Here's an updated affordability chart for the Washington Metropolitan Statistical Area. The NAHB/Wells Fargo Housing Opportunity Index (HOI) has data going back to 1991.
HOI is a measure of the percentage of homes sold in a given area that are affordable to families earning that area's median income.
Thursday, February 16, 2012
"Housing Affordability" Update
Posted by Harriet at 11:03 AM
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39 comments:
"Pat said...That's your position, and essentially mine too, except the laws of economics are as immutable as the laws of physics in their own ways."
Except as we have seen, those immutable laws can be "muted" for years, decades, human lifetimes, or longer...
In 2006, we had clear indications, vis a vis this thing called "the bubble" that such that these laws were going to reassert themselves. Inventory was bad...MOI was bad...Those immunozone nabes, then trading at 750K, may come crashing down to 450K, it was posited -- fulfilling dreams of bubble sitters everywhere...
By 2009 those 750K nabes had fallen only to about 710-715K, a far cry from the 450K promised.
In 2009 I said, they may have fallen enough such that they laws will again become "muted" for a considerable length of time...
In 2009, you disagreed, thinking that an "avalanche" was about to happen, and that the bubble sitter, still dreaming of 450K prices should wait a little longer.
I asked you then, when if ever will you quit giving people false hope about seeing 450K prices in the immunozone neighborhoods?
You stated if they dont happen by 2012, they will never happen.
Now in 2012, you have welched on your statement, and continue to give false hope...citing metrics that havent proven correct in decades. Refusing to concede that 450K is "off the table".
Why you do this...is beyond me...
cnbc article, "As Investment, Renting Beats Owning '100% of Time'"
http://www.cnbc.com/id/46413058
for many, "it's a lifestyle choice"
Mike-
I saw that article too, but decided not to post it because the math the author used was absurd. If you went through the details he basically said a house needs to go up a ton if you want to pay nothing for owning it. No one here is saying you can live in a house for free, the question is whether it is cheaper to rent the house or buy the house. So in the example they should have said what the house needs to do to make renting a better/worse choice then buying. When this is done I am sure the answer would show the house still needs to go up in value, but not nearly as much.
The author also couldn't do math. He said he spent 2.3MM on his house (1.8MM + 500K in improvements) and his house is 1.5MM and he lost 17%. When in reality he lost double that.
Mike, that article is so ridiculous on so many levels. That guy with Cornerstone seems like a dope. Did McBride put in any numbers to account for the "rent value" of living in the home? I won't even comment on the ceo thinking that a 2mil house would ever pencil out.
If the assertions were true, there would be no apartment complexes or rentals. Why would companies that lose money exist? 100% of the time - yeah if you are dumb enough to buy a mansion at peak and expect it to cashflow. Lower end properties cash-flow. They fill a need, a necessity. For many lower-middle income people the barrier to entry is too great. They might never have the downpayment, reserves, job history and/or credit profile - but they have to live somewhere. Middle income can afford the median home and wealthy people don't care too much about the investment component of owning their home. Mr ceo is correct in that the wealthy have assets in addition to their residence. There is a correlation between the % of income spent on personal housing and the income level of the household. My mortgage is about 5% of gross income. I'm quite sure that the lower end of the spectrum pays close to 50%.
"ou stated if they dont happen by 2012, they will never happen. "
sales year isnt over... lets see where C-s is in August.
Anon
if you believe people dont buy houses in 22207 expecting yield, why don't you offer to sell me a option for your house in CPI adjusted dollars for the same price you bought at?
given how bearish I am on North Arl, it's not a good bet for me.
I've been thinking about the cnbc article (yes, it's gotten under my skin). However impressive the sample size (40?), I decided to do my own sample of one - me.
Now, granted, my house does not fit any of my buying criteria for an investment property, but I'm game to throw out some conservative numbers.
What follows is, what I believe, a reasonable analysis. Now I didn't have the brilliance to buy at the peak of the market (and Mr. ceo fails to tell us whether he traded-up when he bought and thereby "cashed-in" to some extent on a previous home - arguably affecting his investment significantly). Here goes:
Net increase in value after accounting for all costs ( repairs, replacements, improvements, costs of aquisition and sale):
approx. 250K over ten years (now, this doesn't reflect a huge profit on my prior home - I'll just disregard that for purposes of this analysis).
Fair Market Rent:
I'd guesstimate it would have cost me about 40K per year, minimum, to rent this house. So, let's say 400K.
