The S&P/Case Shiller® composite index (graph here) for the month of April was released today.
"Data through April 2009, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that, although still negative, the annual decline of the 10-City and 20-City Composites improved. . . .
'The pace of decline in residential real estate slowed in April,' says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. 'In addition to the 10-City and 20-City Composites, 13 of the 20 metro areas also saw improvement in their annual return compared to that of March. Furthermore, every metro area, except for Charlotte, recorded an improvement in monthly returns over March. While one month’s data cannot determine if a turnaround has begun; it seems that some stabilization may be appearing in some of the regions. We are entering the seasonally strong period in the housing market, so it will take some time to determine if a recovery is really here.'".
88 comments:
Yes Virginia, there is a spring selling season.
I know that the belief is that CS is the most accurate measure, but are same-sale homes really that telling when the majority are recently bought reo's? Or are these sales really "true" comps?
Va_investor,
It's just the measure that does the best job of removing the "mix" of which price bracket is selling best.
"accurate" depends on what you're trying to predict. Recent comps in your target neighborhood are the best measure of what a given house will sell for.
C-S is also using the entire region, not distinguishing between sub-markets that have very different stock and dynamics.
So right now, the fact that it shows a little bump up this spring is actually mostly a measure of people's increased confidence in the local economy and their own jobs combined with less expensive home prices and low interest rates. People (outside of this blog) are feeling good about buying houses now.
Yes virginia, there is a spring selling season..., AND, government manipulated mortgage rates, free government money for downpayments, and government manipulated foreclosure markets. It took all 4 of these pillars to overcome the still overpriced housing market. All 4 are coming to an end and that will start another leg down.
I've commented before on the market manipulation going on. Whether or not this massive tsunami of foreclosures appears remains to be seen, as is the fallout from the moratorium enacted for the first few months of the year. But certainly the latter of the two, in addition to the buyer's bribe that came into effect during April, are breathing a little bit of air back into the bubble. CS regional numbers are up for the first time in years, coincidentally right when these measures are enacted to reinflate the bubble. This changes nothing in the long term.
shamrock, samesies. This is neither surprising, nor sustainable. Just more bullshit to encourage suckers to buy and build a false sense of confidence.
Kevin-
I would hardly saying trying to stop deflation is bullshit. Deflation can be a nasty spiral where the further things fall, the worse the economy gets causing prices to fall. Personally I would much rather pay 20% more for a house than watch our economy fall apart and deal with 20+% unemployment.
I am pretty sure the government was not looking to re-inflate housing to 2005-2006 levels I am pretty sure they just wanted to stop them from falling. This does not sound that absurd to me. Median income to median price is now only a little above historical averages and low mortgage rates are allowing people to pay a smaller percentage of their income towards mortgages than has been possible in a very long time.
Maybe the fair value you are looking for is 10% lower, but it really isn't much more than that. You are very selfish if you would rather see our economy do poorly to save 40K on your house.
On a completely speculative note, how do you think the C-S index will impact the likelihood of an extension of the $8k 1st time incentive?
Based on April, I think we can safely say May will also be up MoM and show moderating declines YoY. If June is likewise relatively stable/healthy looking, will that decrease the appetite for further stimulative spending, when that comes out in August?
I'm guessing the late-summer early fall numbers will still show the normal seasonal decline sufficiently to worry law-makers into extending it another year. But if there are earlier noises that it's definitely going away that could stimulate more buying than usual in the fall, propping up house prices and preventing the drop that would lead to its continuation.
housebuyer said... "I would hardly saying trying to stop deflation is bullshit. Deflation can be a nasty spiral where the further things fall, the worse the economy gets causing prices to fall. Personally I would much rather pay 20% more for a house than watch our economy fall apart and deal with 20+% unemployment."
I don't see how those are mutually exclusive, let alone a tradeoff. Don't worry about inflation, old Bernanke is keeping that in check. A bubbled asset will correct eventually. This does nothing to help in the long term, and traps more people in underwater homes. You want to be part of that crowd, be my guest. But don't think you're being altruistic and keeping unemployment below 20% by doing so.
"I am pretty sure the government was not looking to re-inflate housing to 2005-2006 levels I am pretty sure they just wanted to stop them from falling. This does not sound that absurd to me."
Right, they want to keep prices at 2003 levels which per case-shiller is exactly where they are at now. Look at the inflation-adjusted indexes and tell me if that is even CLOSE to where they should be. They want to keep homes artificially inflated.
"Maybe the fair value you are looking for is 10% lower, but it really isn't much more than that. You are very selfish if you would rather see our economy do poorly to save 40K on your house."
What? Thanks for the ad hominem, asshole, but I just don't want to be underwater on my house. That isn't selfish at all, it is prudent.
Cara,
Given the fact that is increasingly requiring "cash" to purchase an reo or short, I would question whether these are "true" comps.
