Sunday, April 16, 2006

Housing Markets that are particularly Interesting

Here is a partial list of the housing markets that are particularly interesting.

Los Angeles - Aka 'Epicenter of the housing bubble.' Huge market where prices are way out of whack with median incomes.

Las Vegas - Not only do they gamble in casinos, but here they gamble in the mortgage broker's office. The Las Vegas economy continues to be VERY dependent on the housing industry and tourism.

Bakersfield - Central Valley, California. Incomes way out of line with housing prices. Price have more then doubled in the past 5 years. Where are the high paying jobs to support the surge in home prices?

Miami - Where the construction crane is the unofficial bird of Miami. The condos developments have inundated by flippers looking for a quick buck. Inventory has rapidly risen in the past year especially for condos. The hurricane season starts in a month and a half.

Washington, DC - "It is different here" says some as they point to the Federal government and all the high paying contractor jobs. Is it? Will the Washington, DC area see significant price declines?

Which housing markets do you find fascinating?

36 comments:

  1. I think there is some merit to the argument that DC is different. The local economy / population growth may provide some shield to this area. However, it's still my opinion that the run up in housing prices in the DC area is not entirely caused by population increases and a strong local economy. That is only a small contributing factor. It's not just coincidence that the run up in prices occured side-by-side with price increases throughout much of the country. We will have some serious price declines in the DC area - especially in the very outer suburbs. Those declines may be slightly lower than some other areas.

    Our government can't keep spending like they have the last few years. At some point the local economy will have to take a downward turn and then we will be at just as high of a risk as anywhere (if not higher).

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  2. Phoenix. Inventory explosion capital of the bubble. 300 per day the last 5 days. 200 per day moving average. 42,000 for sale in a metro with 3.8 million people and 1.2 million dwelling units. 3.5% of all housing for sale exclusive of new construction.

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  3. robert,

    Agreed. :-) I am actively watching Phoenix. Thanks

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  4. I live between DC and Baltimore. At one of the DC real estate investor association meetings, they said to look out for Northern Virginia condos (too much inventory) and the McMansions over in Loudoun County (inventory, along with people in debt up to their eyeballs!) as a couple areas most likely to see a price decline. I agree with jj that the local economy cannot be continually supported by federal spending the way it is, except perhaps in the area of homeland security.

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  5. Phoenix (explosion in inventory plus the fact a lot of the new jobs are related to housing)

    Sacramento (obviously overbuilt)

    San Diego (ditto Phoenix)

    Boston (bubble seems to be deflating faster here)

    Naples, Orlando, Tampa, basically all of Florida

    Texas (due to the rolling bubble effect)

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  6. DC is not different. The "high" wages of contractors (like myself) are not anywhere near high enough to support the market as it has been for the last several years. As for the government workers, they make even less.

    With large amounts of inventory already in place and much more coming available in the next few years it will be very ugly indeed for DC and the surrounding area.

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  7. I agree that DC is not different. People used to come to DC for the high paying jobs because housing was relatively affordable. DC used to be able to retain college students, young couples, and new professionals.

    Unfortunately, excessively high housing is making the DC area unaffordable for potential homeowners. The salaries that were once considered high are minimalized by the exhorbitant costs. Add to high housing, high gas, and in Maryland high energy bills (72%!!!!) DC is not the hotspot it used to be, especially when companies are opening brances in places in the west and south that offer exceptional housing costs.

    I have worked in DC for 5 years and will be relocating to Raleigh,NC. I plan on purchasing a new townhouse for $150K (4 br, 4lvl, entire top floor is a master suite!) in a GREAT community. I am giving up a bit of nightlife and cultural outings that DC has to offer but my salary will remain the same.

    With a mortgage cut in half, and the fact I put down almost 50% on my new house I will have an extra $1400 per month at my leisure!

    The DC housing market gave me an exceptional cushion but I'm glad I'm getting out because the market is like the Dot Com era. It's all about to bust....

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  8. Any comments on house prices in Hancock Park Los Angeles?

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  9. Anonymous
    I have worked in DC for 5 years and will be relocating to Raleigh,NC.

    Raleigh is a great place to live! I use to live there 2 years ago. Unfortunately I had to relocate here, because there were massive layoffs there. Not only can you get a hugh townhouse for 150K, but those townhouses are absolutely beautiful. Raleigh has great resturants and great shopping. It is becoming cosmopolitan, but housing remains very affordable. I would say the only thing you are really giving up is the entertanment and proximity to high profile people.

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  10. DC is not different. I have lived in the DC area in four decades.

    I have watched good areas go bad and never recover. Newcomers are still told that half the city is off limits, as well as many of the inner suburbs.

