Two Townhouses For Sale Next to Each Other In Downtown Silver Spring.
One of them is listed at 679K. "Beautifully maintained 4 level townhome at cameron hill in the heart of fabulous downtown silver spring and just steps to the silver spring metro, rest., shops, afi silver/cinema, and the new town center*large lr/dr*ts kitchen w/state-art-appl*upgraded hardwood floors thruout main level*master suite w/bay window,w/i,cathedral ceiling*large deck*garage & carport *3br/2 1/2 ba*rare opport.*gorgeous!" MLS # MC6098230.
Posts
*rare opport* - well, uh, except for the one next door...
ReplyDeleteMy $0.02.
And next to such a lovely McDonald's. Just kidding I live in Silver Spring and love it, but if you know the McDonalds I'm refering to, then you know what I'm talking about. Very nice townhomes, but not $679K nice.
ReplyDeleteThe McDonald's is perfect for the overstretched homedebter who buys here. No Macroni Grill for them.
ReplyDeleteDavid,
ReplyDeleteHow much is the one next door listed for?
The phrase "homedebtor" is pretty stupid. But it's a fetish phrase of the Bubblehead Faithful. Odd.
ReplyDeleteWhen those townhouses were originally built, they were listed at around $200k or so (this is from memory, so don't hold me to this exact number). Their prices have more than tripled in most cases.
If only the members of the Bubblehead Faithful - and even David himself - had been able or willing to buy one of these several years ago when Silver Spring was yet to be "sprung", they would be sitting nice and pretty.
Instead, they either didn't have the financial or emotional means to buy, or thought that prices were way overpriced 5 or so years ago and were waiting for the bubble to burst so that they could swoop in and buy a great place for cheap. Essentially, they are still waiting for that golden opportunity, not realizing that it has long since passed them by.
In a year from now if prices remain relatively the same as they are now (which I think is very likely to happen), what will the members of the Bubblehead Faithful do? Will they keep on waiting for the Great Pumpkin of a Bubble Burst to rise? Or will they sheepishly admit that they were wrong and that they missed an opportunity to buy while rates were still at historical levels?
My guess: the bitterness will continue and they will continue on their quest for validation and justification of their status as renters.
"Nathan Boggs said...
ReplyDeleteSo how do you think these houses are worth and how much do you think they will eventually sell for? Let's say both homeowners get really desperate and sell for 500K. That is STILL A LOT OF MONEY. A LOT OF MONEY. Much more than the houses were worth 5 years ago. Bottom line: the price of housing is still going up. And let's assume that the buyers are actually homeowners,not flippers, that plan to live there for the next 15 years. Who on this board will argue that these houses will not sell for more than they are being sold for now in 15 years?
"
ALthough I do not want to predict what this POS will fetch after 15 years.People who can afford a house worth 500 to 600K (total carrying cost of 4k to 5K per month)for 15 years would not like to live in this type of POS. So go figure and find try to find a GF to unload these at 500 to 600K
"Nathan Boggs said...
ReplyDeleteso what price of these houses would get you off the fence? It's one thing to say they are overvalued. But if you truly believe prices are coming down, then what do you think a house like this in a good area and very close to the Silver Spring metro is worth? What do you think the price will eventually fall to when the bubble bursts?
"
Hopefully we all will be watching, these POS should not be worth even 200K period.
I've started a new listserv for people that have purchased units at
ReplyDeleteMica Condominiums in downtown Silver Spring. The link is :
http://groups.yahoo.com/group/mica_condo_owners
The objective is for us to get to know each other and share pertinent
information about the development, construction progress, delivery etc.
Please sign up if you have purchased or signed a contract on a unit.
Also, please pass along this link to anyone you may know that has done
so.
For starters, membership will be restricted to actual buyers only. We
can collectively decide if we want to open it up later. Thanks !
I have to disagree with the poster that referred to these townhouses as "POS". They are actually pretty nice looking for townhouses, IMO. The type of bricks they used give them an aged look. They just happen to be in a strange location.
ReplyDeleteNathan Boggs said...
ReplyDelete"Well obviously they are worth that because they have sold for that in the past."
It is not correct to say "they are worth 200K because they have sold for that in past". Prices depend on point in time (although not necessarily). Better would be "they were worth 200K at some point in past"
My best guess is that they are at a minimum 10% overpriced (around $570k;), and at a maximum 20% overpriced (around $500k).
ReplyDeleteIMO, the (sad?) fact is that two working professionals are now "expected" to be able to afford $500k. (Whether they actually can or not.) If only one of you is working (as in my case), there is very little for you.
(Someone wrote a book a little while ago about the advent of the two income family, and how that affects housing. My guess is that that's a lot of what has been going on over the last 5 years. A big culture shift--like the end of WWII-??. Just a guess. And I think prices will fall, just not by that much, because of the two incomes)
"
ReplyDeleteSligo said...
I have to disagree with the poster that referred to these townhouses as "POS". They are actually pretty nice looking for townhouses, IMO. The type of bricks they used give them an aged look. They just happen to be in a strange location.
"
My point is that "if you build something good in a location which is not good then the good part gets lost" Location and surroundings are very important.
Home-Debtors have nothing but doubt and regret. Renters have freedom and happiness.
ReplyDelete"Nathan Boggs said...
ReplyDeleteI would bet that the land that these houses are on is worth at least 200K by itself.
"
Good luck for you and/or others for this thinking. We will see what happens in next 12 to 24 months.
