From Dina ElBoghdady at the Washington Post: Cash-rich real estate investors trigger bidding wars, frustrate other buyers.
Calculated Risk comments:
"These bidding wars should be setting off some alarm bells with regulators - not because of the cash flow investors, but because of the loose lending standards for FHA loans".
63 comments:
I view these investors as creating very nice future cheap rentals.
With interest rates low ... all-cash investors are snapping up the cheapest properties...
Why would interest rates matter to an all-cash investor?
NoVa,
Many "cash investor's" are merely providing bank statements showing that they have the cash and writing contracts for cash.
Contract provisions allow alternate financing, provided that closing isn't delayed and there is no additional cost to the seller.
They are then going to their bank and obtaining loans at 70% LTV.
Some are paying cash, but I doubt many unless they are flippers. In that case, a good portion use lines of credit to avoid some closing costs.
Banks don't want properties tied up for a month or two with a decent possibility that the would-be buyer can't get a loan.
Nova-
I can't think of any reason they would as a first order effect. As a second order effect, perhaps people with cash are buying houses right now instead of investing in treasuries or bonds because the yields are so low on these instruments. Basically there are a lot of people out there who are searching for higher yields so I would not be surprised if some people use housing as a way to do this. I would think they would avoid DC and would mostly be buying in places were the rent/price ratio are more favorable.
"There's a big difference between [the all-cash] investor and the flipper of the housing bubble, who put no money down," said Mark Zandi, chief economist at Moody's Economy.com. "This person has all the skin in the game, and that's encouraging. It suggests that housing in the area is now appropriately valued or maybe even undervalued."
Okay, so I only took one business class in college - Econ 101.
But, isn't this the way capitalism has been working for hundreds of years?
The weak hands - subprime borrowers and amatuer flippers - buy at the top. Then there is a crash. Some sell, some are foreclosed on, and a few are strong enough to ride it out.
Then, the strong hands sweep in and buy at heavily discounted prices?
This looks classic. What am I missing?
A lot of these cash-buyers will be turning around and selling some of these properties, to free up more cash again, so the FHA buyers shouldn't remain frustrated for long. If buy-side demand is high, investors will sell some of their stock into that. Duh.
FHA allows buyers with little saved to purchase homes. It doesn't do anything to help them buy houses below market prices, or keep the prices of houses down. That's the problem, as an FHA buyer you will almost always have to overpay to compete. It's always been true. It's just that most of the time no one pays attention to that. And for prices below say 75k, it's just not that big of a deal.
The only risk for buy and hold investors is that rents crater or rates sky-rocket, making alternate investments better.
I would have to guess that many buy and hold are putting their 30% down and locking these rates. "Showing cash" doesn't appear to be a problem because these people have cash.
I agree that it has to be frustrating for the "real" buyers, but this Fannie Mae rule should help. Whether that is good or bad (due to loose FHA standards) is the question.
Cara,
Where are places going for 70K or so? Even PWC and Loudoun have practically nothing under 150K.
VA_investor,
historically, and through many parts of the country for lower-rung properties. i.e. why FHA hasn't always been a terrible idea.
I will love to know the volume of such sales compared to organic ones. Eventually, all of them will have to be occupied by someone(rental or otherwise)
Let more of them come in, they will make the next leg even worse. I just hope they learn their lesson this time around and stop treating real estate as a way to make a quick buck..
As Cara mentioned, most of them will have to start dumping these properties before tax credit runs out and interest rate skyrocket.
Spider-
I think for the most part they are buying distressed properties in hard hit areas. The article says the rental market is great for these (so I assume that is true). I think VA has also said the same thing. So these people can hold the properties indefinitely if they are making good money renting them. I don't think many of these people are buying in the areas we are looking at, because rental prices can't support the valuations.
Cara said
I will refrain from trying to introduce you to my just holding her head above water condo-owning best friend in New Jersey as a ploy to try to convince her to move down here rather than up to Boston near her family (not gonna happen, but I can try).
