- June 1st 2006: 20,675
- July 1st 2006: 22,959
Wednesday, July 05, 2006
Available Inventory Exploding in Northern Virginia
Inventory is exploding across Northern Virginia. On the MLS the number of available listings in Northern Virginia has increased from:
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Same thing happening in south eastern virginia now. Bad times to come, I fear, considering that there's a lot of dependence on real estate in virginia's private sector economy. At least where I am you drive down the road and you see one real estate agency or mortgage broker after another. I want home prices to fall to reasonable levels, but not an economic train wreck. If half these places shut their doors it's going to be painful... and will put that much more downward pressure on real estate.
ReplyDeleteummm... inventory always expands month to month from May to June.
ReplyDeleteBetter to look at the YOY differences, which have been varying between 300-400% since December.
Prices will have to fall a lot more before people like me even consider entering this market. The potential buyers who are left just don't have any interest at these prices.
ReplyDeleteThe fact that inventory keeps increasing (despite sales not moving up much, or even moving down) casts doubt on those lines we see in many newspaper articles, where sellers bluff that they will not sell at some discount price, but rather just keep the property. Yet few sellers seem to be removing their properties from the market.
A Redskins fan
Inventories rising as we head into slower sales months is a recipe for trouble. Expect a substantial number of sellers to reduce prices further (especially sellers in outlying areas and sellers of condos).
ReplyDelete"ummm... inventory always expands month to month from May to June. "
ReplyDeleteThis is June 1st to July 1st. 11% is huge.
Rents Rise as Apartment Market Is Squeezed
ReplyDeleteBy Kirstin Downey
Washington Post Staff Writer
Wednesday, July 5, 2006; Page A01
www.washingtonpost.com/wp-dyn/content/article/2006/07/04/AR2006070400969.html
Lance,
ReplyDeleteThe article you point out specifically targets well off individuals and consistently reports their reason for exiting the market as they think prices are too high to own.
Well qualified buyers are leaving the market or at least moving purposefully to the sidelines. Rents will rise while home prices sink.
My $0.02.
Lance,
ReplyDeleteInteresting article on rising rents. But those of us who were priced out of the buying side of the market will just have to come up with a way to pay our increased rents. We don't have much of a choice.
No one doubts that rents are going up, lance but
ReplyDelete"The surge of well-to-do new renters is attracting developers, and at least 4,000 units that had been planned as condos will instead be leased as rentals over the next two years, according to a new analysis by Delta Associates, an Alexandria real estate information company."
This too, will be moderated.
I can say with comfort that I'm not biting my nails waiting for rents to catch up to my $3000+ monthly cost for a one-bedroom to justify my having bought it, paying way too much for several years while waiting.
I will buy a 2 bedroom, after prices fall, and then feel confident that rents have or are about to catch up, not some faint glimmer of hope that the investment will make sense in a "few" years.
FYI, during the 90s crash, there were situations where people bought to LOWER their monthly payments below rent.
So this will not prevent prices from falling once the downward momentum catches hold.
Lance, thanks for linking the article that shows the affluent realize housing is overvalued and are selling now while prices are still high. The affluent realize renting is a huge bargain compared to buying at today's prices. Thanks again.
ReplyDeleteLance,
ReplyDeleteIn that article, it says something like there are currently 26,000 rental units in the DC area, and something like 43,000 (may be more, going on memory) in construction.
Now what makes you think that that kind of massive increase in supply is going to increase rents?
A Redskins fan
mytwocents said:
ReplyDelete" Rents will rise while home prices sink."
I believe it'll be more a matter of rents skyrocketing while home prices stagnate. Rents lag housing costs which are a main component of rents and thus help drive them. It's interesting to note that the very mechanism that will provide sufficient rentals for all the renters out there (i.e., conversion of would-be condos to rental units) is also the mechanism that will speed bringing today's costs of housing to the rental price equation. (Yes, there are landlords out there that bought for low a long time ago and don't need to raise rents, but the new ones will in order to meet their mortgage payments ... and once they start asking and getting the much higher rents --- as they will in such a tight rental market --- the other older landlords will follow suit. The greater fool theory in reverse?)