For most Bubbleheaders, it doesn't matter what the price is, so long as it doesn't drop 50% or so from current value or return to a price from the mid 1990s, they think it's still overpriced. Which is self-justification for their desire to not buy anything to begin with.
ReplyDeleteTo the Anonymous with the "POS" references to these townhouses: clearly you have no idea of what you speak since the townhouses are actually quite nice and very centrally located (Metro is 2 blocks away, tons of busses and major roadways nearby). Are you looking for a pat on the head to make you feel better about renting? Consider this the pat on the head.
DC_too: Your never-ending droning about how anyone who doesn't drink the Bubblehead Kool-Aid is a realtor is tiresome, childish and really utterly useless to any sort of informed debate. Perhaps you want to try some more adult-like debate. If not, you can always post in the Rants & Raves section of craigslist. Also, consider this your pat on the head for choosing to be an eternal renter.
I see that no one has yet answered my query as to what happens to the Bubblehead Faith if a year from now, prices are relatively the same as they are now. What happens if a market collapse never occurs?
Wishful thinking is someone saying that prices will drop 50% and then they will swoop in and make an amazing purchase for pennies on the dollar with their massive savings earned during their time renting.
ReplyDeleteThat seems to be the standard Bubbleheader fantasy being posted on here.
"What happens is a market collapse never occurs?"
ReplyDeleteEven under your scenario, there's a real price decline. Sounds good to me. Renting was still a better deal under your scenario.
Fritz, how long do you think these townhomes will stay on the market? Do you believe the asking price will have to be cut in order to sell them? If you do, roughly how much?
"Let's say both homeowners get really desperate and sell for 500K. That is STILL A LOT OF MONEY. A LOT OF MONEY."
ReplyDeleteWell, then, someone who paid $679K for the same thing is going to feel awfully stupid.
Do I believe prices must get down to rentals? Not necessarily.
ReplyDeleteI simply believe you have to have a realistic notion about the premium to ownership. If you're betting that everybody (not just a handful of people, but the great mass of humanity) can and will double their monthly payment for the joys of owning, you're betting wrong.
And again, as I have pointed out before, and as the faith-based housingheads refuse to acknowledge, that wonderful ownership warm and fuzzy glow existed in 1975, in 1981, in 1991, in 1995, and today. So I'd like to hear somebody say why that ownership premium grew so much, and it will stay high.
I think it grew so much partly because of fundamentals, and partly because people developed unrealistic beliefs about price appreciation, and so a speculative buble occurred from 2004-2005, fueled by those who thought they'd make money from appreciation, and by those who were scared of never being able to buy a house because of price appreciation. As those beliefs change, housing prices will fall. By 50%? Probably not.
longtime reader here at bubble meter, and I usually stay out of the comments, but the comments by Fritz@7:11 am really is aggravating. Quote:
ReplyDelete"Instead, they either didn't have the financial or emotional means to buy"
Well Fritz, dont know about you but I got enough to buy that townhouse for cash, and my emotions are fine save for reacting to your comment. The above statement also reveals your total lack of understanding of the discussion here, as the only financial means you need to buy any home today is a pulse and a pen to sign the mortgage paper. As far as the notion that people who bought 3 years ago are now rolling in dough, great. Its not real money however, as to liquify it you need to sell the house. Then you would need to buy another, and poof, there goes all that money. This is why investing in liquid assets like stocks, commodities, etc is a more realistic builder of money you can actually get your hands on. Another note is unless you bought 3 years ago and said " prices will be 3X as high 3 years from now" you are not smart, just lucky. By ignoring fundamental financial tenets the people of the RE boom remind me of the goy that takes a crap in his tent to warm up the temperature: He gets the desired effect of warming up the tent, but the stink and mess make him sick. When the warmth is gone, he has accomplished nothing.
My 2 cents.
Keith - I have no idea how long they will stay on market b/c I don't know what the comps are for that area. Which is why I avoid assinine statements like saying I wouldn't buy that POS until it drops 50%.
ReplyDeleteEven if there is a small real price decline in the short term, doesn't that disprove the Bubblehead Creed that there must be a massive price drop so that the valuations can revert back to their past levels? Price stagnation hardly sounds like the major correction the Bubblehead Faithful are hanging all their hopes on. And even if there is a real price decline in the short-term (e.g., 1 or 2 years), that shouldn't affect people who purchase homes as a residence, not as a source of wealth creation. In other words, if you're going to be living in a place for a decade, does it really matter that prices stagnated for a year or two after you bought?
Fritz - I have to agree with DC_too. It's plain economics.
ReplyDeleteIf prices are relatively the same in a year as they are now (as you suggest), renters are much better off renting right now. I live in DC and rent a 1 bedroom for $1500/month. I like my apartment, and I would be happy to buy it at the right price. However to buy it today, I would have to make an estimated $1200 in additional payments for mortgage and fees. If I don't buy the apartment, I can invest this $1200/month somewhere else. To justify the investment of this money in my apartment, I would need to expect substantial asset appreciation in the near term. (Because of the transactions costs of purchase, I need to expect a return much higher than that of a stock index or other more liquid investment.)
Of course my rent can increase in a year, but I don't expect it to increase nearly as much as to make purchase a viable option. And if condo prices fall then I have thrown money away.
I'm not a bubble head, just an informed renter/potential buyer.