What are the rules on debt and credit scores and marriage? If your spouse has bad credit will it affect your score? If a spouse forecloses on separate property do you get hit as well?
Luckily I still find most dates are renters. But as time goes on I imagine that will change. I suspect a large portion of the younger buyers are like housebuyer and already married.
I did have this one date where I learned about why she owned six homes. It did not work out for other reasons but I think anyone who takes on that much risk is wrong for me (even if I'm totally wrong about the trajectory of the housing market.)
I wonder if/how the housing crash will affect dating/marriage if at all.
Oh and Cara I didn't really think Ace and you were doing anything wrong. I just found it funny that you both brought up the single thing in a short period of time as I caught up on posts.
housebuyer,
You are probably correct in terms of target region for such properties. Even if they rent it out, it will pressure rent/price against owning.
Overall, this smells like another mini 2006 right before the bust. One meaningful data to look at is the trend for the percentage of unoccupied homes/rentals. This has likely worsened quite a bit. If anyone has reference to the latest data on this - please post.
Beer Chugger said
1) Either over this time the nova area has turned into one of those areas that defy financial fundamentals and costs a lot more, due to jobs, demand, etc. ( just like Manhattan in NY).
My parents paid 3x as much as their siblings who stayed in the part of the country where they grew up for a home. This was in the 1970s. It's always been richer and more expensive here.
That's why the potential downside of a housing correction is so mammoth here. In Nowheresville, USA the housing peak was probably $180k and is now $150k. In many parts of this area the peak was $600-1M and the bottom could be $350-800k.
reecon said
Ace: You don't want to buy one of those fake Craftsman houses. They are located behind the very busy George Mason post office and underneath a radio tower with about 10 cellular dishes and next to a Bank of America.
Interesting. I knew about the post office and Bank of America but not the radio tower. The radio tower does not sound very nice. But isn't this just par for the course in Arlington? Isn't that supposed to be the appeal. Having a SFH walkable to commerce?
Ace,
I was pretty sure those were not the homes for you stylewise but I do think they could be an interesting price point in negotiation. Not sure how that would go over but at least if you were bidding on a home you could say "hey, at this new development I would get 700 more square feet for the price you want."
Robert said
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.
I think that includes interest payments on debt. Which is going to rise a lot after the Chinese and other creditors end our teaser ARM rate on gov't debt. ;)
spider,
I disagree with your thoughts on price/rent pressure.
It's true that former owners are now becoming renters, but this doesn't change the number of properties vs the demand for housing (be it rental or purchase).
In most cases, forclosee's are able to rent for 1/2 or less of their prior mortgage payments. Investors are paying so little that these rents still produce good cash-flow.
How does any of this "pressure rents"? Or prices? Are you hanging your hat on lower rents leading to lower prices? The housing stock is not increasing and, all the while, population is.
I think that includes interest payments on debt. Which is going to rise a lot after the Chinese and other creditors end our teaser ARM rate on gov't debt. ;)
Ugh...that sounds like an interest rate prediction.
Morgan Stanley:
Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley
Goldman:
Edward McKelvey, senior economist in New York at Goldman Sachs Group Inc., the top-ranked U.S. economic forecasters in 2009, according to data compiled by Bloomberg, expects yields to drop to 3.25 percent. Goldman Sachs says unemployment will average 10.3 percent in 2010, hindering the recovery.
Here are some interesting numbers. There definitely is a bump in recent years from both Bush and Obama. Given we were "only" spending $1.6T-$2.4T from 1996-2005 I suspect that $5.3T is unsustainable. My guess is the $5.3T number would require humongous income, FICA, etc taxes that have zero chance of ever passing. And the debt level required without tax increases would probably lead to the US going bankrupt.
