Late afternoon edition . . .
Please post your local house search updates, MLS finds, on-topic ideas, and links here.
From Calculated Risk today:
"The key to reducing the overall inventory is new household formation, and the key to new household formation is jobs. Encouraging renters to become owners accomplishes nothing in reducing the overall housing inventory, and leads some analysts to mistake activity for achievement."
42 comments:
http://www.cnbc.com/id/34110868
Can anyone make heads or tails of this article? She starts with an interesting quote from Lawrence Yun about investor purchases but then sorta loses me near the end. I'm not sure what she's trying to argue.
tbw,
she purposely confuses you so you'd go back a few more times to re-read and give her link more clicks. :)
home inspection went okay. nothing huge, hopefully they'll agree to fix what little "we" found.
In all honesty, scared shitless to be buying into the current market. I know I am putting on a more bullish face, but it's partially a defense mechanism.
The good thing about continuing to get frankly and redfin listings by email? Is so far (a whole whopping week into deciding to bid) I haven't seen anything better than "our" house listed, and am still primarily seeing overpriced townhouses. With each and every TH I'm more and more glad I'm not buying one.
But soon, soon it will be time to stick my head in the sand and stop watching "the market" for affirmation that we're making the right decision.
Which is to say, we can afford this house, the rent to buy metric is fulfilled, and we really really like this house, but other than that, do not use me as your standard for rationality. Others are much more motivated to get a bargain than I am, and will probably do a much better job of timing the market than us. And we are taking a big risk with our down-payment. I put it at 25% chance that prices will get to 10% lower in real terms within the year. 75% that they'll be flat or higher. So, I'm making peace with that assessment. But if you need certainty, if you want to be sure that your home won't lose value on a nominal basis, now is definitely not the time to buy. (I don't think you can ever say that houses are certain not to lose value on a real basis).
Good luck all!
From Lawrence Yun to Mark Hanson in one post. The two least reliable people in housing at the opposite extremes. (M. Hanson is Mr. Mortgage).
I couldn't work out what she was trying to say either, I think her point is just to inform people that bulk purchases of REOs do exist. In the previous post she admitted to never having heard of FDA mortgages. Whereas I believe NPR had a piece on them sometime this summer.
Cara - you asked in one of the earlier post what I look at to base my decisions. One of the key indicator I use is P/R (Price-rent) ratio. Historically the price-rent ratio in equilibrium is 15-to-1. During the peak of the bubble a couple years ago, the ratio ballooned to 25-to-1 in many local markets.
In April, the price-rent ratio for the Washington, D.C. Metro region was 21.5 (Includes Arlington/Alexandria)
Hitting Bottom?
Also, vacancy rates on rental properties is still rising across the board. Rents are under pressure. This makes the ratio look even more out of whack.
Another thing I look at to analyze any property is inflation adjusted prices from the sane days (prior to 2001) in the given neighborhood. Given enough time, inflation can help a bit. However, I don't see this on the horizon including abilities to increase rents.
Cara,
Well, if you ever get upset about where the market is going just remind yourself that Stephen Fuller says that in 2025 we will have one hundred million jobs in Northern Virginia. There will be a mini-Manhattan of skyscrapers along the Silver Line corridor (from Tysons Corner to Reston) and down the Orange Line to Rosslyn. There will be so many jobs and people that the upper class (those making $200k+) will only be able to afford studio condos. Having a detached home on a quarter acre will be only for the uber-wealthy as your home will go for roughly $6.5M.
I mean, Stephen Fuller is never overly optimistic, right? ;) So that will probably come to pass.
[For anyone who stumbles upon this and is not a regular reason I'm being sarcastic.]
duplicate post from previous bucket, please excuse the repetition.
spider,
But there's a reason behind 15 p/r. It's not just a rule of thumb, it's causally related to whether it costs more to rent or to own. So, using just 15 neglects the importance of interest rates in the buying decision. These are unprecedented times interest-rate wise....
