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.
Not that any of this is a surprise to anyone, not that we haven't talked this to death, but...from CR, a NY Times article on the extension of the $8k incentive.The National Association of Realtors estimates that about 350,000 sales this year would not have happened without the lure of the tax credit. Moody’s Economy.com used computer modeling to put the number at 400,000. The government’s efforts to directly reward home buyers began more than a year ago with a $7,500 tax credit that had to be repaid over 15 years. Last winter, amid fears of another Great Depression, the Senate came up with a much sweeter $15,000 package as part of the stimulus bill. That measure was ultimately reduced to the $8,000 credit.Now the sponsor of the original Senate bill, Johnny Isakson, Republican of Georgia, is back with a new bill that would give a maximum $15,000 credit to any buyer who stays in a home for at least two years. “The problem now is not first-time buyers, it’s the move-up market — the guy transferred from Chicago to Atlanta who can’t sell his house,” said Mr. Isakson, a former real estate agent.Without a new and more generous credit, he warned, there would be a downward spiral of home sales and more foreclosures, provoking a second recession.The real estate industry is lobbying heavily for the bill, but acknowledges that in an atmosphere that is less crisis-driven than last winter it will almost certainly have to settle for less.
NY Times Wage growth amongst those who do have jobsThis recession is really chosing winners and losers. Worth a read. I think this goes a long way towards explaining how so many buyers can be confidently buying now while so many others are losing their homes. Capriciousness. Or why I'm so risk averse, because life is not fair.
Cara: Really interesting article. Even as one of the "winners," I think I'd prefer a recession where the pain was spread out a little thinner among more people. Long-term unemployment can be devastating; short-term unemployment or a reduction in wages is survivable, especially when there are plenty of others around you in the same situation.
A lot of the commenters made the good point that some of this apparent wage growth may be due to the rise in the minimum wage, though.
Anon- I agree with your point, but it really takes a hard toll on moral when everyones wage is cut. It is much better for offices to do all of the layoffs and once. People will be worried about their job for a month or so, but after they see no more people getting laid off they can get back to business as usual.
Anon412Given that most state's minimum wage was already above the new federal increase, I seriously doubt that. My guess would be overtime paid out to the those not laid off or essential employees who were not given furloughs, but expected to pick up the slack.
Housebuyer - I don't know, I think layoffs have a pretty long-term effect on morale as well. People don't like seeing their friends and colleagues get canned, and I'm not sure that the fear of it happening to you goes away that quickly. Not that a reduction in wages is great for morale either, but I don't think there's clear-cut evidence that one is less-bad than the other.
Is "last-in, first out" still the general rule? So many of the younger generation change jobs frequently. Do companies no longer value "loyalty"?
VA- I don't know about all companies. But for the companies I know about its more skill than tenure. During boom times you can be pretty inept and keep a job. During down times a lot of these people were the first to go. This only applies if the layoffs are pretty minimal. Obviously if you are laying off 25% of your people you probably don't have that many useless employees...
"Without a new and more generous credit, he warned, there would be a downward spiral of home sales and more foreclosures, provoking a second recession."GrrrrrrrrrrrrrrWhat a piece of sh*t
Also I think tenure can hurt if it means you have a bloated salary. If you're making $100k but you're only as efficient / skilled as a newer hire making $50k you might be more likely to be let go.
I think the main business sectors that still have retention by seniority are unionized.I could be totally wrong.
Actually, Cara, I don't think it's true that most states had minimum wage laws setting higher minima than the federal law. If you look at this table, you can see that for most states the current minimum IS the rate set by federal law and I believe that in most of those cases, prior to the recent increase to $7.25 per hour, states maintained the lower minimum allowed by the fed.http://en.wikipedia.org/wiki/List_of_U.S._minimum_wagesIn some places, economic conditions pushed wages higher than the min. for some jobs covered by the min. wage laws. However, those conditions have changed in the past year or two in many of those places.
In addition older employees have higher healthcare costs and so might be more likely to be laid off. Which I think is totally illegal but that doesn't stop it from happening. Another reason it's insane to have healthcare tied to employment. Okay, this is getting a little off-topic...