What I've paid (piti) over ten years is about $400K which is the same as rent. Net increase in value of house is 250K. Net "Cost" of living here 150K over ten years or $15,000 per year/ $1,250 per month.
Am I missing something?
So my net cost of ownership (mind you, I have not accounted for income tax savings for interest and re taxes or principal paydown) is far less than rent. So, clearly, "renting beats owning 100% of the time" is a mistatement.
I have not factored in the opportunity cost of my down-payment. Knowing my stock market prowess, I probably would have lost money - but feel free to put a number in there (bear in mind the offset of tax deductions that I did not include). I probably had 150K + of my cash tied up in the house. I did a cash-out refi and have no "cash" in the house now.
Finally! An inventory update from Virginia MLS. Down, down, down.
"pat said...
Anon
if you believe people dont buy houses in 22207 expecting yield, why don't you offer to sell me a option for your house in CPI adjusted dollars for the same price you bought at?"
Before we get to this (and I really would like to), lets get some clarity on this now 2 year old "2012 or its immune" question shall we? Specifically, you now say:
sales year isnt over... lets see where C-s is in August.
So if I understand you correctly, once the Case Shiller report comes out on Tuesday, August 28, 2012, (unless it then shows some scorching downturn) or whatever, you will finally answer the question:
if arlington doesn't clear by 2012 well then its immune.
Correct?
After that date, no more skirting the issue...no more deception...no more "lets wait and see"...no more, "but if the bernank/myerton/fukushima/cap rates" nonsense...
After that date, no more bullshit?
After that date, you will finally declare that a -40% drop in imunozone prices is "off the table"?
Yes or no?
Anon
Actually the seasonal low point would be November 2012.
but if you just can't live without august, sure.
Whatever.
and, so if you believe in zero percent yield, how about selling me a one dollar option on your house for a zero percent yield excercisable in either 30 years or when you decide to put the property up for sale?
Va Investor,
I do not have time to look at all the blogs, but the comment of Arlingotn and Loundon County up is obviously based on the lower priced Arlington zip codes going up in price, same with Loundon. You also made a comment of poor Fairfax.
Well, let me tell you Fairfax County zipcode 22180 (29.6%) outperformed 22207 (5.3%) year over year. So zipcodes are important to look at if we want to have a better picture of what is really happening.
I should have added. Poor 22207 in Arlington, only 5% increase vs. almost 30% increase in Vienna 22180. Poor, poor, thing.
bear in mind this affordability is being driven by zero interest
thats not a stable way to maintain the market.
Pat-
First as Anon points out you say its not stable, but it can last your lifetime (e.g. look at Japan) also as long as you are not going to move for 10-15 years or plan on renting the house when you move what matters is the payment not interest/principal ratio.
Also I am not sure if you know this or not, but high interest rates are a relatively new phenomenon. If you look at the 10 year treasury which is the basis for mortgage rates you will see that historically its median is ~3%, which implies a 4.5% mortgage rate which is only slightly higher than current rates.
Sure I think mortgage rates will go up, but I don't expect them to hit what you consider a normal rate (probably 6%) until late in this decade.
Also even ignoring interest rates the median home is 2.76 times the median income. This ~3% lower than the 20 year average and even if you ignore 05,06, & 07 it is only 9% above average. So under any normal metric we look at we are a lot less overvalued than you think we are.
HB
"First as Anon points out you say its not stable, but it can last your lifetime (e.g. look at Japan) also as long as you are not going to move for 10-15 years or plan on renting the house when you move what matters is the payment not interest/principal ratio."
and real estate prices have trended downwards for 20 years in japan.
it's just a miserable drag, where people are working their whole lives, and they basically are underwater the whole time on the mortgage.
"Also even ignoring interest rates the median home is 2.76 times the median income. This ~3% lower than the 20 year average and even if you ignore 05,06, & 07 it is only 9% above average. So under any normal metric we look at we are a lot less overvalued than you think we are."
lots of areas in DC have hit affordable. PW, LO, FQ, PG
the issue is 22207 and the SFHs north of that.
and your number is driven by dual income HHs?
that two incme trap is a problem.
pat,
"work your whole life and be underwater the whole time"? How the heck does that happen when a mortgage amortizes over 15-30yrs.?
if you want to see a sad story, look at 133 S Glebe in Arlington,
some guy bought in in 02 for 260, and is now going to foreclosure at 400K.
obviously he had taken out financeing and went negative.
