Continuing to examine and hold a lively discussion of the Northern Virginia Real Estate market.
Please post your local house search updates, MLS finds, on-topic ideas, and links here.
From Patrick.net: Luxury Prices Keep Falling"Nationally, the scenario is much the same. The pool of people wealthy enough to afford such luxury already represented a small sliver of the marketplace. Home transactions priced at $750,000 or more made up 4 percent to 5 percent of transactions before the recession, said Lawrence Yun, chief economist of the National Association of Realtors.Today, only 2 percent of housing transactions are taking place in the same upper-end price range, Yun said."
Ace,yup, my old hood, North Shore Chicago. Every suburb they discussed is extremely wealthy. All have great public schools (or did 15 years ago). Not sure which are the equivalents here, and how much this issue has been cropping up. Potomac? Great Falls? McClean?
C, there seem to be several different things going on. First - the huge McMansion with the high maintenance costs and high property taxes - these days most people are voluntarily or involuntarily cutting back so even those who could afford the house ask themselves, "why? We don't need that space and we could take fabulous trips if we buy something smaller instead." Second, the more modest house over $750K in an expensive city is also dropping in sales volume. Here and probably Chicago, my guess is that these aren't luxury houses (unless they are a long commute away) and many are quite small. I think the problem is, "our savings and retirement $ have been devastated - we can no longer afford that type of house". and these would be buyers can't get as much for their current homes, which they have to sell to move up. In the first category, you might have the most luxurious houses in the 3 areas you cited or further out. In the second category you have a large number of houses closer in.
Ace,Yeah at the end of the article you see that the sellers are basically open to trading places with one of those $750k sellers to trade down. Or that's how I interpreted their statement.I'm not really in touch with what exactly the bubble did to prices on the North Shore, but a lot of those are a long train commute, but one that people have been doing for 100 years (the train barons moved to Lake Forest to avoid being in walking distance of the rioters). From an earlier article in North Shore Magazine the small houses in Lake Bluff got up to $600k at some point, and have come back down to $400k (from memory). So, $750k would still get you a nice-sized but non-luxury home, is my guess. But I don't think people can make a leap from $750k to $3 million. It's mostly VP transfers and old money reaching a new generation.But yeah, $60k yearly in taxes alone. Only for those with money to burn.
Ace-There are two other reasons they are dropping. First financing a luxury house is much harder right now. It is still very easy to get a loan that is super conforming which gets you to the 700K range, but a lot of banks are still shying away from Jumbo's or just offering very bad rates. Second there are far fewer houses in this price range. Most of these houses are located in expensive markets LA, Miami, San Fransisco, Vegas... Housing prices have fallen 30-40+% in most of these areas. So for a house to still be 750K it must have originally been well over a million.I think these two things have huge impacts. Maybe not as much as the fact people just don't want to spend as much on housing, but I would guess they are at least close.
Case Schiller Seasonally adjusted data is out, and DC is up to 169.22 in May, which is the second consecutive monthly increase SA, but is still below February and January, so not much lost ground has been recovered.Seasonality has definitely returned, and with a vengence. Nothing we didn't already know, but a confirmation that the general uptick in sales we've been seeing is producing some price gains, but the bulk of that is just seasonal. see Calculated Risk for the links.
I would think that the under 1 million market around here is slow, but not dead. Afterall, that is not too expensive given salaries.I can see where the houses over that mark have been hit pretty hard due to stock losses.Anyone have a comment on the most recent CS numbers? Seems that lower-end is still very hot (under 200K). I don't know about 2-500K or 500-800k because I don't follow those markets. It appears, from the alerts I get, that stuff in those ranges is moving.p.s. I looked at an reo (very nice condition) on Friday and it had 13 offers and they weren't taking any more.
Interesting CS numbers today. DC was a couple of tenths lower than I had predicted, but nationally was much better.The tiered results are a little odd. Medium and high priced comes did pretty well, but low priced places fell a couple percent. I wonder what happened in this market
HB,Perhaps foreclosures are more of a drag on the low end. And since CS is same house sales (I think), this would explain alot. Look at the % of sales that were in the low end during the peak.I moved into my house in 2002 and there has been a total of 5 sales in the past 7 yrs in my neighborhood of approx 60 houses.
"Afterall, that is not too expensive given salaries."I know you mean homes "under a million" but I took it to mean just under a million...maybe the 800K to 999K range.I wonder who these people are that make this kind of money to buy and sustain million dollar homes?I keep reading that homes that cost almost a millions are "ok" to buy in this and other forums. What am I missing about the D.C. area? Is a million bucks for a home one of the "norms" for folks who live and work in the D.C. area? I work for one of the big employers, and save for a few of the "C" level people, most live out on the edge of suburbia for the affordable living.If so....even if I could afford a million dollar home (I can't at the moment) I wouldn't spend that much. My comfort zone ends at $450K. Always has, no matter where I've lived.It's not about the perceived luxury of such a home, it's the risk mitigation strategy. Million dollar homes begat $$$ costs such as higher taxes, expenses, etc...etc...etc...
housebuyer,rather than download a bunch of excel files myself, can you reprint the numbers for the tiers NSA and SA for say the last 3 months, or this month compared to last year?Thx. Because that's really unexpected, the low end doing "worse"...
Texas,I could "afford" 2+ million, but choose not to spend that kind of money. I guess it's all relative.My guess is that many are in the same situation due to high wages and equity from prior homes. This is not a first-time buyer price range.That said, I'd rather have a weekend place and be able to invest in other assets.I didn't want this house. I was quite content with the old one, but the other half wanted it. Well, he works very hard and he can have the house he wants (and the car...). His car cost 3 times mine. People have different things that make them happy in life.
Below are the tiered numbers. Not Seasonally AdjsutedMonth LOW MIDDLE HIGH Total Jan 161.4 168.4 175.4 171.9Feb 158.9 165.5 170.6 168.0Mar 159.0 162.4 167.9 165.9Apr 163.8 164.7 168.1 167.3May 161.0 166.7 170.9 169.49Seasonally AdjustedMonth LOW MIDDLE HIGH Total Jan 162.5 170.4 177.9 173.5 Feb 160.2 168.1 173.6 170.0 Mar 161.1 165.0 170.6 167.8 Apr 164.5 165.8 169.5 168.1 May 161.2 166.3 170.6 169.2
Cara,I think we are going to see a "pop" in the low end. I'm seeing it and CS numbers lag.