Ace,good find. I still think it can't possibly be the bulk of it.The ones with higher minimum wages do have a lot of population. It's funny though, that map makes clear why I had the wrong impression, seeing as the only places I or my family members have ever held minimum wage jobs are all above the Federal limit...(It's like the time I claimed stolen bases was a once every 2-3 innings event. It was true, but only for the St Louis Cardinals when I was a little kid.)
Cara, was that because of Ozzie Smith? He was an awesome base-stealer, not to mention back-flipper.
Farm land in Ashburn, VA...server farmland that is.
kevin,Indeed and Daryl Strawberry and maybe a few others.
There are too major problems facing boosters of continuing the housing tax credit: (1) time and (2) cost.(1) time -- it's already looking impossible to finish voting on major proposals (appropriations, universal health care, cap and trade) by the target adjournment in October. Congressional leaders already are saying they'll have to stay later. I don't buy they'll schedule any separate time for this credit. It's only hope is as a rider to a more important bill.(2) cost -- the $8k housing credit costs a lot of money. Given this past year went way above last year's projections they will have a more realistic projection of what it will cost. Where does that money come from? Obama and the Democratic leadership in Congress have tried to be revenue neutral when passing items. What offsets the billions this costs? The variety of tax increases they already are proposing -- cap and trade, taxing expensive employer provided health plans, soda taxes, raising the top marginal rates back to pre-2001 levels, and so on already are pretty unpopular. Do they tack on another to pay for $8k credits?
Don't all sneaky legistlative actions occur as riders on more important bills?As a supposedly one time expense, rather than an ongoing one, it's a lot easier to justify. But it will be easier to pass if they build in a fade out, something like $8k through March, $6k through July, $4k through November, and then gone.
TBW, I predict they will finish on time, maybe a little late, like noon on 10/31, will suspend the HVCC rules, extend and expand the 8,000, and TARP money will continue to guarenttee mortage funds thru the end of 2010. All of this has tax code implications so it will be voted on way before health care gets postponed.
This housing credit is a farce. The gov is basically subsidizing fence sitters, with little downpayment (because of life issues or more likely poor saving habits). In essence, without extending the credit to all buyers we are basically giving poor savers (a more equal footing when competing for bids--especially in NOVA)It should be eliminated, unless equalized to all buyers. What about the middle class 75k+ income per person (and in NOVA 75k-150k is middle class family In My opinion) who sustained losses from 05 and 06 purchases?Hell, even haughty VA investor should be granted an 8k bonus to invest in a dilapidated house for rent or flip--it adds to the economy!When will our government end hand outs, or equalize it for all. Its about Damn time, that those who sacrificed living beyond their means be put on equal playing fields and be rewarded for conscious saving.
Madcap, I agree with you, I think. Either stop it or expand it. I support expanding it because I agree completely that the ones currently getting it will probaby be a future foreclosure, they don't have a pot to pisin or savings or job security. People that should have been eligble should have been required to have matching funds, the young people that have been saving toward a home with good paying jobs got the friggin shaft. Even now if they expanded it to every homeowner they sure require a dollar to dollar match upto 15,000. Now to me thats a better use of tax dollars to stimulate the ecomney and housing.
Arkey,A matching of some sort does sound more tempting (dollar for dollar is a bit too generous for my taste), but the point is that no matter how "equal" you make it, the whole thing is a big waste of money. Because the only additional purchases it stimulates are by the "future foreclosures" as you call them.People like owning houses, they don't need to be stimulated to do so. House price and job security, that's all you need.
Obama and the Democratic leadership in Congress have tried to be revenue neutral when passing items.FOMCLPlease see $787B stimulus.
Someone said yesterday that the $8k credit actually goes to the home seller. Wish there were some way to determine if the buyer is paying $8k more for the house, or is it somewhere in between? Or maybe panic buying caused the home seller to net something more than $8k.
