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Tuesday, November 15, 2011
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39 comments:
Out of curiosity, has anyone seen this commercial for Green Mountain Coffee?
http://www.youtube.com/watch?v=--WIvPHrzYs
If not, take 30 seconds and watch it. Apparently, this coffee makes prospective home buyers delusional, and after the seedy real estate agent gives them some, they hallucinate about how wonderful the house could be...granite...steel...views of sunshine and lollipops out the window...
I cant help but wonder, is this apparent hallucinogen is responsible for the bubble mania we saw 2000-2005? If so, you better be real careful next time you walk into an open house and the agent asks if you would like some coffee :)
The Anon,
I saw it the other night and thought it was ridiculous.
Definitely a candidate for www.commercialsihate.com.
I wonder what happens when the agent gives a cup to the seller?
I know a brand manager for Green Mountain. Perhaps I should relay these thoughts! Maybe this stuff is making me delusional! I do get a free case of the coffee pods every month - so I'll have to weigh delusion vs. free coffee.
Conforming loan limits ... on their way to being raised, again ...
http://www.housingwire.com/2011/11/17/house-approves-higher-fha-conforming-loan-limits
The best legislation that industry can buy!
Contrariann-
First I don't know why you would assume they are mostly in northern Va. I thought the southern VA housing market was hit very hard (aka VA beach/Norfolk...)
Second, even if most of them were from Northern VA they would be from the further out suburbs that have been hit pretty hard. (PWC, Loudoun...) Although some of the people on this blog live out there the vast majority live in Arlington/Fairfax, which has seen a far more muted decline in housing prices and correspondingly a smaller percentage of people underwater. I also think the its coming in thesis has clearly been debunked so although prices were crushed in the exurbs I don't think that has much implication on the closer in areas.
HB, it's all a matter of
what you define things as.
PG county has been totally crushed.
Frankly it's a great place for value shopping if you don't mind ignorant hillbillies and low rent minds.
Of course, there are people here who wax eloquently about Manassas, so it's a wash.
DC as a whole has floated well, but chunks of DC have taken a pounding, my block has seen property drop from 400K to 120K. it's rebounded in some cases, but, for anyone who bought in at too high a price, it really sucks to be underwater.
basically 3 areas have held up well. Arlington/Alexandria/NW DC.
I figure it just takes time for gravity to catch up.
Pat said...basically 3 areas have held up well. Arlington/Alexandria/NW DC.
I figure it just takes time for gravity to catch up."
Ahh yes, the immunozone, and the ol, "its moving in/it just hasnt happened yet" theory. It was, without a doubt, the #1 topic of debate on this blog. Mountains of data, thousands of posts, discussed over and over again in 2006, 2007, 2008, 2009...
Pretty much every single bit of info, without exception, pointed toward one conclusion, and one conclusion only...All areas basically move in unison. The only difference is some get hit harder than the others. It is NOT moving in.
Sure enough, early 2009 rolled around and thats EXACTLY what happened. Pwc, Lou, Ffx, Alx, Arl...hard hit...hardly hit, all of them bottomed and started to rise.
Predictably, many of our "its moving in/it just hasnt happened yet" deniers started dropping like flies. Yet even then (as a relative newcomer) you remained resolutely bearish.
You were asked if you were gonna be like Contrarian, destined to say "it just hasnt happened yet", continually moving the date of the implosion, further and further into the future, for the rest of your life.
Denying a "permabear" fate you came out with an end all be all date, saying in sum..."if it hasnt happened by 2012, it isnt gonna happen"...
It probably seemed like a safe bet in 2009. 3 years away, lotta sfuff can happen in the interim..."surely the immunozones will fall by then -- its impossible they just levitate for that long!!!" you probably reasoned.
Yet, here we are now on the eve of 2012, and your impossibility has happened. They have indeed levitated, slowly rising along with the rest of the area, now back close to their all time peaks.
