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Saturday, September 12, 2009
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23 comments:
Yesterday, Cara said: "that's a very inexpensive rental...My 2bdr apartment in Kingstowne was $1604 before it got hiked up for the month-to-month..."
I was curious about the Falls Church area, so i did a search using the sold feature on frankly (includes rents now): 22046 sold
This is Falls Church City and 22046 in FFX county. Not a bad area.
3br/1ba SFH near WFC Metro - $1,195/month
2br/1ba SFH in Falls Church City - $1,250/month (includes lawn service)
2br/1.5ba TH in Falls Church City - $1,350/month
3br/1ba SFH in Falls Church - $1,500/month
Doesn't show the "close" date on these rentals (maybe i'm missing something), but i'm guessing they're not too old? If these listing are recent, then it seems like Kevin's rent isn't so crazy.
novahog: the properties you cited were rented in 2006 and 2007; however, it does provide some useful info on rental history in the vein of Case Shiller with sales history. House #1 rented in Feb. 2006 for $1,195; house #2 rented in July 2007 for $1,250; however, it was rented again in Aug. 2009 for $1,200; townhouse #3 was rented in July 2007 for $1,350; house #4 was rented in Sep. 2007 for $1,500; however, it was rented again in July 2008 for $1,550. Since rentals generally have a faster turnover than sales and landlords are less likely to make major improvements at each turnover, you can probably construct a purer rental history than sales history.
Thanks anielarke. It would be interesting to see same-house rental information for the last 3-4 years.
novahog,
good point, we do now have much more power to do rent versus own comparisons, and we haven't been making sufficient use thereof.
I have to say, other than the 1500 one? I really didn't like the look of the others. The 1500 one is definitely a good solid comp though because it is something one would both be happy renting, and might consider buying.
At the same time, even that one is only 1000 sq feet, so I can see why TH's (which are generally bigger) end up being the same price.
Cara,
yeah . . . I might just be one of the few people cheaper than you.
When I moved here in '05 I rented in Manassas. I currently rent in Fauquier co. My commute sucks . . . but I'm willing to sacrifice that + I grew up in the country, city-living does not appeal to me in the least. Living out in the country almost makes up for the commute . . . almost.
That's prob. why I find it hard to even fathom condo/TH prices. ~250k . . . I can not, will not do that. I understand why people do and I understand that it might be a halfway reasonable price. Fortunately for me, it is not worth that much to me. A condo/TH would have to get into the low 100's or less for me to even think about it. The one I thought about was ~85-90k. Even then, the thought of actually buying it to live in made me cringe.
But then again, I understand why some people spend 300-400 on an iphone/ipod/itouch. I refuse to.
Generally, the folks who I have seen renting most of those condos are immigrants, etc. who don't make a whole lot of money. I didn't get my education, etc. to compete with immigrants for housing. Maybe I'm getting old(er), maybe it's b/c I have a kid . . .hoping for another one sooner rather than later . . . but I'm not going to live a lower lifestyle than I was raised in.
I don't mind renting a crap-box b/c renting is an expense so I minimize it + I can move just about anytime I want to, etc . . . buying it . . . (shudders).
Oh and for rents . . . I was very lucky, I started renting in the fall. And rents are the cheapest between Oct-Jan. It's just always seemed to work out . . . I guess it's sort of like getting married, it just takes one.
Some places I've looked at I'd have prob. put in an offer if it had been 5-10 miles closer . . . they were just on the edge of my sanity.
Just as a cautionary tell the bears are generally always early . . . early to call the top and early to call the bottom. Bulls are generally late to call the top.
Don't get me wrong, I still think overall housing will get very, very cheap. . . . i.e. 10-15 years looking back housing will look expensive now. Value-wise (not price wise) housing IMO is still at least 30% overvalued in most areas. The wonders of money-pumping can mask a lot of decrease in value.
So unless I'm a cash-flow investor, I believe housing will be an absolutely terrible investment (compared to other places to put your money) over the next 10-15 years. If you need a place to live . . . it depends. But I have no illusions, if I buy, I will expect to lose value (unless its so good there is money lying on the floor).
Oh, I also just refuse to compete w/ cash-investors, FHA buyers, etc. I know my limits, but also know that most people don't have limits or they get caught up in emotion and end up overpaying. If I have to compete w/ cash-investors, FHA buyers I will most likely ultimately lose.