Cara-
I don't think it really impacts the chance of the 8K being extended. Although DC looked good most of the country was still having a tough time.
Cara,
I cannot wait until they announce what they'll do with the buyer's bribe at the end of the year. Of course, as a taxpayer, I want it to go away. But just imagine the market after that happens. It'll cut off the bottom rung of the move-up market and really drag down the higher-priced houses, at least for the first several months.
OT:
Any investors or others here that have a good reasonable carpet company? It's for a rental and I need it installed asap.
va_investor,
I think that's a highly localized thing. In Burke "no one" (fewer than 5 transactions) are using cash to finance REO's or shorts. Only in hot markets like Reston does it take significant cash to close the deal.
I would also go investigate how C-S deals with REO's before worrying about it's effect. I haven't read that part lately, so I don't know but CR's comments abounded with questions on the methodolgy so it's worth investigating if that's the biggest of your qualms with the measure.
housebuyer,
The YoY declines are lessening, the SA decline in April was only 1% or less MoM, and the house prices are starting to track closer to the nominal scenario on the stress test.
What I'm worried about is a W shaped recovery. Where we think we've done enough, and the appetite for more stimulus dies before the inventory is worked off, and state budget cuts continue, while the federal government decides to slash budgets anywhere it can hide the cuts so as to lessen the deficit, and then we get another major leg down. Which may be harder to recover from than your scenario of just keeping prices a little higher than they should be while maintaining only manageable unemployment, giving a good enough environment for resourceful savy businesses to thrive again.
Kevin-
I am confused if you really think there will be a lot of inflation then you aren't you much better off buying soon. Inflation will bring up housing values and you will get much better interest rates now than when inflation is high.
http://mysite.verizon.net/vzeqrguz/housingbubble/
This chart shows inflation adjusted prices. I assume you want the prices to fall to the 140ish range(about average if you take out the bubble)?
To this I would say that I think land in desirable places should move with wage growth not inflation(since it is a limited commodity). If this is the case housing prices are already fairly valued. (this also explains why nominal prices trended upward from the 70s to the 90s)
Finally I don't think you can entirely ignore mortgage payments. Rates are obviously better than any point on this graph. Although the value of the house may be more important than the mortgage payment you can't totally ignore rates. Low rates should give some support for prices.
CR on the OCC and OTS mortgage survey
Forget about the Alt-A wave, it's the prime loans that we have to worry about now. Take a look at those graphs!
OK, so it's time for my usual monthly question: Any predictions about what the local MRIS sales statistics will show for June 2009?
Housebuyer, if you look at housing as the EXPENSE that it is, rather than the investment that people think it is, then lower housing prices are good for the economy, not bad.
Cara,
I have no huge "qualm"; just thought I'd throw it out there for debate. Sorry.
va_investor,
Sorry, I also think it would be interesting to discuss, but I'd like to know the methodolgy first before speculating. And since local factors are so much bigger, I wasn't curious enough to go look it up.
Ace,
FFX County:
median up at $370k but only 10k rather than 20k (from $360k May, $340k April, $320k March)
sales down only slightly to 1280
(May had same number of contracts and contingencies as April and had 1331 sales).
I'm expecting the sales from existing contracts to be down only slightly due to rising rates.
Contracts and contigencies will be down slightly from the highs of ~2000 in April and May to 1900, due to lack of desirable inventory and rising rates.
Although the other distinct possibility is median up 20-30k and 2200 contracts and contingencies due to percieved scarcity and greater confidence amongst the move-up buyers. That wouldn't surprise me either.
housebuyer said... "I am confused if you really think there will be a lot of inflation then you aren't you much better off buying soon. Inflation will bring up housing values and you will get much better interest rates now than when inflation is high."
I can't pretend to know whether we'll see it or not. I have myself protected in other ways. Yes, I've considered buying at what I consider to be a premature time and at too high of a price just in case, but I'd rather not take that risk. The absolute last thing I want is for my house to fall in value to the point that I'm stuck with it. I'd feel pretty dumb after all these years with my eyes open to jump into the pit with all the other suckers.
"This chart shows inflation adjusted prices. I assume you want the prices to fall to the 140ish range(about average if you take out the bubble)?"
You are correct. And while I agree that there are places where I can find prices at about those levels, I simply cannot stand the commute I'd have to live with. As it is, the only places I could buy without a horrific commute are really crappy and/or way overpriced. So I do not entirely dismiss the notion that all over the region all houses are overpriced, just for my particular needs they are.
"Finally I don't think you can entirely ignore mortgage payments. Rates are obviously better than any point on this graph. Although the value of the house may be more important than the mortgage payment you can't totally ignore rates. Low rates should give some support for prices."
