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Tuesday, September 8, 2009
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80 comments:
Today's Washington Post on the coming regional Real Estate boom.
Analysts said they expect the new jobs to drive demand for housing in the region, accelerating recovery of the market. July housing sales in the region were up 12.6 percent from the same month in 2008, according to the Center for Regional Analysis, and inventory shrank to 6.2 months in July from 11.5 months in January.
"The job growth in D.C. will bring new people into the labor force and drive demand for apartments and houses," said Frank Nothaft, chief economist at Freddie Mac. "That will have a ripple effect in [boosting interest in new houses] and creating construction jobs."
Pump it!!!
A short but fact filled article from The Economist (via patrick) on just how much HELOC borrowing went on and by whom.
HOW big an influence on spending is housing wealth? Hopes for a consumer revival in countries where house prices have slumped rest, in part, on the answer. A purist view is that the value of homes has no “wealth effect” on consumption. An increase in house prices only raises the future cost of shelter. Those about to trade down or sell out receive a windfall, but first-time buyers and those hoping to buy a bigger home are worse off. The overall effect on wealth is a wash. But even if that is correct, house-price increases may still have an impact as they create housing collateral for consumers who could not otherwise borrow. A study* by Atif Mian and Amir Sufi of the University of Chicago’s Booth School of Business pins down the size of this effect, using the credit records of almost 70,000 American borrowers.
...
By limiting their sample to those who were already homeowners in 1997, before the boom in housing and credit, the authors were able to measure how much of the rise in debt was the result of cashing in on higher home values. They reckon almost 60% of increased debt between 2002 and 2006 came from this source. Put another way, every $1 increase in home values led to a rise of 25-30 cents in borrowing. That is far bigger than some long-standing estimates of the wealth effect from rising asset values, which are in the 3-5 cent range (though these include the response of renters, too).
...
Digging deeper into their data, the two Chicago economists discovered that the pattern of home-equity withdrawal was far from uniform. The young were keener to cash out than the old. That is at odds with the life-cycle theory of consumption, which says that the young amass wealth so that they can spend it in old age. Borrowing by the top quartile of homeowners ranked by their creditworthiness scarcely rose in response to rising house prices. That is evidence against a pure wealth effect, says Mr Sufi. The most eager borrowers were those with the lowest credit ratings and whose credit-card borrowing was closest to the agreed limit. That sits well with a model of willing but frustrated consumers given access to credit through the rising value of their homes.
It also fits a more worrying interpretation: that many of the keenest borrowers were myopic or had problems with self-control. More than a third of new defaults in 2006-08 were because of home-equity-based borrowing. Default rates for low credit-quality homeowners rose by more than 12 percentage points in places where housing was scarcest and prices had risen most. In “elastic” cities, by contrast, the increase was less than four percentage points. This suggests huge over-borrowing. Prospects for a sustained recovery look dim if households that are most inclined to spend are mired in negative equity.
This suggests, to me at least, that the areas that have seen the most foreclosures so far will continue to be the areas with the most foreclosures. The most expensive places with the most credit-worthy borrowers may indeed be "immune" from the pressures of easy-credit. Sure, people have found short-sales from 2000 and earlier buyers everywhere around the region, but the prevalence is not uniform, and won't be going forward either.
@J@
Umm, if you read the whole article it doesn't really come off like that... First of all it's based on the projections for Federal hiring that we already discussed last week, and second of all it's mostly bullish on 2011 on out, not right now.
Yes, the DC area has a good employment picture and will recover sooner than most of the US, tell us something we didn't already know?
@J@-
I am generally on the optimistic side of the argument, but too me that article sounded like many/ if not most of the jobs are just replacing workers who are retiring. That doesn't really benefit the housing market. Also a lot of these jobs are being created because the government wants to do more for itself and contract out less. This will hurt a lot of the inner areas, because government workers(making 150K) simply can not afford the million dollar price tags of nice SFH near the city.
I agree with Cara's comments from yesterday that housing is now affordable in the outer areas, but the inner areas are not likely to see prices go up for a long time. Lawyers and lobbyists are some of weakest job markets right now and these are the people who can afford inner areas. I am not predicting the sky will fall in these areas, instead I just think there will be no housing gains for the next many years...
@J@, interesting; an NPR report on the radio this AM described just the opposite. I wasn't carefully listening, but IIRC, many new jobs were low paying as in retail and other services.
@J@ said:
"Pump it!!!"
LOL. I see not much has changed on this site in the past few months. Positive economic news for the region is condemned by most here as fake or hype, while negative news is embraced and magnified out of proportion. It's all so predictable.
I wish more posters would stick to news of individual properties and neighborhoods and lay off the macro econ analysis.
http://franklymls.com/FX7149557
The owners claims 300K in upgrades. I will admit the upgrades look/sound expensive, but that sounds a little absurd. Somehow I really doubt they spent that much.
The house was built in 1998 and sold for 309K. Do you think the owner is calling the price she paid for it the upgrades?
Tom,
If you look through last week's posts you'll see most of it was on individual properties. Nothing all that thrilling as I recall, but a lot of humorous realtor descriptions.
And if you actually read the economic analysis that @J@'s WaPo article was using to extrapolate from? you'll see it's not bullish in the near term (2010), just in the short term.(2011-2013). If such discussions don't interest you, don't read them.
housebuyer,
If the list were $618k instead of $695k, she'd only be asking for a doubling time of 10 years. Which is the absurd appreciation rate of 7%/ year. That plus some added value of her choice of upgrades, makes that price somewhat plausible.
