Sunday, August 06, 2006

Housing Example. Buying Vs. Renting in A Declining Market

Lets take this as an example, there is a house located in a bubble market that is selling for $450K. Your monthly costs associated with buying are $2700. The flipper is also offering to rent out the house for $1800 a month because there has been no interest for the house. You decide to rent from Mr. Flipper. Mr. Flipper is an inexperienced landlord, but overall it is okay because the house is relatively new and was solidly built.

After 12 months, the flipper is desperate as they can't make the mortgage payments due to an adjustable rate mortgage that just adjusted. Prices have fallen in that area about 7.5% in the past year. The flipper decides to sell the house at $416,250 or 7.5% less then what he was asking for a year ago. That would be a price reduction of $33,750.

At this point you suspect that prices will fall further but you just really want to buy the house for 416,250. [Plus you feel slightly bad for Mr. Flipper.]

How much did you save by rent and not buying for the year?

So we get 33,750 + $10800 (12 * 900 (savings on monthly housing costs - 4800 ( (12 & $400 (monthly principal payments) ) = $39,750 extra to buy for that year. Now divide this number by 52 (the number of weeks in a year) and it like saving $764 a week.

201 comments:

  1. The woman I am renting from probably bought this place for $550K or so--that is the going rate for these new 2 bd condos. Perhaps as a realtor she got a discount, let's even say 5%, so it's really about $525K.

    I wouldn't pay more than $450K, if that, the way I see prices declining in nicer, more established neighborhoods for 2 bds. My colleague just got a 2 bd place (no parking) in McLean Gardens (Cleveland Park) for $425. That place is further from the metro than I am, but then again, it's a nicer neighborhood.

    I do not want to buy here anyway, as I have decided the neighborhood is not for me long term.

    Anyone who thinks prices are not falling, has a blindfold on, his fingers in his ears, singing "na, na, na, I can't hear you".

    ReplyDelete
  2. David, This is an excellent buying strategy. But, that is the crux of it, it is a buying strategy as I have been advocating all along vs. giving up and renting and claiming one is better off renting as many bubbleheads are doing.
    I would suspect there are many flippers out there right now who would be thrilled to enter into "rent to buy" purchase agreements with prospective buyers who otherwise wouldn't have a downpayment to put down. (Rent ... or at least part of it ... usually gets credited as the downpayment in such agreements.) Flippers were gambling and are getting "burned" but that was always part of the equation ... Large shortterm gains are only possible when one accepts the possibility that there will be large shortterm losses. Bubbleheads who are waiting a year for similar large discounts have to be prepared to accept that they may instead find themselves paying large extra premiums caused by higher interest rates. So, locking in now with a rent to buy agreement is a smart move if one prefers not to gamble like the flippers do.

    ReplyDelete
  3. I spoke to a rent to buy Flipper, and he has a contractual guaranteed 8% increase per year paid to the seller (him) at the closing.

    I told hime RE was going down and that was not a good business decision as a buyer.

    His answer was, he was taking the risk because RE had been going up at 18% per year!

    Buyers Beware.

    ReplyDelete
  4. I'm always amazed by the way people neglect property taxes in this sort of comparison. In California the owner would also have been responsible for taxes at 2% pa of the price he paid. If he bought the house for $400K that's $8K a year - an additional $667 a month.

    ReplyDelete
  5. meme chose said:
    "If he bought the house for $400K that's $8K a year - an additional $667 a month."

    Wow! those are some high taxes you are paying there! Our taxes are much lower in DC. For owner-occupied property, they are 92 cents per $100 of valuation with the first $60,000 of value exempted. So, for a $400K house actually valued at $400K (and most properties here are valued on the tax books for far below the fair market value), that would be $3,128 in taxes per year or $261/ month ... all of which would be deductible on state and federal returns bring it down to a net of $175 cash out of pocket per month. And with the reality that most properties are valued at less than 2/3 of their actual fair market value, we're talking more in the vicintyof $115 out of pocket ... or the price of dinner for two in a slightly better-than-average restaurant in DC. I.e., it's not all that significant when discussing the much larger sums involved in real estate transactions.

    ReplyDelete
  6. GREAT point meme! Also, buyers forget the transaction costs with buying a condo too.

    In NYC, a $500K CONDO has closing costs of about $20-$22K assuming 20% down, more if 10% down. I bought my condo for $500K and my closing costs were $21,750 total, JUST TO DO THE DEAL! Thats almost 1 year rent right there for a comprable rental unit of about $1,900/mth back in 2001.

    So my monthly payments worked out like this when I FIRST bought back in 11/2001:

    Mortgage = $2600
    Maintenence = $650
    Property Taxes = $500 ($6000/YR)

    TOTAL = $3,750/Month

    When I SOLD last month, my payments were:

    Mortgage Refinanced + Cashout = $2,800
    Maintenence = $715 (energy assessment)
    Property Taxes = $675 ($8100/YR)

    TOTAL = $4,190

    Now Im looking to rent 1BR for few years and it looks like it will cost me about $2500 or so.

    MY POINT = Buyers have to pay for maintenence of their home + property taxes for home PLUS transaction fees when they BUY & SELL!!!!! I love how people just do the, "I bought for $400K and sold for $500K, so I pocketed a tax free $100K"...That is a fantasy world and NOT reality! People dont like to admit that their profit wasn't as much as they thought AFTER all is set and done!

    ReplyDelete
  7. Lance's strategy towards housing is always the same: buy! buy! buy! He never acknowledges any risk and claims there are no negatives to home ownership relative to renting. Lance the RE agent and property flipping fool should be ashamed by his self serving attempts to pump the DC housing market.

    ReplyDelete
  8. "MY POINT = Buyers have to pay for maintenence of their home + property taxes for home PLUS transaction fees when they BUY & SELL!!!!!"

    You're forgetting about homeowner's insurance and (for those unlucky enough) HOA fees.

    ReplyDelete
  9. Don't forget the HOA fees (which are tax deductible in virtually no state).

    For condos these fees can be quite modest at, say, $50/month. Most HOA fees are far more than that. there are condos here in Phoenix that have $250/month fees.

    So that's another $600-3000 loss for the owner per year.

    (Over 30 years... fugetabboutit.)

    ReplyDelete
  10. "You're forgetting about homeowner's insurance and (for those unlucky enough) HOA fees."

    Don't live in a suburban ghetto, and you won't have HOA fees.

    ReplyDelete
  11. gaston,

    it is you who should be ashamed ... encouraging people to try to time the market to get a better deal. better deals are made and not stumbled upon. waiting for that illusive 50% - 70% decline is housing prices is like waiting for winning the lottery ... lots of self delusion there. for their own good, people need to face reality and deal with it as it is and not set their hopes on the unlikely. encouraging them to dream rather than act in accordance with reality is extremely shameful ... one day these folks will wake up and realize that that big winfall market collapse just ain't gonna happen. and where will they be then? 'course you'll probably be off happy having bought the houses that they otherwise would have bought. i suspect it is you that is the real estate agent ... and we KNOW it is you who is the flipper from the speculative buying advice you are giving. what is most shameful about you is your purporting to give good advice while your advice can't possibly be good as it is based on future predictions gleamed from a crystal ball you do not have.

    ReplyDelete
  12. Very few people are waiting for a 50% decline, that is a red herring thrown out by reactionary HHs like you.

    20% in this market is $80K-$100K on a $00-$500K condo (my range). That is worth waiting for, and it is so clearly going to happen. That first 10% has already hit for 1bds, from last year's peak. It will have to get to the 2bds. Market psychology is powerful, declines do not stop at one drop.

    So it is totally worth waiting. I will not even come close to paying $80K in rent this year, not to mention the interest and property taxes on that that I'd be paying if I bought.

    This is a time to wait.

    ReplyDelete
  13. Lance,


    explain this to me.

    it's obvious that RE prices are heading down, i see "price reduced" signs everywhere and the blogs showing people getting less than they paid are numerous.

    so the question about whether i can pay less next year has been answered I CAN,

    what's the rationale behind buying now?? 30 year rates are still historically low and i have a 100% change of paying less next year??

    it would be silly to buy now...no?? I KNOW FOR A FACT I WILL PAY LESS NEXT YEAR.

    explain why it's a good time to buy??

    TIA.

    ReplyDelete
  14. encouraging them to dream rather than act in accordance with reality is extremely shameful

    :lol:

    i think Lance has to be a troll.

    there is no way he can believe this in an obviously declining RE market.


    AND

    why in the world would DC purposly value homes at 2/3 their fair market value for taxes?? how is it not based on home sale prices??

    ReplyDelete
  15. Lance, your shamless manipulation with numbers and taxes is astonishing, so I really hope that all interested parties do the math themselves. The reality of money flow is the best confirmation of every "theory" - as of today the difference between my monthly rent and what I would pay carrying mortgage for the same SFH covers private school tuition for my kid and then some. And I don't spent a minute and a penny on maitanance.

    ReplyDelete
  16. Since there are condos for sale right around here that are of exactly the same vintage, floor plans, etc. as our apartment I can make this calculation quite easily. It comes to $5604 (assuming a 6.5% 30 year mortgage) that we've saved by not buying a comparable place. (Not counting lost interest on the down-payment, or costs for utilities included in our rent, or closing costs to buy.)

    But let's not go there. Let's just say we'd stuck to what Lance advocates and stayed in our townhome. Since we bought in 2000, wouldn't we be ahead?

    No. Again ignorning the nearly $12,000 interest on our gains from the sale of the house, just comparing monthly PITI versus rent we'd still be losing a little less than a hundred a month. If we factor in maintenance (we probably spent, all told about $8,000 installing central air, french drains, fixing gutters, electic, etc.), we'd be paying another $100 or so a month in our old place. Add in what we spent on heating and cooling in the old place and you're talking about a $3000 or so a year 'premium' we were paying for being homeowners.

    And then there's the wear and tear on the nerves of home ownership to consider-- the leaky gutters, the water in the basement, the electrical shorts, the mortgages sold to flakey companies in Florida who fail to pay your taxes on time and persistently charge you late fees for payments no matter how early you pay. All of this means time and nerves expended on finding reliable repair people, fighting with customer service departments, time off work to supervise repairs...

    In normal times, the calculation is that if you're going to stay for at least 5 years, it is usually worth it to buy. That's calculation we made-- and of course, it was worth it. But these are far from normal times, and buying when prices are as wildly out of whack as they are now is a sure way to 'lock yourself in' not to lower payments, as Lance suggests, but to an albatross which you can afford neither to sell nor maintain.

    A little patience now will well reward people looking to buy in a few years, in my opinion.

    There are very simple, time-tested formulas to use in deciding whether it makes sense to buy or rent. Use them and you'll never go far wrong.

    ReplyDelete
  17. anonymous 10:43 said,

    "explain why it's a good time to buy??"

    Because for HousingHeads, buying a home is an article of faith. Home "ownership" is not a rational process for the HHs, engaged in through an economic calculation. It's religion.

    ReplyDelete
  18. Singing na na na? Woo hoo! This is the ultimate housing bubble na na na:

    http://www.parkerchris.pwp.blueyonder.co.uk/vocationvocationvocation.html

    Enjoy

    ReplyDelete
  19. " It's religion. "

    I don't think they really believe it, it's just that if they admit that prices are falling, and could lock you into a house that you can't get rid of when you want to, they'll have to admit that they may face that reality themselves.

