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Monday, June 22, 2009
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94 comments:
Foreign Investors See WDC Best City in the World to Invest in Office, Mall, and Multi-family Housing
When I posted the above link a few days ago, here are the responses I got:
Sarah said..
Cara-- "Investors from other countries are well known to be the very last participants to arrive at the scene of a financial bubble. They are the last to hear about all the riches to be made, the last to buy in, and the last to realize that the party is over."
:) Funny you should quote that-- that's exactly what struck me when I looked over the list of former 'hot spots' for these investors in Robert's link-- "Looks like an almanac of the international bubble bursting!"
Cara said...
Additionally, these RE investors are at best an indicator of investment opportunity, not price support on their own. If the foreign investors were usually right, they would be riding the wave of a new bubble or new fundamentals or new whatever, not creating it. (Not that you've claimed differently, Robert, I'm just clarifying).
Generally speaking they've done a piss-poor job of calling the hot market early. DC is just the best option amongst a glut of bad options. That's not saying much, and certainly doesn't indicate a directional shift as illustrated well in Rich Toscano's blog.
TBW said...
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).
I did some digging and here is an identical survey from January 2005.
The top quote:
As the "degree of difficulty" in
finding attractive real estate investment opportunities increases, foreign
investors are losing their appetite for U.S. real estate.
Nearly 60 percent of survey respondents this year said that it has become
"very difficult" to find attractive real estate opportunities in the U.S. As
a comparison, in 2003, only 38 percent of respondents said it was very
difficult; in 2002, an even smaller percent, only 32 percent said it was very
difficult.
January 2005, Foreign Investors Reduce Allocation to US Markets
Not only did they decrease their allocation to the US in 2005, but they were bullish in 2002, and 2003. Of note also is that the picked WDC as the #1 city in 2005, which we all know has fared the BEST in this downturn.
Okay, they missed with Miami.
Even though DC was #1 in '05 and still #1 today, but the recent survey has DC with a 2-1 lead over NY, and in '05 it was only marginal.
Not that this is enough to convince any of the bears, but the notion that these foreign real estate investors can't spot a "bubble" is simply discredited by the facts.
The question now is, are they picking the "trough?"
VA, Cara,
Interesting. Please keep the discussion from Sunday going.
I don't think SF, NY, Boston are especially pricey.
They are expensive compared to the rest of U.S. but by international standards, U.S. cities are low to moderate priced.
Perhaps as VA says, we've missed an opportunity in NOVA. Perhaps not.
I've never been able to buy at the precise bottom, nor sell at the exact top.
I've found that over 10, 20 years, I can do OK. I might play with Roberts SAIC, try for 20% over the next year.
Reposting from Sunday's bucket because I think this is too important not to reopen here:
On unemployment and housing bubble timing
If one chooses to look only at the DC metro area's previous bubble, one would conclude that the timing of the end of the declines and start of the stagnation period is unrelated to the timing of the peak unemployment. I.e. that continued increases in unemployment for the area can't by themselves pull house prices down.
This I think would be a myopic view. Looking instead to those cities that had the largest 80's bubbles, and hence the ones closest in magnitude to the current housing bubble may be a more realisitic test-case:
LA, NY San Fran, Boston, and Seattle
Here we see all possible behaviors for the post-bubble price level. In LA the continues decline eventually brought prices back down to what they were before the 80's boom.
In NY and Boston, the commencement of the stagnation period essentially coincided with peak unemployment, and the price levels maintained a higher plateau than the had been the case before the bubble. This to me seems like the most likely scenario for the DC area now. Why? Because some of the change was in fundamentals of jobs/income/desirability, AND the bubble itself encouraged a building and rebuilding boom that raised the quality of the housing stock (crappy McMansion, shoddy construction cases aside).
But in no case other than Seattle or Dallas was unemployment and any house price movements totally disconnected. This can be attributed to vast changes in their underlying economic drivers and migration. I claim that increased Federal spending, or Federal government jobs is not a drastic shift that would make employment and housing detach from one another, and thus, the previous large housing bubbles, including our own, are the most likely models for the current case.
Now, this bubble was so huge, that the crash could be worse. And it is possible that like LA we may revert to the wonderfully affordable city that we once were (long before I got here). I find this to be a bit overly "optimistic" given that only LA, and to some extent SF, have done that before, and we do have better underlying fundamental economic drivers than those two.
Robert,
I do think that who ever brought up the Japanese incredible foolish and dramatic buys in NYC overstates the case against foreign investors. There's no reason they shouldn't learn from previous mistakes.
However, I don't see anything objectionable in my earlier statements. (1) The are at best an indicator not a driver. (2) They are choosing the best amongst poor options. (3) They have a shoddy record. Shoddy enough that while some of their picks turn out fine, you can't use them as a predictor of which will win the horse race.
Given their history it's laughable to bring them up as a way to bolster your argument on DC's fundamentals. So we laughed at you. This was surprising, how?
I don't doubt that there are good long term investments in RE in DC. I just don't see how that's connected to individuals choices in their home buying process, or how that will have any effect on prices in the area whatsoever.