If you can buy for the same monthly cost as renting and you would prefer to own than rent, you will go ahead and buy. If you're worried about price declines limiting your flexibility then the option to rent our your home on a minimally cash-flow positive basis is an important financial back-stop.
Around here, we have yet to see the widespread downturn in rents that other markets have seen. Some individuals have gotten minor rent reductions or a lack of increases, but metro-wide I don't think anyone has proven a true slack in the local rental market. (outside of anecdotal level data in PG county or Manassas).
2001 is where we will be in real terms at the end of this next long slippery slope. (one hopes we'll get there anyway).
Keeping "up" with 1992/3 wage-inflation-adjusted would be a better metric for the immediate post-bubble fallout level of "affordability" required to commence a long-slow flat period.
Although to be fair if Stephen Fuller is even half-right about jobs growth in Northern Virginia it may be true that in 2025 a detached home in Fairfax County is not going to be achievable for a middle class family without parental assistance.
Cara - interest rate does make it more affordable to many. But, to me - it is a short term factor. When they go up (and it can only go up from here as you know) Fed's trick won't work anymore. I am sure everyone realizes this within the Fed and are afraid for 2010. In Bullard's comments on extending MBS program - I see that fear.
Spider-
Even if interest rates go up in the future as Cara said she will be able to rent her house out a small profit, because she locked in the interest rate. So to some extent this helps buffer the impact of your houses value falling as interest rates go up. So if you think there is a decent chance you will need to move fairly soon and or when you move you have no interest in being a land lord than buying now is a worse time than if you think you will be here many years and are willing to rent out your place if need be after you move.
housebuyer - The point is that most decent areas are no where close to rent/buy equilibrium. Anyone buying right now it seems won't be able to break-even on the rent in these areas even now, even ignoring the fact that rents might decline further.
I haven't closely watched Burke - so can't say much.
RE: Termination of MBS program -- what happened when the Fed terminated its treasury purchase program last month? Answer: nothing. Why? Because investors can short the market. If you are dead certain like spider the market is going a certain direction, you can position yourself to make a lot of money.
RE: Higher interest rate predictions by TBW. Fine, you never gave a specific date. You did give us 8% unemployment in VA and 9% in MD. Will you concede on that? You were overly pessimistic.
spider, you will refuse to acknowledge the obvious - WDC, and NOVA specifically are not in the same situation as almost all other markets. You keep reading the national housing bubble blogs and think everything applies 1:1 here in Northern Virginia. It doesn't. Read my previous posts, I have hundreds of links to region specific data.
Jeremy - hey, why don't you call out some of the housing bears that state opinions as facts. You'll increase your credibility.
Cara, I know you don't necessarily want any confirmation from me because I play the uber-bull on this blog, but it will only take until April for you to get that first 10% under your belt.
Stephen Fuller has been wrong in many of his predictions. He is still interesting in that he does have his finger on the pulse of the economy. I recall he said he speaks with 20 local home builders regularly. He is probably the best source for news - what is happening right now - of the local economy, but not necessarily the best forecaster.
Spider-
I think better comment is most SFH in good areas are nowhere near equilibrium. New condos have been pretty hard hit in a lot of nice areas and are near 15 times rent even after you subtract the condo fee out of rent.
In the building I am currently renting across the street from the Dunn Loring Metro 2 bedrooms go for 1850-2000/month or 22K-24K/year and most of the sales have been ~290-310K.
I have seen similar math for many other nice areas. The problem is SFH have not fallen so the math doesn't work as well.
Robert-
Out of curiosity do you also think rents are also going to go way higher over the next year or will they stay flat and prices will leave fundamentals. I agree with your earlier comments that markets can ignore fundamentals for a very long time (look at stock P/E from 98-08). I am just curious, because move of your arguments would also push rents significantly higher.
Personally I see rents flat for a year and then back to 3-4%/year growth.
housebuyer - I meant SFH. I do agree condos have corrected to almost fair value.