    If I had bought last year, I may be defensive as well, trying to explain away every negative indicator.

    The psychological weight of being or potentially being upside-down on your mortgage can be powerful, and denial is just one of the stages of dealing with that feeling, I'd suppose.

    ReplyDelete
  20. Interesting article on AOL (hopefully accessable by those not on AOL.)

    http://money.aol.com/ragstoriches/canvas3/_a/rags-to-riches-from-barely-qualifying/20060726104109990001

    (be sure to not leave any spaces. and yes, I know I could use Tiny URL, but I don't trust it ... It is a gimmick to get people's email addresses and then SPAM them ..)

    ReplyDelete
  21. Anonymous said...
    "Very few people are waiting for a 50% decline, that is a red herring thrown out by reactionary HHs like you.

    20% in this market is $80K-$100K on a $00-$500K condo (my range). That is worth waiting for, and it is so clearly going to happen. That first 10% has already hit for 1bds, from last year's peak. It will have to get to the 2bds. Market psychology is powerful, declines do not stop at one drop.

    So it is totally worth waiting. I will not even come close to paying $80K in rent this year, not to mention the interest and property taxes on that that I'd be paying if I bought.

    This is a time to wait."

    If you've been reading my posts for a while, you'd know I agree with you that that 20% is a real possibility. You'd also know that if it were I, I wouldn't wait a year for the 20% to happen all around and for everyone to be out there competing with me on those properties and possibly pushing the prices back up (worst case) or at (best case) leaving me with less choice. I'd be out there now trying to negotiate 20% reductions on existing properties for sale ... And I would be doing this with some urgency as all indication say that inflation is returning ... and with it, higher mortgage interest rates. In sum, I wouldn't leave the whole thing to chance ... I would act. And as for the 50% - 70% reductions that some bubbleheads are hoping for ... Just read through some of the posts on here and you will see that was not made up. Robert for example said that properties are worth today on average 30% of what they are priced at ... and that he would wait till they dropped to that level before purchasing ... and that if interest rates went up in the meantime, he'd factor that in and demand even more of a discount. You are reasonable .. but some bubbleheads are not.

    ReplyDelete
  22. Lance,

    i agree they made a fortune in the largest RE bull matket in history, sadly past performance is no indicator of future gains.

    a lot of people mad out like bandits with pets.com so does that mean it's never a bad time to buy IPO's or stocks???


    BTW their main home is for sale!!!!!

    and i didn't read the entire article but it appears that most of the properties they bought were in or after '94!!!! translation: the bottom of the market

    ReplyDelete
  23. its funny lance, I have been reading these blogs for a while. And its funny how you have changed your tune from:
    "real estate wont go down, job growth, dc is different, etc"

    to

    "you'd know I agree with you that that 20% is a real possibility."

    At least you are coming around.

    the real bob

    ReplyDelete
  24. Tia asked:
    "it would be silly to buy now...no?? I KNOW FOR A FACT I WILL PAY LESS NEXT YEAR."

    But you don't! ... that is the problem ... and that is why I say act according to what you know to be the case now. Yes, everyone ... buyers and sellers ... suspects that prices will drop in near future ... So, NOW is the time to capitalize on that and get that good deal. Anything could happen between now and next year ... and those savings you're expecting could be wiped out in an instant. Let's say the situation in the Middle East esculates and we get more involved there then we already are. The extra expense would only add impetus to the rise in inflation and interest rates. We could see a return to the 20% mortgage rates of the late 70s/early 80s happen overnight ... And where would you be then in regards to mortgage payments? In the stock market there is a theory that all future expected events are already built into the selling price of a stock ... i.e., even if something hasn't already happened, if it is a sure bet to happen, then the market has factored it into the price. You say that everyone knows that prices are heading down in a year ... If that is the case, then the price you can get a house at today WILL reflect that. (Note, I am not talking "asking price" ... that can reflect unrealistic wishes. I am talking "negotiated price.") With this in mind, there is really no advantage to waiting a year ... Unless you are gambling that drops you aren't ALREADY sure of occuring will occur. Are you following me?

    ReplyDelete
  25. buying would be the gamble

    i sure hope you are here next year but i suspect you'll have a "how was anybody supposed to know how bad things could get" line by then.

    you've already changed your tune to the 20% drop is obvious.

    nope i bet anything you are a :troll:

    ReplyDelete
  26. Lance, I would rather have 200K mortgage at 10% than 400K at 5%.

    ReplyDelete
  27. Bob,

    We have to differentiate between "the average market" and the District of Columbia market. The District of Columbia market is getting stronger all the time. I see it all around me ... Houses and condos are selling for more and more and not languishing on the market unless they are clearly overpriced. The 20% I am agreeing to ... and have agreed to since I first starting posting on this blog a couple months ago is in reference to some "general" markets out there. Btw, I have even said that I think it will apply to condos in DC for a short period of time. (I.e., as all the condos being built come on line, they will cause the price to drop maybe 20% or more for a short while ... and then return to normal within 18 months.) YES, negotiating the housing market requires looking at many factors including your local market conditions as well as your overall economic circumstances ... It isn't easy and it can be timeconsuming. And many bubbleheads apparently are willing and/or able to give it what it takes ... They are instead just counting on fate handing them a gift a year down the road. Sorry, I've been around long enough to know that those who sit around just waiting for something to be handed to them usually end up getting nothing in the end. And that is why I think it is shameful that some posters on here keep telling others to "just do nothing! ... just wait ... and it'll just drop in your lap!" ... yeah right ...

    ReplyDelete
  28. Anonymous said...
    "Lance, I would rather have 200K mortgage at 10% than 400K at 5%."

    If you mean you are going to buy a $400,000 house for $200,000, then you are dreaming. If you are talking about getting a $1.4 million dollar house for $1.2 million, then I say you are wasting your time because chances are you could already negotiate that discount today without waiting for interest rates to rise.

    ReplyDelete
  29. I dont tell others to "just wait". I tell them to give it a year or so and see what happens to prices and if they dont change leave the dc area. It is just retarted to pay 500k+ for a townhome in fallsgrove or 400k for a 1 bedroom condo in dupont. This is not nyc and never will be. Telling someone to buy now is just stupid.

    Lance, I wish I would have saved some of your posts where you said prices were not going down, cause you did, but it is pointless to argue that but most blog readers will agree that you have been spouting the real estate only goes up chime from your first post with no specific exceptions.

    the real bob

    ReplyDelete
  30. Lance has admitted that he bought at the top of the bubble in 2005. That is one reason he wants to believe. However the primary reason for Lance's constant posting, 7 days a week, including Friday and Saturday nights, is that he is trying to pump the DC market because his livelihood depends on it. He is getting paid to troll this blog.

    ReplyDelete
  31. Bob:
    "Lance, I wish I would have saved some of your posts where you said prices were not going down, cause you did, but it is pointless to argue that but most blog readers will agree that you have been spouting the real estate only goes up chime from your first post with no specific exceptions."

    I have NOT. David has the posts archived to the right. Go through them. You will find that I have always said that while LONGTERM prices always go up, real estate is cyclical and I agree that we are at a downward trend and that in the near future prices will go down. I have also said not to expect any real down to happen in certain segments such as houses in nice areas in the District. These areas may not go up in value, but they won't go down because there are other factors at work such as the District's emergence as a world-class city. Now, if I were a bubblehead reading your advice, I would be very leary of advice that consisted of "wait a year ... and if it doesn't happen ... just hang up your hat, give it up ... and leave town." I'd suspect that even for bubbleheads, and "win or die" strategy is a bit much!

    ReplyDelete
  32. Actually, Lance has one good point. There's nothing wrong with making some lowball offers now at a good interest rate. Chop 20-40% off that asking price, and see what happens. You choose the price you think you ought to pay, and make that offer. The worst that can happen is the seller will say no.

    ReplyDelete
  33. gaston,

    yup .... when you can't discredit the message, try to discredit the messenger. adhereing to the bubblehead "faith" has a lot in common with adhering to any "faith", doesn't it?

    that's ok ... if I manage to save one person from the delusions being pitched by your kind, I'll feel I'll have done my good deed.

    ReplyDelete
  34. Keith said...
    "Actually, Lance has one good point. There's nothing wrong with making some lowball offers now at a good interest rate. Chop 20-40% off that asking price, and see what happens. You choose the price you think you ought to pay, and make that offer. The worst that can happen is the seller will say no."

    Bingo! I think you're getting it Keith! Are you saved yet? (though I think the 40% is really pushing it unless you're referring to some new construction condo out in Chantilly that was already way over priced to begin with.)

    ReplyDelete
  35. "If you mean you are going to buy a $400,000 house for 200,000... " Again, Lance, your post is misleading. You forgot to include downpayment into consideration. Anyway, it's a total waste of time to argue with you and to point to your various errors. Sorry. I'd rather move on.

    ReplyDelete
  36. Lance only sings one tune, BUY BUY BUY! He says he is bringing his message to the people because he is a good samaritan who is only trying to help. What a crock of shit. Lance is a paid shill.

    ReplyDelete
  37. Lance, it's not a matter of being "saved." I've believed DC housing prices are going to come down, but not by 50-70% (at least the odds of that would be super low). I think DC is bubbly, but not crazy like Phoenix and San Diego.

    Now, there might be sellers who would take realistic prices as they get more and more "up against it." I see things priced at 400-450K that I'd regard as a decent buy at 300K.

    In some cases, like at Clarendon 1021, I think a 1/3 offer off asking makes sense. It's a great location in a great inner suburb (I actually used to like it a lot more before it became more Pottery Barnish and anodyne). It wouldn't surprise me if 2 bdrms go for 400K. It's too bad people are asking 600K. And they're in for a rude awakening because they paid 500K for them.

    Again, that's based on my belief that prices should have started leveling and moving up at a normal pace in 2003-2004, instead of skyrocketing in 2004-2005. I believe that because people started using interest-only loans as affordability mechanisms, which induced a lot of artificial and unsustainable demand, and which will drive a lot of inventory growth over the next few years.

    There's nothing wrong with making lowball offers at this time, and there's nothing wrong with waiting, either.

    ReplyDelete
  38. Lance said...
    “…… that there is never a bad time to buy if it is a home you are buying….”

    Lance said...
    “….I do believe that for a prospective homeowner (or longterm investor) there
    IS…. no bad time to buy”

    Lance said...
    “In brief, if you are looking to buy a home, the thought of resale value shouldn't even cross your mind…..”

    ReplyDelete
  39. Lance said...
    “In brief, if you are looking to buy a home, the thought of resale value shouldn't even cross your mind…..”

    that really has to be the dumbest thing i ever read.

    lets leverage 500K. but i don't care if i can sell it for that if i have to move for a job change or some other clamity, afterall it's a home not an investment!!

    Lance = :troll: he has to be. nobody can think of a house as not being an invesment when we are talking about these stagering amounts of money.

    ReplyDelete
  40. "I wouldn't leave the whole thing to chance ... I would act." followed by suggestion to offer 20-40% less now.

    This kind of thinking had me in the market immediately after I backed out of a contract on a unit that was completed in March. But sellers were not being realistic. The market is not a perfect mechanism, there are time lags for effects to show up in price.

    And I need a place to live, so I've taken a one year lease.

    Anyway, a slow Fall season is what it's going to take for sellers to really "get" it, I'd be a fool not to wait that out.

