Joe Sixpack is quickly learning that "Prices only go up!" is clearly false.In what may be the most telling sign yet that the real estate market here has shifted downward, median prices of homes in several parts of the Washington area have declined when compared with the same time last year.
In Loudoun County, for example, the median price of homes sold dropped 1.2 percent last month, compared with June 2005, according to Metropolitan Regional Information Systems Inc., the area's multiple listing service. In Fairfax County, prices fell by half a percent in May and a tenth of a percent in June.
Wednesday, July 26, 2006
Washington Post: After 5 Years of Growth, Home Prices Drop
The Washington Post reports about the declining housing market in the Washington, DC area.
Subscribe to:
Post Comments (Atom)
Posts
Let the blood bath begin! Price declines should accellerate from here on out!
ReplyDeleteBut they always go up. How can this be?
ReplyDeleteIt is interesting that in Reno NV, there are more houses for sale, 6000, than there are for sale on the ENTIRE San Francisco peninsula. Many of the nicest homes are padlocked. This is a disaster. Now, Reno is a second home and speculator mecca. So places like Reno and Las Vegas and San Diego and Florida could face a crisis soon.
ReplyDeleteHowever, I believe that all cities similar to DC that are in bubble condition can face turndowns although it may come a bit more slowly.
I think it'd be more appropriate to draw some further quotes from that same WP article:
ReplyDelete"The median selling price of a home rose 0.9 percent -- to $231,000 -- in June from the same period last year. (The median is the point at which half the sales are higher and half are lower.)
But home prices in some parts of Maryland bucked the national trend, rising 12.5 percent during the past year in Prince George's County (to $337,500 in June), 11.9 percent in St. Mary's County ($335,000), 6.1 percent in Montgomery County ($467,000) and five percent in Anne Arundel County ($351,750).
The picture isn't as pretty for some homeowners in northern Virginia, where selling prices were down 1.2 percent in Loudoun County (to $485,000) and unchanged in Fairfax County, Fairfax City, Arlington County, Alexandria and Falls Church ($500,000).
In the District, the median price of a single-family home and condominium rose 3.6 percent to $430,000."
-----
This month, the house across the street from me in Bethesda, MD sold in one weekend....with lots of people visiting. I am very pleased with 6.1% from last May...I'll be interested to see the July'05-July'06 numbers...then we'll know more.
The WP article I refered to was:
ReplyDeleteExisting-Home Sales Fall in June
By Bill Brubaker
Washington Post Staff Writer
Tuesday, July 25, 2006; 1:14 PM
Joe Sixpack lives in Silver Spring. He's a big Redskins Fan; as most Joe Sixpacks are.
ReplyDeleteOne of the big questions is how the Fed will respond to the obvious situation that is setting in across the country. I think the chairman himself recognized that housing has slowed - if they decide to 'rescue' American homeSELLERs (homeowners) (and thereby 'killing' American homeBUYERS), by dramatically dropping the rate, then they will likely stop the price declines.
ReplyDeleteBut it'll come at the cost of the US dollar getting slammed in this global economy. Politicians aren't in as much control as they once were.
Short USD against EUR / NOK / SEK as rates are on the rise in Europe, Norway and Sweden.
ReplyDeleteRegards
Kanaristar
"Could it be a 5 percent drop in prices? Could it be 10 percent? Whatever it is, it will be short-lived, because demand is right there on the sidelines," said David A. Lereah, chief economist of the National Association of Realtors.
ReplyDeleteHahaha... what sideline would that be? Isn't that why supply is up? Because there aren't any suckers left on the sidelines anymore?
By "declined" they mean price appreciation dropped below 6% YoY right?
ReplyDeleteIt's not actually possible for home prices to drop, right?
RIGHT!?
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2006/IO+August+2006.htm
ReplyDeleteBill Gross/PIMCO's commentary, which has a significant discussion on real estate prices.
"It’s not looking that good folks – housing that is. PIMCO’s on-the-ground analysts, who for nearly a year now have roamed the country with random real estate agents in search of local housing trend information, report that prices in many areas are actually declining which has significant implications for the economy, inflation, and interest rate trends. A just-released report by the National Association of Realtors confirms that nationwide the year-over-year housing price gains have virtually disappeared and seem to be heading into the red."
As was pointed out above, David is being very selective with his copy-and-pasting.
ReplyDeleteThe article says that certain areas in the DC metro area are having price drops. True enough.
But it also says that some areas are seeing price increases. David conveniently enough forgot to mention that minor tidbit.
So what does this all mean? Well, it means that areas with tons of building (article focuses on Loudon County and its building explosion) are very likely to see price drops or at least stagnation because of all the housing options.
However, it also means that other areas that are not as built up or that haven't had as big a rise in prices will continue to see normal appreciation (and by "normal", I mean something like the traditional 5% annual price increase, not the more recent phenomenon of 20-30% annual jumps).
So in other words, some sub-markets of the DC market will see price drops and others will see price increases. What I still highly doubt will happen is an overall plunge of 10, 20, 30, 500% in the entire DC area. This is a very delusional fantasy held by some Bubbleheaders and one that they like to believe because it makes them feel good about their financial decisions and possible future options.
In the future, it would be nice if David were more intellectually honest when posting information from news articles.
I think part of the reason PG county experienced price growth was that it was cheaper than other options. People who wanted to live in Fairfax or Montgomery with their approx. $450K housing prices, compromised and settled on PG with its relatively affordable housing.
ReplyDeleteNow that Fairfax, Loudon are dropping in value, that provides less motivation for PG, and therefore PG will slow down to a crawl, and then actually in the end will loose MORE of its gained value than fairfax or montgomery.
Simple thing is that what affects one part of a metro area, will eventually affect others. You'd have to go to a entirely different metro area for things not to affect each other.
Bottom line - the ENITRE DC area is set up to face declining housing values - some sooner than others.
Oh, ok. You convinced me with those impressive facts.
