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Monday, September 28, 2009
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99 comments:
Yields on benchmark 10-year notes will end the year little changed at 3.36 percent before rising to 3.65 percent by mid- 2010 as bond prices fall, according to the average estimate in a Bloomberg News survey of JPMorgan Chase & Co., Goldman Sachs Group Inc. and the rest of the 18 primary dealers that trade Treasuries directly with the central bank.
With the 30 year fixed averaging 5.00% today, the approximate yield at the end of June 2010 would be 5.30%.
David said on Saturday: "A true contrarian would have sensed the intense pessimism in both the real estate and stock market early this year and would have taken advantage of it."
A sucker's rally, anybody whose head isn't in the clouds can see it.
Robert-
I wouldn't trust analysts they generally are pretty bad. I would also think that if the economy hasn't fallen off a cliff we would see the spread between mortgages and the 10 year come down some. Its normally ~1.5% I think it is currently ~1.7%. Not that my comments really change your message, which is you expect rates to stay low.
Kevin-
You may be right that the rally is overdone, but timing is more important than knowing where something will end. Who cares why it happened, but markets are up ~70%. Nothing like having a margin call and having to sell out of your position right before you would have made money on it...
"David said...You are not a contrarian, you are just another perma bear."
Yep - here is contrarian on March 5 2009 chastizing all of us for not selling everything and being 100% cash like he was.
https://www.blogger.com/comment.g?blogID=4787878578920468587&postID=141772809946587924
The timing of his "sell now" call is classic - it was the absolute bottom to the 50% stock rally we have seen in the last 6 months. The CONTRARIANS out there saw this as an insane amount of pessimism (and it was as the sentiment index was at a new pessimistic low) so they bought and enjoyed a 50% ride up.
Yet here is our "contrarian" glug glug glugging away telling us to sell at the low. Nice job contrarian - brilliant advice at that moment in time.
Heres the classic right at the bottom of the page. MM is in awe as the Dow drops to 6652 (the absolute low was 6400) Contrarian responds:
"Are you surprised?
I guess denial is a wonderful coping tool, eh MM?
BTW, the Dow was up around 9000 at that time.
Others also suggested I was way off base.
The question now, is:
At what point, if ever, will TedK, The Anonymous, MM, etc., accept the obvious?
And, if for some reason it has not become obvious, why not? :-)
Have you all thought about starting a 12 step program and calling it A-D-D Anonymous?
Members would include those who chose to simply sit there during the greatest collapse of wealth in history and watch their Assets Deflate Daily.
Sad, but true. So sad. People choose to be victims, martyrs, instead of dealing with life on life's terms. Truly amazing.
3/5/09 4:47 PM"
thoughts on the dinning room of this home (pictures and floor plans go here)? would you call that a dinning *room*? this is the second renovated house i've seen lately scratching my head wondering where to put our dinning table. it's a very beautiful home with lots spaces, but the main floor flow makes little sense to me.
MM, very cute house - price seems very good for what it offers. From the floor plans, it looks to me as if they knocked out a wall between kit. and DR to create a bar, which then made a small DR even smaller. Can you use that space as an eat in kitchen (i.e., breakfast room) area and use the family room as your dining room? It appears they have a finished basement rec. room that could be used as a family room.
Hey MM im curious - since you were the subject matter of Contrarian's "sell now" call, did you sell? Did you follow his sage advice and sell at the bottom?
Hi,
I currently live in Shady Grove and the wife and I are thinking of moving to NOVA and I was wondering if anyone could comment on 22204 and 22206. Specifically commute into DC and general safety. We know MOCO well but have zero knowledge of NOVA.
Thanks
MM, Ace,
Ditto what Ace said. But the bar doesn't jut out that far, so depending on the size of your table and how many you want to seat, that space is supposedly 11ft x 7ft9in, so with a 2ft wide rectangular table and 2 ft on either side for chairs, you still have 1ft9in to walk through if you don't put bar stools there, or get skinny rectangular ones. It definitely could be made to work, and I really like the look of what they've done with the place.
Regarding "Timing" anything;
It's very hard to avoid or ignore the "herd" mentality; whether it is buy, buy, buy OR sell, sell, sell. Fear and anxiety often dictate decisions and that is human nature.
One benefit to aging is being able to look back on prior mistakes and learn from them. "Get rich quick" is a sucker's game as is the doom and gloomer outlook.
