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Saturday, December 12, 2009
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74 comments:
I need to revise my expectations for home prices due to Congress tightening its belt. LMFAO
Some choice passages:
The 1,088-page, $1.1-trillion measure would provide $447 billion in the operating budgets for 10 Cabinet departments, awarding increases averaging almost 10%.
The generosity comes on top of an infusion of cash to domestic agencies in February’s economic stimulus bill and a $410-billion measure in March that also bestowed budget increases well above inflation.
Democrats made no apologies for all the largesse, saying that domestic programs were starved under eight years of President George W. Bush.
The measure rejected most spending cuts suggested in May by Obama.
This is exactly what I posited a few weeks back. Obama postures like he is frugal; meanwhile, Congress ramps up spending.
Clearly, all things are not equal.
Properties near job centers are worth more.
A Shining Anomaly on a Hill
The increase in government jobs—courtesy of stimulus planning and spending—is turning Washington, D.C., into a boomtown.
Boomtown. I don't write this stuff. It is delivered to my inbox courtesy of Google Alerts.
But if some reports are true, job seekers are, or at least should be, heading to Washington, D.C. In a hyperbolic gold rush, out-of-work folks are finding shelter in our nation's capital, snatching up employment with the federal government.
You know, Washington is starting to sound like Walt Disney World. And Obama is Robert Iger. Who wants to man Splash Mountain?
In a crushing blow to the bears...
D.C. area's recession ended in first quarter
According to the Delta Associates report, a net 40,400 new jobs have been added in the Washington region since Jan. 31.
Uh, oh. This is not all organic hiring. Many of these people are coming from out of town. They will need a place to live. Rent or buy, it doesn't matter. Either supports higher home prices.
VA_Investor said...
"You can rent for 5 yrs, as some year are willing to do, or you can have a home and be 5yrs down the amortization schedule"
Of course if you rent for 5 years your down payment will be much larger, and you will have a ton more equity than the person who is 5 years into their amortization schedule and has been paying mostly interest every month all those years. People always seem to forget that part when they compare renting with buying.
Robert said...
"In a crushing blow to the bears..."
Isn't the 6.2% unemployment number from your article still historically very high for the Washington region? Wasn't it much lower when housing was going up in value during the bubble? Explain to me how historically high unemployment is 'crushing' please. Just because we are doing better than other cities doesn't mean we are doing well.
Va_Investor said
waiting too,
It may take 5 or 10+ yrs, but any one level shopping centers or box stores in good locales are going the way of the dinosaur.
Reston Town Center is on hold, but those "plaza's" are history.
I agree and disagree. I think there are a lot of people who want to increase density and remove open air parking lots. But the public loves them. That Pentagon Centre or whatever it's called with Costco is wildly popular. Same with Potomac Yards big-box-tons-of-parking-almost-essentially-like-Fair-Lakes ;) shopping center.
I think the silent majority of Arlingtonians and Alexandrians (as well as many in NW DC and other areas near these shopping centers) loves big box stores and open air parking lots as much as those in the outer suburbs. They like their dense, walkable areas too of course. But sometimes it's nice to pull up your car into a decently sized parking space (not some tiny monstrosity where you have to really maneuver around poles that will scratch your car) and buy items you can load up into the truck.
Before someone says I'm a "perma-bear" or whatever - obviously we will eventually recover economically, and before most other cities. We just aren't anywhere near fully recovered yet, and we still won't be there yet in the next 12 months. I just don't see any reason for a rush to buy like bubble times in the past.
Er car. Not sure why my brain momentarily lapsed there.
I drive a compact car so if I find it hard to park in some of these underground garages I can only imagine what people in regular sized cars or minivans etc feel.
Okay
Let me get this straight.
The C-S National index is inflation adjusted, but the individual city index is not inflation adjusted?
Robert,
No one (or at least not me) expected belt tightening in 2009 or 2010. I said it would probably come after the midterm elections. Although maybe the RNC is not going to do a good job winning races. (Just kidding with the link -- I'm sharing more because the pictures are funny.)
Every time I watch a talking head politics show or read a newspaper or newsmagazine I see articles about voter outrage on spending. And talks of a wave election. I don't think it's fair that Obama and Pelosi and Reid are getting attacked for doing the same thing Bush et al did but it appears to be happening.
Anyways, this whole "it's different here" thing is pretty much bogus. It's not different here. As the Case-Shiller indexes show almost all of the top 20 markets have recovered. DC area real estate is following national trends just as it has done the rest of this soon to be over decade.
Robert said
Clearly, all things are not equal.
Properties near job centers are worth more.
Eh, yes and no. Closeness to job centers is a major factor. But so are school quality and crime (and a million other things). Unincorporated Falls Church is closer to DC and about the same (maybe slightly quicker given the reverse commute) to Tysons Corner as the Oakton or Herndon-Fox Mill-ish areas Jeremy is looking at but good luck finding cheaper prices in those areas versus Annandale.
*versus Falls Church
---
Nothing but typos today! :(
Jeremy,
What Robert fails to grasp is that 2006 prices (and 2005 prices which are still pretty much the norm in nicer parts of Northern Virginia) *were not supported by economic fundamentals.*
Robert has this misguided theory that 2006 prices made sense. And then the recession came. He doesn't grasp that salaries never were high enough to support those prices.
"I just don't see any reason for a rush to buy like bubble times in the past."
