Oil stayed within sight of a new record high beyond $75 on Thursday as investors fretted over gasoline supply in the United States, where drivers burn 40 percent of the world's motor fuel.These high oil prices are bad news for the housing market. We are likely to see 4$ gasoline prices in expensive gasoline markets sometime this summer (with the hurricanes or international developments). Tough times ahead.Prices have climbed more than $5 a barrel over the past two weeks, fueled by signs that U.S. pump prices near $3 a gallon have yet to pinch the wallets of motorists in the world's biggest energy user.
Thursday, July 06, 2006
High Oil Prices
Oil prices continue to rise. Reuters reports:
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I highly doubt that oil will top $4 a gallon this year. However, prices will continue to creep up for gas consumers.
ReplyDeleteI am so nostalgic for the good old days: I mean the 1990s.
1. Housing prices were the biggest bargain until about 1997-98. I mean someone making $50,000 per year could find properties in the inner suburbs and DC itself. Adjustable rate mortgages? What's that?
2. Gasoline prices were like 99 cents per gallon in many stations around the Washington DC metro area. I can fill up my tank with $10 and change. The bad side-effect of this cheap gas era: the proliferation of SUVs on the roads.
3. September 11, 2001 was a distant ominous point in the future. Osama Who? Al Qaeda What? Terrorism, huh?
4. Saddam Hussein was contained by UN sanctions...Remember the No Fly Zones?
5. For first time since the early 1970s, the lower income classes were gaining wealth because of the huge dot.com/IT/telecom boom of the mid-to-late 1990s. That would be evaporated after 2001.
6. We had a US President who got blow jobs from a certain intern. But at least he had a brain between his ears.
7. David really had his first blog in the late 1990s called the "Wall Street Bubble Meter". He warned everyone that the bubble with the NASDAQ and Dow Jones would be bad news for everyone. But no one listened.
This is bad news for some, and good news for others. The District will benefit from more people wanting to move into it to cut their commutes and/or enjoy a car-less life where one can walk to just about anywhere one wants to go.
ReplyDeleteA few points-
ReplyDelete1) Lance is probably basically right (higher gas helps city house prices (me- maybe they won't fall as much) and hurts outer regions). However, you could also see more companies and agencies "going where the people are" and setting up in West Virginia, etc.
2) People do not seem to be driving less. So why should prices fall?
3) I disagree with ihateyuppies that the 1990s were a golden age. His description of the 1990s reminds me a lot of Kunstler's prediction that as energy becomes scarcer, seedy politicians who promise to take us back to the 90s will emerge.
The 90s were like the heroin addict as he first discovers heroin (cheap credit and temporarily cheap energy as he takes advantage of U.S. geopolitical strength after the Cold War and Gulf War I). Then the current decade is when the addict starts to realize he can't go on like this forever (because easy credit never lasts forever and we are running out of energy).
The withdrawal is still to come. I fear it will be ugly.
A Redskins fan
I always laugh at the $3, $4, $5 gas prediction wrt housing. Expensive energy kills the cenurbs and acellerates the exurban diaspora.
ReplyDeleterobert-
ReplyDeleteI basically agree with you, but what is to stop the jobs from moving out to the suburbs?
Many suburbs host many huge office parks, etc. right now. Can't this trend continue?
I am not saying that will happen; just asking.
A Redskins fan
In'gin Lover,
ReplyDeleteTry driving around Ashburn VA on a weekday afternoon. No mass transit, and roads that are clogged with residents' cars will characterize your experience. Start concentrating more people and cars into the area via more office parks (ala Tyson's Corner) and what do you get?
Heck, just drive down Route 7 in Tyson's in either direction on a weekday at 5:30 PM, then come back to tell us why all the jobs won't move to suburbs.
Hmm..so if higher gas prices hurts discretionary spending that could lead to more people choosing to live closer to their jobs...which would mean greater interest in the closer-in neighborhoods of urban areas...which would deal with the "skyrocketing" inventory...which would mean no bubble "burst"...which would mean the Bubblehead Faithful have been led astray...which would mean that they will continue to have to rent because prices still won't drop the promised 50% or so.
ReplyDeleteIt would be ironic.
But as was pointed out above, gas has been around $3 for a while, yet driving habits are unchanged in the aggregate. Which seems to suggest that people will simply continue to make do no matter how high gas prices rise because they love their cars.
I think David's analysis is wrong, and is the result of nothign more than his overall bias on the issue. Instead of this being bad for the housing market, it's consumer spending that will be hit harder as people spend less on non-essentials to pay for the essential stuff. Going to the movies or buying more crap from Pottery Barn is non-essential; paying to fill up the tank and paying the mortgage is essential.