The ultimate bottom will come when there is low inventory and low sales. People in general will just not care anymore about housing prices . . . that will be the bottom. It ain't there yet.
Old Town Review
As many of you probably know, the Washington Post writes a review each week of a development -- usually more on the HOA level. This week they reviewed Old Town Alexandria. Interesting quote I thought below:
The couple has an 18-month-old daughter, Shelby. Youles said that she doesn't think their public elementary school is very high-quality now but that it's moving in the right direction and might be acceptable by the time her daughter is old enough to be enrolled. There's just one public high school, T.C. Williams, which was made famous in "Remember the Titans," a football movie starring Denzel Washington.
She said she doesn't think they'll leave for an area with better schools. She loves the historic atmosphere -- it reminds her of her childhood in Savannah, Ga.
I love Old Town Alex. Too bad for me that everyone else does too and a lot of them have plenty of $ for the larger places.
http://franklymls.com/PW7148648
This is one of those houses that has been for sale for years, but somehow manages to show up as a new listing. I remember when they were asking about 1.5 million for it...and they were still asking 1 million last May.
We talked about buying it and turning it into our family compound. Now I wonder if it will be for sale forever.
Tabitha,
That is indeed "very unique". It has its own wedding hall. That has to be factored into the price. You have how many kids? Figure $30,000 per kid you'll save by hosting all the weddings on your own compound. That could be like 1/3 of the current list price for a large enough family.
It's a steal really. Just ignore the maintenance costs and it's all good.
Cara, in all seriousness, the wedding receptions were a huge factor for us considering that place. I'm the oldest of 10, I have almost 150 first cousins (mom from 14, dad from 8, all big families), and I figured the family reunions we could host would be fantastic.
But you'll just have to trust me when I say that although we do not have a hall here, we can still pack in a lot of people, no problem, and we got our place for $200K less. I'll take it.
Tabitha,
I was only half kidding. I never make a joke without some truth in it. But yes, I'm sure from your description that all your place needs is a huge outdoor rented tent and you're all set for any family event. Way way more cost effective.
gte,
So... you would like to commit only 10% of your (let's say) gross income, whereas most people are committing 40% of gross income to housing but you want to live in a neighborhood with folks of similar means and education.
If you used the same leverage, 10% of your income would put you in the same neighborhood as folks with 25% of your income. This is distasteful to you. Fine, there's an easy solution, which I'm pretty sure you've already figured out and is your current plan. Don't use the same leverage, pay for way more of it with upfront cash rather than paying interest on it as debt. Given that most people are using at most 20% down with 30 year loans, you can get into the "right" neighborhood if you could save up 80% of the purchase price and still attain your goal of having the ongoing costs eat up only 10% of your pre-tax income.
(this is necessarily fuzzy and wrong as property taxes should figure in, and people with greater wealth might or might not actually stretch themselves that much depending on the culture of that area, and their particular persuasion).
So, since this is so obvious, in terms of a solution to your dilemna, I assume you've thought of it. Which means your actual fear is that government manipulations or herd mentality will create a new bubble, pricing you out despite your savings, or that the government will allow/desire rampant inflation that will destroy the value of your hard earned savings. Or both.
Am I right?
Cara,
I may be wrong but my read is that gte was just making a point that higher home prices are not great even for those who own a home. And gte used what if average monthly cost were 10% of monthly gross income. I don't think gte meant that's all gte will offer.
I think gte main point is sorta like this: even today most people in most neighborhoods bought before 2002 or so when things got out of control. Hence neighborhood demographics are based on home prices back then. Hence when gte tours a crummy home in a crummy neighborhood (all he can afford now using traditional mortgage rules) he mostly finds a bunch of blue collar workers and not anyone similar to him. So his options are: (1) buy now with silly FHA loan to buy a home in a neighborhood with neighbors like him because of inflated prices or (2) wait for home prices to go down further or (3) buy in crummy neighborhood.
Sure, I'll respond.
"So, since this is so obvious, in terms of a solution to your dilemna, I assume you've thought of it. Which means your actual fear is that government manipulations or herd mentality will create a new bubble, pricing you out despite your savings, or that the government will allow/desire rampant inflation that will destroy the value of your hard earned savings. Or both."
This to a large extent sums up a lot of my feelings. I think that a lot of people are buying houses to "protect" themselves from inflation right now, even if they do not overtly acknowledge it. This is what we have been implicitly taught. Buy the biggest mortgage you can and have inflation (through wage increases) eat away at the payments so that over time that 500k mortgage becomes pretty small.