Okay, this is something I completely disagree with. I would rather buy a house for $150k at 8% than one for $200k at 5%, assuming of course that my math is right and the monthly payment is the same. The amortization schedule is absurd, and my primary goal is to owe as little as possible, as soon as possible. I don't know when I might have to sell, so it's primarily about financial self-preservation, secondarily about long term profit. If I buy a house at historically low interest rates, and several years down the road they are above say 8%, what favor have I done myself by having the property decrease in value like that?
Rock bottom interest rates are very bad. That is one more plug in the the equity-propping tub that will be pulled out at some point, whether we like it or not. I'm not saying it's ultimately a game-stopper for me, but it is certainly a false incentive to purchase, and an absurd conventional belief that realtors love to perpetuate.
Looking at the early 90s boom-bust the C-S numbers never went all the way back down to pre-boom numbers. Housing prices can be sticky.
It's too early to tell if this is a blip before more price drops or the beginning of an L recovery (akin to 93-98).
If we are now entering five (or more) years of stagnant home prices in the region that's not so bad (assuming regional incomes increase.)
"Housebuyer, if you look at housing as the EXPENSE that it is, rather than the investment that people think it is, then lower housing prices are good for the economy, not bad."
Shamrock,
I agree in theory, but you have to look not just at the price level, but also at how we got there. If house prices had reached current levels without the bubble we wouldn't have a problem. Prices could be much lower than they are now, and it still not be a problem if they hadn't gone so high first.
The problem is the borrowing against houses that took placewhen the prices were much higher. The borrowers assume some of the loss, but if they're foreclosed on or walk away with the negative equity, losses get passed on to mortgage holders. When mortgage companies and banks lose 100% of their equity, the rest of the loss comes from somewhere else. This can be bondholders, or in the case of the banks the taxpayer (if there was no bailout, we'd still be paying since FDIC can't absorb losses this big). The losses continue to spread, not just affecting those with investments backed by mortgages, but eventually affecting the rest of the economy.
If everyone had taken your advice and treated housing as an expense instead of an investment, we wouldn't be in this situation. Unfortunately, they didn't. The problem now isn't that house prices are too low - it's that they are too low versus the amounts borrowed against them (or, in other words, that they used to be too high). The question now is whether we should try to limit the damage to economy or if we're better off just letting them fall until they get so cheap they stop falling, and recover from there.
Once prices stabilize, I agree completely. Treat housing as an expense, and don't provide any incentives to drive prices up. Cheaper is better.
Shamrock-
I agree I would be happy if housing became more affordable. I just would prefer to see it become more affordable through years of stagnation rather than through dropping off a cliff. In one case the economy keeps moving and people get rid of the pipe dreams of getting rich off of housing.
In the other case people get worried about their financial situation stop spending any money and you get a downward trending economy that is very difficult to fix.
va investor said: "I know that the belief is that CS is the most accurate measure, but are same-sale homes really that telling when the majority are recently bought reo's?"
va investor, are the majority of transactions in our MSA reo's? how do you know this, what is the actual percentage, and what is the source of this info?
Kevin-
I totally agree that I would rather have higher interest rates and equal payments. In some of those years you have 15% mortgages. I would much rather pay 200K at 5% than pay 150K at 15%.
So although I know I will not be living in my house for 30 years I will be living in it hopefully for 10ish and there is a real benefit of having reduced payment during this period of time.
I am by no means a housing bull, I don't expect my house to increase in value much(probably will lose value to inflation) over the next 10 years.
I just am no longer that bearish so if you find a place that you like and can easily afford I don't think its a dumb decision now. Clearly 4 years ago the writing was on the wall that housing prices had to collapse, I know longer think it is clear that prices still need to fall significantly.
housebuyer said: "You are very selfish if you would rather see our economy do poorly to save 40K on your house."
What a load of bull! Sounds like you are saying that it's "patriotic" to overpay for houses. That is is "patriotic" for one individual to overpay another individual for an asset.
KeithK-
I should have read your post before responding to Shamrock. I think you did a great job explaining the problem of falling prices
housebuyer,
The odds of the mortgage rates being 15% for 10 years is very low. As I noted a few days ago it's relatively easy to refinance. You might have two years at 15% and then five years at 10% and then the last three years at 7% (or some variant).
Look at this chart (covering the past 50+ years):
Wikipedia entry on Federal Funds Rate
The Voelcker sky high Fed Funds rate is a pretty rare event.
By the way, if the mortgage rate is 15% then you are probably going to make 11% on your risk-free savings accounts. So that's one upside to a high mortgage rate environment.
John-
I was not saying that you should overpay for a house. I have never said that anyone on this board should go an buy a house. I have not preached quick riches of buying.
All I am saying is that I do think it is unpatriotic to hope for every homeowner in your country to lose money. This recession has clearly shown how our economy and housing prices are tied together. So I do think that hoping you can save a little on your house is unpatriotic if it means millions of people will lose their jobs.
So I am not trying to say you should fix prices and buy a house because it is patriotic. I am instead saying dreaming of everyone else losing money is bad.