Lance,
ReplyDeleteThe high gas prices just push the recent home buyer further in the red. I hear public Transportation maybe a viable soultion for these poor souls.
Anonymous said...
ReplyDelete"Lance,
The high gas prices just push the recent home buyer further in the red. I hear public Transportation maybe a viable soultion for these poor souls."
Yes, and the sky is gonna fall too! You guys must be great fun at a party ... worry, worry, worry ... !
LOL. Lance, you are correct. I never get invited to parties. OTOH, that means I save money by not having to buy a show off house with granite countertops.
ReplyDeleteAnon 8:22-
Maybe you are correct. But I live in a suburb (Silver Spring) where I can walk to everything, and there are jobs. There are other suburbs (Rockville for example) with similar characteristics. You are probably right, though. I never make it out to Ashburn, even though my favorite team practices there.
A Redskins fan
DC_Too:
ReplyDeleteRegarding your hypothesis: Didn't Ford just announce that they were giving up on some of their hybrid models because sales were so poor? I believe the latest info also showed that SUV sales still were auto companies' biggest source of revenue, although sales had dropped from a few years ago for the largest SUVs (so instead of getting a Hummer, people would get a Grand Cherokee).
I'm not sure what to make of your fetish with oversized turkeys, but that is a matter to discuss with your shrink.
DC_TOO,
ReplyDeleteSOMEONE USED MY NAME. I DID NOT POST THAT LAST COMMENT!
Polishknight said:
ReplyDelete"I imagine... that higher fuel costs would tend to push more businesses _out_ of DC to where the middle class lives rather than push people in."
The only "businesses" in DC are the federal government, the lawyers and lobbyists that attend to it, and the restaurants and hotels that entertain the lot. There's not much of a chance that the White House and the Capitol will be moved out of town. As for the political and social reasons that people (i.e., read "white people") left DC to begin with have really been negated with time. I'm going to guess you are one of those Virginians that rarely cross the Potomac to enjoy everything an urban area like DC has to offer?
David said...
ReplyDelete"DC_TOO,
SOMEONE USED MY NAME. I DID NOT POST THAT LAST COMMENT!"
beware of Bill/aka DC Housing News/ aka DC Bubble Meter ... he has been known to use other's names ... and now that you are on his sh*t list ... well ...
i didn't see the post made in your name, but if it is Bill's, you should be able to tell from the way it is written if it resembles his posts. his writing is pretty consistent (and limited) in thoughts/ideas/belches argued.
"people will simply continue to make do no matter how high gas prices rise because they love their cars."
ReplyDeleteNot true of everyone, I am one of several friends in the late thirties that just ditched the car. We live in the city, with multiple modes of public transportation readily available.
And there are plenty of people who would like to live closer in but felt they couldn't afford it--if gas prices rise, the money "saved" by living far out decreases, so there is every possibility that the inner suburbs will become more attractive to more people.
However, this being America, the exurbs will not disappear, because there is the car-loving contingent.
Be wary of explanations that jobs will move out to the burbs/exurbs, too, creating "one-company" towns (more in the exurbs) has never been that great a move in the long-term for communities.
Or you're in the burbs and you recruit from different towns, not just the one you're in. This also creates traffic nightmares when people commute suburb-to-suburb. And the option of public transportation is generally not available burb-to-burb, it's the car for the daily commute. So it's not like there is a place where a company can locate its headquarters that eases things for all the workers.
"i didn't see the post made in your name"
ReplyDeleteI deleted it.
High gas prices will eventually hurt the economy. What shocks me is gasoline consumption isn't going down! Instead, we borrow more and more... anyone who thinks we can keep borrowing as a nation like this needs to see a shrink.
ReplyDeleteAgain, I make no predictions for the summer. But soon the market will correct. Its become impossible in San Diego, Los Angeles, and other areas to hire people from out of state at the salaries we can offer (and still make a profit). While gas prices are only a small aspect... they will add to the magnitude of the housing correction.
Either jobs are going to go where people can afford to work... or real estate drops enough to allow workers to buy closer to work. Its really simple math...
I do agree with Lance that high gas prices will drive people back toward urban living. But if someone is going to move anyway (from suburb to urban)... why should the truck stop at the state line? There is no way YOY prices won't be down 10%+ in October.