I agree Jeremy, there should never be a rush to buy - reminds me of the bubble times. Housing will settle quite a bit lower and will be flat or grow ever so slightly after (as it should have done unlike the bubble). There will be plenty, plenty opportunities over the next few years. In the mean time, I am renting SFH at a net loss for the owner and soaking away fortune for the down payment.
This mini-bubble isn't going to last much. Specially this time around, when everyone is lining up to hang the Fed so that they don't repeat greenspan style mistakes. I can imagine RE down the dumps without the FHA help and 8k credit.
Isn't the 6.2% unemployment number from your article still historically very high for the Washington region?
Yes.
Wasn't it much lower when housing was going up in value during the bubble?
Yes.
Explain to me how historically high unemployment is 'crushing' please. Just because we are doing better than other cities doesn't mean we are doing well.
Gladly. At present, we are nearly at an identical level of employment in the region - down 1%. By 2Q10 we will have the same number of jobs as we did pre-recession. But, unemployment will still be high historically. Reason: the job mix. We have suffered significant losses in retail and construction jobs, but we are adding government, health care, and education jobs. So, you have construction and retail employees out of work, but they aren't qualified to take the higher skilled jobs that are available. These will need to be filled with an influx of educated professionals coming from across the country. So, even when we hit our pre-recession employment number in the middle of next year, the income level will be higher because of the change in the mix with more high skill/high paying jobs and less low skill/low paying jobs.
Before someone says I'm a "perma-bear" or whatever - obviously we will eventually recover economically, and before most other cities. We just aren't anywhere near fully recovered yet, and we still won't be there yet in the next 12 months. I just don't see any reason for a rush to buy like bubble times in the past.
How do you define fully recovered? You must know because you say we won't be there in the next 12 months.
What about Gross Metropolitan Product:
“In addition to having one of the best performing economies, D.C. stood out in another way last quarter. It achieved a new high gross metropolitan product,” said Alan Berube, research director of the metropolitan policy program at D.C.-based Brookings and co-author of the report. “It surpassed what its own [gross domestic product] was before the recession.”
I told you jobs by 2Q10. Total regional personal income should be before that. Retail spending and tax revenue I would expect to lag that 2Q10 number.
To get back to historical unemployment is going to take some time. You may need commercial construction and retail spending to get back to historical numbers for that to happen.
What Robert fails to grasp is that 2006 prices (and 2005 prices which are still pretty much the norm in nicer parts of Northern Virginia) *were not supported by economic fundamentals.*
Robert has this misguided theory that 2006 prices made sense. And then the recession came. He doesn't grasp that salaries never were high enough to support those prices.
Complete BS. Bubble prices were supported by easy credit. That easy credit will NEVER return.
Every time I watch a talking head politics show or read a newspaper or newsmagazine I see articles about voter outrage on spending. And talks of a wave election. I don't think it's fair that Obama and Pelosi and Reid are getting attacked for doing the same thing Bush et al did but it appears to be happening.
Well, the Dems passed that $1.1T spending bill YESTERDAY. They don't seem to worried about any voter backlash. Maybe the media has over-hyped the 'anger' over spending.
No, not fair that Obama/Pelosi/Reid are getting pummeled over spending, but what else are you going to do as a Republican? Try to outspend the Dems?
All things considered, you must be a little surprised by the brazen spending in the bill. Why don't you think that is a prelude to 2011 or 2012? The key part of the article - going forward - was how the Dems ignored Obama's request for restraint.
Eh, yes and no. Closeness to job centers is a major factor. But so are school quality and crime (and a million other things). Unincorporated Falls Church is closer to DC and about the same (maybe slightly quicker given the reverse commute) to Tysons Corner as the Oakton or Herndon-Fox Mill-ish areas Jeremy is looking at but good luck finding cheaper prices in those areas versus Annandale.
The point I was trying to make was that the Vienna commute to Tysons is 15 minutes (or so), nearly the same as a decade ago. The commute from Clifton has gone from 40 minutes to 1 hour+ over the last decade. Therefore, Vienna should receive a higher percentage appreciation over the last decade vs Clifton. And it probably did.
Robert said...
"At present, we are nearly at an identical level of employment in the region - down 1%"
This doesn't agree with the article you linked above:
"Our unemployment rate [accounting for seasonalization and emcompassing the whole D.C. metro area] is down, but it's still double what it was before the recession."
Jeremy -
Sorry for the confusion. The total number of jobs is down 1%. NOVA has 1.3 million jobs, down about 13,000 from peak pre-recession.
Yes, unemployment is 5%, more than double the pre-recession level.
We have 75,000 unemployed now, up from something like 30,000 pre-recession.
So, the number of jobs is down, but not as much as the number of unemployed.
Why? Because we have created jobs in the sectors I've mentioned, but they aren't being taken by the unemployed, they are being filled by people moving to the area.
Robert,
You craft an interesting picture of the area economy. Were DC the only Case-Shiller graph going up it would be intriguing. However almost every one of the 20 Case-Shiller indices is going up. San Francisco has gone up even more than ours. Do you claim that everyone is moving to San Francisco as well? And Dallas and New York and Chicago and so on?
Let's be honest -- we are dealing with a national phenomenon. Housing is reacting *nationally* to low interest rates and a push by realtors toward FHA loans.
Robert said
The key part of the article - going forward - was how the Dems ignored Obama's request for restraint.
I think you are confusing years. The Obama administration requested large increases for FY 2010. This omnibus is for FY 2010 (which began Oct 1, 2009 -- Congress moves slowly).
