Thursday, August 10, 2006

Washington, DC Area July MRIS Numbers

The new monthly numbers for July 2006 are out from the MRIS the multiple listing service for the area. YoY = Year over Year, that is the comparison between July 2006 and July 2005. These numbers include all housing units ( not just single family residences but also condos and co-ops).

Northern Virginia (Fairfax County, Fairfax City, Arlington County, Alexandria City, & Falls Church City, VA (NVAR))

  • Median Sales Price YoY: - 4.71 %
  • Average Sales Price YoY: - 3.94%
  • Total Units Sold YoY: - 39.31 %
  • Average Days on Market YoY: 262.5%
  • Active Listings YoY: 146%
Baltimore City Area (Anne Arundel, Baltimore City/County, Carroll, Harford, Howard (BALT AREA) )

  • Median Sales Price YoY: 5.89 %
  • Average Sales Price YoY: 6.03 %
  • Total Units Sold YoY: - 23.59 %
  • Average Days on Market YoY: 57.14 %
  • Active Listings YoY: 117%

Washington, DC (just the District of Columbia, no suburbs)

  • Median Sales Price YoY: - 3.45 %
  • Average Sales Price YoY: - 2.31 %
  • Total Units Sold YoY: - 21.11 %
  • Average Days on Market YoY: 82.14 %
  • Active Listings YoY: 146%

Prince George's County, MD

  • Median Sales Price YoY: 6.56 %
  • Average Sales Price YoY: 7.15 %
  • Total Units Sold YoY: - 23.50 %
  • Average Days on Market YoY: 76.19 %
  • Active Listings YoY: 162%

Montgomery County, MD

  • Median Sales Price YoY: - 1.09 %
  • Average Sales Price YoY: - 0.75 %
  • Total Units Sold YoY: - 33.06 %
  • Average Days on Market YoY: 157.89 %
  • Active Listings YoY: 129%

Loudoun County, VA

  • Median Sales Price YoY: - 2.54 %
  • Average Sales Price YoY: - 2.96 %
  • Total Units Sold YoY: - 46.07 %
  • Average Days on Market YoY: 281.82 %
  • Active Listings YoY: 129%
For more numbers on jurisdictions not mentioned here please go to MRIS Market Statistics. The housing market in the Washington, DC is experiencing significant decline. The above numbers are nominal dollars, looking at real dollars (inflation adjusted) the dollar declines are even greater. The real estate agents must be hurting now as the total dollar sales volume for Northern Virginia is down 41.7% compared to July 2005. The market will continue to decline as we head into the fall and winter months. The spring / summer boom, which many in the housing industrial complex had hoped for, failed to materialize. In the Washington, DC area a declining housing market is reality.

224 comments:

  1. An interesting stat from MRIS is the increase in asking price, YOY, vs. the decrease in sales price.

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  2. MRIS only reports sales of existing homes. Sales of new homes should be added to get an accurate read on the market's status.

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  3. Some serious pain on the right coast! Looks like you guys have taken the lead from us left coasters. I am sure Va_investor, Dc_Bubble, lance, etc.. will spin this as something else!

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  4. http://www.bls.gov/cpi/#data

    __________________________

    YOY CPI at 4.3%.

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  5. crispy&cole,

    "I am sure Va_investor, Dc_Bubble, lance, etc.. will spin this as something else! "

    Any moment now!

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  6. Yes crispy, I am quite the "spinner". Aren't you being missed on Ben's Blog?

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  7. The rise in listing price of the sold properties is clear evidence that sellers know what price they DESERVE.
    I'm afraid quite a few FBs will get what they desrve.

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  8. "Prince George's County, MD

    * Median Sales Price YoY: 6.56 %
    * Average Sales Price YoY: 7.15 %"

    What is the dealie-O with PG County?

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  9. "Prince George's County, MD

    * Median Sales Price YoY: 6.56 %
    * Average Sales Price YoY: 7.15 %"

    What is the dealie-O with PG County?


    I think those markets are just lagging by a month or two. These price declines (assuming the data is accurate) occured very rapidly - in the past month or so.

    So this will likely spread quickly to surrounding areas.

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  10. Anon 1:59,

    I believe the markets with the best fundamentals appreciated the fastest and were the first to stall. Second tier markets should continue to appreciate and then fall later. Probably because its still affordable to speculate/buy in those markets.

    NOVA Fence Sitter

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  11. So somebody who posts here told me that DC was the next London, Paris, Madrid, Hong Kong, Tokyo, New York, Berlin... Why are the prices going down? Everybody wants to live there.

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  12. "Prince George's County, MD

    * Median Sales Price YoY: 6.56 %
    * Average Sales Price YoY: 7.15 %"

    What is the dealie-O with PG County?


    It's the last reasonibly priced area to buy, since it's pretty much a slum. Investors are running over there to scoop up run-down properties to fix them up and flip 'em.

    Bring your weapons to the open house.

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  13. "MRIS only reports sales of existing homes. Sales of new homes should be added to get an accurate read on the market's status."

    MRIS does report sales of new homes that were listed in the MLS (bottom right of the Real Estate Trend Indicator report). It's true, however, that many new homes are never listed, so you have to wait for them to show up in the public records.

    Inventory figures taken from MRIS are low for the same reason.

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  14. What is the dealie-O with PG County?

    PG County has traditionally been more affordable than Mont. County. As prices increasingly suffered in MC, folks started looking - and buying - in PG. There are trade-offs. PG county schools, for example, tend to rank lower (and some are dismal); taxes are higher in PG. But there are some really nice spots in PG county too.

    H

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  15. I guess we can say we're "officially" negative now.

    In reality, prices declined much earlier, but statistics lag. Plus, incentives such as closing cost help, or paid condo fees, do not show up in these statistics.

    So the decline is much greater than the statistics make it appear, and has been going on for longer.

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  16. "What is the dealie-O with PG County?

    It's the last reasonibly priced area to buy, since it's pretty much a slum."
    -- Anon 2:13

    You obviously haven't visited many slums.

    Actually, there's a interesting case study in PG County - the old town Greenbelt community. It's a co-op (one of the last remaining from the Depression CCC build-up), and it *requires* conventional financing (at least 10% down; 30-year fixed with approved list of lenders; required 2 year stay to sell at profit). And prices, while still exhibiting substantial gains, aren't nearly as crazy as in other places (it is also in the best school district for PG county, if I recall correctly).

    H

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  17. If you are a recent flipper, you are in trouble!

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  18. Anon 2:21,

    That's exactly what I was trying to say when displaying NAR's numbers.

    Source: http://www.realtor.org/Research.nsf/Pages/MetroPrice

    It's amazing how many people will simply go to the last column, see 11%, and not grasp that the numbers right in front of them do show an already existing decline.

    2Q06 due out in just a few more days.

    My $0.02.

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  19. I posted tons of craigslist house ads under $400K on my blog today:
    DC Housing Bubble Blues.

    Prices are tumbling, and who's gonna buy an overpriced condo when you can buy a house for the same amount?

    As for me, I'm waiting to buy. This is far from over.

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  20. .02,

    It's interesting to see the gains in Q205 from Q105. I think once the Q206 numbers come out, there will be several regions with negative YoY changes.