* 2010 United States federal budget - $3.60 trillion (submitted 2009 by President Obama)
* 2009 United States federal budget - $3.10 trillion (submitted 2008 by President Bush)
* 2008 United States federal budget - $2.90 trillion (submitted 2007 by President Bush)
* 2007 United States federal budget - $2.77 trillion (submitted 2006 by President Bush)
* 2006 United States federal budget - $2.7 trillion (submitted 2005 by President Bush)
* 2005 United States federal budget - $2.4 trillion (submitted 2004 by President Bush)
* 2004 United States federal budget - $2.3 trillion (submitted 2003 by President Bush)
* 2003 United States federal budget - $2.2 trillion (submitted 2002 by President Bush)
* 2002 United States federal budget - $2.0 trillion (submitted 2001 by President Bush)
* 2001 United States federal budget - $1.9 trillion (submitted 2000 by President Clinton)
* 2000 United States federal budget - $1.8 trillion (submitted 1999 by President Clinton)
* 1999 United States federal budget - $1.7 trillion (submitted 1998 by President Clinton)
* 1998 United States federal budget - $1.7 trillion (submitted 1997 by President Clinton)
* 1997 United States federal budget - $1.6 trillion (submitted 1996 by President Clinton)
* 1996 United States federal budget - $1.6 trillion (submitted 1995 by President Clinton)
spider,
I totally agree with Housebuyer. Why would "most" investors have to sell?
Even if we see another leg down in the investor market segment (highly unlikely), I don't foresee panic selling among seasoned LL's. Why would you?
Robert,
We are talking the period between 2010-2019. Not 2010.
spider said...Eventually, all of them will have to be occupied by someone(rental or otherwise)
These people will need housing:
This month, "budgets will be inked, organizations will know what they can do," she said. "There should be a spike in [hiring] activity."
Expect another "huge time of hiring in the federal government" as retirement, compliance requirements and continued stimulus spending create jobs, said Maria Grant, Deloitte Consulting's federal human capital practice leader. She also expects including "massive, massive shortages" in staffing of federal contracting and purchasing.
Note: massive, massive are not my words.
Many of the 50 colleges and universities in the area are booming, said Ward, as people seek new credentials or career paths.
Had no idea there were 50.
Raises in Washington may average 3 percent this year for salaried staffers, higher than in most other areas, according to Hewitt Associates. Those in hard-to-fill jobs could win more -- and even a mid-year boost as bosses start focusing on retaining talent.
More rising fundamentals...bad news bears.
There will be more jobs, but also more competition from people who sat on the sidelines last year and have rejoined the hunt. "We get hundreds and hundreds of résumés for 15 openings for undergraduates" in Deloitte's Washington area office, Grant said. Added Moser: "It's a really dynamic market -- and a really competitive market, too."
Again, huge numbers of applicants. Most from out of the area and will need housing - rental or purchase.
TBW said...We are talking the period between 2010-2019. Not 2010.
Gotta start somewhere...don't have any predictions for 2019.
TBW said...Here are some interesting numbers. There definitely is a bump in recent years from both Bush and Obama. Given we were "only" spending $1.6T-$2.4T from 1996-2005 I suspect that $5.3T is unsustainable. My guess is the $5.3T number would require humongous income, FICA, etc taxes that have zero chance of ever passing. And the debt level required without tax increases would probably lead to the US going bankrupt.
Do you remember your back of the napkin estimates for Dulles Rail funding?
Robert said
Expect another "huge time of hiring in the federal government" as retirement, compliance requirements and continued stimulus spending create jobs, said Maria Grant, Deloitte Consulting's federal human capital practice leader. She also expects including "massive, massive shortages" in staffing of federal contracting and purchasing.
"federal human capital practice leader" Isn't it her job to convince people to hire her to prepare for a massive hiring binge?
You like to quote "experts" whose predictions always help their bottom line. It was like yesterday's Real Estate section lead article that kept quoting Lawrence Yun of NAR and the economist for NAHB. Of course they are optimistic.
Robert,
I stand by my statement that DTR revenues will not be as high as predicted and they will be forced to find another avenue of funding to finish the Silver Line.