ReplyDeleteLets be honest folks. Prices are going down. Anecdotally i can tell prices are gowing down much more than 1% or so mentioned in the article. For. e.g. in Arlington, condos in good buildings in Roslyn-Ballston corridor are being priced 50K less than last year. Thats more like 5-10% drop on 400K-700K properties Its a lull before the storm coming in 2007. Couple of real estate agent friends are experiencing the same in other areas of the metro notably NOVA. I think prices go down this year and next. Stable in 2008 and before going back up late 2008 or 2009. So if one can stick it out for at least 3-4 years, then all should be ok. Its a bubble for sure but a small one, especially here in DC.
ReplyDeleteI bought a condo for $300k in NW DC in December 2004. An identical unit in the building just sold in one weekend for $359k. You=PWN3D.
ReplyDeleteUh oh, Newbie,
ReplyDeleteYou've posted anecdotal evidence. That's no good. You will be mocked.
Of course, if you post region wide stats, that's also no good. They're too broad. You will be mocked.
Welcome to the debate.
My $0.02.
"Uh oh, Newbie,
ReplyDeleteYou've posted anecdotal evidence. That's no good. You will be mocked.
Of course, if you post region wide stats, that's also no good. They're too broad. You will be mocked.
Welcome to the debate.
My $0.02. "
You have $0.02 in your bank account.
Mr. PWN3D,
ReplyDeleteWhat did those units sell for July 2005?
Curious,
My $0.02.
Anonymous, how old are you?
ReplyDeleteMy $0.02.
"Mr. PWN3D,
ReplyDeleteWhat did those units sell for July 2005?
Curious,
My $0.02. "
Don't remember anybody attempting to sell one. Also, I don't care. It's very well located (close in, close to a metro, attractive neighborhood) and very unlikely to decline in value.
"So Fritz, you are saying that prices can go up at double digit rates for 5 years, then return to 'traditional' (average) rates of increase without any adjustment at all? A 'new paradigm' fan, I see. "
ReplyDeleteIt's a correction for the stagnant 90s.
"In higher-priced markets, higher-end housing is selling reasonably well-- but at less than comparables were selling a year ago, while low-end housing is selling badly or not at all. This gives the appearance of prices rising. "
ReplyDeleteThis makese zero sense.
""So Fritz, you are saying that prices can go up at double digit rates for 5 years, then return to 'traditional' (average) rates of increase without any adjustment at all? A 'new paradigm' fan, I see. "
ReplyDelete"It's a correction for the stagnant 90s."
The stagnant 90's were a correction for the lat 1980's boom.
anonymous 12:22...
ReplyDeleteit is very possible in down markets for prices to be falling on a unit basis, but the median sales price can be stagnant for a number of reasons. One of these can be a shift in the quality of the housing purchased as well as the size as sellers follow the market downward.
You see this in the purchase of new homes, for example. People are getting a lot more for the same money as last year.
One of my parents was a real estate broker, the other an agent. This is a well known phenomenom.
"The stagnant 90's were a correction for the lat 1980's boom."
ReplyDeleteNo they weren't. They were unnatural. Bubbleheads like you were touting a new paradigm, but you were wrong. History has taught you nothing.
This most recent anonymous poster has a lot of sarcasm but no compelling reasoning.
ReplyDeleteAs for the stagnation of the 90's, this was, in my opinion, a result of the boom in the 80's.
What do I base this on? The observation that housing prices stayed in a narrow band of 1-2% over inflation for 100 years leading up to the very late 90s.
Upon what basis does someone see the run up of the early 2000's as a correction of the stagnation of the 90's? I'd be curious to hear this reasoning.
My $0.02.
"This most recent anonymous poster has a lot of sarcasm but no compelling reasoning.
ReplyDeleteAs for the stagnation of the 90's, this was, in my opinion, a result of the boom in the 80's.
What do I base this on? The observation that housing prices stayed in a narrow band of 1-2% over inflation for 100 years leading up to the very late 90s.
Upon what basis does someone see the run up of the early 2000's as a correction of the stagnation of the 90's? I'd be curious to hear this reasoning.
My $0.02.
"
First of all, housing prices did not stay within a 1-2% inflation band prior to the 1990s. That's false.
Second, when you focus on appreciation patters in a relevant time period, stong appreciation is the norm, not the exception. Only people hoping for housing prices to go down disagree with this.
“Too many sellers have not accepted that their houses are not worth as much as they had thought, said economist Mark Zandi. ‘The market can’t complete its correction until that happens.’ Zandi sees Washington area home prices declining over the next six to 12 months by an average of 10 percent, with the condo market experiencing larger price drops. The good economy, he said, is ‘not enough to save the market from this housing correction.’”
ReplyDeleteThe above is from the Washington Post (this article)
To me that is a start.
"The good economy, he said, is "not enough to save the market from this housing correction."
Folks, with new mortgage rules coming down the pipe and a whole bunch of people having to face the piper on loan resets... 10% is optimistic.
To rebut anonymous: "This makese zero sense."
Let's take market #1 as a 2005 example. Market #2 is a 2006 example
Market #1 (more sales)
$500,000
$500,000 (two low end)
$750,000
$750,000 (two mid range)
$1,000,000
$1,000,000 (two high end)
Total sales: $4.5M (6 sales), Median $750,000
Market #2
$400,000 (one low end sale)
$700,000 (one medium)
$800,000 (panic sale high end home)
$900,000 (rational sale high)
$900,000 (rational sale high)
Total sales: $3.7M (5 sales, or a 20% sales decline), Median $800,000 (up $50 YOY, not bad eh?)
Thus, no homes are appreciating, but because the market is dying at the low end first, you see continued rising median home prices (The only number reported)
Total dollars transacted aren't bad in the 2006 example nor is the median. But equivalent homes are depreciating.
Low end: All that is selling is down 25%
Medium: Down 12% and selling slow.
High: Selling at the same rate at a 10% discount.
And yet the reported median sales price continued to climb.
That is how median prices can climb while the value of someone's home has already dropped 10% to 25%!!!
Neil
Sarah in DC:
ReplyDeleteUnfortunately, your speculation has been disproven by several recent Post articles that show sales are still going in lower-income ranges. Perhaps your specultive paradigms are not based on any actual facts?
And yes, I am saying that markets in the DC area will see a return to single-digit increases after several years of double-digit increases. In fact, that's why I said it the first time. Idiotic references to new paradigms have nothing to do with it.
David - your economics history needs some actual basis in reality.