I wish Los Angeles had a better mass transit system... (e.g., rail to LAX, redline to Burbank airport, exposition line, grey line, etc.) But it doesn't. So we're going to get hit hard. DC *should* have expanded the metro during this boom (e.g., to Dulles)... but it didn't... :( We're now going to pay.
Neil
neil said:
ReplyDelete"Either jobs are going to go where people can afford to work... or real estate drops enough to allow workers to buy closer to work. Its really simple math..."
neil, it's probably a combination of both of the above PLUS an increase in salaries as well as a realization by people in this country that as we get bigger we have to do more like europe and depend more on efficient urban environments and efficient urban mass transit. this'll happen naturally though as the younger generations change the american dream from a "big house" to a "cultural experience in the city". I know now when I go to the burbs everything looks nice but I also remember how devoid of real life most of those areas are ... You are either in your car or in your home ... You never see the same people twice ... and don't even know who your mailman is. It's not life ... just a big house with a big lawn to mow. The younger generations are catching on to the fact that so much more can be had from life in an urban "walkable scale" environment. And this in the end is good for the economy and the environment.
This comment has been removed by a blog administrator.
ReplyDelete"I imagine... that higher fuel costs would tend to push more businesses _out_ of DC to where the middle class lives rather than push people in."
ReplyDeleteThat would be an accurate statement if it were true. You need to look into what organizations are buying land and building in DC. Also, consider the fact that empty nesters (babyboomers) are mushrooming as a demographic, and they really don't want to mow the lawn and be stuck in traffic in the remaing time they have on earth. They move to cities; the trend began years ago.
Higher gas prices mean Landlords will have to jack up rents even more!
ReplyDeleteLance said: "neil, it's probably a combination of both of the above PLUS an increase in salaries as well as a realization by people in this country that as we get bigger we have to do more like europe and depend more on efficient urban environments and efficient urban mass transit."
ReplyDeleteLance, I could only wish that we had urban planning like Europe. In Germany, I loved how the towns were built near Saltzberg:
1. A town center that was the bus stop, a quickie mart, and usually another small business or two (e.g., pizzaria)
2. Then a ring of apartments.
3. Then a ring of townhomes with tiny gardens.
4. Then a ring of small homes (usually duplexes, but not always)with slightly bigger gardens.
5. Then a ring of larger homes with large garden plots. (sometimes two rings of the large homes)
Then? Forest for a few hundred meters and then the next town. Due to the towns being laid out in a logical pattern, it was possible to hike for miles without ever seeing a building in the interconnected forest even though one never was more than 1/2 mile (1 km)from a house.
But that requires urban planning on a scale I just don't see in the US... sigh.... Most people take the bus to the train to work (often via a 2nd bus). Could that work in the US? Sure! Build a bus terminal at the local airport (usually the biggest destination, obvously mid-town or downtown Manhattan, the mall in DC, and a few other places are exceptions). Connect to rail... and viola! Workable urban living with attached suburbs...
Until that happens... Increased gas prices will hurt home prices.
Neil
Lance says "****PLUS an increase in salaries*****.
ReplyDeleteThis is the pet phrase of someone trying to find GFs to unload their property.
Salaries are NOT increasing and WILL NOT increase to catch up with home prices. Home prices will have to come down to to be in line with salaries.
If you demand higher salary, your job will be exported to China/India.
Its a new paridigm.
ReplyDeleteThey arent making any more oil.
Buy now before you're priced out forever.
$3 gas has caused me to slow from 65 to 60mph on the beltway. I really slowed just to piss off the SUVs and foreigners on cell phones, but the cost of fuel is finally just catching up with 20 years of inflation and is not a significant enough part of the typical budget to cause real change.
Oil will have to double again before gas cost affects home buying decisions.
anon said:
ReplyDelete"Home prices will have to come down to to be in line with salaries."
Why? In most parts of the world, and throughout most of the western world's history, the average person has not owned the place he/she lived in. Why is it a given that we "must" be the exception? ... especially given the politics of the last 3 Bush terms and the 2 Reagan terms beforehand?
I'm not a glass is half empty type. I'm a glass is on quarter full with a leek at the bottom type.
ReplyDeleteLance's answer regarding salaries increasing to meet housing costs...
ReplyDelete"Why? In most parts of the world, and throughout most of the western world's history, the average person has not owned the place he/she lived in. Why is it a given that we 'must' be the exception? ... especially given the politics of the last 3 Bush terms and the 2 Reagan terms beforehand?"
I have read various reports stating that some 40 percent of American home owners have no debt...they own their property out right. I can't believe that I had to use a "housinghead" argument point to counter a housinghead person.
