Thursday, July 20, 2006

Two Townhouses For Sale Next to Each Other


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.


111 comments:

  1. *rare opport* - well, uh, except for the one next door...

    My $0.02.

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  2. 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.

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  3. The McDonald's is perfect for the overstretched homedebter who buys here. No Macroni Grill for them.

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  4. David,

    How much is the one next door listed for?

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  5. The phrase "homedebtor" is pretty stupid. But it's a fetish phrase of the Bubblehead Faithful. Odd.

    When 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.

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  6. So 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?

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  7. So, Fritz, you are saying all renters should "buy now, or be priced out forever?" Thank you for that realtor drivel. And good luck with your "permanently high plateau."

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  8. Nathan, Microsoft shares may well sell for more than they did in '99 fifteen years hence. That does not mean it was a wise decision to purchase at inflated prices.

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  9. so 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?

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  10. "Nathan Boggs said...
    So 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

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  11. "Nathan Boggs said...
    so 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.

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  12. I've started a new listserv for people that have purchased units at
    Mica 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 !

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  13. "Hopefully we all will be watching, these POS should not be worth even 200K period."

    Well obviously they are worth that because they have sold for that in the past. Let's all help each other make money. If you think these houses are overvalued, then let's collectively try and find a clearing price for these houses. You think they are not worth more than 200K. Anyone else with any thoughts as to how much these are worth?

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  14. 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.

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  15. Nathan Boggs said...
    "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"

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  16. My best guess is that they are at a minimum 10% overpriced (around $570k;), and at a maximum 20% overpriced (around $500k).

    IMO, 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)

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  17. "
    Sligo 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.

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  18. Nathan - What will get me off the fence is rental cost parity. That, historically speaking, is an excellent indicator of a healthy, balanced real estate market.

    That's not to say that rents will not increase - I expect it. Given the magnitude of the price run up, I also expect that purchase costs will sink below rental costs for a time - due to fear. Fear on the part of both buyers and lenders. That is exactly what happened last time and there is no reason in the world to rule it out this time. Unless you believe this time is different.

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  19. Home-Debtors have nothing but doubt and regret. Renters have freedom and happiness.

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  20. "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""

    While that is true as it relates to stock prices or other goods, it isn't necessarily the case with housing. Stock prices can go to zero. Housing prices with the implied land costs rarely ever go to zero. Even environmentally contaminated land has some value. I would bet that the land that these houses are on is worth at least 200K by itself.

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  21. "Nathan Boggs said...
    I 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.

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  22. "DC_Too said...
    Nathan - What will get me off the fence is rental cost parity. That, historically speaking, is an excellent indicator of a healthy, balanced real estate market.
    That's not to say that rents will not increase - I expect it. Given the magnitude of the price run up, I also expect that purchase costs will sink below rental costs for a time - due to fear. Fear on the part of both buyers and lenders. That is exactly what happened last time and there is no reason in the world to rule it out this time. Unless you believe this time is different. "

    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.
    You can't judge housing prices based on rent prices. Many people buy homes for many reasons aside from practical reasons. Prestige. The freedom to paint, Stability, ability to redo the kitchen, larger space, a backyard, etc. I know people that want a brand new house. As such, they are willing to pay a premium for a house that may be identical to a house right next door if one is new and the other is not. In theory, that does not make sense. In reality, it happens all the time.
    For the people on this board hoping that prices come down to a level that is affordable to you, that is likely wishful thinking. These houses are not going to be given away. Someone will keep the price from going too low.

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  23. Nathan, what is "too low?" And who is "someone?" That, to me, sounds like wishful thinking.

    And BTW, monthly cost to purchase did indeed fall below fair market rent in NYC the last time. You are also aware of NYC's comprehensive rent control and rent stabilization systems? Immaterial to DC and Silver Spring in any case.

    Besides, that rents are "sky high" in NYC has nothing to do with the concept of parity. If you can rent a two bedroom apartment for $3,000 per month, the cost to purchase the apartment across the hall should not be $6,000.

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  24. 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.

    To 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?

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  25. 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.

    That seems to be the standard Bubbleheader fantasy being posted on here.

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  26. "What happens is a market collapse never occurs?"

    Even 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?