Referring to tbw's link:
I am also curious what comments Robert might have about shifting demand from rental to ownership (tax credit) and the impact it will have on rental vacancies, lower rents spiraling back onto further home prices.
exhibit A for price flatness between mar 09 and nov 09 (SFH in WAVERLY HILLS N Arl 22207):
Date Sold Price
11/19/2009 $635,000
SALES DATE SALES PRICE
3/16/2009 $635,000
"Robert said - spider, you will refuse to acknowledge the obvious - WDC, and NOVA specifically are not in the same situation as almost all other markets."
I am not just looking at national trend. I am looking at local income levels, local rents and they don't make sense.
Why do you think prices have gone up in this region along with the national averages? Why do you think they have fallen in last 2 years? Fed's easy money policy have done as much damage to this region as most other metro areas.
We can argue all day about immunity of this region. And, I respect your opinion - the only extent I agree to that is the fact prices have been and will be slow to correct here (Given the factors we both know). Why would it eventually not correct per fundamentals is beyond me.
spider,
In most of this area the rental market for houses is extremely thin. Generally from an owner it doesn't cost any more to rent a 3 bedroom SFH than it does a 2-3 bedroom apartment from a complex or a 3 bedroom TH. And yet SFHs have always commanded a premium over THs which have always commanded a premium over apartment-shaped condos.
The fact that I can get a SFH at rental parity om Springfield/Burke is therefore actually quite amazing and a peculiar fluke of interest rates.
Have you read the irvine housing blog yet? He fleshes out a lot of the things you're thinking about. And in particular explains which things should trade below rental parity (to be favorable to landlord investors) which trade at approximately rental parity and which command a premium. In this area, with the housing stock we currently have, simply the fact that it's a single-family home in most places commands a premium. The difficulty is in predicting what that premium "should" be, because once you've disconnected from fundamentals it's not obvious any longer what prices can be sustained. And any premium over rental parity is such a disconnect.
spider -
It doesn't matter. My premise is that there will be an influx of people to the region over the next few years. The population will grow and there will be demand for housing of all types.
housebuyer -
Rents would have to increase over time as there will be extra demand and a shortage of homes.
Cara - can you provide further details on the specific area in Burke you purchased?
I haven't looked at that area as much and was just curious if it is worth considering, specially if it is at rental parity.
"Cara said...
The difficulty is in predicting what that premium "should" be, because once you've disconnected from fundamentals it's not obvious any longer what prices can be sustained."
Yep -- same thing goes for areas where HBU dictates prices which are far above rents. A place in North Arlington with a shack on it will rent for 10K a month and dictate a "rental parity" price of 150K.
Yet that price ignores the fact that the land is worth say 600K alone because a new buyer could demolish the shack and put up a new arts and crafts. Still, to the renter (who doesnt have the right to demolish the shack) will pay no more than 10K annually to live in the shack -- he doesnt care what a buyer could do with it.
Thus you now have a disconnect where your price to rent rule of thumb fails -- 600K is a sustainable price -- and rental parity will never ever be reached.
Clearly thats not the case for many places, especially in the far out suburbs where HBU analysis is innapropriate or say 90% of the USA where land is really fungible (and where the "rule of thumb" came about). Still, to assume it will work everywhere is going to be a major excercise in futility.
spider,
Look in Robinson, West Springfield and Lake Braddock High School districts for homes under $450k. If you check sold on Frankly you'll see that sales have been 5-10% under list, so factor that in. Rental parity only applies to 20% down purchases.
If you're not too particular about schools, there's quite a few nice homes in South County and Lee listed for under $400k.
If you think you've found my home in the under contract please don't post it. Thanks.
The pickings are slim, but they are out there. There should be more REO's soon as the HAMP modifications fail.
Sorry, that should be rent for 10K annually (150K price on a price to rent basis)
Robert said
You did give us 8% unemployment in VA and 9% in MD. Will you concede on that? You were overly pessimistic.