The real thing is the taste level. And finding a buyer who likes what she liked. I know a large part of it is the fault of the stager who saw fit to put multiple gold colored pieces of furniture in the living room, but it's certainly off-putting. It screams, someone who thinks too highly of themselves and their property.
(or someone that trusted their stager more than they should have).
What are the comps?
In case anybody didn't read that far into Krugman's article I loved the comparison between buyers correctly pricing houses using comps and buyers pricing 12 oz bottles of ketchup using 2 6 oz bottles of ketchup.
Cara-
I hadn't gotten that far, but that is a funny comment. The reason I doubt the upgrades is that most houses in that area have more than doubled. So even with no upgrades I would expect her house to go for close to that. The 300K price tag for a TH in 1998 seems really really high to me so I am sure that at least a lot of the upgrades were there when she bought it.
housebuyer
I'm guessing the entirely black marble bathroom was not amongst the things the builder did, even as an upgraded option. But yes, $300k in subsequent upgrades seems unlikely.
I have to say, I like how she organized all of the closet structures.
Yes, if she made the upgrades, the listing would read "$300K in upgrades since (her date of purchase)."
Cara-
Yeah I like the house, but for almost 700K I would want a 4th bedroom a 2 car garage and some land.
"I see not much has changed on this site in the past few months."
Yeah Tom, some here miss the point.
It's not their deep analysis or beliefs, it's what actually happens that counts.
RE inside the beltway did not plunge. RE outside the beltway did. In late 2009, investors are picking over the bargains. It doesn't matter what anyone here thinks the ratios should be. It only matters what people with money are doing.
housebuyer,
whereas for $700k I'd like two bottles of ketchup please.
I just don't think I could stomach paying more than $450k for a house no matter what my houshold income or worth was. It's a roof. It's just a roof.
but then again, I am cheap.
It's kind of like that fact that I don't have my ears pierced because I don't want to spend money on earings. With a house that fancy, you'd feel you needed to spend the money on appropriate furnishings. No thanks.
@J@/Tom
If you can't tell the way in which the conversation has shifted, then you are either not reading, or would prefer to start fighting the same old fights.
Most people on the blog have bought or are buying or are relatively new. We have better things to do than pick fights. Like, figure out which areas have the best value for your money, where your hard-earned hard-saved down payment goes furthest towards the things you value most.
But mostly, we're living our lives, continuing to save hand-over-fist by renting (or staying put) rather than buying prematurely and waiting for prices to align with what we're willing to spend (where both numbers in that equation are changing) and we see a home that's worth our money to buy.
Since any further declines were postponed through the summer months from a combination of seasonality, insanely low interest rates and the $8k incentive, we discuss macro while we wait, and refine our expectations.
Sure, markets can stay irrational longer than you can stay solvent, but in housing, if they do, you can always just look elsewhere.
Tom said: I wish more posters would stick to news of individual properties and neighborhoods and lay off the macro econ analysis.
Where's the fun in that?
I don't have to be an economist trained in Macro theory to have a simple man's understanding of a local economy based on relevant, repeatable, verifiable facts.
I honed these skills from an early age, carefully selecting the best value from the candy machine when I only had a dime and had to choose carefully value versus reward.
Economic fundamentals are practiced hourly by every person on this planet. From comparison shopping on the Internet to browsing a local Farmers Market, we intuitively learn and practice economics. The Free Market rewards the faithful, and punishes the sinners by moving money disproportionately from one side of the transaction to the other.
I'll give you an example from home (Texas). We have a saying "Buy the gun, not the story". Everyone wants to think that granddad's western six shooter was used by Custer at Little Big Horn and then magically made it's way right before you, which can be yours for a premium price. Not much different with housing. Buy the gun, not the story, and you won't get taken.
RE is amply full of recent examples of folks buying the story.
I like what I see here, because a majority of folks don't buy the story, but focus on the tangible asset before them and rationally ask "What is this really worth to me?".
And therein lies the problem that has bedeviled economists. Something is worth only what someone is willing to pay for it at that moment, at that time.
I think...no....I know that a large portion of the professional media are lazy, and move in symphony in their reporting. Only a few folks lead the change and they are always in front of the pack or at the rear.
Drop Robery Shiller's name in casual social conversation and you'll likely receive a blank response of "Who?". Mention Perez Hilton and half of the room will pause in conversation and wait to hear your comment.
Such is the way of this world we live in.
You can either be faithful to what you've painfully learned as you age, or repeat the lessons of history past and get that pack of licorice gum you thought looked tasty in that pretty green pack from KB Homes.
:)
"Drop Robery Shiller's name in casual social conversation and you'll likely receive a blank response of "Who?". Mention Perez Hilton and half of the room will pause in conversation and wait to hear your comment."
Texas, you have identified much of what is wrong these days, not only with real estate but with so many other things. Thanks!
More news on the jobs front:
Kaine Set to Announce Budget Cuts, One-Day Furlough
Virginia Gov. Timothy M. Kaine will outline a series of cuts to state agencies Tuesday -- including possible trims to education, public safety and other core services -- to make up for a $1.5 billion budget shortfall.
Kaine (D) also is expected to announce possible job eliminations and a one-day furlough for state employees
But somehow Robert will chime in how this too doesn't affect NoVA and the jobs are coming to push prices here up, up, up!