Obama did claim in an article someone posted a while back that he'll be tightening the belt with FY 2011. That will pass sometime in 2010 most likely (although possibly later). I actually am not predicting much in the way of belt tightening until the FY 2012 approps which will be done in 2011 after the midterm elections.
But anyways, this is a red herring. I made a mistake of discussing this with you for the past few months. At the time I thought we were the only crazy area real estate market that was not still plummeting. But we see that almost every one of the 20 C-S markets has improved. So while I find it fun to talk budgets and make guesses about the national budget, we are dealing with a national phenomenon of housing markets react to rock bottom interest rates and FHA loans. There's nothing going on in the DC area that is not going on in most real estate markets.
Again, your article says unemployment is 6%, not 5%. Also, many people without jobs are no longer considered in that number because they have given up even trying to find a job. It's bad out there, and I'd hate to be someone in their mid-to-late career trying to find a replacement job at close to the same pay. There is a lot of competition and jobs typically requiring only a BS are getting MBA and up applicants.
Again, things will get better - but Robert I think your outlook is just a bit rosey compared to the general public on this whole recession thing.
This article from the Washington Post seems to contradict Robert's idea that so many people are moving here for jobs. It actually contends that lack of opportunities elsewhere is the reason the region is able to hold onto as many people as it has - no mention of the area's strong job prospects actually bringing people in.
Recession reining in Americans' urge to move, study finds
"The numbers for metropolises such as New York, Boston, Chicago, Philadelphia and Los Angeles, which had been losing tens of thousands of residents in search of more affordable housing, are stabilizing. The flow out also subsided in the Washington area, whose population growth has been fueled by the arrival of tens of thousands of immigrants."
This video about who is "really" counted as unemployed was linked in one of Robert's articles. It is absolutely priceless. Robert, you really should have shared.
self employed professionals also don't count as unemployed.
realtors, consultants, 1099's
are all hurting bad and don't count
You craft an interesting picture of the area economy. Were DC the only Case-Shiller graph going up it would be intriguing. However almost every one of the 20 Case-Shiller indices is going up. San Francisco has gone up even more than ours. Do you claim that everyone is moving to San Francisco as well? And Dallas and New York and Chicago and so on?
I've addressed this. Boomtown has retained more of its bubble gains since 2000 than any city in the index.
San Francisco lost more of its bubble gains than any city in the index. To have an out sized pop over the last six months is nothing extraordinary.
With the pop, San Francisco has retained only 25% of the bubble gains since 2000. Boomtown has retained 80%.
Let's be honest -- we are dealing with a national phenomenon. Housing is reacting *nationally* to low interest rates and a push by realtors toward FHA loans.
Of course we follow national trends like interest rates and availability of credit.
It's different here, but it's not completely different. That better?
Jeremy -
You said it's bad out there. I don't disagree. Job security is better in Boomtown than any other city in the country, but if you are unfortunate enough to lose your job, even here, it will be difficult to find a new one.
Why? Because the competition is much stiffer than in the past. Federal jobs may have had 5 qualified applicants per opening in 2004-2007, but now they may have 50. So, even though you are applying for a "local" job, you face fierce competition from applicants all over the country.
My outlook is a bit rosy? What is too rosy? That credit will be easier next year? That Boomtown will create jobs in 2010?
Pat-
The 10 and 20 city index that are often quoted are not inflation adjusted. The only index that is inflation adjusted is the index that goes back to the late 1800s and that index is not updated often. Once a year or so someone appears to revamp the index. I think in that index the trendline says the index should be at about 110 and nationally is at 130ish. Which I do not find overly surprising seeing interest rates are so much more accommodating than the average over the last 100 years. I would think even if you adjusted for inflation the DC area probably has been going up for decades as it grew and land became more scarce, but thats just my guess because I have never seen DC prices going further back than the late 1980s.
Bitch Slap:
Link
Robert,
With the pop, San Francisco has retained only 25% of the bubble gains since 2000. Boomtown has retained 80%.
January 2000 = 100
Peak C-S for DC was May 2006 = 251.07
Alleged bottom March 2009 = 165.92
Bubble gains = 151.07
Bust = 65.92
That looks like we retained only 43.6% of bubble gains before it started going back up. Where did I err?
Robert,
It would also help when comparing cities to know how their markets did in the 1990s. The big mystery for our region is what should have happened in the 1990s. Did it make any sense for prices to be so flat? Or should they have gone up 10% between 1991-2000?
In many cities almost everything between 2000-06 could be labeled bubble. I think here it's possible some of 2000-01 was just making up for a lost decade in real estate.
tbw said - "Did it make any sense for prices to be so flat? Or should they have gone up 10% between 1991-2000?"
tbw - that time was just a reflection of prior boom & bust. I am sure you have seen this chart by Robert Shiller - History of home values
In general, there is one other major factor why RE may not even keep up with the wage growth. As time goes by, RE ages (requires more maintenance etc.)
For older properties:
Land portion should track the wage growth.
Improvement portion should track (wage growth - property depreciation)
New properties (of course) should track the wage growth.
We are far from getting down to such level of details - when market in general is priced so far from reality.
Here is an article worth reading:
Article about DC Area Real Estate from 1995
How much of this is similar to the boasting you hear today? This is why I'm always responding same old, same old to Robert's quotes and articles:
The close-in suburbs of Northern Virginia are seeing the most growth as the metro Washington, D.C., area emerges from the economic doldrums left by the recession of the late 1980s and early 1990s.
