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Monday, September 14, 2009
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67 comments:
Wednesday talk about housing in the area
What's RAFOM?
Description
The Radnor / Ft. Myer Heights Civic Association (RAFOM) serves the residential community of Radnor / Ft. Myer Heights in Arlington, Virginia. A member of the Arlington County Civic Federation, RAFOM plays an active role representing interests of neighborhood residents. All community residents are welcome to join RAFOM's mailing list, attend RAFOM's regular meetings, and/or join as members.
Cara-
I know nothing about them, but it appears to be a civic association in Arlington
http://rafom.org/
Tabitha...did you see this! UNDER CONTRACT!. I haven't been in this home but have wondered why in the heck it never sold. Did you ever look at it?
http://franklymls.com/MN6747559
Hi I will be at the RAFOM meeting as my condo is near Prospect House. RAFOM has really had to do a lot lately with all the development on Queen St., 12th St. and Quinn St. I just hope the Quarterdeck survives the redevelopment. Scott McCaffrey from the Sun Gazette really knows a good deal about Arlington real estate and the history of Arlington. If you read his feature articles about houses for sale he always seems to put them in an historic perspective.
I wonder why they made this house so tall and skinny. http://franklymls.com/FX7157654
If you look at the pictures from the back side it looks like there is plenty of room. Maybe zoning laws
does anyone know how to search for/order by 'recently under contract'?
MM,
I don't think that's one of the options but you can email Frank and he'll probably add it to the pull down list within a day or two if it's a simple change.
(you can sort by list date, as well as DOM, but that's not the same as what you're asking)
Ah, the Quarterdeck. I've haven't been there in 20 yrs. The crabs were great! Whitey's was also a favorite back in the day.
MM-
I've noticed that franklymls.com already has made that addition to his site. Once you click the "solds" box at the top, and then, underneath, select "close date high" as your sorting method.
Does this help? I've noticed that these sold list includes August sales, which means that it's fairly up-to-date. Or, are you looking for what closed within the last week?
REdealSeeker
I believe MM was looking for what recently went under contract but is still listed for sale, at least that's what he wrote.
Newish move-in ready McMansion sized home for under $475k in Herndon? What kind of roll-back would that be? 2002? 2000? Weren't a lot of the jobs in the tech-corridor not there back then?
Best of luck! Let us know if you land something like that?
WaPo on the state of commercial real estate in DC.
More anecdotal than I would like... as always. Take away what you will, I'm not in a mood to cherry pick and this article is ripe for that in either direction. But definitely worth a read.
Six Months After the Market Hit Bottom
Wednesday -- Sept. 9 -- marked the six-month anniversary of the March 9 stock market bottom. It's been quite a ride up since then.
The Standard & Poor's 500-stock index is up 54 percent, with 97 percent of the stocks on the index trading higher. The Dow Jones industrial average and the Nasdaq composite index have also posted huge gains.
The question now is: Where do we go from here?
...
"I do think we will see markets and economy in slow-growth mode over an extended period of time, which plays in to your last point," Hogan wrote, regarding the general deleveraging of the economy. For the Dow, "eight percent annualized market growth will take us five years to get to 14,400 from here."
I continue to see an exodus of home investors as the stock market continues to recover. People are seeing how much money they could have made in six months(!) trading stocks. If longer term investments average 8% per year that draws even more people. Heck, I think it might take us less than five years to get to 14,400 meaning higher than 8% gains.
So if the stock market goes back to yielding 8-10% per year and the Fed gradually raises the Fed rate such that banks offer no-risk CDs at 4-5% APY, explain to me why people would bother investing in the housing market again?
Not only are the odds pretty low over the next four years that housing will return 8-10% annually but there are substantial risks it will be negative. Also, stocks and bank accounts require little work. Home investments require being a landlord and/or mowing the lawn and/or fixing up appliances and so on.
Ultimately bubbles completely bust when most of the investor class leaves. It happened with the Beanie Babies and any other bubble. Eventually reality sets in; people see a new trend to follow; and they flock over there. There are still plenty of home investors and the bubble is not over until then.