I've been following this blog since earlier this spring/summer and noticed there isn't much discussion on new construction. We began househunting in PWC and haven't had much luck. We became discouraged after losing two short sales (one bc we were too late and the bank foreclosed-it came back on the market for more and sold within a few days, the second was bc the bank worked out a loan mod with the owners). After the last incident we turned our attention to new construction. Can anyone point me in the direction to any old discussions regarding old vs. new in the Manassas area?
@J@ said,
RE inside the beltway did not plunge. RE outside the beltway did. In late 2009, investors are picking over the bargains. It doesn't matter what anyone here thinks the ratios should be. It only matters what people with money are doing.
Your lips to God's ear. Actually tons of areas outside the Beltway did not "plunge." Large swaths of Great Falls, Oakton, Vienna, Clifton, Reston, Burke, Chantilly, and Centreville. Many nice SFH neighborhoods in Loudoun and PWC also have not plunged.
I wish everything outside the Beltway had plunged in price. In reality, only a select few neighborhoods dropped large amounts. Most of Fairfax County is dripping down 5-10% per year like a lot of Arlington. Many parts of PWC and Loudoun are dripping down similar amounts.
Precipitous price drops in Woodbridge or Manassas Park are more the exception than the rule. And many inside the Beltway areas of Fairfax County (Annandale, Franconia, and a few other areas) have had larger price drops than the outside the Beltway areas I noted.
melanie,
We've had discussions on recent construction and basically not trusting anything built towards the end of the bubble (2005?-2009) but I don't think we've touched much on new construction.
For many places where land is less of a premium new construction can be a good way of getting what you really want, but you'll have to get those on hear with more knowledge than me to discuss the current pricing and pros and cons appropriate for actual situation on the ground in Manassas.
Others have also weighed in on which national builders are solvent, perhaps some of them can chime in too.
How do the prices look to you?
@J@ and Tom,
Here are some individual properties. Looks to me like there are some plunging prices inside the Beltway and in Arlington. Hmmmmm.
http://franklymls.com/AR7096731 (asking $351,872; 2008 Assessment is $528,900)
http://franklymls.com/AR6967163 (began this year asking $525,000; now asking $324,700)
http://franklymls.com/AR7119075 (list price $210,000; sold in 2005 for $479,900)
http://franklymls.com/AR7112323 (list price $149,000; sold in 2003 for $205,000)
Looks to me like there are some huge price drops in Arlington in the Nauck neighborhood.
The home we're looking at is priced in the low to mid $600s near the Hoadley/Kahns area on 2.2 acres, 5 beds/5 baths. There are older homes nearby that were bouth in 06 upwards of $1mil and have appeared to bottom out in that price range. My fear is that if they haven't bottomed out that we'll have trouble with the appraisal next spring.
melanie,
Off-hand, not being familiar at all with that area, that sounds to me like a good value (Tabitha arkey? PWC folks?). The appraisers should be paying most attention to what one can get for $650k(ish) than they will be to what one could get if one had $300k more to spend...
Is there a way of structuring the construction loan such that you won't need to worry about the appraisal at completion? (That may be a terrible idea in and of itself) Or are they building it on their dime, and you're just committing yourself to yet another long wait, this time with more money on the line... There have been some articles in the WaPo that at least briefly discuss the pros and cons of different methods of paying builders....
Melanie,
The other way to put it is look closely at the contract. Make sure that the appraisal contingency upon completion of construction is written such that you will get your deposit back (i.e. the contract be void not in breach) if the builder refuses to reduce his price to match the appraisal. Talk to "gasp" a real estate agent or better yet a real estate lawyer about what the builder's contracts look like. (What I'm asking for may not be "reasonable" because I'm just making it up now and have ZERO experience here...)
Have a professional on your side, and personally read all of the paperwork carefully before entering the contract. If there's language you don't like, don't sign it. Compared to the reams of paper you'll get with the mortgage itself, the contract is nothing.
(says me, who, according to my agent is amongst the 5% of buyers who actually read the whole contract word by word, line by line and tries to understand all the implications of "if this clause is not fulfilled, then what action would/could be taken").
TBW said: "Looks to me like there are some huge price drops in Arlington in the Nauck neighborhood."
Later in this thread, Tom will say: "TBW, those houses are in a bad area. N. Arlington, within walking distance to a metro, is doing just fine!"
You're right, this blog is predictable.
Melanie,
We've been on the same search since February. Building a home is much more familiar to me than purchasing one built in the 60's and 70's (where we're looking). While looking to purchase one of those handy dandy 45 yearish homes, I tried to work the math of land purchase + new home construction also.
There is a interesting (new to me) phenomena occurring just outside the beltway (draw a big circle around Tyson's about 10 miles or so in diameter) where listings occur that state the existing home is worthless. Seems odd to me. Many have two listings. One listing is the sale of the existing land and home for an amount, the next listing, identical in price states simply "land for sale". Many of those homes are livable (or appear to be) but it's an odd thing for me to see. A totally worthless livable home. I think it's an important indicator of something...a thesis I have not yet finished pondering.
Only seen that in places like Detroit.
But I digress. Land values in NVA do not yet have a large enough spread between fair market value and the cost to erect a home. The current market situation grossly favors a dedicated builder. I cannot economically derive a workable solution to a land purchase + one off custom home anywhere in reasonable commuting distance to the NVA/D.C. region.
The status quo would have to change for the equation to make financial sense. At this time, it has not.