There are no sure things. You must take risk to get rewards - but this should be educated risk. I didn't bail on the stock market because I am not a day-trader. I didn't sell my RE in 2005 eventhough I had been shocked that the market stayed so heated after 2003. I weighed the transaction costs (and tax implications) with my long-term strategy. Should I have bailed in 2005 and bought back in in 2009 or later? Maybe. I'll have to be satisfied with what I did do (hold off new acquisitions until the numbers made sense).
None of us has a crystal ball. The best we can do is take a breath and a step back to examine history and NOT follow the panic in or out of Markets.
Cara & MM, agreed. I hate to sound like a pumper, but I would jump on this house if I were interested - I suspect they have set the price "low" for it to go quickly and maybe be bid up. Of course, I have not seen the house or the neighboring area, and there may be something wrong I'm not aware of.
And we know I have been wrong many times before when predicting prices!
Ace,
This fairly comparable home (see pictures here) is just four houses down and across the street from the skinny dinning room home. Priced at $649K and went UC in 23 days, but it has a detached garage.
I believe the neighborhood is fine.
(I can't *jump on* the home coz I shouldn't offer $533K in the first couple of days...:)
(and nitpicking here the granite backslash cracks me up)
Cara,
My dinning table is more than 3-ft wide so it ain't gonna fit. But it's time to get a new one anyway... I just don't like a table there blocking the flow to the family room and must go through the kitchen all the time.
But I'm sure it will find a buyer with a skinny dinning table soon.
What do you all think of this dimond in the rough? Well under $533K with endless possibilities...
The Anonymous,
No I didn't. I got out ~75% of my stock earlier and just didn't want any more cash in hand. But it was tempting coz I was still house shopping back then and could really use the cash.
MM,
I try hard not to let my current furniture dictate something so much more expensive like a home purchase. I've come up with at least 3 different main-floor organizations for the short we're sitting in, which has the same living room, walkthrough dining room, family room layout as the one you first pointed out today. (though with different shapes and sizes).
But anyway, that diamond in the rough looks like the previous owner thought they were a better handy-man than they actually were. The bathroom tiles in the kitchen are especially disconcerting. But if you go in with an open mind and a good inspector, it might be a bargain worth taking. Hard to say. All the pictures are cut off in strange places that make me wonder what's getting cropped out of each picture...
"Contrarian said...You buffoon. That was right before the March 8th bottom with the S&P at 666."
So what? March 5 (the day you said to "Sell Now") the S&P was 682, a tick off its 666 bottom 3 days later. Today its at 1,062 -- over 50% higer than the price you told him to sell now before its too late.
So again, think of your timing and how utterly horrible it was. Had he listened to you and sold AT THE (NEAR) BOTTOM, he would have lost the 50+% run up we have seen since.
There was massive fear and panic in the market at that point -- the point at which a true contrarian would have stepped up and bought. And yet, there you were chastizing us for not selling and getting out while we still could salvage something.
Imagine much money MM and the rest of us would have lost if we listended to your "contrarian" advice and sold so close to the bottom?
MM, I like the first one best of the three, for the money. I think the addition and finished basement help a lot, and the kitchens that aren't opened up seem claustrophobic (of course in these house, like many in Arl., the rooms are often very small). It also seems to have good closet space. The fixer seems quite limited by overall square footage. It's awfully hard to fix tiny these days - costs of adding on continue to be very high.
Just my taste - and it's very hard to say based only on photos.
tbw,
You don't believe that sellers receiving 10-15 offers represents "panic buying"? No "herd" mentality in the housing "bubble"? Panic doesn't only suggest selling. And, yes, I'll bet that there are people out there who are panic selling their homes now - at the absolute (almost) worst time.
Cara, Ace,
All good points. Thanks much!
Right now I am cautiously optimistic about this market, haven't had much of anything to think about for months.
Hi Alex-
The commute from those areas really depends so much on where exactly in DC you are going, and whether by car or public transportation.
I like the Arlington Forest, Glencarlyn and Barcroft neighborhoods. Alcova Heights is hit or miss for me, but generally the area of 22204 between Columbia Pike and Route 50 is more desirable than the area south of Columbia Pike. The same place is usually a little more expensive if it is north of Columbia Pike vs. south of it.
i realize most folks here don't do DC, but
I thought i'd mention this place.
http://franklymls.com/DC7086514
it fell through on contract, and is back
at 10% less. I looked at it, and it's just kind
of f^$(cked up internally.
it's sort of half finished, the bathrooms are undone
and the electrical needs work. The layout is odd.
