Thursday, January 26, 2006

Update from the Washington DC Area

The Washington Post reports "Real estate groups in the Washington area have also reported declines to varying degrees. The Northern Virginia Association of Realtors, for example, said December sales were down about 24 percent from December 2004 in an area that includes Alexandria, Arlington and Fairfax counties. In Loudoun and Prince William counties, sales were down roughly 14 percent. Prince George's County sales fell about 5 percent."

"Candy Clanton, an associate broker in Fairfax, has seen just how much the landscape has changed over the past several months. She listed a four-bedroom house in Woodbridge -- with new siding, windows and driveway as well as a renovated kitchen -- for just under $350,000. It was among the least expensive in the neighborhood, Clanton said, but last week, after three months, her client took it off the market. "I think the buyers who do have money . . . are all waiting to see what is going on," she said. "My phones are not ringing and my houses are not selling."

33 comments:

  1. I don't think the buyers who have money are waiting to see what will happen. They are waiting until prices dramatically come down. And if they don't- fine, then they'll wait it out in a perfectly acceptable rental.

    I think this because that is my situation. I certainly could buy, but I'm perfectly happy renting, and it would take a price cut of at least 40-50% to get me to even consider looking at buying in the DC area.

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  2. I don't think the buyers who have money are waiting to see what will happen. They are waiting until prices dramatically come down. And if they don't- fine, then they'll wait it out in a perfectly acceptable rental.

    My situation also, but there's another factor as well. Where I am, in Silver Spring, there's hardly a patch of idle land that isn't being turned into a condo tower. With all that extra capacity in the offing, it's simply delusional to expect housing prices to remain at anything like their current levels.

    Keep building, suckas!

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  3. I've been looking since last March and it has been nice to see the prices fall slightly in the neighborhoods I've been targeting. I'm not sure prices will ever drop 50% or whatever, but I'd be happy to buy if prices came down 10 or 20% I'm a little concerned about what's going to happen this spring, tho, when more buyers traditionally enter the market.

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  4. The spring is also when more sellers enter the market.

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  5. I know there are a lot of condo projects in the DC area (yes, especially in Silver Spring), but how many of those are "past the point of no return," by which I mean that construction can't be halted? I mean, I'm wondering if some of the developers may get cold feet and not build, as I understand is happening in Vegas.

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  6. January - February - March is typically the lowpoint for inventory. So you can probably expect an increase in inventory along with the typical increase in sellers come spring.

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  7. In Arlington, near where 10th street runs parallel to Clarendon, they are building mini cities of condos and the ground has already been broken. I noticed last weekend they seemed to be a lot workers out and working. I would think their goal is to finish as fast as possible to beat the other builders.

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  8. we have a bunch saved up, but are waiting out the bubble, until it either pops or stabilizes. Buying while standing at the edge of cliff would be pretty darn stupid.

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  9. I seriously doubt we will see anything near 40 or 50% declines. That would be unprecedented as far as I know. We did see up to 30% in the early 90's. This is only my personal experience.

    There were other economic factors at play then - but, I do not discount the impact of simple psychology (consumer confidence). My thought, however, is that interest rate increases will offset any short=term (10 year) carry cost savings,

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  10. Is 50% price drop possible?

    Well, last stock bubble did.
    When house means poverty, everyone dumps.

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  11. Well, I bought a wonderful 4BR single family home in close-in bethesda. It had been on the market a while and I snagged it at a wonderful discount (no, not 50%...about 10-15% from asking price). I just got married and the house is closer in and bigger than we thought we'd get. Two houses down sold for about 25% more a year ago.

    Of course, now I get to try and sell a georgetown condo in March. But hey, I can always rent at a profit if nobody wants to buy it. Sellers can wait too:-)

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  12. DC Rental Vacancy Data from HUD 3Q2005.

    http://www.huduser.org/periodicals/ushmc/fall05/USHMC_05Q3.pdf

    In the Washington, D.C. metropolitan area, the rental market tightened as households absorbed recently completed rental units and several planned apartment projects switched to condominium sales. According to Delta Associates, apartment vacancy rates in Class A highrise units in the District of Columbia decreased from 18.1 percent a year ago to 3.6 percent as of September 2005. Conversions to condominiums in the Maryland and Virginia suburbs of the Washington metropolitan area have reduced both the number of units in the rental market and the rental vacancy rate. The pipeline of new units expected to be available over the next 3 years has declined to the lowest level since 2000.