Now -- maybe contrarian and some others will be right and we'll see stocks crumble and this was a bear rally. But I remain optimistic about the stock market.
I was driving around Annandale on business and saw this beauty. I want this house. Way outside my price range, but man, I'd be set.
Unfortunately, it looks like the owners are toast. If I'm reading it right they bought at the peak from the developer and are now significantly underwater on the tax assessment. The price movements slowing seems to indicate they don't have much if any more equity and are possibly looking at turning this into a short sale soon. May have bit off more than they could chew. I can understand that.
Gte--
From yesterday's thread--
Umm, have you looked at gold charts vs. housing? If you had to choose back in 2000 where to put your money, you'd have been a lot better off buying gold vs. buying a house.
Actually, that's very wrong.
I did this house-priced-in-gold math myself a few months ago for my own condo, which I purchased in 2002 and sold in 2007, and further for house prices in general versus gold since then. The results were very interesting, but one of the things I learned was that having the house was RADICALLY better for my net worth than having gold would have been.
For one reason: leverage. No one would have let me buy (borrow) 360K (my house price) worth of gold in 2002, putting down only 18K (my house down payment) or 60K (what I could have put down.) And even if I could, I wouldn't have made such a bet in gold as I did in housing. So I wouldn't nearly have doubled my net worth in 5 years. While paying hundreds less in taxes. And living in one of the nicest DC neighborhoods, essentially for free, despite condo fees and special assessments averaging $1300 a month. And walking to work. And renting out a parking space for small additional income. And having more space than I would renting. Now, from that sale, I have enough invested (inflation-hedged) in gold to make for a HUGE down payment in the next couple of years if prices are looking more stable, plus a bunch of other funds for stock buying, emergency use, etc.
Why don't I own now, for the leverage and inflation hedge? Because leverage works against you when house prices are falling (as many have spectacularly learned) and doesn't work as well when interest rates are low, either. And, I'm respectful of the argument that buying a house when interest rates are already low and may be about to rise could be one of the worst things you can do.
Now if you have 3k in cash take the money put it in a CD for 12.5 years at 5% interest, you're smart.
Uh, no. Actually, I did exactly this, right after being ~20% stung by the 1987 stock market crash after my first post-college foray into investing.
In fact, if you look at inflation, CD rates and the stock market in those 12 years, I'm sure you won't argue when I say I still regard it as probably the DUMMEST financial moves I've ever made. (Luckily I was young, so the $ amount involved was puny.)
Holding CDs long term is a good way to inflation-erode your savings. Why? Because they are (theoretically) zero-risk. You have to put capital (principal) at risk to gain yield and avoid inflation-risk.
(The reverse of this is also nearly universally true--if your yield is high, your principal is at similarly high risk. The Madoff clients learned THIS lesson spectacularly.)
Cara,
I used to work in the building that was where the Constitution Center will be. It's a nice spot for office buildings. Right on Metro (literally on top of a L'Enfant exit) and also a good slug location. They kicked everyone out for the rebuild/remodel though, and everyone found it was much cheaper to be somewhere else, and that employees would put up with not being on Metro/slug lines in order to keep jobs.
tbw,
What many fail to account for with rental investment property returns is the leverage and the fact that tenants, in essence, are buying the property for the LL. Yes, it can be a pain and prices do fluctuate.
Many neophytes got totally burned in the recent correction as did first-time buyers.
If property keeps pace with or beats inflation, a 20% downpayment on a 100k house looks very attractive. Even a cash-flow neutral investment will return 5 times inflation.
If rent vs own is about even, then owner's benefit in many ways. The old axiom about owning at least 5 yrs is back in place and perhaps extended to 10yrs.
I read an Article the other day about Miami rent vs. buy comparisons. It said that buying resulted in a payment that was one-half the equivalent rent. I find this hard to believe, but I don't know that Market.
As you all know, I am a firm believer in owning free and clear by retirement. I can only imagine what rents will be in 30yrs.