    Many of these places used to be great areas in my lifetime. If you go back just a little further, all were.

    Yet I keep hearing that DC doesn't have the kind of recessions and depressions that other areas do. LOL. I have seen it! You can still see it in SE or parts of PG County.

    Nothing has ever stayed the same in the DC area for 30 years... ever. Or at least since the days of Powhatan.

    So I certainly wouldn't take out a 30 year loan unless the entry price was very low.

    But that's just me. All you experts who moved here two years ago... carry on.

    A Redskins fan

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  11. I have to agree with some of these comments here. DC is not different from any other bubble areas. There are not enough high paying jobs that justify the housing prices. A few thousands jobs opening for the DoD and Homeland security, which usually pay below 75K, is not enough to pay for 500K, 2 bedroom, poor quality condo. The problem with DC is the image. It radiated post dot-bubble era as the only place in the Northeast without serious jobs losses. Unfortunately, people do not realize that DC provides much lower wages in every field than NYC, NJ or MA. However, the cost of living caught up with the rest of the Northeast from utilities to insurance, while the income stagnated for many of us. Engineering jobs pay somewhere between 50-75K; never I have seen so many people under 35 living together, because they cannot afford to buy a house or rent decent apartment. Immigrants would not give big boost to housing prices. Without security clearance and US citizenship, many of that “high pay” jobs are out of reach for them. Another trend in DC is a flight of 30s-something, who cannot provide decent life for their families. I will be voting with my feet as well, because DC is not city worth of living under these costs.

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  12. You guys are forgetting that boom hitting the lobbying and legal industries. Since 2001, the number of registered lobbyists in DC have doubled. Incomes of lobbyists and lawyers have grown in double-digits in the past five years. A Republican controlled White House and Congress means huge pay days for lobbyists influencing GOP politicians.

    Unlike engineers or entry-to-mid level government workers, lawyers and lobbyists easily make six figures. Some partners make over $1 million per year in salary and bonuses. Those incomes help prop up tons of businesses in the DC metro area. When you have a higher per capita number of lawyers entering the DC market, that in turn, will raise real estate prices. If you have more higher-paid lawyers/lobbyists, you need to have higher paying professionals to join them such as doctors, business consultants, financial advisers, retail shop owners, architects etc.

    The DC economy is far more vibrant than any other city of the East Coast. You have New Yorkers coming to DC for "Wall Street" jobs. Tons of young professionals from all over the country are coming to DC looking for work. They won't have a hard time finding a decent job; unfortunately, looking for suitable housing is another matter.

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  13. However, I agree with most posters that the real estate market is on steroids. Despite the influx of high-income professionals coming to the DC metro area, you can't justify 40-60 percent home price increases in some neighborhoods.

    I have a solution for people. STOP BUYING. I would counsel first-time potential buyers to either wait out the market bubble or leave the area. Renting is a more affordable option. You might want to check out non-government jobs in other cities in the United States. You can enjoy a great quality of life outside of DC.

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  14. I live in Bethesda, MD (3 miles out from DC) The main reason houses go for sale in my neighborhood is death of owner or retirement. Most "regular" homes (600-800K)seem to still be selling within a couple of weeks during this Spring season. Unless everyone starts croaking in unison...I don't see a supply glut coming.
    ---I think investor owned McMansions are moving slower though (as are houses that are potential tear-downs). But, if I had 2 million to spend on a house, I might take some time to think about what I wanted.

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  15. D.C. is bubblicious but as others have noted it is in better shape than some California and other cities because it has pretty good trends helping to prop up housing demand (largest net growth in population of non-sun belt city, booming economic sectors, income growth, etc.). I think the 100% fully adjustable mortgage hit D.C. later than the west coast, so hopefully the default rate will be somewhat lower.

    My point is that DC is neither "different" nor "just like" San Diego, LA or Phoenix. It's sort of a mixed bag.

    The real test will be when a gadjillion new apartments (not as many as in Miami, but a lot) go on the market (for rent or purchase) over the next year or so, in DC, NoVA and MD. Condo prices will clearly suffer -- and the area will benefit from the greater supply of more affordable options -- but I suspect that the single family housing market will not decline nearly so much.

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  16. I think SFH in DC will see a slight dip. But I think the condo market is going to crash. It's too high, and there are too many being build to sustain the ridiculous prices being charged.

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  17. ihateyuppies-

    You are repeating a type of story I hear again and again. Look at how many (lobbyists, big lawyers, tech geeks etc.) there are now in DC. If one makes 150K and marries another who makes 100K then you can see why properties cost so much.