Anyway, I think there should be a standard barometer for affordability. If your total real estate cost is more than 3 X your annual income; you simply can't afford the property.
Since I make a measly $55K per year, I can only afford up to $165K for a property acquisition. I think $165,000 in the Washington, DC area can buy me a tool shed in Lance's back yard.
What's ironic...that same salary about 5-7 years ago would have given me more buying options in better areas. Housing prices have doubled and tripled in some locations. Overall, I believe DC metro housing prices have increased 40-50 percent since 2000. Has my income increased 40 percent since 2000? Not quite.
When you have 100-200 percent increase of housing prices and average personal incomes increase by 10-20 percent in five years...you have a serious distortion of market fundamentals. Some people are speculating in the real estate market. Other people covet certain locations such as Northwest DC, Adams Morgan, Logan Circle, Arlington, Bethesda-Chevy Chase so much that I willing to over-bid for properties. This is not wise consumer behavior. Furthermore, this is not sound investment behavior either.
ihateyuppies
ReplyDelete"When you have 100-200 percent increase of housing prices and average personal incomes increase by 10-20 percent in five years...you have a serious distortion of market fundamentals."
What's next, two or more families in a house?
ihateyuppies,
ReplyDeleteyour 3X salary rule is your own self-imposed rule. when i bought my first condo 10 years ago - and earning far less than your $55K, the lender said they could up to 46% of gross income. That meant, my loan payment (plus all other monthly recurring debt ... i.e., credit cards) could't be more than 46% of my gross income. She said she could even go to something like 48% but that the interest rate would be higher. I went forthe 46% and barely made it taking on a 98% loan-to-value loan on that first condo. Using your $55,000 salary and plugging it in, it looks like you should be able to go to about $325,000 plus downpayment for a purchase. That would make it a $350,000 condo that you can buy if you have $25,000 to put down. (I can't remember if she added the condo fee to the mortgage payment or not, so it could be slightless that you can afford.) Yes, it was tough in the first couple of years ... it meant watching my pennies and no meals out 'cept for pizza slices at take out places ... but it was very worth it in the end. You can self-impose your 3X salary limit, but in the end we get what we sow. And if you are not willing to sow what it takes to get that house, you won't have it. No one is going to step in and make sellers sell it to you for that self-imposed limit you have.
i hate yuppies said:
ReplyDelete"I have read various reports stating that some 40 percent of American home owners have no debt..."
yes, that is correct. 40% of all american homes (plus investment/2nd home properties) are owned free and clear. and 80% of investment/2nd homes are owned free and clear. i would bet that the folks who own the free and clear primary homes are by and large the same folks who own the investment/secondary homes. that is not relevant to the people who don't own homes. just because there are people who own 1, 2, 3 or more homes, doesn't mean my statement that nothing guaranting average folks own homes is a false one. actually, i would think that the more homes that the very wealthy own,the more that is indicative of a society where more and more people at the lower end can't afford to own anything.
you are fortunate in that you are earning well above the mean for this country. i think the median family's income in the US is something like $35K ... you can afford something... it might not be where you want it to be and it might cost you more than you like, but you definitely qualify to own something if you want to.
lance
ReplyDelete"lender said they could up to 46% of gross income"
This seems unusual to me. The two instances I bought a house, 1986 and 2000, I was advised the price should not exceed 3x household income. I have heard this advice time and time again. I wonder if your lender is under pressure to get revenue irregardless of the risk?
ihateyuppies said:
ReplyDelete" Other people covet certain locations such as Northwest DC, Adams Morgan, Logan Circle, Arlington, Bethesda-Chevy Chase so much that I willing to over-bid for properties."
you cannot over-bid. by definition, bidding means you pay more than what the next fellow is willing (and able) to pay in order to get what you want. there are only so many properties available in the coveted areas you mention. the market properly allocates these by "selling" the properties to those most willing (and able) to pay for them. if you had something you were selling (anything), and you had 15 people wanting to buy it, are you going to tell me that you'd pull a price just out of the air and then flip a coin to see who got it? wouldn't it be fairer to see who wanted to pay what for the item and sell it to the person paying the highest overall price? wouldn't you rather receive the highest overall price?
WVU_84 asked:
ReplyDelete"What's next, two or more families in a house?"
that was very common among immigrants in the early 20th century ... and still is today ... just go out to the inner burbs where you have 3 salvadoran families to a house (you can tell by all the cars in front of the house.) funny thing is, these folks are probably happy to live in these conditions if it means living here ... i know my immigrant great grandparents were .. they had had it worse back in "the old country".
again, there is no entitlement to a house just because you are median-incomed.