Yes, we will weather this storm better than practically anywhere in the US. Gee, you think? Who exactly are you fighting? Who exactly do you think is being overly negative? TBW, Kevin? Neither of them debate you on that point in the long haul. Contrarian? Do you really think it's necessary to directly battle your polar opposite?
Updated yesterday...
South Riding Blog
Stone Bridge Blog
Jaw-dropping!
@J@
"I don't think SF, NY, Boston are especially pricey.
They are expensive compared to the rest of U.S. but by international standards, U.S. cities are low to moderate priced."
Where are you going with this? I can come up with many possible tangential discussions that could sprout from this statement, but no idea what direction or implications you meant.
I would run with this and say that with the US's decreasing dominance of the world stage and world economy the standard of living in the US will have to decline, and that as more social services get socialized, US citizens will also start getting used to putting more of their take-home pay towards housing at the same time as having more of their insurance and retirement obligations taken on by the government.
See, bet that wasn't what you meant.
;)
(I can argue the other side of that if anyone requests it)
Robert,
Jaw-dropping?
Wouldn't we need a perspective longer than a week to tell that?
And a larger sample size?
My favorite development now only has 4 listings instead of 6, is that jaw-dropping too?
There will always be people who need or want to sell. Even back in the days of 14% interest rates, transactions still happened. Just a lot fewer of them.
Oh, but back on your first point I neglected to acknowledge your new point.
Yes, even foreign buyers found it difficult to find anything worth buying at 2005's prices. That is saying something. Not necessarily anything relevant to today's SFR buyers, but something.
"Where are you going with this?"
I certainly don't mean to invoke the ghost of Lance.
I have investment cash on hand, this came from liquidating a RE holding in a pricey international city.
I'm a two-bit investor but it doesn't take many like me to skew a thinly traded market like NOVA.
@J@
So, let's see if I caught your meaning this time...
So, this was in relation to Robert's foreign investors, and you think that "two-bit" investors like you and outsiders like foriegn investors will change the prices of commercial RE in the DC area?
It's possible that they could change the price. But there's no mechanism under which they could change the fundamental cash-flow available. So they and you will either be right that this was a good market to by CRE, and the economy will support your endeavours, or you will be wrong, and have trouble keeping tenants at the projected rents. Who owns the building, or what they paid for it is not relevant, other than to local property tax revenue, and if the bets go wrong, creating a new CRE crash later on.
Any closer?
Krugman's Blog, Interest Rates
Very interesting take on the why's behind the changes in interest rates.
"I’ve written recently about applying the Engel-Frankel method to making sense of interest rate movements: ask what else moves when rates move, and you get a clue to what’s driving the changes. I’ve previously argued that the behavior of commodity prices suggests that the big rise in interest rates this spring was driven by economic optimism, not fear of deficits.
Here’s another indicator: which way do rates move when we get good or bad news about the economy? If you believed that deficits were the driver, bad news about the economy should push rates up, good news push them down. After all, a weaker economy means lower revenues, a stronger economy higher revenues. But if you believe that interest rates are being driven by changing expectations about when the Fed will be able to come off the zero-rate policy, you’d expect the opposite correlation.
And there’s no question about which way things work in practice. Late last week, for example, a couple of new figures — a better-than-expected Philadelphia manufacturing survey, a decline in continued claims for unemployment insurance — made investors more optimistic about the economy; long-term rates bounced. This morning, a gloomy World Bank Report is weighing on the market; long-term rates are down.
It’s not deficits. It’s the economy, stupid."
Separating the wheat from the chafe:
http://franklymls.com/FX7090410
1bedroom garden condo, Burke VA
REO
PREVIOUSLY SOLD PRICE
Date Sold Price Subsidy Net Price
5/15/2006 $285,000 $0 $285,000
PREVIOUS LISTING PRICE HISTORY
Date Price % Change Days at Price
2/21/2009 $199,900
CURRENT LISTING PRICE HISTORY
Date Price % Change Days at Price
6/22/2009 $128,000
85k off the 2006 price was apparently not enough. Let's see if more than half off the bubble price will do it. $50k under the two 1/1's that are under contract should do it you would think. Maybe they're hoping for a bidding war.
The post-bubble declines are doing a great job of whacking back to reality stuff that was never that valuable in the first place.
NYC is especially pricey. Some of you seem to be arguing with Cara just to argue with Cara.
In NYC not only do you pay more for rent but you usually get a smaller apartment. And many of the apartments are so old that an in-sink garbage disposal is not in the cards (let alone many other nice kitchen amenities). You are living the high life if you have central A/C and not a window unit A/C.
All the things I take for granted in my DC apartment are luxuries to my friends living in Manhattan.
Cara-
With no pictures it might be priced like that because its insides have been destroyed. There are not many people looking for a low prices 1 bedroom that have the cash to replace floors, appliances... So if these are destroyed my guess is you will not see a bidding war.
As for the interest rates going up I agree it is due to optimism. Two things are happening. First people who moved all of their money to treasuries when they thought the world was ending are less afraid now and selling the treasuries to go back towards bonds/stocks. Second, shorting treasuries is becoming a popular trend. Most hedge funds and large institutional investors are shoring treasuries as a source of cash for cheap leverage.