    Since I'm looking for condos, even if there's less inventory, I'm pretty sure I can find what I want, where I want it.

    I'm not sacrificing neighborhood, I do not see it as noble, I see it as silly, especially since the most inflated prices, at least last year, were in neighborhoods where you worry about your safety.

    To reword a well-known cliche, I plan to own enhance my quality of life, not sacrifice my quality of life in order to own.

    Or something like that.

    ReplyDelete
  41. thanks robert, nice quotes. I new they were out there.


    the real bob

    ReplyDelete
  42. "and it like saving $764 a week."

    And, when your gross income is on the order of $800 per week, like david's (which, by the way, is the median household income for DC), that $764 per week is all the difference in the world.

    ReplyDelete
  43. Hey, everybody, it got a little old, but on the thread below, you can watch a housinghead anonytroll totally lose a debate and then turn into an obsessive stalker after he got humiliated and then totally lose it in a downward psychological spiral. It's pretty funny.

    ReplyDelete
  44. Anonymous said...
    ""If you mean you are going to buy a $400,000 house for 200,000... " Again, Lance, your post is misleading. You forgot to include downpayment into consideration. Anyway, it's a total waste of time to argue with you and to point to your various errors. Sorry. I'd rather move on."

    Of course I did. That's why I gave the second example of a reduction from $1.4 M to $1.2 M. The point, which obviously zoomed right over your head is that the anon was either dreaming about the magnitude of the discount he was going to get by waiting or wasting his time waiting because it was already there for the taking if he did a little work and just stopped waiting for it to drop in his lap. I could also have pointed out that if interest rates rose that much because of inflation, he should also expect the price of the house to rise somewhat ... and not drop as he is unrealistically hoping.

    ReplyDelete
  45. Keith said:
    "I believe that because people started using interest-only loans as affordability mechanisms, which induced a lot of artificial and unsustainable demand, and which will drive a lot of inventory growth over the next few years."

    an observation: there's no turning back the clock. YES, these mechanisms caused prices to escalate, but now that they are out of the bag, short of regulatory action by the feds, they won't be disappearing anytime soon. for good or for bad, they will continue to be out there "inflating" the price of housing from here on out. You can put your head in the sand and pretend the clock can be turned back, or you can face reality and deal with it. I say deal with it. If everyone really knew for sure that everything was going to drop by 40% a year from now like some bubbleheads are claiming, don't you think that would have already been factored into current prices by the market? It hasn't 'cause it really isn't a sure thing. My greatest concern if I were looking would be the coming of inflation. Inflation is a homeowner's best friend (mtg payment stays the same while salaries go up) but a buyer's worst nightmare since it gets factored into the interest rate. I guess am just too risk adverse to be willing to gamble with the roof over my head as some of the irresponsible bubbeheads on here are ... Those that are trying to drag others down with them. Of course, they DO have an incentive to not see you out there looking out for yourself, they're hoping they can encourage others not to buy so that they can swoop in with their $1,000 in savings and buy a property at a 70% discount. Of course, it's a futile hope because cash rich investors would swoop in long before them anyways.

    ReplyDelete
  46. Anonymous said...
    "thanks robert, nice quotes. I new they were out there.


    the real bob"

    they are nice quotes bob ... and if you don't understand them then it shows why you'll always be the bitter renter at the mercy of a smarter landlords ... it's just sad to see you bring down others with you.

    ReplyDelete
  47. Keith said...
    "Hey, everybody, it got a little old, but on the thread below, you can watch a housinghead anonytroll totally lose a debate and then turn into an obsessive stalker after he got humiliated and then totally lose it in a downward psychological spiral. It's pretty funny."

    Keith, is this really the way a mature, grown person speaks?

    ReplyDelete
  48. "YES, these mechanisms caused prices to escalate, but now that they are out of the bag, short of regulatory action by the feds, they won't be disappearing anytime soon."

    Yes, and they will also cause prices to fall, as people can't make their payments and have to sell. That's why it's a bad idea to use interet-only mortgages as an affordability mechanism.

    And that's why the clock will turn back. People bought homes they couldn't afford, and they will have to sell them at prices other people can afford, i.e. at a loss.

    Anbd you're the one not dealing with it, because you don't know any economics.

    ReplyDelete
  49. Lance, and you have zero credibility if you talk about "irresponsible" renters but don't acknowledge the utter irresponsisbility of using interest-only mortgages as a means of "affording" your home.

    ReplyDelete
  50. Lance, you seem to believe that everybody should buy using any means. And the fact is that if you can't afford a home with a fixed-rate mortgage, then you shouldn't be using any other type of mortage to buy it, either.

    And a market that relies on interest-only mortages to fuel demand is a market that is in a speculative bubble that will be followed by a serious correction.

    ReplyDelete
  51. Lance,

    The housing tide has changed... As you said yourself,"lots of self delusion there". Time to walk away and fight another day. Save your pride. You may debate well but not well enough to change reality. No, inflation won't save you. Nobody is trying to swoop in and steal all of the homes for sale with $1,000 in savings. Lastly, the buubleheads are not the gambling type. I would say that it's just common sense because after all they called it right.

    ReplyDelete
  52. HOA fees? Ha! I gotcher HOA fees right here:

    http://www.ocregister.com/ocregister/money/housing/article_1208622.php

    $750 HOA fees *minimum*. That's for a minimal $550k condo in the Irvine high-rise. They won't say how many sq. ft. is in the minimum. I suspect 850 or so.

    I wouldn't have believed it unless I saw it with my own eyes.

    ReplyDelete
  53. Keith said...
    "Lance, you seem to believe that everybody should buy using any means. And the fact is that if you can't afford a home with a fixed-rate mortgage, then you shouldn't be using any other type of mortage to buy it, either."

    Keith ... It is a "buying" continium that stretches between renting where one lives and paying full cash for where one lives. Paying interest only is somewhere between the two, as is paying "principal and interest". Yes, it could be said that it is most safe to pay full cash ... and least safe to just rent (i.e., buy "time"), but to say that being somewhere in the middle such as having an interest only loan is unsafe, is disengenuous to hear from someone further to the left on this continuom ... i.e. a renter.

    ReplyDelete
  54. Oh my God Lance, You convinced me. Thank you for your wisdom. I'm going to do the most safe thing with my money and go pay full cash for a house right now!!! Why would I rent for less when I can pay full cash for an overpriced depreciating asset...

    ReplyDelete
  55. For the financial genuises on here, check this out.

    Bonus points to whomever tells me this guys' net, effective after-tax house payment (excluding maintenence and other unknowable items).

    ReplyDelete
  56. Lance, rule of thumb for you. You should never buy a depreciating asset. You even agreed that realestate is depreciating right now, by maybe 20%. This is why most rich people never own cars, they lease them. Telling someone to buy an asset that is depreciating is the worst finanicial advice I have ever heard.

    Another thing most people dont know is that interest only loans were primarily used in the commercial industry by comapanys. Why, because it the most risky type of financial decision you can make. Saying that renting is riskier then an io loan really shows me that you have no clue about the financial decision making and financial tools.
    the real bob

    ReplyDelete
  57. tom/bob/etc, real property is NOT a depreciating asset. a depreciating asset gets used up and loses all its value over time. because land cannot lose all its value ever, one is not buying a depreciating asset. the real estate market is cyclical and the value of real estate will go up and down, but over time the trend is for the value of the real estate to go up because it is by definition limited in quantity and the human population is expanding and not contracting. those of you like bob who think you are financial wizards and then claim that real estate is a depreciating asset are perfect examples of why the backers of this bubble theory don't know what they are talking about.

    ReplyDelete
  58. I dont know what I am talking about? And you do? You are recommending that people buy a home when you admitted that you think prices will drop by 20%? A depreciating asset is any asset that loses value, not necessarily to zero. So, if you own a home that depreciates next year, it IS A DEPRECIATING ASSET no matter how you want to paint it. You, lance, are a perfect example of all of the financial mistakes that were made last year. Someone said this already, but, when you make a large realestate purchase you need to think of the short term and the long term risks associated with that purchase. People like you who put blinders on towards the short term risks are the people who caused the problem in local realestate and will pay for it very soon. Oh, you said in another post that california is a bubble. So, if I get you right, california is a bubble but not DC? Its different here, we got monuments.
    LOL

    the real bob

    ReplyDelete
  59. "because land cannot lose all its value ever..." What an idiotic statement. Ask Japanese, they will tell you about the value of the land a story or two. And about 15 years of RE depreciation.

    ReplyDelete
  60. "tom/bob/etc, real property is NOT a depreciating asset. a depreciating asset gets used up and loses all its value over time."

    Cars are an investment. Don't you remember that was established right here on this blog long ago? *Automobiles are a "sound investment"*.

    Real estate is not.

    Welcome to bubblemeter.

    ReplyDelete
  61. I just listened to Bill Bonner who bought a RE in downtown Baltimore for his office a few years ago. The building was built in 1930's and was purchased for 1/5th of the original price. 71 years of non-stop depriciating. Yeah Lance, tell us more about ever appreciationg assets.

    ReplyDelete
  62. Wow, the financial ignorance here astounds me. Forgetting whether housing prices in the DC area are massively, unsupportably run up (IMO, they clearly are) real estate is the exact opposite of a depreciting asset. A depreciating asset--such as a car, a plane, a gallon of milk or, to take the classic investing example, an oil or gas field, is an asset which, by the operation of time (car, plan, milk) or by the extraction of a resource (oil or gas field) will, always, 100%, decline in value.

    For example, putting aside the price of oil or gas, an oil field will never be as valuable as the day it is first drilled, a car never as valuable as the day you drive it home, and milk never as valuable as when it first comes from the cow. This is simple economics/investing.

    Now, with respect to real estate, an asset that may (or even will) suffer a short-term (or even medium or long-term) decline in price due to market correction or fluctuation is simply not a depreciating asset. It is an asset that is vulnerable to swings in value, nothing more.

    Again, I agree it seems fairly stupid to buy a condo in DC or NoVa right now before all the pending inventory comes on-line, but, if you do the posters here the respect of taking them at their word, they are claiming that, for example, an empty lot of land in Arlington is a depreciating asset, when, if you understood finance/economics, you would see it is just the opposite.

    You do the supporters of the concept of an over-valued RE market no good by flailing away with terms and concepts you clearly do not understand.

    ReplyDelete
  63. "Now, with respect to real estate, ...is simply not a depreciating asset..." Your financial ignorance here astounds me too

    ReplyDelete
  64. any asset that depreciates is a depreciating asset. Historically, realestate has been an appreciating asset over the long term, therefore you can make the assumption that realestate is an appreciating asset. However, over the short term, real estate can be a depreciating asset by the definition of the term.

    The easiest example to help you understand this lance and anon 6:30pm is antiques. If you bought a 1967 chevy camaro(sp?) back in 1967, it would have depreciated for several years. But at some point in time in became an antique and its value has risen incredibly, if you know about cars. This is an instance of an asset, that was a depreciating asset, know an appreciating asset. So, realestate can be a depreciating asset in the short term. hope this helps.
    the real bob.

    ReplyDelete
  65. So you want me to believe that all these ugly Toll Brothers shitboxes will become an antiques items in 50 years? Where did I get you wrong? :-)

    ReplyDelete
  66. This is the anon from 6:30 pm.