You would think 2.5 years of being wrong on a 3 year timeline would cause you to if not capitulate, at least moderate in your view. Yet here you are, with no evidence to support this view whatsoever, still saying it just hasnt happened...yet!!!
You sure dont sound like a guy who plans to stick to that end all be all "2012 or bust" date. Lotta bustin that needs to happen between now and then to make the immunozone match up with the rest of the area. Are you going to start moving that date back say, to 2013, 2014, forever (always, just beyond the horizon)? I guess we shall see.
Dont get me wrong, perhaps we are all wrong. Perhaps the immunozones will suddenly implode while the rest of the area stays in recovery mode, proving that your stubborness was right all along. If so, count on me constructing, and then eating, the biggest crow in all of crowdom. That aside, you probably should consider starting to conforming your views to reality. (or accept a permabear fate and start coming up for excuses for why 2013, 2014, etc is the true implosion date).
Bottom line. Thank goodness for you, you bought in a hard hit area. If you were dead set on the "immunozones" or nothing, I suspect the latter of those would have been your fate.
Anon
Your theory if it holds true, whats the upside potential in the immunozone? Say a house in North Arlington? will it rise at 4% a year? 6% 9% 2% ?
Now whats holding up prices in the immunozone? Demand. Yep. Employment. Yep. Low interest rates. Yep.
Now Greece is imploding, will it spread? Will a european recession spread? I'd bet so.
now if i werent in school, i'd probably be orbiting. But school changed the equation.
pat,
If we experience another significant downturn in the local housing market, on what do you base your contention that the areas lesser hit will fare any differently than last time?
cheryl
more air to come out?
cheryl told a story of a realtor turned real estate emperor turned carpet cleaner.
here's another one
http://www.irvinehousingblog.com/blog/comments/the-financial-planner-who-advocated-heloc-abuse-lost-his-house/?source=patrick.net
This is sort of aimed at anon, but it's an interesting observation.
I decided I wanted to see what the Immunozone really produces for the wealthy. I mean, if you can buy
a million dollar property, you are throwing off at least a 250K annual family income, or have that in equity that you are willing to convert into housing.
That's Senior associates at a law firm, partners, top medical specialists, senior managers in businesses, dual income top government families.
These are people who can buy a lot and while they like great schools and good government, they can also pay for private security, send their kids to prep school, etc...
So, while one can wax about Washington and Lee HS or the test scores at TJ, these are people more likely to send their kids to the Hill School or Sidwell.
Immunington http://franklymls.com/AR7676798 $1M 4/3 3500 SF 7,000 SF lot. But our neighbors look in the windows. It's a glorious McMansion.It's not even that close to Metro.
http://franklymls.com/AR7709236 A 4 Million dollar Box, in the sky. Granted it's real close to Metro, but in 25 years, the building will be shabby and will need serious overhaul. 3/4 and it does appear to come with supermodels serving drinks, but, you can rent girls like that for $300/hour. (But you know me, I do that rent/buy calculation all the time).
http://franklymls.com/AR7537909 here's a $4 Million dollar Row house. A Row House. effictively in class with my place, granted it's got an extra BR and Bath, but, i'm adding a Bathroom for $10K.
Now lets look at PG.
Yes, icky Poo PG.
http://franklymls.com/PG7213516
7BR/3 Bath, 3 Car Garage, Acre of land with Water front. $1.2 Million.
http://franklymls.com/PG7489076
5/3 2 acres, creek, surrounded by woods. Deer come right to the door.
http://franklymls.com/PG7661255 6/6/3 and 2 acres. Indulge your fantasies with a real stately manor.
http://franklymls.com/PG7591666 3/1 with 4 acres.
So lets see, you can get a McMansion for a million dollars, or you can get a Mansion.
Now Anon argues that there will always be a perpetual demand for Immunington.
I don't know.
If you are above caring about the schools and you can buy your own police, why do you care about how great the government is?
The Rich live out in Middleburg, which last time i checked was hillbilly hell. Why wouldn't the rich opt for Redneck PG and live in style above the teeming masses?