TRUSTEE'S SALE OF
4121 34TH ROAD N
ARLINGTON, VA 22207
In execution of a Deed of Trust in the original principal amount of $562,500.00, with an annual interest rate of 3.0000% from Gregory H. Clough and Renee M. Clough dated December 29, 2004,
here's one bought in 98 for 270K, refid in 04 for 562K 3% mortgage, and yet going to foreclosure.
Oh look, it's 22207.
TRUSTEE'S SALE OF
2546 N GRANADA STREET
Arlington, VA 22207
In execution of a Deed of Trust in the original principal amount of $417,000.00, with an annual interest rate of 2.0000% from Susan E. Shepard-Siple and Glen A. Siple dated November 16, 2007
bought in 2000 for 230K, and yet the high income wealthy types of arlington can't cover this.
dc2,
I did qualify my remarks later in the thread by stating that I didn't drill in on zips and that perhaps S. Arl accounted for much of the increase.
That's the problem with much of the data; one could spend hours looking at zips and not even have a handle on their individual neighborhood. Essentially, CS is far worse due to the very large area that they consider "Washington".
Mike,
Are you sticking with the article you posted. I assume that you adopted that position as you posted it without comment/analysis.
cheryl says:
"pat,
"work your whole life and be underwater the whole time"? How the heck does that happen when a mortgage amortizes over 15-30yrs.?"
because during the japanese bubble, they were selling 90 and 100 year mortgages. The idea being Japan had high employment and a confucian work culture, that people would work until their old age and then their kids would work, and their grandkids would pay off the mortgage.
Pretty stunning?
What's the difference between a 100 year mortgage and a I/O mortgage?
The 100 year mrotgage may get paid off.
I/O mortgages were basically leases with very high termination clauses.
So any of this other weird finance was just part of the continuum.
Funny I was looking at foreclosures and 3 were on the top of the list for arlington and all three struck me as some form of whacky finance.
how does someone not afford a 2% mortgage?
and the market has to be weak, that these properties aren't for sale.
if the market were that strong people would do a forced sale and get out with some cash.
i knew there was a bubble when in 2003, i had a buddy losing a house, it was a total disaster.
Just a wreck.
ceilings falling in, buated ass plumbing...
and yet it was up for top dollar and he sold and got 30K to walk away.
pat,
I'm not going to go down the line to debunk all of your points. It's a waste of time. I truly think you are really reaching here. I also believe that nothing will change your opinion. So, my friend, your opinion is your opinion and you are welcome to it.
VA_I,
In addition, sickness, job loss, and divorce never befall those in 22207. Foreclosures here can only portend of a future ripe with the strewn carcasses of those eaten up by their ignorance of yields.
My $0.02
mtc,
No sense mentioning the obvious. I doubt that it will penetrate. I bought my house on the courthouse steps. Job losses, death, divorce, disability, etc. are not new phenom's.
Cheryl, MTC
Most people who have equity, don't end up in a trustee sale.
given at least the examples I posted actually are selling for far more then the purchase price, i'm guessing the previous owners had taken out negative am or cash out finance and then can't get anywhere.
if they had they'd have people offering to buy them out.
"Pat said...but if you just can't live without august, sure.
Whatever."
No, not "whatever"... Saying "whatever" indicates that you have put little thought into this. Anyone saying "whatever" sounds like someone who is a deceptive permabear who fully plans to welch on that date just like you did on that "2012 or immune" date.
In any event, given that you said:
"lets see where CS is in August"
If I understand you correctly, I think you are wanting to see the August data which comes out in October, not November. (CS has a 2 month lag, not 3.)
So if I understand you correctly, you will finally quit on all your misleading, false hope, immunozones will drop -40% bullshit on Tuesday October 30, 2012 (the August data), unless CS then shows some sort of scorching downturn.
Is this correct? Yes or no?
Oh, and if my understanding is not correct, dont just say "whatever". If its not correct, tell me what you are expecting to see and what date you are expecting to see it before you finally declare a -40% drop for the immunozones off the table.
Anon,
I'm waiting* for the next big Real Estate book entitled, "Real Estate Is Dead - How Even Cash Flow and Yield Do Not Promise Profitability."
Then we'll definitely know it's time to buy.
My $0.02
* I'm not really waiting...
Also Pat, on the (perhaps foolish) assumption that you will truthfully answer the question above, regarding your equating the lack of yield with a $1 purchase option, that is hardly a realistic view...