    It seems there was a significant appreciation in many regions from Q105 to Q205. I think Lance would argue that until we see this appreciation wiped out, that you cannot truly say that the market is crashing.

    BTW, has anyone seen Lance lately or is he out selling his home?

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  21. H,

    My last ex- lived in that co-op, it's a neat area tucked away w/ quality residents, lots of charm. but the borders are shady at best. she had two PG cops living across the street so that helped. and you don't know a control-freak board/HOA until you've lived in a co-op. overall a very good neighborhood for PG.

    Maryann Haggarty, RE editor at WashPost, said that Hyattsville was an up-and-coming neighborhood in her last online discussion. Anyone familiar?

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  22. well this last week of july we had unusually hot temperatures, thus fewer people willing to go out and buy, but they will go out this august as the weather is great.

    and/or

    gas prices are higher this past july than july 05, thus the consumer, and realtor, is waiting for $$$ gas prices (not home prices) to fall to drive around to search houses.

    lance

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  23. "It's amazing how many people will simply go to the last column, see 11%, and not grasp that the numbers right in front of them do show an already existing decline.

    2Q06 due out in just a few more days.

    My $0.02. "

    Nobody said it has to go up in a straight line, but it is obviously going up. At any given second, you might be able to see a decline from some prior moment in time, but that doesn't make it a trend.

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  24. Bacon,

    There is a similar co-op in Falls Church. It is in the heart of the city - a very nice area. Extremely affordable housing for the location.

    Very restrictive in terms of "rules" and financing (no rentals allowed, no pets, no boarders, etc.). A great deal for starting out.

    No investor's allowed ):

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  25. Do they always use inflation adjusted number or are they just doing it now that the numbers are starting to go negative?

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  26. These numbers are not inflation adjusted!

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  27. Check out the numbers for Arlington County for June 2006 and July 2006. Either you believe that the housing market declined by almost 20% IN ONE MONTH, or there is somthing funky going on with those numbers.

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  28. there is absolutely nothing to rebut ... I've said from the start to expect on average 10% - 15% declines overall in DC (i.e., Washington DC ... not suburbs, etc.) with the real decline being for condos with mainly stagnant or just slightly rising numbers on the row houses and other SFHs. This is right in line with what I've been saying. I've also said to expect prices to gradually go back to normal appreciation rates (i.e., 4% - 5% plus inflation) starting in about 18 - 24 months. Lastly, as I've been saying for the last month, NOW is the time to go out there and get deals because you can bargain with sellers AND interest rates are still low. There's no telling when interest rates will shoot up overnight. Although one can buy right in any market, this is a point where it is easiest to buy right. If you really don't think that interest rates will rise, then like I've been saying, you definitely should wait another 6 - 12 months. I just don't believe that interest rates won't rise significantly during that period. The archives are too the right if you want to verify that I have NOT changed my predictions despite how the bubbleheads like to think they remember what I said. Incidentally, I am not the only housing head who has been predicting the soft landing we are experiencing. Remember, the disagreement has always been "will there be a hard landing (i.e., bubble burst) or a soft landing. And THIS is clearly a soft landing for Washington DC ... and you are fooling yourself if you think it isn't.

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  29. Thierri, Bubble Head #8952August 10, 2006 8:58 PM

    The spring selling rally has failed. There was no spring rally. Next I want to see realtors jumping off high buildings and the bay bridge on a daily basis. That would be a positive outcome.

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  30. I guess a fall of fifty feet begins with a fall of 10 feet.

    Maybe some housing heads would prefer we go back to asking prices instead?

    This will be a protracted, long, slow fall, with much of the fall coming in real prices. Easy Ben will make sure to keep the money flowing somewhat.

    A Redskins fan

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  31. Redskins said:
    "This will be a protracted, long, slow fall, with much of the fall coming in real prices."

    If you believe this to be the case, then how can you also believe that current homeowners will hurt by the events to come (as you envision them), since their mortgage payments are in nominal and not real dollars?

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  32. I think the one reality now left to face is that there will be no hyperinflation to rescue debtors. Now that the bubble has burst and the psychological climate inverted, there is no mechanism by which to get people to continue borrowing the increasing amounts of money needed to cause inflation in the absence of rapidly rising wages.

    The helicopter is grounded.

    This will be a deflationary recession much like Japan's.

    I expect the Fed to begin dropping rates soon to no effect.

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  33. I expect Lance will slit his fat pasty wrists wide open when the sheriff comes with the eviction order.

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  34. nice. btw, your mother says it is bedtime.

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  35. First, I'm feeling generous to Lance, so I'll point out that, given higher interest rates today, you'd still have a higher monthly payment for a house if you bought for 3% less today than if you bought for 3% more a year ago.

    And in most housing cycles Lance would have a point. Sure, the value of your house goes down if interest rates rise, but you locked in a great rate, so your monthly payment at the lower rate isn't all that different from somebody who could buy at a lower price but at a higher interest rate. So things can't get too bad.

    Now here's where I disagree with Lance. I believe things are "different this time," so if somebody wants to mock me, fine. They're different this time because so many people stretched themselves to get into a house and an unprecedented percentage of non-savvy buyers used option financing and ARMS and the like.

    I believe that this will make housing supply very responsive to interest rate changes, as people will have to sell and/or face foreclosure. As a result, prices will decline a lot more when interest rates increase than they did in the past. In the past, interest rate increases simply dampened demand, as people couldn't afford to buy as much with higher interest rates. Now, interest rate increases will also increase supply, which will be a double whammy in housing markets.

    That said, Lance also has a good point about buying, although he underestimates the depth of the fall. If you want to buy a house, this may not be a horrible time, if you make really aggressive offers and walk away if the seller won't come down enough. Buy at a price that would make you very happy, and don't buy unless you can get that price. You deserve to price in bubble insurance if you make an offer, so go hard to the hoop.

    Plus, rental growth is strong in DC, so there's a rising floor on housing prices. The higher the rent growth, the shallower the post-bubble price fall.

    As I pointed out before, it only takes a 33% price fall to wipe out a 50% price gain. If housing prices fall by 25%, that wipes out the 04-05 bubble and replaces it with normal 3% growth from 04-06.

    The bubbleheads were and are right. But just because you won the last war doesn't mean you want to keep fighting it. The next war may come sooner than we think.

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  36. sorry lance, but

    -4% YoY + average joe just awakening to the notion of a housing bubble = hard landing

    When the average joe really understands how overinflated prices are and how much excess supply we have (and trust me, the average joe has no clue right now), prices will grind downward and downward for years.

    This ain't going to be a soft landing, no matter how many St. Joseph statues you bury in your front yard. (Do pre-construction condos even have front yards?)

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  37. va investor - you are good with math. can you help me out?

    what is -4% x $2,000,000?

    what is -8% x $2,000,000?

    what is -12% x $2,000,000?

    i'm just trying to figure out what a theoretical hotshot real estate investor's unrealized losses will be over the next few years.

    thanks in advance.

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  38. LANCE SAID....
    THIS is clearly a soft landing for Washington DC ... and you are fooling yourself if you think it isn't.

    :lol:

    so 6 months a trend makes???

    lets talk this time next year before we get all excited about this "soft landing"

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  39. This comment has been removed by a blog administrator.