Really, what's the difference between National Harbor and Reston Town Center?
But, you know, Immunington is special.
cheryl
In a second round of trouble, will the Fed be able to slash short term rates? No.
Will the Congress be interested in putting out a 30K buyers bribe? I doubt it.
will there be TARP 2? Most likely not.
Can the Fed take on another 10 trillion in bad credit? Maybe?
pat,
My question was - why would the areas that were relatively stable during the recent correction be affected any differently if we experience another downturn?
You claimed that there was still too much air in Arl, Alex, etc. and seemed to suggest that PG County is properly priced. You also claimed there was (should be?) no difference between National Harbor and RTC. Whaaaat?
Do you honestly believe this? I wouldn't know where to start when listing the differences. No offense to those who live in PG (even on the water), but, National Harbor or not, PG has been a toilet for decades.
http://www.nytimes.com/2011/11/20/realestate/mortgages-inheriting-a-home-and-a-loan.html?src=recg&
"Thirty-one percent of people 65 and older, in fact, have home mortgages, according to the Census Bureau."
what are people of retirement age still doing with Mortgages? Talk about Dead Pledges.
Cheryl
When i mean Nat Harbor is Like RTC, it's about a functional thing.
RTC Hotels. NH Hotels.
RTC Restaurants of many chains.
NH Many chains.
RTC Condos, NH Condos.
RTC Reasonable drive to Metro.
NH Reasonable drive to Metro.
if you need a place near the beltway and not too crazy far from Metro, what's the difference?
cheryl
assuming a second wave roles through,
will the immune areas ride out better then before?
I'm not so sure.
On the one hand these are the 10% the top end of the system, but, it's also the areas with the most cynical gamesmanship.
will people with serious negative equity, decide that another downwave means they have 15 years of payments to get unbroke?
It was a bubble, a monstrous bubble.
They let out at different rates and at different times.
My point is the immune zones have very high $/SF rates and new entrants may choose differently.
consider 2 newcomers to DC, Both with Jobs Downtown, paying 200K/year. 50 year old late career workers.
kids graduated, off to college.
Now One can buy a 400K house in Arlington. The other can buy a 200K condo in National Harbor or a 200K row House down in my new hood.
I think Bubbles like to deflate, now perhaps, Bernanke will try to reflate it, but,,,,
contrarian,
I didn't say that places like Arl. would not experience a price drop, only that there is no reason that I can think of that it would not be in proportion to what we saw in this past go-around. In other words, on a relative basis, why would it be worse than last time? Why would it be, all of the sudden, to the extent of the hardest hit areas? Pat is ignoring this question. I ask that you answer it.
My comments about any downturn of significance regionwide are predicated on whether (IF) the economy takes a meaningful fall.
I still maintain that we remain relatively flat for the next 5 yrs.
OT,
I finally watched "Too Big To Fail" (it's on demand) over the weekend. Frightening stuff; although I had "plan B" in place at the time.
Pat,
What is with your fictional couple? You honestly think a couple earning $400k a year is going to go anywhere near PG county or a transitional ghetto in DC?
The closest they're going to get is Capital Hill, but more likely they'll end up in NorthWest, Mclean or North Arlington.
Realtors will direct them that way, their coworkers and friends will direct them that way, the neighborhoods will direct them that way, employee relocators will direct them that.
Oh wait, I forgot, they're probably going to look at the cap rates...
My $0.02
cheryl
The prior experience is that the immune zones rode out a implosion better then the working zones,
Now why would explosion 2 be different?
1) The Immune zones had people with Prime Credit who were able to handle refi, either by putting money in tog et better rates or had 20% down, so they weren't totally underwater.
However that was driven by bernanke driving rates to zero. Can he take rates negative? Strongly negative?
If we have a wave of increasing credit costs, refi is no longer an option.
2) As you pointed out, The Immune zones have low unemployment. These aren't landscapers fighting to pay a zero down mortgage these are end career senior managers pulling in steady.