Thanks housebuyer!Looks as if the blip up in April on the low tier was an anomaly, and that we've basically been treading water since February. That's also true of the whole set of tiers. Not a lot of movement either way over the course of the spring.What this tells us about where it's going to go from here depends on your answer for why declines have stopped/reversed. (assuming you buy my April was a blip theory for the low end). I still think I'm being a knife catcher, but I'm okay with that.
Va_investor,I'm not sure if the "pop" you're seeing in Reston will be true for the wider DC area. I think PG County alone could drag the low tier down (if it started actually selling...). But, if your timing is similar to what I've seen in Burke, I wouldn't expect the "pop" to show up in Case Schiller until the June or July numbers are out.
VA-I could believe that. The low end is by far the most impacted by things like the 8K buyers bribe.From the experience of the most recent place we bid on the mid market ~400K is still pretty busy. We found a house we liked bid on it when it had been on the market 3 days and there were already 4 other offers. I think fingers crossed we will get it. We were told that we were not the highest offer, but we were conventional and said we could close in 30 days. The owner is a flipper, so he is willing to give up a little on price to make sure it closes and closes quickly because financing a house no one is living with is an expensive cost for him.
Cara-It is definitely possible that we are being knife chasers, but as long as we are buying a place that would cost as much or more to rent the downside is fairly limited ~5-10%. I really can't believe that it will become more than 10% cheaper to buy than rent. I guess it is possible rents...
Cara,I'm also seeing a "pop" in PWC and Loudoun for low end - even some flips.
Cara-I guess you could be right about the blip in April, I had assumed that was because we were rolling off low numbers and adding high numbers, but this month makes the less likely. I don't really know much about the low end market is appears very volatile and I haven't followed it at all.
housebuyer,For what you're buying? Probably not an issue, going to more than 10% below renting. The issue for you is going to be rising interest rates changing that calculation. (But if you own it outright in 8-10 years, it's not a huge deal anyway)For a condo in Burke? You better bet that it can go to well below rents. I'm assuming cash-flow positive will provide a floor. But as most landlords are also looking for at least some upside potential on appreciation, and condos have different lending rules than THs do for owner-occupants getting funding, they're not a very attractive rent-to-hold while waiting for the next bubble option. What I'm looking at didn't appreciate at all even in _nominal_ terms until 2003/2004. It's a great option for fixing your housing price low, but has basically zero investment value, won't necessarily work as an inflation hedge, and will probably drop from here.That is, unless a bunch of other buyers are out there like me who see it as by far and away the best value for the money in Burke right now, and no real chance of the true next step up coming down far enough to be relevant in the near future. Because, right now? The stuff that's truly one step up, with no drawbacks compared to these places? Costs $125k more. Otherwise known as, not relevant.
For those who have not had the opportunity to travel to the areas of the country really affected by the real estate implosion, here is an article titled, The Florida CRE Implosion Visualizedclips from the article:I took a drive this evening from 5.30 pm - 7.30 pm and shot over 200 pictures of Florida real estate in crisis. What is really amazing if you notice the time and date on each picture . I was able to shoot a picture about every 45 seconds while all alone driving in traffic including stopping for traffic lights and gas and parking in a safe place each time for each shot . Everywhere you turn something is for lease or rent.[...]The pictures start at the Fort lauderdale beach on Sunrise Blvd. and go west to federal Highway ( rte 1 ) north to Pompano Beach about 8 miles and finish in a random warehouse district off the main road . After that it got dark and I had to stop . You will see Exotic car dealerships Burger King, Wendys , Fuddruckers , Hooters , Pier one , furniture stores , restaurants , clubs boat dealers, Business that have been there 20 + years , Supermarkets , Saks 5th avenue ( big white building in beginning ) Macks groves , Flaming Pit , the old 50's diner . A Ford dealer and a Dodge dealer . A golf course in beginning of slideshow . All GONE in just one 8 mile strip . Folks this is the good side of town with the money I did not even go to the other side of the tracks or to other streets just one !!!These photos were taken during the evening hours when shopping centers should still be open. Yet, most are completely vacant including the parking lots. It looks like a ghost town. Truly amazing.
contrarian,The rents and lease and sale signs are one thing, but who goes to Florida in July?
contrarian,Yes, Florida has been creamed. I was in Naples last week. I'd be a buyer in this market. Until people recover from their stock losses, there will be no uptick.I have 2 places that are about 50% off and one that has not dropped. Good thing I bought the two bad ones years ago and they are paid for.The "good" one was purchased in 2004. The most recent neighbor is from this area and has 4 other homes and is the head of a very large RE Company with over a hundred offices - a nice comfort sign for me.
Cara,Not many. Most (snowbirds) go there during the winter months. I used to go to Fort Lauderdale a lot. The shopping centers never looked like that during the summer.
"Cara said...I think PG County alone could drag the low tier down (if it started actually selling...)." One of the reasons I was skeptical for any rise this year was that while I was fairly confident NOVA was stabilizing, I was equally confident MD had greater intensity in pain ahead of it. (i.e. it was a year behind). Thus, I assumed stability in VA and decline in MD would equal decline on CS.I have now backed wayyy off that. I still think MD is behind VA, but its been doing alot of catching up. Earlier I thout it was a year behind, then 6 months behind, now maybe less. As for the blip on CS low tier, im not sure what to make of it. Part of me thinks the high and mid end will drag up the bottom, but then again, the last decline (90-96) showed the tiers can act independently of the others for quite some time. Another thing to watch is for a revision. I dont know if anyone else has noticed this but every so often, we see a blip that appears too high or too low, and then CS has come back the next month and revised it. Look to that as a possibility as well.
Cara,Besides me, a whole bunch of europeans!Although I was there on business.
