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Wednesday, January 19, 2011
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47 comments:
Ace,
Interesting info that you posted from the Home Builders conference. I think we have heard this loud and clear from the younger generation. Whether these desires simply coincide with the delay in marriage and starting a family is something to consider.
That cohert is larger than the boomer's. What I believe is that demand for walkable "cool" neighborhoods will increase over the next ten years. I do question whether this will peter out once marriage and kids happen.
I certainly would not place heavy (or any) bets on the exurbs, but believe that heavy job centers should not be ignored.
All of the new buyer's in our neighborhood have been early to mid 30-somethings. Granted, Reston is not "the sticks" anymore. It remains to be seen what the silver line will do.
Reston Town Center has created alot of demand from the younger crowd. While it's not Ballston, it is affordable and desired by Gen x and y.
When we were in our 20's we looked at Capitol Hill (too sketch at the time) and Old Town Alex. We always thought that a move would be required once kids came along.
Perhaps this has changed and I think we would have been happy in Arlington or Bethesda. This should inform those looking to buy now.
p.s. hating life lately with this cold weather and large house. It just won't get warm. We aren't ready for a TH yet...but if the right opportunity presents we will be at RTC.
VA-
I wonder if a higher percentage of gen Y will end up without kids than previous generations. The age people are getting married keeps on getting pushed back, at some point it just becomes difficult to have children. I am also pretty sure fewer people are getting/staying married. I would assume these factors could lead to fewer kids and more people who could permanently stay in urban areas. I am sure there will be enough people that the suburbs stay fully populated, because the population continues to grow ~1%/year, but I would not be surprised if the percent of people in urban areas rises over the next couple of decades.
"I do question whether this will peter out once marriage and kids happen."
one look at the Arlington walkable neighborhood mecca - Lyon Village and your question is answered.
hb,
Number of kids has clearly declined. I am one of three and my husband is one of eight. We have one. I think two is about the average in my neighborhood. Hard to justify 5 bedrooms and 4.5 baths.
VAI -- regarding whether this will "peter out" when kids happen, the answer is yes, but it is mitigated by 2 factors:
The first is as you & HB note, there is a larger portion of the population that has no kids (either by choice or by circumstance) than before.
The second is that even if "all" people did eventually have kids and move out to the burbs, the mere delay of having kids (thereby spending more time in the walkable areas) is enough to sustain a trend.
For example, suppose there were 100 houses in walkable neighborhood X, and in 1990, the average turnover was 5 years per house. This would mean in any given year there are 20 households moving out and 20 units available for new couples to move into. And back in 1990, presumably you got 20 new couples a year moving in, thereby perpetuating the 5 year cycle and keeping things in equilibrium.
Now, say that in 2010 you still have 100 houses in walkable community X, but because people are waiting longer to have kids, the average residency is now 10 years. If so, there are now only 10 units available in any given year to be bought.
However, just as it was in 1990, you still have the same 20 couples a year who want to move in, but only 10 places for them to buy. Now you have a shortage, and the basic method of alleviating a shortage is for the prices to rise such that only the 10 who are most willing to pay for it are the ones who get the places.
Thus, even if everyone did eventually have kids and move out, that alone wouldnt be enough to cause the premium to peter out. The mere delay of a few more years to have kids, combined with the same # of houses as before and same # of households as before that want to move in is enough to sustain the premium, presumably for as long as the trend to delay childbearing continues.
Anonymous,
I also think you should consider that more households are being formed. With people waiting longer to get married and have children, you have a lot more single heads of household.
And it is these single, younger people that want the hip/trendy/walkable neighborhoods. I would imagine there are some empty nesters that want that too.
All in all, this puts upward pressure on the established, safe, trendy, walkable neighborhoods.
My $0.02
All,
I agree that we will see sustained demand for trendy, walkable locations - and this is/has been where I've been placing my chips on rentals. Ballston numbers don't work for me, but other promising areas do. Even future downsizing plays into this.
VA_I,
What about Ballston doesn't work for you right now?
I still think the 2 bedroom condos need to come down to about $400k at the top end for the numbers to work.