My two cents:
ReplyDeletePerhaps you should have continued to read the rest of the sentence from where you got that quote. Here it is in full:
"Instead, they either didn't have the financial or emotional means to buy, or thought that prices were way overpriced 5 or so years ago and were waiting for the bubble to burst so that they could swoop in and buy a great place for cheap. Essentially, they are still waiting for that golden opportunity, not realizing that it has long since passed them by."
It's great that you have close to $700k in cash. I don't really buy that statement, but it doesn't matter. If you do, then I think you are an anomaly. I don't really understand the rest of your argument since it seems to be an emotional rant rather than anything else.
A query for you: What are you waiting for in order to buy? Not a facetious question in the least. Are you waiting for a major price correction? Are you waiting to see what the economy in general does? Not sure if you're staying in this area? If you have $700k in cash sitting around somewhere, then what would it take for you to purchase a home?
I am amazed at all the renters who are sitting on many tens of thousands of dollars that they have saved while renting.
ReplyDeleteWhat a load of crap!
"I see that no one has yet answered my query as to what happens to the Bubblehead Faith if a year from now, prices are relatively the same as they are now. What happens if a market collapse never occurs?"
ReplyDeletePrice inflation - running at 6% - will reduce the worth of your house that much?
For a look at how this works out, you can read this -"Inflation and Housing: Calculating the bust" http://www.oftwominds.com/blogmay06/inflation-housing.html
why are the renters waiting to buy full of crap? it all comes down to expectations of asset appreciation.
ReplyDeleteif condos/homes will merely maintain their value, why should renters buy now if there is no compelling family reason?
if prices will actually dip (and i bet big money that dc condo prices will fall), then why on earth should a renter buy now?
nathan_boggs - i agree, condos are a different market then single family homes. houses are transacted less and appeal to a different constituent with different needs.
ReplyDeleteCome on, kids.. the only people who can afford these prices are existing homeowners who have buttloads of equity in their existing place and who are looking to "buy up"
ReplyDeleteOnce the speculators are out of the market and people are done trading up and/or run out of price appreciation equity, prices will drop.
How much? This place originally went for I believe $306k in 2000. Assume a "normal" market and "normal" appreciation levels, this place would be worth about $400-425k right now. $500-550k would seem to be eminently reasonable to the likely purchasers of this property (maybe mid-late 30's couple making roughly 140k combined).
Sooo... whoever posted something along the lines of 200k must have been smoking the same crack that "Mr. Condos should cost $140k in Silver Spring" was smoking.
I live in Silver Spring and I know where those townhouses are located. You have a choice of either McDonalds or Tasty Diner around the corner...Ha Ha Ha!
ReplyDeleteAnyway, I am smacking down bubbleheads today. Why? There's comes a certain point that you have to wonder whether it's worth buying in the over-inflated Washington, DC market. How much longer do you wait for the prices to tumble? One year...Three years...10 years???!
David, the owner of this blog, could easily pack up and head for greener pastures in some region of the country where housing prices are not insane. He could also buy property in lower income areas of DC and Prince Georges County.
Bubbleheads--such as myself--have bitched and moaned about high real estate prices. I think it's time that bubbleheads re-examine their goals with real estate.
I ask David and all of the bubbleheads...what is your plan?
A. Are you happy being a renter for a long time? Are you willing to rent for many years to come?
B. Do you want to buy property within 1-3 years? If so, where? What kind of property? Condo, townhouse, starter home?
The hoping for price crashes and bitching about current prices gets old after a while. Bubbleheads need a plan of action with their lives.
I can tell you that I am happy renting for now. I really like Silver Spring and I am willing to pay rent to landlords for a long time. It's either I rent in Silver Spring or I move out the DC area for cheaper cost of living elsewhere.
David,
ReplyDeleteYou need to sponsor some kind of "record number of properties for sale in a row" contest. Locally, the best I've done is 3 detached SFHs in a row.
lance,
ReplyDelete"How much is the one next door listed for?"
I don't know. It was not listed on the MLS.
In response to Fritz,
ReplyDeleteWell yes I do actually have quite a bit over the 700k amount referenced. I was a fortunate Biotech employee during the boom of 99-2000. When my company's share price was in the stratoshphere, and had a market cap of 6 Billion dollars even though the company lost 500 million a year, i sold all my stock options near the all time high. Now that same company has a market cap of 150 million and the stock price is 1/50th of what i sold at. As far as what am I waiting for to buy a home? Nothing at all really. My lifestyle is such that owning a home and all the upkeep and such is not preferable to me and my wife at this time. My wife and I are hardly ever home as is, why have an empty 3000sq garage for our stuff? The housing market topic is appealing as a financial market study, not unlike the nasdaq bubble in 2000. I remember people saying things like "Buy Yahoo now or you wont be able to" and when things started to go downhill my favorite was "it cant go much lower." Here in Massachusetts housing is up around 200% over the last 4 years even though 1.loss of jobs, 2.loss of population (only state in the union)3. Crummy weather. What can account for such a thing? Home buyers like to say that all time low interest rates were behind the price runup, causing supply demand imbalances. If so, then any interest rate movement higher will erase those gains, yes? Whats funny is that borrowing costs went down and people had no qualms at all about buying a home that was 100% more expensive than 12 months before, but if Ford and GM had doubled the prices of cars, and said, "hey look at the low payment though!", people would have thought that absurd. Whats the difference?