WaPo: Executive Testifies on Senators' MortgagesThe Senate ethics committee has interviewed a former Countrywide Financial executive who testified under oath that Sens. Christopher J. Dodd (D-Conn.) and Kent Conrad (D-N.D.) were aware that they were accessing a special program to give below-market-rate mortgages to the powerful and famous when he arranged their loans, according to the executive's attorneys.The statements from Robert Feinberg, who worked as a loan officer at the mortgage lender, stand in direct contradiction to statements made by Dodd and Conrad, who maintain that they did not know they were part of the Countrywide program created by its chief executive at the time, Angelo Mozilo."He always made a big deal about them being in the VIP program. Does he remember the exact words he spoke with Conrad and Dodd? No, but he always made it clear," said Elana Goldstein, one of Feinberg's attorneys.
CRT,The PG County comment was based on the anecdotal search of listings that we did a while back based on someone here marketing their relatives house. There was an intense amount of competition in the under $300k range for very very few buyers. A lot of it was really cheap. Such that if confidence returned and people actually started buying that stuff it could pull the prices down. The nicer parts of MD that we usually refer to here, indeed the perception that they are just lagging us may need to be discarded. If so, I still maintain my theory that non-recourse lending and judicial foreclosure process actually did have the intended effect of making banks do better due diligence during most of the bubble era, lessening the distress felt by MD homeowners by not getting them in over their heads in the first place.
Cara-I agree that interest rates can really change the situation. If that is the case I could always find myself in the accidental landlord situation if I decide/need to move in 5 years. It may be worth just renting it out because it would be very cash flow due to low interest rates. You are definitely correct that selling a place after interest rates move up could definitely monetize the loss...
Until I see inventory start trending up for several months, I feel confident about current price/value.
Re luxury houses. Sorry to always be "that guy" but McMansions in Northern Virginia were $350-550k pre-bubble. The $550k and above market was actual mansions throughout the area and McMansions in McLean and North Arlington. I imagine there were some large homes in Old Town Alexandria that went for a million as well.Another words, pre-2004 a million dollar home was something awe inspiring. Even an $800k home was quite impressive.Now a lot of the homes asking $700-$1 million are nothing to write home about. That's the main reason they are lagging on the market.
I think we're just getting old ;)A million ain't what it used to be.
Here is a chart showing the new homes sold(millions of units, annual rate)According to Mr. Mortgage: “National New Home Sales, on a monthly basis, don’t even add up to half of the total foreclosure activity in California alone in a single month.”
tbw,I have to disagree. Unless we have very different ideas of what an impressive McMansion is, you are completely mistaken. Did you look at these houses in 2002?
Va_Investor,I know people who bought McMansions in western Fairfax County for $350-500k pre-bubble. I have looked up their property tax records because I am nosy. :) Some of the ones bought in the lower end of that range had unfinished basements. After a while it seems that developers stopped thinking anyone wouldn't finish the basement and I suppose that is part of why new McMansions went up in price. But most of the increase I think is bubble related.
Texas Native,I wonder who these people are that make this kind of money to buy and sustain million dollar homes?There are very few people in the area who can buy and sustain million dollar homes. That's why the bubble popped. It got ridiculous.Here are the people who can afford such luxury homes:Local sports stars (members of the Redskins and better paid members of the Wizards, Nationals, Capitals, etc)Principals of lobbying firmLaw firm partnersSmall/medium business ownerCEOs and VPs of businesses in areaDoctorsI'd guess of the 5.3 million or so people that call the DC area home that about 30,000-50,000 people fall in the above categories. Of that 30-50k they are probably distributed 45% DC, 35% VA, and 20% MD. Based on the public statements made by various law firms, profits are going to be dramatically down this year. Also, any lobbying firm not doing health care lobbying has less business this year.
tbw,You fail to account for those move-up buyers who come with a very large downpayment. Even a million dollar Loan only requires a 250K income at current interest rates.Also, I bought my home in early 2002. It may or may not fit your definition of McMansion, but they were going for 700-800K at the time and only reached 950-1.2 at the peak. Hardly "bubble" numbers.
TBW-Those are all people that can support a million dollar house on 1 salary. There are significantly more who can afford it on two salaries. I know a lot of couples that are both managers at consulting firms or similar types of jobs. They make 175+. With 350K in income you can easily afford that particularly if you have decent savings and can put at least 20% down.I mean even to gs 15 step 10s could do if they wanted. They would have ~320k which could also afford that payment (although you need to be pretty old to be at that level so they may not want to be moving up the housing ladder)I would also be very surprised if there are more millionaires in DC than NoVA. DC has some in Georgetown, DuPont, U-street, and maybe Adams Morgan. These areas are much smaller than Arlington, McLean, Great Falls and a couple other very prices large areas in DC. At least on franklymls there were 600 1+MM homes in DC and 2200 in VA.
I rented to a law firm partner back in the mid-90's and he was making 600K THEN. What are first year associates making? 150+K?
FWIW - census data indicates there are approximately 176,000 households around the area that make "more than 200K". That probably understates it a bit, as I only looked at NOVA DC, MoCo and PG. There are other counties in the DC MSA but I didnt take the time to count them.Im not saying 200K can support a 1M price, and we dont know how many of these make $200,001 versus 700K or more. Still, I think the estimate of 30-50K people, is a little conservative.
Wow a lot of reaction to my comment. I'll try to address each one.Va_Investor,Also, I bought my home in early 2002. It may or may not fit your definition of McMansion, but they were going for 700-800K at the time and only reached 950-1.2 at the peak. Hardly "bubble" numbers.Do you mind providing the general location of this home? Note I exempted McLean and North Arlington (and Old Town Alexandria) from the $350-500k range. Also 2002 is during the bubble so between 1998 and 2002 your home which was $700-800k then probably was $600-700k in 1998.
housebuyer,While I know of two high income earner families they are more the exception to the norm. Most families still seem to fall in the breadwinner-stay at home/mom friendly job (part time/teacher/librarian etc) or two earners with both making around $75k (not each making $175k+). I do know some two lawyer families and included those in the $30-50k estimate.I would also be very surprised if there are more millionaires in DC than NoVA. DC has some in Georgetown, DuPont, U-street, and maybe Adams Morgan.Housebuyer -- since many of the superrich in this area work in law firms in DC and lobbying firms in DC a lot do live in DC. Some do live in VA and MD and I put that in there. You got the neighborhoods all wrong though. Georgetown is correct. A couple are east of Rock Creek Park in the places you mentioned but not that many. Most wealth in DC is west of Rock Creek Park. Drive around that area. You'd be surprised how suburban it feels. Also look at how expensive those homes are. And all those people not only afford those homes but can pay for a private school.