Overall vacancy rates for commercial office space in Northern Virginia dipped into the single digits, falling to approximately 9.2%, a decline of 52% since its peak in the spring of 1991. That's below the overall vacancy rate for commercial office space in Washington, D.C., which ended 1994 hovering around 11.8%. Suburban Maryland was even further behind with an overall vacancy rate of 18.3%, its highest level since -the first quarter of 1992.
...
With a vacancy rate of 1.6%, Crystal City had the lowest overall vacancy rate in all of Northern Virginia at the end of the first quarter of 1995, according to Cushman Wakefield. This submarket was significantly helped by the Department of Defense's lease at Presidential Tower.
Tysons Comer also is a strong market right now, boasting a net gain of 673,206 sq. ft. for 1994, according to Smithy Braedon*Oncor's statistical data. Of note was America Online's leasing of 44,049 sq. ft. at the Westward Building VII.
America Online also helped to strengthen the Reston/Herndon market with its purchase of the 235,000 sq. ft. building that formerly housed Tandem Computers. The Herndon market saw its vacancy rate decrease by 45% in the last 12 months to 7.4%, says CB Commercial.
---
"The rental market has gotten consistently tighter in the last 12 months," notes Thomas Bozzuto, president of the Bozzuto Group, which manages 3,500 apartment units in the metropolitan area. "Concessions have basically gone away and we're seeing net rent increases across our portfolio averaging better than 5%." Bozzuto says that all of the submarkets in the area are enjoying higher occupancies, including Prince George's County and downtown Washington, particularly in the luxury properties.
...
Delta reports that there are likely to be 3,631 Class-A garden and high-rise apartments delivered in Northern Virginia within the next 18 months. Of these, 1,387 units are currently under construction. Yet this may not be sufficient to satisfy current demand of 2,500 to 3,000 units annually, plus pent-up demand. Delta foresees that demand will continue into the 1995-97 period, translating into continued sharp rental rate increases over the near term.
I bolded the Stephen Fuller-esque "we aren't making enough rental properties!" quote. I don't know how much rents moved during 1995-97 but I doubt they were as much as that breathless quote would have had you believe they would.
Okay this one below might be no longer the trend (although all the big box stores that sprouted up during this time period are still around):
The trend in suburban retail continues to be "bigger is better" says Steven Graul, CCIM, vice president of retail services for Barrueta. "There are more tenants looking for retail space right now than there is space available," says Graut.
Target is expected to open between 15 to 20 stores in the area, and Wal-Mart and Sam's are already midway through their program in this region. Super-style bookstores in the 25,000 sq. ft. range have also entered the market.
It's a really long article and the above is just snippets from it. Feel free to click through.
robert says:
"With the pop, San Francisco has retained only 25% of the bubble gains since 2000. Boomtown has retained 80%."
which just means the DC MSA has yet to absorb it's losses.
Vegas, Phoenix, Florida have absorbed the losses, and are now cleaning up the books.
LA is starting to absorb losses.
You know it's over when strategic default ends.
It's fascinating, I was living in Southern California in 1995 after the bubble there had popped.
My Girlfriend had a brother who owned a little patio house in Palmdale. He had bought it for 94K.
It was unsellable.
His community had a dozen foreclosures sitting boarded up because there was no demand.
I suggested to her we buy a house there from the bank for 50K, down the street from Wes.
Unfortunately her credit was so damaged from various mistakes, she couldn't even borrow that amount.
Of course banks weren't writing mortgages there either.
the market was so damaged, you couldn't get comps.
Her Brother was driving over the mountain to work in el segundo every day because he couldn't sell his house.
Very interesting conversation. Ben should have been fired by now. Obama needs a wake-up call to appoint Paul Volcker as fed chair - he is the guy who can take us in the right direction.
Interview with US Economic Recovery Advisory Board Chair Paul Volcker
This is a clear signal it isn't over yet.
"Volcker: You know, people get very technical about these things. We had a quarter of increased growth but I don't think we are out of the woods."
January 2000 = 100
Peak C-S for DC was May 2006 = 251.07
Alleged bottom March 2009 = 165.92
Bubble gains = 151.07
Bust = 65.92
That looks like we retained only 43.6% of bubble gains before it started going back up. Where did I err?
Yes, that's correct.
Boomtown is up 80% since 2000, not 80% of bubble gains. My bad.
80% is more than any other city.
Hey pat. Why hasn't Boomtown corrected? We had the same liar loans. What is our market waiting for?
TBW, you are yanking my chain.
From the article, 1995...
The District may have to rely on the strength of the private sector to recover completely, as the federal government continues on its course of reorganization and downsizing.
2009...
The federal budget rose 18 percent this year to $3.52 trillion and is projected to grow to $5.3 trillion by 2019, according to the Treasury Department.
TBW, this is it. This is the entire thesis of everything I post.
The difference between 1995 and 2009 is nearly black and white.
But, you know that.
TBW, "Article about DC Area Real Estate from 1995"
The S&L crisis wrecked this area. I attended a Resolution Trust Corporation auction but did not have money to invest so I just watched.
By 1995, there were signs of recovery and prices firming.
As was talking to some friends yesterday about raises and came across these factoids:
One individual works for a large tech/science company (lots of PhD scientists) that has mostly Fed contracts. They are not getting raises this year. Instead they are getting a temporary 'bonus' instead of a pay raise (i.e their salary remains the same). This is the first time no one has received a raise.