This philosophy has worked quite well for most people over the past 50 years. Unfortunately, several assumptions accompany this position that can really bite you in the rear. This philosophy assumes you have or can get a relatively stable job. This philosophy also assumes you have wage increases.
Without inflation (specifically wage inflation) a 30yr mortgage is a losing bet. Even at 5% you will pay double what you bought it for. If wages don't increase, you'd have been better off saving and buying outright vs. paying interest.
Wages have always increased right? . . . well Mish just had a recent article that inflation adjusted wages over the past decade is DOWN. Let's not forget to mention that if you lose your job after 28 years of making payments and don't make the payments you will lose the place you bought. Now maybe everyone is a fed. but I don't know of too many places where you will go 28 years w/o some period of joblessness.
My point is what is the objective? . . . is the objective to have the biggest place you can reasonable afford . . . or is the objective to actually own a place. I'm 30 and I'll be @#% if I'm paying a mortgage when I'm 60.
My point is that 30 years ago many people struggled to pay off their homes, a second mortgage was severely frowned upon. My parents didn't have a mortgage after I was 5. Paying off your debts was considered a good thing. Today it's leverage up b/c inflation will eat away at my debts.
I mean seriously how many people that you know actually have a plan to pay off their house? Looking for homes, I can't tell you the massive # I have seen of foreclosed homes from seniors who died and their kids couldn't make the payments or sell it and let the home go into foreclosure.
Shoot the lady I rent from is on SS + retired school teacher and my rent + the other guys rent barely covers her payments . . .she's like 68 for pete's sake, and has been living in the same place for 30+ years. A school teacher and her husband(I can't remember what job he had, but it wasn't anything fancy) were able to live here for 30 years . . . yet if she sold the place today, you'd prob. need at least 160k to comfortable afford it.
I think there is a possibility that the gov. will be able to create a floor and that the process of getting rid of all this mess will take a lot longer than it would have otherwise. However, in the end gov. manipulation always makes things much, much worse.
So I'm not so much concerned about never being able to afford a place, I'm just getting tired of all the bs to try and prop up something that doesn't need to be propped up and tired of waiting.
If you owned your home outright, who gives a flip what home prices are! It's like buying a computer . . . once you've bought it you've locked in your expense. It's only when you've leveraged up and your only hope of ever actually owning the place is through some other sucker paying more than you that low home prices become a serious problem.
Home prices will eventually revert to fundamentals, and it is my sincere belief that they will go below fundamental values. My fear for this area is that even below fundamentals is too much for my taste. If that's the case, I'll take my game ball and go home to somewhere else.
What I am really, really concerned about right now is the dollar blowing up ala Argentina style. But I have protected myself. Honestly, I'd like to be out of all cash . . . but I keep what I need for a down payment handy just in case.
Nothing is certain in this world and the fear I have is that an insane world can stay insane much longer than I can stay sane.
FYI, the fundamental analysis I did was of a 15 year old home in 1976, which was purchased for 55k or ~266 ounces of gold. In 1980 at golds peak even adjusting for 38% inflation over 2 years the house was worth 80 ounces. At the peak in 2005, the same house was worth over 600 ounces of gold. Right now it is listed for 260 ounces. I'm looking to buy around 150 ounces. Using BLS CPI #s 55k is ~181 today . . . again it's listed for 260k + it's 30 years older than it was in 1976. Now maybe land is worth (I think it's on ~1-2 acres) >80k inflation adjusted . . . but I think not. Maybe 1976 was too high/too low and it's only 1 data point . . .
Let me be clear, I'm not against mortgages or a judicious use of debt. It's just that as a wise man once said (I'm paraphrasing)
"The wealthy do not pay interest, they earn it"
tbw,
Yes to a large extent . . . except the great lesson I am learning right now is that just b/c I can buy a place doesn't mean that I should buy it (as opposed to several years ago, where if I could have bought . . . I probably would have).
Oh I also think that when the inflation hits it won't be in wages.
gte
I think that a lot of people are buying houses to "protect" themselves from inflation right now, even if they do not overtly acknowledge it. This is what we have been implicitly taught. Buy the biggest mortgage you can and have inflation (through wage increases) eat away at the payments so that over time that 500k mortgage becomes pretty small.