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  40. JF said:
    "i'm just trying to figure out what a theoretical hotshot real estate investor's unrealized losses will be over the next few years."

    LOL ... you acknowledge "unrealized" losses but don't do the necessary linking to understand that they are on "unrealized" gains ... I'm sure Va_Investor doesn't care. In case you haven't figured it out yet, unlike the flippers and the Bubbleheads, neither Va_Investor nor I are in it for the shortterm gains .. or even longterm "gains" for that matter. Va_Investor is looking for rents ... which incidentally are going up up and up ... And I am looking for the lowest possible longterm housing expense ... which I have. We're happy ... You're not, because you are a wannabe flipper ... and having missed your chance to make a gain (realized or unrealized) when the local real estate market was jumping by leaps and bounds, you now want to see it drop like a bomb so that you will get that second chance you messed up on before. Why is it you really can't understand that neither Va_Investor as a rental property owner or I as a homeowner are all that concerned about what the market does in the near or even medium term?

    And for another more serious matter ... What kind of person taunts another for being successful due to their hard work, diligence, and intelligence? Perhaps someone who is lacking the ability of one, if not all three, of these capabilities?

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  41. "This ain't going to be a soft landing..." True, soft landing never happens, it's always hard.

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  42. "Va_Investor is looking for rents ... which incidentally are going up up and up ..."


    Count me in on that as well. I own in Mesa, Az and the rents on my homes are up from last year:

    $875 - 1025

    $900 - 1025

    $950- 1025

    $950 - 1075 (home has a pool)

    Next year I will likely hike up the homes $50 each.

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  43. Bacon -
    Parts of Hyattsville have some real charm; but Hyattsville covers a lot of ground, so you have to get to know the neigborhoods fairly well before jumping in. It's just south of UMD, so you have some professors in the bungalows off of Rt 1. The commercial real estate going south along Rt 1 towards the city seems like untapped gold - one of those areas that with a lot of TLC could really revitalize the place. A few places, like the restaurant/brewery Franklins, have started the process, but there's a long way to go.

    But as I said, you have to get to know where in Hyattsville might make a good investment, and where not. For every gem neighborhood, there are equal numbers that are problematic - esp. with increased crime (yes, I've just described every city). And most folks I know there send their children to private school. Education really is just an area where other counties (in MD and VA) tend to outshine PG.

    H

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  44. lance said - "Why is it you really can't understand that neither Va_Investor as a rental property owner or I as a homeowner are all that concerned about what the market does in the near or even medium term?"

    And that is why you are on this blog day and night posting fervishly to convince people that prices won't drop?

    va investor should be concerned with the loss of market value in her properties. i've been over this before, but chances are the market value losses she will suffer will more than offset the rental profits she will earn over the next 10-20 years. the prudent move would have been to sell at the top to capture those gains today, rather than waiting for 20 years of rental income to get her their.

    and as far as my position, you said "We're happy ... You're not, because you are a wannabe flipper ... and having missed your chance to make a gain (realized or unrealized) when the local real estate market was jumping by leaps and bounds." actually this isn't true. i was a long-time homeowner and i sold last summer (I knew we were getting close to a peak, and just happened to hit it out of luck).

    so i come to this issue with a good perspective. as a homeowner and now as a renter. trust me when i say it wasn't easy to sell a home i had owned for years and pick up and rent, especially when everyone thought i was crazy last year for doing so. i think more people are now realizing that i made the right move.

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  45. Its funny john, how lance and his company would call you stupid, but his risk of taking and interest only loan is smart. You took a risk by selling just as he took a risk by buying into a interest only loan. I personally think you made the harder choice, but I do agree you made the right choice. the hundreds of thousands you made on your property, as many people did, is such a large amount that it can change peoples lives, just as the same people who jumped will be trapped in their homes for the next 20 years.
    I say to you congrats on making a wise financial decision.
    the real bob

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  46. Well I think that the issue with PG county is all the new McMansions built out Bowie way. There really wasn't much of that sort of housing until the last year or so. I live in North College Park. The houses on either side of mine are empty and the houses that are next to them have for sale signs in the yard. I'm predicting a condo-like collapse in prices.

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  47. The 1856 units sold in NoVa in July 2006 is almost as dismal as the 1827 units sold in July 1997. Of course the 58 days on market is nothing compared to 1997's 135. But we all remember how awful the Clinton years were economically don't we? Right? Some people will recognize this sarcasm.

    The biggest problem with the Bubbleheads is a lack of perspective. Youth is not an excuse when all of the info is readily available. If David would just spend some time with his links, his posts would read differently, but then he might have to change the name of his blog.

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  48. I keep an eye on ZipRealty while I'm renting for this year--I plan to jump in next January or so based on my personal circumstances.

    So in a cursory search, I already saw one house in NW (Shaw) whose sale is "subject to bankruptcy court approval" ($399K, a good price for a house if you're comparing to last year). Another, similar neighborhood, a seemingly nice, renovated 5 bd, is "owned by the bank".

    It's definitely starting. And momentum will only gain speed.

    I am not relishing the coming recession which will only be more painful due to people's very real real estate losses. Believe me, because I'm currently looking for another job.

    But I don't think we are going to avoid it. Bernanke is going to be watching it rather helplessly, at least over the next couple of years.

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  49. "If you believe this to be the case, then how can you also believe that current homeowners will hurt by the events to come (as you envision them), since their mortgage payments are in nominal and not real dollars?"

    Lance, I appreciate your seeking of my economic wisdom, but I do warn you that I have been wrong before and could be wrong again, so make your own decisions.

    I personally believe that nominal prices will go somewhat lower, but that inflation will take care of much of the rest of the required fall in real prices (so that we get back to traditional ratios with area incomes, and to more realistic assessments of the future of the area).

    Nonetheless, I think there still will be a fall in nominal prices (as we are already seeing).

    IMHO, long-term homeowners on fixed mortgages may not lose a lot of nominal money. Recent buyers on ARMs (not a small group) or those who refinanced recently could feel a lot more pain.

    HOWEVER, all those who bought relatively recently, even those who bought with traditional 80-20s, are going to see a big chunk of their monthly income going into a stagnating to falling investment.

    If they had invested in some other sectors, and waited a few more years to buy, they might have been able to get a much better deal and/or make a much larger downpayment.

    I could be totally wrong. And one way I could be wrong is that nominal prices do fall a lot.

    Another thing to note, Lance, is that there were some WaPost articles last year that said that 53% of all DC real estate purchased last year was purchased with ARMs. There are a substantial number of people with non-fixed mortgages. They could be in a LOT of trouble.

    We will see.

    A Redskins fan

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  50. "But we all remember how awful the Clinton years were economically don't we? Right? Some people will recognize this sarcasm."


    Oh, right, The New Econoomy and The End of the Business Cycle.

    Schiller, Irrational Exuberance:
    "The Dow Jones Industrial Average … stood at around 3,600 in early 1994. By 1999, it had passed 11,000, more than tripling in five years…. However, over the same period, basic economic indicators did not come close to tripling. U.S. personal income and gross domestic product rose less than 30%, and almost half of this increase was due to inflation. Corporate profits rose less than 60%, and that from a temporary recession-depressed base. "

    Thank God I bought MicroStrategy at $750 on margin...And a new condo at $650/SF with an ARM...