As always, you claim I've been proven wrong in 2009/10 when I'm making a prediction about 2011-13.
Robert,
Don't forget this article:
http://www.cnbc.com/id/33909820
The Obama administration is alerting domestic agencies to expect their budgets will be frozen or even cut by 5 percent, part of an election-year push to rein in record deficits that threaten the economy and Democrats' political prospects next fall.
Obama will submit to Congress his 2011 budget early this year. Let's see what they do. Maybe they were lying in November but maybe they were telling the truth.
TBW,
This I find scarier than the 5% decrease:
Senate action late last week that increased the limit on the government's credit card to a record $12.4 trillion gave a significant boost to a proposal to appoint a special commission to make the tough decisions that will be required to dig the nation out of debt.
The new inventory numbers are out. Still trending down. Check out YOY to eliminate seasonality.
Raises some questions (answers them?) about the region's ability to absorb any further wave of foreclosures.
Robert,
Yes, that commission could be effective. Or ineffective. It looks like it will probably pass this year so as to placate voters but unclear how much power it will have.
By the way, don't forget state budget deficits and county budget deficits. Gov Kaine proposed raising the state income tax from 5.75% to 6.75%. McDonnell obviously will not do that so more budget cuts beyond Kaine's proposed budget.
I find this interesting as well.
For example, Fairfax dropped from .77 to .71. Loudoun dropped from .67 to .58. Prince William fell from .44 to .40.
It says it is calculated from real estate assessments, retail sales, and personal income. Query whether all of it was lower assessments or we are seeing personal incomes go down in the three localities. I imagine retail sales also probably down.
If McDonnell does what Kaine proposed and freezes the state funding formula then that means even higher property taxes up here or even more massive school cuts.
TBW, I wasn't going to dig it up, but you responded:
You said...there's a strong possibility that an emergency meeting will have to be arranged to pay for the Silver Line if Dulles Toll Road toll revenues do not meet the optimistic expectations set forth in the planning documents. Who knows what the remedy will be. Probably taxing Dulles corridor businesses even more. Or maybe something atrocious like 5.5% sales tax in Northern Virginia to pay for it.
And then this came out:
Dulles rail financing named 'Deal of the Year'
The newspaper says the Dulles deal beat out ten other regional finalists and was chosen from more than 8,000 municipal bond transactions priced this year.
Don't you think these people ran the numbers before naming it Deal of the Year?
Also, the idea that as tolls go up ridership goes down is an obvious economic principle that is built into any financing models they are using.
Robert,
Also you have to admit we delayed some pain in state/local budgets via the stimulus. I don't see any proposals to delay the tough decisions again. VA is better off than many states and is not CA but will feel the pain.
Robert said
Also, the idea that as tolls go up ridership goes down is an obvious economic principle that is built into any financing models they are using.
I'm sure they calculated lower ridership but I'm pretty sure they erred on the side of overcalculating toll revenues than undercalculating them. It will be easier to impose another tax on property owners along the corridor in a few years when an unexpected shortfall comes than doing it upfront. By that time more of the Silver Line will be a reality so people will want it done.
I'm more concerned with local roads being overburdened as people shunpike. It's stupid we even have *one* toll road. You either have a bunch or zero IMHO.
By the way, don't forget state budget deficits and county budget deficits. Gov Kaine proposed raising the state income tax from 5.75% to 6.75%. McDonnell obviously will not do that so more budget cuts beyond Kaine's proposed budget.
My opinion is that these problems will solve themselves as the NOVA economy roars ahead at 9%.
If not, I don't think we're talking about huge numbers.
"Va said - It's true that former owners are now becoming renters, but this doesn't change the number of properties vs the demand for housing (be it rental or purchase)."
VA,
Property that's not occupied is another one that needs to be absorbed one way or the other. Investor homes always puts pressure on rents/prices. This is why it is much more meaningful to look at total unoccupied RRE (rental included) vs fake inventory numbers.