My opinion.
tbw-
Another example of huge price drops on the beltway is the place I am renting from right now. It is called the Halstead and is right across the street from the Dunn loring metro, which I guess is technically outside the metro, but is still a premium location on the orange line and a couple miles from Tysons. The building was new in 2006 and the places were sold for ~300K for 1 bedrooms and upper 400s for 2 bedrooms. Now 1 bedrooms are selling for ~200-220K and 2 bedrooms are going for 300K. So although it is a premium location people lost 30+%, which I would consider is pretty rough.
Texas-
I agree and also from what I have seen there is very little premium for buying a new house compared to buying an old house that has been updated. Assuming that the new house is built well(this is a big assumption) you can get all of your tastes put in the house and you don't have to worry the fact that a lot of your houses parts are decades old. One problem is that there is not a lot of new construction in many of the expensive areas because land is pretty scarce.
Texas Native,
The worthless house syndrome has been around for quite a while in parts of Arlington (and lots of other areas, like Falls Church, or Bethesda and Silver Spring, MD.) A lot of starter homes sit on very prime real estate that would never be used for starter homes now.
The house next to me (1952 3BR 1 1/2 BA colonial) was bought about 2 years ago for almost $700K and torn down to build a new house. If I go down the street a little ways, there are three new houses (>$1.5M) in a two block stretch that take the place of similar vintage ramblers. Cross the street, and about a block away you have two more new houses built to replace originals in the last 2-3 years. From there, you don't have to go too far to find many other recent or under construction tear-downs or total renovations (where most of the existing house is demolished). Some of the original houses were rundown, but most were in good shape.
I guess it's just a case of highest and best use. And it's nothing like what is happening in Detroit.
Just my LoCo observations
You can buy new Construction starting at 599K at Goose Creek (Brookfield Homes) & 619K in Little River (NV Homes)
It's MIGHTY tempting to get into one of these - no haggling/negociating with Owners, Banks & Shorts.
Of course, by the time you get the house "tricked out" with all the Options you want, it's back upto 700K!
Cara...I can't give any advice worth taking. 20112 is still dropping, still has high end foreclosures coming. That area is newer but its commuter hell highway. One thing a person can do is price land. It helps to explain cost differiential. As far as a home builders contract, they are written 100% in the builders interest, if things so south, the buyer is the loser, lawyer or no laywer, real estate or no real estate, ask any lawyer, they are hell. BUT if that's what they want, go for it. Quality I think was the underlying question and that can only be answered if you know who the builder is.
melanie,
Funny you should be asking about new construction by Manassas. After three years of seeing construction come to a standstill, watching the signs change every few months ("from the $500s" to "from the $400s" to "from the $300s" to from the low $300s"...), wondering if the muddy plots would ever be anything more, I have seen some builders spring to life this summer, like Pulte right off 234, and in New Bristow Village. I know the area you are talking about, though I am not familiar with its specifics.
Have you looked at other new construction developments, and traced their pricing? For example, New Bristow Village had dipped down to the $300Ks for their estate homes in the spring, but now I see some under contract with asking prices in the low $400Ks, and I see several new homes going up on the last plots. That would seem to suggest that the neighborhood found its bottom.
The concern for me is all the people who still have mortgages for $800K from 2005 for houses that are selling brand new right around $400K. What will they do?
But if buyers can be found around $400K, I guess it doesn't matter how many people walk away, because a bottom has been found.
How about Mayfield Trace? Look at their price history, too.
But I guess they are not the best comparisons, because they are cookie cutter houses scrunched together in no-tree neighborhoods, and the houses you are looking at have acreage and are unique. I'm looking more for trends: are similar but older houses selling for the same as new construction?
Rule of thumb for PWC: if you are around half of what people were paying in 2005/2006, you are probably OK.
So since we were talking about land, I decided to look up some land in Vienna and found some interesting posts. I think my favorite is
http://franklymls.com/FX6919558
they say "Lot will accomodate 15,000+ square foot." For one this is a 5 acre lot. I am sure it could accommodate something much larger than 15K sq.ft. if you really wanted too, but more importantly what the hell does a 15K sq. ft. house look like.
The other thing to keep in mind is interest rates. When the government stops supporting lower interest rates they will find their own level and I expect it to be quiet painful. I would think there would be ample homes to select from right now so that you know or have a feel for costs instead of next spring when projections aren't good pass 3 days!
Housebuyer,
looks like there's one up the street on the overhead map.
And if you look through the tax records for Polo Pointe, there's
2111 Polo Pointe, with 7,187 above ground + 1393 in deck alone + 999 garage... I know, that's not 15k, but you could scroll through and see what you find...
Lucky for us, the builder is going to carry the loan so we don't have to put down the hefty 10-20% for a construction loan. However, they are reluctant to add an appraisal contingency which I am beginning to think is common with new construction. However, because they are building in a subdivision with similar homes, the comps should work out so that it appraises. I guess, then we just have to worry about it losing it's value right after the appraisal. The way I see it is that if we plan to stay for the next 10+ years it shouldn't matter.
Tabitha,
We've looked in all of the areas you've mentioned. We actually live in Bristow now and there is a ton of new construction in the area. The problem is the lot size. We're really interested in a 1+ acre lot. That's hard to find (for a reasonable price) on that side of PWC.
WASHINGTON -- Americans reduced their borrowing a sixth consecutive time during July in a bad omen for any easy economic turnaround.