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  51. Wow. Look at Arlington County. They are down almost 10% YOY, and in only 1 month. Shit has officially hit the fan. Welcome to the new housing reality of the DC area.

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  52. I am very scared of people who talk about 2000 as if it were some economic great time. Yeah, with all those great economic success stories like Enron, Worldcom, HealthSouth, Pets.com, Boo.com, Global Crossing... it was a mess of corruption.

    When I hear someone talking about the late 90s like it was a great time, I always think of a crack addict saying "man, life was a lot of fun when I was on crack."

    I don't mean this as an endorsement of the people currently running things. The economy in this country has been trashed for the last 15 years or more, and simply putting the major politicians from one of the two major parties in is not going to really help anything.

    Just my personal opinion.

    A Redskins fan

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  53. "The housing market in the Washington, DC is experiencing significant decline."


    A 3% decline. That's what you call signigicant.

    Bubbleheads predicted the crash of 2005. It didn't happen.
    Bubbleheads predicted the crash of 2006. Still hasn't happened. Seriously, 3% isn't a crash.

    Bubbleheads must be disappointed. Crowing over this 3% decline shows how deparate you are for justification of your heretofore claims of 50-70% price declines.

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  54. "Crowing over this 3% decline shows how deparate you are for justification of your heretofore claims of 50-70% price declines"

    Troll. Is a 10% decline in Arlington big enough for you? What do you expect? A 70% drop overnight? Dumbass.

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  55. Certainly ARMs are prevalant that there are many for whom the benefit of high inflation (declining real principal) will be more than counterballanced by the interest rate driven increase in payments. Of course ARMs were prevalant last year. Using ARMs when rates are low is stupid* and only stupid people bought at '05 prices.
    * If you wish, you can replace stupid with daring, brave or confident. In the end it makes NO difference.

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  56. "so i come to this issue with a good perspective. as a homeowner and now as a renter. trust me when i say it wasn't easy to sell a home i had owned for years and pick up and rent, especially when everyone thought i was crazy last year for doing so. i think more people are now realizing that i made the right move."

    Feel good now, because if and when you decide to buy again, I think mortgage payments (due to interest rates) for the next place will be much higher than if you hadn't sold the first place.

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  57. John Fontaine,

    I have other investments beside real estate and, as I have discussed before, I am very long term.

    My plan is to have my tenants pay off my mortgages. That is enough return for me over the next decade. I've been through a bad decline before (1990's) and rents did not fall.

    I want to leave my properties to my son. I am not interested in "chasing" the best return. Transaction costs (including capital gains and recaptured depreciation) would erase 20 to 30% of my profits; effectively bringing me to an "after correction" net worth anyway.

    btw, if you want to calculate my potential loss you will have to use a multiple of that 2,000,000 figure. That wouldn't even cover my personal residences.

    You have successfully "timed" the market. Congrats. But, in my case, I must consider a great number of factors and appreciation/price declines only represent a part of the equation.

    I am very long-term. I am hoping to never sell unless via a 1031 into a better deal. In other words, I don't plan to "exit" the market.

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  58. ""Crowing over this 3% decline shows how deparate you are for justification of your heretofore claims of 50-70% price declines"

    Troll. Is a 10% decline in Arlington big enough for you? What do you expect? A 70% drop overnight? Dumbass. "


    I heard the same arguments in 2004 and 2005, i.e., when the big crash didn't materialize it was because it "doesn't happen overnight."

    Also 10% decline, well that's 1/3 of the gain from 2005. Not really that painful. And not close to what bubbleheads have been predicting.

    Overall I don't think a 3% decline validates bubbleheads who've been predicting 50-70% declines.

    I'm not a bubblehead, but I've been expecting more than 3% decline. A 3% decline during the Crash of 2006 is really better than expected from homeowners' perspective.

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  59. Jim A:
    You're right - Bowie, Greenbelt, and areas of Beltsville have this pockets of McMansions that cost a bit more than I would have expected, given that the county services and schools do not rank as highly as other counties in the area.

    And the problem with some of the older homes in that area is that many really do need a *lot* of work. Several do not have central AC (in Hyattsville); others just clearly have a lot to fix up. And yet the prices - currently - do not reflect this. Still an "as is" mentality running around. I suspect this will correct *somewhat* eventually.

    H

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  60. "A 3% decline during the Crash of 2006 is really better than expected from homeowners' perspective."

    Remember, typically July is the peak month of the year in prices, and 2006 is nowhere near over yet. Sit back and grab some more popcorn folks, this is about to get a lot more interesting.

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  61. Better than expected by whom?

    Last year, we didn't hear housing heads coming on here saying "I expect a 3% decline." We heard, at worst, predictions of a "more normal" growth of like 5-10% per year.

    A 3% nominal decline is even more in real terms. Maybe more like 6-7%.

    Moreover, 3% of $500,000 is $15,000. Now if you only invested $100,000 in the first place, you are actually looking at a 15% loss, because leverage can "work" in both directions.

    Plus, we are probably just getting started.

    A Redskins fan

    ReplyDelete
  62. va investor said - "Transaction costs (including capital gains and recaptured depreciation) would erase 20 to 30% of my profits; effectively bringing me to an "after correction" net worth anyway."

    That presumes a correction of only 20 to 30%. Thats optimistic in my opinion. 40 to 60% is most likely.

    Cheers!

    ReplyDelete
  63. "A 3% nominal decline is even more in real terms. Maybe more like 6-7%."

    Pardon me, but this is horseshit. If you insist that housing is declining, you can't factor an inflation figure on top of it without pointing out that it would not affect the vast majority of homesellers -- those people who are selling one house and buying another.

    Plus, if you are relying on CPI to get your 4% inflation figure, you should factor out the one major, hyperinflationary component of CPI that does not affect homeowners - rent.

    ReplyDelete
  64. "That presumes a correction of only 20 to 30%. Thats optimistic in my opinion. 40 to 60% is most likely."

    Keep dreaming, pauper.

    ReplyDelete
  65. Speaking as a homeowner, those of you who are revelling in the misfortunes of others are scum. You should be more concerned with real estate prices in hell, because that's where you're going.

    ReplyDelete
  66. John Fontaine,

    Thanks for your concern, but even a drop of 60% would not cause me to lose my real estate. What happens to rents in your scenario? Stocks, Bonds, jobs?

    ReplyDelete
  67. Here's a blog where we hope that bad things happen to good people! Yay! What's next, Cancermeter?

    ReplyDelete
  68. This is right in line with what I've been saying. I've also said to expect prices to gradually go back to normal appreciation rates (i.e., 4% - 5% plus inflation) starting in about 18 - 24 months. Lastly, as I've been saying for the last month, NOW is the time to go out there and get deals because you can bargain with sellers AND interest rates are still low. There's no telling when interest rates will shoot up overnight. Although one can buy right in any market, this is a point where it is easiest to buy right. If you really don't think that interest rates will rise, then like I've been saying, you definitely should wait another 6 - 12 months. I just don't believe that interest rates won't rise significantly during that period.

    When I read things like this it becomes very hard to believe that these are not the words of a realtor or someone being paid to post here. It just sounds so salesy - the NOW-is-the-time rhetoric, the 'homes WILL begin to appreciate again soon,' the fear-inducing 'threat' of rising interest rates. It just seems like a hard sell.