I would much rather see houses become affordable though wage growth and some inflation. Rather than a drop in prices.
In fact, harking back to the people a few days ago that discussed having 2% student loan debt forever for arbitrage . . . if we see Voelcker era Fed Funds rate again I am going to put a lot of money in long term CDs because those rates will likely not come again for another 30 years.
TBW-
I agree that you probably will not have a high inflation rate for the whole 30 years. But you do have some benefit of the low rate when there is a difference and you do save ~4% by not needing to refinance a couple of times.
The calculation of housing value vs. monthly payment can be very difficult to figure out where your optimum is.
housebuyer,
So I am not trying to say you should fix prices and buy a house because it is patriotic. I am instead saying dreaming of everyone else losing money is bad.
False. A huge portion of the homeowner population bought their home pre-2002. If regional prices were to go from 2003 levels to 2002 levels that's a huge portion of the population that still has home equity.
In any event, I think most of us are just dreaming of not losing *our* money when we buy a house.
Also, I think many of us do not want to buy in a lesser neighborhood or lesser home (TH instead of SFH or condo instead of TH) when 1-3 years later we could be higher up the housing food chain if we had just waited.
But you do have some benefit of the low rate when there is a difference and you do save ~4% by not needing to refinance a couple of times.
I suppose but only in your extreme example. I doubt the choices are going to be $200k at 5% and $150k at 15%. More like $200k at 5% and $150k at 8%.
housebuyer said: "All I am saying is that I do think it is unpatriotic to hope for every homeowner in your country to lose money."
Wanting reasonably priced housing is not the same as "hoping for every homeowner in your country to lose money." Do you like to get a fair price when buying a car or a computer? If so, then by your logic you are being unpatriotic because you are "hoping the manufacturers lose money." Do you see how ridiculous that is?
Also, it is just a paper loss until they sell the home. ;)
Of course, they might need to wait until 2019 to get their 2006 price again.
TBW-
People are still losing wealth when their house price falls even if they still have equity left.
If your only goal is to avoid losing money, or being higher in the housing chain I think you should definitely wait. I think it is very unlikely housing prices will come roaring high so waiting is always a safe play. There is no reason to try and catch the bottom. Also if you save for the extra three years you can almost guarantee that you will be higher in the housing chain.
I don't think this region's economy is going to be what makes or breaks the US economy. Of the largest 10 MSA's in the Duetsche Bank outlook we are doing the best. Us having another 10-12% decline from here is not going to be what creates rampant unemployment.
It's the harder hit areas that you need to worry about and their house prices.
Us getting back to 2001 versus 2003 prices isn't going to matter to very many people. The people who bought since 2004 are going to have a struggle ahead of them if they hit any rough patches anyway, and those who bought between 2001 and 2004 should have paid down enough of the principle that they have plenty of skin in the game, except for the HELOCers who are already defaulting.
I didn't disagree with your previous response, so to fast-forward:
housebuyer said...
"All I am saying is that I do think it is unpatriotic to hope for every homeowner in your country to lose money."
Did I say that? No. However what you're insinuating is that for someone to not buy an overpriced house and therefore sustain people's bubble equity, they're unpatriotic. What an insulting and bullshit notion.
Paying bubbled prices so that some retiring boomer can buy a 24ft yacht rather than a 20 ft yacht... well doesn't that make me feel awesome. The bubble equity IS NOT REAL. IT IS FAKE. Do not make statements intending to instill guilt on folks because they don't want to be ripped off. There isn't even an argument that we have "overcorrected", so just think how utterly absurd your notion is.
I don't want anybody to lose money. But I absolutely refuse to be ripped off when I make the biggest purchase of my life. If you think that is selfish, then I have nothing more to say to you.
TBW-
If you believe paper losses aren't real I have some stocks to sell you they are worth 2007 prices right ;)
John-
What determines a fair price. My hypothesis was a mix of house prices/income and mortgage payment/income. The first metric says housing is overvalued the second says it is equal to undervalued compared to historical valuations.
I agree that reasonable priced houses are a good thing, but I would rather see us get their through inflation and time rather than a big price drop.
All of the homebuilders are losing lots of money, so I would hardly say they are overcharging for their services. But it sure would be nice if houses were like computers where every year you can get a better one for less money than the year before.
housebuyer,
Maybe I'm an idiot but why would that be a loss? If in 2010 the stocks are at or exceeding their 2007 value and you sell that sounds like a gain.
Now, if you want to say you made less money than you would have in another investment during that time period I agree with that.
Kevin-
Yet again I have said hundreds of times on this board do not buy if you are worried about prices falling. It is unlikely they will rebound quickly so if you are ok waiting a couple of years you can be sure we are at the bottom. I guess the point I have tried to make is that we are getting to the point that it is harder to predict what will happen. I get equally mad at the pumpers and the bashers.