Consumer credit outstanding tumbled a seasonally adjusted annual rate of 10.4% to $2.472 trillion, the Federal Reserve said Tuesday. The $21.6-billion drop in borrowing was a record.
Wall Street projected a $3.5 billion decline in consumer credit during July. Borrowing in June fell $15.5 billion, revised down from $10.3 billion. The last time credit fell six straight times was in the second half of 1991.
The Fed data don't show whether the decline is the result of banks cutting off credit to consumers or consumers choosing to pay down their existing debts.
The consumer credit report is an indicator of spending by Americans. Consumer spending makes up 70% of gross domestic product, which is the broad measure of U.S. economic activity. People, afraid of unemployment and stuck under high household debt, aren't spending briskly, a restraint that held the economy in a slump and is seen preventing a quick recovery. Analysts expect more deleveraging by U.S. households.
The Fed data Tuesday said revolving credit, which includes credit card use, dropped in July by $6.1 billion to $905.6 billion, or 8.1%. Nonrevolving credit, including automobile and mobile home loans, decreased by 11.7%, or a record $15.4 billion to $1.566 trillion.
The consumer credit data exclude home mortgages and other real estate-secured loans. These tend to be highly volatile from month to month and are frequently revised. But the report still has interesting details on how Americans finance their lifestyles.
Melanie,
Is there a financing contingency at least? What happens if that's not fulfilled? If you aren't tying up very much money in a deposit, I can see how they wouldn't want to give you many "outs" later on in the process. That seems like a fair trade to me...
10+ years is a good time horizon for buying what you really want in new construction. New homes typically depreciate anyway, because the next buyer doesn't get to make the choices, and "normally" there's a premium for building new. So, it takes longer for a new home purchase to make sense (with transaction costs) than a used home. That's just normal.
So, unless you'll be totally strapped for cash after the purchase, and wanting a line of credit you can tap in emergencies (which I don't recommend anyway...) I see no reason why this drop in price effects you any more than any other price fluctuation over the next 10 years...
I highly recommend doing the type of legwork Tabitha described if you haven't already. See what prices for similar builds have been doing this past year. If a bottom has been found at your price point, I don't think you have a lot to worry about.
housebuyer,
Yeah I think in addition to the Halstead at Dunn Loring losing about $100k the condos at the Vienna Metro have lost about $100k. I was looking at one building recently and found that clearly fraudulent series of flip (and then HayfieldGrad found out the guy went to jail for fraud.)
I think many of the newer condos along the Orange Line in Arlington also have had sizeable price drops around $50-100k depending on size.
I don't think the issue is inside the Beltway versus outside the Beltway. The main culprit is just how many foreclosures an area/building has. The more foreclosures, the larger the price drops.
The big question is whether areas without lots of foreclosures will eventually catch up to those price drops. I think they will -- over time lower sales, lower assessments, etc will keep dragging prices down slowly.
What may speed it up is that even nice neighborhoods are seeing short sales and foreclosures now. Partly because of job losses but mainly because many premium homes were bought with silly loans as well.
I just scratch my head sometimes listening to Tom, CRT, et al. They act like Arlington has bottomed and it's back to the olden days. The condos in Arlington I visit seem pretty desperate for customers and send a lot of e-mails. Some that were finalized in 2006 still have not sold out. I think it's still a suffering market.
oh btw, I was driving along Lee Highway in Arlington the other day. Remember the fast food TH across from KFC/Pizza Hut/Taco Bell that we all mocked? Well, in addition to the 29 Diner and McDonald's I saw that a little farther walk you could go to Wendy's too. And close to that was a 7-11. And oddly enough about 1/8th of a mile further down Rt 29 was another 7-11 (intersection of 29 and N George Mason Drive).
Not sure why two 7-11s are so close but it's not the first time I've seen that.
[Sorry for newer readers; this harks back a few weeks.]
TBW-
7-11s are like Starbucks there is no reason you can't have two on the same block :) I do love a good slurpy on a warm summer day.
Melanie,
You are absolutely right that it is hard to find acreage for a reasonable price. Those sellers, as a rule, are asking insane prices even still--whether because they have to or they feel entitled, I don't know.
But for new construction? If I recall, it seemed as though builders were desperate beyond all reason off Brentsville and 234 this part spring for their five acre lots. Are they finally getting buyers?
In any case, if you are buying in a high acreage neighborhood, and you have looked at assessments for the past ten years, and you are buying new somewhere around 2002 prices, I think you are OK, especially if you are talking 10 years.
"TBW said...
The big question is whether areas without lots of foreclosures will eventually catch up to those price drops. I think they will -- over time lower sales, lower assessments, etc will keep dragging prices down slowly."
Wont happen. Forgetting for a moment the income gains in Arl this decade were by far the best in the area, The reason there are far far more foreclosures outside the betlway is there was far far more junk loans/flipper/speculator activity during the bubble years. This is but one of the many, many, many things we discovered years ago when you werent active on this blog.
"TBW said...
I just scratch my head sometimes listening to Tom, CRT, et al. They act like Arlington has bottomed and it's back to the olden days."
For starters, dont confuse the "bottom" with the "recovery". I have never said its back to its "olden days". If anything, despite roberts calls for a v recovery, I keep suggesting inflation will eat away at the remaining overinflated prices - meaning no nominal increase for years to come.