    ReplyDelete
  69. These blogs were established to warn people. They are effective and people have been reading them and making better decisions.

    Creating these blogs is the same as posting the recipe for an antedote when everyone is catching a disease and spreading it.

    Burning in hell for doing so? What kind of people wouldn't warn others if they saw the peril??

    ReplyDelete
  70. I was addressing people who are delighting in the misfortunes of others. There are few if any posters on this site motivated by a genuine desire to be helpful.

    ReplyDelete
  71. I disagree - every post that says:

    WARNING WARNING
    Home prices are declining!
    Wait to buy!
    You can get a better deal!
    Don't go into more debt than you have to!

    ...is trying to be helpful. After all, these folks already know all of the above and will make their decisions accordingly. Telling others doesn't benefit them. Telling others will only increase the number of those in market later when they are also looking to buy....

    Don't try a creating-a-panic argument either. This week's articles in USA Today and WSJ demonstrate that the resetting ARMS are already creating the panic. After-the-fact warnings on blogs will not instigate panics. Individuals reading the blogs might make better decisions though.

    ReplyDelete
  72. Anon 7:43,

    It's been my observation that the people who gloated about their paper gains on the way up are the same type of people that gloat over other people's paper (or real) losses on the way down.

    It's either side of the same coin.

    My $0.02.

    ReplyDelete
  73. "I was addressing people who are delighting in the misfortunes of others. There are few if any posters on this site motivated by a genuine desire to be helpful."

    When you make blanket statements that bears are wishing misfortune, I can't help but immediately think you are another flipper who would rather the bears keep quiet until you've unloaded your condo. And that ain't happening.

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  74. "When you make blanket statements that bears are wishing misfortune, I can't help but immediately think you are another flipper who would rather the bears keep quiet until you've unloaded your condo. And that ain't happening. "

    I did not make the blanket statement that bears are wishing misfortune.

    ReplyDelete
  75. On the other side of the coin, those who gloated about the insane rates of appreciation, were gloating about the misfortune of prospective first time homeowners who had to choose between renting and paying a vastly inflated price for a house.

    ReplyDelete
  76. United States: Trade Deficit Sinks in U.S. over June On Back of Strong Exports
    The June trade deficit shrank to US$64.8 billion, from US$65.0 billion in May, but the net impact of the gain is muted due to revisions to May figures. The June trade deficit ended up close to consensus estimates, but the direction of monthly change was the opposite of what was believed because of the upward revision to May's shortfall. The big story in the June trade report was a second consecutive month of large export gains, and those gains were not founded on quirky aircraft delivery schedules, but were broad-based. The sole bad piece of news in the trade report was a decline in the services surplus, but that may have been mere noise. The import side of the ledger went much as expected, reversing some of the spurious movements of the previous month. Petroleum imports dipped in June, while non-petroleum imports rebounded—the exact opposite of the May changes. Oil import volumes dipped and prices were little changed, two phenomena unlikely to be repeated in the third-quarter data, because oil prices have risen sharply since June. The export side of the ledger was the big story for a second consecutive month. The 2.7% May jump in goods exports was topped by an additional 3.0% June surge. Gains in export categories were broad-based, with food, capital goods, materials, and consumer goods solidly in the black. The breadth and depth of the improvement is encouraging for third-quarter prospects, since it was not founded on unpredictable aircraft delivery schedules or an unsustainable spike in food exports.

    Significance: The forecast implications are all positive, but the historical implications are a modest negative. The higher exports of capital goods in the second quarter will not lift the already-estimated second-quarter GDP number, because an upward revision to exports will be offset by a reduction in estimated domestic capital spending. The third quarter will begin with massive momentum in exports, however, and should post large gains.

    ReplyDelete
  77. va investor said - "What happens to rents in your scenario? Stocks, Bonds, jobs?"

    I'm an equal opportunity bear. I'm bearish on the economy in general, not just housing. Too many people are driving BMWs and eating out for dinner every night. Personal savings rate negative. Everyone buying $4,000 flat screens. Something is wrong.

    Its time to pay the piper. The bubble bust still hasn't really started yet, but restaurants and retailers are already starting to report slowing sales. Things will get much worse before they get better.

    Stock prices will decline (generally speaking) over the next few years because corporations have been reporting peak earnings based on unsustainable overconsumption by their customers.

    I could go on and on about this, but you get the picture. CDs are paying nice 5+% returns and good investors can always find some recession-resistant equities selling for reasonable prices (BRKA with $30b in cash waiting to be invested by WEB comes to mind).

    Yes, there will be job losses. Yes, there will be pain. We need that pain to get people back on track from their reckless overconsumption of the last 10 years.

    Lastly, a few stats as of 2005:

    Global assets as a percentage of global GDP - 80% over the long-term historic average from 1970 to 2004 (LTHA)

    US household debt as a percentage of GDP - 45% over LTHA

    US 10 year treasury yield - 46% below LTHA

    US personal savings as a percentage of personal disposable income - 97% below LTHA

    Cheers!

    ReplyDelete
  78. Retail sales rose a seasonally adjusted 1.4% in July, above expectations, in a signal of economic strength. Consumers snapped up discounted cars, pumped expensive gas, and ducked into shopping malls to escape broiling summer heat.

    ReplyDelete
  79. The tone of the housing heads is moving from exasperation to vulgarity and anger.

    Denial is no longer possible. Anger is now here. Don't worry... acceptance is coming.

    A Redskins fan

    ReplyDelete
  80. Rents are not "hyperinflationary" right now. Even in the DC area, they are not rising that much. Mine was up roughly less than 2% this year. That includes all utilities.

    A Redskins fan

    ReplyDelete
  81. Jim A,

    That's exactly right.

    On the way up, those that gloated "got a pass" on the whole burn in hell comment because those who sat out (lost), were losing out on a potential gain. There was no real loss perceived.

    On the way down however, as those that sat out get a chance to buy at a discount and make equivalent gains, there is a real loss for those holding assets.

    Either way, the active gloating is ugly.

    My $0.02.

    ReplyDelete
  82. Didn't Wm. F. Buckley Jr. say tht gloating is the most sublime of human emotions?

    ReplyDelete
  83. "The tone of the housing heads is moving from exasperation to vulgarity and anger."

    What. Are you reading a different blog?

    To me it looks like housingheads aren't vulger or angry. Why are you so defensive? Is it because 3% YOY decline will never get to the 70% discount you're waiting for?

    Unlike you, housingheads do not seem much concerned about 3% declines, or 10% declines, because, for a vast majority of homeowners, these temporary declines are of no consequence. They only matter to bubbleheads cheering on a yet to materialize crash.

    ReplyDelete
  84. "To me it looks like housingheads aren't vulger or angry."

    There are posts above refering to horse(stuff) and bubbleheads burning in hell. I would call those kind of thoughts vulgar and angry.

    A Redskins fan

    ReplyDelete
  85. "Rents are not "hyperinflationary" right now. Even in the DC area, they are not rising that much. Mine was up roughly less than 2% this year. That includes all utilities.

    A Redskins fan "

    Hahaha, yeah right. Get your head out of the sand.