A. Are you happy being a renter for a long time? Are you willing to rent for many years to come?
ReplyDeleteWe love our current location and set up (right across the street from my work) so we are happy to rent where we are for the foreseeable future. We rent from a private owner and so far they have raised the rent 2% per year, so we are in no danger of being 'priced-out' of our rental through time either. And yes, we are some of the bubbleheads whose renting situation allows us to throw thousands into investments each month, which we do (not just because the mortgage/rent difference is favorable, but because we aren't buying furniture, paying for any maintenance, and have super cheap utilities). We are in our late 20s and we feel investing now is the more important thing to do. If we want it, homeownership will come later
B. Do you want to buy property within 1-3 years? If so, where? What kind of property? Condo, townhouse, starter home?
If we had a child in the next 3 years, we may consider moving into a larger place. BUT, we would only BUY if the cost of rent and ownership were closer to traditional norms. We are not saying it has to be cheaper to own than rent but the premium we would pay for owning would need to be reasonable. Right now, it's not.
Not to make too obvious a statement, but I think the real issue here is that we are asking people to price the home and all the other "things and opportunities" that surround it. So, what we're really saying is that the home itself is perhaps worth 350K and its proximity to the Metro, Shopping, Restaurants are also worth a 320K premium. I suppose there are a few of us who just don't think shopping, restaurants, and even public transportation are worth that much money.
ReplyDeleteAcutally, whitetower, you can be leveraged when you buy stock, it is called buying on margin. It is risky because although you can realize great gains with little $ money "of your own," you can end up owing far more than you had.
ReplyDeleteSame is true for housing. A home used to be 80% leveraged because people had to put 20% to buy. If you didn't, you had to buy PPI because you were riskier. Now, people are financed/leveraged/mortgaged to the max - 100% in some cases. If the price of their homes declines, at all, they have lost $ on paper. If they have to sell, you have to bring that $ to the table.
"I live in Silver Spring and I know where those townhouses are located. You have a choice of either McDonalds or Tasty Diner around the corner...Ha Ha Ha!"
ReplyDeleteI would say you have a lot more choices than that in Downtown Silver Spring. Even on the same block you have Cubano's and Mi Rancho, which are both pretty good. (And its Tastee Diner.)
Take a look at todays numbers.
ReplyDeletehttp://www.freddiemac.com/
nathan boggs:
ReplyDeleteHouses are different, eh? Not so much. It took *years* for the fraud to fully surface at the firms you mentioned - people knew it was there but it took time. Same with housing: there is MASSIVE fraud with mortgage lending (Fannie, Freddie) as well as MASSIVE fraud when it comes to appraisals. When everyone's "making money" few care to see what's going on, but we are rapidly reaching a point where people are no longer making money on their homes and beginning to lose equity. When the fraud becomes apparent the decline will be well underway and the exposing of said fraud will push prices down even further. Every financial bubble in history overshoots the mean on the way down, this one will be no different.
Bitter desperate realtors are easily angered. Soon they will waiting tables or working a counter at Hechts. There is not much work that an unemployed realtor can do besides low end sales.
ReplyDeleteLow interest rates is what caused the housing prices to soar. Rates today are much higher than previous years and house prices are much higher. This is what caused the bubble and the bust.
ReplyDeletejust posting in as one more buying with a large six figure amount who chooses not to purchase into this market at this point.
ReplyDeleteMany better investments can be had elsewhere for the time being.
Not exactly accurate. There are no margin calls on your house if your equity drops. There are margin calls if you stock drops. Another thing is that with a house, your downside is limited. You can just choose to stay there. And ultimately few houses go unable to be sold for extended periods of time. Stocks though can and do become marketless. Try making a living selling pets.com stock.
ReplyDeleteUh, try making a living off the paper equity in your house.
But anyway, margin call, underwater on your mortgage, very similar. Sure you don't have to actually cough up the cash you lost. But it doesn't mean you didn't lose it. And if for any reason you have to or want to move, you're screwed.
The 'no downside to a house' argument plays into the whole wokring-class-owning-is-my-ticket-to-a-better-life mantra. The downside is the lack of other investments.
Hey all--
ReplyDeleteI follow this neighborhood very closely, and three townhomes similar to this one have each sold for $699K within two weeks of being listed, all within the past several months.
Don't believe me? Go midway down this page to see one of them (8519 Cameron St):
http://www.ronsitrin.com/listings.htm
John
anon 12:11,
ReplyDeleteSociety would be better off if all middle and lower-middle class people were homeowners.
I know it is "forced savings" but sometimes this is a good thing. Just like soc. sec. is a good thing.
"
ReplyDeleteAnonymous said...
Hey all--
I follow this neighborhood very closely, and three townhomes similar to this one have each sold for $699K within two weeks of being listed, all within the past several months.
Don't believe me? Go midway down this page to see one of them (8519 Cameron St):
http://www.ronsitrin.com/listings.htm
John
"
Good for you and it is a bargain. Go get it:)
Actually the recent market will show how this tends to work out. Many potential buyers who never would have been approved for a loan previously became home owners during the bubble. There have already been news stories about these previously low-income folks getting foreclosed on. Many of them lack the cultural capital to understand what owning entails. Would you like to live next door to someone who did not know that having a house means mowing your yard or maintaining the outside exterior? Or who can't conceive of a commitment like paying a mortgage consistently every month for 30 years?
ReplyDeleteI understand what you are trying to say va-investor, but the society you envision is utopia. It is far more complicated to implement.
I never said it was a bargain. I'm just saying that it seems as though this townhouse seems to be priced correctly. Would I buy it at this price? No. But if I were the seller, would I have priced it any differently? No. Even the seller may think it's not worth $679K, but the fact is that there have been at least three willing buyers at 699K in recent months.