    Yes, antique cars are the variant on the car example. So forget that. Concentrate on planes, oil fields and milk. These are depreciating assets--assets that, if used as intended, will have a value of zero at the end of their useful life. This is simply not true about real estate. You cannot "use up" the value of real estate, especially the value of vacant land. There is also no such thing as a "short-term depreciating asset." There are assets whose values will decline in the short term (like housing in the DC area, IMO, as I stated above) but to use terms like "depreciating assets" when it is clear that you simply don't have the finance background to understand that it is a precise term with a precise meaning, lowers the discourse level of this board.

    Look, the concept that you can "use up" the value of real estate, especially vacant land, which is the hallmark of any depreciating asset, is just silly--I can't believe anyone is arguing this--if you believe real estate is a "depreciating asset" feel free to tell your accountants you want to buy some vacant land and then depreciate it--enjoy explaning that to the boys at 1111 Const. Ave.

    ReplyDelete
  67. For accounting purposes, the building is depreciating, the land is not.

    So..condo owners are screwed right? Since the association owns the land, not you.

    ReplyDelete
  68. All those old houses on Park Avenue in NYC... such a shame... they're worthless. They are worthless mainly because they are both old and they fall into the "real estate" class of assets. Shame.

    Oh, I have a '78 Datsun for sale. Anyone interested in "investing" in my old Datsun?

    ReplyDelete
  69. Anon 6:30, the value could be actually negative if you count liabilities and investments into the asset against the current asset price. Whom are you going to fool? :-)

    ReplyDelete
  70. That's exactly right about the difference between a building and it's underlying land--but the folks here say that vacant land, if bought at a high enough price, is a depreciating asset.

    ReplyDelete
  71. Anon 6:30, what is you definition of a short term? Do you include dollar depreciation (via inflationm, today's dollar buys 50 times less than in early 1900s) and inflation? Actually, I enjoy reading your posts.

    ReplyDelete
  72. Anon, you keep insulting people about not being smart about dep. assets. Have you ever owned a rental property? It seems that you havent. Because if you buy a house and rent it out, you can depreciate it to zero. Now this mainly talks about the structure, not the underlying land, but the concept is still the same. i cant believe this is so difficult for you to understand?

    this is fact!
    Real estate can be a depreciating asset, plain and simple. I dont think it will ever be over the long term, but it can over the short term.
    the real bob

    ReplyDelete
  73. This is anon at 6:30 again.

    To me, short, medium and long-term are solely related to an individual's time horizon. I have clients who have set up multiple generation skipping trusts for (no joke) their grandchildren's grandchildren, and things like that--try coming up with investments with a 75 year time horizon--not easy! On the other hand, when I put next month's AmEx payment in my ING account, that is short term to me. So, that's a long way of saying, it depends. Or, put another way, I think the real estate market it pretty overvalued but a client just bought 30,000 acres in Colorado and Wyoming on a 50-year time horizon, with my support.

    ReplyDelete
  74. Bob,

    The '67 Chevy was a depreciating asset when its reason for being was for providing transportation. Without your constantly repairing and replacing the ever wearing out parts of it, it would eventually be worth nothing because it couldn't perform its function which is to provide transportation. When it becomes a "classic", its value is as a collectible and while driven occasionally, its function is no longer that of providing transportation. Its function is providing nostolgic value to individuals who appreciate everything the car represented to past generations. Even if left sitting in a garage and never driven again, its value can increase because providing this nostaligic comfort just doesn't get worn out.

    Land will never ever wear itself out to the point of being depreciated short of a nuclear explosion making it unusable forever ... and even then, such land would again be usuable in another few millenium. Hint to understanding the concept of depreciation: The IRS gives several methods for determining depreciation on depreciating assets ... and ALL start off with the premise that at one point the asset will be worth zero if no capital improvements are made to it. (Capital improvement means putting something new in it ... Such as putting a new roof on a house ... vs. just repairing it which would be maintenance and not depreciable as a capital asset like the roof is.)

    ReplyDelete
  75. Bob, again, you confuse an asset whose price can/will decline with a depreciating asset.

    I know about the ability to depreciate rentals which is why I tried to steer my examples towards the underlying land.

    Bob, let's settle this with a question.

    There is currently a 15 acre plot of land in McLean for sale, near CIA. No house on it. It is on the market for $10 million or so. A client is considering buying it. He may not build anything on that land for many, many years (in fact, he may give it away one day).

    Is that 15 acre plat in McLean a depreciating asset? Not short-term, not long-term, but a depreciating asset? I'm not asking if the PRICE will go down next year, or 5 years, or 10 years. I'm asking you, bob, is that 15 acre plat a depreciating asset.

    If you say yes, please provide cites to the relevant accounting literature.

    ReplyDelete
  76. Bob doesn't know GAAP from The Gap, where he purchases his socks.

    ReplyDelete
  77. anon at 6:57 to anon at 6:30:
    Great! I'm trying to make a point that RE appreciation could cost you more in the long run than the benefits on the difference between the purchase and sale price. Accounting won't help to cover a hole in the pocket. What rule(s) do they use (at IRS) to access land appreciation YOY?

    ReplyDelete
  78. This is anon at 6:30 again.

    I'm not about to go into the IRS rules on real estate accounting, which I barely understand myself. I will end with this:

    As I said above, I am in the business of advising clients with respect to long-term (defined here as generally more than 30 years, or, in effect, two generations) wealth disposition and maintenence strategies. And the number one cornerstone of my advice, as well as all of my peers and competitors, is real estate. Again, this is the very, very long term thinking, and I myself will not be buying a condo in Clarendon anytime soon--but it informs and guides my perspective, and that's why it infuriates me to read some of these bubble head posts. They may be right in their conclusions, but totally wrong in their methodologies, which means it is pure luck.

    ReplyDelete
  79. anon said:
    "So..condo owners are screwed right? Since the association owns the land, not you."

    you own a share of this land through your membership in the association ... and this share of the land is inseparable from the building part ... which technically isn't really the building part. in most associations you own the space as defined by the structural walls, ceilings, and floors. i.e, you don't own the sheetrock between you and your neighbor, but you do own the paint on it ... ditto the hardwood floor you installed over the plywood floor that was there. you even own your pipes till they join in with the main pipe which is owned in common via the association.

    ReplyDelete
  80. anon at 6:57 to anon at 6:30:
    Generally, I would agree. It should be case by case actually. Would you advise to buy land in Ohio or upstate NY? I really doubt. CO is a different animal (I lived there). Would you advise to buy land around El Paso? I doubt again. By the way, you comments about land depreciation in Japan would be helpful, you know, they have far less land than we do and their population is in decline. Thanks.
    P.S. I have a piece of land from my in-laws - no appreciation in 20+ years, which is a half of the long term stretch. Taxes only.

    ReplyDelete
  81. anonymous 7:21 said,

    "And the number one cornerstone of my advice, as well as all of my peers and competitors, is real estate."

    And what is the rational basis for this claim when the "long term" return on real estate is approximately 1% above inflation?

    ReplyDelete
  82. Land value doesn't go up or down by itself, it goes either way only with "conjunction with" something - boom or bust. Lance's primitive view on the subject of ever increasing land value is just laughable. This is too complicated subject to fit into one formula, it's well over Lance's head. You can dig tons of papers about land value long/short term movements either way. Here is one - http://ard.unl.edu/rn/0998/value.html

    ReplyDelete
  83. anon:
    "Lance's primitive view on the subject of ever increasing land value is just laughable."

    if you'd been reading what I have to say instead of stating your own prejudices, you'd know I never said that. on the contrary I've said prices are based on fundamentals related to the greater economy and that precisely because we have a roaring economy one shouldn't expect the gloom and doom bubbleheads are hoping for. but i realize it's easier for you to hold on to your bubblehead creed if you just hear what you want to hear and pretend nothing that would make you question that creed was ever said. when you can't discredit the message, you seek to discredit the messenger. sounds like you are having regrets from having made some very bad decisions that have left you now homeless in a market which properly reflects a booming economy?

    ReplyDelete
  84. Buy or rent, if you commute via automobile from the exurbs, the sqeeze is on:

    New worry for drivers: BP shuts Alaska oilfield

    In a blow to drivers already struggling with high gas prices, BP shut off about 8 percent of the U.S. oil supply after discovering "unexpectedly severe corrosion" in the Alaska pipeline. BP announced early today that the pipeline problems had caused it to begin shutting down the biggest oilfield in the United States, Alaska's Prudhoe Bay.

    ReplyDelete
  85. Right, let's not call it a depreciating asset. Let's call it the top of a speculative bubble which is about to end, because that's what it is.

    ReplyDelete
  86. Yep, Keith. Any time now. One of these days. Tick, tick, tick. *taps foot, looks at watch* Any ... time ... now ...

    ReplyDelete
  87. Inventory is going down, prices have not come down, BubbleTalk is over.

    ReplyDelete
  88. "Inventory is going down, prices have not come down, BubbleTalk is over."

    False. Please check out the Housing Tracker website (David has linked to it). Inventory is up from last week, and asking prices are down. From a year ago, asking prices are down and inventory is up.

    Bubble talk is here to stay.

    A Redskins fan

    ReplyDelete
  89. "Bubble talk is here to stay."

    Agreed.

    A Slanteyes Fan

    ReplyDelete
  90. "what's the rationale behind buying now?? 30 year rates are still historically low and i have a 100% change of paying less next year??"

    Nice TIA. I'd like to see the portfolio returns for you and these other bubbleheads. Since you can all read future markets with 100% accuracy, it must be impressive.

    The irony is that, if bubbleheads were all so wise with their investments (which is how they see real estate-just like the "evil" flippers) then they'd be so wealthy that the difference between buying, renting, etc. would be inconsequential, and they wouldn't be on this blog hoping for 50% price drops so they can "afford" a house they'd like.

    ReplyDelete
  91. Redskins Fan,

    I see you still haven't figured out that there's no relation between asking prices and sales prices?

    ReplyDelete
  92. anon 7:14,

    Well put.

    ReplyDelete
  93. "False. Please check out the Housing Tracker website (David has linked to it). Inventory is up from last week, and asking prices are down. From a year ago, asking prices are down and inventory is up.

    "


    HAHAHAHA!!! Inventory is "up" by 200 homes. That's zero. You are really reduced to grasping at straws. Not to mention your pathetic "asking price" statistic.

    ReplyDelete
  94. "and asking prices are down."

    by $500. If asking prices were up by an average of $500 and I posted that as evidence of anything, you would shit your pants.

    ReplyDelete
  95. It doesn't matter if asking prices are down by 500 or 5000. (And BTW, they are down by more than 500 YOY). I was responding to someone who said that prices were up and inventories were down. That statement was incorrect on both counts, whether one looked to the past week or YOY.

    This was all clear from my post. Some of the responses seem intentionally obfuscatory.

    A Redskins fan

    ReplyDelete
  96. Here are some HUD-subsidized apartments in Silver Spring for the NFL fans among us:

    CINNAMON RUN I
    3600 PEAR TREE CT
    SILVER SPRING, MD 20906-5503
    Phone: 301-598-2220

    CINNAMON RUN II
    3506 PEAR TREE CT
    SILVER SPRING, MD 20906-2582
    Phone: 301-598-2220

    FAIRLAND GARDENS
    1901 TREETOP
    SILVER SPRING, MD 20904-6619
    Phone: 301-961-8000

    GEORGIAN COURT APTS
    3600 BEL PRE RD
    SILVER SPRING, MD 20906-2684
    Phone: 301-460-6655

    SNOWDEN'S RIDGE
    2105A HARLEQUIN TER
    SILVER SPRING, MD 20904-5370

    There is a complete list with more than a dozen entries for you to choose from, Injun' Lover. What fool wouldn't take a subsidized apartment in this crazy market?!