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  27. I agree with you on parity. But most homeowners don't make the decision to purchase a home out of a textbook. Same for many purchases. Like cars for instance. A good friend of mine bought a very expensive home in Clarksburg. He enjoyed living in Bethesda better. Why did he move? His wife wanted to move and he has kids. Now where in the equation does rent parity come in to play in a situation like his? This happens all the time.

    Rent parity actually came in to play when I bought my first house here. But I am single with a good income, and no kids. Now assume my income was not sufficient. Or my credit was not good. I would have had to continue renting even though it makes sense to buy.

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  28. "Let's say both homeowners get really desperate and sell for 500K. That is STILL A LOT OF MONEY. A LOT OF MONEY."

    Well, then, someone who paid $679K for the same thing is going to feel awfully stupid.

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  29. Do I believe prices must get down to rentals? Not necessarily.

    I 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.

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  30. 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:
    "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.

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  31. 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%.

    Even 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?

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  32. Anonymous said...

    "Let's say both homeowners get really desperate and sell for 500K. That is STILL A LOT OF MONEY. A LOT OF MONEY."

    Well, then, someone who paid $679K for the same thing is going to feel awfully stupid. "

    Well the current homwowners bought in the 200's. The future buyers will be buying at the least in the 500's. So who would feel stupid in this scenario? But what of the bubbleheads that were waiting for the prices to come down to 200K? Ultimately they would feel just as stupid when they see that their gloom and doom predictions never paid off. And they would be left behind renting and saving their 600-700 per month.

    Here is a thought that also came to mind. Let's say you are a bubblehead and decide to rent and save 500/month instead of buying a home. In 3 years, you would have saved up 18K plus interest. So give him 25K. Now since he is a bubblehead, I must assume he won't be getting any of the "exotic" 100% no money down loans or anything (that is bublehead tenet #1). So what will his 25K in savings allow him to buy. Assuming these houses are deeply discounted and sell for 500K, that 25K wouldn't even be enough for a 20% downpayment.

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  33. Fritz - I have to agree with DC_too. It's plain economics.

    If 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.

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  34. My two cents:

    Perhaps 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?

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  35. I am amazed at all the renters who are sitting on many tens of thousands of dollars that they have saved while renting.

    What a load of crap!

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  36. "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?"

    Price 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

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  37. " Anonymous said...

    Fritz - I have to agree with DC_too. It's plain economics.

    If 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"

    Condos are a different breed. Fundamentally, there is nothing different between living in a condo and an apt. I agree with you on this. But there are usually fewer houses for rent than there are apt's. Less supply. Developers rarely build houses for rent as they do apartments. Also, there are people that want a house (kids, yard, etc) that refuse to even consider an apt. More demand. In other words, the rents for houses are not necessarily in line with housing prices.

    So yes your decision is a prudent one. Why pay 1200 more for the same place? But would it make sense for you to pay 500 more for a house? Even if it wasn't in as nice of a neighborhood as you live now? I think so. Life is about sacrifices. I made this decision a few years ago. I was living in SW near the waterfront. My rent went to 965. I decided to buy a house in a marginal neighborhood in NW. My mortgage was 1500. It was the best move I ever made. Sacrifices pay off.

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  38. why are the renters waiting to buy full of crap? it all comes down to expectations of asset appreciation.

    if 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?

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  39. 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.

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  40. Come 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"

    Once 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.

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  41. " Anonymous said...

    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. "

    Actually houses have a much wider appeal. There are many people that live in houses that can't live in condos for family reasons. For instance, there are not many 3-4 BR condos being built for families. Yet, I am single and I only buy homes.
    And that is why I think this condo market will take a deep breather before the market improves. If I were going to buy a condo, it would have to very unique in the best neighborhood. Chinatown would be my choice. But there a lot of average condos (Mica) that are competing with houses on a price basis. The intelligent buyer in my opinion buys more for less or more for the same price. At the root of it all, we are all buying land.

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  42. 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!

    Anyway, 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.

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  43. David,

    You 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.

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  44. lance,

    "How much is the one next door listed for?"

    I don't know. It was not listed on the MLS.

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  45. In response to Fritz,
    Well 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?

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  46. A. Are you happy being a renter for a long time? Are you willing to rent for many years to come?