ReplyDeleteJohn
True, society may benefit from middle and lower income folks becoming homeowners. If that's the case then society should devise a better way for housing to become more affordable (perhaps). I know too many middle income people who have stretched themselves to purchase homes simply because of a negative connotation towards renting. Some of them have been "robbing Peter to pay Paul" since the first mortgage payment. It would be great if owning were an opportunity for everyone, but I doubt it can happen at these prices. And it takes a long time to save up a 20% down payment on a 500K home when you make 50K per year. Especially when several people on this blog consistently mention that they believe prices will increase over time. So if I start saving now maybe in ten years I'll have my 100K downpayment....but won't housing prices have outpaced what I've saved?
ReplyDeleteThese are 18 foot wide EYA townhouses. In other communities where they are built, wheaton, fallsgrove, people have compained to newspapers that the 2 car garages in basements are too narrow to be able to fit 2 midsized cars and open the doors. Also maneuvering just to get into the garages is difficult. Also you have to like to climb stairs since you must drag your groceries up 1 flight to get them from your car to your kitchen and up to 3 flights if you forget something in the attic bedroom as you are getting in your car. Not a good house for senior citizens.
ReplyDelete"I know it is "forced savings" but sometimes this is a good thing."
ReplyDeleteBut there are lots of ways to force or even just incentivize savings. Even changing 401k plans from opt-in to opt-out can make a real difference. And a plan for the government to match the contributions of the poor in savings and well-diverisified investments might be good, too.
But it's crazy to encourage the poor and lower-income to take on large debt to either earn a worse return (in a high downpayment scenario) or take a lot of risk (in a low downpayment scenario).
It's finance 101. FIRST the savings, THEN the house.
People will not save unless forced by soc.sec. etc. 3 TO 1 employer matches on 401's aren't enough incentive.
ReplyDeleteThis is a selfish plan as far as me personnally. I'll be paying for the retirement of the non-savers. Soc. Sec. WILL be means-tested and I'll never see a cent.
If people were forced to pay for their housing over 30 years, those of us who sacrifice and save will be better off.
"It's finance 101. FIRST the savings, THEN the house."
ReplyDeleteThis is a good idea in theory, especially if you neutral taxation, but doesn't always make sense in the real world. The govt heavily discourages savings and subsidizes investment. It's almost impossible to keep up with inflation in safe savings investments after taxes. In an area like this with higher than avg salaries it's even worse since a lot of middle class people are in very high tax brackets. Even maxing out 401k and IRAs still can leave a big chunk for the govt. Housing is one of the few tax shelters that higher income workers have anymore.
Investor, I have bad news for you. Since 85-90% of Social Security is pay-as-you go, it isn't even really forced savings.
ReplyDeleteAnd you still don't seem to be familiar with the research that shows the benefit of making 401Ks opt-out instead of opt-in.
The question is should you be inducing forced savings in the form of residential real estate? And the answer is: not until you've induced other saving.
It's irresponsible to encourage the poor to save in a stupid and risky way.
As for the home mortgage interest deduction: yes, at a personal level, you should factor that into your decision, but don't forget those repairs and miscellaneous expenses with a house, or that condo fee.
At a policy level, the home mortage interest deduction is bad policy, since it does create a distortionary incentive toward real estate and away from other capital, which slightly dampens long-run economic growth.
Keith,
ReplyDeleteI am familiar with the opt-in/opt-out for 401's. I do not know the effectiveness of this strategy.
Can you imagine if we did not have forced soc. sec.?
"As for the home mortgage interest deduction: yes, at a personal level, you should factor that into your decision, but don't forget those repairs and miscellaneous expenses with a house, or that condo fee."
ReplyDeleteDon't forget about all the costs that come with renting. Moving, getting ripped off on security deposits, junk fees from apt bldgs, and not to mention the general crap you get dealing with some landlords (priceless). I was previous military and can tell you all the good, the bad, and the ugly of renting.
I had some section 8 tenants back in the early 90's and with the amount of rent the gov't was paying, they could have bought homes for these people.
ReplyDeleteTo those who cares about details,
ReplyDeletelook at the houses below, thanks to John for the street address.
So 50% profit in less than 3 years!
Not bad.
11/21/2003 Price: $478,000
New Price: $699,000 for only 1,368 SF.
http://sdatcert3.resiusa.org/rp_rewrite/results.asp?streetNumber=&streetName=Cameron&county=16&intMenu=2&SearchType=Street&submit4=SEARCH
Anon has some foolish issues.
ReplyDeleteLike not being able to pencil out an equation.
Okay- I do have capital, and i have in the past owned rentals- quite profitably in here in Phoenix.
When would I buy? When the property runs out at 80 to 120 times monthly rent potential.
This simple equation tells me where I have to be cover the piti and upkeep. If I can't find a property that meets that, I keep my money in my pocket.
The renters here can do the math and come up with the equivalent rent versus own. So, if housing is not overpriced, why aren't you snapping up units at the now slightly distressed prices?
BTW on Calculated Risk there is a good entry that details the typical real estate downturn has the heaviest damage in years 3 to 5- considering this is the first year of the downturn.
If you won't put your own muney down into a rental- then buy some stock in the homebuilders- they have a great p/e right now as they just begin their search for a bottom.
Pischer.
anon 7:57 said:
ReplyDelete"IMO, the (sad?) fact is that two working professionals are now "expected" to be able to afford $500k."