They were going for some sort of contemporary rework and goofed up the layout.
Honestly, I think it needs a lot of work.
TBW-
I don't think this is exactly panic selling, but in a lot of ways people who are under water and strategically walk away from their house is about as close to panic selling as you will see in the housing market.
Everyone uses their stocks as a way to save vs. many people consider their house a cost and a home. They are not using it as an investment so they aren't going to panic sell as long as they can afford their house even if the price will fall.
Ah, unintended consequences. From Calculated Risk, more first time buyers means fewer renters. Means higher vacancy rates, means lower rents, means lower owner's equivalent rent, means deflation. Brilliant.
I know Va_investor and anielarke are doing well in getting new tenants easily for their well-placed individual units. But based on the number of "Now Leasing" flags and the length of time they've been up compared to last summer, I'm pretty sure the complexes around me are seriously hurting. Which makes sense, anyone who passes the income and credit check tests to rent in these places is also eligible for at least an FHA loan if they can scrape together the 3.5% (or get that %8k piggyback from the government). Places that cater to permanent renters, or renters by choice will fare better, but a lot of semi-upscale complexes are going to be facing a tough year.
That is of course, unless all of them are collecting exorbinant month-to-month rent fees while their tenants sit in short sale contracts...
Cara,
The rental market is not all roses for me. I lost a tenant due to the economy and I may lose a second quite shortly. Fortunately, I have a new tenant after a two week search (I will still be out 2 months rent). On the second place, I will be giving a 5 day notice very soon.
Happily, the last two shorts (if they close) are already occupied by good tenants who want to stay.
Va_investor,
Best of luck, with both the tenants and the shorts! (let us know if/when the shorts close)
I take it this is higher turnover and non-paying-ness than usual?
So the CS number came out today DC was up 1.8%. So we were right that price gains appear to be moderating.
I am a little confused though I looked at the tiered index and the prices for low/med/high were up 0%,1.5%,1.6%. If this is the case how is the total up 1.8%?
"Cara said...Ah, unintended consequences. From Calculated Risk, more first time buyers means fewer renters. Means higher vacancy rates, means lower rents, means lower owner's equivalent rent, means deflation. Brilliant."
Cara - while I think I agree with CR's line of reasoning, im not sure increased vacancies automatically equalls deflating rent.
By his chart, rental vacancies have been mostly increasing since 1982 -- however, I dont think anyone, even Contrarian, thinks rents have been deflating since 1982.
Cara,
Turnover? Yes. Two tenants gave notice in early Sept. (one still had a year to go on the lease; the other had agreed to a 6month extension). One of those stiffed me on a couple months rent.
I am really disappointed about the newer one who has lost her job of three years after only 3 months of tenancy. This is an reo that I had recently purchased and renovated.
I've had to get a number of new places up and running in the past 6 months and this recent stuff just is an incredible pain - but goes with the territory. I just hope that I get no more surprises anytime soon. Turnover is what kills you.
As far as the shorts; I've recented signed extensions on both. I keep hearing 6 wks....
I'm following solds and these appear to be solid buys - at least this week!
housebuyer,
Check the changes in the cutoffs for the tiers. If more sales were done in the highest tier, then that both pulls the high tier up 1.6% and changes the mix, such that the 1/3 of sales sits at a higher price point.
The Anonymous,
It doesn't. His broader point has been that there are simply too many housing units currently. That wasn't the case throughout the time period since 1982.
The idea being that we are currently in a situation of stealing from Peter to pay Paul, and filling vacant REOs and second homes with new owners, stealing from the pool of renters.
And, as always, there's the huge caveat that his was national data, not local DC area data. I'd watch the condo reconversions into rentals and see how those rental prices were doing if I wanted to follow through on this.
Va_investor,
Extensions? I guess yours were set up such that they were automatically void if not extended after a certain date, as opposed to mine which after that date we can opt out at any point with 3 days notice. (essentially, no that's not exactly what it says)?
Likewise, our short is still looking like the best deal around for now. If at some point that changes, we can walk.
I think that's part of the reason that early on shorts weren't closing. If the market is falling, by the time the short process goes through, there are better deals than the short contract price. Over the past year however, no better deals have been luring buyers away, and things can actually close more often.