Like 99% of the posters here I embrace the oft repeated bear mantra "a home is a place to live, not an investment". Thus while some sort of ROI above and beyond inflation would be nice...it certainly is not necessary. My main objective was not to be paying rent for the next 50 or so years.
Also, while I like you think the immunozones will underperform relative to inflation (and thus a terrible investment), why would I give up any and all opportunity for a windfall for a mere $1?
Its kinda like an inheritance. While I do not need, and am not counting on receiving an inheritance from my folks, why would I give any potential upside away for a mere $1?
$002 said...I'm waiting* for the next big Real Estate book entitled, "Real Estate Is Dead - How Even Cash Flow and Yield Do Not Promise Profitability."
Then we'll definitely know it's time to buy."
Heh... I was thinking it would be titled:
Dont buy now!!!
Why that immunozone house selling for $750K today will sell for $450K later, and why you should wait and rent for another 50 years to see it..
Now that would be a contrarian indicator...
http://www.zerohedge.com/contributed/sophisticated-and-scammed-%E2%80%93-mbs-trusts-keeping-assets-books-long-after-they-are-liquidat
interesting one of the frauds is in centreville, VA
"Elsa Castillo Rivas loan #130445815 - $375,000 - (July 2011 short sale deed) - remained on books through Dec 2011 in "REO" status), finally reported as "liquidated" in Jan 2012 report [13918 Preacher Chapman Place, Centreville, VA]. WOW - BoA monthly servicing fee for non-existent mortgage $328.04"
no wonder Bank income is up, they are reporting income for phantom work.
Anon Says
"ts kinda like an inheritance. While I do not need, and am not counting on receiving an inheritance from my folks, why would I give any potential upside away for a mere $1?"
So what is your price? What is the yield figure at which you will sell for a $1?
"http://en.wikipedia.org/wiki/Jacob#Sale_of_the_birthright"
And I recall something aboutEsau selling something for a bowl of stew.
Anon
The contrarian indicator for Investment real estate being dead is
Tom Vu coming back on TV.
When Tom Vu is back on late night TV,
Sell any investment properties and buy T Bills.
http://www.youtube.com/watch?v=K853GykeGH0
Pat,
I fail to understand your fascination with this $1 yield question. What does it accomplish?
You are essentially asking someone to sign away the right to any potential gain, for $1. Anon is already taking the risk by buying the underlying home. Where is your skin in the game?
My $0.02
Pat said...So what is your price? What is the yield figure at which you will sell for a $1?
I actually thought about it, and will tell you as soon as you answer the question... 3 years in the making... and repeated this AM:
if I understand you correctly, you will finally quit on all your misleading, false hope, immunozones will drop -40% bullshit on Tuesday October 30, 2012 (the August data), unless CS then shows some sort of scorching downturn.
Is this correct? Yes or no?
Anon
if it makes you happy,
either the immunozones drop by end of this season or they don't.
i'ts pretty clear.
if they drop, they become good value, if they don't they remain lousy value.
Now, all it really means is either housing in 22207 returns to a utility value function or remains as you contend a luxury good.
Now tying up all your cash flow into a luxury good? Seems kind of unwise, to me, and if you want me to say in august, that you are being unwise, sure, I'll say that.
Hope that makes you happy.
"Pat said...Now tying up all your cash flow into a luxury good? Seems kind of unwise, to me, and if you want me to say in august, that you are being unwise, sure, I'll say that.
Hope that makes you happy."
Yes -- that would make me happy. It would be further confirmation of things I learned about 5-6 years ago, and you are just accepting now.
--The immunozone is a terrible investment.
--The immunozone really is different.
--The immunozone is (pretty much) immune.
--Anyone tying up "all" their cashflow in an immunozone house is unwise.
--Anyone waiting for the immunozone to become a good investment will be renting for a considerable amount of time, perhaps for the rest of their lives.
--Renting is a cheap and viable long term way of living in the immunozone, and there is nothing wrong with it.
--A number of people who didnt buy (say pre 2003) in the immunozone truly were "priced out forever".
These are but a number of the modern day realities of the immunozone, both good and bad. It is better to accept ALL such realities, (even the ones you dont want to believe can be true) than it is to perpetuate some sort of false hope that -40% prices are just around the corner.
We shall see if you can step back from the permabear camp and join us on the reality side of the river this fall. Personally, I have my doubts -- but we shall see.
If so, let me pre-emptively say welcome back to reality Pat...we missed you.
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