Neil, I'm sorry you spent all that time on it. I'm just going to respond that your wishful thinking is totally unpersuasive. I want facts, and the facts are that prices are still up yoy in DC. You need to come to terms with the fact that your housing collapse isn't happening.
ReplyDeleteOne more comment:
ReplyDeleteThe median prices are being held up by sales of high end homes to people who really cannot afford them. Think about what will happen to that statistic when those people are *forced* to short sell?
This house of cards will fall apart fast.
I agree that those who bought for a residence will just turn off the TV and continue enjoying their lives. Everyone who lived it up on HELOC's... there is a funny guy at the door wearing a hooded cloak and carrying a scyth who wants to talk with you.
Neil
Anon 12:37,
ReplyDeleteI still don't find your argument compelling. You're merely talking to talk.
I have read numerous studies which look at the inflation adjusted prices for housing. Most notably research by Robert Shiller - Yale economist.
Housing tends to stay in a long term narrow band around inflation. Sure some markets appreciate faster and over shoot, but then they undershoot when the cycle comes back around to keep them in the 1-2%+inflation range.
Explain to me why this paradigm should change over the last 5 years? Can you come up with any reasonable explanations?
The only time there was a true step in this pattern was after WWII with all of the returning GIs wanting to marry and start families. There was a true step in asset values and then the long term 1-2%+inflation level reasserted itself.
I actually have an idea as to what might have caused a reasonable jump in housing asset prices but I doubt I'll hear anything compelling from you.
My $0.02.
2 cents, you are stating false facts. What part of "your statements are false" don't you understand?
ReplyDeleteAnyway, the facts are the facts -- your hoped-for housing collapse isn't happening, your ridiculous theories with no factual support notwithstanding. Sorry.
cheers to you David for keeping the blog clean. there really is no reason for anyone to launch personal attacks on this site. For those of us trying to learn about (1) what is going on out in the market place and (2) what people think about it.. these personal attachs really detract from the quality of the blog. keep it up -
ReplyDeletesc/DC
Sarah, the response was that your theory has no basis in fact. Learn how to read.
ReplyDeleteThe DC Metropolitan area has declined for 2 successive quarters and Q106 numbers are dead even with Q205 numbers. If there is even a modest decline during Q206 (which is already being reported on a monthly basis) you will see YOY declines. This is from NAR:
ReplyDeleteSource: http://www.realtor.org/Research.nsf/Pages/MetroPrice
My facts are not made up. Your wishful thinking and speaking out of your butt most likely is.
I'm opened to a reasonable response but you provide no information or facts to make me change my analysis of the current RE market: namely that it's at a peak and will begin moving down.
My $0.02.
2 cents, for about the 5th time, provide some support for your assertion that 1-2% was average until the late 1990s.
ReplyDeleteWhile you're at it, explain why early 20th century appreciation rates are relevant to the housing market today.
ReplyDeleteI like posters who say 'Sorry' when clearly they aren't.
ReplyDeleteAre they sorry that they are right? Doubtful.
Are they sorry that you are wrong? Absolutely not.
Are they sorry that housing won't collapse (in their opinion, of course)? Hardly.
I guess they really are just sorry. :)
A detailed explanation of long term housing prices is provided in this book:
ReplyDeletehttp://www.amazon.com/gp/product/0691123357/102-9967039-7487315?v=glance&n=283155
Shall I also read it for you?
I'm not inventing my argument.
My $0.02.
Sarah & Neil:
ReplyDeleteI understand your examples. But do you have proof that your examples are actually occurring now? Otherwise, the example, while mathematically fascinating to any junior high student, doesn't really mean very much to the discussion at hand.
"Sarah, the response was that your theory has no basis in fact. Learn how to read."
ReplyDeleteIf I may respond for her... Actually, all of the press is reporting low end homes are *not* selling. Thus, are examples are an illustration as to what the "word on the street" is in our respective markets.
Mytwocents. I don't disagree with the book. We will simply see declining pricess until we fall back to the trend line. We're so far above the trend line its scary; further above it than ever before.
And maybe prices will continue to slowly go up... but that doesn't explain why home inventory is going up so quickly. At this time of year, home inventory is traditionally dropping. Mytwocents (or anyone else), please explain why the housing market is no longer salary and inventory driven?
Like it or not, people are going to have to sell. I don't want a recession... but one is coming.
Neil
first time poster...long time reader.
ReplyDeleteThe following link provides some data put together by GMU's Center for Regional Analysis. Slides 25 & 26 are particularly relevant. For the sake of discussion, keep in mind the inflation rates of the 70's and 80's.
Past may not be prologue but it sure is interesting
http://www.cra-gmu.org/forecastreports/WashiOutlookJuly2406.pdf
"Past may not be prologue but it sure is interesting
ReplyDeletehttp://www.cra-gmu.org/forecastreports/WashiOutlookJuly2406.pdf"
Well, sonofagun, what do you know. The stagnant 90s are an outlier. I am SHOCKED I tell you. SHOCKED.
Neil said...
ReplyDelete"Actually, all of the press is reporting low end homes are *not* selling."
Um, no. That is not what "all of the press is reporting". Indeed, if that were the case, then why has the Post had a story on sales still going strong in cheaper areas like PG County and a previous story on sales still going strong in the DC area market for lower-priced homes?
In other words, how is it that reports are showing the exact opposite of what you state to be facts?
"In other words, how is it that reports are showing the exact opposite of what you state to be facts? "
ReplyDeleteI am also SHOCKED that bubbleheads like. SHOCKED!
lie, that is.
ReplyDeleteLet's recap.
ReplyDeleteI've been following NAR's numbers.
I've read detailed analysis on the US housing market over the last 100 years - authored by a highly respected Yale Economist.
I have anecdotal evidence.
I have recent WAPO publications.
I present my opinion in (what I hope) is a well thought out manner and I'm open to equally presented counter arguments.
versus:
Anon's hand waving dismissal.
And I'm the effing idiot?
Good luck with that.
My $0.02.
Just for reference, unlike last year, houses in the mid range between $300K and and $700K are selling the fastest. Homes priced under $300K and over $1M are taking significantly longer.
ReplyDeleteThis is unlike last year when DOM was shortest for houses UNDER $300K. This leads some credence to the comments made that affordability has become a problem. And that people are starting to purchase more home.