Secondly, regarding my call of bottom, excuse my french but in looking at the data, what the fu*k am I supposed to say? For years, every single month, median prices were down - now they arent. For years, every single month inventory was sky high - now it isnt. Same thing with similar market specific data - if this isnt a sign of bottoming, what is?
Sorry if this irritates you but the data is what the data is, and I call it like it see it. If the local data suggests a certain area is on the edge of a cataclysm, I will generally say so - as I did back 18-20 months ago. Likewise, if the local data suggests there is no real sign of worsening conditions, I will say so. Again, my apologies if this irritates you.
Well, Jeremy, here are the numbers.
Do you think this is the beginning of the next leg down?
CRT said,
The reason there are far far more foreclosures outside the betlway is there was far far more junk loans/flipper/speculator activity during the bubble years. This is but one of the many, many, many things we discovered years ago when you werent active on this blog.
I think you are ignoring bad data in Arlington. Such as all the Nauck homes I found. Plenty of junk loans/flipper/speculators there. $500k for a home in Nauck in 2005 = bubble mindset.
Are you honestly denying there were tons of flippers/speculator/junk loans at all the condos along the Orange Line? Here is a Washington Post article from 2004:
About a quarter of those expressing interest in Clarendon1021 already own townhouses or single-family homes, another quarter are first-time home buyers and about 15 to 20 percent are renters, Faeder said. The rest either own a condo elsewhere or did not disclose information. Two hundred of the building's 415 units have sold since Sept. 17.
There is another big group that sometimes gets overlooked -- investors. According to a recent study by research firm Delta Associates, "investors represent 30 to 35 percent of the condo market" in the Washington area, chief executive Gregory H. Leisch said. That's higher than in all other condo markets in the nation except South Florida, Leisch said.
Investors represent about 25 percent of condo sales in San Francisco and New York and about 20 percent in Chicago, he said.
Leisch said two-thirds of Washington investors are in it for "the short term," to "flip" or assign the contract to another buyer before they sign, or to resell the unit soon after settlement, which is about 18 months after the original contract.
TONS of speculation/flipping/junk loans at those buildings.
So, Who's Buying Them? (October 2004)
CRT,
By the way, I'm not irritated. I do think those of you in Arlington get ridiculously irritated anytime someone says there will be further price drops in Arlington. You want to stifle dissent and end debate. Every time it's "oh we already discussed this years ago, put it up to a vote, and it can never be discussed ever again."
"I think you are ignoring bad data in Arlington. Such as all the Nauck homes I found. Plenty of junk loans/flipper/speculators there. $500k for a home in Nauck in 2005 = bubble mindset.
Are you honestly denying there were tons of flippers/speculator/junk loans at all the condos along the Orange Line?"
Im not ignoring a god damn thing. As I said back when we discussed this, the data makes clear there was a ton of speculation in the condo sales in Arl & Alex. What I also said was the data makes clear there were tons and tons more at the condo market in FFX and beyond.
You are totally flying blind by citing a bunch of WaPo stories. Cara, Novawatcher, etc. Will one of you be so kind as to post the numbers we discussed re: excessive sales?
tbw: Remember the fast food TH across from KFC/Pizza Hut/Taco Bell that we all mocked?
I'm late to the party so I don't know the reference but that Yum Brands Fast Food trifecta is on my daily commute. I used to get coffee at the Mickey D's across the street and tried to ignore that German pastry shop right before it.
Have to ask if you or anyone knows the story behind that shuttered and boarded (clearly aborted mid-construction) Condo shell along 29 a little further along. Always wondered about the story on that one. The OSB over the holes in the walls is starting to disintegrate and this winter is going to go a lot of internal damage to all that exposed framework. Getter worse and worse. Bet a dime to a dollar that everything of value has been stolen off the site already.
Texas Native,
There is or was a home on sale right across from the KFC. I believe it was this one: http://franklymls.com/AR7050135We all mocked how horrible and unhealthy it would be to live there.
I totally forgot the German pastry shop was discussed as being there too.
Side note -- here is the listing price history for the home. It's going down. Does that happen in an area that has hit bottom?
5/5/2009 $475,000
6/29/2009 $449,900
7/18/2009 $429,900
8/5/2009 $409,900
I think not.
But this real life example (or all the Nauck examples) will be shut down by some chart CRT put together years ago.
No matter how many homes we find in Arlington that are going down in price, nothing will be as strong an argument as CRT's charts.
TBW - you are countering county wide data with single house histories? Really?
There was a time when Lance would show how a single house sold for more, and conclude "the market is going up", 5 minutes later, JF would show a single house selling for less and conclude "the market is going down". Do you really want to go down that road again?
Texas Native, are you talking about the Ed Peete condo project on Lee Highway?
Arlington objected to some construction issues and ordered Peete to either correct the issues or tear it down and start over. Their lawyers have been wrangling about it; I think Arlington wanted to tear it down at Peete's expense. There is info on the web about this.
For example:
http://www.bizjournals.com/washington/stories/2008/04/21/story1.html
On that boarded condo shell:
It's been like that for a while - I think a couple years. I don't remember all the details, but construction was stopped by the county for structural problems, and the builder could not afford to fix them or tear it down. The owners in the condos behind it complain of building materials coming loose in storms. When they bought, these condo owners were told this was going to be a mixed use building with upscale shops at street level. Arlington county says it isn't responsible for demolishing the building, either, so it's not clear what's going to happen. (This is based on what I read a few months ago, on others might have more recent information)
here's a more recent Peete story:
http://www.bizjournals.com/washington/stories/2009/05/18/daily54.html
Ace, thanks that's it.