Both of these are bringing prices down and yields up. Although it does look like yields have stabilized somewhat in the last couple of weeks
housebuyer,
No way to know. Two 1/1's that were listed near 177k, "just" below it's old price of 199k are both under contract, so someone's buying them, or thinking about it. 128k is abberrantly low. The lowest I've seen for condo's that close to the VRE has been 150k list. But given that some fool paid 285k for it, maybe those owners took all the stainless steel appliances and granite countertops that enticed them to pay that much. (assuming there was any such enticement).
Most actual trash-outs have statements like, not FHA or conventional loan ready, cash-only, or other similar warnings.
My guess is this bank has just decided to move the darn thing, let the market pick the price.
http://www.redfin.com/VA/Vienna/
2723-Sutton-Rd-22181/home/9523927
What do you all think happened with this? Why would someone have spent $650,000 on this?
Back in the day most of the homes around it looked like this. But gradually most were torn down and now this house is one the odd ones on a road full of huge homes.
Do you think the $650k buyer in 2006 was going to build a new home on spec but then that plan fell apart?
It's also odd how they want you to buy a completely worthless lot. Scroll down and see the red outline. What can you possibly do with that?
The previous owner must have laughed all the way to the bank that she was able to get $650,000 for that home.
I've been away/distracted for the last week. Glad to see that Robert is still bringing the weapons grade stupid to the forum.
TWB: you get both lots as a package deal (the long lot and the lot that 90% of the house sits on).
tbw,
"Owner is a Real Estate Agent."
'nuff said?
Who can know the mind of the drastically mistimed speculators?
TWB should be TBW ^^^
NoVAWatcher,
Good catch. The house does extend into that sliver of a parcel. So I guess it serves some purpose.
TBW-
I don't find it overly amazing that they are pricing it in this range. You get .75 acres, which is a lot for that area. I agree it is probably best to build a new house...
Cara said...
I do think that who ever brought up the Japanese incredible foolish and dramatic buys in NYC overstates the case against foreign investors. There's no reason they shouldn't learn from previous mistakes.
Agree!
However, I don't see anything objectionable in my earlier statements. (1) The are at best an indicator not a driver. (2) They are choosing the best amongst poor options. (3) They have a shoddy record. Shoddy enough that while some of their picks turn out fine, you can't use them as a predictor of which will win the horse race.
Indicators is all we have in economics. They were right to "hide out" in DC real estate back in '05. I don't know how you can throw out a general statement like, "They have a shoddy record." I think you are seduced by the "headline" stories. Foreigners have been investing here every year for the last 100 years at least. When they have a bad year, it gets in the Washington Post. Ever see an article about a foreign investor making money in the Post?
I don't doubt that there are good long term investments in RE in DC. I just don't see how that's connected to individuals choices in their home buying process, or how that will have any effect on prices in the area whatsoever.
I have to disagree here. Why would you buy and office building, shopping mall, or apartment complex if the surrounding economy sucked? They have done their homework and see the job and income growth coming to the region over the next 3 to 5 years.
Yes, we will weather this storm better than practically anywhere in the US. Gee, you think? Who exactly are you fighting? Who exactly do you think is being overly negative? TBW, Kevin? Neither of them debate you on that point in the long haul. Contrarian? Do you really think it's necessary to directly battle your polar opposite?
We ARE weathering the storm. Not a housing bear blog? So, the tone of this board is, "buy now, or be priced out forever", "they are making any more land", "house prices always go up". Think not.
I see kevin is back. He's been so wrong so often, I am surprised he's using his old handle. On the bright side, he is an excellent contrary indicator, maybe you can goad him into a Summer/Fall prediction, and take the opposite play.
The Iranian expats will buy up all of our houses, and we will all be saved. The end.
I see kevin is back. He's been so wrong so often, I am surprised he's using his old handle.
In the meantime, Robert will continue to insult people and to post opinion pieces as facts while ignoring empirically gathered data.
housebuyer,
Depends on how you define that area. Within 0.25 miles of that home, yes. But within 1 mile (especially 2 miles) and you can find many homes in Oakton (north side of 123) that have one acre lots. And these are contiguous lots.
Anyways, I'm sorta scared of what's inside that house. I have a feeling it was in bad condition in 2006 and that the past three years have been total neglect. Any value there is probably entirely the land. If you want to actually live somewhere spend $410k on one of the many TH much closer to the Vienna metro station.
Robert,
Here is a good opinion article from Newsweek. It shows why I'm skeptical of your claim that these investors are infallible in their predictions:
It's also been an ugly period for the private-equity honchos who toil in offices a gemstone's throw from Tiffany's. The executives at the Blackstone Group and Kohlberg Kravis & Roberts (KKR), it turned out, were no smarter than the rest of us. In 2006 and 2007 they used loads of debt to purchase huge, cyclical companies at absurd valuations. Many of those firms are now struggling. Things are getting so bad that some private-equity barons may be forced to sell their seventh homes.
In late May, KKR reported that it lost $1.2 billion in 2008. As of March 31, 2009, the value of the five large companies on which it closed in 2007 was off 20 to 50 percent. Only one of KKR's 2007 mega-deals was in the black. And it couldn't be farther away—geographically, socioeconomically, culturally—from KKR's Manhattan headquarters at 9 West 57th Street. It's Dollar General, the largest of the thriving chains of 99-cent stores.
http://www.newsweek.com/id/201657
Robert: "I see kevin is back. He's been so wrong so often, I am surprised he's using his old handle. On the bright side, he is an excellent contrary indicator, maybe you can goad him into a Summer/Fall prediction, and take the opposite play."