VA,
You are also forgetting the fact that most people who can't pay their mortgages or are forced to sell are either unemployed or flat out late in realizing that this region is grossly unaffordable for housing. They will eventually move out of here for better standard of living.
Your argument that rents are much more affordable makes me think you believe prices will have to come down to match that. I understand you probably don't want to admit that given your interests in the area.
Robert,
Here is some dose of reality:
I quote:
"The office vacancy rates in the District, Northern Virginia and suburban Maryland rose substantially in the second quarter, forcing building owners to push down rents to fill empty space, according to an analysis released yesterday.
The District, which benefited for years from a building boom, hit a double-digit vacancy rate for the first time since 1997, according to the study by CB Richard Ellis. Real estate experts attributed the soaring rates to declining demand from companies seeking new space and a growing inventory of newly constructed properties entering the market.
Numerous Washington-area firms have been cutting staff and putting off expansions to save money, postponing or canceling plans to lease bigger quarters. Excess space is rising with some companies contracting and others closing offices and going out of business. While several new buildings are expected to be completed in coming months, developers have drastically curtailed future construction projects.
The result is that the vacancy rate rose to 10.2 percent in the second quarter from 8.5 percent in the first quarter in the District, to 13.9 percent from 12.9 percent in Northern Virginia; and to 13.9 percent from 13.1 percent in suburban Maryland. "
Local Office Vacancies Soar, Driving Down Rent
Bulls will hate this. But, here is the latest projections about local office vacancies through 2011:
"D.C.’s office vacancy rate will rise to the same level as Northern Virginia’s in the third quarter of fiscal 2011 for the first time in more than a decade, according to Delta Associates.
Alexandria-based Delta predicts the District’s vacancy rate will climb to 13.2 percent in 2011, meeting Northern Virginia’s rate. Suburban Maryland’s vacancies are projected to climb to 14.5 percent in the same quarter."
Office vacancy in D.C. to match Northern Virginia
Here's my problem with these cash-heavy "investors". Many of them are flippers. Having lots of cash gives them the upper hand over somebody that plans on buying the house and living in it for a long time. Then they (the investors) flip it, have even more cash, rinse and repeat.
I find something inherently wrong with this dynamic. If we're supposed to stomach all those billions going into propping up the markets and saving deadbeats from their own irresponsibility, how can this be allowed to happen?
TBW said...Also you have to admit we delayed some pain in state/local budgets via the stimulus. I don't see any proposals to delay the tough decisions again. VA is better off than many states and is not CA but will feel the pain.
I don't think the numbers will be that big. There was a conversation this summer about $1B in cuts....and it turned out to be like 800 jobs statewide.
Again, I think income tax and sales tax revenue will surprise on the upside in 2010.
spider -
Undoubtedly Commercial Real Estate is anemic at best.
It's better here than elsewhere, but it will be one of the last areas to reach pre-recession highs.
It does impact residential real estate because there is a fixed amount of land and without CRE bidding, RRE will get better prices and can build homes cheaper.
So, you've got me on that one.
spider said...This is why it is much more meaningful to look at total unoccupied RRE (rental included) vs fake inventory numbers.
Maybe I missed it, but how do you do this?
I guess historically there is an average. How high above the average are we?
TBW says:
"That's why the potential downside of a housing correction is so mammoth here. In Nowheresville, USA the housing peak was probably $180k and is now $150k. In many parts of this area the peak was $600-1M and the bottom could be $350-800k."
I'm with TBW on this, if you look at the T2 Partners slides, what happened was I/O's, Option-ARMS
and 5/25 ARMs with teaser finance allowed people to move from 3X
Household income to 9X household income, betting further appreciation would let them
finance into conventional mortgages.
Well, we are seeing lots of prices closer to 04 then 07, and that's got a lot of people trapped looking up at the waters surface.
Now either incomes dramatically increase around here, or prices decline back towards 2002 or 2001
pricing.
Right now we have a buyers bribe, FHA and super cheap interest holding prices up.