GMU faculty have not received raises in 3 years. The good news was that furloughs have become unlikely. The scummy thing is that the proposed furloughs would have occurred vacation days so that their effect wouldn't be visible to the public. Either way, I guess all of that great DC metro Federal spending that we keep hearing about hasn't made it's way through to the state taxbase.
Robert
Why hasn't Boomtown Corrected.
Parts of the DC MSA have corrected.
I would argue Woodbridge, Fauquier,
Ashburn, are mostly corrected or correcting.
The debate lies within the Beltway, the Immungtons the Immunandria, Immunesdas, ImmuniSprings, Immunipark, Immunitown.
1) These were moveup areas, where people had sold properties and had put 20-30% down
2) Unemployment while historically bad is not as bad as in places like LA, PHX, FLA, Det.
So low interest rates are letting I/O's actually remain affordable
as long as you have a job.
Also there is a tremendous amount of grave Whistling.
Because These are Recourse states, and people have incomes that can be tagged, they are very reluctant to mail the keys to the bank like out west.
Also, the Feds have been altering the local market.
Military personnel relocating out of area, are getting special adjustments to buy them out if they are underwater.
Gee, if they had made a killing selling out, would they share the proceeds? Nope.
So NoVa is getting a pretty big subsidy.
I'm reminded of a story about a DC-3 where the engine exploded on the right wing, while they were crossing the atlantic.
Fuel began pouring out of the wing, lightening the load so they weren't sinking so fast but eliminating any hopes of making landfall.
Sometimes one problem offsets another problem but as the pilot said "It doesn't really matter when we ditch if the fuel tanks are full or empty".
Right now Interest is obscenely low.
Bernanke is blowing a monster of a bubble into Carry Trades, Commodities and equities.
At some point, interest has to revert to mean.
At that point, people with cheap IO's have to face the music. Go from Losing $200/month to losing $1000/month. Lose $50-100K on a property. Lose a credit rating?
Lose the property.
Look, CRE hasn't imploded around here, and I'll grant you have some good cites on the Wilson Corridor, but, if the CRE is bad nationally, it will go bad regionally.
When I moved here in 1985, the BS was "DC is Recession Proof".
I rode out the 1991 recession.
It was pretty bad.
As for the 2001 DotCom IMplosion?
yeah that was pretty bad around here too.
So there are recessions here.
Right now there is a pretty big uptick in federal spending but they are trying to move more of it into the workforce and less into the contractors.
That's going to change things.
The plus side is they are finally investing into the Dulles Metro that will make NoVa more attractive to business.
The key is median income to median price
if thats above 4 prices will revert.
http://www.washingtonpost.com/wp-dyn/content/article/2009/12/11/AR2009121104875.html
Most (but not all) of the regional busts tended to be painfully protracted affairs. Why? Because unless we're forced out, most of us would rather stay in a house, pay the mortgage and hope for an eventual upturn than sell and realize our losses quickly. That means home prices don't go down all at once; they tend to slide agonizingly slowly on infrequent sales.
True, the tax credits and low mortgage rates make buying a house tempting. But if you buy into a slumping housing market, those incentives won't add up to much. So while the worst of the real estate decline is surely behind us, the odds are strong that you'll be able to buy later at the same price -- or a lower one.
DC is behind the national trend,
because it has one industry that is continuing to spend, but it's a small part of the base.
Associations are the big dog of DC oddly enough and they are stretching fine.
Associations don't go out of business but they can drop headcount.
Fixing pat's link:
Home buyers can afford to wait awhile
That's basically what I've been saying. No need to buy now and assume all the risk when prices will be flat or lower next year. The available inventory sucks right now anyway. You either scramble to get a well priced home right when it goes on the market or try to low-ball some sense into all the WTF sellers listed at their 2006 wishing prices.
Robert, you know a little about listing at your 2006 wishing price and not being able to sell, don't you?
Why hasn't Boomtown Corrected.
Parts of the DC MSA have corrected.
I would argue Woodbridge, Fauquier,
Ashburn, are mostly corrected or correcting.
All of DC has corrected. This is all you are going to get.
The debate lies within the Beltway, the Immungtons the Immunandria, Immunesdas, ImmuniSprings, Immunipark, Immunitown.
1) These were moveup areas, where people had sold properties and had put 20-30% down
2) Unemployment while historically bad is not as bad as in places like LA, PHX, FLA, Det.
There simply weren't that many properties in these areas that were bought at bubble prices 2004-2007. And some that did can afford to stay.
So low interest rates are letting I/O's actually remain affordable
as long as you have a job.
Also there is a tremendous amount of grave Whistling.
Because These are Recourse states, and people have incomes that can be tagged, they are very reluctant to mail the keys to the bank like out west.
A few people may fall into this category, but if they haven't defaulted yet, I don't see a big wave of defaults.
Also, the Feds have been altering the local market.
Military personnel relocating out of area, are getting special adjustments to buy them out if they are underwater.
I didn't know this.
I'm reminded of a story about a DC-3 where the engine exploded on the right wing, while they were crossing the atlantic.
Fuel began pouring out of the wing, lightening the load so they weren't sinking so fast but eliminating any hopes of making landfall.
Sometimes one problem offsets another problem but as the pilot said "It doesn't really matter when we ditch if the fuel tanks are full or empty".
Huh?
Right now Interest is obscenely low.