    A Slanteyes Fan

    ReplyDelete
  97. Redskins fan, I'm just pointing out that you habitually make misleading posts in an effort to make it seem like the housing market is in freefall. You're dishonest, and everybody should know it.

    ReplyDelete
  98. " I was responding to someone who said that prices were up and inventories were down. That statement was incorrect on both counts, whether one looked to the past week or YOY "

    Fine, inventory is down from 2 weeks ago. And you haven't posted any evidence that selling prices are down. Surely you could find some evidence if that were true.

    ReplyDelete
  99. Anyone following Reston condo market? It looks like prices are down 10 to 20% off of 2005 peaks.

    ReplyDelete
  100. Sad what you've been reduced to, Redskins Fan.

    ReplyDelete
  101. The fan is so owning AnonyTroll. AnonyTroll sat around declaring people were "pwn3d" and "done" based on a blip in inventory, and then dismisses a blip in inventory that goes against his position, and ignores the fact that asking prices are coming down. Since actual sales prices in 2005 were above asking, and sales prices in 2006 are below asking, that means that actual prices have come down even more than the decrease in asking prices.

    Troll=stick a fork in him, done, owned, ovah.

    Now, let's see what new pathetic displays our little losin' AnonyTroll does now. Entertain us, dancing boy.

    ReplyDelete
  102. VA Investor,

    Regarding Reston, only on an anecdotal basis. There is a new development at the corner of Sunrise Valley Drive and Monroe St that I pass rather regularly - though this might be Herndon? Their signs have gone from "low 300's" to "high 200's" to "starting in the 200's."

    Over along Sunset Hill Rd and Town Center Parkway, I've also seen signs advertising new construction retreat from "In the 400's" to "starting in the 300's."

    Personally, I'm not a huge fan of Reston Town Center, but some of the communities around there do look beautiful.

    My $0.02.

    ReplyDelete
  103. "Personally, I'm not a huge fan of Reston Town Center,"

    What about RTC is unapealling to you?

    ReplyDelete
  104. mytwocents,

    I live in Reston and think Reston Town Center is pretty nice if you are going to be out here.

    I am keeping an eye out for something as a trade-down in a few years. I would rent it out in the interim.

    I am watching the mls and foreclosures - maybe in the next year or two, I'll dive in.

    ReplyDelete
  105. More evidence that inventory is declining:

    http://www.gcaar.com/statistics/2006/dccc0706.pdf

    ReplyDelete
  106. Keith's unsupported assertions are so compelling!

    ReplyDelete
  107. Anon 9:10,

    Personally, I don't like the layout of the shops and restaurants. To me, it doesn't have a nice meandering, walkable feel. Also, the last time I spent any significant time there, there were tons and tons of teenagers. Not particularly appealing.

    For being a densely populated area, it still feels like you have to drive everywhere to get to where you're going.

    My $0.02.

    ReplyDelete
  108. Hmm, once again some facts for the mavens on here:
    http://www.gcaar.com/statistics/default.htm

    To summarize, all numbers are average sales price YOY (i.e. July 05:July 06:)
    DC SFH: Up 4%
    DC Condos: Down 4%
    MoCo SFH: Up 6.5%
    MoCo Condos: Up 1%
    Core CPI (June:June, July data not out till next week): 2.6%

    Virginia data to come out next week. I'd best Arlington prices will behave like MoCos, with larger declines in Fairfax and Louden.

    ReplyDelete
  109. mytwocents,

    Well it is certainly not downtown Paris, but, if the area is convenient and you want to be out this way RTC is not bad.

    Lots of restaurants, offices, shops, movies, etc. In my mind, either before kids or after kids, it is a decent place to live. Particularly if you work in the area.

    ReplyDelete
  110. VA Investor,

    I agree. There are a lot of things I like about the area. In fact, some of the town house communities slightly north of RTC are pretty nice. (Not too far though, those north of Rt 7 just start to become non-distinct). I also like some of the older homes right near Old Town Herndon. There's one right on Elden that for some reason always makes me think of Halloween and fall.

    Right now though, I prefer the greater variety and night life provided by the inner suburbs such as Arlington.

    My $0.02.

    ReplyDelete
  111. mytwocents,

    I lived in one of those old houses on Elden for a number of years. Very cool and lot's of fun.

    ReplyDelete
  112. There's a house on the west/north(left) side of elden just past Herndon Parkway if you're coming from the toll road right near where it narrows to 1 lane before going into Old Town proper. It's a dark tan house I believe with a dark brown porch (if memory serves). The porch is the entire width of the front of the house, and there are large trees shading the house. I've always liked that house. Like I said, to me, that's the perfect house for Halloween.

    My $0.02.

    ReplyDelete
  113. mytwocents,

    Ours was close to that. All brick with a metal roof and porch across the entire front. Lived there for eight years and have lots of good memories.

    Herdoon still has a "homecoming parade" down Elden St. every fall and concerts every Friday night downtown. From the "Historic District", it is an easy stroll "downtown".

    p.s. I know which house you mean.

    ReplyDelete
  114. "For being a densely populated area, it still feels like you have to drive everywhere to get to where you're going."

    Interesting, and agreed. Thanks for sharing your perspective.

    ReplyDelete
  115. RTC is no where near built -out.

    ReplyDelete
  116. Anon 11:53,

    I've thought about this quite a bit, namely, why is that some areas seem to "walk" so much better than other areas when they're both designed to be walkable town centers?

    I think it has to do with how far back properties are set from the street.

    In Reston and Herndon, especially with the curvy streets like Sunrise/Sunset Valley Drive, the businesses and homes are so far set back that you feel like you're walking out in the middle of nowhere. Contrast that to M Street, Adams Morgan, Clarendon, or Old Town Herndon and the walking is much more "cozy."

    I used to walk from an office park over on Woodland Park Road (Near the Embassy Suites) to the Clocktower center for lunch and it seemed like an interminable and boring walk. Yet, if you think about it, the properties were nearly on adjacent corners.

    My $0.02.

    ReplyDelete
  117. The July Virginia numbers are out.


    To summarize, all numbers are average sales price YOY (i.e. July 05:July 06:)
    Arlington SFH: Up 2%
    Arlington Condos: Flat
    Fairfax SFH: Up 0.8%%
    Fairfax Condos: Flat
    Loudoun SFH: Flat
    Core CPI (June:June, July data not out till next week): 2.6%

    Again, no real price decreases, and here we are at July of last year, the peak of the bubble. Interesting.

    ReplyDelete
  118. Speaking of Arlington condos, here's 1021 Garfield, unit 512: Purchased for $443K on 6/27/05, available today at $399K.

    Very interesting.

    ReplyDelete
  119. "Core CPI (June:June, July data not out till next week): 2.6%"

    A big component of this is rent, which is hyperinflationary right now, and virtually irrelevant. You can't really use CPI to measure inflation here.

    ReplyDelete
  120. Yes, Keith, almost as interesting as when you posted about it last week :)

    And almost as interesting as the other sellers who have not lost money over the last year...

    ReplyDelete
  121. "Yes, Keith, almost as interesting as when you posted about it last week :)"

    Looks like the condo didn't sell.

    ReplyDelete
  122. ""Yes, Keith, almost as interesting as when you posted about it last week :)"

    Looks like the condo didn't sell. "

    Looks like you're still posting from your parents' basement in the middle of the day.

    ReplyDelete
  123. Yep, 17 sales over the course of 6 months. A hot 3 sales per month. 32 condos for sale, for a 10 months inventory/sales ratio. Bubbleah.

    ReplyDelete
  124. "Yep, 17 sales over the course of 6 months. A hot 3 sales per month. 32 condos for sale, for a 10 months inventory/sales ratio. Bubbleah."

    1) Whine and whine about the overheated housing market

    2) Make smug comments about a moderating housing market

    3) repeat

    ReplyDelete
  125. "Looks like you're still posting from your parents' basement in the middle of the day."

    And the AnonyTroll psychological meltdown begins! Bring the popcorn!

    ReplyDelete
  126. "And the AnonyTroll psychological meltdown begins! Bring the popcorn! "

    Yep. Mocking internet dweebs is the first sign of a psychological meltdown.

    Advice: get your finances in order and get out of your parents' basement.

    ReplyDelete
  127. He's dancing. Will the monkey keep dancing?

    ReplyDelete
  128. Your dad is going to be pissed if you don't take out the garbage NOW.

    ReplyDelete
  129. Dance dance dance little monkey! Entertain us, AnonyTrooooooolllll!

    ReplyDelete
  130. Keith, take out the garbage! Take out the garbage, Keeeeeeith!!!

    ReplyDelete
  131. AnonyTroll, everybody! The star of our show!

    ReplyDelete
  132. Keith, in fairness, you have to agree that the paucity of sales-for-losses in 1021, clearly one of the more bubblicious buildings in the area, hurts the claim that prices are decreasing. Actually, I think you'd be better off looking at places besides the Orange Line corridor for evidence of this--I'm sure prices have dropped in parts of Va., but apparantly not the Orange Line corridor (and especially not for houses--check out the Lyon Park/Lyon Village/Ashton Heights sales pages--higher than ever).

    Do you disagree?

    If so, please point to actual sales figures showing declining prices in the Orange Line corridor.

    Thanks.

    ReplyDelete
  133. Keith works hard always, and wins often.

    See here

    ReplyDelete
  134. "Keith, in fairness, you have to agree that the paucity of sales-for-losses in 1021, clearly one of the more bubblicious buildings in the area, hurts the claim that prices are decreasing. Actually, I think you'd be better off looking at places besides the Orange Line corridor for evidence of this--I'm sure prices have dropped in parts of Va., but apparantly not the Orange Line corridor (and especially not for houses--check out the Lyon Park/Lyon Village/Ashton Heights sales pages--higher than ever).

    Do you disagree?"

    I think the leading indicators point to declining prices in Clarendon 1021, and other condos in the orange line corridor. As severe as the declines will be in Loudon county with its 10 months of inventory? No.

    On single family homes, I'd need to know more about the financing. 54% of the DC area buyers in 2005 were I/O, but what's the split of that across condos and single family homes in various counties?

    ReplyDelete
  135. Keith said :
    "I think the leading indicators point to declining prices in Clarendon 1021, and other condos in the orange line corridor. As severe as the declines will be in Loudon county with its 10 months of inventory? No."

    So, you would agree that the sales statistics to date do not back this up?

    And I recall you saying the same thing a few months ago, and sales in the interim have not proved out either...

    ReplyDelete
  136. "So, you would agree that the sales statistics to date do not back this up?"

    If you think growing inventories, flat sales prices, and asking prices equal to or lower than year-ago sales prices with condos still not selling at those asking prices don't back me up, then fine. I think those combined statistics do back me up.

    ReplyDelete
  137. I still await NARs numbers due out on August 15th for the 2nd quarter in general. True, it's averaged over the entire region but it still shows the general direction of the market. It has been trending down.

    Personally, I'm willing to spend 200K/room for a condo for a premium location. This is twice what they were selling for as little as 5 years ago and 2/3 of what they're selling for now.