However, if the Feds cut back and the current likely scenario is just that. Then, these zones get hit.
3) The relative value equation has changed. DC east of the Park used to be a sewer. Now Everything west of the park is fine, and the wave of gentrification has pushed off capital hill to the anacostia, down around Nationals Park and across U and Florida.
Sure, Rich People have always liked the Watergate, but why not 1010 Mass, or the Yale, or some of the other high end condo projects in DC?
The cities are becoming more popular, the cycle has turned, and,
that's my argument.
Look at Harriet's numbers, she actually said the true cinderalla story for the region was DC, it had the least decline of all.
If someone wants to buy into the Immunozone, DC is it.
pat,
You just killed your entire argument that highly paid people will choose PG or the "hood".
Any 50 yr old making 200k is not going to be your neighbor OR move to PG. You continue to make the assumption that most people around here are broke. Do you have any data about net worth in various locales?
Again, looking at the demographics, what supports your "catch-up" for Arl., McLean, Great Falls, Bethesda, NW DC, etc?
cheryl
i'm going to have to sound like aone track record, but, it's a bubble.
They pop, you can't predict when they pop, but,
Price to Rent ratios are still off in those neighborhoods.
My Business partner is renting a house in the capital of Canada, he was moaning about how high the rent was. He's paying $4K/month. I asked him what the purchase price would be and he said depending but,
around 1.2 to 1.5M....
I had him step back, and i said, dude you are renting for less then the mortgage.
When i was doing rent/buy in south arlington, it was very hard to make the numbers close.
now anon, thinks there is a great yield, at 0%, but, i don't think that way.
until it's more expensive to rent then buy, and until the Fed stops pumping liquidity, we can't prove the case either way.
Viriginia MLS has new inventory numbers out. Down again YOY.
"Pat said...until it's more expensive to rent then buy, and until the Fed stops pumping liquidity, we can't prove the case either way."
You realize in some areas this hasnt been true since at least 1996, and possibly much longer. Think the guy who waited in 96 to first "prove the case either way" is happy about waiting and renting for 15 years, watching prices soar?
Look pat. I will concede every one of your arguments in the past few days is possible. Not probable, but possible. The problem is, none of these are new -- they were all possible when you first advanced them in 2009 at the bottom. Also, unlike paying for a house which (for most people) stops at 30 years, just remember rent is eternal. Thus at some point you really need to consider the cost of waiting.
Again, it was in 2009 when it was evident to me that I bottom was forming, I asked when you would finally conclude that your perpetual parade of worries is small enough that its ok to conclude "the immunozones have bottomed"? At the time you said (in sum), 2012...if the implosion doesnt happen by then, it will never happen, (i.e. its ok to buy).
For someone ready to buy in the immunozone in 2009, 3 years is a long time to wait. If they decided to listen to you then, the cost of a reasonable amount of "certainty" that your parade of worries wouldnt be a big deal was:
a - 3 years of their lives
b - Approx 70K in rent
c - the risk prices stay flat or rise.
As it turns out, the Immunington buyer who listened to you in 2009 is indeed now 3 years older, down 70K in rent, and even worse up 10% in price (approx 50K rise in median price). So thusfar your immunozone fence sitter is now 120K worse off because he listened to you (70K in rent + 50K in price).
Fast forward, 2.5 years later and now that we are on the eve of 2012, you are once again at a crossroads. Do you (a) climb that wall of worry, stick with your original "end all be all" date of 2012? Or do you (b) pull a Contrarian, and simply push your "end all be all" date to some point even further into the future?
Thusfar, your immunozone fence sitter is 120K worse off vs buying at the bottom. Do you now want to double down and say he should wait a few more years? If you do, just remember, not only is he getting older, rent is clocking away, month after month after month. Thus, its not enough for prices to simply retest the 2009 bottom...you need to smash well below that to justify the 95K, 115K, 140K in rent paid in the intervening 2009, to say 2014 timeline.