I agree with the quotation marks. That's not how one protects against inflation, that's how one exploits inflation to rationalize a purchase one can't actually afford.
I don't know about your predictiont that prices will drop below fundamentals or the comparison of gold to houses since both are commodities which fluctuate in price. But I do think if you're looking for a larger home, waiting is the right thing and will be rewarded. It's simple, everyone who jumped on the housing ladder as an inflation hedge between 2002 and 2008 won't have any equity to bring to the table to move-up. So once you flush out the bears who saved through the bubble and are skipping a rung on the ladder, prices will have to stagnate or fall because the buyers don't have the money and loan terms for DTI will probably be slowly pulled back to respectable levels, and interest rates raised.
I agree entirely on the not paying interest if you don't have to. Hence our cheapness and 15 year plan. Partly because finishing off the loan on our primary residence at 51 is a lot more appealing than age 66.
Of course the buying within 1 of 2 incomes helps a lot with that whole job security problem.
Cara & Gte-
I agree that paying interest is not good, but it really is no different than paying rent. So if you are able to get a place that is approximately your rent when you account for maintenance, taxes, and tax benefits there isn't an advantage to waiting. Either rent or interest are both money that is gone. On the other hand if you are avoiding interest by living within your means and playing off a house early that is a whole different situation I think that is a good idea for most people.
gte-
As to your comment about gold I think that is a terrible way to value assets. Gold only has value because people assign an arbitrary value to it. Yes there are some uses for it with electricity, but its hardy more valuable than copper from a use standpoint. I think a perfect example of this is that using gold you would have needed as many ounces of gold to buy the house in 2000 as you did in 2005. Are you really trying to tell me that it was equally good to buy in 2000 vs 2005. I think every other person on this board would disagree and would say 2000 was a great time to buy and 2005 was a terrible time to buy.
Also people are willing to spend a certain percentage of their income on housing. So housing gets nicer as people get richer. So instead of adjusting the house by inflation you should adjust it my wage growth(almost double inflation). If you do this prices are not good but they are no where near as bad.
Ohh and your debt comment. I agree for most of us using debt will make us poorer. But debt is almost necessary to create great wealth. Look at corporate balance sheets nearly every company uses some debt to grow. So while I agree debt is bad for consumption(including buying a house) debt is perfectly acceptable for acquiring/creating assets
Cara,
Yeap . . . lot of truth to what you say.
I'm not exactly sure what will happen. I feel fairly certain the gov. will try and inflate away the massive debts we have. I also feel fairly certain that wages will not rise much due to global arbitrage.
I think there is a possibility we go down the path of 3rd world countries . . . high unemployment (15%) and high inflation (15%) and wages that don't keep up. In that situation, I believe you want to really own stuff vs. having debt.
The thing most people don't realize about inflation is that it is a non-uniform event. Everything doesn't rise all at once, the "hot" money sectors rise 1st followed by everything else.
I try to put my money where there is value vs. price. What is currently undervalued and what is overvalued. I don't think housing is undervalued right now and I don't think stocks are undervalued right now. So instead of looking at price, I try to look at ratios of goods compared to other goods over the long-term.
Now, when my co-workers and the taxi driver start telling me I've got to buy gold, I'm selling everything I've got.
"I think a perfect example of this is that using gold you would have needed as many ounces of gold to buy the house in 2000 as you did in 2005. Are you really trying to tell me that it was equally good to buy in 2000 vs 2005. I think every other person on this board would disagree and would say 2000 was a great time to buy and 2005 was a terrible time to buy."
Umm, have you looked at gold charts vs. housing? If you had to choose back in 2000 where to put your money, you'd have been a lot better off buying gold vs. buying a house. Now maybe today is a great time to be selling gold . . .but I don't see joe blow on the bandwagon so IMO it's not there yet.
"Gold only has value because people assign an arbitrary value to it."
Oh brother . . . so does a flimsy piece of paper dollar. The only thing it's good for is to burn. "You can't eat gold", well you can't eat a dollar either. "You can't buy gas w/ gold". Do most people actually use paper to buy gas? No, you use a credit card, which transfer money to someone else's account. I can take gold transfer it to my account (now in dollars) and then transfer it to yours.
Buying a house in 2000 . . . I don't know. In lots of places in the country, LA, Miami, etc. prices are back to the 80s. I've seen some places here where prices are back to the mid 90s.