Had to look this one up.Falling Off My Chair Laughing (FOMCL)
Robert,Other than the builders who suspiciously raised their prices by exactly $8k, no, there is no way to "tell". You can compare this years and last years prices in given neighborhoods, but the interest rates are different. I think the best actual test will be pre-Nov, post-Nov pricing if it doesn't get extended but even that will have seasonality. Someone will undoubtedly do a master's thesis on it some day...The presumption is that market forces of more demand will multiply the $8k by some factor. I gave it the naive factor of between 1 and 5 for it replacing or repleneshing downpayment funds before it was enacted. But I think market forces are more important than individual uses of the rebate, because no one is going to intentionally overpay by $8k or $40k.
Cara, we agree but it is what it is. PWC houses flew off the shelf( 3rd and 4th qtr of 08) way before the bribe came about due to price cuts and the investor buying binge. I don't have a problem with investors. I viewed them as a sure sign of recovery because when they flock in to feed on a carass..the bottom is in. I knew in Jan. we were bottomed and now I'm watching to see to what level we will rise before flat lining. I'm listed at my bottom price so I'm more like an interested observor. If I don't sell I'll just put that granite and SS in and raise the price next go around.
Gte--I actually know very little about futures, so I knew my comments were sketchy even when I wrote them, and I'll take all the correction info with thanks.I've messed with options enough to be dangerous--mainly to myself! But I've accumulated (and traded) gold since it was at $550 in 2005 or so, so I'm way above water and have made money on almost every trade. Wish I had started in 2003 when I was looking for an inflation play due to Republican spend-and-debt orgy, but, 1) I had a lot in the house, 2) I didn't know futures, 3) GLD didn't exist and 4) I was distracted by a short-Treasuries rising-interest-rate play that never really worked. (It might, starting around now.)I really don't think having gold or real estate in one's portfolio is all that hard to make money with--certainly not as hard as trading individual stocks. As long as you are living in the real world.For real estate, you mainly have to know:1) It's the local economy, stupid. (Not you, I mean in general.)2) What you WANT is not the same as what you can afford.3) Buy when no one wants to or can buy; sell when everyone is a proud home "owner".4) MOST IMPORTANT: Agents/load officers/appraisers are salesmen and therefore by definition ARE NOT YOUR FRIEND.For gold:1) It's the dollar, stupid.2) It's the seasonality of the gold price stupid.3) Understand charting, and really KNOW the gold chart, the way you know your body, your mate's, or your job.4) Understand that China and India are wealth SAVERS and in particular gold HOARDERS, and the U.S. and citizens are wealth SQUANDERERS and debtors and we are past the permanent point of no return on job exporting, medicare/SS future liabilities, etc.Lastly, on real estate and stocks and to some extent gold, yes, I've been somewhat lucky, mainly due to luck in timing--relationship/job changes, 401K rollovers, private stock required sales, etc. But I think reading about the economy and finances for 5-10 hours a week for the last 10 years, plus being skeptic and financially conservative/debt-averse HAS to have had SOME impact.
To those confused about the 8K,It is for first time buyer's (or more than 3yrs?). You have to live there 3 yrs or pay it back. Investor's do not get it.It allows people to buy who don't have a whole lot of savings (mainly first timer's). I gather most of you have never been in the situation of being able to afford a place, but not having the down payment.Well, all power to you. We had no savings (due to many factors) and were able to buy thru FHA. The greatest barrier has always been down-payment - not income (absent the crazy times of 2003-2006).
Robert,I imagine that the $8k to the buyer/seller really depends on the purchase price. I think it aided the frenzy at the low end, and the $8k generally went to the sellers, if you want to think about it that way. However, closer to the middle, where there were fewer buyers, and problems with running up against the income limits, I imagine that the $8k went to the buyers. As someone who just bought in the $500k range but had been looking all of the way down to $350k, I don't feel like our purchase price was affected in any way by the $8k, whereas a lot of the ones we saw at the low end probably were.