Source is mcenearney.com market watch for NOVA.
Let's just wait another few months and see where those areas with "increasing" prices are.
ReplyDeleteYou don't go from +20% to -20% in one move. This just happens to be one of the months where the #s are all around zero in DC. But the rate of change is accelerating, and it's sharply negative.
btw...inflation last year was in the range of 6-7% (and rising) when you strip away all of the hocus pocus the BLS works on the real data.
"Did you see the graphs on house sales as a percentage of inventory? It's falling off a cliff, visually, in those graphs.
ReplyDelete"
Are you serious? The numbers may be down from a year ago, but they are still well above historical norms. How can you be so dishonest?
"Let's just wait another few months "
ReplyDeleteAh, the bubblehead credo!
How can the bubbleheads be so wrong, so often, and yet so unashamed? You people are the worst internet people I have ever encountered.
ReplyDeleteLook at page 26. It shows that the average growth rate in DC, dating back to the mid-1970s, INCLUDING the 1990's is 7.5%. It shows only 3 years of declining prices ever, all non-consecutive, and all in the 1990s. Strong growth has been the norm at every other time.
ReplyDeleteThere goes another tenet of bubblehead theory.
For those that are interested in rational debate, I believe there is a case for housing asset appreciation above historical trend lines over the last 10 years. Similar to what happened after WWII.
ReplyDeleteMy thoughts are, with new online banking enabled by the internet, there is greater competition among lenders.
This, IMHO, means that to compete for the business, banks may be willing to forego the 20% downpayment requirement and provide financing for upwards of 100% on homes. This could effectively translate as a one time boost to home asset prices as a 20% increase.
Having said that, that increase alone doesn't account for the massive double digit increases for several years running.
It's also possible that it wasn't internet enabled lending (and lower costs for non brick/mortar banks) competition that lead to the 100% financing but simply lowered lending standards brought about by fed policy.
Either way, I think the market is poised for a decline from today's prices.
My $0.02.
"Look at page 26. It shows that the average growth rate in DC, dating back to the mid-1970s, INCLUDING the 1990's is 7.5%. It shows only 3 years of declining prices ever, all non-consecutive, and all in the 1990s. Strong growth has been the norm at every other time.
ReplyDeleteThere goes another tenet of bubblehead theory. "
But THIS TIME IT'S DIFFERENT!! LOLOLOL!!!!!!!!
The truth is, the real rate of appreciation AFTER INFLATION is historically around 1% to 2%.
ReplyDelete"The truth is, the real rate of appreciation AFTER INFLATION is historically around 1% to 2%. "
ReplyDeleteYou mean, "the false is..." Man, each of you has a different lie. Maybe you can get together and decide on what the "old paradigm" was before you decide that the status quo violates it, mkay?
"The truth is, the real rate of appreciation AFTER INFLATION is historically around 1% to 2%."
ReplyDeleteI believe according to Shiller it came out closer to 0.4% adjusting for inflation and construction quality over the past 100 years or so, including the run up to 2004 or 2005. From 1890-2000 it was about 0%. It's been somewhat higher (0.7% or something like that) in the past few decades. But once again that included part of the run up.
Correct me if I've got some of his numbers wrong... these are from memory.
how do you see immigration playing a role in the housing market? Net positive or negative? Surely, the large scale immigration to the cities has played a huge role in the increasing cost of housing.
ReplyDeleteJust look at Texas... massive immigration and some of the cheapest houses in the nation.
BTW we've had massive immigration throughout the history of the US. How is it that has just suddenly become responsible for high home prices?
Slide 25 shows how prices were practically flat for an 8-10 year period in the 90s. After a run up in the 80s. I'm willing to bet that cycle will repeat itself. In the meantime, inflation will make that plateau a little lower.
ReplyDeleteNo need to get mad, it's my bet.
My $0.02.
Housing cost increases are driven almost entirely by scarcity. Keep the developers from increasing density or developing additional land and combine it with an expanding economy and population and you get rising prices. Eventually though, those rising prices hurt the local economy.
ReplyDeleteIn my opinion, most of the recent increase is so extreme in places like DC and San Francisco because of restrictive zoning laws. See Boston with a declining population and horrible economy.
I agree with anonymous 2:12 poster.
ReplyDeleteHas there been a significant change in immigration? If so, then perhaps it'll drive housing prices. If there hasn't been a change in the rate of immigration than it's likely a non-issue.
Having said that, there are several out lying communities that are reacting to densely populated homes filled with immigrants. Presumably because they're pooling resources for housing or trying to minimize costs.
However, it's creating an undesirable home for the other neighbors. Has this sort of density always been there?
My $0.02.
David said...
ReplyDelete"""So Fritz, you are saying that prices can go up at double digit rates for 5 years, then return to 'traditional' (average) rates of increase without any adjustment at all? A 'new paradigm' fan, I see. "
"It's a correction for the stagnant 90s."
The stagnant 90's were a correction for the lat 1980's boom."
You're both right! ... RE is cyclical ... What came first, the chicken or the egg?
"MyTwoCents said...
ReplyDeleteA detailed explanation of long term housing prices is provided in this book:
http://www.amazon.com/gp/product/0691123357/102-9967039-7487315?v=glance&n=283155
Shall I also read it for you?
I'm not inventing my argument."
Anyone can make any argument and prove their point. You would really need to present various sources coming to this same 1 - 2% appreciation for it to be credible to us.
"Slide 25 shows how prices were practically flat for an 8-10 year period in the 90s. After a run up in the 80s. I'm willing to bet that cycle will repeat itself. In the meantime, inflation will make that plateau a little lower.
ReplyDeleteNo need to get mad, it's my bet."
That's actually a great slide. It shows a straigh line with a steep, upward trajectory if you connect 1975, 85, 89, and 2005. The 1990s are an outlier. That graph proves my point - that the early 2000s boom was a correction for the stagnant 1990s. It seems that we should expect 7.5% per year increases - on average, regardless of what happens in the next year - going forward.
anon 2:12 asked:
ReplyDelete"How is it that has just suddenly become responsible for high home prices?"