Va_Investor,I rented to a law firm partner back in the mid-90's and he was making 600K THEN. What are first year associates making? 150+K?First year associates make $160k. Law firm partners on average make $1 million or so (although some are making $3 million per year and some are making $500k per year). Depends on how valuable they are to the firm.Where I work I'd say the law firm partners appear to have spent 0.5-1.2x annual salary on their homes. Thanks to the power of the internet I was able to see what their homes cost.
CRT,I used 3x annual salary to determine who I thought could afford a million dollar home. So I thought of who made $333k or more. Frankly, I think that is being generous for who can afford to own and maintain one of those homes.I suspect the people making $200-333k in the area are about 100,000 or so. There are probably many more of those because $200k is high but achievable for many two income households.
tbw,Reston 20194. Mine was built in '92 or '94 and sold new for high 500's. So, we've had a double in 15 yrs. Not the best investment I'm sure.
p.s. I bought on the Courthouse steps, so my basis/return is much better.
One more pointYou are generally at a minimum 25 when you graduate law school (many people are 26-30). Add 8-11 years to become partner (something most people do not become) and that means 33-41 when one becomes a partner. Junior partners, however, are not making the big bucks and many of them need to "buy shares" in the firm when they start. Hence add in another 5-7 years before you are making $1M+. So 38-43 if they are the breadwinner and 33-41 if they have a highly compensated spouse as well.There's not as structured a career path for highly-paid lobbyists but suffice it to say I cannot imagine anyone being given a serious junior lobbying position without 5-10 years with a mix on the Hill, administration positions, etc (and relatively underpaid those years) and then another 5-10 years at the lobbying firm before they are someone making $700k-1M per year.And so on. Most people are not getting these massive paychecks until 40.I also have not met many couples where both people work heavy duty and have kids. I have met some childless couples where both spouses work long hours (and a really select few couples with children where both work long hours) but I've also met many couples where the mother goes part-time or does not work for 3-6 years while their children are very young. I really honestly believe the couples people keep describing here are pretty rare in this area. I've said this a million times before but I lived in what I think was a nice comfortable SFH neighborhood in Fairfax County. Almost everyone living there just had a nice but not extravagant job. Midlevel office worker, realtor, teacher, auto salesman, Secret Service agent, etc. No one was a CEO or a SES etc. And yet the prices that neighborhood commanded in 2005-08 implied that was who would live there.Hence it's going back to reality. But maybe I'm out of touch with some new paradigm shift. I just don't see it.
TBW - Gotcha.As an aside, if there is any place that CS will revise next month it will be Cleveland. According to CS it posted a (nonseasonal) 4.1% rise MOM. Seriously?? Cleveland??Its hard not to be skeptical. Still, if there was another down on its luck city that was in need of a boost its Cleveland. I would love to see it if the rust belt started shoring up...
VA_Investor,If it sold high $500s in 92-94 then I suspect it was still high $500s in 98. If you want me to say $350-600k pre-bubble would that make you feel better?There were plenty of McMansions in the $350-500 range during the pre-99 time period. I'm not saying they should still be $350-500k. Part of why they were so cheap is that in the 90s western Fairfax County, Loudoun, PWC were still the "boonies" and many shopping centers serving those areas did not exist yet. The enclosed mall in Dulles only opened up in 1998 for example. I think the 2002 prices make sense. I'm certainly not mad at the notion of your home going from $600k in the late 90s to $700-750k in 2002. I am skeptical that your home should be worth $1.2 million no offense meant.
TBW and CRT, As you imply, there are a lot of people who have wealth from investments, equity in their present homes, etc., who put down far more than 20% when buying a home. All home buyers are not first timers in their 20s or 30s with lots of loan repayments, child care/schooling expense, etc. In fact, they are in the minority most of the time (maybe not at this moment in certain parts of the country, but generally). So, in addition to the yuppie couples who together make $350K or more, there are a lot of people and couples with incomes in lower ranges, who have home equity, family money, or other assets that can afford million dollar homes if that is their priority. The Millionaire Next Door book describes how people can get into this position (though I wouldn't say the authors or people described in the book would likely buy a million dollar house if they made the median salary even if their wealth permitted it). Of course, right now that wealth is greatly depressed by the stock market performance over the past 1.5 years or so.A lot of people in this area would much prefer NOT to spend in the million $ range but find that unless they want to continue to make difficult tradeoffs (whether you can fit more than 5 guests or family members in your house at once vs. commuting time, for example), they have to spend much more than they would have to spend in 98% of the rest of the country. It's one of the biggest downsides of living here but there are also a lot of advantages here as well. And maybe, with some patience, this downside will continue to shrink - slowly, maybe, but it may.
Most law firm associates are servicing very large student debts, so they don't have 160k to "spend" on housing, though.[And several of the law firm partners (male) I worked with had hefty alimony payments to wife no. 1....]
I'm not sure I agree that pre 2004 or even pre 2001 that $300K or so bought you a great house in many areas (unless you drove to qualify). I remember looking at houses here in 1998 and was shocked at the tiny dumps needing major reno on the market around $300K (close-in). You might want to check the counties' assessed values (which lagged the market 10% or so most of the time back then).
I should have noted that TBW was referring to $350-500K as buying a McMansion in some areas and 550+K buying one in McLean, Arlington, etc. I'm talking about a step down from there - that if $550K would buy a McMansion in Arlington, McLean, etc. then $300-350K should have bought what I would consider a great, smaller house in good condition in those areas. And it surely didn't in 1998.