    ReplyDelete
  86. Hahaha, yeah right. Get your head out of the sand.

    Rent on my place has gone up exactly $55 in the last four years. Not even nearly covering inflation. And a Woodbridge TH in the same community I rented in for $1200/month in 2001-02 could now be had for about $1400. Again, running at or below inflation for that period.

    The only places where rents have gone up beyond inflation is where either demographics have changed, such as newly yuppified areas in DC, or neighborhoods that are completely different physically than they were a few years ago, such as Clarendon.

    This a great time to rent, basically.

    ReplyDelete
  87. "There are posts above refering to horse(stuff) and bubbleheads burning in hell. I would call those kind of thoughts vulgar and angry.

    A Redskins fan "

    Speaking of posts referring to horsestuff, I notice that you have no response to the substance. I guess you lose again.

    ReplyDelete
  88. "And a Woodbridge TH in the same community I rented in"

    Nuff said. You're a poor, living in a hole.

    ReplyDelete
  89. http://www.nmhc.org/Content/ServeContent.cfm?ContentItemID=3946

    Apartment Markets Continue To Strengthen Says NMHC Quarterly Survey

    Contact: Richard Levy, 202/974-2343, rlevy@nmhc.org
    For Release: August 7, 2006


    WASHINGTON, DC – Apartment markets continue their upward trajectory, according to the National Multi Housing Council’s July 2006 Quarterly Survey of Apartment Market Conditions. Fully 75 percent of the respondents reported tighter market conditions over the prior three months, measured by lower vacancy rates, higher rents or both.

    As a result, the survey’s Market Tightness Index increased slightly this quarter (May to July), to 85, now the second highest index number on record. (An index reading above 50 indicates that, on balance, conditions are improving; a reading below 50 indicates that conditions are worsening; and a reading of 50 indicates that conditions are unchanged.) The Market Tightness Index has been 80 or above for five consecutive quarters, and above 50 for 12 consecutive quarters, signaling a significant improvement in demand for rental housing. In contrast, the Index was 45 in July 2003 and 39 in July 2002, during the peak of the recession.

    Despite improving market conditions, sales activity continues to slow from the record-level of transactions conducted in 2005. A mere six percent of all respondents reported higher sales volume this quarter than last, and 42 percent reported lower sales. The Sales Volume Index declined slightly from 35 to 32, the lowest since January 2002, and down from a high of 66 in July 2005.

    The Equity Financing Index remained at 50, indicating that equal shares of respondents (in this case, 11 percent) gauged equity financing was either less or more available. But nearly three-quarters of respondents thought the availability of equity financing had not changed from the previous quarter.

    Finally, despite steadily rising interest rates, the Debt Financing Index actually increased from 21 to 29 this quarter. The number of respondents saying that now is a worse time to borrow dropped from 69 percent last quarter to 16 percent this quarter. The vast majority, 71 percent, report that conditions are unchanged. This suggests that even though conditions for borrowing are not ideal, they are not getting worse.

    “Improving rental demand in the face of rising interest rates and declining sales volume attests to the strong outlook for the apartment sector,” noted Doug Bibby, NMHC’s President. “According to Harvard University’s 2006 State of the Nation’s Housing report, the number of renter households rose in 2005 for the first time in years. The report goes on to say that as echo boomers, same-age immigrants and second-generation Americans move into adulthood, demographic forces will favor rental housing over for-sale housing.”

    ReplyDelete
  90. Redskins Fan is right. I rent in DC, and my rent didn't go up a dime this year. And I'm renting for half the cost of buying.

    ReplyDelete
  91. I don't have much to say to someone who thinks that real price declines don't matter just because someone buys another home.

    As for that article, it hardly paints a picture of "hyperinflation" in rents.

    All we've heard for the last few months is "but sales prices are up! but sales prices are up!" Well, now sales prices are down. And so the housing head arguments get more desperate.

    A Redskins fan

    ReplyDelete
  92. How about a thoughtful response? Don't have one?

    ReplyDelete
  93. Redskins fan,

    there are bears on this site who are very capable debaters and interesting conversationalists. You are not one of them. Your tiresome and repetitious incantations, with nothing to back them up, and which you refuse to defend, are a nuisance.

    In short, shut your idiot mouth and let the intelligent "bubbleheads" carry the conversation.

    ReplyDelete
  94. Speaking as a so-called "bear," I agree. Redskins Fan, you do nothing but discredit what I believe to be a correct and rational point of view. Please get a new hobby. You are one of the very worst posters on this site.

    ReplyDelete
  95. I like Redskins Fan. His are the only comments I usually read.

    And at least he signs a name, for God's sake. The rest of you are just Anonymous.

    Seriously, Keith, can I make another plea to discontinue anonymous comments.

    ReplyDelete
  96. Err, it's David.
    Anonymous

    ReplyDelete
  97. If going from a 2% increase/year to 4% increase/year is hyperinflation, what is the housing market going up 30% a year?

    ReplyDelete
  98. "The 1856 units sold in NoVa in July 2006 is almost as dismal as the 1827 units sold in July 1997. Of course the 58 days on market is nothing compared to 1997's 135. But we all remember how awful the Clinton years were economically don't we? Right? Some people will recognize this sarcasm."

    Yes, we had rising incomes in the late 1990s and did not have a major runup in housing prices. And yet people argue that the 2000-2005 runup in housing prices was driven by rising incomes.

    ReplyDelete
  99. Redskins Fan - stick with it. I love your stuff. The guy above who says "speaking as a so-called bear, i agree" is probably one of the bulls who can't stand the fact that you have well thought out, rational arguments and they have, well, nothing.

    The bulls don't want others to hear the truth from you about the dangers of this bubble. I wonder why????

    ReplyDelete
  100. So to recap:

    Rents going up 4% is seen as no concern to bubbleheads renting.

    Yet, real estate prices declining YOY 3% is a crash to bubbleheads.

    And CDs paying 5% are evidently the holy grail of bubblehead investments.

    ReplyDelete
  101. Redskin Fan's comments provide a little humor during the dreary afternoons.

    But his arguments have no credibility, as he has no personal experience on any of the subjects he writes about.

    From what I've read, it appears Redskins Fans has been renting a room in a Silver Spring group house since the 1990s.

    He claims that he wants to buy a home, but only a really nice one.

    He plans to buy this house at a 70% discount to today's prices.

    He plans to continue renting, evidently, until he gets this 70% discount.

    One housing bubble has come and gone while Redskins Fan continued to rent, waiting to get his dream house for pennies on the dollar.

    ReplyDelete
  102. "Yet, real estate prices declining YOY 3% is a crash to bubbleheads.

    And CDs paying 5% are evidently the holy grail of bubblehead investments."

    Apparently, CDs beat real estate by 8% last year. The bubbleheads shoot; the bubbleheads score.

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  103. I'm not sure if the Fan has said he believed prices would drop by 70%. He's said he wouldn't buy unless prices dropped that much.

    I've disagreed with the Fan, and he's never personally attacked me over it. I can't recall the Fan ever insulting me because I believe prices will drop by 25%.

    That makes the Fan is far more of a man than most of the housingheads. Whethere or not I agree with the Fan, his parents raised him a lot better than Lance's parents raised Lance or AnonyTroll's parents raised AnonyTroll.