Redskins fan said:
ReplyDelete"In that article, it says something like there are currently 26,000 rental units in the DC area, and something like 43,000 (may be more, going on memory) in construction.
Now what makes you think that that kind of massive increase in supply is going to increase rents?"
It also supports my theory that the newer units with their higher underlying mortgage costs (i.e., what it cost to buy/build them) will drive the rents in this area sky high. This is typical when you have exploding housing costs as we have had. I don't know where to go to get the figures to show you, but I have personally experienced this "phenonmenon" several times in my life time starting when I still a teenager living with my folks. And incidentally, they'd done the "sell and rent" route. It worked out in the beginning as they relished their new found wealth having sold the house they bought in '59 for $14,000 for a whopping $55,000 in '79. After my dad passed away, I had to help my mom get in a house of her own again ... which luckily she is now able to afford thanks to a reverse mortgage. Like I said earlier, I see nothing wrong with renting as a short term solution, but like VA Investor said, if you are reasonably sure you'll be staying put for 5 yrs or more, it is much better to buy ...
I see a raise in store for me for the next few years. I remember when people lined-up to rent from me in the 90's.
ReplyDeleteOf course, I don't need to raise rents. But I will and I will apply the extra dough to principal.
If Lance is a realtor, sparring with him on this forum just allows him to sharpen his arguments that he'll use to take advantage of less-knowledgeable prospective home-buyers. While houses are not moving, Lance gets a free education on how to sway buyers (and put more cash in his pocket).
ReplyDeleteI wonder what advice Lance gives to prospective buyers in this falling market? 5% below comps, perhaps?
Polish Knight said:
ReplyDelete"By the same token, a flipper who has a $1,700 minimum finance cost on a 1 br condo can either rent it out at the MARKET RATE of $1,200 a month or so and lose $500 a month OR he can lose $1,200 a month while the unit sits empty.
At the same time, the inventory stagnating on the market for sale also sits empty and demands payments to be made, month after month..."
Good analysis, however it is based on the assumption that most everyone out there is something like 100% financed. In truth, 40% of homes are owned free and clear and 80% of second homes are owned fee and clear. (Flippers properties could be either.) Yeah, I'm sure you have a bunch of individuals out there who bought with little down trying to make a killing and your scenario will bare out for them, BUT most of these units being made available are in large developments which have been put together with people/organizations with substantial means behind them. Chances are they aren't 100% leveraged, and even if they are, it wouldn't be difficult for them to ride this out. And with the weight they carry, they WILL set the rental rates in this area ... especially given the tight rental market. As you said, the renter has one of three choices (a) move out into the street (b) pay more or (c) take in a roommate. I don't see the "affluent" renter which we've been talking about picking either (a) or (c).
David, Bill aka HousingNews/Bubble Meter might be looking to move in with someone. Need a roommate?
Anonymous barfed ...
ReplyDelete"If Lance is a realtor, sparring with him on this forum just allows him to sharpen his arguments that he'll use to take advantage of less-knowledgeable prospective home-buyers. While houses are not moving, Lance gets a free education on how to sway buyers (and put more cash in his pocket)."
Like I've said repeatedly, I am not a real estate agent. I am someone with an interest in the matter and would someday like to do as Va Investor has done and use it to support me. You have me wondering if YOU are a real estate agent? ... Hoping people will wait till rents get pushed so high that you'll have desparate people at your door ready to buy anything at any price? Why is it that when confronted with facts from Va Investor and I, you have to resort to trying to discredit us rather than arguing back with your own rational analysis like others including PolishKnight are doing? Are you afraid that if word gets out of where we're going you'll have some competition in buying the currently stagnated condos out there? Real Estate been slow for you?