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  13. I'm a young lawyer making in the mid 100s, and there's no way I'm buying in this market. Many of my lawyer friends are not jumping in either. We might make good money, but we work too hard for it to spend half of it after taxes on a mortgage payment for a 500-600K house.

    Will we see price declines of 50%? I doubt it (remember, price appreciation of 100% = a price decline of 50%, so we'd be talking about prices going back to pre-bubble levels). But I don't think 20-30% is out of the question.

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  14. Hang in there, folks. In the Spring there will be more new listings than there will be new buyers, increasing the downward pressure on prices.

    I believe prices will revert to what they were in the 1998-2001 range. That is a fairly wide margin, but if the decreases accelerate, look to the earlier year as the point of "return to the mean."

    If you buy this year, you will pay more than the person who buys the same place a year from now. If you're OK with that, go for it. I would not be. Renting continues to be the way to go, financially.

    David -- bet you're smelling blood up there! The hunt is on.

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  15. This comment has been removed by a blog administrator.

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  16. In general I think in 2.5 years prics would have declined between 15 - 35% in real dollars from the peak price.

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  17. Great Blog!

    Looks like the San Diego real estate market has done a 180 turn and is now on the verge of a multi-year decline!

    http://www.downtown-san-diego-real-estate.com/san-diego-real-estate-article.htm

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  18. At January 26, 2006 6:00 PM, Anonymous said...

    Of course, now I get to try and sell a georgetown condo in March. But hey, I can always rent at a profit if nobody wants to buy it. Sellers can wait too:-)

    Interesting Sellers can wait too? - have you checked out Craig's List rental listing for DC? Everyone and their brother are trying to rent out their condos/houses that are not moving. Many of the big apt complexes are even starting to run deals on Craigs List to fill vacancies. Just a casual count but have been follwing this rental listing for a two or three months and it seems like daily listings have gone from around the 250-300 range to the 500-600 range almost overnight. Also, the same listings keep coming up day after day as well. Seems to me if no one is buying all the empty condos owners/speculators will try to stop gap as you are(waiting sellers) and get what they can. Maybe cover costs but don't count on it as a profit center when its all said and done.

    Beginning of DEC I couldn't even find a place to rent at a reasonable price but now tons of decently priced stuff on Craigs List (same listing I used when looking in Dec). Apt complexes throught the city said no room at the inn in December. Now many of the apt complexes I walk by have a for lease signs out front, doing move in deals, waiving fees etc check the real estate section of washington post Sunday. I assume that the traditional rental market is loosening up here bc of the secondary private condo rental market but who knows.

    For background - sold a condo in downtown Atlanta (centenial park area) this summer after a year on the market. Had rented it out for a couple of years while working here. The condo craze had hit my section of town in my absence and I was competing with a ton of new inventory both apt and condo. Didn't want to lower asking price. Made money on the deal but it was a tough year wait covering the costs while trying to sell it. All the large apt complexes where running huge deals (2 months free).

    But you would answer the apt market is tight here in DC right? To me, it seems that what is relevant is who owns the empty space and what they can afford to do to fill it. In ATL last year the landlords were big apt concerns (Post Properties - think Post Pentagon Row here in DC)that where geographically diverse and could afford to spread the cost of their empty space. Here many apts have converted to condos tightening rental supply and increasing rental rates. The big boys can carry some empty space and offer huge incentives to improve occupancy but can the individual?

    I guess my question is can you cover it if you can't get a tentant or comparable rents drop? Offer 2 months free? As a renter do I want the uncertainty of renting from an individual when I begin to hear stories about other condo owners who are being busted because of raising interest rates etc.

    I mean if I got caught holding property I couldn't sell I would be thinking the same thing you are - I can always rent it for X. What if X comes down as well? Price is the huge factor for everyone I talk too- I do well and could fork over a significant portion of take home pay on rent but like many others I just chose a less desirable place at a very resonable rate to wait this mess out.