    We 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.

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  47. 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.

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  48. My favorite line from the housingheads is: "house prices never go to zero."

    True, perhaps, but irrelevant because no one is leveraged when they buy stock. You can walk away from a stock anytime you want.

    But since housing prices most certainly can decline to a price less than what you owe on your bank note. In this event, you can't walk away from it without drawing upon other savings to pay off the bank note.

    Unlike stocks, the market value of your house doesn't have to decline to zero for you to be financially ruined.

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  49. "The housing market topic is appealing as a financial market study, not unlike the nasdaq bubble in 2000."

    I agree with Anony on that. I've never had any stock options, but I could easily walk up the street and buy one of the (increasing number) of houses for sale in the neighborhood. I don't come here to whine or pine about the Joy of Homeownership passed by, but to experience, again, the views of those who have bought into the current (albeit waning) financial mania.

    I have no doubt, whatever, that years hence there will be another episode, just like this one, and some may ask, what about DC real estate in the 2000's?

    And yet others will chime in, with impressive enthusiasm, and tell the doubters that "this time is different.(BLANK)never goes down."

    I wonder, does anyone know if the internet message boards of the late '90's are archived anywhere? It would be fun to read the discussions that no doubt took place on equity prices.

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  50. "My favorite line from the housingheads is: "house prices never go to zero.""

    If I live in my home and content living there, why does it matter what my house is worth at any one point in time? On the other hand, if a stock goes to zero, there is no coming back. Nor can you derive any benefit from it.

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  51. Acutally, 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.

    Same 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.

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  52. WhiteTower - House prices in DC went to, effectively, to zero in the 1960's and 70's. There are neighborhoods in which houses were simply un-sellable. Many an owner packed his car, and drove away. Eventually, those houses were claimed by DC government and boarded up. They sat empty, for years.

    A likely scenario for the near future? No, but don't let people tell you it can't happen. Already has.

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  53. dc_too,
    But the stock market mania was built on fraud for the most part. Companies form the investment advisers to the actual companies themseleves lied. From AOL to Worldcom, they all admitted or were caught lying or defrauding investors. A hous eis different. Realtors are like stock brokers. They have motives to sell you anything. But the stock market is overwhelmingly corrupt. And it is very hard for the little investor to even bring charges if he is cheated. Not so in the housing market.

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  54. anonymous said:
    "Same 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."

    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.

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  55. "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!"

    I 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.)

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  56. Nathan, that is silly. The mania was not "built on fraud," it was built on ever increasing prices that caught the attention of ever increasing people who bought ever increasing amounts of stock, until, like now with houses, everyone's money was fully invested. When that happens, there is no one left to buy, which is the only thing that propels prices higher.

    Ever heard the story about the shoe shine boy, who gave the Wall Street magnate a stock tip in the summer of 1929? The magnate took that as a "sell signal" and got out before the crash.

    There was a Business Week article last year in which the head of one of the builders' associations was quoted about being approached, by the waiter, at a businees luncheon, and asked shyly by said waiter, "I have three investment properties. What should I do with them?"

    Do you see any parrallel, Nathan? The buyers are gone, man. There is no one left to buy. Where do you think prices are headed from here? Sideways? That would be a first, to be sure.

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  57. Take a look at todays numbers.

    http://www.freddiemac.com/

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  58. nathan boggs:
    Houses 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.

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  59. "The buyers are gone, man."

    You truly are an idiot.

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  60. dc_too,
    I tend to disagree about the stock market. Fraud was rampant there. In my opinion, fraud is inherent in the stock market. From the sell side to the research department, the stock market is rife with conflicts that you don't see in the housing market. I agree regarding the appraisal fraud. Some unscrupolous people could get together and commit fraud against willing buyers and the banks. In the stock market, however, there are people committing fraud up and down the ladder. Look at what has happened to all the M&A firms being brought up on charges. Look at the fraud with the research analysts that are essentially cheerleaders. And then look at the fraud within the companies themselves.

    If I sell you a stock, you truly have no idea what lies behind the walls. Just look at the earnings of companies like Microstrategy and Enron once they came clean. With housing, at the least, you pretty much know what you are getting.