If a 30 Year mortgage rises 2 pts prices have to fall 16% or incomes need to rise 15%.
which scenario is more likely?
I want to get a house, but i don't want to lose 20% of my equity in 24 months.
@ pat
I'm a housing bear, but this will make me sound like a bull. I think one should buy a house when it is right for them and when the numbers work out (i.e. rent vs. buy calculation).
Given that, one should expect to lose money on a house, it's just a matter of how much and when. A house is an expense, just like a car. No one buys a car thinking gee I'll sell it in 5 years for what I paid for it. A car depreciates because it gets old and used up. A house gets old, used up and deteriorates; just at a lot slower rate (generally) than cars.
Even though economics is a hobby, it is mind-blowing to me that people in general have this feeling that buying a house is the path to prosperity. It defies logic and reason that without adding anything significant to a house that rots one can sell it in 5 years for more than one paid.
Without going into the reasons as to why prices do in fact rise (population increases-which cause land prices to rise, inflation). It should be obvious that one will lose money on housing. Inflation masks the money that is lost on housing making everyone "feel" wealthy.
Unless one has a house paid off one is still renting to an extent. Lose your job and quit paying your mortgage to find out who really "owns" the house.
One has to figure out what the goal is . . .is it to own a mortgage or to own a house. Once you've got that figured out it makes the other decisions a lot easier.
The real path to prosperity is to not have a mortgage but to own outright. Just imagine the possibilities of what you can do with that 25-35% you spend on rent/mortgage. Imagine the higher standard of living, etc.
Most people can't see that and will gladly leverage themselves away and still have a mortgage in their 60s when their earning power starts to diminish and then they are reduced to using SS to pay their bills, how very sad.
My goal is 10 years from today to own outright.
gte,
Last I heard, about 40% of homeowners own free and clear.
While your argument that a mortgage is an expense, the same as rent, there is more to it. As time goes on, presumably, a mortgage becomes cheaper in cost due to inflation. Rents increase for the same reason.
Yes, RE taxes will increase with inflation and there will be maintenance costs. An owner will eventually pay off the mortgage, a renter never will. RE values increase with inflation.
The underlying question becomes: are you better off leasing and putting any (purported) savings into another vehicle? I don't believe that there will be a "savings" in the longer run.
gte811i,
A key difference between your car and house comparison is the land associated with the house. Land doesn't necessarily depreciate, and can greatly appreciate, particularly for two reasons relevant to our area:
(1) if the neighborhood improves, houses in that neighborhood also tend to increase in value even if no changes are made to them; and
(2) land close to areas where people need or want to be (e.g., near jobs) is fixed in quantity, but if the population increases (or the ability of people wanting that land to pay for it increases), chances are that demand for that fixed supply will increase also, pushing up housing prices, everything else held constant.
This is not to say housing always goes up (and obviously factor (1) can go in either direction and factor (2) can change)).
GTE:
The point of owning is to eliminate housing expense in the future.
Ideally a house is the net present value of the mortgage/Insurance/Maintenance/Taxes over your expected life vs the NPV of Rent.
You are right that a mortgage is an inflation hedge, but, bear in mind inflation kills people on fixed incomes.
Imagine being 65, retired and seeing 10% CPI, eating away our savings.
Nope, if you have a house paid for,
you just get screwed on energy, taxes and maintenance.
As for Roberts Bullishness, heres
another one.
http://wamu.org/news/
January 01, 2010 - Arlington was largely insulated from the turmoil of the housing market crash because a large chunk of its tax base comes from commercial properties. Jay Fisette, the new chairman of Arlington's County Board, says commercial real estate values in Arlington could decline by up to 20 percent this year. And that means lots of painful cuts. "We're likely to take a little bigger hit than our neighbors this coming year," he says. Fisette, a 12-year veteran of the Board, says increased tax rates and layoffs of County employees are imminent. But he also says Arlington must find efficiencies in its budget by consolidating County and school operations: "We have very little land in Arlington. The schools have a lot of buildings." One area already in Fisette's crosshairs is IT. "We have a technology system and infrastructure in place, as do the schools," he says. "I think there are probably significant opportunities for savings, efficiencies and better service." Fisette says he will try to preserve programs for affordable housing or energy conservation.