None of us know where prices are going to go. This is why I got mad at you for saying that anyone who buys is an idiot an a sucker. I also agree with TBW and I get very mad when Robert says that our local economy is amazing and house prices are going to the moon and anyone who doesn't buy today will be priced out forever.
I guess I am just trying to say that I would prefer people stat the facts and their conjectures about where prices are going without saying only idiots would disagree.
Its a loss because its a real market and your stocks are worth less. If you had kept the cash you could buy those same stocks and have money left over. Perhaps you will get large enough gains in the future to offset these losses, but you are clearly better off with the cash now because you can use it to buy more houses.
Cara-
I agree that the DC economy is not the one we need to worry about the most. So I agree we could withstand the drop better than many other parts of the country.
housebuyer,
That's not a loss. That's just failure to maximize profits.
Anyways, it was just a throwaway line about the paper losses. My actual point was that they are real losses because few people will be able to wait or rent out the place long enough to get back to 2006 prices.
Also a real loss if you spent those 10-15 years living in neighborhood B instead of neighborhood A. Or a townhouse instead of a single family home.
The other thing is, depending on your local market? You can get quite a significant discount on a short-sale right now. I've seen shorts listed at $280k, sold for $240k.(233 net)
(okay, only one)
http://franklymls.com/FX7007254
where the other most recent sales in that neighborhood were 244,270$270k. So, I do think some buyers right now will manage to luck out and get bottom-level prices "early" by buying shorts, while keeping monthly costs low because of current interest rates.
Now, the market may go under even these short sale prices, we don't know. But in Burke, anyway, that would take an overshoot past "fundamentals" of rent-to-own at 8% interest rates.
Cara-
That's a good point about short sales. Once the summer season passes people still looking to sell will probably be pretty desperate. So you can always try and get way undermarket price. That way if prices fall further you are somewhat insulated and if they don't you got a great deal. If you do not get the price you want than you can always continue to wait and possibly get a better price over the next couple of years.
I apologize to anyone I offended. I was pretty rude with some of my comments.
Question time:
What do people think is a non-bubble C-S number?
We do know that rents are significantly higher now than they were in 2000. And incomes. But of course rents and incomes did not increase enough that C-S should have ever been 250 but I don't think we are seeing a C-S of 100 again (Jan 2000) or 90 (April 1998).
My guess is that we might go back down to 140 which puts us at about August 2002.
TBW-
I would guess if there was no bubble the index would be in the ~160. I assumed 4.5% wage grow for 9.5 years this gets you to 152. I then assumed that 5% verse 8% interest rates was worth 5% of the value of the house which brings 152 to ~160.
tbw,
housebuyer
I don't have good numbers on this, but I postulate that (a) a large swatch of the DC MSA is lower-income, not in growth mode, and has deteriorated rather than improved in housing conditions. And while 4.5% wage growth might be the average or median wage growth, it was not porportionally distributed, such that higher income places gained more than lower income places. So the DC metro area is going to be some amalgam of places with 5-8% wage growth yearly for most of those years, and places with 1-2% wage growth where earnings are actually shrinking against rising costs.
So, I would guess that the new plateau will be higher than the last one due to the areas that have gained the most in this time, but will be held down on aggragate to less than housebuyer's number.
So, my guess is just a rough guess, because I didn't go get the numbers needed to make it firmer, but I'll go out on a limb and say that by the time this is all over, C-S will be down to 135 for the region. Well above the last plataue of 90ish, and irrelevant to the well-to-do areas, but still. It's been coming down about 30 points a year, and I think we've got another year left to go in this before it starts to ease, so ending at 130 seems as good of a guess as any to me.
Cara-
It definitely could hit the 130s, but it would almost surely take more than one year to get there. Due to the lagging nature of using a 3 month average you can see that the May numbers will probably be up 1.5-2%(just my guess). If this is the case the index would be at 170. To hit 130 housing prices would need to fall faster percentage wise this year than any of the previous years.
I would think most here at least think the price drop is slowing. So although 130s is a possibility I would expect that to take a couple more years.
I think the best chance for this is for rates to go much higher so new buyers decide to hold off unless they can get great prices.
housebuyer,
sorry I was a bit unclear. What I meant is 1 more year of steep declines, followed by a true slowing. So my prediction would be for the first 20-25 of that fall to happen this year and the next 10 of it to happen over late 2010-2011,2012.
Ugh the link contrarian had made me mad. One of the supervisors wants a meals tax? Just raise the property tax.
I know they are scared of political fallout but they can remind people that it was not that long ago that the property tax was $1.05 or so per $100 of value.
No reason to have a regressive meals tax instead of just going back to the pre-bubble property tax rates.
At least the meals tax would have to pass by referendum. I would guess said referendum would fail.
contrarian,
You should have highlighted this quote from the article:
The nose dive in home values that began in 2008 won't fully abate until 2013, top county staffers said in a briefing to supervisors.