My $0.02
When you pay rent, you are paying your landlords mortgage
http://patrick.net/housing/market.html
To me, it's a matter of do i rent the money or do i rent the space?
I am paying my landlords mortgage, that's true, but, it's still significantly cheaper then when I looked at condos.
frankly,the whole smash is nothing but madness, are there better deals?
Yes, but if VA_I can't make deals pencil out in Ballston, that should be a warning sign for Ballston.
I would like to buy a place, but, until the Fed returns rates to normal, or the foreclosure backlog clears the market will be iffy.
I'm still looking, and I see a great deal where I can live and my GF can live for 10 years, we will buy it, but, without it,,,,
It's not like i rent in shitville.
would've been happy with either - both buyers got a good deal:
from 4/22/2010 $759,500
to 1/6/2011 $620,000
from 9/15/2010 $679,000
to 12/16/2010 $615,500
but how come my low-ball offers never worked?!
MM-
Maybe the first house was a lowball offer. The second house was definitely not a low ball offer? The offer was only ~4% lower than asking price. Sure the house came down in price multiple times, but that was available for everyone to see.
Blog:
"The best evidence that we're headed for a double-dip in housing is the quality of the mortgages during the recent period in which the housing market seemed to improve in many areas."
"In the Freddie Mac review of Citigroup’s performing loans that I mentioned earlier today, the portion rated as “Not Acceptable Quality” was as high as 32 percent in the fourth quarter of 2009. While this has obvious implications for the repurchase or "put-back" liability of Citigroup, it also has broader implications for the housing market and the economy."
"Keep in mind that the quarter in which Citi was churning out the highest amount of flawed mortgages was supposedly a good time for housing."
Now there have been indications in the past that a mini-housing bubble was being built during that period. The Federal Housing Authority, for instance, was backing some very questionable loans. The home-buyer tax credit was allowing individuals to buy loans with no money down. All the bad practices of the 2005-2007 bubble seemed to be back again.
"And now we know that this perception was correct. Mortgage quality had fallen off a cliff."
http://www.cnbc.com/id/41133468/
MM,
I don't believe the first house was very good value at all. It is pretty close to 66 and the above ground Orange Line Metro at that location. Sure one gets used to noise but I've looked at homes in that area just a few dozen yards from the metro and it gets loud when the trains go by, let alone 66 road noise.
The kitchen doesn't look particularly updated. Which makes me wonder about the bathrooms. There's also carpeting in the basement, not a bad thing, I just personally don't like it that much as I always worry about water getting into basements.
I would have expected that house to fetch at least $80k less.
My $0.02
housebuyer,
i agree it's not particularly low-balling but consider the fact the the contract was presented few days after the last price drop the seller was accepting a number a lot less than a few days ago.
mytwocents,
comps to support $80K less?
MM,
Just a few with a quick search. Granted I'm not looking too closely at how recent these are, but over $600k for a 3/2 brick colonial in 22205 is over priced in my opinion.
http://franklymls.com/AR6917060
http://franklymls.com/AR7275826
http://franklymls.com/AR7296168
http://franklymls.com/AR7359690
My $0.02
I just spoke with a large volume reo lister. He said that there is very little in the pipeline for NoVa. Most reo's in VA are in the south or way out in Clark, Fauq., etc.
fwiw
Inventory remains low across the board. FX is well off of December numbers. I have a feeling that the first warm weekend is going to bring out a ton of buyers with little inventory to look at.
MM,
A few more:
sold 6/10 - http://franklymls.com/AR7304427
05/09 - http://franklymls.com/AR6998538 (I toured this house and thought it should have gone for about $50k less at least. Can't peg them all)
sold 4/30/10 - http://franklymls.com/AR7265460
sold 12/09 - http://franklymls.com/AR7193847
My $0.02
"Pat said...Yes, but if VA_I can't make deals pencil out in Ballston, that should be a warning sign for Ballston."
Pat -- im curious when you use words like "warning sign", what do you mean?
Presumably versus the rest of the area, you find Ballston overvalued and it thus will fall. So how much does it have to fall to turn that "warning sign" off?
5%?
10%?
20%?
40%???