That is because high home prices is a relative term. In the teens and twenties lots of previously SFH in the District got divided into mutli-family housing ... front room got rented out separately from the back room (today "pocket door between living and dining rooms" separating the two separate "units"). I'd say these must have been considered "high home prices" then. Actually, I can remember back in the 60s when a $40,000 house was considered an expensive house for a professional! I.e., this isn't the first time we've had high prices!
and not the first time we've had high immigration ... if I am right, we instituted immigration controls in the early 20s in response to extremely high immigration from the 90s through to when controls were put in place in early 20s ... hmmm and the homes built in DC as single family homes for the middleclass got subdivided when again? ... hmmm teens and 20s ... Checking census records I found that my immigrant ancestors who had come around 1900 - 1905 were jam packed with 3 or generations to a one-bedroom apartment. History always repeats itself.
ReplyDeletelance wrote,
ReplyDelete"You're both right! ... RE is cyclical ... What came first, the chicken or the egg? "
So where are we in the cycle?
anon asked:
ReplyDelete"Just look at Texas... massive immigration and some of the cheapest houses in the nation."
Texas has lots of open land to build on ... we're talking about the state with ranches the size of some states. As always, land is limited, and its scarcity (or availability) is an important driver of prices.
Just found this one
ReplyDeleteSacramento Area Flippers in Trouble
"So where are we in the cycle?"
ReplyDeleteWe're obviously right on the brink of you being able to afford a 6-bedroom house. Any time now. Any time ...
David said...
ReplyDelete"lance wrote,
"You're both right! ... RE is cyclical ... What came first, the chicken or the egg? "
So where are we in the cycle?"
LOL ! Down of course ... I've never said we're not going to see a decline in prices, just not a 50% decline like bubbleheads are claiming .. And also,not across the board as they seem to be implying. My point has always simply been "there is never a bad time to buy" ... While it is easier to buy affordably in some markets than in others, it is still possible to buy "smart" even in this market ... and waiting for a serious downturn doesn't ensure that you'll get what you really want for any cheaper. It's always easier to deal with the Devil you know than the one you don't. If I were in the market at the moment, I would be out there getting myself a real bargain from someone. I just wouldn't be waiting till prices across the board went down 50% ... As the discussions above point out, that 50% "down" doesn't mean that the home YOU want is going to drop 50% in price. You might find that if it is located off of North Cap like you seem to like, that it will have gone up ...
What I still highly doubt will happen is an overall plunge of 10, 20, 30, 500% in the entire DC area. This is a very delusional fantasy held by some Bubbleheaders and one that they like to believe because it makes them feel good about their financial decisions and possible future options.
ReplyDeletewhy is it that we can have 3+ years of double digit % rise in RE prices but all the housing bulls say the opposite will never happen????
especially when it happend the last time RE went this crazy??
why is it different now??
People move to places with affordable housing.
ReplyDeleteDallas, Atlanta & Houston have attracted half a
million new residents each in this decade alone.
Boston and San Diego with high prices are seeing
exodus.
San Francisco Bay Area is near stagnant.
Los Angeles, international immigrants are arriving.
But the anglos are selling their homes and moving
to inland states.
Las Vegas & Phoenix were seeing strong inmigration,
but the housing market has been ruined by the California
Equity Locusts.
Washington DC is gaining population on job growth
fuelled by federal spending. How long can the Federal
Govt. keep borrowing and spending is anybody's guess.
It's very well located (close in, close to a metro, attractive neighborhood) and very unlikely to decline in value.
ReplyDelete:lol:
now thay is a knee slapper!!!
Accusation of a lie...
ReplyDeleteYea... nice FUD. Nice way to "engage." But I have not seen one article that points out a low end area selling well. If I missed a neighborhood in DC because I assumed a neighborhood was high end and wasn't... mea culpa.
But the LA times and many other newspapers are noting how low end home sales are slowing very rapidly.
Real estate is cyclical. Long term its really smart to buy. That I don't argue with. Ever read "The richest man in Babylon?" Its a great little financial planning guide. One of its first recommendations is to own one's home. But right now, fundamentals (prices vs. wages, un-occupied inventory, # of people who own multiple homes whom really cannot afford to, etc.) are very out of balance.
I don't want a real estate induced recession to start... but its about to. (This is only my opinion, no links.)
Never before have so many people bought homes to sell (at profit) to individuals with higher incomes. The only close analogy is Florida 1925-1926. Ok, that market was far worse than today's market... But its the closest analogy I know of.
By October 15th 2006 the market will know that real estate is in a decline (my prediction). Hold me to it. Let's see how I do. :)
Maybe I'm pessimistic as I know my industry is about to lay off. Maybe I'm pessimistic as the industry that is the leading high wage employer in my region (Los Angeles, movie production) is cutting back *severly*.
But then I see Las Vegas is overbuilt... Pheonix, Florida...
While DC isn't very overbuilt, the prices are above the normal level supported by wages.
If I'm wrong... ok. I'm wrong.
Mytwocents, you could be right about a platau. Is that the best for the economy? Maybe. Maybe its best to get the pain over with.
Neil
DOn't hate the people that were fortunate/lucky enough to buy during the boom.
ReplyDeleteactually i feel sorry for people who bought "during" the boom and am happy for people that bought "before" the boom
at least the RE bulls are "admitting" that yes prices are falling in "some" places but but but but......
:lol:
To me, it's all about fundamentals. A market full of $600,000 SF suburban homes is simply unsustainable when no jurisdiction in the area exceeds $100k in median household income. For the houses to sell at those prices, enough people obviously have to be able to buy them.
ReplyDeleteI've seen no plausible explanation for such a wild run-up in prices in such a short period of time other than speculation and funny-money mortgages that would make a loanshark blush. The DC area has not changed demographically in such a rapid fashion.
I see a lot of RE bulls claim that people who can't/won't participate in this frothy market are simply irresponsible slackers who didn't make the right life choices in order to afford a $600,000 house. Interesting, but irrelevant. Housing is a commodity like any other and must sell to the market that exists. The amount of income it would take to afford even an average SFH in Northern Va. under a legitimate mortgage would likely place the buyers within the top 1-5% of household incomes nationally, if not regionally. That is NOT a sustainable market.