Lance
ReplyDelete"that was very common among immigrants in the early 20th century "
That's right. Also very few people drove, most traveled by railroads. Gas prices are going up and Amtrak ridership is also increasing. Are we going in a full circle?
"Lance said July 06, 2006 6:46 PM
ReplyDeleteanon said:
"Home prices will have to come down to to be in line with salaries."
Why? In most parts of the world, and throughout most of the western world's history, the average person has not owned the place he/she lived in......."
Sure you or any investers/speculators can keep the asking prices high as long as you do not have to sell. But people who need to sell will bring the market down but it is your choice not to reduce your prices and keep dreaming of huge gains.
The bottom line is that when people can not afford they will not buy and if they went to exotic financing, it can keep the boom going for a while but not for a long period of time. It will get more and more difficult to find GFs to unload your property and even that can not continue after some time unless you come up with interest rates of 3,2,1,0,-1,-2.... types of short term financing and every next GFs will need to have cheaper and cheaper financing available to buy. Can anyone think of that happening? If not then speculators will get burned.
wvu_84 asked:
ReplyDelete" I wonder if your lender is under pressure to get revenue irregardless of the risk?"
Regardless of what you think may or may not be risky, the bottom line is that I was able to make the payments with sacrifice.
wvu_84 remarked:
ReplyDelete"That's right. Also very few people drove, most traveled by railroads. Gas prices are going up and Amtrak ridership is also increasing. Are we going in a full circle?"
from a socio-economic standpoint, your comment is right on the mark. we ARE reverting to pre-"New Deal" economics where less people are at the center and more are at either end. today's trolly line might be a subway or bus, but it is all the same.
"Regardless of what you think may or may not be risky, the bottom line is that I was able to make the payments with sacrifice."
ReplyDelete46% of your income?! Sounds like a major sacrifice. Is this why you spend alot of your time on this blogsite? I hope you have enough food.
Lance,
ReplyDeleteBy nature, I am a fiscal conservative person. I hold pretty steady to the 3x income rule. I can go as high as $200,000 for purchasing property.
What bothers me and my bubblehead friends is that more families are using a larger portion of income to purchase a slice of the "American dream". Unfortunately, it's not just housing. Health care and college education costs are increasing at alarming levels. Most people in this country are getting squeezed with all of these costs.
Time for P.R.I.C.E. C.O.N.T.R.O.L.S! Please feel free to insult me as a commie. But that fact that more people want universal, single-payer health care; that more people prefer to live in rent control environments; and the fact that expensive four-year universities are growing out of reach for low-income families tell me that Americans would be very receptive to containing excesses of the market place. Housing, health care, and education need to be reigned in under an activist governmental authority because the market is harming the population more than helping.
Feel free to call me a commie-loving liberal now.
I think what is so upsetting to people is not that they might have to scrimp, save and sacrifice to buy a home. (In fact, that used to be the norm and why it was consdiered the American 'Dream') It is that even those of us with graduate degrees and six figure incomes have to go to 46% of income to afford a not-so-nice 2bd condo, when 10 years ago this was a 5 BD single family home. It just doesn't compute.
ReplyDeleteWell who wouldn't be in favor of price controls? Everyone would love to pay regulated low prices for certain essentials. Of course, everyone would love to wake up to a nice sunny day with not a cloud in the sky and a gorgeous supermodel cooking them breakfast. I wonder which pipe dream is more likely to occur?
ReplyDeletei hateyuppies,
ReplyDeletei won't call you a commie, but i will remind you that no market controls of the kind you are suggesting were necessary in years past for americans to afford all the things you state.
the controls were at the "pay" end and not the "buy" end. minimum wage meant something, and corporations were encouraged to be good corporate citizens by providing good benefits and pay in exchange for longterm loyalty. all that is out the window now with each man for himself. i'm not going to repeat what i said the other day, but in sum what we need is for the government to enforce level playing fields between employee and employer and stockholder and stockissuer ... and what we don't need is central planning as is what you are advocating. Central planning just makes a bad situation worse by taking even more control away from the little guy. Now, not only does he not have any control over what he is recompensed for his efforts (since that is ramrodded to him buy the fat-cat employers) but now he also has no say in his buying decisions since some government wonk is going to be making those decisions for him. Ever see the government housing blocks that resulted from central planning in the Soviet Union?
Price controls are not the answer. In fact, they'll most likely make any situation worse.
ReplyDeleteTaxes and tax incentives are better way to drive behavior.
In a nutshell, define the type of society you want to live in, and then develop the tax code to encourage that.