If some of the worst case scenario's discussed here come true; it won't really matter what you do...
As far as spending only 10% of one's income on housing, I think that is fantasy given the properties that many would find acceptable given their education and income. It is quite achievable once one has owned for a number of years (assuming wages increase while housing costs remain fixed - abesent taxes, ins., etc).
Sorry Scott,
I didn't mean to mirror your comments.
You've timed things well. I learned from some mistakes in the late '80's. Exiting in 2005 or 2006 was not attractive to me for many reasons; but there are a couple that I wish I had sold.
I never would have sold my "home" unless it was due to a job transfer or other life-altering event. While I don't consider it an investment, I do look forward to "burning the mortgage"!
Xpovos,
No way of knowing how much equity they have. The price seems reasonable enough* so long as they find a buyer with the same taste in paint colors. I'd only have to repaint the pink room. The low-end tile in the master-bath confuses me.
*
possible lower comps:
for sale:
http://franklymls.com/FX7104521
$749k older and lamer.
http://franklymls.com/FX7145362
$725k way more cramped.
sold recently:
http://franklymls.com/FX7092246
$799k
an odd duck. but with mother-in-law apt.
Based on these I think it's more likely that the owners feel they are rapidly approaching inferior comps. Now, the sold at $799k has the huge plus of a large separate garage mother-in-law apartment, but the house itself is a bit questionable, so it's very difficult to compare.
Va_Investor,
Is your argument that because of leverage the returns will be more than 8-10% over the next few years? Could you give a little more specificity?
As far as spending only 10% of one's income on housing
I presume you are responding to gte there and not me. I've never proposed only spending 10%.
Cara,
What the heck is FX7092246? It looks like two very different houses pasted together. Gross in my opinion.
http://franklymls.com/FX7104521
$749k older and lamer.
Too many differences between the two homes to call them comps. This is Falls Church HS, xpovos's is Woodson HS. This is on 0.75 acres, xpovos's is 0.29 acres (cramped for a huge home). This is a short drive to the Dunn Loring Metro, xpovos is not convenient to Metro. This is a shorter drive to Tysons/495/66, xpovos is a longer drive.
---
I must say though that I think looking at comps is mostly useless right now in determining if a price is fair. It harkens back to Krugman's NYT Magazine article. I can be convinced that a 1 lb bottle of ketchup home is being correctly priced at half of the price of a 2 lbs bottle of ketchup home. But if the 2 lbs bottle of ketchup should be $5 instead of $7 then that means the 1 lb bottle is still overpriced since it should be $2.50 instead of $3.50.
I'm only spending about 11% of our family's gross on rent. In theory the other 20%-ish that we're not spending there is paying down debt faster. It doesn't feel like that sometimes, though.
Also, the rent is based on the knowledge that our income could be more than halved very quickly.
TBW,
So, the national median home price losing 25% of its value is a bubble popping that scares away the investor class, but the S&P 500 going from 1530 to 666 is not?
Your own analysis would suggest the opposite of your conclusion. Since stocks were obviously in a bigger bubble than real estate, the investor class - whoever that is - would be more shy investing in stocks and see less risk in real estate.
Tbw,
I'm not familiar with Annandale, but these were the only comps of similar prices in that zip code.
That price range is very thin in that zip. I was mostly doing my usual comparison in my head to stuff in Burke/Fairfax Station, and thinking it was a pretty good price for a nice huge new home in the general area. It's just North of West Springfield. I'm guessing they are moving because they don't like the schools (given the bedroom colors), and would just rather eat as small of a loss as possible.
Comps tell you nothing about intrinsic value, as the ketchup analogy points out, but they do tell sellers what they should list for if they want to make a sale. The two price drops in a short period signal to buyers that they are willing to take reasonable offers, and have some, but not infinite, room to negotiate.
Robert,
Nice try but no cigar.
Bubbles and irrationality work both ways. Smart investors understood that the stock market overcorrected. They are now reaping huge returns. And it did not take them that long to earn them (six months).