I love the utter brilliance of the members of the Bubblehead Faith: They - and they alone - are keen enough to know exactly when to market-time their purchase, so that they will buy a McMansion for pennies on the dollar using the massive amount of money they have been socking away durign their years of renting.
ReplyDeleteOf course, it will take a major economic collapse for that McMansion to be worth a fraction of its original price, but have no fear oh ye members of the True Faith! The members of the Sacred Bubblehead Faith all have their down payment funds in investments that will survive such an economic maelstorm.
And of course, the members of the One and True Faith all have jobs that are completely immune from the economic disaster that will send the US economy into depression, thereby makign those McMansions available to the Bubblehead faithful who will swoop in and pay pennies on the dollar.
Members of the True and Sacred Faith of Bubblehead do not need to be dissauded from their dogma or creed. They know it to be true because they need it to be true in order to justify their financial and housing decisions.
Does anyone know the number of rentals available through rental companies versus individual landlords?
ReplyDeleteLarge rental companies will move quickly to find what the market will bear - and I don't believe this will be rapidly rising rents. At least, no where near rapid enough to keep/catch up with the 20% YOY gains seen on the condo side of things.
The rental market is bigger than just the few purchasers of the last year buying at the peak.
My $0.02.
I wonder the same thing twocents.
ReplyDeleteSome landlords (like mine) bought years ago and therefore can offer cheap rent and still make a nice profit. Others bought last year and can't cover their mortgage for going rental rates.
And then there are companies - i see them as in a different boat completely. It is harder to predict what they will do.
if 4K rental units come on the market.
ReplyDeleteThe rent increases will remain pretty
contained.
2nd page in that article.
"There are some 26,600 condo units being marketed in the Washington region
But there are some 48,000 units moving toward construction in a market where prices,
though not falling, have already gone flat."
I think eventually upto half of the 48K could be converted
into rentals, as the condo market further weakens.
http://www.dclofts.com/newcondosdirectory.html
The amount of condo creation in DC is obscene.
"Like I've said repeatedly, I am not a real estate agent.
ReplyDeleteI am someone with an interest in the matter and would someday
like to do as Va Investor has done and use it to support me."
Is that better? It still represents the same conflict of
interest. If he is not one today, he wants to become one
in the future.
"If Lance is a realtor, sparring with him on this forum just allows him to sharpen his arguments that he'll use to take advantage of less-knowledgeable prospective home-buyers."
ReplyDeleteConsidering the ridiculous nature of the bubbleheads' arguments posted here, which by the way Lance easily counters, I don't think this site would help Lance if he were a realtor. Maybe if Lance were a comedian some of the bubbleheads' arguments could help him with his act.
"if Lance were a comedian"
ReplyDeleteHe is one. I find him entertaining.
And if anybody buys a house on lance's
arguments. They will share his fate too.
One would have to be smarter than that.
"so that they will buy a McMansion"
ReplyDeleteThis is NOT everyone's aspiration
What is Lance's "fate"? Forty plus percent equity? 30 yr fixed rate loan at historically low levels? Freedom and satisfaction of Homeownership? Declining real costs of mortgage payments?
ReplyDeleteWhat is Lance's "fate"?
ReplyDelete50% drop in home prices.
That will leave him with a
negative equity.
This, my friends, is where I get the Depression talk from. It is statements like "50% drop" with no discussion of the economic fall-out that cause most rational people to discount the Bubblehead rhetoric.
ReplyDelete"no discussion of the economic fall-out"
ReplyDeleteOh yeah. All hell will break lose.
If you are thinking too big to fail.
Wait and see when it happens.
"Wait and see when it happens."
ReplyDeleteBrilliant analysis. I'm convinced. By renting a noisy, smelly, small apartment, sharing it with roomates and furnishing it by shopping at Ikea, I'll make myself immune to economic catastrophe. Thanks for straightening out my life, Bubbleheads! Now, back to my low-paying job as a clerk for the Feminine Napkin Manufacturers Association. (my job will be immune to the economic catastrophe I so desperate want to see materialize. You'll see when it happens!)
anon said:
ReplyDelete"Is that better? It still represents the same conflict of
interest. If he is not one today, he wants to become one
in the future."