Look at how you worded this ... As if there is someone or some entity out there that actually comes up with these prices ... and bases it on various factors including (according to what you said) what the "culture" thinks about two-earner families. Other bubbleheads more times than not also base their arguments on this flawed assumption that someone or something is out there deciding what prices should be charged. Folks, please wake up. It's us acting collectively that come up with selling prices. Houses will sell at the point where it is the lowest a seller is willing to go and the highest a buyer is willing (and able) to go!
Thanks, anon 3:22 for that link. The $699K sale price isn't reflected yet, but that's because the sale is so recent.
ReplyDeleteNonetheless, take a look at 8511 Cameron Street. It sold for $710K on June 14, 2006.
Maybe the agent actually under-priced this townhouse (though maybe the others that sold for $699K+ were bigger/had more upgrades).
John
Lance said:
ReplyDelete"Other bubbleheads more times than not also base their arguments on this flawed assumption that someone or something is out there deciding what prices should be charged. Folks, please wake up. It's us acting collectively that come up with selling prices. Houses will sell at the point where it is the lowest a seller is willing to go and the highest a buyer is willing (and able) to go!
Lance, try making a lucid statement. I know the market isn’t working for you and you are expressing an emotional moment.
I've gone through this topic and found some interesting and some emotional posts.
ReplyDeleteI happen to agree with Va_investor 100% that society is FAR better off is the lower middle class and middle class own their own homes. I also believe that *in the long run* one does better owning their own home.
Due to a "nomadic" lifestyle, I missed out on the real estate boom. If I had bought prior to 2002, I'd be sitting pretty... But I didn't so let's look at today's market.
1) The market is always based on 1st time home buyers. Everyone noted that "if you don't buy know, you'll be priced out" and look... For the most part its happened. The vast majority of the remaining 30% of the population who doesn't own a home cannot afford to buy in.
2) Americans have borrowed against their homes like no tomorrow. Once upon a time, the median 50 year old would be expected to own 75% of their house. Now? Its more like 20% to 25%. A healthy enough amount though...
But I have so many coworkers who have borrowed to the limit I just don't see how they'll survive their mortgage reset. We have one guy working every possible hour of overtime to double his base pay. Why? Anything less and he defaults on his mortgage! Since the stats suggest most Americans have pulled out the money, this has me worry.
3) The economy is cooling and cooling *fast*. Look at the total dollars of high end TV's. Guess what, its started to drop. Yes, unit sales are up, but the total dollars paid for the TV's are stagnant or dropping. Look at the middle class restaurants (e.g., stock symbols RI, OSI, CAKE) and notice something? Their same store sales are dropping (never a good sign). Ok, a tiny drop, but inflation alone should make same store restaurant sales grow YOY!
4) Its only a question of when, not if, we will have over 1 million homes for sale in the USA. With 40% of sales the last few years being 2nd homes... I think a lot of people will want to cash out (or have to sell).
But other housing bubbles have gone down as fast (or faster) than they went up. The last I can recall where so many people bought property expecting someone rich to come in and buy it off them was Florida 1926!
So I do expect home prices to drop. To what? 3X earnings in "fly over country" and 6X earnings on the coasts. Yes, the traditional multiples we always drop to in recessions. Note, in the past, properties wouldn't exceed 8X multiples!!! So now that we're at 10X... Will the 6X "bottom" still hold? Could it be higher? I doubt it, young people do want to own... So I do expect 5X earnings to be this downturns floor.
Maybe I'm pessimistic because my industry is starting to lay off. :( Maybe I'm pessimistic because of all of the movie industry layoffs reported in the LA times this morning. Or maybe its because I know too many people who cannot hire at "normal" salaries into bubble housing markets as people want at least a hope that they'll be a homeowner. At this point in my career I'm a "hiring manager." So are most of my friends and cousins. If we cannot hire at a wage where a profit can be expected... one doesn't hire. Simple as that. I have an uncle who wants to hire for his small business. He and his partner figured they could make another $300k profit a year if they hired an additional staff of 5 to 8. (They already have enough office space leased.) Well... people won't move to greater LA for the wages that attracted people three or four years ago. Net result: they'll spend more time on the golf course. Why? To raise wages enough to attract trained people would not have boosted their profits. In fact, if staff demand too rapid of pay increases... They'll cut clients. Its not worth working to death for no profit. :)
I myself will probably be living in "fly over" country in two years. I have enough saved to buy cash a decent 4 bedroom home on a lake in areas where I could get a job (transfer within my company). I won't be leading the exodus, but my industry simply cannot sustain wages that will let people become home owners anymore in southern California. So rather than lose good people, we'll shrink here and grow elsewhere. Cest la vie. When a rumor started at work that I might lead a team of 50 to Austin (the size of my staffing pool)... I quickly had too many volunteers! Out of a staff of only 400. (Oh... I had to squash that rumor quick...)
As to saving money while renting... I am. Yes, I missed out on "paper equity" but renting saves me over $36k/year after taxes. Long term I know I'll get that back in appreciation... But California has always given up 20% of property values after a "boom." The "boom" is over... I know of far too many Fortune 500 companies that are about to announce layoffs here in SoCal...
So I'll wait.
Will prices drop 50%? Wages suggest it will be so. I'll base my buying decision based on the inventory of homes on the market. But why would I buy a townhome for $600k when on Craigslist I find identical ones renting for $1,100 to $1,500 a month?!? I'll save... I'll wait. And I'll probably buy in late 2008 (the question is where).