Where have I been wrong thus far, chief?
"I don't think SF, NY, Boston are especially pricey.
They are expensive compared to the rest of U.S. but by international standards, U.S. cities are low to moderate priced."
Once again I find myself wondering if you have ever left the USA KH/@J@.
There are very very few cities in the world that are as expensive as NYC, San Fran, or Boston. There are certainly some out there... but they are the exception to the rule overseas just as those cities are exceptions to the rule in the US.
Robert,
I think we're just going to have to agree to disagree on the level of significance to assign to foreign investors buying CRE in DC. I don't think it tells us anything we don't already know.
Furthermore, your attitude implies an underlying assumption that (a) these people are right in their projections and (b) that they view these as zero-risk. How do you know what loss provisions they've built in? How do you know their risk-reward profiles? It's a bet. And yes, these days the predictive capabilities of betting markets are all the rage. Don't believe the hype. Or in any case, don't stake your life's savings on it.
Because we're not all pumping NAR scare tactics this is a negative blog?
There's only two possible tones then eh? Negative/bearish or bullish RE myths?
Oh, come on, you're smarter than that.
The current mood is realistically dealing with the cards as we are dealt them. Years ago they tell me we used to be in two camps bearish and bullish, but now? We're mostly trying to sort out what to do with the data and conditions as they come.
I recognize that you're attempting to be predictive, and that for the most part (contrarian aside) we're tending to be reactive, or wait-and-see.
Novawatcher,
I never throw the first punch. Read my posts.
Scenario #1: homes are selling 10 per month. All of a sudden only 1 house is left. MOI=.1
Scenario #2: homes are selling 10 per month. All of a sudden there are 10,000 houses for sale. MOI=1000
On the very next house sold in each scenario, you are saying it would be completely random which house sold for more.
Cara (or anyone with the answer),
Do you know when the Census releases median household income data? I think you studied the ACS data recently.
Doing a quick search it appears it's released in August? But the data is for the previous year. So Aug 2009 will see the 2008 data?
So does that mean we have to wait until Aug 2010 to see if median household income in Fairfax County et al went down in 2009? I hope there is something quicker than that.
"you will either be right that this was a good market to by CRE"
Sure.
In my view, the potential market is small.
This morning, equities are falling. That affects 401(k) mutual funds and trading accounts.
1.0%/year looks pretty good today.
Tomorrow may be different.
Robert,
Things that are true in the extremes are not necessarily true in more moderate circumstances. Your argument is intuitive, but NovaWatcher's data show that it flat out hasn't been right lately. So, obviously there's more going on than your simplistic intuition.
TBW-
I agree I wouldn't get the place, but its only slightly crazy. Clearly my decision to buy a TH right next to the Vienna metro shows that I think a TH there is a better idea
tbw
I don't know. Try the bureau of labor statistics. They might have something less definitive sooner.
I was reading this op-ed regarding a different housing market and came across this key quote:
****
Fewer people are putting their homes on the market, too. New listings plunged by 22 percent in November and 9 percent in December, a sign that home sellers lost some confidence in their ability to sell their homes as the recession’s first major wave of job cuts swept over the Buffalo Niagara region.
****
Anyone know where we can find the number of new listings? I suspect the number of new listings has plummeted in our market as well.
kevin,
That's quite a lengthy task, dude.
Let's start with the foreclosure tsunami.
Go ahead.
Cara,
So I can't use extremes to make my point about MOI?
You want me to dither with 4 months of inventory vs. 5 months?
For Robert's MOI/price scenario there may be a lag in what the price does. Sure falling prices has helped decrease MOI, so there are a lot of data points that say as MOI goes down so do house prices. This compares to places were prices are still high, so there are fewer transactions so MOI is high and prices are flat.
At some point MOI will get low enough that people do not have to lower their price to sell instead actually buyers bid up prices. For the expensive homes people will give up at some point and lower the prices to sell houses.
This is just my hypothesis, but if you have both of these effects going on they would offset each other and make it look like there is no relationship. But at some point when MOI gets low enough Robert's case will play out.
Does this make any sense or am I just babbling. I really have a case of the Monday's and just can't think clearly enough.
tbw,
MRIS regional reports
has "new listing this month" in the lower right. You could mine it. They output to excel, but I usually just click a couple times for a few months YoY and call it done...
TBW-
I assume you are right that listings is down. But this also probably has a lot to do with people not having any equity in their homes. For most sales people are moving to a nicer house. If you have no home equity this becomes a harder task. I assume this will keep listings low until people can either pay down their mortgages some or prices rise. Either way it will probably be several years. Just my hypothesis
housebuyer, Robert,
That's about the size of it, yes.
That's why you "can't" use extremes. At some point the inventory levels may be low enough that sellers no longer have to drop their prices to sell, and MOI will again be a useful indicator.
But there's both supply and demand, if prices rise, some potential buyers will be priced out. As prices fell some potential sellers "couldn't" sell. But it's always a snap shot.