    Good luck - not trying to rain on the parade but don't want you to have a false sense of security. It was gut wrenching enough when I only had to cut asking price a bit. Couldn't imagine having a tenant I couldn't get rid of while my property tanked. Then having an asset worth significantly less competing against a normalized rental/realestate market.

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  19. Certainly, in some areas, prices have more than doubled in the last 4-5 years. Thus, a return to roughly a little above those levels a 50% drop) is reasonable.

    But if it doesn't happen? I won't buy. There are lots of very good rental deals in the DC area. I spend a small percentage of my income on rent, and live in a very convenient downtown area near the metro and shopping. House prices would need to drop a lot to get my interest up.

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  20. dcbroker-

    How do you square your claim with the Washington Post article a few months back that said that 10s of thousands of new condos were coming on line in the DC area in the next few years?

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  21. Hey dcbroker,
    Have you checked out Craigslist. That says it all. You see all those rentals available at about the same price there were 4 years ago?

    http://www.housingmaps.com

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  22. David, I was about to stop reading your blog, because I thought you were beginning to post too many unsupported rumors and opinions as part of a bubble bursting agenda. I rely on this (and other sites) to provide objective information, with which I'll form my own opinions. My opinions sometimes differ from your's; for example, since I began reading this site, I’ve had two successful real estate transactions, all during the time your posters here were waiting for 50% housing price drops, advising others to put their money in T-bills that barely matched inflation, and throwing the rest of their money out of the window in the form of rents.

    Anyway, now that you've stated that you "think in 2.5 years prices would have declined between 15 - 35% in real dollars from the peak price" I've decided to keep reading your blog. I think your belief is valid, and probably an accurate prediction of the upcoming real estate market. I'm relieved that you aren't like some of your deluded posters who think that housing prices will fall at least 50% next year. I've even seen some posters predicting 80% decreases! If you were aligned with these people, your blog would have lost all credibility, and I would have been sorry to stop reading it.

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  23. I'm the 50% person above. Please note I did not say that prices WOULD decline 50%, and certainly no in the next year. I said that I personally will not be interested in DC area real estate UNLESS prices declined 50%. Right now, I can rent at a price that would make any price higher than 50% of current prices undesirable.

    But I fail to see how a 50% decline is unreasonable, given that prices in the DC area have more than doubled in the last four years. I personally think that if the market is left to its own devices, nominal prices probably would decline that much. I also personally believe real prices will decline that much, though it will take more than one year. But I am not an expert.

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  24. anon 8:16,

    Thanks for your feedback. I really appreciate it. I fully agree that those who think prices will fall "at least 50% next year." are deluded.

    I try and be fair. I welcome stories of houses that have sold quickly. You can also email me at bubblemeter (at) gmail.com .

    Thanks,
    David

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  25. The real estate market is stretched. I based this observation on:

    -non-sustainable rising rate: real estate market appreciates ~5-7% a year (instead of the >15% rate for 5 yrs)

    -period of very low mortgage rate (anybody who wanted a house got one)

    -very creative financing, read as very dangerous (Everybody who thought about a house got one). If I remember correctly less than 5% mortgages in 2000 very atypical, compare this to the >50% of atypical in 2005

    -everybody is expecting to make a quick buck: this is the appereance of no risk involved. In business no risk is either for no gain (keep it in your wallet) or for losing money (go to Vegas you WILL lose money).

    -everybody is expecting the real estate market to keep increasing at >10% forever.

    -everybody believes that real estate is not like a stock market. Unfortunately they don't see the risk of leverage. A mortgage and in particular any atypical one (like the dreadful Interest-Only) are leverage mechanisms. With little money you leverage huge amount. In particular you are betting everything you have that the real estate market is going up at the present pace for the next 3-5yrs. When these guys realize what they did, they will HAVE to sell in 3-5 yrs, no matter what is the price. And if they don't they'll foreclosure.

    -new condo or conversions coming in the market at unprecedent rates.

    So the question is who is going to buy next? Or better where are the buyers coming from? They are either new to the area or are already in the area with no need to move. The new ones comes only with increase job opportunities, the ones already in the area are only going to buy at bargain prices.