Oh, my career's wages don't vary much nationally... so its not like a financial analyst who can make multiples more in NYC than Dallas.
And who is left to buy? No one at my work who doesn't own has any interest to buy in this area.
Ok, its not DC... but the fundamentals are the same. Home prices should be a multiple of wages. In nice areas 6x to 8X the median wages is ok (like DC).
It only takes 2% of the homes in an area being on the market to create a crash. We'll see that in most bubble areas but end of 2Q07.
If I'm wrong... Cest la vie. I'll move to where I can live well. :)
But Dc_too noted the famous "shoe shine boy." I've heard the "elevator operator" story too. Well, my hair dresser is giving flipping advice...
And don't forget with S&P changing the bond ratings on mortgage backed securities... Market based initiatives will cool mortgage lending pretty quickly. It won't stop... But expect it to be more rational. Which is going to stop speculation...
Neil
anon said:
ReplyDelete"Lance, try making a lucid statement. I know the market isn’t working for you and you are expressing an emotional moment."
haha ... the market IS working well for me ... though obviously you are still waiting for that cataclysmic moment when you can afford to buy a professional's house on a mcdonald's checkout person's wages!
Lance - calm down. Right now you don't know if the market will work for you or not. As you revealed, you have an interest-only loan for the next 10 years. As of right now you are not even paying towards your principal.
ReplyDeleteThat mean if prices decline you could see all the equity you have been building since your first condo evaporate.
That's the danger of continually rolling over the equity. You might never get to cash out.
Anonymous said...
ReplyDelete"Lance - calm down. Right now you don't know if the market will work for you or not. As you revealed, you have an interest-only loan for the next 10 years. As of right now you are not even paying towards your principal.
That mean if prices decline you could see all the equity you have been building since your first condo evaporate.
That's the danger of continually rolling over the equity. You might never get to cash out."
I guess you missed the part where I said I didn't buy this as an investment but as a home. Who cares if the equity evaporates? Like someone said, it's only on paper until you sell the house anyways. I think a lot of bubbleheads aren't making the move into homeownership because they aren't able to differentiate between buying a home and making an investment. When you buy a home, all you care about is that you have locked in affordable payments for the longterm. You're not out to sell the house or cash in on the profits UNLESS the opportunity presents itself such as when I decided the time was right to move from a condo to a house. If the economics hadn't made sense, I would have just stayed in my condo. The crux of the matter is that I had a roof over my head that as long as I made that affordable monthly payment NO ONE could throw me out of it either through eviction or by raising the rent. It was mine. Just like the house. I'm am not living on the condition of someone else's good graces. The ONLY thing I have to do is make that affordable payment. And even if I didn't, did you know it takes years to foreclose on someone and take their home from them? (Well, maybe not in Virginia ... )
"When you buy a home, all you care about is that you have locked in affordable payments for the longterm."
ReplyDeleteAnd since that isn't the case with buying a home today, i guess that explains why demand is drying up, inventories are lengthening, and prices are beginning the descent.
"I'm am not living on the condition of someone else's good graces."
Neither are renters. Landlords compete for our business. We're the consumer. Landlords have to make us happy in order to keep our business.
Lance,
ReplyDeleteIf you've locked in a good loan interest only for 10 years... You're set. Well done. :)
But I know far too many people who have a tenuous grip on their home and will probably be forced to sell before 2008 as their loan payments skyrocket. :(
Like I said... If I'm wrong, Cest La vie. I'll move to where I can afford a home.
Neil
You’ve got to watch this CBS clip. She sounds like a female version of Lance.
ReplyDeleteI get a kick out of the end remarks. "I wanna just get my equity" She will be very lucky to sell the place.
Thu Jul 20 2006 Sellers are king no more in San Diego!!
http://www.cbsnews.com/sections/i_video/main500251.shtml
Link discovered on,http://www.forsakencraft.com/mainframe.html
Somebody sitting on a large savings nest-egg should sit on the nest egg for now. It would be a bad choice plowing a large amount of cash into such an illiquid, risky investment with such high transaction costs.
ReplyDeleteSomebody who has nothing *might* do well to take one of those "100% financing, neg-am payment option" loans. On the upside houses could still (theoretically) rise. If they don't, then they got a cheap place to stay for a while. Though I'm not sure of the consequences of such a foreclosure, it seems the downside is limited.
And that's the irony. A decent deal in today's market almost requires that you spend huge amounts of your money on interest.
People who've become the richest in real estate, however, purchase RE when money is tight and hard to borrow, and sell when it's loose. (This assumes you can have instant cash to put in a place.) Think about it. If you had $600k in cash a year ago and went to buy a house, you'd have to worry about outbidding coffee jockeys, bus boys, divorced dental assistants, and crack whores just to get the place.
When lending is tight, the people with the cash can almost name their own price.
"But in most major cities, rental costs never reach parity with ownership. Look at NYC for instance. rents are sky high. Housing prices are even higher. No parity in sight.
ReplyDeleteThey aren't at the moment, obviously, because we're in a bubble in most major cities. But they have and do reach parity or very near parity in normal markets."
Obviously many bubbleheads such as Sara rely on self-selected, anecdotal evidence as proof of their bursting bubble. But, of course, one example of rent vs. own costs in Arlington in 2000 falls far short of establishing historical "normal levels." A study previously posted by David shows that rents and ownership costs have never been at parity in Washington metro area since 1997 (that’s as far back as study went, although there’s no reason to suspect that rent and owning costs were equal pre-1997 either).
http://bubblemeter.blogspot.com/2006/02/real-estate-pe-ratio-for-washington-dc.html
I guess you missed the part where I said I didn't buy this as an investment but as a home. Who cares if the equity evaporates? Like someone said, it's only on paper until you sell the house anyways.