Those cuts in services mean a cut in real estate values.
Spider,
"rents are affordable" at current pricing. Investors are buying due to this fact; positive cash-flow. This represents a "floor", does it not?
Why do you constantly state that everyone HAS to sell or HAS to leave the area? People in the crash zones could not afford to own and that is why there are so many forclosures on the low-end. They rented prior and are renting again. Why, exactly, do they have to leave the area?
The change is that investors are the new owners. Rent is cheaper because 300K houses have been selling for 100K or so.
Although a lot of gte811i's points are valid (e.g., that many people don't think through homeownership's full costs, some overspend/invest in housing, etc.), I agree with VA_investor (although I don't think the figure is quite 40% yet).
Also, Consumer Reports (hardly an RE pumper) recently encouraged people to own homes as a part of planning for retirement, based on their survey of retiree wealth and satisfaction.
Even if you don't have the house completely paid off as quickly as you intend, generally--though with many exceptions that we all know about--you will be building a lot of equity (wealth) that renters don't build. Very few people put the equivalent value of the money into savings or other investments--that's the crux of the problem. They either don't have the money, or they have it but spend it on other things. So that retired person on SS will have to make a (larger) rent payment just as the homeowner would.
Many people who take out mortgages that they carry into retirement have pensions (especially around here - a lot of federal workers retiring now still have defined benefit plans, the best kind) and investment income in addition to SS.
Actually, Pat, as an Arl. resident, I agree with Fisette that they probably have a number of areas where they can make cuts (and they have already raised fees and begun ticketing people like crazy). They greatly increased spending during the bubble. And the cuts they will have to make won't cause any more pain than the pain in competing areas such as DC and Fairfax Co. So all of the areas may lose value together if any do.
gte,
I have posted on this subject before as well. But, here is what I think:
Land should go up in line with income growth. Construction should depreciate. Real Estate (Land & construction put together) should under-perform the wage growth. Most (if not all) bears seem to completely understate the depreciation in RE because of this.
This is exactly why RE is probably the poorest choice of financial investment one can make even in a normal market. When you add the current freakish-valuation in that mix, it gets worse.
My comments are specific to a pure financial decision, I can't measure the emotional value one can derive out of so-called "American dream".
gte811i
you've got it right on!! I agree 100% with you. No one truly owns their own home just because they live in a house that they have mortgaged. Many people believe they are doing well, but don't understand how much more than can save if they didn't have that monthly mortgage payment, car payment etc. Paying cash is the best way to go for things, I do think a mortgage is a necessity to many (including myself).
Quick question:
Is there a site that has listings in the area for homes that are for rent? Or even rent to own? What are your ideas on rent-to-own homes?
This is exactly why RE is probably the poorest choice of financial investment one can make even in a normal market.
The poorest investment that defines your commute to work, the schools your kids go to, and the safety of your neighborhood. Hilarious.
Wunderbar
Many realtors also handle rental homes. Pick your favorite realtor and ask.
Online, for example, pull up the Long and Foster main page and click Renting on the top toolbar, then select your price range and area.
I also use Yahoo Real Estate. It doesn't really have a rental category for houses (just apartments) but you can cheat.
Select homes for sale, then narrow your price range to under 3,000. Pick your area, number of bedrooms etc. I have found this to be pretty successful.
Rent To Own homes are not common but you can find a few. My understanding is that many/most of these are FSBO.
Check out
http://www.jscinvestments.com/avail_va.asp
I am in the camp that believes you should own your house free and clear by retirement, at the latest.
I also have serious doubts that renters are actually saving much of the rent/own differential. And, how long does/will this differential hold water?