I really do not understand how some people can think that we will continue to have double digit increases in home prices every year forever. Last time I checked the average raise for people per year is lower than this. Not only that, but with interest rates going up, homes become even less affordable.
ReplyDeleteChrisO said...
ReplyDeleteyou are spot on.
you just might be the smartest guy in the room!!!!
you just might be the smartest guy in the room!!!!
ReplyDeleteNow *that's* the funniest thing I've read all day. :)
Let me just say that I'm NOT laughing at the folks who bought at the top of the market last year. I truly believe that a lot of them are in for some real hard times. That doesn't make me happy at all. And while DC might not be as bubbly as Southern California or Phoenix, what happens there will affect the economy as a whole. Last thing I want to see is a recession/depression/whatever you wanna call it. What I want to see happen is people buying houses that they can actually afford.
Appendix C makes it look like a correction like you're talking about is exceptionally rare. Haha, selfpwn3d.
ReplyDeleteAnonymous said...
ReplyDelete"I really do not understand how some people can think that we will continue to have double digit increases in home prices every year forever."
Did someone actually say that on this board? I've never read it, if so. I've heard everyone basically say the double digit gains are yesterday's story ... and now we either go into a normal period with a few temporary declines in various areas (housingheads) or we get gloom and doom and everything can be bought from 50% to 70% off or more by next year! But no one has been saying to expect a double-digit gain forever ... or even for next year!
sarah in dc said:
ReplyDelete"Now let's assume that, against Lance's advice, you wait a year and prices fall by 10% and the houses are now for sale at $450,000, but interest rates are up a full percentage point!!!"
where are you getting "a full percentage point? I thought you'd been around for a while? Don't your remember where they went the last time we had a costly war? (I posted a link the other day where economists are comparing what is happening now to what happened due to the Vietnam War.) I guess you don't remember 20% interest rates? Do your example with a 15% or 20% interest rate and see how much you save by buying for 10% cheaper.
sara in dc said:
ReplyDelete""Let's ignore the question of how many people legitimately have the finances to buy a $500,000 house ... "
considering that one-bedroom (or studio) condos go for that, i would term a $500,000 house where you'd have 2 breadwinners (or a rental apartment) very much "dirt cheap". Please don't tell me you sold out your place for anything less than that? If so, you'll never get into the market again ...
ps I am talking about DC where both Sarah and I apparently live.
ReplyDeleteInterest rates may go down, but inflation isn't going to follow.
ReplyDeleteBut that's a story for a different blog, I guess.
"Once again you deliberately ignore the point in favor of cheap innuendo. No, as a matter of fact, we are not nearly rich enough to be able to afford to pay $500,000 for anything. Most likely we never will be. We both work for modest salaries and my husband (a construction laborer) will probably want to retire soon. Our small salaries were plenty to enable us to buy a little '50's era townhouse in Del Rey in 2000. In fact, even with the much tighter lending standards in place then we could have afforded more. But construction is never stable work and I didn't want to lose the house if my husband lost his job. Good thing, too, because he was laid off twice over the course of the 5 years we owned it."
ReplyDeleteThis explains your bitterness, Sarah. You're the "working poor." Of course you're bitter. That makes sense now. Thanks.
Sarah in DC said "Some of you are probably genuinely naive. Those who haven't lived long enough to have seen a complete housing cycle can't be expected to understand how shockingly fast the psychology can change. Others may be hoping that somehow, some way, they'll be able to stave off the inevitable with insults and pathetic attempts to refute the evidence. Perhaps a few of you have no interest either way, but just like a chance to spew venom.
ReplyDeleteAs to why we aren't satisfied with just making money off the 'greater fools,' you can find the answer to that in the likely fallout on the economy in general. Most of us have friends and family who will be hurt."
I remember the last downturn in Los Angeles. The statistics say an 18% drop city wide, but the south bay area was it close to 40%! It happens and quick. I still remember my mom coming home crying when she saw one of my dad's coworkers applying to manage a mall shop to have some chance of feeding his family after the aerospace layoffs. As I noted before, contractors are being cut and cut hard already in Los Angeles. Oh, the media won't pick up on it for months.
As for your scare-mongering that we'll never be able to buy again-- I've heard it all many times before. It's a pretty good marker of when prices are about to fall. When they're at the bottom, all you hear is, "Are you NUTS?" when you are thinking about buying. I just recommended to a very nice young lady today whom is getting married to buy when everyone tells her its crazy. One of my coworkers is happily sitting in a $700k home with an ocean view that he bought for $156k in 1995. Will he sell? Nope, his kids are in school.
lance said "where are you getting "a full percentage point? I thought you'd been around for a while? Don't your remember where they went the last time we had a costly war? (I posted a link the other day where economists are comparing what is happening now to what happened due to the Vietnam War.) I guess you don't remember 20% interest rates? Do your example with a 15% or 20% interest rate and see how much you save by buying for 10% cheaper."
A very valid point. My high school economics teacher salvaged an ad poster from a local bank touting 18.75% 30 year treasury yeild. Why? To make a point, interest rates are not constant.
Now the question is Lance, are you betting on hyper inflation? Me? I believe the risk is greater for deflation a la Japan during the 1990's and their deflating real estate bubble. (That's an example of why you don't want to deflate a bubble slowly.) But my father is currently invested for inflation or to be precise stagflation.
To my fellow bubbleheads who think 6X meadian wage is too high... that isn't. Areas with lots of land will continue to have homes at 3X median wages. Nice areas will go back to their normal cycle of 6X wages to 8X wages. Now, with today's 10X wages... I honestly don't know if 6X wages is the floor anymore. It might be... it might not be. We'll see.
Whitetower. Your numbers match my guesses... I really wish I could argue with you due to how scary the numbers are.
Neil
"
ReplyDeleteNope. Middle class and quite comfortable, thanks. Just because you speculators have temporarily bid up houses beyond the reach of all but the rich does not make me suddenly 'poor'."
Newsflash - underemployed construction workers in 2-income households who can't even afford an INEXPENSIVE house are not middle class.
" As you like, anonymous. Go back to sipping your latte and don't let the woes of us po' folk trouble you. We'll do just fine. ;-"
ReplyDeleteIf by fine, you mean you'll never be able to afford a decent place to live, then sure, you'll be fine.