Society values parenting and home ownership. Our tax code reflects this with various child tax credits and the home loan mortgage deduction.
In my opinion, a responsible step would be to limit the home loan mortgage deduction after a certain income level - or rather, cap the deduction. This way, you still encourage home ownership at the lower levels (and get all of the stabilizing/happy society stuff that comes with ownership) and you simultaneously discourage the rampant speculation and highly leveraged actions of the higher end as wealth grows larger.
This is just a quick thought on how you might continue to encourage home ownership yet reign in the incentives on the wealthy end through the tax code...
My $0.02.
By the way Lance,
ReplyDeleteI highly disagree with your cavalier attitude that it's okay for the "average" person to not be able to afford a home.
I'd think it was a pretty strong housing head argument that home ownership creates stability, creates an ownership society, and gives people a stake in their community.
A responsible governement/society will want this stability. If prices become too out of whack, government will have to find a way to solve the problem or else it'll be too instable of a situation.
You can't simply say "that's life" and let the top end blossom while the under belly so obviously rots away...
My $0.02.
mytwocents said:
ReplyDelete"I highly disagree with your cavalier attitude that it's okay for the "average" person to not be able to afford a home."
I never said it was okay. On the contrary I think I made it very clear that it is not okay. I said we had 2 terms of Reagan and 3 terms of Bushes to thank for that. (and I am being sarcastic when I use the word "thank" here.) I am very much in agreement with you that the tax code can/should be used to level the playing field as I similarly discussed in another post regarding protections for employees.
I still don't think anyone should feel "entitled" to a house or to anything else though. We need to earn it ... it shouldn't be given. Now, making it easier to earn it, as you suggest, by making the playing field fairer I agree with. I hope I clarified my stance?
You did. Thank you!
ReplyDeleteI equated your dislike of the sense of entitlement (which I also dislike) as implicit support of the trend to a have/have not gap.
Mea culpa,
My $0.02.
http://www.cepr.net/columns/baker/2006_03_30.htm
ReplyDeleteAnonymous said...
ReplyDelete"http://www.cepr.net/columns/baker/2006_03_30.htm"
This is old news ... Long ago discredited on this blog. It keeps coming back like a bad burrito. And since it is a one of a kind, it's not exact believable.
OK - honest questions - how was it discredited? Why? Just a summary of the main points. This is not sarcasm, want an explanation.
ReplyDeletehttp://www.cepr.net/publications/housing_indicators_2006_06.pdf
ReplyDeleteThis one also seems to give a good overview of the different types of information and how it should be considered.
Another comment that got me thinking...the selling price of a home cannot be known until it actually sells. List prices mean very little. As the market stagnates, no one knows what the selling prices are for the homes that continue to pile up. We only know the list prices.
ReplyDeleteAs was pointed out elsewhere - when everyone wants to exit the stock market, there is a crash. When everyone wants to exit the housing market...there is a run up in inventory, but homes have to sell for their to be price reductions.
Hypothetically, if no one is willing to buy, inventories could grow for years and home 'prices' would stay the same. Because until they sell for a lower price there has been no decline.
anon said:
ReplyDelete"Hypothetically, if no one is willing to buy, inventories could grow for years and home 'prices' would stay the same. Because until they sell for a lower price there has been no decline."
Or, if history is any guide, there is stagnation in both numbers of properties sold and in nominal price. Over time, inflation erodes the real value of the stagnated nominal value and buyer can indeed come in and buy the house for relatively less than what it cost some years prior. Note though that while those homeowners looking to sell have in some fashion "taken a loss", those staying in their homes are the most fortunate of all ... as they repay today's mortgage commitment with tomorrow's relatively lower real value dollars without having to pay the much higher interest rates that the future buyer consequently gets saddled with.
david, great blog, but I do wish you would treat all posters equally. Every time someones posts a counter argument to the "lets blame republican theory" you delete it. But you let lance spin all of his lies about bush and reagan. In reality, clinton had as much to do with this whole mess as anything.
ReplyDeleteAn excerpt from a story on cnn.com today:
ReplyDelete"Demand for housing within walking distance of transit will more than double by 2025, according to another nonprofit, the Center for Transit-Oriented Development. Even now, properties within a 5- or 10-minute walk to a train stop are selling for 20 to 25 percent more than comparable properties further away - a price premium that's likely to increase as traffic jams worsen."
http://tinyurl.com/gb4ag
DC_Too said:
ReplyDelete"Besides, nominal prices are already falling, so I guess we can surmise it wasn't and isn't "different this time."