    I would think 125K/room would be a floor if the market lands hard but this is just speculation. A lot of things would have to be negative for this to happen too. So I'm not rooting for it nor do I think a swing that low is likely.

    My $0.02.

    ReplyDelete
  138. MyTwoCents said...
    "Personally, I'm willing to spend 200K/room for a condo for a premium location. This is twice what they were selling for as little as 5 years ago and 2/3 of what they're selling for now.

    I would think 125K/room would be a floor if the market lands hard but this is just speculation. A lot of things would have to be negative for this to happen too. So I'm not rooting for it nor do I think a swing that low is likely."

    Usually, estimates are done on a square footage basis. Doing it by (bed)room doesn't work well because you aren't getting twice the space or twice the amenities just because you have an extra (bed)room. For example, back in '99 I remember being at a neighborhood ANC meeting where some developers were asking for ANC approval on some plans they had for restoration of an historic property in my then neighborhood. They said that at the time condos in that neighborhood were going for $120/sq foot but that based on what was going on in NYC and Boston, they felt DC was undervalued and that they would go to $200/ sq ft before the project was complete two years later. I'd wanted to move up to a 2 bedroom and had been putting it off due to cost, but that lit a fire under me and I located one in my building for about $175/ sq ft about 6 months after that neighborhood ANC meeting. I later (2005) sold it for about $585/ sq ft. which was then still a bit less than what condos in marginal neighborhoods such as 14th Street were going for. Using prices per sq foot ... and naming neighborhoods/cities since location is always critical ... what would you be willing to pay?

    ReplyDelete
  139. Lance, prices did not get quite that high last year, except in some outrageously priced new construction. Your buyer was crazy.

    Condos, even in good neighborhoods, are not even holding at $500/sq foot now. So if it really got to $585/sq foot last year, there's that price decline you keep trying to deny.

    ReplyDelete
  140. From Craigslist Rants & Raves Today:

    "I know that Fredericksburg is fast becoming an offshoot of Northern VA, but really, I can't stand this place. I've never fit in here, and I've been much happier living elsewhere, but had to return to this place due to financial circumstances (I'm still quite young and therefore dependent upon my parents.) I have never seen such a poorly planned place of sprawl in my entire life. Also, it's just...something I can't put my finger on. This town is a strange mix of good 'ol boy natives, government workers, and an influx of newcomers. I was miserable here throughout high school (when I was the new kid and no one welcomed me), and now, I am miserable here again.

    Does anyone else in this place feel as I do?

    * this is in or around Fredericksburg, VA
    * no -- it's NOT ok to contact this poster with services or other commercial interests"

    ReplyDelete
  141. the real bob said,
    "Lance, rule of thumb for you. You should never buy a depreciating asset.... This is why most rich people never own cars, they lease them. Telling someone to buy an asset that is depreciating is the worst finanicial advice I have ever heard."

    Sorry, but leasing a car is just plain stupid! The smartest thing to do financially is to buy a slightly used car and then drive it until it stops running. If you could lease a car for less than it costs to buy one, then it would make financial sense to do so, but you can't so it's stupid.

    ReplyDelete
  142. Let me try to be reasonable about this sales prices vs. asking prices debate, although not all my critics maintain such a reasonable tone.

    I prefer asking prices, as I think that right now there are many more houses for sale in the DC area than are selling. As a hypothetical example, let's say one house on a block went for sale and sold in 2005, for $600,000. Now let's say this year, one house on that block sells for $605,000 (slight increase), but there are four others for sale. They originally go for sale at $650,000, but are now for sale at $595,000, and still no one is buying. What is a better indicator of the market? I would say the asking price. I believe that my hypothetical example is something like what is happening in the DC market right now, but I could be wrong.

    As a counter-example, it could be that what is going on is that many more condos are for sale than last year, and not selling. In this hypothesis, inventory would be higher (which it is), and asking prices would be lower (which they are), but sales prices for similar houses (i.e., NOT condos) might be mostly the same. I do not believe this is an accurate picture of the DC market, but it is feasible, and I could be wrong.

    Overall, though, my original post on this thread was to counter the claim that some anonymous housing head made, to whit that inventories are down and prices are up. If sales prices are up YOY (and I stress IF), that does not change the HousingTracker data showing that inventories are definitely up, both YOY and in the past week. So the debate over whether to use sales or asking price data aside, the original poster was still wrong.

    A Redskins fan

    ReplyDelete
  143. I had about $2000 due per month between mortgage and taxes alone from my 2001 purchase. My house rental now is $1350 (which includes water and garbage), and both places are the same sqft. The rental is in a nicer area and closer to work too. I'm easily saving $700 a month.

    My poor buyers have a monthly payment of $4001/mo. At least they got a fixed rate....

    ReplyDelete
  144. Can't agree with you on that one, Injun Lover.

    A Slanteyes Fan

    ReplyDelete
  145. "I prefer asking prices, as I think that right now there are many more houses for sale in the DC area than are selling."

    The inverse of this statement would read: "I prefer sale prices, as I think that right now there are many more houses being sold in the DC area than are being offered for sale."

    So, "DUH" to your original statement. Get a clue.

    ReplyDelete
  146. "I prefer asking prices, as I think that right now there are many more houses for sale in the DC area than are selling."

    A corallary to this statement is: I prefer to drink orange juice after the oranges from which it is made have grown, ripened, been harvested and juiced, and the juice is pasteurized, packaged, shipped, stocked, and then sold in my local market. Only then does my purchase of a carton of orange come to fruition.

    "DUH"

    ReplyDelete
  147. Anony said:
    "Lance, prices did not get quite that high last year, except in some outrageously priced new construction. Your buyer was crazy."

    I'm not sure about that ... A friend and neighbor sold her condo about 3 weeks after me. It was on the same floor and only about 100 sq ft larger ... but with a balcony ... and she sold for $100,000 more than I did. Yeah, it was a great neighborhood (Embassy Row), but like I said, condos on 14th were going for slightly more per square foot ... and 14th was (and is) far from "gentrified".

    ReplyDelete
  148. Lance, you said somewhere that the economy is booming... Why then the stock market is in the toilet? It's actually a forward looking indicator. The economy is booming only in your head buddy. Anyway, you still failed to explain 15+ years of land value decline in Japan. And they have far less land than we do. Why are you so shy?

    ReplyDelete
  149. Lance after preaching a nonstop increase in RE prices you sold last year?!?! Whould you buy the same condo today? If not, then shut up, you SOB.

    ReplyDelete
  150. "Lance, you said somewhere that the economy is booming... Why then the stock market is in the toilet?"

    The stock market isn't in the toilet. It's been booming for 3-1/2 years now. (It's down since May 1st, but this is normally the poor time of year for the stock market. As the saying goes, "Sell in May, and walk away.")

    That said, I make no claims to know the future of the stock market, nor the economy.

    "Lance after preaching a nonstop increase in RE prices you sold last year?!?! Whould you buy the same condo today? If not, then shut up, you SOB."

    As he said in the previous thread, he sold his condo and bought a house.

    ReplyDelete
  151. Than I take it back, thanks James.
    Unfortunately, the economy is not booming, I wish it is.

    ReplyDelete
  152. This comment has been removed by a blog administrator.

    ReplyDelete
  153. Anonymous said...
    "Than I take it back, thanks James.
    Unfortunately, the economy is not booming, I wish it is."

    Like I've said many times before on this blog, your view of the economy depends mainly on which side of the ever-widening gap between the haves and the have-nots you find yourself. We are each of course free to do as we please, but I have chosen to not spend my time whining about the economy but instead accepting things as they are and based on what is (and not what should be) positioning myself so that I am benefiting from these fundamental social and economic shifts rather than being hurt by them as is the only other alternative. Think that one out before you flame it. It could be your be your life defining changing moment. But,nah ... probably not.

    ReplyDelete
  154. Lance, the economy doesn't care about what side I'm on. Profit taking has nothing to do with the economy, because you can profit much faster on the way down. Learn to separate issues. I don't understand your non-stop RE cheer-leading and spreading misinformation but I suspect it is your fear. BTW, you still failed to put an intelligen answer about Japan case which shatters all you theories, don't have guts to admit that you can be wrong? Remember, what can't go up forever, won't.

    ReplyDelete
  155. I have answered the Japan case question before. It is simple, real estate is both cyclical and based on the fundamentals of the greater economy as well as a simple matter of supply and demand. They aren't making anymore land, so from a supply and demand standpoint, the longterm overall trend will always be upwards provided the population in a particular area is increasing. Over the shortterm, prices will fluctuate around this longterm rising trendline as market incentives cause booms where everyone builds at one time and then the oversupply from the boom sends market signals (including price declines) causing a cessation of building for a period of time. Finally, and as illustrated by the Japan example, the fundamentals of the underlying economy will short term affect prices since prices are in nominal dollars (or yen) and when an economy is fundamentally doing badly, the real dollars (or yen) out there are a lot less then when that economy is doing well. Japan has been in an economic recession the past 15 years ... It is this economic rescession that has caused the slump in real estate prices and NOT vice versa as your assertion implies. The US is doing better than ever. In particular, Washington is doing much much better than ever. These strong fundamentals get reflected in prices. People have more to spend and they drive the prices up. And no, you didn't understand what I was saying ... which is essentially that if you are finding it hard to buy during this period when people are dropping bucks galore on granite counter-tops, houses twice the size of their parents, with 3 garages, etc., maybe you need to re-evaluate your strategies for dealing with what is increasingly becoming a bifurcating society in terms of wealth if not other priviledge. Few people own real estate in countries like the central and south American ones. Historically, few people owned real estate in Europe or even in the US until this century. The "common man" being a renter and not a landowner was the norm even at the time of the American Revolution when only landowners were given a vote. There's nothing out there guaranteeing that the average person must or should own their own home. And the economic policies we have been living under since Reagan and which have been accelarated because of globalization are not helping bring back the middle class which so defined America in the 20th century. You can whine all you want about the unaffordability of property, but observe those who aren't whining and are instead buying extravagantly .. and perhaps try to see what they know that you don't.

    ReplyDelete
  156. "buying extravagantly" -- Lance

    That's probably about the most appropriate description I've heard. I think we just happen to disagree on where that willl lead.

    H

    ReplyDelete
  157. I read you Lance, and hear Larry Cudlow (I hope I spelled his name right). You said "The US is doing better than ever" - I'm trying to stop myself from using the term "the most idiotic statement of 2006", but just can't resist. Sorry :-)
    "And no, you didn't understand what I was saying ... " No Lance, you don't understand what you are writing. You are substituting economic growth (its rate below the rate of inflation) with uncontrollable spending and debt creation. Nah, this is again, well over your head...

    ReplyDelete
  158. I meant Gov't spending, not just consumer spending. The latter is a function of cheap credit. To your knowledge, the amount of disposable income is actually shrinking... contrary to your views. I really don't know wht's booming in your head. Though this is not my problem.

    ReplyDelete
  159. Anonymous said...
    I read you Lance, and hear Larry Cudlow (I hope I spelled his name right). You said "The US is doing better than ever" - I'm trying to stop myself from using the term "the most idiotic statement of 2006", but just can't resist. Sorry :-)
    ""And no, you didn't understand what I was saying ... " No Lance, you don't understand what you are writing. You are substituting economic growth (its rate below the rate of inflation) with uncontrollable spending and debt creation. Nah, this is again, well over your head..."