Id also be curious to see where the empty units are located. If they were located in death valley or detroit or some other place where people dont live (or are moving away from) US vacancies would rise. Yet, if in the populated areas rentals were scarce, rents would not decrease.
The Anonymous,
I don't think a lot of CRE construction of new high-rise apartment and condos were in Detroit or Death Valley. Las Vegas, Miami, SoCal, yes. If you look at which cities have been on the top of investor's lists for CRE, they've been in cities that have been considered to have good prospects.
However, yes, Las Vegas and Miami and the Inland Empire all accomplish the same thing as Detroit in terms of overbuilding in places which are not the same as where people are actually trying to rent.
Cara, I really hope you get an answer soon on your short.
Thanks Ace,
It's kinda like a long-distance race. The beginning sprint of looking and deciding and acting and getting an inspection. The early part of the long race, where the finish seems impossibly far away, but now we're in the coasting along at a good pace part. Really this is no harder on me than Arkey trying to sell her house is on her, quite possibly less so.
And then at the end, if we're lucky, we'll have the 30-day race to the finish of financing and termite inspections and HOA docs, and whatever else it is that happens when one normally buys a house, with the added twists of a short.
If the 10 miler turns out to be a marathon, or the other players are throwing elbows left and right towards the finish there's nothing to stop us from quitting.
Cara, thanks for thinking of me. That was nice. This time on the market isn't nearly as stressful as when we were on at the first of the year. Our agent prefers doing open houses and we actually have some semblance of homelife and he handles everything. I like him alot. As long as the market keeps inching up and the bribes are in place, I don't care how long we have to wait to get our ticket punched but there does come a time when we will have to re evaluate for taxes/retirement planning.
Arkey,
Good to hear that this time you've got an agent who's conducting the whole process in a way that's more condusive to living through it. You seemed way more stressed out last time.
To paraphrase and co-opt what someone said before, when a buyer(me) a seller(you) and an investor (Va) all think the process requires patience, we must be nearing a market equilibrium. If we all felt the process requires speed, I'd be more worried. (decisiveness is different than speed...)
Arkey, good wishes to you as well.
I heard a report on NPR (WAMU) yesterday about how the new rules on assessors is gumming up the works, e.g., whoever is the cheapest gets the job, many assessors are inexperienced with the neighborhoods. Nothing we haven't heard before, but it would be nice if this would be worked out before too long.
new rules ARE, that is
Just checking in for Cara and anyone else waiting on shorts: Yes, I did close on the townhouse despite a last minute scramble due to some bungling on the part of the list agent. But patience paid off in the end.
inkstone,
Sweet!!! Congratulations! So, what was the total time elapsed, from offer to close?
Ace, Cara,
I found a house with a big dinning room, and it's carpeted! Brilliant!
Ace,
Since I've got your attention, what do you think of this REO? I posted it before then it went UC, then came back active again last week.
Hmm, about 123 days, I think? Not the speediest but definitely not the worst. I know there's a short in my neighborhood that's been "under contract" since forever.
Ace, YES they are creating problems. That is one the reasons (of many) that I came off the market from May - July. I knew there would be a lot of problems to work through and I was already stressed to the max. When we went back on our realtor secured an VA/FHA/Conv certified apprasial and we have comps to support our price so I'm not worried about that and they have fixed some of the initial out of towners doing the appraisals. I know that it had a direct bearing on sales/prices for Aug. It takes about 2 months now to close a house. I expect it will step back up next month because of the initial uproar.
I guess I'm expected to crow about the Case Shiller numbers.
But, with unemployment decreasing, federal hiring increasing, mortgage rates near record lows, incomes increasing, foreclosures declining, housing inventory declining, consumer confidence increasing, the regional economy expanding, the Dow near 10,000, huge infrastructure projects on-line, and residential construction increasing, I have only one thing to say:
DUH!
Inkstone,
Just over 4 months? That's excellent! Amazingly fast even.
To match that we'd have to hear from them in the next few weeks (which we very well might).
Mm,
That one's just bizarre. "several additions"? Eeep! I'd call their family room the "dining room" and the carpeted dining room the living room, and leave the entire mess of a house to be some one else's problem...
Robert,
I doubt anyone expected you to say anything. It's July's numbers which we already had in terms of the local MLS, so this is just confirming what we knew already with very little additional information.