Va Investor is not a real estate agent. He is an investor. Buys properties and then lets tenants pay off his mortgages for him with their rents. I guess you could say he is an "enabler" for the commitment-phobes out there ... Let's them pay to buy a house without their having to commit to buying a house.
"low-paying job as a clerk for the Feminine Napkin Manufacturers"
ReplyDeleteNo. I am a software developer by profession.
And by no means it is immune to economic downturns.
"Let's them pay to buy a house without their having to commit to buying a house."
He buys properties at a premium. Then rents it out a 30-40% dicount to renters.
Thatz an INVESTOR!!!
Nathan,
ReplyDeleteI know of only 1 person who sold his townhouse "at the peak" and is now waiting on the sideline. He made approximately 100K per year over 3 years for owning.
However, I also know about a half a dozen couples that have decided to rent for now. In the late 90's through 2001, it was standard for young, professional, couples that just married to join forces and buy that starter home. Now those that I know in that same situation are opting to sit on the sidelines and wait out the massive runup. Even if only to see what happens. The last 3 years have been crazy in this market and not everyone was ready to buy prior to that. (For what it's worth, many of these couples I know make well into 6 figures.)
I fail to see why this is an attitude that's so scorned by the housing bulls. Even VA Investor has said he hasn't purchased a property since 2003 because it was too expensive for him to build his business with.
My $0.02.
"Hopefully your software development skills are better than you English grammar skillz."
ReplyDeleteTake it easy pal.
"
ReplyDeleteTHE RESULTS WILL BE DEVASTATING!!!"
those i/o mortgage holders may refinance at still-low rates, or
they may continue to pay, what $2500 per month in interest (only) on their half-mil house for the next few years (this isn't all that expensive, you know) or
they may sell and make a bit of a dip in the average sale prices in their neighborhoods, thus making homes a bit more affordable for others.
devestating.
"I live in NW CHEVY CHASE DC "
ReplyDeletemany things may be correctly inferred from this statement
a) you are wrinkley in appearance
b) you have a whithered, disused member
c) you are confident in your superiority as a white male
d) you have as many chins as parens show below:
now, go ahead and deny it all
:))))))))))))
Isn't Ken Heebner a real estate investor?
ReplyDelete"Kenneth Heebner, who since 1994 has managed the $1.2 billion CGM Realty Fund. It has the best 10-year record of all real-estate-focused mutual funds, according to fund tracker Lipper Inc.”"
“WSJ: How is the housing market?
Mr. Heebner: A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we’re going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.”
I think San Diego and Phoenix are far more bubbly than the DC market, so Heebner's 50% price decline argument might apply more strongly to them than to DC. And of course Mr. Heebner has his own interests that might drive his responses.
But the housingheads here casually dismiss any housing bubble talk and any mention of price declines, or, worse yet, respond with juvenile attacks on the "bubbleheads". Yet Mr. Heebner, an extremely successful housing investor, a man who made plenty of money in the real estate boom, believes there's a large bubble.
You don't have to agree with Heebner, but it really does look childish to be so petulant about "bubbleheads" and how they're "losers" hoping for others to be "miserable." When you talk like that, it looks like you have no real arguments.
I kind of suspect that some of the housingheads here bought at a good time, like the late 90s or 2000-2001, and bought for good reasons, to have a place to live and because the payments fit into their budget, because the cash flow from renting it out was positive, etc..
Most people who bought at his good time and then benefited from the large price runup had the good sense to appreciate the role that luck played, and didn't think that their good fortune was a reward for virtue or intelligence or foresight. They realized they made a personal decision that payed off in ways they couldn't have foreseen.
But some thought that their gains from large price appreciation showed how brilliant they were. It didn't seem to occur to them that actual brilliant people had made far more money in builder stocks. These people, who thought their housing appreciation was a return to their brilliance, acumen, and moral virtue, became housingheads.