If one were to argue in your manner I could just as easily say what would happen if suddenly a market that had 10/week sales had only 1 buyer left in it? What if it suddenly had 10,000? The problem is we don't know how many more buyers there are at a given price point, we only know how many houses sold and how many are listed. The pool of people willing/able to pay these prices could be drying up just as quickly as the pool of sellers.
We have my estimate of an excess of 14k 100k+ earners renting in FFX in 2007. That's all we have. We don't know their savings, we don't know their job security, we don't know their housing wants, we don't know their attachment to the area, and we don't know how many of them already have bought.
I think it's quite possible that a lot more of them are breathing a sigh of relief that their savings has not gotten tied up in an illiquid asset that also defines their future commutes to whatever job they need to take next.
(though I'll admit that the feelings of cliff-diving that existed this fall have mostly faded)
Cara-
I agree that you can't use the extremes, but I think you can say that at least in some areas where are at the point MOI is useful again. If you want a 3 bedroom TH near the orange line(Vienna, Dunn Loring, Falls Church) you have about 10 choices. A couple of months ago you had significantly more than this. So in places like this I could see MOI being low enough that it matters again.
On the very next house sold in each scenario, you are saying it would be completely random which house sold for more.
The data is saying that.
"Because we're not all pumping NAR scare tactics this is a negative blog?
There's only two possible tones then eh? Negative/bearish or bullish RE myths?"
Clearly he believes any kind of an honest discussion of the market is "negative."
What we should all be doing is working overtime to try to drive the market up!
That is what positive people do. It is good when the market moves up, bad when it moves down. Don't you watch CNBC?
We should all be getting up every morning in time to post first in new threads.
We should all be posting anecdotes about our successful real estate investing and ask idiotic questions about whether or not getting 1% on a savings account is a good way to invest.
We should of course be looking for information on what international commercial property investing groups recommend, and posting it to blogs about residential real estate for people considering home purchases... over and over and over again...
You want me to dither with 4 months of inventory vs. 5 months?
My data (well, MRIS') ranges from 2.5 months to 25 months for some of the zip codes.
housebuyer,
fair enough.
In Burke, prices on comparable properties actually rose this spring, so likewise, MOI must have been at least somewhat meaningful.
Another standard I use is how many houses are there listed under a certain threshold. Tons of inventory at prices I can't afford is just as useless as no inventory at all.
There are way fewer total house listed today, but in Burke only slightly fewer non-condos under 300k, and they now stretch down into the under 250k segment. There are fewer though, 57 now, compared to 58 last year. (big-whoop) Watching all the inventory slide down through the price buckets in the MRIS is fun, but Robert's right, that at some point they'll find the price support level of buyers and no longer need to keep sliding.
Sure falling prices has helped decrease MOI
That might be the key.
Conventional wisdom is to assume that people are rational. If they were, then the data would be supporting Robert's hypothesis.
But people aren't rational (there's that old Kahneman & Tversky again). You have months of inventory decreasing because price declines are drying up sales (as opposed to decreasing inventory increasing prices). You have months of inventory increasing because 'irrational exuberance' is driving prices higher at an unnatural rate, causing everyone to try to sell their house (beanie-baby, gold, what-have-you) at the same time. In a rational world, this spike in inventory would cause prices to decline, but people aren't always rational.
The Manassas graph shows prices declining as MOI rises 10x, and when MOI reaches its peak and starts declining, prices continue to decline.
Herndon's MOI has been relatively steady (6 months, +/-, ignoring the spike last fall), yet prices have been steadily declining since 2005 (with seasonal bumps & troughs). Increased spring sales volumes this year seem to have had no effect on the sold prices.
McLean's data is noisier, but the MOI has generally been higher than Herndon's, but prices have been relatively (again, the data is noisy) steady since 2005.
The one caveat is that these are medians...and you know the drill about medians.
Fairfax New Listings MRIS data
Jan 06 2403
Jan 07 2106
Jan 08 2245
Jan 09 1657
Feb 06 2619
Feb 07 1812
Feb 08 2338
Feb 09 1832
Mar 06 4074
Mar 07 3132
Mar 08 2707
Mar 09 2162
Apr 06 3979
Apr 07 3136
Apr 08 2971
Apr 09 2150
As I suspect new inventory has gone down. That explains why we have less inventory overall.
MOI has gone down not because there are more buyers but because there are fewer sellers.
"MOI has gone down not because there are more buyers but because there are fewer sellers."
You are on to something here, but there were also more buyers, we know that from the sales data.
Many of the forced sellers have at least temporarily disappeared from the market, leaving mostly "ordinary" sellers, who are notoriously stubborn when it comes to pricing. During a downturn like this it is normal for many sellers to simply not list, or list only at unrealistic prices.
tbw,
Thanks for doing that footwork.
Yup, it sure looks like a dearth of sellers not a major increase in buyers:
at least for April:
Fairfax County
.
Year Sales Active Listings Ratio Median Sold Price # of Sales % Change Median Price % Change
.
2009 1,168 6,179 5.29 $340,000 8.85% -15.00%
.
2008 1,073 8,481 7.90 $400,000 -6.04% -15.65%
.