MM, the kitchen in the formerly UC house is pretty small. Can you live with that? The other one has a lot of potential - more than 1900 square feet and a nice big lot, in the price range. But Williamsburg is a busy street. If the dining room was not added on, it looks as though it could have parquet wood floors under the carpet.
Cara,
Pretty much once the bank countered and I accepted, everything stayed on schedule. I even closed with a few days to spare (3 days before the hard deadline set by BofA's approval letter).
Inkstone,
Good to know. Thanks for all your input and encouragement. It definitely makes the waiting easier to know that it's not unreasonable to expect that we could close this deal.
Cara,
I know it's tough. That waiting period between offer and bank counter was a dead zone and it was really hard not knowing. But once I heard back, I think it pretty much proceeded like a regular sale would have. (I'm a FTHB so I'm not entirely sure, of course.)
Prices in all 20 cities were lower in July 2009 than in July 2008.
The figures are not seasonally adjusted. Prices typically rise in the summer months when demand is stronger.
(http://www.marketwatch.com/story/home-prices-rise-for-3rd-month-in-row-sp-says-2009-09-29)
And this is some of the good news on unemployment from the BLS (Sep 4):
THE EMPLOYMENT SITUATION -- AUGUST 2009
Nonfarm payroll employment continued to decline in August (-216,000)'and the unemployment rate rose to 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Although job losses continued in many of the major industry sectors in August, the declines have moderated in recent months.
So the continuing unemployment rate is hanging around near multi-decade highs and housing prices increased in the season where they normally increase.
(http://www.google.com/publicdata?ds=usunemployment&met=unemployment_rate&tdim=true&q=unemployment+rates)
Robert,
You might want to wait until the situation is a little more clear before you start crowing. If you're right you'll have plenty of time to crow later.
(But I would like to know how you add your links as hyperlinked words instead of a full links in the text.)
"Cara said...I don't think a lot of CRE construction of new high-rise apartment and condos were in Detroit or Death Valley."
Me neither, but whereas you are more focused on the building side of the equasion, I am thinking more of the migration side.
Case in point, a family moves from a dying rustbelt city to a growing sunbelt city. Since its growing, the sunbelt has to build one more unit to accomodate them. However, the dying city does not raze the building or have a new in migrating family to replace them. Thus the total vacancy rate rises by one unit.
In my mind, thats the only way we could have had an increasing vacancy rate in the us since 1982 and not have 27 years of declining rents.
Federal agencies will be hiring more than 270,000 workers for mission-critical jobs by the end of September 2012, according to a new report from the Partnership for Public Service.
The total projected hiring for mission-critical jobs is expected to jump by more than 40 percent during fiscal 2010 to 2012, compared to the previous three years.
The D.C.-based nonprofit compiled the report by surveying 35 federal agencies about government-wide projected hiring needs for the next three years.
KeithK
"<"a href="link" ">" text "<"\a">"
where you remove the quotes around the angle brackets but keep the quotes around the link.
You might want to wait until the situation is a little more clear before you start crowing. If you're right you'll have plenty of time to crow later.
This is a question I have for the housing bears. If this isn't what the bottom of the housing market looks like, then what will it look like?
How costly and difficult is it to remediate mold? I know it varies with each situation, so an estimate encompassing the high and lows would be appreciated.
I'm looking at a house with an unfinished basement that has some water damage. Since the basement is unfinished, it would be easy to rip out the walls that are down there and spray.
A little dated, but:
POSITIVE consumer assessment of current business and economic conditions in the Greater Washington region is over five times greater than in the nation as a whole (41 percent vs. 8 percent);
POSITIVE consumer assessment of the current job market in the Greater Washington region is three times greater than in the nation as a whole (15 percent vs. 5 percent);
Consumer expectations that business and economic conditions will IMPROVE during the next six months in the Greater Washington region are two and a half times greater than in the nation as a whole (41 percent vs. 16 percent);
Consumer expectations that business and economic conditions will IMPROVE during the next six months in the Greater Washington region are nearly three times greater than in the nation as a whole (40 percent vs. 14 percent).
The Anonymous,
In terms of the 27 year trend, yes, although they are too razing buildings in Flint and Detroit.
Real rents and values declined a whole heck of a lot in rust-belt cities. They are just vastly outnumbered in population by the growing areas.
