, short to mid term, it very well could be PWC.
That said, you are looking in MD arent you? If so I would look at 2 things. First, is there evidence that your area is still desirable? For example if your price category is more like Loudoun High end where there is 20-25 months of inventory or more, I certainly would expect to see some real movement. However, if your area had 5-10 months, maybe not as much.
Second, is your area, currently in demand, easy to replicate? If its simply "big suburban homes" and there is tracts of land for them to replicate your favorite area nearby, maybe you will see some movement, or at least underperformance as they build more desirable like kind homes nearby.
However, if your desirable area is more of an area with older homes, (especially ones built pre 1940 where they used sturdy & asthetically pleasing materials), mature trees, nearby services, etc. it is not easy to recreate that environment. In these cases I unforutnately wouldnt expect much movement.
CRT,
Thanks for the thoughts. Your choice of #2 seems to mean that you think the area as a whole will be going up, with those areas that have fallen farthest doing the best. Maybe. I'm still troubled by CS graphs indicating about 1/3 of correction left to go. Where will it come from? I don't see how it can come from PWC and similar areas. Even high end far out seems to have fallen 750>400. Hard to imagine that that can go much lower. Where I rent in McLean has gone from 750>650 (these houses are much more modest than the ones I mentioned from PWC). I still wonder if this is where the excess will come from, or will the remainder of the correction be spread evenly in the form of inflation with stagnant prices.
You are right that I was looking in MD. Closed last week in Kensington. Older established neighborhood as you described. I imagine price support from proximity (3mi) to NIH. Plan to be there for a long time (20yr) and got a great rate 4.75% so it should work. But, I'll kick myself if it is 20% lower next year. Time will tell.
Eponymous - maybe I should have been more clear. When I say #2, I am thinking pretty much of PWC and really only PWC.
Lets put it this way, PWC is down like 50% whereas nowhere else out that way is down more than 30%. If those areas are to come more into equilibrium, given the near insatiable demand PWC is seeing, it could "recover" a full 15%, pulling 5% off other areas so that they are down 35%. Honestly, this is just a theory and one that I think is unlikely, but possible.
My gut tells me that (at least in nova) the period of big declines is over. PWC & Louduoun high end do still look vulnerable though. And Im still not sold that MD is nearly as far along as NOVA is (although im not as sure about that as I was 6 months ago).
20% down in Kensington? I think for that you would have to have deteriorating economic conditions generally. Lets put it this way, credit is gone, no one thinks they are going to make money buying, alot of people are scared generally. If your area shows weakness, it should show up already in high MOI. If it doesnt show weakness now, its probably OK.
In any event, glad to hear you found something and that you are happy with it. If you plan to live there as long as you say, in the end, this whole thing shouldnt matter to you in the slightest.
Premature CRT, and I'll tell you why...
It's the buyer's bribe. It really is... Compare Conventional to FHA +VA, YoY, and MoM. In Burke last spring Conventional out-numbered FHA+VA 35 to 22, now FHA+VA make up 57% of purchases. And this percentage has been increasing all spring.
Combine this with the fact that 28% DTI will take a 75k income up to a ~300k purchase price at 5% down, 5% interest rate or 600k for a couple making 150k, and you find that the whole market (in Burke, we don't have that many million dollar homes, some, but not that many) has been infected with the market manipulation, artificial demand.
Yes, $8k shouldn't be enough to make people want to buy a house that's dropping in price $2k a month, but home-buyers who think "free money" is "free" aren't that rational, and they ARE the market right now.
This is a false bottom for anywhere that prices dip down below $500k. There may indeed be more pent-up demand than there are future foreclosures, but that doesn't mean that all those people who've been prudently waiting are going to be suckered into overpaying now. And if they are, all the better, more houses for me to choose from later.
Point taken Cara - and likely true. I will defer to you as I havent really been looking at that part of the market much (ive been looking mostly at the stagnation on the high end which I think you will agree, didnt benefit much from the buyer bribe).
Quick question, do you recall when it began? It would be interesting to see if there was any support out that way before the bribe started. I seem to recall that sales were up in PWC (YOY) before the bribe started, but I really cant remember now.
Note this too, is one of the reasons I have started my "high end" inventory count at 700K instead of 500K. Since there is basically little to no buyer help up this way and fewer forelosures (as a percentage). Moreover the lack of any assistance to make jumbos more available/affordable, makes this I think probably a truer measure of real demand.
CRT,
unfortunately I switched target markets between 2008 and 2009, so I can't definitvely answer your question.
But there were 70 sales per month last summer in Burke's 22015. That's a lot, with only 300 inventory. And the condo's we're looking at now, went for $235k then, and are selling at $265k now. That's got to be the bribe, but I do think there's reasonable support for them at $240k, because they easily beat renting then at 6% interest rates, including the condo fee.
In Kingstowne, the lowest rung had zero price support last summer, no support appeared until November when they reached my husband's and my bottom calls for prices around $250k. Then support kicked in slowly but steadily for the winter months between $210k and $250k.
So, I do think there is underlying support, that existed prior to this mini-bubble, just not for the current values that got inflated again by 20-50k depending on the size/age/move-in condition. Last fall's prices should see decent support though.
Also I should note, that I don't think the FHA/VA buyers of this spring will regret their decisions. These are okay buys, only slightly above rental parity and if they bought early they had tons of selection to chose from. I just think there was a mini-bubble manufactured by the government.
"Cara said...
So, I do think there is underlying support, that existed prior to this mini-bubble, just not for the current values that got inflated again by 20-50k depending on the size/age/move-in condition. Last fall's prices should see decent support though."
You know what, that makes perfect sense to me, even moreso than my 5-10% chance that the recovery will be V shaped.
Last fall it looks like we started the L. This spring it looks a bit more like a mini "v". If I understand you correctly, if the manipulation is removed, the "v" will disappear but the "L" will hold. Correct?
CRT,
Yup. Though I think the likelihood of the $8k not being extended at least another year is rapidly approaching zero if Massachusetts and California don't start recovering.
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