    Many of the companies that were brought public during the 90's should not have even been in business, let alone being publicly traded. I don't think you can equate the fraud in the housing market with the fraud in the stock market.

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  61. Thierri, Bubble Head #129450July 20, 2006 2:55 PM

    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.

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  62. Low 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.

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  63. just posting in as one more buying with a large six figure amount who chooses not to purchase into this market at this point.

    Many better investments can be had elsewhere for the time being.

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  64. 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.

    Uh, 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.

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  65. 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

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  66. anon 12:11,

    Society 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.

    ReplyDelete
  67. "
    Anonymous 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:)

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  68. 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?

    I understand what you are trying to say va-investor, but the society you envision is utopia. It is far more complicated to implement.

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  69. 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.

    John

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  70. 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?

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  71. These 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.

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  72. "I know it is "forced savings" but sometimes this is a good thing."

    But 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.

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  73. People will not save unless forced by soc.sec. etc. 3 TO 1 employer matches on 401's aren't enough incentive.

    This 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.

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  74. "It's finance 101. FIRST the savings, THEN the house."

    This 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.

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  75. 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.

    And 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.

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  76. Keith,

    I 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.?

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  77. "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."

    Don'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.

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  78. 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.

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  79. To those who cares about details,
    look 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

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  80. Anon has some foolish issues.
    Like 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.

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  81. anon 7:57 said:
    "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!

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  82. Thanks, anon 3:22 for that link. The $699K sale price isn't reflected yet, but that's because the sale is so recent.

    Nonetheless, 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

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  83. Lance said:
    "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.

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  84. I've gone through this topic and found some interesting and some emotional posts.

    I 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

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  85. anon said:
    "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!

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  86. 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.

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  87. Anonymous said...
    "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 ... )

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  88. "When you buy a home, all you care about is that you have locked in affordable payments for the longterm."

    And 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.

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  89. Lance,

    If 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

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  90. You’ve got to watch this CBS clip. She sounds like a female version of Lance.

    I 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

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  91. 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.

    Somebody 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.

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  92. 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.

    They 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. We bought in Alexandria in 2000-- a townhouse right around the corner from where we had been renting. We would have paid almost exactly what our PITI cost for a comparable two-bedroom apartment in our old building. When we sold, only 5 years later, the mortgage our buyer took was almost three times what it cost to rent our apartment.

    Can anybody explain what fundamental economic changes would explain such a disparity? Thought not.

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  93. Nor can we fully explain why monthly carrying costs usually fall below market rents in a market that has got clobbered. My best guess is simply euphoria vs. fear. There simply is no fundamental, rational explanation for market extremes on either end.

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  94. "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.

    They 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

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  95. "A study previously posted by David shows that rents and ownership costs have never been at parity in Washington metro area since 1997."

    "Never since 1997" is very poor English, but we'll let that go. What David's post actually demonstrates is that rent vs. buy was fairly close to parity until about 1999, when rent increases began to fall behind sales prices in a material way.

    And in the mid 90's, as I've said to the disbelief of real estate agents licensed in the past five years, you could by condos in very good neighborhoods for between 50 and 100 times a month's rent - an outstanding, positive cash flow investment.

    Good effort, anony, but the pig can't fly, no matter how hard you try.

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  96. shows that rents and ownership costs have never been at parity in Washington metro area since 1997

    And a period of less than 10 years seems like 'proof' to you that housing costs don't track rents over the long term? Well, I guess that explains quite a bit. I've been around long enough to have been over, under and through bubbles before. As lance says, you're fine if you can stay in the same place, keep your job-- AND of course, if you have a fixed 30 year mortgage... All very big ifs.

    Most of us experience some pretty large changes over the course of a ten year period. In our case, we knew my husband would be retiring in 5 years and we'd be moving away. He's also in construction, so it seemed likely that he'd lose his job before that time if a downturn did happen. Would it have been wise to hang onto the house and hope to wait out the downturn under the circumstances? I didn't think so a year ago. Now even my investor friends are telling me we made the right decision.

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  97. You're husband's in construction? Yeah you did the right thing! And I agree going back to 1997 to demonstrate a "long term" trend is as ridiculous as going back to 1982 to demonstrate "long term" stock investing - both years were respective rock bottoms after years of pain.

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  98. 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 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.

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  99. 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.