    So the situation could be considered at a NON stable equilibrium point. As long as the sellers can keep their home and make the payment, everything will be fine. We will be fine even if new buyers will come in DC area. Unfortunately we just passed the best period (read all indicators to their best max performance) for real estate: there is no space for improvement and just a lot of space for a correction.



    As for me, I have all my finances diversified in stocks around the world. For a very good article see:

    http://www.fundadvice.com/fehtml/bhstrategies/0108/0108a.html

    I'll wait 5 yrs when all those guy HAVE to sell, after all the condos are in the market and when everybody will be screeming at the crazy prices we are having right now. Just like what we did for pets.com

    If the market will lose 10, 20 or even 50% I am not too worry. All I know is that in 3-5 yrs we will have a very good real estate market for buyers. If you add a little economical downturn after 6 yrs of continuos improvement, then you'll see that people with money in their wallet will do better than people with mortgages.

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  26. I hope English is your second language.

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  27. Does anyone know what is happening with the Jenkins Row condo development on 14th and Penn. on Capitol Hill? It looks like that huge hole has been there forever, with little progress. the condos were supposed to be ready in March. Boy, am i glad I didn't buy into this one..

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  28. the delta associates information, the same people quoted in the hud report, shows that there were less than 9k units coming in DC proper in the next three years. the majority of those units were in PG county - a different universe in terms of the market.

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  29. The delivery date for Jenkins Row condos was set to be at the end of 2007, since the started selling.

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  30. This blog is useful because it contains contrasting anecdotes that allow readers to draw their own conclusions. Here's our contribution to the collective knowledge: We own multiple investment & rental properties around NoVa and Dc. Values in some communities have declined about 18-20% (their rents have only gone up only slightly - i.e. <5% ) while properties in other communities have marginally increased in value (their rents have gone up dramatically - i.e. over 70% ).

    For Example:
    - Tiny condo in NW DC rented for:
    $1650 in 2005
    $2300 in 2006
    $2850 in January 2007.
    $3000 beginning in March 2007
    Sales prices of comparable condos on that street and in the building increased 2% in 2006

    - Townhouse in Ashburn
    Dropped about 19% in value from
    $460K in Summer 2005 to
    $335K in Winter 2006
    Rent increased during that year after being flat for years
    $1750 in 2002
    $1695 in 2003
    $1780 in 2004
    $1900 in 2005
    $2200 in 2006
    $2400 currently

    - Townhouse in Annandale
    Increased in value from
    $395 in 2005 to
    $410 in 2006
    Rent declined
    Less than $2000 from 2001 - 2003
    $2290 in 2004 - 2005
    $2400 in 2006

    -Sold property in Burke after the 2006 "bust"
    Same model sold for $379K 2005 (better condition)
    Sold ours in mid 2006 for $499K
    2 homes of that model sold in 2006 for $448k & $464k
    ( about 10% drop but still well above the 2005 prices)

    Our rents can be trusted as a conservative indication of how the market is doing in different areas because we raise rent often but have never had a vacancy because we lower it as needed.

    Conclusion: Sweeping statements and predictions about the "NoVa/DC real estate market" don't match our experience over the last 20 years (particularly the last 5 years). Downtown DC actually has multiple markets and markets such as the Dulles Corridor, "Inside the Beltway" and Fairfax County all have different dynamics. We've benefited most by monitoring each market as a unique community.

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  31. I don't know where all of you live, but where I live, even in April 2007, houses sell almost as fast as they come on the market. I live on Capitol Hill, not far from Eastern Market. There are zero houses for sale on my block or neighboring blocks. It is probably because I have a 10 year old row house, which seem to be popular.

    Five years ago, I moved from a large Gaithersburg house to a small row house...and boy am I glad I did. I can't imagine what my finances would be like now if I had rented those five year. I wouldn't get the amazing tax return I get, I wouldn't have equity...what a mess.

    You can dream about 50% price drops until the cows come home...until you get older and older waiting for the drop. Good luck.

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  32. Has anyone tried to terminate their contract at Jenkins Row on PA Ave. in DC because the developer has not delivered in the 2 year required time period?

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