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Monday, March 14, 2011
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31 comments:
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GMP is up 9%, while total employment is unch. Mix of jobs? More high paying government and professional services jobs and less construction and retail?
Robert-
I think inflation probably has a lot to do with it (assuming they are talking about nominal GMP). Core inflation nationally has been ~1-2%/year since 2008. My guess is inflation is a little higher ~2%/year, because we had a smaller recession (we also don't make food/oil here so core is what matters). If this is the case 3 years inflation would be ~6% of the 8.6% growth. So the remaining ~2-3% is probably from productivity increases. If the article is talking about real GMP, than you are probably right that it is the mix of jobs and productivity increases.
HB
I've seen all those places, not that buying a condo appeals to me, but,
lets run the numbers
#1 139K Nice price.
Now if i read hotpads right, it's advertising rents in the building for 1899-3040, I guess depending upon view
and side and unit size, so lets take a stab and call the rent at 2400.
so that yield appears to be 20%. Wow.
now lets do the analysis
139K, gives $913/Month PITI
(Assuming 5.2% interest and $600/Year Insurance).
add $739 Condo Coop Fee takes you up to $1650.
it's probably a nice building, but, what's with the fee?
But from an investment POV, it appears to Cash Flow,
Cheryl should look at this place.
Now, it's probably nicer then our rental, after all, it's a 2 bath,
probably DW/W-D, which is nice
but, it's jump up in effective burn rate for me.
If i were a little more cash rich,
it wouldn't be a bad deal.
#2 Nice cute place, been by, didn't like the layout, but, one could learn to cope, i suppose.
List Price 185K, That's generally affordable.
Rents in the immediate area are 935-1321, so figure 1150 as a ball park. (Close to my rent).
Yield is 6%, low but not crazy low.
PITI is 1199. HOA is 478.
so you pay $600 more. Now if you
had a high tax rate, sure, it's a
little closer.
maybe I should look at it again, but, i generally hate condos.
It Makes Sense To Buy — For Some
To sum up the past few sections, rock-bottom mortgage rates have pushed monthly payments so low that it may make sense to buy a home if you meet the following conditions:
You are buying a home that is reasonably priced on a historical basis compared to area rents.
You are very confident that you will be willing and able to keep the home for a long time (hopefully 10 years or more).
The bulk of your purchase will be financed with a fixed-rate mortgage.
,,,,,
For other potential buyers, it's a different situation. Those who would buy homes in significantly overvalued areas wouldn't be getting the historically low payments described in the prior paragraph. And those who would resell a property any time soon or pay for a home with a lot of cash wouldn't be substantially benefitting from the huge subsidy provided by lifetime-low mortgage rates.
Pat - You are assuming that the condo fee is stable. I'm no expert on condos but isn't it true that if there are a significant number of foreclosures or abandoned properties in the building that everyone else's condo fees are raised to cover them?
C
sort of. Condo Fees are supposed to generate Liens, so, ultimately they should pay back, but, the
Association runs on a cash flow basis, so it needs to either raise fees or borrow, until those are squared away.
but, yeah, it can build up, especially if the Bank does a "Fake-Foreclosure", they can offer
Cash for keys to the Home-Debtor,
thus getting effective control on the unit, and file the Default notices but never file the Trustee Sales.
Thus they can leave the property in the name of a person who left, leaving the liens in their possession, but, not refile title,
it's causing all sorts of hell in Florida and California as the banks
let the fees accrue to a long gone person, and they wait for the market to improve.
HB Says
"The chart you showed is missing two important pieces of information. One is how much the housing stock has improved from 1975-2010. I am pretty sure the average house is ~20-30% larger and the index does not adjust for this. The other important data is that the chart is missing the last three years of data. This would show housing prices falling another 10+% while interest rates were at all time lows."
HB
While i can't testify to the DC area, at least according to Liz Warren, the Median American home has actually increased by 1 room.
Now, New Houses have increased a lot in size, but if you look at the DC area, you see a boatload of older homes.
One of the real fallacies of th bubble was that house prices were increasing to reflect Value.
what it was is $/SF shot up dramatically while size grew marginally.
as for the last three years, sure there was bubble deflation, but, why was Bernanke dropping rates to ZERO? Did he think low rates would be bad for housing? He was trying to reinflate the bubble.
Lower Rates for Higher prices...
Pat-
I agree with you that the bubble was $/sf. Although Elizabeth Warren admits houses grew by a room (probably a 10-15% increase), I would also think the average size of rooms has also grown slightly making the percentage increase probably more like 15-20%.
I don't think Bernanke was trying to re inflate the bubble, I think instead he wanted to slow the speed it was popping. Although I think the reason, he moved rates to zero was to make the whole economy more liquid rather than just help housing. Seeing that our country has massive debts low interest rates make everything more affordable for the total economy and keep inflation above zero (a very important thing).
financing contingency question:
we lost out on this house even though our offer was $5K higher. the LA said seller chose the other offer because it didn't have the financing contingency.
now we're ready to make another offer and my agent is giving me a hard time for wanting to include it in there. he said the sellers' perception would be that we're not sure we'd get a loan even though we have a pre-approval letter.
what do you think?