I want to see that briefing! Are they predicting home prices falling in Fairfax County until 2013 or bottoming in say 2010-11 and not increasing until 2013? Or some other variant?
Cara-
That makes a lot more sense. I was trying to recall other times that you were predicting prices would fall 25% in a year. I could definitely believe they fall 15% this year and a couple percent each year thereafter. I think more likely they just don't keep up with inflation. But who knows we will see.
Note also that contrarian's article states that there was a "staggering drop in other tax bases, especially revenue from apartment and office buildings."
This brings back my they are going to need to rejigger the Silver Line funding. Here is how Phase One is funded:
The first phase of the project is funded 43% by $900 million of federal funding, 28% by a special tax district on commercial property proximate to the Silver Line route, and 28% by a $0.50 toll increase on the Dulles Toll Road.
I've already given my reasons for why I think that 28% funded by the Toll Road will not come to pass. Note the wiki quote above left out the 0.75 cents increase on the main toll plaza. I predict the projections for the DTR segment of the funding are wildly optimistic.
Now I have to believe that the 28% that is supposed to come from that special tax district are wildly optimistic as well.
The Fed money though is safe.
My guess: Phase One of the Silver Line is going to need more federal (or Virginia - ha!) funds to finish. Or just be dragged out a really long time to get the funding from DTR and the special tax district.
Phase Two is scheduled to be paid in large part by Fairfax and Loudoun Counties. If Fairfax staffers view budget problems until 2013, good luck getting the money for that. More hat in hand to the federal government (or Virginia - ha!) will be required.
tbw, housebuyer,
what you said about buying now what you can afford now, versus waiting, saving up more, and possibly seeing further price declines is my exact dilemna.
We did the math, including the "penalty" for abrogating the lease for which costs more 6 months or 12 months depending on which month we end up moving out.
Unsurprisingly, the biggest expense is breaking the lease, not the month-to-month premium. So, for anytime between December and June, the 6 month, followed by month-to-month makes the most financial sense, and anytime later than that you might as well fiddle with the closing date and go for the full year lease (followed by month-to-month).
So really it boils down to a decision on how much do we want to buy sooner rather than later, and how much do we want to spend on a house, and how much do we think we'll get for that money. My husband's in favor of saving up for longer, and getting a "better" house, but that will also probably mean a larger mortgage. I'm in favor of getting on with our lives and getting someplace this winter, having a smaller mortgage, and start having our savings available for other uses than a friggin house.
It's a tough call though, my frugal side warring with my "but we should be able to afford a" side.
And then there's the kevin angle, of not wanting to be "forced" to live there a lot longer than we're intending too from lack of equity.
And then there's my growing distaste for our current apartment. Did I mention we have the world's smallest washer and dryer? Fits three bath-towels. Or one and a half set of sheets. Not kidding.
Cara,
Your last paragraph just draws the question: why not rent elsewhere? If I remember correctly you currently rent in Huntington(?) and want to buy in Burke. Why not rent a place in Burke (with a nicer W/D!)?
This was the first thing that came up when I checked craigslist:
Very affordable Burke rental
I used to know someone who lived in that complex and it seemed nice to me. Very pretty with all the trees and felt safe. Looks like with that furniture stipend they might be desperate and you can cut a good deal.
Or how about this townhouse?
Burke TH
Anyways, you know how to find rentals in Burke. :)
tbw,
We're currently in Kingstowne. And the main reason is, this meets our needs, and moving for us is a $2000 ordeal. If they had raised our rent, we would do it. Or if we knew that we didn't want to buy for another 2 years. But for 1 year it's not worth it. I've moved either every year, or every other year since 1997.
But maybe I'll look, see if there's anything sufficiently intriguing.
More on Fairfax Budget Woes
Yikes. The property tax already is $1.05 per $100. And they want to raise it 11 cents more! It was $1.76 in 1976 so I guess it's been worse but still that sounds pretty darn high.
Also -- I about fainted when the headline said reinstate car tax. I thought that meant trying to get back some of the personal property tax but it just means bring back the decal and accompanying fee. That makes sense. Connolly is being weird in acting like that $33 is the worst thing ever. He just can't admit that they were able to eliminate it because county budgets were flush with fake housing bubble money.
Cara-
You could always take your advice about either a short sale or a foreclosure. Seeing that you have said you have strong tastes about how you want things in your house you may be the perfect buyer for a place that needs some TLC. These places are always discounted and that way you are not paying for somebody's taste. So you could possibly do a 6 month and start looking more seriously in the winter when the prices are down(the 8K may be gone) and see if there are any properties that fit your needs and budget.