    Like I said anony, where you see the country's economy heading is largely dependent on which side of the economic divide you stand on. On one side, jobs are paying far more than ever, items that were once luxury goods (such as granite counter-tops) are de riguer, and the productivity gains made possible via automation allow you to do 10 times more work with far less human resources than you could 10 years ago. I.e., true productivity gains that are translating into true economic gains for some ... On the other side of the divide, one is seeing fewer and fewer jobs at less and less pay which one can do without specific and certain skills. (i.e., the jobs once requiring a human which now automation has replaced) .. And seeing less and less that can be afforded with the less and less earnings that one is making. Yeah, you see the robust economy as being sustained by borrowing .. But forget that someone is doing the lending ... probably the same folks who are making more and more pay each pay day.

    ReplyDelete
  160. I don't see any signs of the economy slowing in this region (D.C.).

    Lance is correct that one's view can be colored by one's own success or lack thereof.

    This is a very wealthy area and I imagine there is a good amount of bitterness from some of the less-wealty among us.

    I always worked at getting ahead - not wasting time worrying about the "Jones family".

    ReplyDelete
  161. "...where you see the country's economy heading is largely dependent on which side of the economic divide you stand on..." Completely wrong, there are statistical data and indicators, etc. independent on your or mine income, what are you talking about?
    Didn't it come to you mind that mass production of the former "luxury" items leads to lower prices? Think about it. About productivity growth, read about European methods (there are different and show fas smaller gains, sorry to dissapoint you Larry, I mean Lance :-) about gathering this sort of statistics, you will find a lot of educational info on this matter. But I like this - "But forget that someone is doing the lending ... probably the same folks who are making more and more pay each pay day." True, those who are closer to the machine creating money out of thin air benefit the most. Ask yourself, where did these people get their money in the first place. Than think about cheap Fed credit and connect the dots. I won't argue about this divide, it does exist, I'm not sure myself on which side I am at the moment, so what?

    ReplyDelete
  162. VA: "I always worked at getting ahead - not wasting time worrying about the "Jones family". Totally agree, that what responsible people do, but I'm against giving Jones ill advice like taking IO loans for something they can't afford (fundamentals), for example.

    ReplyDelete
  163. I think that owning a home free and clear is key to a reasonably well-off retirement. It can, and will be, the difference between living in relative poverty or relative comfort.

    I believe that there is a house out there for almost everyone that can be purchased with sensible fixed-rate financing. I do not believe that a down payment is critical as long as the proper emergency fund is in place.

    The problem, as I see it, is that people want champagne on a beer budget. Unwilling to lower their standard of living, these people continue to "rent the granite" instead of owning the formica.

    ReplyDelete
  164. Yep, we live in the culture of instant gratification... And, yes, there in nothing wrong with Formica :-)

    ReplyDelete
  165. Anon asked:
    "Didn't it come to you mind that mass production of the former "luxury" items leads to lower prices? Think about it."

    uh ... duh ... I guess you don't know what "productivity gains" means? hint: producing more with less ... as in more "mass production" without the need for "identical production".

    ReplyDelete
  166. va_investor said:
    "I believe that there is a house out there for almost everyone that can be purchased with sensible fixed-rate financing. I do not believe that a down payment is critical as long as the proper emergency fund is in place.

    The problem, as I see it, is that people want champagne on a beer budget. Unwilling to lower their standard of living, these people continue to rent the granite" instead of owning the formica."

    you're oh so correct! ... And the bigger irony is that anything in life is earned through "baby steps" ... i.e, owning the formica first will at one point help you own the granite.

    ReplyDelete
  167. Lance, stop whining and take Econ 101 for a change :-)

    ReplyDelete
  168. "This is a very wealthy area and I imagine there is a good amount of bitterness from some of the less-wealthy among us." - va_investor

    I'm sure whoever is educating your children now or in the future will quite appreciate the smug tone of your statement. The DC area is full of public servants. Most make reasonable salaries, and many are not concerned with either keeping up with the Jones or achieving vast independent wealth. They would love to find a reasonable, safe 3 bedroom townhouse with formica countertops that did not require an interest-only loan to purchase.

    I'm always amused when those who hold others in contempt then marvel at a perceived "bitterness."

    H

    ReplyDelete
  169. "They would love to find a reasonable, safe 3 bedroom townhouse with formica countertops that did not require an interest-only loan to purchase."

    That's why god made Chantilly, VA. Now go drive your cab.

    ReplyDelete
  170. H,

    I happen to know a new teacher who will be making close to 50K in an outling suburb.

    This person is a tenant of mine and is part of a two income couple. They are care-takers of a property in a fairly distant location.

    These two ambitious, foreward-thinking individuals are "working-off their rent" to save for a downpayment.

    They used to live downtown and rent. Very convenient, but hard to save any money. They want every bit of info from me that they can get about buying a house.

    This particular "public servant" will most definately be a homeowner well before 30. They are willing to work and sacrifice for it.

    ReplyDelete
  171. va_investor,
    It is certainly commendable that you provide such employment opportunities (and since tone is often difficult to discern in forums such as these, you should know that there was no sarcasm intended). But even you must recognize that it is slightly outrageous that a regular family must work the equivalent of 3 jobs (4 if both spouses are counted as "care-takers of a property") in order to hopefully save enough money for a down payment in the area. Or even in a "fairly distant location."

    There are, no doubt, wonderful examples of hard-working individuals who eventually make enough money for a down payment. It is in fact what I advocate - saving, watching the market, and buying with a fixed rate and using a down payment. This is not what some others on this blog have advised, instead stating that one should jump in with an interest-only loan and "get in the game," occasionally adding "before it's too late."

    So which is it? Return to fundamentals, which means folks "sit on the sidelines" for a while in order to purchase responsibly, or "jump in the game" so as not to be "priced out forever." When homes even in the outlying areas (and I mean homes that can support a family, which means not a one- or two-bedroom condo) run 300k+, something is functionally flawed in the appraisal that one can purchase a home with a fixed rate and no down payment, especially when prices have been pushed up partly through unconventional financing (we can agree on that point, can we not? It would seem particularly suspect to suggest that prices have not been affected by the overwhelming number of ARMs and I/O loans in the DC-area).

    I would certainly be interested to hear how you would advise otherwise, keeping in mind that quality-of-life issues like safety and education should not be reserved solely for the "champagne" crowd. In your advice to your friendly care-taker couple, do you suggest waiting to measure the market shift, or buying as soon as possible?

    H

    ReplyDelete
  172. H,

    I have suggested that they wait at least a year and to spend that time educating themselves on various locations/ prices. They need to "know" the market where they intend to buy.

    Another reason to wait is that the market will continue to soften IMO.

    I have advised on "fixer-uppers" (they are very handy) and they want to learn about foreclosures (often fixers, as well). I am happy to help them.

    As for 4 jobs, I don't agree that this is an unreasonable burden on a childless couple just starting out. In fact, it reminds me of our 20's (full-time job, night-school, fixing-up houses on weekends, etc.)

    ReplyDelete
  173. So we both advocate waiting out the market, renting instead of buying (assuming no prior home purchase), and using conventional financing. We both think the market will soften. Wherein lies the bitterness then? Is it prudence when you say "wait for prices to decline" as an investor, and bitterness when I say "wait for prices to decline" as a renter?

    I suppose I'm simply confused by what appears to be a contrarian attitude towards renters while advocating much the same for yourself as owner/investor. I believe prices will (are) declining. I have little sympathy for those who acted irresponsibly in hopes for quick-rich schemes (much as I have little sympathy for those who spend half their paycheck on lottery tickets). I do have sympathy for those who struggle with day-to-day expenses, including those whose savings are eaten up by things like healthcare. There are plenty of good people who act responsibly but have had a run (or two, or three) of bad luck.

    As far as 4 jobs - fair enough, I suppose, as long as that education/work eventually built towards allowing space for family later on. I suppose I am slightly skeptical of wages increasing enough to do so (ie. if you need a 4 job income to afford a house now, is it likely that you can afford the same house with 2 incomes and 2 kids?). Discussion for another thread perhaps.

    H

    ReplyDelete
  174. H,

    Our income quadrupled between age 22 and 32. So, I believe a doubling, at least, can be expected by the time kids come around.

    Or, you can choose to start a family first. Not prudent in my opinion. But it is a choice. If one decides to start the family without proper financial planning, then one should not complain.

    ReplyDelete
  175. "They would love to find a reasonable, safe 3 bedroom townhouse with formica countertops that did not require an interest-only loan to purchase."

    That's why god made Chantilly, VA. Now go drive your cab.


    You been to Chantilly lately? I guess you consider $600,000 to be "affordable." That stuff out there is going to crash and burn and take a lot of good folks with it.

    ReplyDelete
  176. va_investor,

    While I applaud your advancements, I would be more convinced by statistics showing that income typically quadruples within 10 years after entering the work force. I know that somewhat parallels my own experience, but we currently make a sample of two. I’d be more comfortable discussing salaries in real terms. As I recall from a previous thread, the median income around DC (including suburbs) was somewhere in the 60k-80k range. I will try to find that again, if it would further the discussion.

    As far as family planning, I'm afraid that it too closely echoes previous comments in another thread that suggested only those well-off enough to have children should. Not to mention that there is only one birth control mechanism that is 100% effective, and that method (abstinance, for the inquiring mind0 is unlikely to be one spouses would consider reasonable in most cases. I also stand by the assertion that a couple making upwards of 80-100k (i.e., above the median) qualifies as sufficiently well-off that they should feel comfortable raising a family. I don’t think it’s unreasonable to expect they should be able to find affordable housing, and I certainly don’t fault people for viewing today’s prices with a healthy mix of skepticism and incredulity (and therefore renting). I guess I can see how one might mistake that incredulity as bitterness, but it would be a mistake nonetheless.

    Thanks, as always, for your interesting perspective.

    H

    ReplyDelete
  177. H,

    Please, let's not get all moralistic here. "Putting off starting a family" was in response to your comment about the burden of home ownership on families.

    Waiting in order to work and save and get set financially is no more anti-family or "superior" than suggesting that one finish High School (now college) before starting a family. It is common sense for God's sake.

    I believe you don't truly embrace what you have said to me. You are merely attempting to make me appear something that I am not.

    I think it is selfish to have children that one cannot afford to provide for. Simple as that. If having kids makes you forego the house, that is your choice.

    ReplyDelete
  178. We were talking about reasonable expectations of income and housing affordability, especially when considering the median income level of the DC/VA/MD metro area. Your previous claim of "bitterness" seemed to suggest that those who balked at recent prices did so out of jealousy. I'm suggesting that perhaps your success puts you out-of-touch with regards to median income levels and the costs to community that stem from high housing costs.

    The situation I outlined is in no way equivalent with "finishing high school" (or college). In fact, the scenario we were discussing involved at least 2x income between ages 22 and 32 and seeking to own a home in their 30s. The changes in the market during the past 5 years in fact defy common sense (which for home ownership - not investment - usually involved a 10-20% down payment and conventional financing). Presuming our hypothetical couple/family followed these rules starting in 1999, they would be completely priced out today. If you disagree, I'm happy to discuss it.

    As to "attempting to make [you] appear something that [you] are not": I've been nothing but courteous to you. I do not begrudge you your status or wealth. I have not used any unkind labels that are often tossed around here. And I was referencing a conversation that occurred on this board within the recent week. Just because I disagree with your claims should in no way lead you to believe that I am attacking you.