MM-
Do you want a financing contingency in addition to an appraisal contingency? I think you probably need to have at least 1, but probably not both. As long as your credit is good it is easy to get a loan as long as you have the cash and I assume you have the cash as long as the house appraises, so is there any benefit of having both?
tks housebuyer.
well i have only the cash for 20% down :). i'm not sure what's the purpose of having two either, but it's what i've done the whole time.
HB says
"I agree with you that the bubble was $/sf. Although Elizabeth Warren admits houses grew by a room (probably a 10-15% increase), I would also think the average size of rooms has also grown slightly making the percentage increase probably more like 15-20%. "
Um HB
In DC Proper, how many new homes were built in the last decade?
3%? 5%? most of the housing is
older, sure there were some new condo projects, but how much?
even if 10% of the housing units were new, and even if they were 30% larger, that affects the median by 3%...
can you show me how the median moved much?
Actually Pat, if they tore down a crappy house that was 30% below mean to put up a new house 30% better than the mean then that doubles your estimate, right? The new homes are both bigger AND nicer/newer than the homes previously at those locations.
Pat-
I assumed when you said the DC area you were talking about the metro area not just DC proper. So sure in DC proper there were not that many new houses, because the population has been flat for decades. On the other hand the population of northern va has grown way faster for example the Fairfax population in 1970 was 455K, now it is in 1.1MM. Loudoun's has gone from 37K in 1970 to 312K. So if you take the massive population growth plus the fact that a bunch of houses were torn down and replaced with new ones in this area I would bet you that the average house size in DC has increased 30+% in the time frame Elizabeth Warren is talking about. As Jeremy also pointed the houses have also become nicer. So yes a lot of the bubble was people over paying for houses, but a lot price gains were from improvements in the average housing stock. Looking at the median price as the housing stock improves isn't an apples to apples comparison.
http://www.bubbleinfo.com/2011/03/15/shiller-on-bubbly-markets/
shiller on bubbly markets
HB
If you concur DC didn't have much population growth and much new construction, but DC was the
"Ideal" market for price growth according to CRT's numbers, DC
is the best example of $/SF growth
vs House size growth.
and also while Population grew in Fairfax, household size didn't grow.
yes new houses were added in fairfax but they were a spectrum of
townhouses, condos, and SFH's.
Dr Warrens' data was national and
indicated houses just didn't get much bigger.
DC was no different.
Pat-
I agree DC went up in $/sf, but this is mostly because people think it is a lot more desirable. When I grew up here most people I knew wouldn't step foot in most of DC after dark. Now most of the city is nice. Almost everyone I know who lives in the nice areas has also made there house significantly nicer in the last 10 years. The houses are falling apart in the areas you are looking, but the nicer areas have been updated very nicely.
Dr. Warren said the houses increase by 1 room, this is ~15% and she didn't mention size, my guess is that the size of the average room has also increased. Also this is the average nationally. Northern Va's population has grown much faster than the national population thus more new houses and a larger growth in the housing stock. Also most new THs around here are ~2200 sq. ft., which is much larger than the average house from the 1970s.
I think it is pretty easy to see that houses have grown. When you look at areas with a lot of houses from the 60s-70s like pimmit they are ~800 sq.ft. but when you look at lots of areas with new houses like Loudoun they are more like 3K sq.ft. Even while driving through Arlington you can look at a house and the ones from the 70s are tiny compared to the new houses. Hell even most of the condos are bigger than the average house from the 1970s.
HB, I don't have data regarding the general point you're making, and I don't dispute it.
However, regarding Arlington, I would be very surprised if the median size of new condos and townhouses is anywhere close to 2200 square feet. And while SF new houses are huge compared to existing homes (e.g., 3000+ sq. ft. above ground vs. 1700), there aren't that many new houses in Arl., compared to houses in general. Even if you look only at SFHs currently for sale, new houses are a very small proportion of all of them, though they are a larger proportion of houses over $1 mill., but this category is probably less than 15% of the total market in Arl.
I would bet that similar statistics hold for Alexandria, and eastern parts of Fairfax Co. and Falls Church City.
Now, maybe this set of homes is a small proportion of all NoVA properties.
Pat your $/sq ft argument fails to take into account the fact that an identical house built in 1960 vs that same exact house built today would have different $/sq ft values. Newer houses are just worth more. All the structure/hvac/plumbing/roof/etc is new and has much more life left in it than the old house. Not to mention the lack of asbestos and lead paint.
Jeremy,
How many houses in NoVA built in 1960 (or older, or even as late as 1980) still have their original systems? Most owners will have replaced the things you described and more (e.g., windows, doors, appliances), possibly multiple times since 1960. And the quality of the original construction (e.g., walls, supports, all brick exteriors) is generally superior for older houses than for ones built since, say, 1970.