2007 1,142 7,101 6.22 $474,200 -19.06% -1.21%
.
2006 1,411 7,708 5.46 $480,000 -21.44% 4.80%
less than 100 more sales than 2009, but 820 fewer new listings.
This and housebuyer's earlier comment are all part of the mechanism behind the long-flat period. Fewer transactions, fewer move-up buyers.
So, how about them Alt-A's and I/O loans coming due eh? We may be running out of owners willing/needing to sell at this price point, how's that REO pipeline coming along?
"beanie-baby"
another one of my winning investments!
The other week, I was in Giant Food looking for peanut butter and noticed they had Beanie Babies on sale for $1.75, regular $7.00. I grabbed all the elephants (for a Republican friend) and bears (for a bear-market investor type) they had.
Should gotten one for Contrarian.
The price is back up.
Leroy,
I agree. There are plenty of people clearly holding out and/or listing at unrealistic prices. I see plenty of listings that make me laugh and have people who plan to sell their home and move to a retirement area when homes are at 2006 prices again. To avoid conflict I don't comment.
How do we know there are more buyers though? Who/what measures that? Does this metric differentiate between buyers who buy multiple properties? In other words, does it make sure a real estate investor who is buying multiple properties is not counted twice? I think we probably have fewer buyers now and just more investors but I may be wrong.
@J@,
You are joking right? There are tons of people who lost a lot of money trying to "invest" in Beanie Babies.
Although I think many of them learned a valuable life lesson and were unlikely to get caught up in the housing bubble having been burned by a smaller bubble.
I credit having been an investor in a collectibles market over a decade ago and experiencing the bubble-burst cycle firsthand and learning how bubbles works at a young age. This helped me identify the housing market which was exactly the same but at a much larger scale.
Lessons learned -- your item is only worth what someone is willing to pay for it. It's irrelevant how much it was worth three years ago. Try to avoid buying a product when there are a lot of investors in the market.
"How do we know there are more buyers though? "
True, sales don't directly correlate to buyers, but sales are up this year over last. Less so in May than in previous months, but YTD says are up a decent amount. I think it is safe to say there are more buyers, but it is hard to say just how many more.
(Note that this does not apply to Arlington or to a lesser extent Alexandria were sales have remained extremely low)
"I think we probably have fewer buyers now and just more investors but I may be wrong."
There are certainly a fair number of real buyers, the MRIS numbers show plenty of FHA and VA loan financed sales, but I can't say what the ratio of buyers to investors is based just on that.
If someone could find a good way to answer that question it would be useful.
Robert: "That's quite a lengthy task, dude.
Let's start with the foreclosure tsunami.
Go ahead."
Okay, it hasn't happened yet, but still might. Is that all ya got?
TBW said...
Here is a good opinion article from Newsweek. It shows why I'm skeptical of your claim that these investors are infallible in their predictions:
Yes, I'm sure I used the word infallible.
You are the lawyer, once piece of evidence doesn't always prove the crime.
I did go back and look at the AFIRE surveys and they were bullish in 2002, less bullish in 2003, and downright bearish in 2005 - moving money out of the US. That's looking pretty good so far. 2009? You're read the article. They again picked WDC #1, but they have doubled down on their bet, (1) increasing their allocation into the US and (2) moving more money into WDC and away from NYC, San Fran, etc.
Of course they could be wrong, even spectacularly wrong.
"There are tons of people who lost a lot of money trying to 'invest' in Beanie Babies. "
I've heard that but I dropped a big $1.75 each on two elephants and three bears at Giant Food.
If the price went up to $7.00 each, I've made a killing!
I've already given the elephants to the republican. "They're so CUTE!"
The bears will go the next time I party with the bear-market investor.
Cara said...
Furthermore, your attitude implies an underlying assumption that (a) these people are right in their projections and (b) that they view these as zero-risk. How do you know what loss provisions they've built in? How do you know their risk-reward profiles? It's a bet. And yes, these days the predictive capabilities of betting markets are all the rage. Don't believe the hype. Or in any case, don't stake your life's savings on it.
Not sure what you mean, "zero-risk." Always risk, except treasuries. Loss provisions, risk-reward profiles??? You're right I have no idea. Life savings? No, but I do own some WRE.
Because we're not all pumping NAR scare tactics this is a negative blog?
There's only two possible tones then eh? Negative/bearish or bullish RE myths?
Oh, come on, you're smarter than that.
I'm sticking with overwhelmingly negative. You I don't consider overwhelmingly, only decidedly. But, yes, various degrees abound. Don't overestimate my intelligence. I'm a junkyard dog.
Leroy,
Interesting that you found the MRIS data showed this:
"There are certainly a fair number of real buyers, the MRIS numbers show plenty of FHA and VA loan financed sales, but I can't say what the ratio of buyers to investors is based just on that."
FHA is a disaster waiting to happen. I suspected it has become the new "toxic" loan and this LA Times blog posting comes up when you google it:
http://tinyurl.com/na4knq
Although apparently FHA is not doing as poorly as subprime loans:
Nearly 7.4% of FHA loans were "seriously delinquent" at the end of the first quarter, meaning they were 90 days or more past due or in foreclosure, according to the Mortgage Bankers Assn. That compares with a 4.7% seriously delinquent rate for prime mortgage loans and 25% for subprime loans.