ReplyDeleteI understand what you are saying Lance but it does not make buying a good idea! I am not going to ask how much you have in other investments, but for many, many homeowners, the cost of ownership means that owning a home (for investment purposes or just to "live,") precluded them from spending $ on almost everything else. They are probably barely contributing to their 401Ks and certainly not shoveling cash into mutual funds, equities, etc.
For folks like this (and you) best case scenario is that you can afford your interest rate reset when it happens, never lose a job or otherwise have to/choose to move, and have a roof over your head. But if that equity dissapears, you've got nothing else. Nada. Nothing to sell to put the kids through college. Nothing to cash in on to retire. Nothing in case of an emergency.
When homeownership is this expensive, the "always better to own/rent is throwing $ away agrument" does not apply.
My friend has over 20 properties he bought with the "no money down" late night tactics. He says if he has to walk away, so what? He will just go back to Argentina. This guy NEVER went to school and can barely read/write.
ReplyDeleteDC Too
ReplyDeleteSara in DC
Perhaps you should read the Anony's post re rent parity before attempting to comment on it. And if you did read the post, I'd suggest you try to improve your level of reading comprehension.
Anony didn't refer to data from 1997 to now in support of long term trends of rent v. housing cost parity. But both of your response accuse anony of making this statement. Why would you do that, perhaps to evade the point made by anony?
Sara in DC had previously stated that owning and renting costs are not at parity because there's a bubble. In other words, she insinuated that owning and renting expenses should be at parity absent a real estate bubble. Sara in DC's only "proof" that owning and renting costs are at parity, absent a bubble, was that in 2000 her condo PITI was "almost exactly" the same as renting a similar unit.
Sara in DC's belief that renting and owning costs are at parity, absent a bubble, is based on one flimsy example--her condo in Arlington in 2000. This is classic bubblehead logic: Take one example, no matter how isolated or unusual, and regard it as representative of widespread market trends.
Why did Sara in DC not present any other proof supporting her belief that renting and owning costs are at parity, absent a bubble? Because she can't. Owning is historically more expensive than renting. This is widely acknowledged by sophisticated persons. Anony pointed one of David's posts as an example in support of Sara in DC's erroneous statemant, (and did not once suggest that this example was comprehensive proof-and obviously wouldn't have expected someone like Sara in DC and DC Too to be so unaware of basis real estate economics).
If Sara in DC and DC Too would carefully read posts rather than making reactionary, negative responses, perhaps they'd learn something; for example, maybe they'd learn that they may be renting a long time while waiting to buy until rent and owning costs are at parity.
Anon and sarah in dc are both right.
ReplyDeleteSarah is right with her contention that renting and owning should 'track closely'
Anon is right because the true cost of owning is higher due to things like maintenance and a small premium for ownership.
The evidence for a bubble is not that owning is more expensive than renting right now. It is that owning is astronomically more than renting right now.
DC_Too said:
ReplyDelete"It is also true, that at the bottom of the last bust, you could buy DC real estate, with borrowed money, at fixed, prevailing rates, for a handsome monthly discount to the cost of renting. Go figure."
given these unbelievable facts, why didn't you buy back then?
Um, because I was 14 years old....
ReplyDeletedc_too said:
ReplyDelete"Buying for me was a dumb, circumstantial accident. Recognizing it's time to go is something we can all learn. Look at the writing on the wall and give it some thought."
i don't know how to tell you this nicely .. but .. uh ... if you liked where you were living and sold it thinking "short-term investor gain", then you screwed up ... badly. Someone has probably already made a lot of money out of taking your place and reselling it. BUT, that is not the important thing to think about. The important thing is, are you really happy where you are now? I know I couldn't truly be happy outside of Dupont... I sincerely hope it is different for you. But, I suspect that all the money in the world (which is what you were aiming for) won't make you that happy!
Riiiiiiiiiiight, he made 650% and he screwed up badly.
ReplyDeleteYou Lance however have a interest only loan, have (at some point) cashed out a 401K to afford a home, continue to believe despite mounting evidence that your home's will remain constant or increase, and will undeniably have a higher mortgage payment in 10 years time.
dc_too, meanwhile, is sitting pretty on loads of real liquid equity and will probably re-purchase in 2-3 years when prices decline. Heck, maybe he will even buy his own place back for a cheaper mortgage than he had before - plus having made the $100Ks from it.
Other rule of investing - if you get a great return, don't worry about whether someone else got more. You are only competing with yourself and your own strategy. A great return is a great return. Holding out until what you hope is the peak is how people end up broke - as in, they are too late to escape. In the words of Buffett - "I'm so rich because I sold too soon."
anon said:
ReplyDelete"dc_too, meanwhile, is sitting pretty on loads of real liquid equity and will probably re-purchase in 2-3 years when prices decline. Heck, maybe he will even buy his own place back for a cheaper mortgage than he had before - plus having made the $100Ks from it."
someone's dreaming ... prices continue to go up here in the District ... there's been no sign of a downturn in the least ... he's already behind in that he'd have to spend a lot more now to repurchase he property ... and that doesn't even count the transaction costs involved in selling and then re-purchasing.
I think Fritz like to call the kettle black... but then so do i.
ReplyDelete