Wednesday, October 26, 2005

WashPost "Only the Good Buy Young"

In a WashingtonPost article about who is buying it stated some interesting things:

Sometimes, the risk seems too great. Jeremias Alvarez, 26, engaged in some fancy financial footwork to win a contract over the summer on a $450,000 two-bedroom condo in the District's rapidly gentrifying U Street corridor.

He planned to finance 100 percent of the cost with no money down. But that meant his closing costs totaled about $15,000, and he was considering borrowing against his retirement plan to pay for it. That plus renting out a bedroom and maybe even getting a part-time job to supplement his government salary.

But then, in a moment of clarity, Alvarez pulled out of the deal. His real estate broker, the seller, everyone was pushing him to buy. But he just wasn't sure prices would keep going up, and if they didn't it would be a financial disaster.

As for Newland, he's still looking. He said he has been outbid more times that he'd like to share. "I know I can't really afford a mortgage," Newland said. "But I also know I have to buy a house."

You are still a human being if you do not own or seek to buy a housing unit. Do not commit financial suicide for housing unit. If you cannot afford it the do not succumb to the herd mentality just so you can buy.

Already, there are some signs that the Washington market could be slowing down, and some analysts think it peaked months ago. If owners try to sell their homes when the market has cooled off, they could wind up owing more than it's worth.

The peak has been reached in the Washington, DC area. Very small price declines are now occurring. A buddy of mine said he was trying to sell his 300K condo in DC. He has already lowered his price thrice ( three times). No takers yet. I suggested he lower the price once more and emphasize the solid condo managment in his building.

Graph showing who is buying. Data from National Association of Realtors Study.


  1. This is an interesting article. The market is obviously being fueled by those who understand risk the least. I think it is also symptomatic of American impatience. Why invest wisely and slowly over time and build up a nice nest egg when you can buy a condo hold for two years and make 100 large? In what is increasingly a more mobile society, where frequent job changes and moves are the norm, why would any one in the 20 something age group feel so pressured to buy?

    If things going the way we think they are headed, there is going to be a very albatross on the back of this generation.

  2. That herd mentality is so fascinating. I lived in DC from 1994 to 1998, and no one ever talked about real estate. During that period prices were relatively flat. A house was a place to live, basically a dwelling and not a stock like investment to be cast off after a few years of mega appreciation. During that time period the herd was chasing stocks, especially the Nasdaq. We all know how that story ended....

  3. This WaPo article seems a year or two late. Most of the 20-30 y.o. people I know where buying last year. This year everybody is talking about whether RE will hold or go down in price. Let's hope the former.

  4. This article was truly amazing. I wonder if the WaPo is under pressure from its real estate advertisers to do something like this. I read a wild rumor on another blog that another big paper was under pressure to stop the bubble talk. (I am speculating here, but it makes sense).

    The Post and reality have a distant relationship, but still, it is incredible they would publish something like this now, as DC area prices are clearly cooling.

    Long term, and as a long-time DC-area resident who loves the area, I would be incredibly bearish on DC real estate. DC and the Maryland suburbs are run by corrupt politicians who are green-lighting every development in sight, even as traffic gets worse and worse and green areas disappear. These same politicians are ignoring rising crime, thinking that prosecuting cops and building more upscale malls will somehow deter growingly bold gangs.

    Meanwhile, the area has had a huge influx of A-students and valedictorians from all over the country, self-proclaimed bright young things who believe everything they read in the newspaper. But these softies will run as fast as they can when the gang wars come to their streets.

    Also, Federal spending is going to slow over the next ten years. It simply can't continue at this rate for another 10 years. When it stops, DC area real estate is done.

    $15,000 down on a $450,000 house under these circumstances? Under ANY circumstances? Insanity.

  5. Really, young people shouldn't buy homes. A home is a major financial risk, and not something a single 23 year old needs anyway. On top of that, most 23 year olds do not have established careers and big savings pools. They SHOULD live in cheap apartments until they do.

    That kind of thinking will return. These poor kids who bought at the top are going to learn a hard lesson in life.

  6. I thought the RE party line was that the mega price increases were fueled by the baby-boomers buying second homes??? From this table it would seem that 55+ accounts for only about 19% of home buyers.