The housingheads thought their house appreciation showed their foresight and moral virtue, and showed how real estate was always a good investment, and how they were so smart that they had figured out that they could make money by buying real estate all the time. Conversely, in the warped housinghead worldview, those who didn't buy housing all the time regardless of circumstance must be stupid, cretins, inferior.
The housingheads sold the homes they bought in 1999-2001, and bought even more expensive places in 2005, at the top of the peak.
So now, as evidence mounts in favor of a bubble, the housingheads get very, very emotional. The housingheads get so emotional because this isn't just a financial issue to them. It's an issue of their self-worth. If they made a dumb decision by buying in 2005, it means that they're not the geniuses they thought they were. It means that the appreciation they got from buying in 1999-2001 wasn't a return to their intelligence and moral virtue; it was just a lucky residual they got from making a good choice for personal reasons. That's why they're so vicious and childish. For them, it's not about money, it's about their self-esteem.
Keith,
ReplyDeleteI don't see anyone advocating "investing" in RE right now. Buying a home to live in is a different matter - particularly if you are merely trading up or down.
I've owned rentals for almost 25 yrs, so I don't think I fall into your Housinghead definition.
For me, it is not a matter of self-worth but net worth. My tenants have made me millions. Or, better said, my decisions to buy real estate have made me millions.
I would buy TODAY if the right deal came along. I bought two places last year - one at 15% of value and the other at 35% of value. Paper gains, of course. And not "new" money; rather, 1031's.
VA Investor,
ReplyDeleteYou are a rare breed. I tend to agree with Keith because I have seen it first hand from so many people. Mind you, most of the people I know are early 30's or younger and have only purchased their first starter home ever. Most bought either because they got married and wanted a house together, or their rent was skyrocketing and it was CHEAPER to buy.
Most of these purchases were 2003 or earlier. Since then, without fail, all of these individuals rage on about their investment savvy and acumen. How brilliant they were to buy real estate.
This is fine if a little misguided. However, there's an implicit condescending tone in their voice when they speak to people who haven't purchased or are now (2006) afraid/can't/won't buy because of the massive runup in prices.
When a 25 year old tells me I can't go wrong buying real estate I'll roll my eyes.
When a real estate (VA)investor of 25 years tells me it's a long hard road, but don't shy away after the next 12 months, I'll listen.
My $0.02.
twocents is right. And so is keith. Note what va-investor said, 'I bought two places last year - one at 15% of value and the other at 35% of value.'
ReplyDeleteIn real estate the money is made when you purchase, not when you sell. Va_investor buys low.The Lances of the world did not. 2005 can never be considered buying low.
What I see among my peers is this. Buy a house for $150K in 2004. Sell it for $300K 2 years later. Roll all that equity into a house that costs $500K. But now you have gone from a $150K mortgage to a $325K morgage (assuming the $150K profit from the other place and $25K in acquired equity through their mortgage, which is VERY generous).
Now, if the market falls even 20% (in a sharp drop or flat prices over time), they will have lost $100K. Almost all that equity profit they gained on the last sale is now gone. Yes, they have the bigger house (and for some people, that is very real and important) BUT, that $100K is gone now. They could sell for the $400K their house is now worth, but the mortgage was for $350K so their equity is greatly reduced and they have to downgrade or leave the area to afford to pocket that cash. Unsold equity can't put their kids through college, or pay for their retirement.
I know that most people who will experience this will never really feel the pain. Or even realize how much equity they flushed down the toilet. But true financial comparisons have to consider lost opportunity costs and how much they could have made 'investing' in something else.
Anon,
ReplyDelete"The Lances of the world did not."