Who is going to be profiled having earned 50% returns in real estate any time soon? Or even 8-10%? Investors flock to where there are returns. No one is making money in the real estate market right now. Most instead are losing money.
And you missed my key point -- the bubble has not completely popped in real estate yet. Hence there are a few delusional people out there still buying up crappy, crappy homes in crappy, crappy neighborhoods in Northern Virginia, installing some hardwood floors and granite countertops, and expecting to make $100k over it. When in reality the only people looking at some sh*tty home like this: http://franklymls.com/FX7154937 are the same low income people who have lived in these homes for the past 30 years.
Cara,
Yeah I agree that the home Xpovos found is priced okay compared to other homes on the market. I just think they are all overpriced. But the one Xpovos found is not more overpriced than the other overpriced homes in the area. :)
I mean it's not like this one: http://franklymls.com/FX7154937 which is pretending to be a short sale but asking $70k more than the 2009 assessment. Sorry to repeat but I just find that one hilarious. I guess the bank is not really ready for a short sale or feels like foreclosing it yet.
tbw,
Nice I can't even afford the 'sh*tty' low income housing. Go me!
Robert,
Aren't buyers of RE by their nature those who are optimistic about future returns?
Xpovos, tbw,
That one is hilarious. It's a short alright, someone's going to take a bath, they're just not ready to do so yet, apparently.
Cara,
Not being a jerk, but aren't buyers of any investment optimistic about their returns?
tbw,
While I am not going to say "over the next few years", I do contend that RE returns, in general, fail to account for leverage.
Historically, RE beats inflation by about one percent. I look long-term, not in 5 or 10 year time spans. It is my belief that anything 300K or less has bottomed. Do we stagnate for 7 or 8 yrs? Perhaps. Do we drift lower on the higher-end? Perhaps.
But if there is rental parity, does it really matter what price you paid? You will invest your 20% in a downpayment and pay an amount equivalent to rent. Eventually inflation will kick-in and price increases will return. And, eventually your house will be paid off.
My discussion of leverage boosting real gains assumes prices increase due to inflation (as has been the case historically). Clearly, I don't anticipate deflation. If my underlying premise is wrong, then my thoughts on returns are wrong as well. I do not, however, see how the Stock Market will operate any differently than the general economy and, hence, house and rent prices.
My beef with the comparison of stock returns vs real estate is that there is no consideration of rents or imputed rent. It's akin to saying that a real estate investor (or home buyer) pays 100k and receives no rent (return) or that a homebuyer doesn't receive the value of living in the property.
Further, there is no separate accounting for leverage. Yes, we all know that this can go both ways in the short term - but a steady increase equal to, or above, inflation needs to be taken into account.
If one were to pay cash, then you would have the rental value plus inflation as your return; certainly much higher than inflation alone. Assume the rental value is 10%, then add inflation to get your real return.
If you put 20% down and have a payment equal to FM rent, your 100K property still matches or beats inflation. So 4% of 100K is 4K. 4K on 20K is a 20% return.
Xpovos,
Well Dorena Rodriguez could not afford that home either. She probably could have afforded a non-bubble price for it and was probably given that for two years with some sort of ARM teaser loan.
These neighborhoods are the next Manassas Park/Woodbridge waiting to happen. (Am I supposed to say "glug, glug, glug"? :) Even Fairfax County dropped that home's assessment by $100k. The only thing delaying it appears to be banks delaying the foreclosures and a few investors thinking the many of us on here looking in the Vienna/Oakton area will cave and buy one of these if they just install a fancy kitchen.
Cara,
Locally, commercial real estate is in the crapper. Rents are falling, but what is interesting is that prices have not fallen much, particularly in the District CBD.
The per-square-foot price is among the highest ever paid in D.C., second only to the $867 paid for 2099 Pennsylvania Ave. NW in April 2008.
There is not doubt about the reasoning here. There is a general consensus amongst buyers that the DC area economy is going to benefit from the policies of the new administration.