Is this what I said? That sounds like something I might have predicted. I will concede it looks unlikely that MD will hit 9%. However, the jury is still out if we hit 8% in VA or MD.
If you look at past recessions we have had false peaks in the unemployment rate.
For example:
Virginia
April 1990 - 3.7%
Feb 1991 - 6.5%
Apr 1991 - 5.5% ("hooray, the worst is over")
June 1991 - 6% ("woops, no it's not")
Oct 1991 - 5.5% ("okay, it's over for sure this time")
Jan 1992 - 7.1% ("oh, dear")
So the question is when we hit 7.3% unemployment in Va in June 2009 was that Feb 1991 or Jan 1992?
[Here's the chart]
You may end up right that I was overly pessimistic Robert, but as usual, you are celebrating victory before we have the data.
Cara,
What SFH rentals did you use for comps? I do not even see any SFH in Burke available to rent on Craigslist.
Tbw,
There aren't any. I used townhouses and assumed that SFHs would rent for the same range.
franklymls.com FX* (22015,22032,22039,22151,22152,22153) (3bdr,4bdr,5bdr) active: 300-450k
includes all three districts but does not exclude some areas out of those districts, and has a ton of THs in that mix.
It also misses some homes that have fallen below the 300 level, obviously.
http://franklymls.com/DC7206056
now here's a nice one.
Not too badly busted, needs TLC
but someone who wanted to fix it up would have a very good home.
The time window is far too short for me to bid this, but, someone who is a pro like va-investor might
like it.
close to metro is a big plus,
and it sold for 512K IN 06, Now
it's up for the low 2's....
everyone who bought in 06 for 400+
is now screwed officially.
Pat,
I don't know enough about DC to venture in, but thanks for the info.
Cara,
Normal "buyer's remorse". It will go away as soon as you get the keys. You will probably follow the comps for a good while, but not be too concerned.
tbw,
Re: rates.
You are correct. This is the wild card. We have seen it before in the late '70's to mid-80's. Assumptions, owner financing, buy-downs, and ARMS were the norm. If I remember correctly, the market slowed to a crawl. I'd have to see a chart of pricing. I remember thinking that anything under 12% was great. I doubt houses dropped accordingly.
Does FHA still have that great ARM? I believe it started at about 3 or 4% under market and went up 1% for 5yrs and then leveled for the remaining 25.
p.s. I've often discussed this (rates dropping in the '90's vs rising in years to come), but may have been on Bubble Meter.
spider -
We had easy money. Now we have tight money. That led to a drop in prices in NOVA. But, there were other factors like the crash in stock prices.
I think the end of the tightening cycle is near. Money will flow in 2010. Not crazy money, but healthy lending at historical norms.
Please tell me you are not using Census Survey Household Income numbers for your fundamental analysis. At minimum, try BEA, but I don't believe those even capture the true economic picture of households in an affluent region.
Cara,
What's wrong with South County? There are Fairfax Station neighborhoods that go to South County that used to feed into Lake Braddock. When the school board had to redistrict South County some of those Fx Station neighborhoods were some of the most vocal in wanting to stay at SCSS rather than go to LB.
Very interesting video - I can't convey my own thought process of last couple of years any better:
Housing Prices 1890-2009
Thanks Cara. Everything other than 22015 seems too far out for me.
TBW, Robert....
Virginia
April 1990 - 3.7%
Feb 1991 - 6.5%
Apr 1991 - 5.5% ("hooray, the worst is over")
June 1991 - 6% ("woops, no it's not")
Oct 1991 - 5.5% ("okay, it's over for sure this time")
Jan 1992 - 7.1% ("oh, dear")
Those times are an interesting personal contrast for me. Right in your 1990's unemployment peak and RE pullback (prices fell about 10% peak-to-trough in 22305), I had just gotten an MS/CS.