Really? I wish I could predict interest rates. I wouldn't be blogging. Instead I would be making millions at Goldman Sachs. Maybe you should try it. Sounds easy.
Bernanke is blowing a monster of a bubble into Carry Trades, Commodities and equities.
At some point, interest has to revert to mean.
Again, you know the mean for interest rates. What is it?
At that point, people with cheap IO's have to face the music. Go from Losing $200/month to losing $1000/month. Lose $50-100K on a property. Lose a credit rating?
Lose the property.
I don't think there are that many properties in Arlington and Alexandria that have IO loans that will get crushed when rates go higher. Maybe you have data?
Look, CRE hasn't imploded around here, and I'll grant you have some good cites on the Wilson Corridor, but, if the CRE is bad nationally, it will go bad regionally.
Again, you have no proof. CRE has corrected here too. That's all you're going to get.
When I moved here in 1985, the BS was "DC is Recession Proof".
I rode out the 1991 recession.
It was pretty bad.
As for the 2001 DotCom IMplosion?
yeah that was pretty bad around here too.
So there are recessions here.
We've had a recession. It has been bad. It is over.
Right now there is a pretty big uptick in federal spending but they are trying to move more of it into the workforce and less into the contractors.
There will be plenty of work to go around, working for the Feds, or contractors.
That's going to change things.
No, it won't.
The plus side is they are finally investing into the Dulles Metro that will make NoVa more attractive to business.
Yes, that's the problem we have in Boomtown. Too many jobs. Too many cars.
The key is median income to median price
Not the key, but something to keep an eye on.
if thats above 4 prices will revert.
Sure, whatever you say.
I've been running the CPI calculator,
if you Inflation adjust, C-S for DC
we should be at 120. That it's
sitting at 180 indicates there is lots of room to fall.
Maybe it drifts down slowly
maybe we get high inflation
but, the fundamentals will recover.
prsonally i think we had a burnout of the subprime and the ones with least reserves.
Next year we will have the strategic default and the end of the savings of the hard working types.
I know a guy top dollar sales guy
hasn't made a dollar in sales in 2 years, been living off savings and cashing in his 401K, and he's okay until next may then his life implodes.
He's underwater 200K on his house in springfield, but as long as he can pay the mortgage he's okay.
He's just hoping for a miracle. really.
Jeremy,
Certain segments of the Market have over-corrected imo. And I don't expect significant drops across the board in other local areas.
The Article you linked is nice, but hardly scientific. Most reasonably knowledgable people expect that we will be flat for a few or more years.
And there really is very little inventory. I'm not a great believer in any Tsunami of distressed property becoming available. In fact, I believe a major portion of the reo's have been flushed out already.
If you are happy renting, then I suggest you continue to do so and "save like mad" on your reduced rent.
The problem now for deal-seeker's is that a level of confidence has been restored and people are more willing (anxious in some cases) to buy. Pent-up demanmd is quickly absorbing what little inventory there is.
Those in destination locations are coming out of their bomb shelters and realizing that the world has not ended and they still have a job. In addition, their 401's and other portfolio's have come back quite significantly.
I suspect that people who were firmly expecting a second-leg down are beginning to have their doubts and may be jumping in.
My advice would be to search your desired area like mad and be prepared to sign a contract immediately if a bargain comes along. Not an easy move for many, but I don't know that a steal is going to drop in your lap.
Your prediction about prices dropping further (in any major way) is not supported in this region.
I'm going to the Courthouse next week. There is a particular property that I am interested in, but it will be interesting to see what's happening out there.
Robert, you know a little about listing at your 2006 wishing price and not being able to sell, don't you?
Yep. Too greedy. Really, really greedy.
pat, va_investor, robert,
Things aren't as rosy as stock market paints it. I posted a link earlier for an interview with paul volcker - he doesn't think we are out of the woods yet. It is very difficult to predict the stocks, however - if double dip becomes a real risk, stocks will correct in a major way and confidence will fade.
If someone thinks that we are on our way to another housing boom or that this is a realistic market, they need a therapy!!
VA_Investor said...
"Your prediction about prices dropping further (in any major way) is not supported in this region."
I don't believe I made a major price drop prediction. My exact quote is, "No need to buy now and assume all the risk when prices will be flat or lower next year."
I think overall prices will be flat, and I think many of the 600-750k+ homes currently listed at wishing prices will be forced to come down if they want to sell. So even if inventory remains the same, I believe it will be better (more fairly) priced effectively giving me more homes to choose from. Look, I'd be very happy to find a home this Spring (or I should say my wife would - I just get yard work out of the deal) - but I don't feel like we're in any rush to "buy now or be priced out forever."
robert
http://photos1.blogger.com/blogger/6511/1295/1600/IO-map.png
in 03 they were writing lots
of IO mortgages here
http://www.mybudget360.com/wp-content/uploads/2009/09/30-year-mortgage.png
This is the 40year history of the mortgage rates. Now If i knew where the rate was going to be in a month i'd hire people to bitch slap Robert, but, I don't know when it will change merely that it will change. That makes me just another Cassandra.
http://www.forbes.com/2005/12/06/interest-only-mortgages-cx_lm_1207mortgage.html
In 2004, some 18% of the $1.8 trillion mortgages securitized were interest-only mortgages, according to Bear Stearns, and that likely increased dramatically this year
DC was just another bubble market in 05
http://www.businessweek.com/the_thread/hotproperty/archives/2005/07/washington_dc_b.html
This is exactly the same argument Robert uses today.
that first comment merely needs to replace audiorich for audiorobert.
http://www.consumerfed.org/elements/www.consumerfed.org/file/housing/Exotic_Toxic_Mortgage_Release052406.pdf
"Many of these loans were made in D.C."