Meshell,Great point. I don't know why I didn't point that out.Ace,Great point as well. Okay, maybe I should put the cutoff point for $300k because the average $1M homebuyer will be someone moving up from another home and have home equity and investments since they are older.Nonetheless, as the Millionaire Next Door points out, with a fancy home/car/etc comes the obligation to spend a lot of money in other ways to keep up with the Joneses. Once you move to the $1M home you need even fancier furniture, fancier vacations, fancier dog (sorta kidding), etc. Otherwise the neighbors think who let that family in here.I also shudder to think what kids in the McLean or Langley HS pyramids want for clothing. It was snooty enough in the other FCPS pyramids. I even have some relatives who were pretty tightfisted until they moved to a fancy neighborhood and now spend on a lot of things they did not in the past. It's amazing what people will spend to fit in at a neighborhood dinner party. Trying to be cool does not end after you leave high school.Although if the bubble never ended and we all had to keep spending 4-5x income on homes I suppose we'd all be so house poor that no one would feel competition on clothes, furniture, vacations, cars, etc from the neighbors.
Ace,The lower end of the pre-bubble range of $350k was homes really far out there. The homes you'd visit and the map you had in your car wouldn't show those roads because they didn't exist two years ago.
Divorce must explain some of the home purchases these older rich men I meet made. It all sorta makes sense now. They are only spending 1.3x income because that's not their only home! (In a sense). With the property settlement and alimony/child support many in a sense used their income/wealth to buy two homes.Also I wonder how many "move up buyers/existing home buyers" are because of divorce! Interesting, interesting. Just imagine how ridiculously high home prices would be if people did not divorce at such a high rate.The Italian divorce rate is very low. And home prices are very high. And I've heard that the divorce rate is lowest in the northeast. And where are home prices really high? The northeast.
tbw,my home is probably worth 950k. that is why i question a further drop. it got up to maybe 1,050.
Looking at Case-Shiller levelsIf housing kept track with CPI inflation, the Case-Shiller index would be at 125 now; in fact, it’s at 140. But of the 20 cities on the Case-Shiller list, just 9 have managed to outperform inflation: Boston, Los Angeles, Miami, New York, Portland, San Diego, Seattle, Tampa, and Washington. The big outperformers — New York and Washington — more than make up for the underperformers like Detroit, Cleveland, and Atlanta.My gut feeling is that this means New York and Washington have significantly further to fall, in terms of housing prices; even Miami, at 144, is still looking pretty rich. San Francisco might look cheapish at 120, but it was artificially inflated, at the beginning of 2000, by the dot-com bubble: just a year earlier it was at 85.
VA_Investor,We will have to agree to disagree on that. That, of course, is the fundamental debate of this blog! I suspect Fairfax County agrees with me that your home is worth less than $950k when it put out your latest home assessment. And will have an even lower number next year.I know some of you feel assessments are meaningless. I do not.In any event, it's sorta amusing we are even debating this. Obviously you must be doing well in life even if your home will ultimately go back to the $700k range. And considering you bought it for high $500k range, even if it ends up in the $700s that's still a lot of profit.
Home Sales Surge, Raising Hope That Sector Is RecoveringThe average home price dropped 8.7 percent in the region's "core" area -- the District, Arlington and Alexandria. It fell 14.8 percent in the close-in suburbs of Fairfax, Montgomery and Prince George's counties, and Falls Church and Fairfax cities. The outer suburbs -- Prince William, Loudoun and Frederick counties -- experienced the steepest price drop, 15.7 percent, because they have been hit hardest by aggressively priced foreclosures.
Contrarian, FWIW, Felix Salmon is a bit hamfisted in his analysis. he completely ignores fundamentals. I recall a conversation I had with him last year, noting the rapidly declining inventory - he assured me even with the moratoriums and shadow inventory, it was a blip and it would be at all time highs by this summer...Oops.
tbw,I wish Fairfax County agreed with you. My '09 assessment dropped a whopping 5%. I hope it goes down next year!I, too, am a big fan of The Millionaire Next Door. I passed my copy along to a relative (who needed it!) years ago.I could not care less what the nabes think. I drive a paid off inexpensive older car and live in sweats. We bought way less house than we could afford because we wanted a beach house and a ton of rentals. I'd bet a good number of well paid locals own second homes.I really have no idea what my neighbors have or don't have. Can't ever judge a book by it's cover.I was once totally ignored at an upscale clothing store. I was coming back from cleaning a rental, so I assume they thought I was beneath them. I got on the phone when I got home. I spend alot there (because I have to attend certain events that require it).
VA-Your house might be worth 950K, but I imagine in the current environment it would be very hard to sell. Right now pricey homes just are not moving. Who knows what will happen in the future though.TBW-Do you have any comment about why you think there are more million dollar homes in DC if there are nearly 4 times as many houses that have the word Virginia in the listing than DC on franklymls(I don't know any better way to determine the breakout). I think there is a lot of wealth in the Tyson's area, but maybe that's because I am looking out my window and see a ferrari and an aston marton :)
VA_Investor,Wow. If you only dropped 5% then Fairfax Co must like your home much better than the people I know who live in 20194. Are you perhaps in the Herndon HS district (they are in the South Lakes HS district - no kids).housebuyer,I gave my guess as to the distribution of extreme wealth in the area. Not what current home prices are. When we hit bottom I suspect the distribution of $1M+ homes will be different.There certainly is wealth in the 267 corridor offices. I'm sure the high level people at SAIC, Boeing, Oracle, AMS, etc etc etc are doing quite well. That being said all the vice president level people only add up to so many. Recall I'm talking about $333k+ wealth. I don't think even two non-executive employees at SAIC make $333k+ combined.As for judging wealth based on cars, please pick up a copy of the Millionaire Next Door. ;)
tbw,no one in 20194 goes to South Lakes. I do expect that school to improve with the redistricting. Those people that were in the Oakton pyramid were beside themselves when they were shifted to S. Lakes.We go to Aldrin, Herndon Middle and Herndon HS. I'd say about 50% go private after Aldrin.
tbw,p.s. there were two (unfortunate?) sales in the past year that went for peak, hence the assessment.