Va_Investor said,
Historically, RE beats inflation by about one percent. I look long-term, not in 5 or 10 year time spans.
Okay I'm not talking about real estate investors like that. Those will always be around. I'm talking about the "beanie baby" type real estate investors. The ones looking to make $50k+ in six months or a year. We still see plenty of those. Cara, housebuyer, et al have found plenty of these types of attempts (investor buys property cash, installs a few new appliances, attempts to flip for an additional $50k+ beyond cost of upgrading home).
The bubble has not burst until these people stop this insanity just like eventually people realized beanie babies were just a toy and not worth $1,000.
People who invest in real estate expecting to make money over the long run are not the problem.
TBW,
Take a look at this and apply your own analysis about investors of flocking to returns and tell me what that means:
DC area REIT
Robert,
Presumably, Yes.
Robert,
That building is going is leased by a law firm. Most of the buildings around there are law firms (and some smaller tenants in each building). In fact, to the chagrin of the EEOC HQ employees they are no longer in that area but instead farmed out to the NY Ave Metro stop. So how that area does is really more a commentary on the lawyer and lobbyist sector than government agency expansion.
I've been shocked at how much vacant office space my firm is wasting. Perhaps many firms have not aggressively subleased their vacant space because they hope for a turn around in a year or two and think they'll need that space. I think that might be a safe gamble. Note though that these firms make money on how *private companies* spend their legal budget, not on the gov't. If the Obama administration does more investigations that helps the legal business but ultimately these firms cannot survive at current levels on gov't investigations alone.
Right now a lot of companies are severely restricting spending on legal expenses. If this becomes a new trend then that area of DC will crumble. It probably is just as much of an overreaction to the recession as the S&P hitting 666 but I may be wrong. Perhaps Chancellor Rhee will be welcoming a lot of "career switchers" into the teaching field in the next five years. ;)
tbw,
Many investors are quite successful at flipping. I've done my share and am always looking for those opportunities. Almost had one a few weeks back. It was the newbie/dummies that lost money.
It's not always a sucker's game for the end-buyer. Often these places are fairly priced by the flipper.
...Price Dropped over $176K...
Here's the price history:
SOLD: 9/30/2002 $570,000
LIST:
6/3/2009 $947,000
7/9/2009 $975,000
8/5/2009 $949,888
8/7/2009 $875,000
9/12/2009 $799,900
I posted this home on here not too long ago and was most curious about its pricing strategy. I guess the agent finally convinced the seller to be realistic?
MM,
strategy? Perhaps that's too generous. That's a heck of a lot of changes in such a short time. Sounds more like a miscommunication with the agent.
Are they serious that $799k is the price-tag of a townhome??
At least it's not the vertical house, price of a townhome complete with the layout of a townhome...
Yes, Cara, these $825K townhomes (SS) are just down the street. But they're actually duplexes.
Also,
JUST REDUCED 100,000.00...
well this price change was from 5 months ago, but it was similarly 'mis-priced' in the beginning.
this high-end orange/blue line townhome had a $80K price-drop in July but is still sitting. $90k to go to break-even.
(SOLD NEW: 8/28/2003 $809,965)
MM,
That's not exactly the picture in my head when someone says TH. But, yes, it's quite possible that compared to TH's that are in every other way comparable in size, age, style etc. just are missing the yard and separateness, the first house could be priced the same as a TH.
What do we all think the premium for detached-ness "should" be? Is it a fixed amount or a percentage, or something in between? How much is it now?
At the $250k TH mark, I'd put the premium at 20% or $50k. Above that the homes start falling out of my search pattern, so I lose track.
it appears many of these sellers/agents believe $800K is a psychological barrier or has some significance, and dropped the price to just below it after their homes sat for months.
well, this guy goes one step further - trying to break the $750K barrier with a $135K price drop?
"Owner is lister and a Va.R.E.broker."
How many mis-priced listings have we seen were own by RE agents?