I know you may not have thought of it this way, but this is a serious question. I ask because I hear words like "warning sign" from you all the time, but I have trouble quantifying them numerically.
For example, if you thought ballston had to drop 30%, I think most of us would agree that it is indeed a "warning sign". However, if you thought ballston should drop 5%, I think most here would greet that with a "meh -- who cares".
So which one is it? Is it something where we all agree (ballston is 5% overvalued) and we just call it different things? Or is it that we disagree greatly over how much its overvalued and thus you see a "warning sign" where the rest of us see "close enough"?
Again, I would appreciate a numerical value in your response. Thanks.
"$0.02 said...I also think you should consider that more households are being formed. With people waiting longer to get married and have children, you have a lot more single heads of household."
Good point.
mytwocents,
i don't think ANY of those are true comps, or supportive of the $620-$80=$540K price.
but each to their own.
Anon,
Just for the record, I don't agree with pat. Some areas/price ranges never pencil out and never will.
So why would anyone buy there? They buy because they want to own and/or think prices will increase enough to offset money saved with a lower rent.
I bet if pat asked reecon when his purchases in Arl. were made, it would explain his cash-flow. Rents increase while a mortgage is fixed (except for taxes & ins). So in 5 or 10 yrs a purchase made now in Ballston may pencil out.
http://franklymls.com/AR7460525
sells for 352K, assessed at 480K,
25% down from bubble assessment.
Now interesting, it sold in 92 for 118K so in 18 years it went up 3X.
or approximately 12% a year
somebody bought in in 97 for 120, so
that had gone nowhere for a while.
MM,
I'm curious as to why you think none of those homes are comps? The first home you linked to was a brick colonial. It looks, from the limited pictures, to be the smaller variety as well. I just don't see how that house differs significantly from some of the other colonials?
Is there something I'm missing?
My $0.02
Cheryl
What I mean by a warning sign, is sort of context to what the numbers actually are.
If Cap rate is 3%, then, eah, thats a warning sign to me that i can expect to lose money for 4-7 years while rents take time to catch up.
that means i should expect to lose 1-2 months rent net that year. Not something very appealing to me, because i figure a 10% vacancy rate and a 5% maintenance figure.
if the Yield on a property is negative, well, how negative? $50/month after vacancy? I can deal with that. $300/month after vacancy that may get ugly.
If the rent vs buy number is upside down by a couple hundred per month, i figure that at some point prices will decline.
It also depends upon the property and the market. In a place like georgetown, a town house well, there are very few places you can build more townhouses in GTown, so,
the market won't shift on you.
But a condo in Ballston, say the cap rate is 3%, and, the rent vs buy is underwater $400/month and
the Net after debt is $-80, well,
i think it's going to lose15-20%, easy, because in Ballston, there are lots of places to stick up another condo tower, and lots of places to expand vertically.
it's what makes condos so troublesome.
the good thing is the buyers bribe is over, that veil over the market is clearing up.
Look, we all agree the Hyper bubble is over. The question is what's the remainder, if you look at C-S, you see, we are about as inflated as when the 89 bubble popped or the 78 bubble popped.
Those were much smaller bubbles,
Bernanke, Paulson and Geithner kept the last chunk of the air in the bag.
Hence the Buyers bribe, the doubling of FHA Jumbo mortgage sizes
and Buying all those cruddy mortgages up.
Now where will this all show up?
Who knows, I never thought the fed could print $23 trillion, but they did.
I was appalled the Treasury guaranteed all that cruddy Fannie paper.
Now what's the downside risk?
Median Income/Price is a problem,
Rent vs Buy is a problem.
Will the GOP print money like mad, or will they try to strangle Obamas purse? Who knows.
I do know we want a place we like in an area we like. Everything else is in the weeds.(Of course, my idea of like is a bit different then
others here).
now when i see 2 BR units in DC at $50K, that's a great deal. When i see 2BR units in Ballston for $380K,
well, I think the two are going to normalize.
pat,
DC vs Ballston? How about Georgetown vs Germantown or Old Town vs Dumfries? What do you mean by "normalize"?