That's your wishful thinking coming through. Prices have yet to fall. There was something posted here on this blog just a few weeks ago showing that. And in certain areas like the District, they are still rising quickly. You're confusing reductions in asking price with real reductions in value. Just 'cause a few folks got way too greedy and priced their prices way above reality --- and are now having to readjust their prices down --- does not mean values are going down.
Anonymous said...
ReplyDelete"An excerpt from a story on cnn.com today:"
Great story! What I found especially interesting was the fact that the McMansions being built today will have so quickly lost their appeal. This is very much in keeping with what happened to the McMansions of the late 19th/ early 20th century. Grand houses like those surrounding Dupont Circle and as well as 5,000 square foot rowhouses going up (and down) New Hampshire ...and along places like 20th and 19th Streets NW, where now only office buildings stand, were built by the prosperous new wealthy class of that period. Within 20 - 25 years, and as a recession hit, they lost all their appeal and were converted to boarding houses, office space, and apartments. It wasn't until a hundred years later with the coming of a new expansion in wealth (and the rvitalization of Washington), that they began to be reconverted to Single Family Homes ... with most remaining in the "sub-divided" use. It'll be interesting to see what happens with today's McMansions out in the far out burbs since they, unlike their predecessors downtown a hundred years ago, have zoning to contend with. Subdivision and/or conversion to commercial use won't happen as easily. I agree with the article that these large houses will be shunned for more compact, value-filled homes in the next generation.
"Demand for housing within walking distance of transit will more than double by 2025, according to another nonprofit, the Center for Transit-Oriented Development. Even now, properties within a 5- or 10-minute walk to a train stop are selling for 20 to 25 percent more than comparable properties further away - a price premium that's likely to increase as traffic jams worsen."
ReplyDeleteAs someone who works for a non-profit trade association, this sort of analysis has to be taken with a grain of salt. Of course the Center for Transit-Oriented Development annouces the demand for transit will grow. Besides, I am not sure why it is considered 'news' that people are willing to pay more to live near a metro station. Duh.
"I am not sure why it is considered 'news' that people are willing to pay more to live near a metro station. Duh."
ReplyDeleteIt is news because this is a blog devoted to the notion that all housing values, including those located in DC near metro stations, will fall by "30%-50%" in the next couple of years.
And, just jump in that 22-mile long traffic jam (on I-395/I-95 in VA). Tell us if you think the demand for transit options will increase in the future after sitting in that mess for just one morning.
Yes, those near metro stations will fall 30%, those not near transit will fall 50%. Of course homes with real, intrinsic value (because of location, unique features, etc.)will weather the storm better.
ReplyDeleteIt is very difficult to say how commutting issues wil affect housing since everyone has difference tolerance for a terrible commute and different options for coping. Some, for example, will telecommute, others will get a different job, some will put up with it where they are, because the schools are better for their kids in the burbs, even if it makes their commute hell. Some will attempt to move closer transit - but how many?
People who are willing to put up with 4-hour long round trip commutes on a daily basis "for the kids" aren't spending much time with their kids between commuting, mowing the lawn, and maintaining the cars in which they spend 20+ hours per week.
ReplyDeleteThese are the real "have nots" of our society.
The DC Metro was built in 1976.
ReplyDeleteThe DC are housing bubble started in 2001 or so, and has included non-Metro areas like Frederick County Maryland and Loudoun County Virginia.
Metro has nothing to do with the housing bubble Yes, near Metro locations will usually be worth more than non-Metro locations. But the absolute levels of both can be lower.
A Redskins fan
Yep. This goes back to the earlier comment that to justify the run-up in prices, a fundamental had to change, in a reasonable correlation to the increase in housing prices.
ReplyDeleteThe stats on mris seem to show the areas with the worst transportation access to DC have the Highest inventory and weakest prices. It seems intuitive also that the local bubble will collapse from the distant suburbs inward. Sell in Loudon and buy in Arlington, delay the inevitable.
ReplyDeleteLance,
ReplyDeleteMore people (total number, and as percentage of households) own their homes right now than did when Clinton was president. Or Carter, or Johnson, or Kennedy, or Truman, or Roosevelt, ...etc.
Ihateyuppies,
Same with college. More people go to college now than ever before (absolute number and percentage of population).
Same with healthcare. People live longer than ever before and I'm pretty sure more people than ever have health insurance.