Meanwhile, after thinking about it for a few months I finally put in a loan app with the same lender I used for my old loan, giving them all my numbers. A responsible lender, not really one of the ones that was in the news so much in the crisis this winter.Apparently the Big Crunch has had no effect, because after a week I left a voice mail and the email reply was - "I'm working on your numbers now, what price range are you thinking of? What down payment amount?"Okay, I've been out of the loan game a while and Finance/technology sophistication has moved on, but back in MY day, DP and price range were NOT INPUTS to the question of how much LOAN I can afford!My daydream, because I'm financially conservative (and I realize it might never happen, or might be too late) is to find the DC house I want, this winter or next, for maybe $420K and have an easy monthly obligation. After that email, my thought was, "if they come back saying $800K, that number will be of no informative value to me."Well, they came back with $1M, which is whole digits above 5x my salary! (SIGH)Well, at least I now know they are fine with even the very TOP house price I could stomach...
Double-edged sword. More jobs, but more housing inventory as well. Net-net???Homebuilder KB Home, which pulled out of the Washington market and mid-Atlantic region in March 2008, says it is resuming projects here as the housing market shows signs of recovery.I think this is the nail in the coffin for shadow inventory. These guys/gals ran the numbers and decided that there will be no wave that will crush prices.
Fred,Yes, I hadn't thought of it that way, but it makes sense.
Scott,price range determines interest rate which determines PITI so it does matterDP determines loan-type, determines interest rate, so it too matters.
Cara,There was a $10k incentive out in California for new home construction only. I read when the funds ran out in Sacramento, new home sales fell off a cliff.Also, did car dealers get higher prices because of the cash for clunkers? Maybe they were giving $3500 rebates before, but changed them to $2500 or something just before the program started?
Robert,Oh yeah, that's right, I posted that myself, didn't I? Sales of new homes did fall off a cliff, I haven't heard any updates on prices though...The car dealers supposedly kept the same or similar rebate programs, but insisted on list price for the car. When the hybrid rebates faded for the prius before the civic hybrid, the prius pricetag dropped by almost exactly the rebate amount or slightly more.
Va_Investor, you are absouletly correct and I hope you didn't think I was implying that investors were getting the 8,000. I think the income cap was 150,000 for a couple. As far as first time home buyers without a down payment saved, to me, they are risky and tax payers shouldn't have to fund risky loans. There are Va loans for responsible vets without money, USDA no money down loans, lots of programs available on different state and local levels without the 8,000 "incentive" since you have bought no money down without this 8,000 in the past, you know those loans are available.
Oh Robert you and your silly responses. Yes, ARRA was not revenue neutral (nor was TARP under Bush). If they pass a second stimulus than sure they'll probably throw in an extension of this stupid credit because revenue neutral will be out the window.But outside of alleged "temporary" measures like TARP and AARA there have been revenue neutral pushes. Why would Obama bother with the headache of making universal health care offset with tax increases unless they were at least somewhat serious about this?
Cara, don't get me started about life not being fair (especially in terms of government and other financial largesse) -- it's a reason why I also am very risk averse.I'm white, male, single, no kids, non-immigrant, educated, healthy, non-smoking, good credit, debt free, employable in a good industry, etc.I'm on my own--NO bailouts, credits, tax cuts, or other programs for me! And that's as it should be. Life has been more than fair in THOSE ways. Except that plenty of people who are like me but lazier, and/or dumber with money, food, smoking, etc and/or savvier about who they know, and/or less converned about rules and ethics, are getting PLENTY of help.
TBW, yeah, outside of the stimulus, Obama is revenue neutral. Reminded me of something:"Outside of the killings, Washington has one of the lowest crime rates in the country" — Mayor Marion Barry, Washington , DC
That's right Cara, that's true about DP and price range, what with Jumbo loans versus FHA etc.I totally forgot about that stuff--makes a lot of sense now. Anyway, I sent the guy a joking WTF? along with the info and he laughed it off.But, all of the calculators I can find online say I'm good for 600-700K, so $1M (and the associated monthly obligation) still sounds like fantasy/trouble to me.My additional theory is that when you have a credit rating of 800, they label you godlike and licensed to print money.