    ReplyDelete
  104. A 4% average increase on rent for a payment that isn't leveraged.

    Versus, a 3% decrease in property values that is leveraged? That 3% drop would cover a lot of renter's costs for the year on a 500K home.

    If you're willing to extrapolate the 2-2.2% decline/quarter that's been happening for the past 2 quarters through the summer of '06 then you'll have a 10% decline YOY in very short order.

    Given the dismal reports on the Spring selling season, the growing days on market, growing inventory, and the negative press, I don't think this is too much of a stretch to expect.

    My $0.02.

    ReplyDelete
  105. "I'm not sure if the Fan has said he believed prices would drop by 70%. He's said he wouldn't buy unless prices dropped that much."

    Then I hope he has a really long lease at that group house--for at least the remainder of his life expectancy.

    ReplyDelete
  106. Well heck, I'll ask:

    Hey, Fan. I'm curious:

    How much do you expect prices to fall? What prices would you buy at?

    ReplyDelete
  107. "Apparently, CDs beat real estate by 8% last year. The bubbleheads shoot; the bubbleheads score."

    Of course CDs didn't begin paying 5% until recently. I think they began the year at about 3%. Factor inflation (which all bubbleheads like to do when it comes to ROI for homes) and CDs real return is about Zero.

    I guess its a moral victory for you.

    ReplyDelete
  108. ""Apparently, CDs beat real estate by 8% last year. The bubbleheads shoot; the bubbleheads score."


    Most housingheads' homes, after a 3% YOY decline, still have paper gains of about 150% over 5 years. I'll take another 10% off the gains, and still beat your CDs

    Enjoy the CDs.

    ReplyDelete
  109. Bubble sitting: The pros and cons
    http://money.cnn.com/2006/08/11/real_estate/bubble_sitting/index.htm

    ReplyDelete
  110. Because both the 5% return on CDs and the 4% decline in home prices are stated in nominal terms, you don't need to adjust either for inflation to compare them on a relative basis.

    The bottom line, CDs beat NoVA real estate by about 8 to 9% in the last year with much less risk. I expect this will continue for the next several years.

    ReplyDelete
  111. Nuff said. You're a poor, living in a hole.

    Ahh yes, when you can't dispute the argument, attack the speaker. Brilliant, anonymous, brilliant I say!!

    And doing so by trotting out class rhetoric. Masterful!

    Your proofreading skills could use a little polishing, however.

    According to the script, you're next going to accuse me of bitterness or jealousy because I'm unwilling and unable to buy a $300k house for $600k without taking out a toxic mortgage.

    I think the Kubler-Ross scale is being demonstrated quite nicely around here.

    ReplyDelete
  112. Note that NVAR has completely different YOY figures based on the same MRIS data...there must be different ways to interpret this data. NVAR has YOY increases in pretty much all of the NOVA markets.

    www.nvar.com (market reports)

    Looks like you picked the Bubblehead method of interpreting the data. Not surprising.

    Remember what they say about lies, damned lies, and statistics.

    ReplyDelete
  113. I think the Kubler-Ross scale is being demonstrated quite nicely around here.
    I concurr. Where would you say we are Chriso? I'm thinking the exit of Denial and slightly into fear?

    I realize homes beat CD's for many a year. But now we're going to see why 2nd homes are nicknamed Alligators. :)

    To think, this really doesn't get interesting until toward the end of 2Q 2007...

    Neil

    ReplyDelete
  114. "Note that NVAR has completely different YOY figures based on the same MRIS data"

    So you prefer the data filtered through a trade association as opposed to the direct data.

    "there must be different ways to interpret this data."

    There's gotta be! I mean, there has to, right??!! Right??!!

    "NVAR has YOY increases in pretty much all of the NOVA markets."

    Nope. From NVAR

    "Home sales slowed in Northern Virginia in July, with 1,856 units sold, a decrease of 39 percent compared to July 2005, when 2,285 homes sold. Active listings at the end of the month were up 147 percent over the same time last year. Average sale prices decreased this month, with an average sales price of $537,731 in July. This represents a 3.94 percent decrease from July 2005's average of $559,790. "

    Note that NVAR's Northern Virginia region specializes in close-in NoVa suburbs, and not outer areas:

    "Sales prices in Greater Northern Virginia (NVAR counties plus Prince William, Loudoun and the Greater Piedmont counties) followed the same trend as the closer-in region. The number of units sold was 44 percent below the July 2005 level of 5,499. This July, 3,054 units were sold. The average sales price was $508,397, which is 1.59 percent less than in July 2005, when the average sales price was $516,588. Inventory for Greater Northern Virginia was up 145 percent."

    Now, while grasping for any little piece of evidence to support your desperate position, maybe you got confused by this:

    "the Year-To-Date sales price in Northern Virginia in July was 3 percent greater than it was in July 2005."

    But that isn't YOY, is it? Nope. So you accused the bubbleheads of wishful thinking when you were the one doing that. Nice try, though.

    ReplyDelete
  115. "The 1856 units sold in NoVa in July 2006 is almost as dismal as the 1827 units sold in July 1997. Of course the 58 days on market is nothing compared to 1997's 135. But we all remember how awful the Clinton years were economically don't we? Right? Some people will recognize this sarcasm."

    And I'll bet there's been no development in the NoVa area since July of '97 either, huh?

    ReplyDelete
  116. "MyTwoCents said...

    Seriously Lance,

    Shiller is one of the most respected economists in the country. He's the one that provides indepth analysis of the data that shows housing prices have tracked inflation +1% for the last 100 years.

    He's also the one that acknowledged and pointed out there was a single event of a stepped up basis in this trend after WWII. A true "this time is different."

    I postulate that online banking has provided for another "this time is different" stepped up basis in housing prices following the dot.com boom. My position is that cost savings from not having bricks and mortar, coupled with easier access and marketing to customers via the web, allow banks to compete by financing what was traditionally a 20% down payment requirement. I translate this into a 20% boost in housing prices.

    For all of your chatter, I have provided a better quantified explanation for housing price gains in that 1 paragraph than in everything you have written.

    Of course, lax lending standards could be another explanation for that 20% downpayment requirement evaporating. But I'm willing to grant a little bit of a run-up in prices...

    My $0.02.

    August 11, 2006 7:01 AM "


    From the previous blog entry titled: USATODAY: For Some Renting Makes More Sense. Lance pressed for proof about the real estate market trending +1% above inflation for the last 100+ years, but than ran off when it was given.

    ReplyDelete
  117. One item to note in the NVAR Market Reports.

    I don't know how reliable they are cause I've caught mistakes in them in the past, but they show that at this time last year, 18% of total sales were condos, now they're 23% of total sales. This definitely helps bring the price average down somewhere like NOVA.

    It may be that we're flat YoY in reality.

    ReplyDelete
  118. I concurr. Where would you say we are Chriso? I'm thinking the exit of Denial and slightly into fear?

    Well, "fear" isn't actually one of the five stages, but I think we're currently transitioning between "denial" and "anger." We've gone from Denial to Angry Denial, basically.

    I can't wait to see what No. 3 "Bargaining" ends up looking like. :)

    ReplyDelete
  119. Chriso et al,

    Just go back to 1992 and read the papers. Normal cycle.