As far as houses depreciating, this is comical. My last house was built in 1918. What do you think the remaining useful life is on that house? Given what I've read here, it should have been bulldozed decades ago. In fact, 80% of the houses in the town I grew up in should be worthless due to depreciation. Those grand old victorians.
Although the IRS puts out depreciation schedules; is anyone really foolish enough to think a house is worth nothing after 27.5 yrs? And no, I am not disregarding maintenance and occasional upgrades.
My current house is over 15yrs old. I guess I am half-way to land value only!
Wunderbar -
Also, another tip. Google Propery Management and then your town of interest or just Northern Virginia. When you pull up the Property Management webpage look for Rentals or Properties or similar. This should pull up some current listings. The biggest Property Managers will have much of the same info as found on Realtors home sales sites, such as a description of the property, maps, schools, etc.
This info should let you do a lot of rental property comparisons online.
Good luck. Hope you find what you are looking for.
Did anyone even read the WaPo article.
Even the bearish (to say the least) Mark Zandi is quoted as saying that these bidding wars and investor buying is evidence that prices are fairly valued or, even, undervalued in this area (meaning, I would guess, the lower 1/3 tier).
"leg-down" for under 250-300K? I doubt it. I realize most of you are looking at much higher price points and the article is not relevant to you. Just signs of stabilization (and a continued economic upturn - however slight) will bring people off the sidelines in the mid-upper range. My guess.
wunderbar-
I have found craigslist as a great place to find places. Even if you want to use a professional it helps you find what comparable places are renting for.
"As far as houses depreciating, this is comical. My last house was built in 1918. What do you think the remaining useful life is on that house? Given what I've read here, it should have been bulldozed decades ago. In fact, 80% of the houses in the town I grew up in should be worthless due to depreciation. Those grand old victorians.
Although the IRS puts out depreciation schedules; is anyone really foolish enough to think a house is worth nothing after 27.5 yrs? And no, I am not disregarding maintenance and occasional upgrades.
My current house is over 15yrs old. I guess I am half-way to land value only!"
You DO realize that isn't how "depreciation" works in this context don't you?
There is depreciation for tax purposes and there is depreciation as an asset's useful life is expended through normal use.
The depreciation tables the IRS uses are arbitrary and are only for accounting purposes. Just because something is fully depreciated doesn't mean it is somehow "scheduled" to be worthless.
Are you being deliberately obtuse or did you really think anyone was suggesting otherwise?
Going back to houses... houses require maintenance and updating to maintain their value.(disregarding fluctuations in land value)
A house built in 1918 that had never received any maintenance would indeed have collapsed into a wreck long ago once its original roof caved in. (Among other things.)
Even a 15-20 year old house that was fully up to date when brand new can look dated and worn when viewed by a buyer today if it has not received any updating.
If this still doesn't make sense...
Imagine a house in the middle of Kansas somewhere far from anything. Imagine it was built in 1989 but has since received nothing in the way of maintenance or repair. The roof is 20 years old, the porch is rotting in places, doors don't open and close smoothly because of settling, paint is chipping, a window is broken, the original air conditioner ceased functioning 5 years ago... etc etc
Now imagine a similar house down the street and equally distant from anything of any consequence. The second house was built to the same blueprints by the same builder, in 2009. Its roof is new, its paint is new, etc etc etc.
Which house is worth more?
The only point GTE is making is that once you remove land from the equation houses lose value over time, unless additional money is invested in their upkeep/updating.
Hence, they depreciate...
"This is exactly why RE is probably the poorest choice of financial investment one can make even in a normal market. When you add the current freakish-valuation in that mix, it gets worse."
You are leaving a few key things out of your equation here.
Leverage and taxes...
A real estate investor can achieve levels of leverage that most investors can not. (Try borrowing $500,000 for 30 years at 5% to invest in the stock market...)
The federal government also gives huge tax advantages to those who hold mortgage debt.
This combined with the fact that houses do provide a necessary service means that real estate investing most certainly can be worthwhile(if not a high-return investment), even in areas where land prices are stagnant.
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