TBW,
Did you notice who bought that building:
Industry insiders identify the purchaser as an open-ended fund managed by Deka, a German investment bank. Deka has been among the most active foreign investors in the U.S. recently.
Right or wrong, this area is attracting capital from the entire globe right now.
all the talk about bristow and weekend homes the past couple days and i came across this...
http://franklymls.com/PW7110757
i'm intrigued. 'lake' jackson doesnt seem very wide though.
Too many luxury homes, too few doctors buying them. I have no sense if this once $1.1MM home is priced right but would a $150K drop give a hint? Hey, but it's "8 minutes from Ballston metro..."
yet another $799K beauty after $100K- price drop! wouldn't it be nice to be buying in that price range!
very creative use of a skinny lot - too bad a $105K price cut can't save its behind...
but it's no more than a Contemporary wannabe...
wow, TURNBERRY TOWER is slashing its prices!
6/23/2009 $900,000
8/13/2009 $795,000
(yes, it's for a one-br. no, seriously.)
last but not least, some 26,606 sf land for anielarke to play with for $125K cheaper.
MM-
It still seems outrageous, but at least for a 1 bedroom it is very large. That is at least the size of most two bedroom condos. Also although it is 800K that does not include the $570/month condo fee...
GT,
We checked out Lake Jackson years and years ago (20-25). It's more like wide creek. We drove out there on a rather gloomy, rainy day. That may color my perception.
What I saw was a mish-mash of homes located on narrow, winding roads. The "lake" appeared small and muddy.
The picture on the listing is quite nice, but I have to conclude that there is no view from the house. I recall steep banks with no beach area.
I have heard that it is a friendly, close knit community. Perhaps things have improved or I just saw the wrong house on the wrong day.
Robert,
I understood what your point was. You are a broken record. :) In fact, days ago when I saw the news about that property on K St I thought that you'd like that news article since a German investor bought it.
There's been a lot of coverage of China's investment fund considering buying CRE. Here's an interesting blog post about it.
Some interesting historical points about China's investments:
First, its sovereign-wealth fund, China Investment Corp., invested $3 billion in Blackstone Group before the private-equity firm went public in June 2007. Since then, Blackstone’s shares have fallen 66%.
China’s $5 billion investment in Morgan Stanley in December 2007 was has also a loser. Morgan Stanley shares are down 45%.
As I think Cara(?) put it months ago when you last went on a foreign investor craze, foreign investors can make mistakes just like regular individual investors.
Also, I think you are trying to make the argument that these investors view DC as separate from other CRE markets. I am pretty sure you'll find foreign investment in NYC, Boston, and many other cities in addition to DC.
But perhaps most important of all -- foreign investors are barely investing in CRE right now. Look at the chart in this WSJ post. Looks like foreign investment in 2009 will be about 10% of the level in 2007. Dramatic curtailment of investment. Sounds like they all think it's time to wait like many of us.
Here's the chart if the article does not load.
Btw Robert -- do you still claim to not know anyone in the area who has lost their job? Or had to take a furlough or pay cut or no pay raise or no bonus? I suspect you have heard some negative news like that but are not admitting it to us yet.
Coming back from a day of studying . . . If I implied or said that one should only spend 10% on housing, then I mispoke or was misunderstood.
I merely meant that as a mental exercise what if people only spent 10% on housing. Compared to 50+ years ago we spend a lot less on food. I think it's ~8% vs. 15%, but don't quote me on that. Our standard of living has improved massively b/c we spend less on that basic element and more on other crap (cell phones, computers, etc).
If the same thing happened in housing, just imagine the massive amount of other things we could spend our money on improving our lives beyond the basics of having a roof over our heads. That was my point . . .i.e. high housing prices are not good, want we really need is low housing prices.
@Scott:
"For one reason: leverage. No one would have let me buy (borrow) 360K (my house price) worth of gold in 2002, putting down only 18K (my house down payment) or 60K (what I could have put down.) And even if I could, I wouldn't have made such a bet in gold as I did in housing. So I wouldn't nearly have doubled my net worth in 5 years."