    The problem with these stories is that we do actually have data. You can look up the census data on DC area counties. The median HOUSEHOLD income in most of these counties (I haven't checked all the VA ones, but even in rich MD ones like Montgomery) is simply NOWHERE near those kinds of levels.

    Thus, I do not believe that DC housing has gotten more expensive because of double the lobbyists or whatever. It's gotten more expensive for the same reason real estate has gotten more expensive all over the country- easy credit and a population that believes what they read in the paper without thinking. Something like half the loans in the DC area last year were ARM loans. That probbaly has a lot more to do with DC house prices than a few more lobbyists.

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  18. Which Census income series are you (ihateyuppies)referring to? Not challenging, just curious. I find the Census website very confusing.

    I agree that easy credit is priced into the DC story as well. But, since interest-only loans are a very prudent lending options for high-income individuals...due to the advantages of leveraging...I see the rise in the use of interest-only loans in DC area as ambiguous...unless you find data that shows income distribution of borrowers.

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  19. ihateyuppies -

    The 40 to 60% number is way too low. In some areas the number is around 200% increase. My old townhouse was bought for $130k seven years ago. I think at the peak it was close to $400k.

    I still say that you could argue that changing economics in DC could possibly account for 20-25% increase in home values (inflation included) over the last few years. However, the 100 to 200% increase can't be explained by any fundamentals.

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  20. My fiance and I have college degrees (I am back in school for my MBA) and both work for the Federal Government. There is no way in hell we could afford these crazy prices on Federal Government salaries and maintain a comfortable lifestyle.

    We could get a home in the DC area if we stretched it, but that means a toxic mortgage, no children, and living one check away from foreclosure.

    After the wedding and graduation (a month apart), we've decided to vote with our feet and relocate to North Carolina or Indiana.

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  21. virginia investorApril 18, 2006 1:11 AM

    I have lived in this area (fx cty) for 25 years. It has always been highly expensive - save a few years in the mid to late 90's when prices and interest rates combined to make some relatively cheap living.

    We moved here out of college in 1981 and could not afford a one-bedroom condo in a bad area. Little has changed for those starting out.

    Just get your foot in the door (no pun intended) somewhere and start building equity.

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  22. There most certainly is a DC bubble in certain neighborhoods, at the very least. Something is seriously wrong with the market when I am priced out of U Street, Logan, or Columbia Heights at 500K for anything other than an 850 sf condo, but in Adams Morgan or even Upper Northwest (much more established and safer neighborhoods), I can at least afford a 950-1100 sf condo.

    One of the previous posters talked about people stopping the madness by not buying. I completely disagree. Continue to buy, but stop being so desperate and frantic! Refuse to pay 550K for 850 sf. It isn't about not buying, it is about not buying into their speculation and hype.

    Just my 2 cents

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  23. To Stephanie81:

    That's what's happening in the DC area. I know people are saying "Fuck this!" and moving out of town.

    I hope to be one of those people soon.

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  24. You are repeating a type of story I hear again and again. Look at how many (lobbyists, big lawyers, tech geeks etc.) there are now in DC. If one makes 150K and marries another who makes 100K then you can see why properties cost so much.

    I remember attending a wedding 10 years ago where an attractive 30 something woman lawyer was dancing with a lot of the men but didn't express an interest in them. The new brother-in-law told me that she refused to date anyone who wasn't a lawyer and had problems because as a lawyer she was too busy to date. What I heard next was insane: That she was considering buying sperm because she was getting worried about her biological clock. If she was too busy to deal with adult men, how could she handle motherhood? (Fortunately, last time I heard, she hadn't done this.)

    Books and style sections in major city dailies are full of discussions about these kinds of women remaining largely unmarried and/or childless. (I remember liberated women bragging to me 10 years ago that if their husband didn't earn at least a similar income to her AND also cook and clean so she could have time to pursue her dream career, she could use divorce court to screw him over. Many young men apparently got the message.)

    What this means for this forum is that there has been an explosion in DC for the cheap condo and townhouse market. Singles and unwed mothers have a huge demand for them along with immigrants on a budget. The single family home is largely a dinosaur of the Leave it to Beaver era. Sure, lots of large two parent families are still around but most of them are going to have a wife whose more traditional so they won't have a lot of spare cash to prop up the SFH bubble market.

    So there are a variety of complex factors going on in the DC metro area market. As another poster noted, plenty of neighborhoods in the DC area have gone to pot (although it's politically incorrect to point out why) which offsets new condo units coming online along with speculators dumping on the market. It will be interesting to see what happens to some of the fragile gentrified neighborhoods with $400K one bedrooms when the floor falls out.