But on an individual market basis, I'm assuming that we agree that higher vacancy rates would lead landlords to try to undercut their competition to fill their buildings. Normal supply and demand. Hence why I brought up all the "now leasing" signs near me. What I'd like to get a handle on is are we overbuilt here? Did our housing boom overheat? The major SFH builders had to have a one year hiatus before restarting operations. The timing of condo completion, in every housing cycle, is is always off because how long it takes to design and permit and build such things.
I really doubt we overbuilt for SFHs. But that's not the same thing as condo's. And since most renters rent in condo-like buildings, the value of rents and the rent-versus own equation are effected by any over-building. It's marginal, since probably only 10% of buyers even consider trying to compare renting on an equal footing with buying, but it does matter. Heck, it might even work exactly the other way around. Cheap rents could mean first-time buyers can save up money faster leader to a stronger, faster recovery in the starter rung.
The bottom will be when home prices at all levels of the market are stable or increasing AND the government is not artificially keeping mortgage interest rates low and there is not a first-time housebuyer tax credit. The unemployment rate also will be ~3% or lower in Northern Virginia.
Come on. 3% is a pretty high bar to set.
The Virginia Employment Commission, which issues the monthly numbers, considers a region with an unemployment rate of under 5 percent to be “full employment."
Still:
Arlington County’s July jobless rate was 4.2 percent, the lowest jurisdiction in the state. Three other Northern Virginia jurisdictions -- Loudoun and Fairfax counties and the City of Alexandria, all saw unemployment fall below 5 percent in July.
TBW -- interesting data set -- thanks. Interestingly, according to those graphs, current unemployment in Arl and Alex not nearly as bad as it was in 1993.
At the same time however, Ffx, Lou & PWC have all surpassed that 1993 peak and have hit new unemployment highs in this current downturn.
Looks like more evidence of the demographic change CRT & Cara have been talking about in the Nova area.
KeithK,
Here's how you link in your comments:
<a href="URL_HERE">YOUR_TEXT_HERE</a>
All you have to do is replace URL_HERE with your link, and YOUR_TEXT_HERE with any label you want.
For example, if you wanted to link to google's home page, the code would look like this:
<a href="http://www.google.com">Google</a>
The link everyone sees would look like this:
Google
"Cara said...But on an individual market basis, I'm assuming that we agree that higher vacancy rates would lead landlords to try to undercut their competition to fill their buildings. Normal supply and demand."
Yes -- definitely. And there is no doubt in my mind there was overbuilding in and around DC
Consumer Confidence:
Robert,
That just says people think the DC area will do better than the nation as a whole. It does not say consumer confidence is up over the past few months.
From the same Link.
The Greater Washington region’s Consumer Confidence Index jumped a solid seven points between December 2008 and now, from 49 to 56, according to a new survey released on May 7, 2009 by the Greater Washington Board of Trade. The survey shows a significant rise in the optimism of the region’s economy, high expectations for future economic conditions and confidence in employment.
Here are unemployment stats for Fairfax County (you can click for other area localities). You'll see 3% is actually relatively high for many Northern Virginia jurisdictions and so I'm not even saying we'll need to get back to peak employment for the region (which in some localities is in the 1.5-2% range) for a housing bottom.
I've said before, for house prices, the focus should be on the regional gross economic output, regional income, or total job base.
Home prices will be higher in NoVA with 5% unemployment and a job base of 1,500,000 jobs than 3% unemployment and 1,300,000 jobs.
Robert, tbw,
We may look back and say that this is exactly what a housing bottom looked like. Just as the group that calls the bottom of recessions, never does so until we're well out of one, we won't know until this is over (or things look like tbw's scenario).
My more limited criteria is the housing bottom will be clear when we've survived a winter with less than 3% cumulative downturn from the previous summer.
It's a good time to buy when buying is cheaper than renting, so long as you're willing to risk losing your entire downpayment, and plan to live in the house more than 7 years. Buying being cheaper than renting is the condition that forms a steady and dependable bottom. Because most buyers have been renters and know what they can handle in rent. So even with an $8k handout and low interest rates, these people should not be turning into the next round of foreclosures. Thus, they form the bottom so long as they're on fixed-rate loans.
When will we know recovery has started? When the percentage of short sales and foreclosures in the market is less than 10% even in the starter rung.
Buying in the non-starter rungs is a lot trickier, because it isn't just tied to rental equivalence. How much wealth people are willing and able to commit to their houses becomes key and is much harder to predict than a loan officer's DTI ratios.