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  100. DC Too
    Sara 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.

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  101. From http://money.cnn.com/2005/04/05/real_estate/rentprices/
    "In a balanced market, say economists, the cost of renting should closely track the cost of owning. When the cost of owning is dramatically higher than the cost of renting similar property, you can guess that buyers are speculating on higher home prices.

    This relationship is similar to the price-to-earnings ratio used to evaluate company stocks, said Gleb Nechayev, a senior economist with Torto Wheaton Research. In real estate, this ratio is determined by dividing the price of a house by the annual rent it could bring in given the current market.


    It's funny, anonymous, that you should mention reading comprehension... You might want to develop your own a little better-- at least well enough to get the names right of the people you are attempting to put down.

    And thank you for your concern about the long wait we may have to endure to buy again, but as it happens we DO still own property elsewhere-- mortgage free-- so we are not terribly worried. In the meantime, we are quite happy with our rental a block from the metro.

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  102. Anon and sarah in dc are both right.

    Sarah 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.

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  103. "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."

    Fair enough, but the evidence for a "bubble" goes beyond that, insofar as virtually every historicaly recorded ingredient for a "bubble stew" is also present.

    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.

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  104. DC_Too said:
    "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?

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  105. Um, because I was 14 years old....

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  106. Lance, I did. I bought in Dupont "proper" - not some silly outlying "close to Dupont" neighborhood, in 1997. I bought what was right for me at the time (much cheaper than rent) with an eye toward someday moving up, and renting the place out.

    I had no inkling then, nor did anyone, that things would get so completely out of hand. Lance, I drove, in the spring of '04, to meet a bunch of friends for Sunday brunch, up on the Wisconsin Avenue side of Cleveland Park. Do you know what I saw? Signs, Lance, in front of every apartment building lining Wisconsin Avenue, and on the way home on down Connecticut Avenue, that said, "apartment for rent," "see your new apartment home," "space available," "inquire within," etc.

    Lance, that was at the absolute hight of the frenzied bidding wars. My little drive showed me that there was no housing shortage - perfectly decent places, in beautiful, old, pre-war buildings, in some of the best neighborhoods in Washington, could not be rented!!! Holy smokes! What is going on here? I called some of the numbers, looked in the papers, and learned that rents were cheap!!!

    So I called, ahem, "my realtor," and told him to get his butt over to Dupont (proper, near the metro, the bars, the excitement) and sell my place. He said, "Why? Prices are only going up!"

    I said, "Wanna commission? Get your ass over here." He did, and we sold in a day, with a bidding war and a nice escalator clause.

    I was nervous as a whore in church that the whole wide world would figure out what I had figured out before closing and that the deal would fall through. Well, it didn't.

    And there has been no material appreciation in prices since I left the neighborhood. Inventory? Well, that is a different story. That has risen materially, to say the least.

    Lance, buying a house you dig and can really afford is fine. More power to you. But we are in the midst of one hell of a bubble, man, and all of those pop. People get hurt, that sucks, and I don't want to be among them.

    So Lance, I will tell you this: I bought in Dupont (proper, near the metro, near the bars, near the excitment) in 1997, with a three percent downpayment and a 15-year, fixed rate mortgage. No typos, man, 3% down, 15-year fixed. Total PITI and monthly maintancence, with no tax considerations, was 15% less than my neighbors were paying in rent!

    Lance, I lived there for six and a half year, cheaply, had a great time, and sold for 650% what I paid.

    There you have it. Dupont (proper) is up six and a half times in less than ten years. Think that goes on forever? Go ahead, roll the dice.

    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.

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  107. dc_too said:
    "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!

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  108. Riiiiiiiiiiight, he made 650% and he screwed up badly.

    You 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."

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  109. Lance is an unwise home owner who bought within the past two years, at the height of the housing bubble (he mentioned this on this blog some months ago).

    Like many, Lance is a victim of the 'greater fool theory' - something he practices in his trade as a real estate agent, in which he uses manipulative arguments about the 'American dream.' Something which rightly causes people smart with their money to hold onto their wallets these days with rising interest rates, falling home prices, and a stale stock market.

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  110. anon said:
    "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.

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  111. I think Fritz like to call the kettle black... but then so do i.

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