May the good lord help him if he foolishly tries to repair in lieu of a teardown.
No matter how much money he saves in repair vs. teardown it will be lost into the future when the lawsuits inevitably begin.
Actually, that's not a bad strategy either way the more I think about it. Billable time either route.
If if was a still a GC huntin' work I wouldn't go near that site unless I happened to fly over it on approach to DCA.
Nice to be able to drive by places like that with the new career and remember the jobs that looked eerily the same.
CRT,
I'm not using single home sales. You are using faulty data that is apples and oranges. Some months a larger percentage of homes sold are foreclosures than others. Or more homes that were tear down and rebuilds are sold one month than another month.
If you compare apples to apples and oranges to oranges you will see prices are falling. I have not seen any area of Arlington where you have to pay more in September 2009 than you would have had to in June 2009.
Cara can point to some TH and condos in Burke where that is the case. I don't think you can do the same in Arlington.
Honestly I'm done discussing this because I don't even care that much. When I buy it will be in Fairfax County. This housing recovery is taking so long that I'll be too d*mn old to buy a place for the long term along the Orange or Blue lines in Arlington and I prefer the SFH communities in Fairfax County over the ones in Arlington because I prefer (as the residents of Lyon Village call it) "generica" over the funky homes in Arlington. Not saying some people don't like those older homes; just not my cup of tea. I just find all the 1940 homes ugly on the outside and all the interior renovations are just lipstick on a pig in my humble opinion.
"You are using faulty data that is apples and oranges. Some months a larger percentage of homes sold are foreclosures than others. Or more homes that were tear down and rebuilds are sold one month than another month."
Oh I see. You might want to point this out to harriet next time she cites this or other similar faulty data. Or really, you might want to point that out to countless people who cited it as proof of major price declines when it was going their way.
Curiously, its only once the data starts going positive again that it is deemed faulty. Funny how that works out...
Robert,
I don't know about a leg down, but these numbers from the article we discussed earlier this week may be enough of a speed bump to help me when I'm house hunting again 6 months to a year from now.
By the end of the year, the area is expected to experience a net loss of 21,000 jobs, said John McClain, senior fellow at the Center for Regional Analysis at George Mason University
Net loss of 21,000 jobs in Northern Virginia - I thought you said that couldn't happen?
P.S. Thanks for the updated Kaine article. My sister was very worried about her job being cut and it looks like she is safe. She'll be happy to see it.
more importantly what the hell does a 15K sq. ft. house look like.
A hotel?
Novahog said: "TBW said: "Looks to me like there are some huge price drops in Arlington in the Nauck neighborhood."
Later in this thread, Tom will say: "TBW, those houses are in a bad area. N. Arlington, within walking distance to a metro, is doing just fine!"
You're right, this blog is predictable."
Well, guess what: those houses are in a bad area (in the grottiest part of Arlington, near Rt. 395 -- yuck!) and N. Arlington within walking distance of Metrorail is doing just fine.
more importantly what the hell does a 15K sq. ft. house look like.
Like this:
http://online.wsj.com/article/SB123577193845697061.html
And it can be "eco-friendly", too!
Personally, I really dig the 2,000 gallon aquarium wet bar. I want one of those in my future townhome in sought after NoVA (along with stainless steel appliances and granite counters, of course).
Best I could find quickly was this
9/17/2008 bits bucket with a list of the liar loans from the NY Fed site.
There are liar loans in Arl/Alex, there are option-arms, there were speculators, however, the extent and prevalence of these is not equally distributed over the area.
One scenario that I do think might still happen is that the stronger of the weak hands capitulate later. First we had the flippers heading for the exits, then we had the low-doc and sub-prime loasn who couldn't even afford the terms that were written, then we progressed to the HELOCers who chose to postpone their financial demise by taking out more money, soon we will reach the option-ARM loans with 5-10 year spans.
Each of these is concentrated in a different tranche. Are there enough of the people who assumed they could sell or refinance in 5 years who are now up a creek to undermine the pricey neighborhoods to the extent that PWC has been hit? I seriously doubt it. However, this has yet to come to pass, and we don't know what it will do to buyer confidence.
What we do know is that PWC is now largely immune, why? because it's reached clearing prices. No further shoes to fall are going to hurt it. Investors are ready and have been coming in.
But if rates can stay low one more year, and jobs can be added fast enough that the "haves" are not afraid, then I doubt it will take more than another 5-10% drop for distressed houses in wealthy neighborhoods to find buyers.
But CRT is no longer holding his breathe, and with good reason, it's going to be a trickle spread out by different schedules and different purchase dates, and different circumstances, and it never was a giant part of the high end here. (Totally unlike the situation in California, where HELOC abuse raged furiously at all housing levels).
A few years ago I googled NAR (or was it NVAR?) press releases and came up with these stats:
In 2001, 5.5% of home sales were "2nd homes". 2.75% were "investments"
By 2005, "2nd homes" made up 40% of sales and investments made up 27.7%.
Wealthy Families Succumb to Bankruptcy as Real Estate Crashes
Sept. 9 (Bloomberg) -- Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center, a research firm in Burlingame, California.
...
Listings of homes for sale worth $1 million or more increased 27.3 percent in July from October, according to Zillow.com, a Web site that tracks real-estate transactions. The number of homes sold with a value between $1 million and $2 million fell 23 percent in July from a year earlier, according to the Chicago-based National Association of Realtors. There was a 21-month supply, up from 16 months last year.