"Don't worry, anonymous. I don't have your high standards. Believe it or not, I actually enjoy living a few blocks from the metro and practically next door to a brew pub! (Especially on $1/beer night.) And having our landlord paying the utilities doesn't cover me with shame, either, as it would you. Hard to understand, I know, that we can live without marble counter-tops and coffee at $4 a cup, but you know, there's no accounting for taste!"
ReplyDeletePretty soon you won't even be able to afford that place. Sorry.
She lives in a 50's era apartment building in Arlington.
ReplyDeleteNot that there's anything wrong with that... but, hubby's getting ready to retire soon.
Anonymous said...
ReplyDelete“Do you see no irony in mocking an anonymous internet poster for telling you that you're heading for financial trouble?......”
Yep. Troll droppings are inversely proportional to the state of the RE market.
sara in dc,
ReplyDeletelike i said in previous post, i was assuming from your name that you were in DC ... and it was DC's downtown house i thought you were talking about. if you are from the del ray area, then $500K for a house is much more moderate ... and not cheap ...
I find the class warfare comments on this thread to be disgusting. Who built the houses housingheads live in? Is there something abhorent about being a construction worker?
ReplyDeleteIs there something immoral about being 'working poor?'
Do some people here honestly think that being middle class or upper makes them a better person than someone else?
So, now Lance is claiming that whenever housing prices have gone down, it's only because of high interest rates, so the buyers still pay more.
ReplyDeleteWell, real estate assesment records and historical mortgage rates say otherwise.
In 1989, Edgar Ligon bought a condo in Arlington for $123,816. 30-year Mortgage rates ranged between 9.86% and 11.17% during 1989.
In 1997, Omer Ali bought that condo for $95,000, when mortgage rates ranged between 7.3% and 8.27%.
In other words, Mr. Ali paid less for that condo in dollars, and faced lower interest rates, and therefore paid even less in his monthly payment.
If you want more juicy examples from real estate assesment records, feel free to ask.
Bubbles happen, and housing prices fall, and so does the real payment to buyers. It happened before, and it's starting to happen now.
The people who bought in the late 90s to 2002 will still be happy. The people who bought in 2004-2005 will mostly be unhappy. And the people who had the good sense to wait out the bubble will also be happy.
By the way, to the anonymous guy who keeps saying pw3nd, you = Pw3nd^2.
It's fascinating to watch the housingheads try to mock regular folks as the "working poor." A housing market predicated on selling houses only to the truly wealthy is not a viable market. Also interesting how they claim that DC is some magic island insulated from economics. DC has a lower median household income than several other area jurisdictions. Certain neighborhoods are very wealthy and will undoubtedly remain so. Others are puffed up beyond recognition and I believe headed for a fall. In fact, DC from my limited experience seems prone to wild swings in real estate. I moved here in '93, when the gentrifiers were just moving beyond Dupont Circle. You were talking crazy back then if you thought that North Capital St. and H St. were going to be revitalized. Unfortunately, I fear that a bubble crash could affect some of those areas, but that's just my random speculation.
ReplyDeleteFor all the HHs who say "where's the proof", and "where's the fall in prices", WATCH WHAT YOU ASK FOR, FOR YOU WILL SURELY GET IT.
ReplyDeleteIt's not a matter of if, but when. The fact that it hasn't happened yet in no way means it won't. This is a surer bet than Russian roulette, which most of us would not play.
Denial always precedes the crash.
Wow. Anonymous has convinced me. His/Her logic is flawless and undeniable.
ReplyDeleteThen how about numbers from NAR that show 2 successive quarters of declining median prices? With 1Q06 already at par with 2Q05 that will most likely result in the first YOY decline?
ReplyDeleteIs that convincing?
source: http://www.realtor.org/Research.nsf/Pages/MetroPrice
My $0.02.
Sara in DC, here's a solid example of your hypothetical:
ReplyDeletehttp://www.nvar.com/market/marketstats/jun06/arcc0606.PDF
This is for Arlington, VA condo sales. YOY average prices are up slightly while YOY the median price is down.
I guess the anonymous naysayers will now have to attack something else...
My $0.02.
two things to consider:
ReplyDelete1) fed monetary policy lags 18 months behind current economic conditions... so with liquidity drying up and less credit to go around, how are things going to look in 2008?
2) how many ppl still need to refi those 3/1, 5/1 ARMS from 2002 - 2005? with a rate shock of 2% coming down the pipe for those folks and lest we forget all of those ppl who have I/O ARMS that need to reprice, is it any wonder that more homes are on the market now? a lot of those ppl are trying to sell because they didn't refi in time...
get your hospital scrubs because it may get bloody over the next 18 - 24 months...
mmm, Loudoun County living. Schwwweeeett!
ReplyDelete(not really. seems like living there would be hell on earth, even with a 50% discount over yesterday's prices)
dc.gov says:
ReplyDeleteAddress: 0525 T ST NW
SSL: 3091 0040
Neighborhood: LEDROIT PARK
Homestead Status: ** Currently receiving the Homestead Deduction*.
Owner Name: STEPHEN J ---
Mailing Address: 2317 NARRAWOOD ST; RALEIGH NC27614-8897
Sale Price: $1,625,000
Sale Date: 06/21/2006
"This is for Arlington, VA condo sales. "
ReplyDeleteCondo sales do not comprise all real estate transactions.
Next.
"Condo sales do not comprise all real estate transactions."
ReplyDeleteNo, but they do comprise much of the bottom end in Arlington. SFHs in Arlington are mega-expensive at the moment.
" mmm, Loudoun County living. Schwwweeeett!"
It wouldn't be bad, actually, if you work in the Dulles Corridor. My wife works in Reston, and the majority of her co-workers live in Loudoun and are very happy out there. It would be pretty much living death if you had to commute to DC, to be sure.
Of course, I'm sure those folks are urban sophisticates like you... :)
*aren't* urban sophisticates, I meant to say. We wouldn't want to impugn the obvious superiority of our anonymous friends, would we? :)
ReplyDelete"This is for Arlington, VA condo sales. "
ReplyDeleteCondo sales do not comprise all real estate transactions."