I know Cara cites the Fed saying"1.3% of DC area mortgages are IO" but it doesn't feel right.
Most of the condos on wilson Blvd were built using Cheap credit, that's bound to implode.
pat,
"there you go again". Who said anything about a Boom?
pat,
Your long-term mortgage rate graph shows mortgage rates have basically gone down since 1982. That's 27 years down. Like I said to a previous poster, if this mortgage rate hike isn't going to happen in my lifetime, why do I care?
This is my favorite quote from the IO article:
In the early years of a standard mortgage, the firm says, the interest takes up about 95 cents of each dollar paid to the lender.
So, IO people pay 100% interest and fixed-rate people pay 95% interest. Whoopdedoo.
Could not get the BusinessWeek article. Amazing you know what is going to happen to interest rates, but you can't hyperlink in HTML.
I know Cara cites the Fed saying"1.3% of DC area mortgages are IO" but it doesn't feel right.
Finally some true insight into your intellectual process.
pat, va_investor, robert,
Things aren't as rosy as stock market paints it. I posted a link earlier for an interview with paul volcker - he doesn't think we are out of the woods yet. It is very difficult to predict the stocks, however - if double dip becomes a real risk, stocks will correct in a major way and confidence will fade.
If someone thinks that we are on our way to another housing boom or that this is a realistic market, they need a therapy!!
Interesting you say that if stocks fall it will impact confidence in a major way. Therefore, can we assume that if stock stay where they are or go higher it will affect confidence in a major way on the upside? Probably not.
Volcker says we aren't out of the woods yet? Unemployment is 10%. Obviously we are not out of the woods yet. Just a statement of the obvious.
My therapist says you are a kook.
Robert
You make a comment about how a 30 year mortgage is 95% interest and a IO is 100% Interest.
I'm really hoping you aren't a moron,
but i'll try and explain it in small words.
an I/O is 100% interest on short term money 2-5 year money. a 30 year mortgage is 95% interest on 30 year money.
this chart clearly shows the difference.
http://piggington.com/images/mar07rates.jpg
that's a 1.5% spread.
now show you aren't a drooling moron by showing for all of us, the difference in monthly payments between 4% I/O and 5.5% 30 year amortizing.
please then show what happens to that payment when that 4% mortgage switches to 25 year fully amortizing.
thank you.
robert
Here's a secondary cite to First Amercican core logic
http://www.washingtonpost.com/wp-dyn/content/article/2005/12/20/AR2005122001510.html
, but by midyear 2005, about 23 percent of borrowers were using them. In fact, a greater proportion of buyers used them in the District than in any state, according to LoanPerformance Inc., which reported that in the first half of 2005, 54.3 percent of all D.C. home purchasers used interest-only loans.
now Cara claims her citation of fed data shows this is down to 1.3% of the mortgages in DC.
Has 98% of all bubble mortgages cleared the system?
no way, bernanke wouldn't be flooding the system with cheap money if that was the case.
The Fed is the source of this trouble and I believe they would rather lie about the data using 4 point footnotes. Does the fed data say 1.3% are I/Os? sure.
is that based upon some codicil like (I/O's currently held on institution books not hedged or backed by CDS).
I could see that.
look i try and use the fed charts but at least on firefox it won't let me drill down below the state level
Audiorich
July 7, 2005 05:54 PM
The Washington DC housing market is not a bubble for 3 reasons:
(1) This is a government, defense, and high-tech center. I believe we have either the 3rd or 2nd-worst traffic in the country. Everyone wants to be here, because this is where the jobs are. That puts upwards pressure on house prices, and it isn't going away any time soon.
(2) There is a TON of money running around this town. It's clearly shown by the fact that people can handle $3500-4500/month mortgage payments. And because of the level of incomes here, that's not going to change any time soon, either. As my dad said, this is as close to a recession-proof town as you'll find.
(3) Shortage of land. Every bit of unbuilt land - even small plots that are only big enough for 10-20 houses - is being gobbled up by eager builders who sell half their houses when the houses don't even exist, and will not be built until 6 months after they're sold!
In this area, we have a total seller's market. The situation may drift back and become somewhat more of a buyer's market (and I actually would see that as positive), but there's no way it's going to become a total buyer's market. I don't know how young families buy into Washington, but it really doesn't matter. SOMEONE is buying, as fast as they can!
i copied the link from biz week i
cited and put it up. If Robert has trouble with Links, what can I say.
Maybe he can't work complicated machines like a browser.
but Audiorich here is the same arguments robert uses today....
Pat -- no offense, but based on each and every argument you make here you are so behind the curve here:
"Anything above 4X incomes means the area has yet to revert"
A bit hamfisted, but not bad. For the unconstrained areas, this is way too agressive -- for the constrained areas, this is too conservative.
"based on incomes, DC should be at 120"
Well now that you have gotten off that DC CS always = 100, a dialouge can begin. 120 is a farce even for the US as a whole but its a start. Wanna guess what the income growth in the area is over the last 9 years? (I can assure you it is alot more than to justify 120 -- especially in Immunington & Immundria
"DC is behind the rest of the country"
This is so ridiculously laughable, I dont know where to begin. Its almost as if everyone new here thinks the bubble started when they first were interested in buying, and each of you make the same mistakes in thinking we all did when we first came to this blog.