TBW-I agree that they may not have a lot of money in the bank account, but they have a $200K I am sure they live in a million dollar home. I don't think the wealth in this area comes from the couple of executives at big companies. I think it is mostly from smaller businesses were the owner has one-two floors on a building 50-100 employees and makes a couple million a year. There are a ton of these companies out here.
"I also have not met many couples where both people work heavy duty and have kids. I have met some childless couples where both spouses work long hours (and a really select few couples with children where both work long hours) but I've also met many couples where the mother goes part-time or does not work for 3-6 years while their children are very young."Yeah, I think this is true. I don't actually have a lot of parents in my peer group yet but my sense is that with couples with childen even if both work full-time one partner will try to arrange to at least actually work an 8-5 / 40 hr week schedule. And I don't know of many jobs where you can make a lot of money (more than $100k doing that. Dentist / dermatologist, maybe. The GS-14/15s I know seem to work at least 50 hours a week.
Va_Investor,Well that explains it. I mixed up Reston zip codes. Friends in the South Lakes HS district saw very large drops.I'm surprised that so many of your neighbors don't like Herndon HS. Has something changed recently? I thought it was a well regarded school.
"CRT said... Contrarian, FWIW, Felix Salmon is a bit hamfisted in his analysis. he completely ignores fundamentals."CRT - it looks like the blogger for the Economist.com agrees with you--"Posted by: Economist.com | WASHINGTONCategories:Housing markets"FELIX SALMON writes:If housing kept track with CPI inflation, the Case-Shiller index would be at 125 now; in fact, it’s at 140. But of the 20 cities on the Case-Shiller list, just 9 have managed to outperform inflation: Boston, Los Angeles, Miami, New York, Portland, San Diego, Seattle, Tampa, and Washington. The big outperformers — New York and Washington — more than make up for the underperformers like Detroit, Cleveland, and Atlanta.My gut feeling is that this means New York and Washington have significantly further to fall, in terms of housing prices; even Miami, at 144, is still looking pretty rich. San Francisco might look cheapish at 120, but it was artificially inflated, at the beginning of 2000, by the dot-com bubble: just a year earlier it was at 85."I don't understand his logic here. Why should home prices track inflation? Why shouldn't relative home prices shift over the course of a decade? Consider the difference between Washington and Miami, both of which he mentions. Over the last decade, job growth in the Washington metropolitan area has been much stronger than in the Miami area; employment in Washington has increased by 19% compared to 13% for Miami. Washington has also held on to more of those jobs through the recession; unemployment in the Washington metropolitan area is at 6.2% compared to 9.4% for Miami. And supply in Washington was kept tighter throughout the last decade. In 2005, for instance, during the height of the housing boom, there were about 35,000 new housing units approved in Washington, compared to 45,000 for Miami (both metropolitan areas contain a little over 5 million people). In 2004, Miami also approved about 30% more housing than was permitted in the Washington area. In 2006, approved units fell in both metropolitan areas, but Miami still issued about 25% more permits than Washington.Why wouldn't we observe a shift in relative prices between those cities? Now maybe price-rent or price-income ratios indicate that homes in Washington are still unaffordable and should fall further. That's possible. But I don't see how the fact that home prices in a market outstripped inflation over the decade tells us anything about whether it is overvalued or not.Markets came detached from underlying fundamentals to varying degrees during the housing bubble. Then, during the crash, fundamentals ceased to matter much at all as basically every market suffered from declining prices. As things settle out, however, we should begin to see fundamentals of supply and demand reassert themselves, and it's unreasonable to think that markets which have had vastly different economic experiences over the past decade will all return to the same point.
housebuyer,I think it is mostly from smaller businesses were the owner has one-two floors on a building 50-100 employees and makes a couple million a year. There are a ton of these companies out here.I agree. I included small/medium business owners in my list of extreme wealth.But a ton of them? There are certainly a "ton" of small business owners (although still I think we are talking at most 100-200k across the entire metro area) but the vast majority of them are not making $333k+ in wealth. For example, I know people whose parents run a few beauty salons and another set of parents who run a restaurant and while they are doing well they aren't making $333k+. A business might make $1 million but after you take out the cost of the office space, employee salaries and benefits (plus the other half of the FICA taxes!), business taxes or licenses, attorneys fees (even a small business might face the occasional lawsuit from disgruntled ex-employees or ex-customers), advertising, accounting who runs the books/income taxes, and so on. The Washington Post Magazine will often profile local business owners and many take in a lot of money but only can give themselves an $80-120k salary (at least the people they profile.)
The Anonymous,I agree with that critique, however, note the critique had this caveat:Why wouldn't we observe a shift in relative prices between those cities? Now maybe price-rent or price-income ratios indicate that homes in Washington are still unaffordable and should fall further. That's possible.I think in many areas (but not all areas) price-rent and price-income ratios are still out of whack. Incomes and rent did not increase enough to justify even the current pricing. They did increase enough that it does seem possible Manassas and Woodbridge overcorrected. If I were an investor I would be looking in those areas (although the moment to buy at the bottom there was probably six months ago.) I'm buying a place to live so I have to wait for the rest of the market to correct at a snail's pace.
TBW-I agree that most small business owners do not make that much money, I was trying just talking about professional service businesses. There are a lot of small consulting, wealth management... type of firms. Either way it doesn't really matter. We are both arguing over a couple of percent difference in where wealthy people live.