I hired a woman whose husband (construction boss type) was out of work and her young family was struggling. She had little experience but I could see her potential and my boss liked her academics so we took a chance on her.
She did well for us.
I left the company 5 years later to strike out on my own. She moved on when the company failed in the 2000 "Tech Wreck".
I keep in touch with her. Today is Yesterday again. Her construction boss husband has been laid off. Overall unemployment numbers are rising. In our specialized, DC area, job sector, there is talk of contract cuts, the consequences of the "continuing resolutions", and employment issues going forward.
Some differences between then and now. She and I are much better off as far as salaries, professional reputation, skillsets, debt, savings, etc.
For all the doom and gloom, there are people who are ready for what is happening today. Some are not but many are.
(My opinion) It's not nearly as bad as Contrarian says. It is slightly worse than Robert suggests.
Where this folds back to RE. In my circle of professional peers, no one is remotely close to losing their home. Out of a dozen, one or two may lose their job but they will find another quickly.
It is more than 15 years since the last RE trough. Two friends have mentioned the possibility of buying for future profit. They can do that because they have the cash.
Hayfield,
That was an impression I garnered from YOUR comments.... That South county had a contentious mixing between the hoity-toity of FFX station and the Belvoir folks. I went to school in that dynamic, I wouldn't chose it.
spider,
your geography is a little strange, 22015 is in the middle of all those zips... try sawbuck it gives the easiest graphic for zips.
But it all depends very strongly on where in particular you are commuting to and whether the VRE or blue line makes sense. If you're going downtown or especially Alexandria/Pentagon then it's a lot more convenient than Vienna or Fairfax City or Reston. But if you work in Arlington or Tyson's it's a bitch.
Cara..everybody sweats on the first home purchase..natural stress..Trust me as a internet Mom..you made an excellent decision. I was reading yesterday??..so..busy..that FHA is tightening loans..they do that because they can and still have plenty of buyers for the current inventory levels. You made an excellent deal. You are extremly smart and educated to run statistics and analysis data, that's good but not really pertinent when buying a home, to many touchy, feely things goes into purchasing a home. You got an excellent interest rate, discounted price off the highs and you didn't over buy or under buy and you LIKE your place! Some of the bears will not buy until they believe the market has hit their value. Well, it could be low ballers will just have to wait a long, long time because they have under valued property almost to the extreme that is was over value. Hey just watch lumber prices..oil..and such..commodities will tell you more about raw material costs than the list prices. As a side note..we closed yesterday. Done deal, now I can retire and the new pond is 14ft deep waiting to be stocked with fish! For Tabitha if she ever surfaces..it was full list, nada on closing costs,points..zero subsidy with 2 in the wings. I'm so very, very happy with our buyers..It's a military family with kids! Fits our neighborhood to a T!
Congratulations Arkey!!!! Happy retirement!! When are you moving?
Well, I'm staying until late Dec because the man child has finals the week of Dec 16. but I reckon I'll be on the road by Dec 18/19 latest for Christmas in my new home! I'm so friggin happy. I just love my new home. Those views are killer retirement views! My sis and family are about to pee their breeches. They never thought or gave up thinking I'd ever return. I'm spiraling back just as fast as I spiraled out..its like a tornado..hello Dorthey!
Thanks Ace..as a side note..family history from the last "depression" in real estate. The investor buyer wasn't buying so much to re-sell but to put into trusts for future genrations commercial property. I know blocks and blocks of downtown Dallas went to the Black (surname) and such. Lots of the properties bought in PWC by investors are future commercial zoning with the growth rate projected for the county. My great grandfather got wiped out but he saved all his land turned all his farming property open to the public for picking and feeding and such..free..no welfare then. Gripes us great grandchildren lived in places without a thought to rent..even had pet names for them where we would congregate in the summer because they were old farm houses and we could play.
Robert:
"Jeremy - hey, why don't you call out some of the housing bears that state opinions as facts. You'll increase your credibility."
Actually all he did was just point out that you don't have any.
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