Also, you can't throw out numbers for an acceptable negative without putting them in context. The price must be considered.
yippee! not too far from '04 prices now (add them to The Anonymous' who cares about a 5% drop category):
9/15/2004 $655,000
1/19/2011 $665,000
3/9/2005 $620,900
1/7/2011 $610,000
9/6/2005 $680,000
1/12/2011 $670,000
patience, grasshopper. :P
pat,
I also wanted to add that new construction is highly unlikely to cost less than current inventory.
I've been told that new construction close to the Wiehle metro station will be significantly more expensive than "older stock" due to significantly higher land and construction costs. I would imagine the same is true for the Ballston corridor.
mytwocents,
some are 2/1s or 2/2s; i just don't think they're comps for 3/2s, and even those sold at or around $540K.
one was sold in june 09?
and i'm nitpicking here - but i don't think 3/1 upper lvl + 0/1 main/lower lvl are comps for 3/2 upper lvl. to banks, maybe, but to a buyer like myself, no way.
again, each to their own.
MM,
I know that first house. I drove past it hundreds of times in the early 80's. You could probably hit the metro with a rock.
Nicely staged.
Anonymous I guess I just have one question about your sound analysis of housing supply in urban areas. In 1990 much of today's multi-family rentals, condos and townhouses were just being built in Arlington's orange line corridor. The supply of housing in that corridor has increased significantly since then as -- in many cases -- older single family houses were being torn down and replaced by townhouses, condos and multi-family rentals. I don't have any hard numbers, but I think there is probably more housing in that corridor than there was in 1990.
VA Investor I don't own any rentals in Ballston but I do own the 1 bedroom condo next to my 2 bedroom condo in Rosslyn. My wife always thought we would combine the two units when we retired so that we could each have an office but we never have bothered. We have had the same tenant since we bought the place in 1984. The only things he has let us do is replace the dishwasher, refrigerator and the heat pump about 5 years ago and at our insistence. We raise his rent about every 2 years because he is always anxious to have a new lease. It is still about $400 below market. Not only did he pay off the mortgage for that unit but also helped us pay off the mortgage on our own condo. We see him occasionally in the hallway but otherwise we don't hear a peep from him. The front desk guy said he heard the tenant was retiring so he might move after that.
contrarian,
Inventory down 17%yoy in FX Cty
Prices up 6.9% yoy
Oh, the horror.
Better reread the release.
Whoops,
Inventory drop of 17% is MOM (not yoy). YOY drop in inventory is 4.7%.
Lower inventory and higher prices.
Not none, but not much.
Contrarian-
It is pretty impressive that no matter what the news is you can put a negative spin on it. If inventory is down it is because banks are hiding houses and will soon dump all of them on the market driving housing down. If inventory is up housing prices will fall due to high inventory...
In reality banks are not intentionally holding back foreclosures, they are just slow at processing them because they don't have enough staff and don't want to get into the robo signing problems they got into last year. Banks processed a record number of foreclosures last year, they will probably continue to break that record for the next 2-3 years, but it will not cause a huge dump of houses. In this area they will likely continue to trickle out at a relatively normal slow. People would respect your opinions a lot more if you actually admitted when some news is bullish rather than just finding bearish news or finding bullish news and calling is bearish.
Reecon -- thats probably true. Im sure the # of housing units in that area has risen quite a bit in the last 20 years.
If so, in order for my reasoning to work, you would have to have increased demand (to match the increased supply) as well as the longer duration per unit. I think this is likely (per the census numbers CRT used to post) but I will admit, I dont have them handy enough to verify.
Reecon,
do you own in Odyssey? do you think this listing is seriously under-priced? my friends own a 2/2/1 (10% more sf) and i believe they paid close to $1MM for it when new.
though it sold in 07 at similar price. i wonder what the story is.
MM-
I would doubt that it is significantly overpriced seeing that it sold for less when it was brand new in 2007. Do your friends have a better view? It looks like the view from their apartment is directly at another building. I would imagine the top floors looking over Arlington would pay significantly more for the view.
"Pat said...But a condo in Ballston, say the cap rate is 3%, and, the rent vs buy is underwater $400/month and
the Net after debt is $-80, well,
i think it's going to lose15-20%, easy, because in Ballston, there are lots of places to stick up another condo tower, and lots of places to expand vertically.
it's what makes condos so troublesome."