Scott,I didn't say unfair, I said capricious. There are things in life that are beyond one's control.I looked up capricious to see if I'm imbuing it with more meaning than is generally understood, and as usual I am. Think capricious (sudden irrational unpredictable) with a dash of malicious.I think it's a pipe-dream that hard work and thrift get you ahead in life, you need some luck too. I worry that luck is running out for the next generation of US workers.
Scott,Fannie and Freddie are still allowing 36/45 DTI (PITI only/all debt). So that's probably what they used to "qualify" you. I think they figure with your income-range and a 800 FICO score, you are who knows best what you can afford.(i.e. exactly, your license to print money)
Yeah, Cara that's what he said, 45% DTI, and I have no debt, so he's ignoring the 36. And, 5%ish interest rate.I'm not willing to commit to 45%--that's $1000 more than I'm currently renting and money is tight, right now, no savings growth, etc.But I must admit, there's lots of sweet choices in the inventory once you get up into $700K or so, if I wanted to go past my comfort max and toward my cash-flow max! (Compared to the number of 2bdrs below $500K)
Cara,You ended with "life is not fair"--so I inverted that. But I take your drift anyway.I know what you mean too about have a different idea of what a word means than what is general usage, I'm that way with a few such "college level" words...Agree with you about luck running out--another reason I'm risk/debt/extravagance averse. I've said before think my niece's generation ought to plan on THREE incomes per household (professionals with Master's degrees minimum) in order to have the same percieved level of prosperity that my Dad's generation had with ONE income and NO college.
Re: $8000My argument was not that buyers would say "oh, please, we want to pay $8K more for this house than we need to." Rather, it is the effect on market competition, e.g., that more people are coming out and bidding, and perhaps being forced to bid higher - if they wanted the house - than they would have 6 months previously (for example), because the seller has more options, just as the seller did when anyone could get an exotic loan. That, in effect, gives sellers some of the benefit of the credit. I can't say how much of it, but I do hypothesize they are getting some of it. This effect could have been offset by more sellers coming out than would have otherwise, but we know that this wasn't a 100% effect either - that many sellers were forced to sell vs. foreclose, and inventory levels were not higher than average in many areas. The same thing happened when the tax code gave a credit for hybrid car purchases (and probably during Cash for Clunkers). This increased demand for certain cars, and the dealership didn't have to "deal" as much as they did in absence of the credit. So you get a $1500 credit on your tax return, but the dealer may not have come down the full $1500 in price that s/he would have come down in the absence of the credit, because there are other willing buyers who are subtracting that credit from the price of the car to determine what they are willing to pay. All of this is accelerated by the fact that buyers in both cases (cars and houses) knew that there was a time limit on the credit - buy now or forever be priced out!!!.Agreed it is not the only factor, and that it would make a good a master's thesis.
Arkey--If you are out there, I did see the Peabody house go U/C, and I fell out of my chair. For sale for three years...vacant for three years...still looks like it did when it was built in the 70s on the inside...and U/C at $499K asking? It's not worth half that.The bottom really truly has come and gone.
Robert,How did regional home prices do after the 1990 tax increase? How did home prices do after the 1993 tax increase?Explain to me why you do not think a tax increase in 2010 or 2011 will not have a similar negative effect on home prices? If people have less in their monthly paycheck because of higher taxes, how do they spend more on homes?Looking at home prices between 1970 to the present it seems to me there is a pretty strong correlation between federal income tax cuts and higher home prices and federal income tax hikes and lower or stagnant home prices. We saw a tax cut during Carter, huge ones during Reagan, tax cuts near the end of Clinton's term (notably the capital gains exclusion for homes), Bush tax cuts, and Obama's stimulus tax cuts (particularly the $8k tax credit) -> all periods where home prices went up, up, up. Contrast that with how home prices went after HW Bush's 1990 tax increase and Clinton's 1993 tax increase -> down, down, down, or stagnant.Remember that lack of congressional action = the Bush tax cuts expiring. Congressional action is required to keep any of them intact (which they plan to do for the lower ones.) Some proposals are to raise top rates even beyond 2000 levels. That can't be good for home prices, can it?