Either way for your case it seems like at least waiting until some of the craziness gets out of the market is a good plan.
contrarian,
What is scary is that these staffers probably saw the boom as a bubble as we did all along (total mismatch between home price increases and income increases and rental increases) and yet the county never put any money aside for a rainy day fund which they must have known was coming when the bubble ended.
Rainy day funds I guess are not as much fun as large salary increases for county employees and likeable but ultimately not necessary county programs.
housebuyer: equity is not money, but unrealized gains.
Long time readers know that one of the indicators I'm watching for as evidence of a recovery is the 200 day moving average on the XLF (Financial Sector Spider).
Sinve about June 9th, the XLF has hit the 200 day a few times, trying to break through. Technical analysis indicates that this is trying to break out (above the 200 day) and is failing. That's a bearish sign. If it finally does break out, I'll be ready to call the end of the bear market. But if it stays bearish, as I suspect, this pretty well marks what I'll call the top of our bear market rally.
The stock market is not tied directly to the housing market, but they've been feeding each other (and starving each other) a lot recently. I expect that the come Autumn, the end of the selling season combined with a lackluster summer market performance will really shatter a lot of optimism.
Don't let that fool you. That's going to be among the best times to buy, either for the market, or for houses. I just wish I was in a position to take advantage.
Cara, regarding moving to another rental, you might be able to find a 1-month free deal that would pay for the move. And you might even find that once you tell your landlord you're moving they'll lower the rent, or at least give on the premium for a 6-month or month-to-month lease.
NoVAwatcher said...
"housebuyer: equity is not money, but unrealized gains."
THIS!
Novawatcher-
We can quibble over the difference between cash and unrealized gains. The point that I was trying to make is people feel poorer when their house goes down in value. In their minds they thought they had those gains now they realize they don't in their mind their net worth has fallen, causing the decline in the economy I was talking about.
Xpovos-
Didn't the XLF break above and close above the 200 day moving average yesterday. Either way at the rate the 200 day moving average is falling either the XLF will break above it soon or the markets are really going to start tanking soon.
Does anyone have a good source for median income vs median price that is actually up to date. All of the charts that I find are 4-5 months old.
The best I could find is, I am pretty sure the median house has fallen 5% since this was made. If this is true than the ratio is approaching its average since 1980s. Does anyone have data saying that median house to income is still way out of wack?
http://www.ritholtz.com/blog/wp-content/uploads/2009/02/existing-home-prices-vs-median-income.png
Ace: June sales predictions for Arlington, Alexandria, Fairfax Co. June 2009 vs. June 2008
Houses
Arlington - sales up 20% but median price down about $50K
Alexandria - sales about the same & median price about the same
Fairfax Co. - sales about the same & median price about the same
Condos
Arlington- sales about the same & median price about the same
Alexandria - sales about the same & median price about the same
Fairfax Co. - sales up about 20% and median price down about $25K
Townhouses
Arlington - sales about the same & median price up about $100K
Alexandria - sales down about 35% and median price about the same
Fairfax - sales down about 5% and median price about the same
Interesting predictions, Anielarke.
NovaWatcher - actually, equity may not include any gains, and equity isn't entirely or necessarily created by market increases, bubbles, etc. If you have paid off a house, for example, you have equity in it, unless you're in Detroit where the value of a house may be zero. And, you may have a loss if the market value is below your capital investment.
housebuyer,
If so, not by enough to register for me. But I'm only using free tools, so there's some possibility for data error. Regardless you're essentially right, it'll either pop over that 200 day moving average shortly, and fairly strongly, or we're going to have a sharp drop off again on the market inside the next month, two at the latest.
TBW: you'll like this quote from Connolly back in 2007:
Board of Supervisors Chairman Gerald E. Connolly (D) said prudent management of the property tax windfalls of recent years has enabled the county to avoid cuts. By cutting the tax rate from $1.23 to 89 cents since 2002, the county restrained spending.
"This is a soft-landing budget," Connolly said. "We didn't develop the appetite for all that extra revenue."
http://tinyurl.com/2cjg8f
housebuyer,
People also feel poorer when there are lower interest rates on bank accounts. So having the Fed Funds rate at 0-0.25% lowers spending among retirees and conservative investors.
In fact, it probably has a stronger effect than higher home prices because those are realized gains.
TBW-
Homes falling in value are far more important to peoples idea of their wealth than bank account interest rates. Do you realize how few people are hurt by low interest fed rates? The vast vast vast majority of our country has large sums of debt an virtually no savings. All of these people are better of because their CC card or ARM payments have gone down.
Rates falling also only matter if all of your money is in short term cash like instruments. So if you had 100K in money markets/short term CDs(~5% of the population) you are losing 5K of income. These same people have seen there house fall close to 100K in value, which one do you think is psychologically tougher.
housebuyer,
woah, woah, woah. Are you not aware of how many seniors there are in this country? And how many of them try to live off of the interest and dividends rather than the principle of their retirement?
We should look up how many people this is, but it's not small.