FHA should be abolished. It's only harming taxpayers in that it's going to become yet another program needing a bailout and artificially delaying the decline in prices.
I don't have time to write much now, but I agree that FHA should be abolished, or at least returned to something like its original form.
Robert,
I don't think I'm negative. I see good things in the future. I didn't sell my stocks in my 401k and continue to buy stock mutual funds. Of course, I still have about ~30 years before retirement so I'm not being that risky an investor.
But there are people who think we may have another long period of stock losses akin to the Great Depression or Japan's sluggish market. I've never been in that category.
Similarly, I quoted Suze Orman who thinks we will not get back to pre-recession levels until 2015. I'd guess more 2013. So again, I think I'm more optimistic than many.
I just view your notion that DC area home prices will be higher in 2010 as bizarre. Does that make me negative or a realist?
housebuyer said..
This is just my hypothesis, but if you have both of these effects going on they would offset each other and make it look like there is no relationship. But at some point when MOI gets low enough Robert's case will play out.
MOI is 0.7 in South Riding - 31 active listings, 40 sales in the last 30 days.
I'll take the over -- home prices will rise. Anyone want the under? I'll give you 2-1.
Novawatcher says it's a coin flip, he should take this bet.
(BTW, 8 of those 31 listings are more than 100 days - WTF sellers) So, for me it's more like a 0.5 MOI.
Robert,
But for us first time buyers it is our life savings that we're talking about here. Sure I have some small retirement accounts that I'm not touching, and an emergency fund (only 3 months right now), and we have some money set aside for repairs/maintanence, but the point remains. This market is heavily dominated by first time buyers, and for us, it is our life savings. Okay, so we haven't lived long enough for that to be very big, either in amount or compared to potential future savings, but nonetheless.
Our hard-saved 50k down + 10k for closing and minor repairs may be peanuts to you, but it's still a lot of money to me, it's more than I made in a year only 3 years ago.
http://tinyurl.com/qjptub (Business Week)
FHA Loan + immediate $8,500 credit = zero down for many buyers
2005 again indeed.
The only promising sign is that the Isakson new credit has not gone anywhere. Of course, it's only a few weeks old. But already there are rumors that the House does not want to pass it.
Cara said...
If one were to argue in your manner I could just as easily say what would happen if suddenly a market that had 10/week sales had only 1 buyer left in it? What if it suddenly had 10,000? The problem is we don't know how many more buyers there are at a given price point, we only know how many houses sold and how many are listed. The pool of people willing/able to pay these prices could be drying up just as quickly as the pool of sellers.
If we could know the exact number of buyers, we could have a whole new metric, and we could use that metric, as well as MOI, to indicate future price direction.
Leroy said...
We should all be getting up every morning in time to post first in new threads.
I detect a hint of jealousy. I'll let you post first tomorrow.
We should of course be looking for information on what international commercial property investing groups recommend, and posting it to blogs about residential real estate for people considering home purchases... over and over and over again...
I know you like my posts. Admit it.
Novawatcher said.
My data (well, MRIS') ranges from 2.5 months to 25 months for some of the zip codes.
My data comes out of my butt.
SAI up $0.04 today.
Who's your daddy?
"FHA Loan + immediate $8,500 credit = zero down for many buyers"
Pretty much, as long as people don't feel like they are spending "real" money they are going to be willing to spend far more than they would if they had to put down even a nominal down payment.
TBW-
That is an interesting article, although I am not sure it is accurate. I have seen several places say that you can use the 8K for FHA loans, but only if you bring the 3.5% towards the downpayment. I find this a good thing. If the person is only putting down 3.5% I would rather them add the 8K and make it 5% down than keep the $8K and spend it on new toys.
TBW said...
As I suspect new inventory has gone down. That explains why we have less inventory overall.
Well, what else is there to do but speculate on the reasons why?
(1) Underwater homeowners -- people simply can't sell.
(2) 2006 listings are inflated because people tried to get out at the top. My house is in the March 2006 listing clump.
(3) 2009 listings are deflated because sellers are confident prices are going to increase.
(4) ...
TBW said...
I credit having been an investor in a collectibles market over a decade ago and experiencing the bubble-burst cycle firsthand and learning how bubbles works at a young age. This helped me identify the housing market which was exactly the same but at a much larger scale.
How's it going picking the bottom?
1-30-2009
kevin has been consistently wrong and giving bad advice on this blog. Here are a few clips from a thread on January 30th, 2009:
Tom, looking to buy, gets kevin's advice whether he wants it or not...
Tom said: "With interest rates this low, now seems like a good time."
kevin said...Of course, for that reason, during the past five years, it's ALWAYS been a good time to buy. Until six months later when you realized you jumped the gun. Then a year later when you're underwater. Then two years later when you don't even want to think about the terrible investment you made.
Well it IS six months later. How's it lookin' kevin?
Here is kevin's mantra up until about a month ago...
Shadow inventory is the number one reason I haven't bought yet. Just imagine what'll happen when they release it.
Yeah, just imagine.