TBW,Tax increases bad. Tax cuts good. You know the history. I'm sure there is a correlation with what you are saying. I'm not going to argue.We may, but you know I doubt we'll get stagnation. Look at what is happening right now -- lower tier has increasing prices, upper tier has falling prices. And not just 1%, 2%, stuff is moving wildly if you ask me.Interest rates, stock market, jobs, incomes, and taxes...so many factors that any one could move the housing market.The truth is I don't know what is going to happen to home prices or interest rates, or the stock market. I am a believer that Northern Virginia is going to grow smartly over the next 2-3 years barring something unforeseen. So, that is a tailwind, and taxes look like they will be a headwind.Are you a believer in stagnation? At what point? 9/16/2009? Does it start at this exact point? I would settle for stagnation in my market right now, but I think prices keep falling until inventory comes in to at least 6 months. It's 9 or 10 right now.
Robert,It's been 16 years since federal taxes were last raised (1993). Every major tax bill since has done some combination of new deductions, credits, lower marginal tax rates, lower rates on dividends/capital gains, and 529 education plans. The Obama administration has proposed reinstating the 39.6% rate, the 36% rate on $200k(singles)/$250k(married), limiting itemized deductions on $200k(singles)/$250k(married), phase out personal exemptions for $200k(singles)/$250k(married), raise the dividend and capital gains rates to 20% on $200k(singles)/$250k(married).It's been 16 years since any taxes have been raised. This is a big change. ---There is a big mystery we've always noted on this website. Why didn't NOVA prices budge from 91-97? Median household income in Fairfax County went from $61,000 in 1991 to $72,000 in 1997. Mortgage rates went from 9.25% in 1991 to 7.6% in 1997. NOVA Case-Shiller was 89.38 in Jan 1991, it was 89.71 in Dec 1997. What's up with that? A flat period following the bubble bursting was the traditional answer. Maybe two was the 1990 and 1993 tax increases? Just throwing it out there.---Before anyone complains, I'm not arguing against the proposed tax hikes. I'm just noting it appears they might have an effect on home prices.
How embarrassing that I have twice made a too/two typo today. I should really proofread before I submit these...
TBW,Seems those tax number will hit the high end of the market. Also, isn't there a tax cut for the lower brackets? Wouldn't that reinforce the existing trend in home prices - increases for <$500k, but decreases for $1M+?Off topic, but related to stagnation, here is what I think the numbers will look like for 2009 in NoVA:<$100k ### +50%$100k-$200k ### +35%$200k-$300k ### +25%$300k-$400k ### +20%....$700k-$1M+ ### -10%$1M-$2M ### -15%$2M-$3M ### -25%$3M+ ### -40%It's an amazing pattern. It's so symmetrical. That's not stagnation, that extraordinary volatility and I expect it to continue into '10 and beyond.
tbw--On the two/too/to issue:Practice Makes Perfect!Then again...Perfect is the Enemy of the Good!
Robert--So you're saying that $3M homes will sell for 1.8M, and 2.8M homes will sell for more, 2.1M??That WOULD be a crazy market.We can only hope....
"Contrarian said... CRT,I told you it was a tsunami, but you never listen"Why should CRT or anyone else listen to you? You said last year that home prices would not stabilize for years to come. You told us Hal Turner was a credible source of information. You now cite this story as proof that the tsunami is true. Apparently, I should just forget that local inventory went from over 16K to just over 7K in a year. Sure doesnt look like the building tsunami to me.I didnt know that a site titled www.theaffordablemortgagedepression.com is clearly the end all be all objective source and voice of the truth. If anything, you can excuse us for thinking it is your typical site for dispensing doom. Glug, glug, glug, glug, glug, glug!
Scott -Sorry, those were estimates. I see you did the calculations. I wrote them down in 10 seconds.The point was that the higher prices are falling a greater percentage. That's what I meant anyway.
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