I never said debt is bad. I said a judicious use of debt can be wise. Using debt to be more productive can be an extremely good use. Education, investment in machinery that will enable a company to produce more, etc. The problem is that we have become addicted to low-interest low-risk debt. Tax structures, even for corporations actually encourages debt. Besides the fact that no one ever actually thinks about paying it off anymore.
"So if you are able to get a place that is approximately your rent when you account for maintenance, taxes, and tax benefits there isn't an advantage to waiting."
Very true . . . which is why I do my best to rent much cheaper than I would actually want to buy. I understand you either rent from a landlord, or rent money from the bank . . . either way you're still renting.
"So housing gets nicer as people get richer. So instead of adjusting the house by inflation you should adjust it my wage growth(almost double inflation)."
If this were the case then we'd all be living in mansions here, considering the med. here is at least double the med. of the country. My other point, is that you nor I have any idea as to what our future wage increase will be. Basing a house purchase upon what you "think" your wage increases will be is just not smart. It might work for a little while, but eventually you will guess wrong.
Yes people today are willing to spend a certain percentage of income on housing . . . the monthly payment syndrome. The stupidity of our modern society . . . buy a 3k fridge and have payments as low as 10/month no interest. . . for only 12.5 years.
Now if you have 3k in cash take the money put it in a CD for 12.5 years at 5% interest, you're smart. Unfortunately, most people don't do that and will buy as much as they can on what they have . . .and will thus never really be wealthy. Same type of concept applies to housing.
As far as housing as an inflation hedge, there is one small problem w/ housing; lots of land exists and they can overbuild-which is what I believe happened and why prices in some locations are back to the 80s . . . oversupply.
When a bubble occurs and the bust happens, that asset is dead as an investment for at least a decade, Dow 29, Naz 2000, Nikiie 80s, 20s land bubble, Jap. land bubble. Gold 1980. I could be wrong, but I have yet to find a bubble that wasn't dead for a decade afterwards.
It is entirely possible that I am dead wrong and that I will end up seriously screwing myself. So far though in 4 years of saving and investing I've got enough to put >50% down on the upper limit of what I'd feel comfortable w/ spending for a house. My goal is in 5 years to own outright.
My biggest prob. is that I've got enough skin in the game vs. so many other people that I could get seriously screwed if the gov. does something stupid.
gte,
It's worse than that, my friend, keeps buying things so long as they have that 0 interest 0 payments for the first year. So they bought a $1.8k fridge (white, they do have some sense of cheapness) one year ago, and now his overtime is practically zero compared to last year when he was working 14hr/day 7 days a week with an occasional Sunday off every 2 months or so.
It's so bad that they were baulking at $150 for a twin mattress for their now 3 year old son who's way too big for his crib. (they found one for $90 at cosco).
How they thought paying later could possibly be better when he was maxing out his possible overtime last year is beyond me.
Of course this is also the person who thinks they should use the "free" white marble tile that her father in-law bought to floor the kitchen even though it doesn't work with their perfectly good cabinets and counters and beautiful brick facing at all, and she's already talking about redoing those things around the tiles... (Its not free if you pay $20k for everything else to match it).
But that's the way people are.
It's possible that the government will mess up your plan, but I think you it will be possible to see that coming, and have at least a 6 month time in which to act and put your money into the tangible asset of your home.
gte-
I completely agree that money has no more real value than gold. I would propose if you wanted to look at housing vs. something to use a basket of commodities rather than gold. (oil, natural gas, coal, steal, copper...). I think these objects have a much truer value because you can get some use out of them. Sure there can also be bubbles in all of these like in 2008, but in the long run most things price is determined by some combination of these.
I also agree that there are some areas with massive overbuilding, but time will heal that since the population continues to grow here. Are you sure about pricing being similar to the 1980s. Maybe in some small neighborhoods. The CS index says Miami is still at '03 prices.
housebuyer,
Good comments about a basket of goods. I will have to look into what that house was worth vs. the CCI (commodity index) vs. now.
For 80s prices, I can't be sure since I don't have first hand knowledge. However, a lady on CR who claims to be a RE lawyer in Florida claims this is the case in the areas she is working. Take it for what it is worth (maybe nothing). I have seen places here (not many but a few) going for 96-98 prices.
I know what fundamentally should happen economically; how long it will take and what effects gov. manipulation have is another ball of wax.
Yes indeed, time will certainly tell.
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