Ah yes the power of leverage and debt. You can do the same thing in gold.
If you have taken 18k you could have probably bought 3-4 futures contracts of gold @250/oz. Each contract controls 100 ozs. Every $1 rise in gold equal $100 rise per contract. (I'm giving rough estimates to follow). If you'd bought 4 contracts @ 4k each @ 250/oz, today @ $1000, you'd have gained $1000-250=750*100 per contract or 300k for 4 contracts. You would have had an increase from ~16k to 300k. Oh and that's w/ not interest payments, maintenance, etc. . . just buy 4 contracts and you're good to go.
Doubled your net worth in 5 years? I'm slightly confused, you bought @ 360 and sold @ >700? If that's the case than you more than doubled your net starting from ~60. Congrats, I'd say you did very well.
I have absolutely no doubt that people made an absolute killing on housing, however that is the exception rather than the rule. Part of the travesty of this whole housing mess is that people starting trading houses like stocks and futures.
I don't deny, the gov. gives out massive incentives to take on mortgage debt (not necessarily to own, more to take on debt). However, you have to wonder . . . if the gov. has to give such incentives is it fundamentally such a good thing?
My point about CDs was not to actually stick all your money in them. My point was maxing out your store credit @ 0% vs. using the 0% and taking the money that you would have used to pay cash and put it in something secure that returns more than 0.
"You have to put capital (principal) at risk to gain yield and avoid inflation-risk."
Ah and here we come to the root of the problem. Due to inflation we are all incentivized to take out more risk than maybe we should.
You were lucky (possibly some skill involved) . . .but say the same thing to the millions of homedebtors who are being foreclosed upon b/c they bought homes to either protect themselves, put capital at risk or b/c they thought it could only go up.
A mortgage is a great way to protect against inflation provided you a) have a steady job for 30 years-or have a stash and b) your wages grow. Otherwise at some point in your life if you don't own it outright you will lose it or you will find it harder and harder to make the mortgage payments b/c everything else is going up in price and your wages aren't. In addition w/ a 4% savings rate and with most people having <2 months saved up, I don't think the stash will save most people.
Personally, if I'm going to use leverage to grow my wealth. I'll take my chances on the futures market. A house should be a place to live and feel secure that if/when the bad times come you are solid. . . not a way to get rich.
"Use the equity in your house" people claim. I've studied markets, stocks, futures enough
to know that if you aren't willing to lose it, then you shouldn't be in it.
gte811i,
Everything will go up except wages and house prices? Huh?
Betting it all on futures is a better plan? Sounds alot like Vegas to me. Bricks, motar and dirt don't go to zero. Stocks can.
How can you be so bearish on RE and be a bull on the stock market?
Saying that everyone will eventually lose their home due to wage stagnation is beyond crazy.
Locking in your housing cost is a great inflation hedge. The gov't provides incentives because home equity is the largest percentage of net worth. The gov't is, in essence, encouraging the "forced savings" aspect of paying off a mortgage. I, for one, don't want a huge number of poverty stricken retiree's. Owning a house is an important safety net.
Did things derail? Yes. Have the wheels come off the bus in other asset classes? Yes.
I get your point that some can accumulate more wealth by putting money in other asset classes. But how many actually would? And what about rental parity? How much extra money does the renter have now? Perhaps it was a meaningful amount in 2003-2008, but clearly not now - at least for median priced homes.
[Va_Investor - I know you are asking gte but I'd like to chime in and respond to some of your points]
Va_Investor said,
Betting it all on futures is a better plan? Sounds alot like Vegas to me. Bricks, motar and dirt don't go to zero. Stocks can.
Stocks sure can go to zero. As I'm a conservative investor I do not touch individual stocks.
When I talk about investing in the stock market I am talking about mutual funds. While it's theoretically possible that some mutual fund will go to zero it's extremely unlikely: Mutual fund share prices are based on the value of their underlying holdings. So if a fund held all of its assets in one stock, and that stock went belly up, then the fund's shares would be worthless. But to qualify as a "diversified" fund under securities law, a fund must have at least 16 positions, and most have far more than that. All of those stocks would have to become worthless for the fund to go to zero. That said, the chances of a fund becoming worthless are slim.