Ace-
I agree the condos are much smaller. The average condo is probably closer to 1000 sq.ft., but most of the THs I have seen that were built in the last 20 years are ~700 sq.ft. on each of three floors. You are also correct that Arlington does not have nearly as many new houses as the other areas in NoVa. Even in the 70s there was not that much open land in Arlington compared to most of NoVa, which was practically farm land.
I just checked the Arlington population and the reason there are so few new houses, is because there are so few new people. Unlike Fairfax and Loundon which grew 2.5-8x. Arlington's population only increased ~20%. So I think I am correct that the newer houses are larger, but there just aren't many compared to the growth in the surrounding countires.
1970 174,284
1980 152,599
1990 170,936
2000 189,453
2010 207,627
The numbers I put at the end of my last post was Arlington's population each decade. I am actually amazed that even with all of the condo buildings the population hasn't increased that much.
Has no one considered that there are a ton of homes in North Arlington with popped tops and large two story additions? They're everywhere.
My $0.02.
Mytwocents, there are houses with additions, but large two story additions and popped tops are a minority of houses in Arlington. And some of those additions are well over 20 years old, though they may have been reno'd on the interior.
How about amenities and community upgrades? Regarding Arlington; I happened to spend alot of time in the "Ballston Corridor" in the early to mid 80's. No metro, no redevelopment, bogus garden aparments, no nightlife (except maybe Whitey's). It is night and day.
Same goes for many areas of nova.
Does this have any impact on demand and land costs? In addition, new construction no longer includes vinyl flooring and formica.
Wage growth, upgraded neighborhoods, transit...so yes prices per sq ft. have increased and for good reason.
Ace,
I would be willing to bet that between 10-20% of the houses in 22203, 22205, and 22207 have had significant increases in square footage due to additions in the last 15 years.
As for condos, a lot of the luxury condos are anywhere from 900 square feet to 1500 square feet for 1-2 bedrooms. This is mammoth in my opinion and in some ways bigger than my brick colonial.
As for Ballston, there was an entire community of townhomes built in 1998 nestled in the area between 11th st, washington blvd, and Glebe rd. Actually on either side of Washington Blvd butting up against 66. I'm guessing they were at least 2400-3000 square ft. There was also the addition of massive 2 car garage luxury townhouses between Stafford/Stuart/11th st. Those are easily 3000-4000 square feet. Those went in right around 1999-2000.
Soon after, at least 5 more condo buildings went up, all targeting luxury living.
And this isn't counting all of the tear downs with McMansions.
Plus, in the midst of all the "doom", 10 new luxury single family homes are being added right off of Carlin Springs not even a quarter mile from the Ballston mall. Plus, there's the new luxury townhome community over on George Mason and Henderson road that just finished in the last 2 years or so. These are all likely going to be larger by a good margin than homes from the 1970's.
I could go on but even in the seemingly dense area with a half mile of a metro stop, there has been a ton of development leading to larger homes.
My $0.02
HB,
There are few townhouses in Arl. The land costs are such (especially now) that it's more profitable to put condos (or rental apartments) on the same land. Probably >90% of the housing is SFH and condos.
As I said in my post, I was not taking issue with your general point. And, I did not maintain that Arlington constituted a large proportion of the area's population or housing - not even if you included similar areas such as Alexandria city.
However, you threw in reference to Arlington in your final paragraph, regarding home sizes without noting how different conditions were there and in similar areas in NoVA. I thought that point needed to be clarified.
Mytwocents,
It may seem obvious, but 900-1500 is nowhere close to 2000 square feet.
And 15-20% is still a minority. A pretty small one.
I've been watching Arlington listings on frankly for a long time in the price ranges that involve major additions and tear downs/new builds - almost always checking square footage and updates. Anyone who thinks I'm way off is welcome to look at frankly including checking square footage of properties.
Anecdotally, I also live in one of the neighborhoods where there are plenty of properties in this range, and have friends in similar neighborhoods. Yes, there are new builds, and there are some pop tops and big 2 story additions, old and new. But there are nowhere close to even half of the houses that fall into this category. There are a lot of houses that are still the original square footage or some with 300 square foot additions. You see plenty of 1700-2000 square foot houses selling for $800K or more (generally updated).
Everyone can point to individual examples that support whatever point of view s/he has. But the question is: what is the proportion of housing the matches your description? That's where you need to look at the whole database to determine whether your anecdotes are representative.
close to 2200 square feet, that is--which was the number HB originally used.
I should have also emphasized that frankly of course includes only on the market properties and recent solds. By definition, sales/for sale are not going to be representative of all of the existing housing in the area, e.g., a higher proportion will be new builds.
Don't forget that 22204 and 22206, which have lots of smaller houses, are a big % of of Arl. housing in general and recent sales.
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