Cara-
I am pretty sure it is a lot smaller than you would imagine. Its unfortunate, but most seniors have little to no savings. They tend to sustain themselves off of social security a little savings and the fact they have a cheap lifestyle because they own their houses.
I did some consulting for JP Morgan(which has wealthier clients than almost any bank) a couple of years ago and it was remarkable how little people had in either retail bank accounts or investment management accounts. 100K combined between the accounts would be the wealthiest decile. It is possible that things have changed and these people also had money in the market that they moved into safer accounts, but at least a couple of years ago people just didn't have that much money in cash-like instruments.
I think we all know a lot of people with this much cash, but we are not even close to a representative sample of the population.
housebuyer,
but people's pension funds are also funded out of safe investments that give little return normally and even less now. And a lot of people did take their money out of the market if they were already retired. And if the argument is about the established neighborhoods in NoVa, then the "fixed" income folks are extremely relevant. Many of them will have taken out reverse mortgages or will do so soon, but that still translates to equity-free sales down the road, where the sale of the grandparents home no longer translates into the downpayment funds for the grandkids (especially if the reverse mortgage was taken out at the height of the bubble such that the required equity cushion will evaporate).
Cara-
I agree that earning nothing on your savings is a big problem, for some people. I was just trying to argue for the economy the evaporation of equity in homes and in the stock market is much more detrimental. Your comment about these people using reverse mortgages also illustrates that the loss of equity is a bigger problem than lower interest rates. If they have less equity their monthly payments from reverse mortgages will be lower.
So I feel for people who are not eating into their principle rather than living of their interest. I was just trying to say that this is not nearly as detrimental to the economy as having most of the economy retrench on their spending because they feel poor.
It is obviously good for people to increase savings rates, but this needs to be a gradual process. If everyone tries to do it at the same time the economy gets hit very hard.
housebuyer,
I looked around but wasn't able to find any solid data on cash-holdings and interest income... Sigh.
Anyway, I had kind of lost the thread of the original conversation and gotten side-tracked onto long-time owners who may own their house entirely and the general impact of the downturn on them.
Long ago on this blog people had posited full-owners as the reason why Arlington and Alexandria were holding up so well (relatively speaking). That's clearly part of the reason, but I think we've shown that increased incomes are a bigger part of the fundamental gains (i.e. what's there once the bubble gains are shed). Since these long-time owners are going to be a major source of the supply of houses during the long-flat period, because they do have equity and will have reasons to sell (death, retirement, or moving to an older living arrangement), the effect of the downturn on their wealth and income stream is going to factor in somehow... But I think there are so many options and so many different individual circumstances that parsing out what will happen in aggragate would take an actual economist or demographer.
I have a question for youse guys. I've been watching a short sale listed for 90% of 2008 assessment in PWC. Yesterday, the trustee notice was in the paper and the amount due is $380,792. The listing is for $449,900 (SS). Now, I'm wondering how many others are doing this? It's being negioated by a third party lawyer. Is this legal or do you think the short is for a second? Curious stuff going on. I've been checking sold prices on Frankly and it appears to me and purely andedotal that re-sellers are giving much better deals than buyers are getting on SS and foreclosures..some of these are going above asking price.(PWC, Manassas).
Arkey,
That is odd. I'm guessing there must be a second, like you said. It would still be a short sale, because both liens count, but only the first lien-holder is foreclosing because they'll get all their money that way anyway? But, obviously this is just a guess.
There are definitely some real sellers with large (or full) equity stakes willing to give better deals than SS or foreclosures, especially after including the costs of deferred maintanence. It's really a case-by-case and locality based thing. Real sellers with real equity can chose to sell whenever they want to, as long as their willing to price it well, short-sellers have to contend with what a bank will accept, and banks who have many properties have a greater vested interest in keeping comps high than sellers who are moving away.
arkey,
the other thing is, what stage is your local market at. I really think PWC has bottomed and is firmly entering the realism stage. The trickle of remaining REO's and short sales will be driven by banks trying to lose as little money as possible, and the real sales will be driven by people who have non-monetary reasons why they want to sell now.
Most of the rest of NoVa isn't there yet, but I've definitely seen a handful of real sellers willing to price in line with the REO's and shorts. At the same level of up-keep, updating, there's very little difference in price left in Burke. (aside from a few underpriced REO's and shorts that have all been snapped up quickly).
I think more desirable places like Vienna and Reston aren't there yet.
housebuyer said...
"I agree I would be happy if housing became more affordable. I just would prefer to see it become more affordable through years of stagnation rather than through dropping off a cliff."
That statement is a lot easier for someone who already owns a home and just wants to stay put or move a rung on the housing ladder. Those of us who are a little younger and were priced out by the bubble have a different opinion. We do not want to pay for the mistakes of others over the course of our 30 year mortgage, all the while the house is going through "years of stagnation".
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