    H

    ReplyDelete
  179. H,

    No offense taken and none meant.

    ReplyDelete
  180. H,

    I understand what you mean about the typical family/individual being priced out based on yesterday's financing guidelines. What I would offer you to think about though is that things change ... including customary guidelines and practices for financing. I agree that we won't know till all is said and done as to whether the new financing practices will lead to bankruptcies and foreclosures for those with few reserves who utilized them, however I find it hard to believe that lenders would expose themselves to the massive write-offs that the bubble theory would require. From your earlier post today, I suspect you are a teacher and well educated. So, I am sincerely asking you to entertain the posibility that with all the advances we have seen technology wise in the past 5 to 10 years, lenders no longer need to use a cleaver to hack off the "dead beats" from the responsible debtors and can now go to more creative (and individual) financing methods with much less down because they can now predict with much greater accuracy who will default and who will not ... and what possible conditions under worse case scenarios could cause them to do so. And, like the credit card companies who have always planned for a certain amount of bad debt based on people's profiles, the lenders here may now be doing likewise with the precision of a surgeon and not with the bluntness of a butcher who in days past denied credit to many credit-worthy individuals in order to cut out the un-credit-worthy individuals. Sorry for the long winded sentence ... It's been a long day ... You're an educated person, please entertain the thought I have passed on. Thanks.

    ReplyDelete
  181. I understand what you mean about the typical family/individual being priced out based on yesterday's financing guidelines. What I would offer you to think about though is that things change ... including customary guidelines and practices for financing. I agree that we won't know till all is said and done as to whether the new financing practices will lead to bankruptcies and foreclosures for those with few reserves who utilized them...

    While it would be nice to believe that I/Os and neg ams simply reflect more "precise" lending practices, there are just too many things going against that. Those mortgages are designed *on purpose* to do no more than 'delay the pain' for buyers who do not intend to hold property very long. It's understandable why investors would go into such a loan. Flat or declining prices are going to sink a lot of amateur RE investors, I believe, who went too far.

    But that is the least troubling aspect of this. The worst is that these investor-type loans were given out to Joe and Jane Homebuyer just so that they could "get into something," since they "aren't making any more land." If it takes them 50-60% of their gross income to pay the PITI at present, what the hell are they going to do when their mortgages reset and all of a sudden their payment goes up $1000/month??? These people simply could not afford the mortgages they took out, and no amount housing head spinning is going to change that. They would have been more responsible to continue renting at a price they could afford and save up enough of a downpayment until they could legitimately afford a house. The speculators expecting something for nothing mildly annoy me. The bill of goods that was sold to Joe and Jane Homebuyer makes me very angry.

    Fundamentals don't change. Sorry. Perhaps the real issue is that lender no longer hold onto the notes anymore--what do they care if the buyer forecloses in a couple of years?

    ReplyDelete
  182. chriso said:
    "The speculators expecting something for nothing mildly annoy me. The bill of goods that was sold to Joe and Jane Homebuyer makes me very angry."

    Hmmm ... So you think you know what is best for others? ... That annoys and scares me. I, for one, prefer to make my own decisions based on my own circumstances.

    ReplyDelete
  183. "... things change ... including customary guidelines and practices for financing.." I just can't believe the phenomenal stupidity of this individual who said that. Yeah right, "this time is different", "IO loans are smart way to go", "Dow 36,000", "RE never goes down", "US economy is booming better than ever", "DC is the same as London and Paris"...

    ReplyDelete
  184. ""... things change ... including customary guidelines and practices for financing.." I just can't believe the phenomenal stupidity of this individual who said that. Yeah right, "this time is different", "IO loans are smart way to go", "Dow 36,000", "RE never goes down", "US economy is booming better than ever", "DC is the same as London and Paris"..."

    That's right, you're the smart one paying someone else for the priviledge of staying in their property ... which they can kick you out of on the slighest whim!

    ReplyDelete
  185. "That's right, you're the smart one paying someone else for the priviledge of staying in their property ... which they can kick you out of on the slighest whim!"

    You're the genius buying food at a supermarket, which could stop you from shopping there anytime they like, instead of owning your own farm!

    ReplyDelete
  186. Who can kick me out of My property, angry boy? Yes, you got it right, I'm smart paying 30-year mortgage for my lender for the last 6-years...But here is a question for Chriso - "whom would you take a financial advice from, Lance or Warren Buffett"? I have the answer, Do you?

    ReplyDelete
  187. And what the hell are you doing buying meat from that supermarket, which could kick you out anytime they like, instead buying your own cows and slaughtering them yourself!

    ReplyDelete
  188. Keith said...
    "And what the hell are you doing buying meat from that supermarket, which could kick you out anytime they like, instead buying your own cows and slaughtering them yourself!"

    So you want to be sleeping in a different place every day like you shop in a different place every day? And what do you do with your furnishings and clothing and collectibles and art work and books ... Oops ... forgot, those are all easily moved (or stored) in the back of your '92 Escort!

    ReplyDelete
  189. New low for Lance... I love the show :-)

    ReplyDelete
  190. va_investor,
    Ditto.

    H

    ReplyDelete
  191. Lance,
    I don't really want to get between this fruitful discussion you and Keith are having (since I have an aversion to wet shoes), but I would like to say with all earnestness that I wish I had both your faith in technology and humanity. Unfortunately, in my experience with both, the former is often insufficiently complex, while the latter is all too often driven by greed rather than altruism, at least when large sums of money are involved. No algorithm can sufficiently account for unexpected children (double-income gets cut pretty severely by childcare expenses), healthcare problems (one of the major leading causes of bankruptcy and credit card debt anyway), car repairs, or any number of unexpected expenses. I wish everyone had a nice tidy safety fund (as va_investor wisely advised earlier in the thread), but the evidence is simply not there (note the falling rate of savings in this country).

    No doubt lending opportunities exist for those who previously could not get them, but lending is always a risky game and bankruptcy laws better protect lenders than ever before. I've seen very little evidence that lending practices - particularly those that encourage little to no equity in the home - are used in any way *by a majority of recent ARM, I/O borrowers* in order to do anything but buy something that is above and beyond what they normally could afford. It is short-term gain for long-term ruin. ARMs are great for the buyer when you have an expectation that interest rates will *go down*, not when interest-rates are at a historical low. They are great for people expecting to move within 3 years or so of purchase, in order to recoup costs to make purchasing worthwhile (remember back before the boom, when folks who planned to relocate within 3 years really couldn't expect much of a financial gain by buying?). Interest-only loans frankly bewilder me, as I've never seen the advantages to them long-term; you get the pain of renting (no equity) with the added "benefit" of taxes, HOA, and all the other burdens of home ownership.

    So, I am always curious about evidence to the contrary.

    One final note: claiming that someone is going to get "kicked out" of their home is really not a good way to convince them of anything, especially as a way to get them to buy a home. Additionally, Chriso (August 09, 2006 7:05 PM) is not entirely incorrect about predatory lending - it does happen, and that's why there are laws to protect against it. It's great that you are on solid-enough footing to understand your lending arrangement, but there are plenty of people who enjoy taking advantage of others' ignorance for their own financial gain. I'm much more inclined to trust a lender who helps me understand how much I should borrow, rather than how much I can borrow.

    H

    ReplyDelete
  192. "New low for Lance... I love the show :-) "

    No, he gets lower and lower and lower...like any insecure person who's losing a debate.

    Yeah, Investor, your boy's really taking care of things, ain't he? Hilarious.

    ReplyDelete
  193. Hmmm ... So you think you know what is best for others? ... That annoys and scares me. I, for one, prefer to make my own decisions based on my own circumstances.

    Gee that's funny. I've read and reread my post and nowhere can I find where I supposedly know what is best for other people.

    If it makes financial sense for someone to pay 60% of their gross income on the first stage of an I/O mortgage in order to inhabit a suburban tract house that they could rent for less money, then more power to them. I'm not going to tell them what to do, and I'm going to presume that as an adult they are capable of making a rational choice. Of course, in that case I should reserve the right to laugh without pity at their misfortune once things go tits up... :)

    However, were I a lender, I should be thinking about what is best for *me*. And the above example only is in my best interest if I pocket a quick profit and pass the high risk onto somebody else. And the secondary buyer? I'm not sure what combination of hallucinogens would justify buying that piece of paper bundled up with a bunch of others just like it.

    Is the above a case of "predatory lending?" I guess you could call it that. And yet I've recently seen on this very blog someone advocate just such a move for a hypothetical middle-income DCer, so they could move into a new expensive condo located a few blocks from the Lincoln Heights projects. And the percentages I've seen for mortgages that are 'high-risk' in this area is crazy. I won't presume to know what's best for those folks, but I'm certainly not going to pretend that I think they are making a wise choice.

    ReplyDelete
  194. err, that should read "I'm not going to tell them what to do, and I'm going to presume that as an adult they AREN'T capable of making a rational choice."

    ReplyDelete
  195. err, never mind...I got it right the first time. No, I'm not on any hallucinogens. If only. :)

    ReplyDelete
  196. chriso said:
    "No, I'm not on any hallucinogens."

    well ... although it is a non-drug induced high, believing in "the bubble" is clearly a hallucinogen for hoping that prices will drop on average 50% to 70% ....

    ReplyDelete
  197. well ... although it is a non-drug induced high, believing in "the bubble" is clearly a hallucinogen for hoping that prices will drop on average 50% to 70% ....

    Perhaps, but not quite as intoxicating as imagining an unending army of multimillionaires looking for tract houses in Burke... ;)

    Ah, but DC's "different," you say. Yes, those great schools, wonderful streets and low crime rate do make all the difference in the world. How could I forget? :)

    Seriously, I don't think that we'll see a nominal 70% 'haircut' in the DC area unless the economy goes south. As to that, I remain agnostic. Now DC area new condos, on the other hand, particularly ones that aren't right in the middle of the action--well, they're probably more likely to be "repartmented" than lose 70%, but who knows...

    ReplyDelete
  198. chriso said:
    "Seriously, I don't think that we'll see a nominal 70% 'haircut' in the DC area unless the economy goes south. As to that, I remain agnostic. Now DC area new condos, on the other hand, particularly ones that aren't right in the middle of the action--well, they're probably more likely to be "repartmented" than lose 70%, but who knows..."

    uh ... how do I tell you ... you've just spoken bubblehead heresy! quick, go for cover before they come for you! =:()

    ReplyDelete
  199. I'm driving in and out of DC every day and I hate this s**thole, but..., it provides jobs, I can't argue with that.

    ReplyDelete
  200. uh ... how do I tell you ... you've just spoken bubblehead heresy! quick, go for cover before they come for you! =:()

    Oh, I'm pretty bubble-tastic, for sure. But a 70% nominal reduction would be an economic apocalypse sorta thing. Some bubbleheads are predicting that, while I think that is over the top.

    But there are enough weaknesses in our economy that a 50% nominal reduction in the more overinflated markets (including many parts of this area) is certainly possible, I believe. Again, it's all tied to fundamentals. The rental value of property in most parts of this area is absolutely stagnant, and I do not believe that there is any way that sale prices can continue to outpace rents--certainly not by 100% or more.

    Of course, my predictions are every bit as valid as anyone elses, unless I can get that blasted flux capacitor on my DeLorean working again. :)

    ReplyDelete