    What's certain is that as the market continues to fall (note that I didn't say "if"), the argument that people "shouldn't stop buying" will sound increasingly hollow. Most buyers I've talked today largely do so based upon fear of the being priced out of the market totally. Remove that fear, and sanity returns to evaluating fundamentals. 1 year ago, every month rented saw a gain of at least that amount in the cost of the unit they were hoping to buy. It's quickly swung the other direction meaning rent becomes similar to paying down a home.

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  25. I have seen house prices tripled over the past five years. Some of these homes are old and very bad shape in run down neighborhoods. I have to laugh when I see the description for them as “splendid single-family home with magnificent view only for 699K”, while the street is littered with garbage, gutted homes, and depilated city infrastructure. What I had seen so far, these homes are not worth it to live even without the inflated price. Suburbs like Arlington, and Alexandria are not much better. Some homes in Arlington still have original pluming and roofing since FDR and are easily sold for 550K. They need another 150K to turn that hole into some habitable home. I strongly doubt the layers and lobbyists from Capitol Hill are moving into such “lovely” neighborhoods”. Many people could not afford to buy these ruins with salaries they get as federal employees. Problem with DC is the wide spread belief, that the city will never, never, never, experience economic downturn, because of the size of government. Some one told me last Saturday, that people will buy anything in DC to just get in. Even tree house and outhouse could be sold in DC as single family home, and people would be still interest in it. I believe him on that.

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  26. I can think of two things that would bring the DC real estate crashing down:

    1. A massive overhaul of the federal budgeting process. To bring the deficit under control, the White House and Congress would slash spending for several federal departments. This means riffing federal workers, closing agencies, and severe cutbacks for contract spending. Defense spending and federal IT projects would bear the brunt of the hits.

    The austerity approach would have an immediate impact on the Washington, DC region's economy. Unemployment would increase, businesses would file for bankruptcy, retail shops would close and real estate prices would come down big time.

    2. A Weapon of Mass Destruction is used in the Washington, DC area. If terrorists use biological warfare in the Nation's Capital, you would see a mass exodus like you have never seen before. The entire region would be de-populated for some time.

    A nuclear device is exploded in downtown DC near the White House or Capitol Hill. If this is a "Dirty Bomb", the downtown businesses and government agencies would be contaminated. This means massive relocation of workers who happen to be alive. Nonetheless, a WMD could kill hundreds or thousands of people with possible massive loss of property. This would cause panicked people to flee the DC area for good.

    People would not consider Washington, DC for career and family raising due to the WMD experience. Tens of thousands houses and condo units remain empty in DC, MD, and Northern Virginia.

    SFH's in once-hot areas like Arlington and Northwest DC would sell for only $100K and condos might go for a whopping $50K.

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  27. Or you could get killed crossing the street. At some point one must stop worrying and get on with life.

    Worry that housing prices will crash or some WMDs will wipe out D.C. causes paralysis. You only go around once.

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  28. I don't want the WMD scenario to happen. But we have to be mentally prepared for massive destruction and death from terrorism down the road.

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  29. My feeling is that when my number comes up it comes up. No sense worrying about something we can't control - whether it's wmd, cancer, car crash etc.

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  30. Doesn't "It is different here" sound like a cheesy tourism slogan?

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  31. Ihateyuppies, I agree with you.
    1) Federal government could reduce jobs’ positions, which would shake the housing market in DC. I don’t think it will happen, but considering way our federal budget goes…the government could begin to save money somewhere. DoD employs many people here as well, and reducing its size would certainly hurt suburban areas of NoVA and MD.
    2) Unfortunately, we have to live with the terrorist threat, and we cannot do much about it. I don’t remember the housing market immediately after 9-11, but I do recollect a lot of people moving from DC to suburb of Virginia at this time. I don’t think the terrorist threat (without your scenario of the WMD) would cause a significant damage to the housing market. For example London, which endured several decades of various terrorist attacks including the one last year, still posted rise of home values.

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  32. I grew up in Spring Valley, one of the leafy NWDC (yes, IN DC) neighborhoods where homes are now $3m. You could probably buy on Foxhall in the 90s for $1 or a couple mill. Today's DC market is not supportable. Yes, there are more lawyers etc etc, but watch the Abramoff issue tighten the reins on this insanity. That and maybe people will come to their goddam senses.

    Jerkstore

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  33. polishknight's personal anecdotal perspective is right on the money.

    tell us PK; when defecating, what perceptions do you have regarding the bond market? we anxiously await your sage advice....

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  34. No one seems to be comparing this period with the late 1980's and the nearly ten year stagnation in real estate prices that followed.

    My 2 cents are that SFH will stagnate or drop 10-20% over the next 7 years. Condo's drop more precipitously.

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  35. Speculative fools and lemmings. The service/housing-based economy is a crock.

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