This week, Federal Reserve Bank of Dallas President Richard Fisher -- long one of the Fed's loudest voices on the threat of inflation -- had a much different message in a speech at UC Santa Barbara.
"For the immediate future," Fisher said, "the risk to price stability is a deflationary risk, not an inflationary one."
...
In July, Fisher said, nearly 50% of the items in the PCE basket of goods and services were falling in price, even as the gloom over the economy was supposed to be lifting
...
If Americans begin to believe that prices will only get cheaper, they can make that self-fulfilling by holding back on consumption, even if they're able to spend. That may lead to lower prices -- but at the cost of more jobs and lower wages as firms respond in kind to price pressures.
That's the deflationary spiral Fed policymakers are desperate to avoid, because once it starts it's so difficult to halt, as Japan showed.
Most economists still believe the U.S. will escape a sustained deflation. "With even a modest recovery you will lessen the risk of deepening deflation," said Gary Schlossberg, a senior economist at Wells Capital Management in San Francisco.
LA Times Article on Possible Deflation
I'm not taking a stance on the inflation/deflation debate but I think many of you too quickly poo-poo contrarian when he brings this up. Looks to me like there are plenty of credible people out there noting it could happen. I don't think the president of the Federal Reserve Bank of Dallas is a loon.
Why would price stability or modest deflation be a bad thing? Especially with increasing #s of retirees drawing social sec., limited COLAs would help the budget without hurting people, for example.
Net loss of 21,000 jobs in Northern Virginia - I thought you said that couldn't happen?
What are the YTD job losses in NOVA? If they are 21,000 or higher, that means for the rest of the year we would be adding jobs.
tbw,
re: Bloomberg article on Chap 11.
Now that's interesting. From the article it will be a complex unfolding given the extremely long and difficult process of Chap 11 versus Chap 7 which they're not eligible for. Sounds like a trickle not a watershed to me. And yet 24%? more listings and 23% fewer sales... I wish they gave you the base numbers there. I wish they gave more area specific data too. (I wish a lot of things). My question really is, 23% higher nationwide, but XX% (where that may be 200%) higher in rich areas of California, translate to how much higher here? I mean CRT and Tabitha have been tracking high end listings versus high end sales for over a year now, and I don't recall it getting worse lately, I recall it getting a tad better... I could be wrong.
But the fact that these former $1mil homeowners will be shut out of the buyers side for at least 3 years is going to have some impact.
We all make fun of the WTF lisitings, but they are symptomatic of two things, (1) people who need the money and will be foreclosed on or enter bankruptcy otherwise, but also (2) people who don't need the money and aren't going to sell unless they can get it. So as more homes get listed under distressed circumstances with prices 5-10% under current comps, fewer organic sellers are going to bother to list. In many places that effect was not enough to keep supply down compared to demand and prices fell precipitiously, but as the local economy recovers... but interest rates remain low... demand may very well keep up with distressed supply so long as it continues to come out in a trickle.
tbw,
You really think that people needing to file bankruptcy are "wealthy"? I have no qualms with the data showing a large inventory of 1 million dollar homes, but bankruptcies are filed by people with no assets.
Va_investor,
that's not tbw's opinion, it's bloomberg's.
Secondly, I thought the point of personal bankruptcy was to retain some of your assets by having the debts written down and restructured. If you're just going to have all the assets wiped out, why bother?
And who cares whether they meet your definition of "wealthy" or not? The point is which houses will be coming on the market in a motivated sale.
VA-
To Cara's point personal bankruptcies are a mix of people who have way more debt than assets so they effectively get liquidated. These are the poor bankruptcies. There are also a lot of people like Donald Trump that have gone bankrupt several times although they have fairly large fortunes. In some cases they are just trying to get some debts written down. In other cases they just have a cashflow problem(they own illiquid assets like real estate) so they use the court as a way to defer their debts that are coming due.
Robert,
Indeed, which is exactly why I've often argued that renting isn't throwing money away any more than paying interest on a mortgage is.
But in I/O the remaining balance must then be amoritized over the remaining term. So a 5 year I/O has a 25 term thereafter, making it's recast payments higher than a normal 30 year term. If your plan was to get the I/O for 5-10 years and then refinance into a 30 year loan, once your income increased such that this was doable, you may be up a creek.
Now, the only people I know in I/O loans, one's in a 10 year, but is already paying at the full 30 year rate, the other's in a 5 that will be coming to recast in June 2010, but can easily afford the new payment. Yes, they would prefer a fixed rate loan, but they don't "need" it.
Cara and Housebuyer,
Let's not go overboard about a general statement about the wealth of people in Bankruptcy. Yes, it's often a stalling method that the vast majority of time is converted into a straight chapter 7. I don't have the exact facts, but I'm quite sure Trump's were corporate rather than individual.
I am unfamiliar with the "new" bankruptcy provisions. It used to be that you retain $5,000 in assets.
In any event, as we have seen, owning a one million dollar house is no indication of wealth.
VA-
I apologize I looked it up and you are right that his were business, although there were several times he got very close to personal bankruptcy particularly back in 1994 when he had accumulated 900MM in debt. I agree that most bankruptcies are poor people with no other options, I was just pointing out that sometimes people with large amounts of assets and large amounts of debts do it for other reasons.
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