TBW, I agree with your basic points, but I really think you and I have different ideas about what $1 mill. approx. will get you today, at least in DC and close in areas. It typically is not a huge or deluxe home that requires tons of $$$ to furnish (of course, anyone who insists on having all new stuff of the highest quality will have to pay a small fortune). And most move-up buyers will already own high quality furniture they intend to keep. They might need a few pieces or another room's worth of stuff but someone who is 40, 45 or so has accumulated most of the furniture needed and maybe even most that is wanted, and certainly will not feel s/he has to go out and replace everything that isn't quite right tomorrow. I also agree with VA_investor that keeping up with the Joneses is a chump's game, and that many people in this age range also could not care less for themselves (let alone for the neighbors) about expensive cars, jewelry, the newest fashions, etc., and they may not have time to travel or enjoy it. It is not at all difficult to afford a 900K or higher house on $200K or so more per year in a secure job or business, when you're putting down $500K, have no loans or dependents, don't care about most other luxuries, and can reduce your income tax bill by more than $5K per year by moving up. It's difficult if you have to have the best of everything or lots of dependents.As for what things cost pre-bubble, the assessments are pretty helpful if you bump them up by 10% or so for the time lag. Even though you can't see photos of the properties without also googling, you can see square footage, size of lot, etc. and the value by year on most county websites. What $300-350K bought you in metro-accessible Arl. or nearby in 1998-2000 was a <1500 square foot dump that needed $200K or more worth of work, and you had to put up with questionable neighbors and other possible risks. It took us almost as long to find a place then as it has more recently. Somehow I think that if there were better buys out there at the time, our Realtor would have found them quickly!
Ace,Reread my original comment. The $350-500k range was describing what a McMansion in areas like central and western Fairfax County, Loudoun County, and Prince William County cost in the 1990s.I *never* said $350-500k bought you a huge home near the Clarendon metro in 1998.As for not keeping up with the Joneses -- I totally agree it's a silly thing to do. I don't feel any need to keep up with the neighbors. But a lot of people obviously did or else we wouldn't be seeing all the foreclosures and massive credit card debt articles.I do think your hypothetical $200k couple with no kids and never travels and saved up $500k etc describes about 10 families max in the area. Btw, you don't save money moving up because of the tax credit. The tax savings come from the mortgage interest deduction. If someone is paying $5k less in taxes that means they are paying an additional $10-15k in mortgage interest, property taxes, etc.
The Anon - good find! Im glad im not the only one seeing the foolishness of Felix Salmon's sentiment.He says 125 is where everyone should be, and his "gut feeling" is that since DC and NY are above that, they have a ways to go?Why not that Las Vegas, Phoenix et al, which are way below 125. WHy arent they all undervalued and are ready to "explode" in value in a way that would make Robert salivate? The stupidity of either one of these comments is that it just ignores fundamentals, supply, demand, income, etc. etc. matter - end of story.So thats the same problem I see with Mr. Salmon's "analysis". All he sees is a high case shiller values and assumes this means "Washington has significantly further to fall".OK, so, despite the fact that DC started falling mid 2006, about the same time that everyone else in the CS 20, now that everywhere else is tighteing up (as he admits), DC has significantly further to fall?And does the trend not mean anything? CS in DC has been down 30 something months, slight at first, severe for a while, slight at the end - just what you would expect to see for a downturn. Now its been up 3 months, and apparently this is a clear sign that it has "significantly further" to fall?In all honesty, this type analysis reminds me of the "its moving in/it just hasnt hit yet" that plagued this blog for years when looking at the close in areas. For years, everyone thought the inner areas havent suffered enough, they must come down, without even trying to explain why things like less flippers, less Alt A, greater income growth, equally depleting inventory, tighter MOI, monumental shifts in demographics not seen in 140 years, etc. etc. etc. etc. could possibly suggest, it may not get as bad? Sorry, this type of stupidity posing as analysis gets me a bit irritated. I cant believe how many people still give credence to some fool's ramblings, just because they have been put into text on some site somewhere. Despite the bleating of this blogger or that, just look at the data and determine if this person has any clue what they are talking about.Rant off now...
btw as much as we mock easy credit here . . . in reality they don't just give *anyone* a car loan. The people who buy the really fancy cars generally have a lot of money. Hence they are 40+.So I totally disagree with you that the average 40+ year old stops caring about impressing people. If they did, then Porsche, Mercedes, Rolls Royce, Jaguar, etc would go out of business. Same with luxury watch brands.And for people in their 20s-30s how many people do you know who keep buying fancy electronics? How many digital cameras, iPhones, iPods, laptops, blackberies do people have? I'm becoming a weirdo for having just a regular cell phone.If you go to some non-wealthy suburb/city portion of the country, you will not see so many luxury car dealers, Apple Stores, Williams-Sonoma stores, Restoration Hardware, Pottery Barn, Bloomingdales, etc etc etc. While we probably went slightly overboard with retail space in this area it's not by that much. Almost every mall seems to be packed with people even in one of the worst economies of our time.
CRT,You are mischaracterizing what he said. He noted nine metro areas C-S index increased by a rate higher than inflation. He did not say every metro area should be at 125. In fact, he notes that Detroit's C-S peak of 127 was bubbly.There are fair critiques of his argument but you aren't fairly critiquing it.I wouldn't say he's just some random person with a blog. He's blogging for Reuters which is a well known wire service like the Associated Press. Given 90-95% of mainstream media coverage of the housing market is positive, I find it bizarre how worked up some of you get when one person dares say the market has further to fall. (And note in 2006 you all were apoplectic when Robert Shiller was saying there was a housing bubble.)The media never fails to quote Lawrence Yun, local realtors, those in the mortgage business, etc. Plus those groups buy a lot of advertising space in the media. I suspect one reason the Washington Post is hurting is because the Saturday real estate section has gone from 8-10 pages to 4-6 because fewer companies buy half or full page ads. The deck is very much stacked against anyone who wants to argue that housing got out of hand.