P.S,
If anyone wants the cost of healthcare to go down, or at least not increase so fast, insist that Congress pass a law preventing employers from providing full coverage health insurance, limiting them to major medical only. (individuals could still buy full coverage.) Counterintuitive, I know, but noodle it through. Hint: why not employer provided "full coverage" auto insurance? It could cover maintenance, maybe even gas. Wouldn't that be a good idea? If not, why?
(Please don't tell me how special people are and they're different from cars. Economics doesn't care)
adam smith said:
ReplyDelete"If anyone wants the cost of healthcare to go down, or at least not increase so fast, insist that Congress pass a law preventing employers from providing full coverage health insurance, limiting them to major medical only. (individuals could still buy full coverage.) Counterintuitive, I know, but noodle it through. Hint: why not employer provided "full coverage" auto insurance? It could cover maintenance, maybe even gas. Wouldn't that be a good idea? If not, why?"
The difference here is that the employee is an asset of his/her company (i.e., human resource) and the car is not. It is in the employer's best interest to ensure that he/she is well maintained along the way and not just brought in "for service" when a calamity hits. It has invested training, corporate history, and "learning curve" in that employee and it prefers to ensure its asset is thus maintained. Yes, it could instead just pay the employee the extra money as your suggestion would de facto lead to, and let the employee decide if he/she is going to do the usual maintenance and little stuff, but that puts in jeopardy the company's investment in that employee. Granted, more and more companies are viewing their employees are corporate cogs and thus concerning themselves less and less with maintaining assets that they know aren't really log term anyways. And in these ever increasing cases, you actually get your wish. The logical conclusion is the individual agent/contractor that is brought in at a set hourly fee (or project accomplished fee) with no benefits except for the implicit dollars included in the rate to cover such matters.
Lance,
ReplyDeleteYou disreagrded my request not to use the "people are special" argument, but since it is so hard to resist, I will respond anyway.
The overwhelming majority of employees rely upon a personal vehicle (includes carpoolers) to get to work. Part of paying an employee a "fair wage" includes recognizing this cost the employee incurs to get to work and as such it is a cost to the employer. Reliable employees are an asset to the company and reliable employees have reliable transportation. The car is an asset to the corporation and as such it should be included in employer provided insurance, should it not? And not just liability and collision, but because it is the means for the employee to get to work, the insurance should include maintenance as well. And perhaps gas. And of course this insurance should include a free loaner car so the employee can still get to work.
Would this be unfair to employees who walk or use mass transit? I think the analogy would be similar to employees with bad health habits (obese for example) driving up the cost of the company health plan. (But the non-drivers would be the healthy)
More importantly, if you had this "full coverage" auto insurance, would you ever price shop an oil change or repair again? Would you ever hesitiate to get that "funny sound" fixed? Especially if car repairs were a paid, "execused absence" from work? Would this change your behavior toward your car? Anyone you know?
If no one ever priced shopped repairs, would repair shops have incentive to hold prices down, to work more efficiently, to provide convenient hours?
"The logical conclusion is the individual agent/contractor that is brought in at a set hourly fee (or project accomplished fee) with no benefits except for the implicit dollars included in the rate to cover such matters."
Lance, you are absolutely right. This benefits the worker the most. He (she) can sell his skills to the highest bidder and not be trapped in bad circumstances tied to benefits.
Unfortunately, this exposes the question are all men created equal or are they all equal in their abilities, and thus all deserve the same outcome?
I know you want to lift the laggards, but be
careful of pounding down the high flyers.
Adam Smith,
ReplyDeleteI started to write you a reply ... explaining that car care and health care for the employee were not analogious because the goal of the first (ensuring employee IS at work, if that is a requirement) can easily be verified, while the goal of the second (ensuring that the company's "human resourse" remains healthy and capable of contributing) is not nearly as easily verifiable. But, as I wrote it I came to realize I won't convince you that these subleties matter because you are obviously a libertarian and "survival of the fittest" is dogma to you. Individual workers are cogs and in keeping their "liberty", the ineffeciencies brought about in the market place are just discounted wholesale. It's like the private road argument that libertarians like to continually make, people should just pay to maintain roads as they need them. The fact that somepeople either just can't pay to use as needed, or don't have the organization skills/willpower to pay for the road instead of frivolties just re-inforces your survival of the fittest argument in that these folks will just quickly find themselves Darwin'd out of existence. In your view, the market ineffiencies are temporary and lead to great overall efficiencies as the weaker beings are ferreted out of existence. I understand this, and I agree that longterm it is how nature works. However, I think that as feeling human beings we need to recognize that by "lifting the lagards" we are lifting our own souls and lifting ourselves to a level of civilization far higher than the beasts from which we came.