Bad call, like the 2 condos before it, I bought the house with instant equity (not counting the down payment). A couple realtors have told me I underpaid by about $200K on it ... No, it --- like my last condo --- wasn't on the market when I found it. Like I've said, you make your own "deals" and they can be made in any market. Just don't go counting on a mass 50% reduction. First, it ain't gonna happen. Secondly, if it did, it would last all of one day as the bubbleheads wrestled over who was going to buy these discounted homes.
anon 8:27,
ReplyDeleteI think you are mistaken about the move-up house. This is where you will raise your children and send them off to college. It is not always about the BEST investment. Afterall, "best" in what respect?
This is your home. If it makes you happy and you can afford it - what "price" is that worth? And, again, due to inflation, the cost will seem down-right cheap in 10 yrs.
I'll be leaving now. Going to the beach house. Good investment? So far. Best (vis-a-vis) opportunity cost? No. From a quality of life standpoint? Bought it 15yrs ago - best thing we have ever done. Can't put a price on it.
Life is not always about the money.
Have a great weekend Va Investor!
ReplyDeleteA couple realtors told you that you underpaid?!?!?! Once again, LOL and you still bought in 2005.
ReplyDeleteVa_Investor is confusing financial arguments with emotional ones. He enjoys his beach house. Great. He also admits he could have made more investing in something else. Since bubbleheads are not emotionally attached to the places where they live (and are worse citizens, as lance pointed out) we tend to focus on the purely financial aspects and discount the rest, yes. But I doubt Buffett bought Coca-Cola Co. because he liked the taste. These are financial decisions.
Again, books like 'The Truth About Money' and 'The Millionaire Next Door' explain why the home you live in is NOT an investment - and it is largely due to the emotional aspects of owning. Mainly, that money you spend on your home should be only for the enjoyment of those upgrades, not for the re-sale value. Furthermore you should spend as little as possible (as in a low payment, fixed mortgage) so that cash is free for other (more lucrative) investments. Right now, having both a low payment fixed mortgage AND enjoying the place you live is out of reach for most.
A sizable down payment can help make those mortgage payments small. So bubble head renters like me are saving up while renting. What's so wrong with that? Maybe prices will even drop in the meantime. When the times comes to buy, I will enjoy my house for what it is. A place to relax and be comfortable. Not my hopes for my kids tuition or retirement. That will be covered by real investments.
polishknight, how often do you visit the 'late night video' store on route 7 in your 'hood? got a lot of nice peruvian chicken bbq joints catering to the mass of illegals around there, too. gotta drive to each and every one of them, though. nice. but at least you got your videos....
ReplyDeleteMMMmmmm....Peruvian chicken...cheap, delicious, and lots of food.
ReplyDeleteBrilliant analysis. I'm convinced. By renting a noisy, smelly, small apartment, sharing it with roomates and furnishing it by shopping at Ikea, I'll make myself immune to economic catastrophe. Thanks for straightening out my life, Bubbleheads! Now, back to my low-paying job as a clerk for the Feminine Napkin Manufacturers Association. (my job will be immune to the economic catastrophe I so desperate want to see materialize. You'll see when it happens!)
ReplyDeleteJuly 05, 2006 10:58 AM
I think you have it backwards. If I want to live in a noisy, smelly, small dwelling with roommates, I would buy now. Instead, I have a spacious 2 bed 2 bath rental in a new building with a concierge, swimming pool, weight room, etc. 2 blocks from a metro in a very desirable part of town. To purchase a similar place my mortgage would be twice my rent (I know, I've been looking.). In most parts of the country, I could live very well on my salary, but in DC, I'm relegated to living in a cramped townhouse or condo if I buy. That's part of the problem in DC, you simply can't find a decent place to buy at a remotely reasonable price. So many people my age are looking elsewhere, seeing that we can maintain our salaries in other parts of the country and live very, very well (example - Charlotte, where a 4 bdrm, 2 car garage home with a big yard in a nice neighborhood is cheaper than a 2 bedroom condo here). So, yep, call me a Bubblehead. But when rents (even rising rents) are still nowhere near monthly mortgage rates, a ton of new construction is coming down the pipe, and people are starting to flee DC, yes, I'd say the Bubble is coming.