In all honesty, I suggest you take each and every entry from about say May 2008 to March, 2009 and read them. Study them over and over. Recognize the common themes.
Once you have done that, you too will be ready to understand why some of your concerns are very legitimate (and things we are still dealing with today) and others are so far fetched, they hardly deserve a second thought. Either way, I dont envy you. We all here have learned so much on this blog about income, inventory, sustainable prices, etc. I would hate to have to go through that again.
Either way, good luck!
Pat-
Honestly I think it is the fact that the economy remains week that is helping the stock market. As long as short term rates are at 0% money managers need to find a place to make money, because this is what they are paid for. So they continue to put money in the stock & bond markets. When the economy improves and rates go up then some money will likely come out of the market into other assets.
HB
we have a carry trade going on.
Funds are borrowing at 0%, and
buying stocks. as long as that gives any return it's easy money.
But when someone runs for the door the whole smash collapses.
they are also takingdollars and borrowing yen, euros and RMB.
when the wheel turns it will go bad fast.
the most likely killer will be interest rates rising.
The Anonymous said...
"In all honesty, I suggest you take each and every entry from about say May 2008 to March, 2009 and read them. Study them over and over. Recognize the common themes."
In all fairness, there have always been people posting here how "right now" is the bottom or "you already missed the bottom." Yet, YOY solds for the homes I'm looking at keep coming in lower, and much lower than list. I agree pat is overzealous, by about as much as Robert is overly optimistic. And the blog hasn't felt balanced since contrarian lost his buddy lance on the "so crazy I have to read it" front. If we all agreed there wouldn't be much point reading here, would there.
I do often wish this blog was a forum instead (like vBulletin). That way threads could be grouped according to topic or zip code, and there could still be a daily bits bucket. It would be much more searchable than this blog. To find anything here I use google and limit the search to this site by putting site:http://novabubblefallout.blogspot.com/ on the end of my search string. Try it out.
interesting article on overpriced markets
http://realestate.yahoo.com/promo/where-us-homes-are-most-overpriced;_ylc=X3oDMTFuanBxaTduBF9TAzI3MTYxNDkEX3MDOTc2MjA0NjUEc2VjA2ZwLXRvZGF5BHNsawNtb3N0LW92ZXJwcmljZWQ-
the chart at the end is interesting.
The data table from pat's link is interesting. link
The Washington region is 12th on the list in longest days on the market, and 20th in discount of solds off list. 28th most overpriced city overall... now is definitely the time to buy, eh?
Jeremy-
28th isn't bad considering that there were only 40 options. It looks like they put ever major city in the country. So I would say the article is saying DC is cheaper than most places. I am actually surprised by this.
pat
You're having an apples and oranges problem again.
54% of mortgages issued in any given year or two, and 1.3% of all outstanding mortgages might in fact be about the same number of total mortgages.
Why, let's see, if you look at the DC data in the NoVa statistics link on Harriet's main page, you'll see transaction volume was already dropping in the height of the bubble years.
Total dollar volume sold was down 30% in 05 and 06 into 07. Units sold, likewise down 30%. If you add to this that non-professional flippers were still around getting IO loans to minimize carrying costs, and reselling, you could reasonably cut down the number of long-standing held new purchase mortgages by half again at least. First because it doubles the number of transactions, and secondly because amateur flippers were more likely to chose a non-amortizing product.
So, if on average loans are held 10 years, then normally 1/10th of all loans are originated in any given year. That takes 54% down to 5%, if you then cut that by 30% to reflect fewer sales, that gives you 3.5%, if you then take out the flippers who got out, you get 1.75% of all outstanding mortgages. I.e. a number that's not too far off the 1.3% from the NY Fed.
So what are you going to believe, sensationalist journalism or the NY Fed?
However, in your defense, D.C. proper is the one market that I see as having serious downside potential to come. Why? look at that same page. Inventory shot through the roof in 05, and while there has been a minimal seasonal decline, it's still incredibly elevated. But months of inventory has dropped down to 5.... So, buyers seem to be coming back... It's a tough market to predict.
housebuyer said...
"28th isn't bad considering that there were only 40 options."
We were only 28th because of their optimistic 5 year price forecast, not based on the data used for the other 3 rankings. Somehow 31, 20, 12, and 32 average to 28 in their model. And 28th most overpriced out of 40 is still overpriced. If any cities in the study were underpriced I'm sure they would have mentioned it.
Cara said...
It's a tough market to predict.
7.5 months ago...
kevin said...
I know my observations might seem anecdotal, but they aren't refuted by any of the more timely measures of prices in the region. They're going up. Case-Shiller will report this in a few months, as it lags a bit.
TBW said...
I don't think Case-Shiller for DC is going up any time soon. If it does go up this summer, then I am going to more seriously consider moving to Atlanta or Austin or elsewhere where it costs less to live.
Robert,
but that sky-rocketing of homes sold in DC since April, while inventory really hasn't decreased much is a little more difficult to understand than the gentler trends elsewhere. Will it falter once the $8k goes away? Will inventory continue to stay elevated? This definitely has the look of a turning point for DC, but with that much inventory, it's concievable that it could go either way.
I think given the prices and affordability of the things pat's been posting, I don't see a lot more room for things to go lower... But there's still hope, that the downturn will affect things higher up the food chain. Although, again, I don't see that as very likely...
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