Remember also that mutual funds are professionally managed. So someone at the fund's investment bank is doing the job of managing that fund and dealing with market mania to minimizes losses and maximize gains. Obviously some funds are better managed than others. But I don't think any reputable firm has run a fund to $0.
So that's not really a difference between stock market investment and home investment.
I, for one, don't want a huge number of poverty stricken retiree's. Owning a house is an important safety net.
Well I hope you join us housing bears in opposing all the HELOCs people took out this decade then. That's what is preventing many retirees from having a solid retirement. We want people to own their houses outright in their early 60s.
Also another thing causing harm to retirees was skyrocketing property taxes (stemming from skyrocketing property values.) Many retirees want to retire and die in the home they had been living in and so the higher home value is meaningless. And for those who are surviving on $30,000 a year (or less) in retirement having their property tax go from $2,000 to $4,000 (Ffx Co averages) this decade was a tough expense to swallow.
I do agree with you that it's good to own a home. It's a good long term investment. I just don't think people should buy in bubble years. And I think for a large segment of the local market we are still seeing bubble prices. Just not as bubbly as 2006-07 but still nowhere near the bottom.
I think most of us agree that 1994-97 was a GREAT time to buy a home in Northern Virginia. I think there will be another 94-97 era of flat prices while wages are going up and there is little unemployment. We will have another era like that because people are going to get too bearish on housing just as they did in the mid-90s. That's what follows every bubble bust. But we are still seeing irrational exuberance in the NOVA home market because of low interest rates and the $8k.
tbw,
My equities are in mutual funds as well. I've stated my belief that a bottom is in for the lower end. If rental parity is there (or, even positive cash-flow in some cases), why would prices drop further? More unemployment or underemployment resulting in lower wages; coupled with excess supply,would further soften the rental market?
Again, my belief is that people need to live somewhere and their inability to handle a 2 or 3K mortgage payment does not mean that they can't rent at current levels. I'm quite sure that rents here never escalated in the manner some of the housing stock did.
I don't really have an opinion about higher priced homes as the numbers have never worked (IMHO).
I have always bought what I thought were "no lose" houses - even in my personal residences. Of course, I haven't been right all the time - but who is?
And because the elderly want to continue living in their homes and property taxes are driving them out is simple. They will have to trade down, but at least they will have equity. It's not just RE taxes that are increasing. In FX County, older or disabled residents under a certain income level can defer RE taxes until the property is sold.
Btw Robert -- do you still claim to not know anyone in the area who has lost their job? Or had to take a furlough or pay cut or no pay raise or no bonus? I suspect you have heard some negative news like that but are not admitting it to us yet.
I said I didn't know anyone that was unemployed.
GT,
Yup, it's places like that, that make people move out to PWC. I'm an ocean/bay person myself though, and would rather it not cost close to half a million dollars...
I ask too much, but since this is just the dream part of my plan, I think that's okay.
gte,
If we were to spend only 10%. That makes a lot more sense. Sorry, I probably started that misunderstanding.
TBW,
Okay, I'm not going to dispute the chart you posted about new CRE being flat year over year. What is interesting about that chart is that it looks like foreign CRE investment in 2009 is about $1B. And I just happened to find one building that sold $200M or 20% of the entire investment by foreigners for 2009? How likely is that?
What is most likely happening is that Washington is stealing CRE investments from other regions of the country.
Earlier I posted an article about how data center providers were postponing Silicon Valley investments for build outs in Northern Virginia. So data center investment may be flat, but NoVA is stealing market share. I expect the same is happening by foreign investors in the US. However, it must be frustrating because DC property prices haven't fallen like other metro areas.
Here's a building that recently sold for only 10% less than the 2005 price and it is located outside the Beltway where the carnage is supposedly greatest.
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