Pat -- while your reasoning has developed leaps & bounds since you first got here, you are still missing a piece of the puzzle.
Remember, a highest best use of a big vertical building is not just as residential condos. Most of these buildings compete for use with hotels and commercial offices.
For example, a shiny new class A commercial condo in Balston will fetch $40psf. Even at $37-38psf, a sale price for 1200sf space would be 555-570K.
Thus in lehmans terms, if I (as a builder) cant get at least 555K for that same 1200sf as a residential condo, I will just build it as a commercial one, and get my 555K.
Now, will a 550K 2 bed 2 bath residential condo "pencil out" as an investment. I dont know, nor do I care. All I know is if people want to live in these places, they have to pay to play. These people have to pay enough of a premium to incentivize the landowner/developer to build it as residential vs commercial space.
Anon-
I am confused with your numbers. I assume psf = per square foot. If so are you somehow converting annual rents to the value of the building. I don't know much commercial values psf are converted to the building value.
You would have to look at Arlington's Master Plan to determine the likely-hood of commercial vs residential.
The developers are definitely back. I'm reviewing an offer right now on a place I have an interest in. The existing development will be torn down and replaced with much higher density, but it will remain residential.
The offer is almost 2x current value and twice the 2003 purchase price. Not fantastic, but good enough given all the circumstances.
p.s. all of the sudden there is nothing for sale vs you could hardly give away a place a yr ago or even 6 mos. ago.
Anon
Commercial is the most rational investment in theory, as it's all
$/SF, and Class A,B,C.
Now how it works out, is can you rent the space, get leases, make the Discounted cash flow make sense, and
the ROI to something reasonable.
Now where, and how that's all the rest.
The deal is Commercial, Retail and Flex do complement and substitute.
Overall Retail, I think is wildly overbuilt, we have way too many strip malls for america, and, that is going to overhang into CRE.
It's not real efficient, but a strip mall can become Class B office space quickly or even flex space. A lot of that will happen fast this year as Extend and Pretend collapses and reality hits home.
Now, Commercial versus Apartments,
you say Commercial rents for $40/PSF, but as the WSJ notes
"Nationwide, effective rents fell close to 9% last year to an average of $22.44 per square foot, Reis found. It was the largest annual decline on record. Meanwhile, the vacancy rate rose to 17%, the highest since 1994.
Washington's ascent may be shortlived, Mr. Bach notes. While Washington may remain strong relative to other cities, Mr. Bach said the city has a large amount of new construction under way, which could depress the market eventually."
Vacancy rates are low here, currently but add a couple projects on, and what happens?
The DoD is moving out of Crystal City into Fort Belvoir. The
Other agencies are headed into the Mark Center ( A hellish nightmare)
How does that reprice things?
The other thing is Ballston to Rosslyn has lots of growth, both infill lots like where Dremos was in Courthouse or the south side of Clarendon Blvd.
What will happen? Who knows.
Do you want to buy a condo at $200/SF when new ones can come in at $150/SF?
certainly the silver line will establish new projects on that end.
Me, i'm looking along Columbia Pike and in DC. I prefer Arlington, i've been here long enough, I find i'm burrowed into the social fabric much more then I anticipated when I first started renting.
I guess the big issue is E&P has been floating a lot of CRE, will
that stop?
HB -- yes psf = per square foot. Also, in commercial rents are commonly expressed in dollars per square foot per year. Thus, if rent in an area was $40psf and you wanted to rent 1000sf the calculation is thus, $40,000 annual rent - divided by 12 = $3,333 monthly rent.
Pat -- while thats all fine and good, I dont know how any of that refutes the idea that Ballston doesnt pencil out, nor does it need to -- and in any event is not a "warning sign" that Ballston will "lose 15-20%, easy".
The fact of the matter is rates are what they are, and in ballston they are high (and incidentally rising again). Given that fact, there is zero evidence that the stability seen in that area over the last 5 years will suddenly turn into a scorching downturn (with rates dropping 15-20% easy) unlike anything seen there before.
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