So thats what I am asking you now Pat. Are you sticking with your 2012 timeline, yes or no? Also, when you do answer, please actually answer the question. Youve been much better about directly answering questions vs going off on tangents lately. I hope that trend continues.
Anon
I'm going to stick with 2012.
Let's say we go with your thesis 2009 is the absolute bottom.
Well, at worst, it's not much off the bottom.
(Now I am going to caveat, that i'm sticking with Inflation adjusted numbers. If Bernanke creates double digit inflation, it's a little unfair.)
Now, Anon, as a sharp reasoner and fan of logic, can you tell me the difference between renting space and renting money for space?
One can pay X dollars for Rent or One can pay Y dollars for Interest.
The difference there is called Make/Buy or Buy/Rent. Now I"m not a lawyer, but I have an MBA, so, we live for this kind of financial analysis.
Now perhaps i've been hurt by my wildly cheap rent, and had i been paying your kind of rent, i'd have had a very different calculus.
however, i've enjoyed my cheap rent.
I was enjoying paying $1040/month on rent, as opposed to buying a 2BR unit at my favorite whipping post Myerton. Could you show me how in Myerton I missed out on some sort of deal?
Anon
Why not tell us what you bought and in what neighborhood and for how much?
Anon Says
"You realize in some areas this hasnt been true since at least 1996, and possibly much longer. Think the guy who waited in 96 to first "prove the case either way" is happy about waiting and renting for 15 years, watching prices soar?"
So the People who bought in 87 and sold in 96 were just schmucks, because trust me, i can show you people who lost their asses in that time frame.
"Pat said...So the People who bought in 87 and sold in 96 were just schmucks, because trust me, i can show you people who lost their asses in that time frame."
Im sure you can. 87 was near the earlier bubble peak, and 96 was the bottom. Likewise, the people who bought in 05 and sold in 09 are hosed. No surprise there.
Still, remember your earlier statement was that "its too early to tell" so long as buying is more expensive than renting.
As it stands, for certain areas, buying has been more expensive than renting at the 1987 peak, 1996 bottom, the 2005 peak, the 2009 bottom, and every year in between. Would you say its "too early to tell" for these areas...a full 24 years later?
"pat said...
Anon
Why not tell us what you bought and in what neighborhood and for how much?"
See the thread immediately before this (Nov 12).
"Pat said...I'm going to stick with 2012."
For starters, I appreciate your direct answer. And I also think you are making the right choice. Still, just understand that your earlier statement "I figure it just takes time for gravity to catch up" is not the kind of thing you would expect to hear in late 2011 for someone who will be supposedly changing their tune in 2012.
++++++++++++++++++++++++++++
"Pat said...Let's say we go with your thesis 2009 is the absolute bottom.
Well, at worst, it's not much off the bottom.
(Now I am going to caveat, that i'm sticking with Inflation adjusted numbers. If Bernanke creates double digit inflation, it's a little unfair.)"
I object to your caveat in that it (high inflation) is one of the risks you mitigate by buying. Personally I think double digit inflation in highly unlikely for a while still.
That being said, my point is, when you decide to buy, you take the good (i.e. inflation mitigation, no matter how high or low) and the bad (lack of motility, transaction costs, etc) you take them all as a package deal.
++++++++++++++++++++++++++++++
"Pat said...Now, Anon, as a sharp reasoner and fan of logic, can you tell me the difference between renting space and renting money for space?
One can pay X dollars for Rent or One can pay Y dollars for Interest.
The difference there is called Make/Buy or Buy/Rent. Now I"m not a lawyer, but I have an MBA, so, we live for this kind of financial analysis.
Now perhaps i've been hurt by my wildly cheap rent, and had i been paying your kind of rent, i'd have had a very different calculus.
however, i've enjoyed my cheap rent.
I was enjoying paying $1040/month on rent, as opposed to buying a 2BR unit at my favorite whipping post Myerton. Could you show me how in Myerton I missed out on some sort of deal?"