Inventory January 30, 2009 = 11018. Inventory June 18, 2009 = 7889
kob said.. "Agree on that. Arlington & DC NW are not a PWC-in-waiting, the last in line to board the roller coaster down."
kevin said... Wrong.
Here kevin is looking for 80% style PWC collapses in DC and Arlington.
Buying in DC or Arlington right now is just like buying in Prince William during the housing bubble.
I'm a very surprised that you guys haven't picked up on this yet.
"I know you like my posts. Admit it."
Hey! Is he two-timing me with you!!
TBW said
I just view your notion that DC area home prices will be higher in 2010 as bizarre. Does that make me negative or a realist?
Home prices will be higher in 2010. I'm pretty confident about that.
Didn't mean to imply you were negative. Cautious, thoughtful, plenty of skepticism. Smarter than me.
"SAI up $0.04 today.
Who's your daddy?"
-sob- Everything I own is down!
Mortgage Interest rates.
"Rates have been volatile, but get ready -- they may fall again"
"But now, rates are retreating partly because inflation doesn't seem as immediate a threat as investors feared, Cecala said."
"'Realistically, I think that the rates will drift under 5% again. It may take a month, may take two months,' he said."
Robert,
Based on the quotes you put up, I believe kevin's point was that we've had very low mortgage rates the past five years.
http://www.freddiemac.com/pmms/pmms30.htm
So low interest rates alone cannot mean it's a good time to buy or else it was a good time to buy in 2007. And I don't think you believe that.
Also, I don't think you can claim with an honest face that PWC had 80% price drops. The only homes in PWC with 80% price drops are the homes falling apart on the worst block on the worst parts of PWC. Some McMansion in one of the best PWC school districts has not dropped 80%.
http://money.cnn.com/galleries/2009/
news/0906/gallery.silver_lining/5.html
I wonder if we have people like this in the area. At least here there is a reason to be optimistic about where prices will be in 15 years. If this guy is buying in the Detroit area I have to worry about what he's going to do when he's in his mid-50s and the homes have barely moved upward.
"It's possible that they could change the price. But there's no mechanism under which they could change the fundamental cash-flow available."
Yes, I agree.
The stock market fell a lot in 2008. That doesn't just happen. It happened because people rotated out of equities and into other instruments.
That money is parked somewhere. Perhaps MM at 1.0%.
Ditto the housing market, several here have mentioned selling at the peak. Where is their stake? Earning 1.0%?
When will it be time to rotate back into equities, to housing?
When it is time, that investment class will rise. We won't all buy SAIC.
Will people risk their savings on the bargains in PWC or will the recent stability of Arlington Clarendon tempt them more?
There's "hot" money on the sidelines. Many people are busted and down to their last dollar but many aren't.
TBW-
Although Detriot's economy will likely still be week for years to come the guy may be making some decent plays. I have heard the cash flow is unbelievable in Detriot. You can buy places for 30-40K and rent them out for $500+ a month. So the cash flow really is great. Also the fact he is buying 15 houses isn't that absurd because the 15 homes together probably cost less than a nice SFH in near DC.
@j@-
In the stock market money does just disappear. When stock prices fall its because stocks are valued lower not people taking money out of the market. If you sell a stock for $X you take $X out of the market, but someone else has to put $X dollars in the market. If this price is lower than the last price everyone else "loses money" and they did not take any money out of the market.
"In the stock market money does just disappear."
Something starts the drop. I think what happens is that someone gets spooked and sells. Then someone else sells. Then the downward cascade starts.
The first wave got out at the top in mid to late 2007. By definition, that's the smart money.
I was in the 2nd wave, I rotated out of equities in early 2008, so I'm with the not-so-smart money.
Asia was down last night. Maybe the market will plunge to the abyss, maybe not.
"everyone else "loses money" and they did not take any money out of the market."
Those people are properly termed "Bagholders".
Again, it's not everyone. Some people run away with the winnings but, you are correct, most are bagholders.
"contrarian said...
The Anonymous, here's your favorite: Harry Dent
"I think stocks are going to end up down 60 or 70 per cent before it's all over, and I think housing prices in Australia will probably be down 40, maybe 50, per cent, maybe more than that in the United States and Europe."
Burn, Baby, Burn..."
Ahh yes, from the same man who predicted the dow would hit 40,000 by the end of 2008. I guess he just misinterpreted the sacred texts last time he made that foolheardy prediction, but now, oh but NOW, hes SURE hes got it right.
Basically, "its different this time" huh...
@J@-
I was not trying to say that their are not winners. In fact their definitely are winners. Look at companies like Renaissance Technologies they average ~70%/year returns. This is why they can charge over double the fees of a normal hedge fund and still give their investors 30+% returns.
What I was trying to say was that the stock market is not a zero sum game. That for each smart person that took out their money in 2007 someone bought it from them. This person and every other person that didn't sell was a loser. Thus there were more losers than winners.
Your original comments made it sound like the stock market was zero-sum. There are definitely zero-sum markets(CDS, hedges options...), but the stock market is not in this class.
"... sound like the stock market was zero-sum."
I wasn't clear but you're right, I wasn't addressing the entire market.
Thanks for the clarification.
contrarian,
Thanks. I know how to use basic html but I didn't think this blog allowed it. Although in retrospect I realize a few of you had been putting up links.
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