I can't predict how much people will continue to be willing to overpay for Arlington, or for a 5bdrm 3 bath house, or for metro-accessibility, or for cache. It's just a roof to me, so I can predict that they will always cost more than I'm willing to pay.
Robert,
I don't know. I'd guess I'll call a bottom when I can buy a non-REO SFH in PWC on a (my) single income.
That'll almost certainly be post-bottom for a number of reasons, but it shows a very important psychological change in the marketplace from banks selling property to people selling their homes at prices a new buyer can afford.
Since we're pretty close to that, if you look in the right places and have a sufficient downpayment, and minimal debt, and a good credit rating--all of which you ought to have if you're buying. So, in a lot of ways, I'd say we're either at or close to bottom for PWC.
Like most people I'll know more when I can look back at the bottom and say, "There it was!" I'm pretty sure it wasn't winter/early spring, though, which means it'll be this winter/early spring with another seasonal bounce next summer.
And of course, all of this is on nominal prices, not necessarily real.
Understandably, everyone has a different take on a real estate bottom. I understand prices are still high by some, or even most measures. There is a lot of money to be lost by guessing or estimating wrong.
Cara, sometimes you can't even see the bottom from years out. I remember when the S&P breached the 2002 low. An analyst said that it was a resumption of the bear market that started in March 2000. If you agree with that, everything from 2002 to 2007 was a head fake. Certainly in 2007 you would have agreed that 2002 was the bottom, but it wasn't.
Imagine if the bottom is really in 2014 or something like that??? We head up for 5 years from here and then, smack!, we go back through the winter/spring 2008/2009 numbers.
Robert,
I heard something like that, how we're all viewing this current down turn as akin to the 1929 crash, but in reality (from this analyst's view) 2001 was the 1929, and this was the mid-30s collapse.
Nothing is certain about the future except that some prognosticators are going to be wrong. Substantially more than those who are right.
Stephen Fuller...
Cherry picked comments:
Fuller predicted that the lost jobs will not return until the second quarter of 2010.
“But then there will be 11 to 12 really good years,” he added. “We should know by the sixth quarter if there is a real recovery.”
When the positions do come back, Fuller said, “We expect that most will be filled by higher-skilled and higher-paying employees … which means even more likely homebuyers.”
Already, he said, the Northern Virginia market has bottomed out, and home sales are rising as inventory falls. The monthly NVAR sales statistics bear him out. “Due to the pent-up demand, Northern Virginia will recover first,” he said. “By 2011 and 2012, it will be going like gangbusters.”
The $400,000 to $600,000 range is still the strongest, he said. This became vividly clear, when a $559,000 house in Oak Hill attracted 12 prospects in three days this September, followed by 18 visitors at a Sunday open house. Three offers were made that evening, and one was accepted the following day.
Look at the unemployment data sets. You will see that for many localities around here we are at 20 year highs. That's a big deal.
You say big deal, I don't agree. Plenty of local economies in the US have boomed with 5% unemployment. Besides, it is dropping rapidly. It went from 5.5% to 5% last month.
Maybe a blip, we'll see.
It may just be we'll say "Manassas bottomed around X" and "McLean bottomed a year-two years after X."
We are in agreement. McLean has not bottomed. That lowest tier in PWC, I believe has bottomed. I don't think we'll see TH's for $50k that existed last Winter.
Robert,
Since houses have a utility beyond investment, i.e. you have to live somewhere, bottoms in housing are not like bottoms in stocks. Who cares if we retest the "lows" of 2008 in 2014? You still had to have someplace to live in between, and if buying was cheaper than renting over that time frame, then buying was the right decision even if you don't make any money selling.
Since the whole idea is that it would be nice if houses were not like stocks, and instead were about a place to live, I reject your comparisons as specious.
Either that or you not only have to calculate real rather than nominal prices, but you also have to compare renting versus owning integrated over that timeframe, with full accounting fro opportunity costs. No thanks. Since no one has a crystal ball, I'll take a mortgage that's lower than my rent even after T&I and condo fees, thank you very much.
Since the whole idea is that it would be nice if houses were not like stocks, and instead were about a place to live, I reject your comparisons as specious.
Cara, I hope I didn't piss you off.
My comment was an observation. I didn't say houses would go up because stocks and commodities have gone up. I just stated that they were all going up synchronously.