I have done a good deal of substituting for AP math classes at Herndon High and the school seems to have a lot of problems with attracting kids to the classes. In 2008 the trig class had 15 students, this year calculus had 17 students. Most of the AP students in all classes are Asians whose parents work in some of the high tech companies around Reston. They joke that they are the kids who did not get into TJ. God help them if they have a brother or sister at TJ, because their parents treat them like second class citizens. One girl told me that her parents won't take her to family functions because they are ashamed of her. I have not seen it because I go in one door, check into the office and go to classes in the same wing, but other teachers say there is a good deal of vandalism inside the school and in the parking lot. Again, haven't seen it but parking lot fights seem to be quite common as I have had several class room visits from Fairfax Co. police officers reminding the kids not to fight.
anielarke,Interesting. Is it the BC Calculus course? I could see a section of that only having 17 students. Because there is AB Calculus as well many schools remain selective in who is chosen to take BC Calculus.At least on paper they have an amazing selection of courses. I mean offering Multivariable Calculus and Matrix Algebra? That was something I believe only offered at TJ in the 1990s. I have to imagine less than 1% of high schools in America have a course like that available.I can imagine vandalism might be a problem although probably not grave (as you noted you've never run into it). There's always going to be some bad apples at any public school. I don't think it's worth spending $30k per year on a private school though. Particularly a public school offering so many advanced courses.But of course once 50% of your neighborhood sends the kids to private school you might feel pressure to "keep up with the Joneses."
tbw,For us, our kid went to Catholic School (1-12) - not for the education. The nabes send their kids to the expensive schools.The huge goal around here is UVA or Ivy . My kid is Ivy, but very respectful and well mannered - one of the main reasons for Catholic School (never mind it's cheap compared to the others).
"TBW Said...I wouldn't say he's just some random person with a blog. He's blogging for Reuters which is a well known wire service like the Associated Press."Then obviously you dont know him very well. As luck would have it, I do. A buddy of mine works for Reuters too, its not a big deal, yet everyone thinks it is. Half the time, when he needs a quote for something he quotes me a "DC area lawyer" - as if im some sort of expert or air of authority - truly hilarious."Given 90-95% of mainstream media coverage of the housing market is positive, I find it bizarre how worked up some of you get when one person dares say the market has further to fall. (And note in 2006 you all were apoplectic when Robert Shiller was saying there was a housing bubble.)"I sincerely hope this wasnt directed at me. I wish you had been around back in the early days to see how it was obvious to everone but Lance that there was a bubble. Again, sorry but this is an issue I have with Felix Salmon and the way everyone treats anything that came from a big media outlet is gospel. Oftentimes, reality could not be farther from the truth.
TBW - Sorry but while on the subject of often quoted experts, here is my favorite target of all time - Steve Bottfeld.This guy runs some quasi real estate group out in las vegas. He was always the biggest cheerleader I ever saw. I wish I could find it now, but back in March 08 he had a quote, which (I am paraphrasing here) went like this:"I dont care what anyone says, Las Vegas Real Estate will have another record year - we will have at least 35,000 sales and prices will go up at least 10% - and I will take all bets for those who dare to take the under"I dont have to tell you how that prediction turned out. By all estimates, it was the worst case of boosterism ever. In any other profession, that would have been it for him. His reputation ruined, he would never have been quoted by another source again.Well, in a stunning case of revisionist history, look at what Mr. Bottfeld says about himself now:Steve Bottfeld was one of the first to predict the housing boom in 2004. He was also the first to predict the decline as well.http://www.erealestateexec.com/local_profiles1/steve_bottfeld.phpExcuse my french, but what the f**k. This ass clown in no way predicted anything about the downturn. Yet he has somehow remade himself into some sort of expert. And he STILL gets cited by local and national papers all the time.Sorry, but this is a hot button issue for me. Salmon and Bottfeld are reverse sides of the same coin. To trust either one of them without critically looking at the data yourself is pure folly.
Va_Investor,The huge goal around here is UVA or Ivy . My kid is Ivy, but very respectful and well mannered - one of the main reasons for Catholic School (never mind it's cheap compared to the others).I have relatives (FWIW) who went to Catholic schools and had children out of wedlock, divorced, left Catholicism, etc. I suspect your child is well behaved mostly from the example and morals you provided him/her growing up and would have come out the same at Herndon HS. But you had the money and whatever makes you happiest is all right with me. Just disagreeing that public schools do not teach manners. Not all public school graduates are as annoying as me! :)
Yes, I teach both sections of calculus and the honors trig classes which are offered in all of the high schools with AP classes. I did not know Herndon offered matrix algebra (one of the good things about being a substitute is no faculty meetings) and I have never been asked to teach it there or at any of the other high schools. I do know from teachers that a lot of the wealthier kids in the Herndon High boundaries go to the Potomac School, Langley School, and The Heights, the Opus Dei school in Maryland (a bus picks them up in McLean). I have also seen home school kids from the area when they come into South Lakes for the IB math classes. Very few of the home school kids take the AP math classes.
CRT said... Contrarian, FWIW, Felix Salmon is a bit hamfisted in his analysis. he completely ignores fundamentals. The good thing about Salmon is he provides links to opposing views at the bottom of his article. However, I agree with Salmon. Call me a doomer, I think I'm a realist. The United States has fundamentally changed. Individually, people have more debt, on average, than ever before. Plus, we no longer have the manufacturing base to extricate ourselves from this quagmire resulting form the federal gov't debt. I've said on a number of times schisms would break out on various issues, including race. Enter Gates-Gate.I've said the United States is on the verge of a major economic collapse. If you don't want to hear it from me, I'll let a Pollock tell you. Warren Pollock. He explains how people rationalize what they believe to be true as if it is fact, despite the truth to the contrary (cognitive dissonance). (CRT looks at self in mirror) :-)Pollock says that economically the U.S. has reached the same point as Russia just before the Soviet Union collapsed.In the link provided above, I stated: "It would also not surprise me to see the disintegration of our democracy before it is over. " Translated: These major disruptive events will have substantial social, economic and political consequences. This will most likely continue to affect the housing market in the D.C. area and nationally for a number of years. What is unknown is how bad things will deteriorate socially? Will it be mild where people easily adapt to the economic and political changes, or will there be anarchy?Stay tuned. Same bat time. Same bat channel, as our dynamic-duo, George W. Bush (a.k.a., Chicken George) and Barack H. Obama (a.k.a., Mr. "Stupidly") and their friends from Goldman Sachs continue running the United States further and further into irrelevancy (and bankruptcy).
"I agree with Salmon. Call me a doomer, I think I'm a realist."Im not surprised, youve never been one impressed by the fundamentals. By the way, I heard a great quote which I think is appropriate here - to wit "ive never met anyone who thinks their view is not 'reality' and anyone who disagrees with them is either cockeyed optimist or a far fetched pessimist"
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