Sure thing Pat. For me, the end all be all is that pretty much all of us (especially here on this site) will buy some day.
Many of us will whine how expensive it is, or how some metric is out of whack, or incessantly point out the downside risks, or whatever. Still, at the end of the day, the majority of us here will still buy.
With that assumption in mind, it very much changes some of the questions you pose. For example, your statement:
"One can pay X dollars for Rent OR One can pay Y dollars for Interest."
is no longer the dichotomy you present. Again, if the person is going to buy regardless, the correct analysis is:
"One can pay X dollars for Rent AND THEN One can pay Y dollars for Interest."
OR
"One can pay Y dollars for Interest
We can even apply this to your favorite the Myerton. I dont know what Myerton places are going for, but lets say its 300K at the bottom. Again, given the assumption that you WILL buy someday, the question would be
rent for 2 more years at $1040 a month (25K) AND THEN spend 300K plus interest on the Myerton.
OR
spend 300K plus interest on the Myerton.
When viewed this way, its a much simpler question isnt it? Basically, given the person will buy at some point, the question then comes "when". And for those of us who are ready, the "when" is the bottom (or close to it) regardless of what metrics say otherwise.
Continued....
Continued...
Now, I can already anticipate the potential strawmen you may pose, so let me try to diffuse them here.
1. As I have noted before, not everyone is cut out for, or wants to take the risks of buying. There is nothing wrong with that. Now, FOR THESE PEOPLE, who will rent for a lifetime your "One can pay X dollars for Rent OR One can pay Y dollars for Interest." is precisely the right question.
I think this is particularly important for older folks (say 60+) who only have another say 20 years to pay and will not enjoy the payment free period after the mortgage is paid off. For them, the question is why buy and pay say 3K a month for 20 years when they can rent the same for 2K a month for 20 years? I get that.
Thats different than say the 30 year old who can either (a) rent at 2K a month for 5 years AND THEN buy at 3K a month for 30 years. or (b) buy at 3K a month for 30 years. For the younger who will buy and are ready to buy, b is clearly the answer.
2. This is not the same as "there is no bad time to buy", or "buy now" or whatever similar realtor shill speech you can envision. If you are financially not ready to buy, then yes by all means rent for as long as it takes to build up the financial capital such that you feel "ready". Also, so long as prices are going down it makes sense to wait till you see where they bottom -- there is little sense in catching a falling knife -- especially a rapidly falling one.
Still, given that you are one of those who will buy eventually buy, the question then becomes "when". Thus if you view buying as an eventuality, it changes the calculation of how long you continue to rent in a stagnate or rising price environment.
In the end, I think many of us want to one day live a life where we are free of payments either (mortgage or rent). Whereas mortgage payments end after a certain amount of time, rent is eternal. Thus, assuming prices have bottomed, and you are going to buy regardless, why not end the rental payments as early as possible?
Anon
"In the end, I think many of us want to one day live a life where we are free of payments either (mortgage or rent). Whereas mortgage payments end after a certain amount of time, rent is eternal. "
Um, true but incomplete.
It's actually Rent vs Principal,Interest, Taxes, Insurance, Maintainance, Discounted Sales costs...
Now that said it's a complicated transaction.
You have to know how to amortize acquisition costs, and to compare TIM against long term rents, etc....
There are cities where there has been a long term advantage in renting. Manhattan is one of those.
The house i just bought is another. The woman who was the long term tenant was paying $300/month rent for a 3/1 house for 40 years. Can you believe that?
Certainly the seller thought the place was worth a lot more and had been holding out, with a low cost basis (Inheritance) and a low tax basis, but still.
The seller probably wasn't real thrilled with the sale price, being 35% less then the initial ask, and th eproperty being offline for 18 months while they tried to sell.
Look, you bought, but you have expectations of a higher sell price in the future, if you don't, i'll give you 10K now for a 30 year option to buy out on a first comer basis at your purchase price now.
Me, personally i think we will have this sort of miserable decade coming up.
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