Who cares if we retest the "lows" of 2008 in 2014? You still had to have someplace to live in between, and if buying was cheaper than renting over that time frame, then buying was the right decision even if you don't make any money selling.
I was actually saying something worse. What if you bought for $200k in 2009 and in 2014 the price is $100k? Not testing of the lows, but smashing through them. So, it would matter in 2009 whether you live in it or not.
TBW,
Did you notice how Stephen Fuller talks about the job base - returning in the next 9 months? I don't have all of his comments, but, in that article at least, he didn't use unemployment as the measuring stick for economic health and housing prices.
You remind me of the other kid. You have no patience. You have to just appreciate that recovery takes time. Look again at the Fairfax County unemployment chart. Recovery takes a few years.
I know it's not fun attacking windmills all day, but you do it honorably. A true knight you are.
The story ends with TBW regaining his full sanity, and renouncing all chivalry.
Robert,
You didn't piss me off, or not much anyway.
No one has a crystal ball. But here's why I think "smashing through them" is not a big worry. Units that are currently already under rental parity in 2009, such that you're saving money over renting, are relatively safe from the "smashing through them". Using rule of thumb numbers that are not to be taken too literally, the units I'm talking about are at about 14x yearly rent. If they were ~10-12x yearly rent, they would be quite attractive as rental properties even without factoring in increasing rents or property appreciation. (sorry, didn't feel like working out the cap rate). That would be a 15-30% drop from today's prices. If that doesn't happen until 2014, and you put down 20% to start off with, you're still not underwater, or not by much, depending on your amoritization length. For things to get worse than that we'd have to have years of declining rents from here on out, and/or some serious deflation. If the DC metro region gets either of those things? You have more to worry about than whether you can sell your house for more than you paid for it.
I've run the "worst case" scenario numbers, this is what I panicked about back in July when I first considered putting in an offer in this complex. Yes, the worst case does involve us losing our entire downpayment, that we've saved so diligently, but given that we'll be able to continue to save at the same or higher rate since our monthly housing costs will be going way down under the 30 year plan or only $150/month up on the 15 year plan, I'm not going to sweat it.
The rule-of-thumb numbers above intentionally disregarded interest rates. Thus at under 15x annual rent, I'm saving money over renting rather than just breaking even, and even if interest rates got up to 7-8%, 15x annual rent would still be attractive to owner-occupants.
Now, could the $600k stuff go to $300k?? in a disaster scenario for 2014? That's a tougher question. And I do think $400k is a remote possibility for the things that are currently selling for $600k. Emphasis on the word "remote". But honestly I'm the wrong person to ask about that market, because unless I literally had that much money to spend, not borrow, not invest, but spend, I wouldn't be spending that kind of money on a house. The buyers for those houses don't think like me, so I have a really hard time gauging how that market will behave. (Or maybe they do think like me and are actually "spending" that money on a nice house/nice location and can easily afford to do so. If so, that market isn't coming down either).
"No, The Anonymous, I said to sell back in 2007 when the market topped. If you go back more than a year, you will see that I have been preaching t-bills and deflation."
I agree. As with most permabears, youve been preaching this since the beginning of time.
"BTW The Anonymous, I checked that link you posted and I did not see anything about "sell now" as you so falsely allege."
Oh give it up already. OK tell me what you were implying we should do with our "assets deflating daily"? Youve been preaching sell now each and every day since your first day on this blog. Had MM then decided to listen to you, he would have sold at the bottom.
"The Anonymous, are you naive enough to believe that at this time next year the market will not be lower than it was back in March?"
There it is folks, Contrarian has a crystal ball and can confirm not only was March not the bottom, we will smash below it in a years time. Mark your calendar to call Contrarian out to see if this comes true.
Unlike Contrarian, I DO NOT have a crystal ball. All I can tell you is that (thanks to hindsight) the CONTRARIAN move on March 5, 2009 would be to say "there is extreme pessimism in the market - buy now while everyone is running scared". Instead, so called "Contrarian" used that exact moment in time to chastize us for holding on to our Assets that Deflate Daily. How pathetic...
Cara,
I don't think 2014 prices will be lower than 2009. If they were, then indeed it would be a depression.
There is always risk in any transaction, but with prices where they are now, it is much much less than 2006.
DC Metro Case Shiller Home Price Index from January-1987 to July-2009
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