Hey, I love that housinghead "logic"! Even if 99.99% of the houses in DC fall in price, you can still claim victory because 00.01% of the houses didn't fall in price! Way to move those goalposts!
"obvious superiority of our anonymous friends"
ReplyDeleteNo no no, Reston is much more sophisticated than DC.
"99.99% of the houses in DC fall in price"
ReplyDeleteTake a deep breath and focus on your reading comprehension. The citation from .02 concerned condos in Arlington county. Nothing else.
Condo sales in Arlington county do not comprise the entirety of the residential housing market in the DC Metro area.
Reston is in Fairfax county. Driving from Leesburg (in Loudoun County) to Reston during the morning rush is a nightmarish prospect itself.
ReplyDelete"Driving from Leesburg (in Loudoun County) to Reston during the morning rush is a nightmarish prospect itself."
ReplyDeleteWouldn't be that great, I guess, but Sterling to Reston isn't a bad commute. Not that I do it, mind you. I take the Metro downtown from Pentagon City. As unpleasant as the Metro is, I do prefer it to rush hour traffic.
"Condo sales in Arlington county do not comprise the entirety of the residential housing market in the DC Metro area."
ReplyDeleteNo, but they're a pretty good indicator. Moreover, since they represent the low end of the Arlington market, a downturn exactly proves the point that the low-end stuff *is* dropping in price.
Nobody is claiming that every single property in every single neighborhood in the DC area is going to drop by the same amount simultaneously, but to claim that whole portions of the area will be immune from price drops altogether sounds more like faith than reason to me.
Thank you Chriso,
ReplyDeleteWhat that anon is failing to acknowledge is that other anons berrated Sarah in DC for her demonstration of how average price can rise while median price drops. I'm sure they didn't "trust" the math.
When she proceeded to point out that it was merely an illustration, they then attacked her because it wasn't based on any "real" market.
When I provide the hard evidence for the phenomenon in Arlington County numbers published by the RE industry, the brave anons then attack that it's not the "entire" market.
And then they ask me next? Good grief...
My $0.02.
"but Sterling to Reston "
ReplyDeleteDidn't our blogmiester just post something about gang violence in Sterling? Have you ever been inside a home in Sterling Park?
I suspect that you'd mock sterling for the fact that it is overpriced relative to the gang activity there and the overall poor quality of construction (thus contributing to its "bubbleiciousness"; but you'd defend it as "commutable" if a "housinghead" raised traffic as a factor in housing prices.
"I take the Metro downtown from Pentagon City."
ReplyDeleteOh, are you the guy who walks underground through the Pent. City mall from his a apt. building to the Metro?
There was a guy here a while back defending the underground Pent City lifestyle as ideal. To each his own.
Didn't our blogmiester just post something about gang violence in Sterling? Have you ever been inside a home in Sterling Park?
ReplyDeleteI went inside a few when I briefly looked at renting out there. Too far from my work, alas. I didn't think it was a bad area, and yours is an interesting comment on a blog where so many commenters seem to get defensive and hurl "racism" charges when anyone points out DC crime statistics.
I suspect that you'd mock sterling for the fact that it is overpriced relative to the gang activity there and the overall poor quality of construction (thus contributing to its "bubbleiciousness"; but you'd defend it as "commutable" if a "housinghead" raised traffic as a factor in housing prices.
No, I think I'm pretty consistent, actually. It IS overpriced relative to its location (quality varies a lot there, I think), and while I would define it as "commutable" for Dulles tech workers, I'd hate to commute from there to anywhere inside the Beltway or across the river. Bottom line, I don't "mock" anyone for their choice of a place to live. It's their money and their life.
Oh, are you the guy who walks underground through the Pent. City mall from his a apt. building to the Metro?
No, that's not me, though I see those folks everyday inside the Pentagon City stop. I rent in the Aurora Hills neighborhood and have a pleasant 10-minute or so walk through the neighborhood. When the air goes out of the housing souffle, my wife and I will probably buy a nice little place in the neighborhood. Good living to be had there.
So Pentagon City is highly desirable for its prime location, low (relatively speaking) crime, substantial amenities, and walkable "neighborhoodiness"?
ReplyDeleteAnd prices are going to collapse there dramatically regardless of all that, correct?
And prices are going to collapse there dramatically regardless of all that, correct?
ReplyDeleteThey are already dropping. Given the factors you mentioned, my neighborhood probably isn't as bubbly as some--would that it were so--but prices are still quite high and the supply of buyers has shrunk. I could foresee a pretty substantial drop, yes.
Some recent Pent. City sales from arlingtonva.us:
ReplyDelete31-001-064 1705 S WALTER REED DR 7/6/2006 $618,500 3999/0603
31-002-004 2819 18th ST S 6/9/2006 $478,775 3989/2629 E
36-012-018 725 19th ST S 6/27/2006 $606,250
3995/2600
36-021-016 831 21st ST S 6/22/2006 $575,000
3994/0518
37-005-003 1109 17th ST S 6/16/2006 $615,000
3992/1169
36-012-015 715 19th ST S 6/9/2006 $829,000
3990/0248
36-031-003 811 23rd ST S 5/25/2006 $620,000
3984/0355 E
36-031-014 810 22nd ST S 5/24/2006 $725,000 3985/1332
36-002-009 906 17th ST S 4/28/2006 $740,000
3976/0337
37-010-053 1106 21st ST S 4/21/2006 $1,155,000
90% price drops are in store for Pentagon City. Just you wait, housingheads.
ReplyDeleteSome recent Pent. City sales from arlingtonva.us:
ReplyDeleteThose first two aren't in Pentagon City, but the rest are, and in fact one of them is right across the street from me and sold for about $40k less than its initial listing. They are in reverse chrono order, and I think the trend is pretty clear.
That million-dollar house that sold in April is a bit misleading, since that is basically at the top of hill up by all of the manses on Ridge Road.
Sweetie, it was just a very small sampling.
ReplyDeleteThanks for letting me know where you live. :-D
Dude! I'll be there in a few. What is la chica cookin' up for dinner?!
ReplyDelete"That million-dollar house that sold in April is a bit misleading"
ReplyDeleteEh, the median income in DC is something like $40K, which clearly demonstrates that no one can afford to pay that much for a home. This anomolous transaction must be a technical glitch in the computer