    ReplyDelete
  120. "Shiller is one of the most respected economists in the country. He's the one that provides indepth analysis of the data that shows housing prices have tracked inflation +1% for the last 100 years."


    He's also trying to sell his book, which is premised on bubbles. So of course his analysis will support this conclusion.

    If you disbelief NAR numbers, or question their methodology as producing biased conclusions, then you should have the same skepticism of Shiller.

    There are a number of flaws with how this study was conducted, and thus with the conclusion.

    I'm not arguing that RE appreciation of 1% plus inflation on a nationwide level is incorrect, I just don't think that this number has any meaning.

    Obviously the RE market is local, not national. But Shiller looks at it on a national level. Do you think that San Francisco or Manhattan or Boston or Seattle RE has or should have the same long term appreciation rates the same as Detroit, East St. Louis, or Lincoln NE? I don't think there's any insight gained by combinding all these disparate markets.

    Also, RE appreciation, on a national average, is slight because there's plenty of land available, on a national basis. Land is cheaper in Kansas than it is in NYC. The land shortages and government restrictions on land use are in the cities only for the most part. Shiller's study doesn't take this into account.

    I have and will live in major cities on the coasts. I want to know what the 100 year appreciation rates are for RE in these areas. That's all I really care about, since the market is local nor national. Shiller doesn't tell me anything about this.

    ReplyDelete
  121. Is there any information on real losses since the peak? Year over year losses seem to hide how much prices have really declined right now. For that matter when was the actual peak in "prices".

    ReplyDelete
  122. Anon said:
    "From the previous blog entry titled: USATODAY: For Some Renting Makes More Sense. Lance pressed for proof about the real estate market trending +1% above inflation for the last 100+ years, but than ran off when it was given."

    No ... What I have asked for several times is additional sources for this claim which intuitively appears wrong. I've just tested this claim with a neighbor's house. In doing research on the neighborhood, I found District records showing it sold for $3,000 in 1896. This was 110 years ago. Last spring it sold for $1,300,000. If the 1% plus inflation theory is correct, then it should have sold for $224,279 if inflation is assumed to be an average 3% which is what I remember reading somewhere or $642,605 if we up inflation to 4%. Either way it is no where near what it recently sold for. Additionally, and I have raised this issue before, this 1% return claim doesn't appear to take into account that you are living in the house in the meantime ... and getting compoundable tax advantages. I seem to remember some other posters doing a pretty good job of discrediting this claim ... Hence my surprise at seeing it raised once more ... Is part of the bubblehead mantra that if you repeat it enough times then it becomes true?

    ReplyDelete
  123. Anon said:
    "From the previous blog entry titled: USATODAY: For Some Renting Makes More Sense. Lance pressed for proof about the real estate market trending +1% above inflation for the last 100+ years, but than ran off when it was given."

    No ... What I have asked for several times is additional sources for this claim which intuitively appears wrong. I've just tested this claim with a neighbor's house. In doing research on the neighborhood, I found District records showing it sold for $3,000 in 1896. This was 110 years ago. Last spring it sold for $1,300,000. If the 1% plus inflation theory is correct, then it should have sold for $224,279 if inflation is assumed to be an average 3% which is what I remember reading somewhere or $642,605 if we up inflation to 4%. Either way it is no where near what it recently sold for. Additionally, and I have raised this issue before, this 1% return claim doesn't appear to take into account that you are living in the house in the meantime ... and getting compoundable tax advantages. I seem to remember some other posters doing a pretty good job of discrediting this claim ... Hence my surprise at seeing it raised once more ... Is part of the bubblehead mantra that if you repeat it enough times then it becomes true?

    ReplyDelete
  124. anon 2:41,

    Great post. I have long heard that Real Estate is the best inflation hedge in terms of reliablility. 1% over inflation is fine for me.

    ReplyDelete
  125. va_investor said,

    "Just go back to 1992 and read the papers. Normal cycle."

    No economic bubble is "normal" -- bubbles are caused by central banks mismanaging the currency.

    Put another way: nothing "normal" in our economy explains 40% increases in housing values except overly easy access to credit.

    ReplyDelete
  126. Whitetower,

    What exactly is your knowledge of and experience with past cycles?

    We had a chart on here a few weeks ago that bore out my anecdotal comparisons.

    ReplyDelete
  127. I wonder when those 52,000 new ambassadors and GS-15's are going to be appointed to fill those 52,000 new condos coming online in DC. Oh, and don't forget all those $300,000/yr. Hogan& Hartson associates we were hearing about a few weeks ago - the ones who are just itching to gobble those condos up.

    Lastly, I heard Dan Snyder has finally crumbled to those lobbying for team name change, and he has agreed on a name that best represents the prevailing symbol in the City today. Ladies and gentlemen: Hail to the Depreciating Assets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    Jerkstore

    ReplyDelete
  128. I found District records showing it sold for $3,000 in 1896. This was 110 years ago. Last spring it sold for $1,300,000. If the 1% plus inflation theory is correct, then it should have sold for $224,279 if inflation is assumed to be an average 3% which is what I remember reading somewhere or $642,605 if we up inflation to 4%. Either way it is no where near what it recently sold for.

    Sounds positively bubblicious to me. :)

    Out of curiosity, Lance, if that house sold anytime between 1995-2002, what did it sell for? Obviously the "inflation +1" trendline doesn't say that houses *always* sell for that amount, but that over time they will rise and fall around that level as an average price increase.

    Of course, that doesn't take other factors, such as demographics, into account. I don't exactly recall you saying where you live, but I seem to recall it being a recently gentrified neighborhood. That's an obvious demographic change, and probably also a physical one, with properties being upgraded and better-maintained. On the other hand, neighborhoods can also decline in overall value based on the same forces. Your neighborhood has probably gone through several such cycles, as most outside the extremes do.

    What would that $1.3M house fetch on the rental market? That's a very good indicator of what it "should" sell for.

    ReplyDelete
  129. Been away for awhile.

    It appears, undeniably, that the bubble is popping. Long live the bubble.

    To the fellow who talked about "intrinsic value," have a look at rental income vs. purchase price. The former is indicative of "intrinsic value," or, the demand for the asset as best used.

    Good luck to all who still think they will "get rich quick" off DC-area real estate "investments."

    ReplyDelete
  130. Well that proves it - Lance's neighbor saw more than 1% over inflation appreciation. And structurally I am sure it is the exact same house as the one built in 1896...

    In any case, below are three articles from business schools all pointing out that according to real studies real estate is not even that good an inflation hedge...


    "Based on recent experience, we can toss those two pieces of conventional wisdom out the window. Commercial real estate has done just fine, thank you very much, in a non-inflationary environment. This would suggest that real estate is more of a stagnation hedge than an inflation hedge. Furthermore, as we all know, the recent weakness in fundamentals has been driven by demand—not supply. Supply has been extremely well behaved in aggregate for the last decade, even as funds have flowed at high rates from old and new capital sources. Toss in capital market integration—a butterfly flaps its wings in Russia and U.S. real estate debt markets come to a screeching halt—and you have a recipe for bewilderment."

    Consequently, we cannot fall back on the conventional logic that inflation chokes off supply and is bad for “paper assets” like equities, thereby causing real estate price increases. This time around, moderate inflation could very well mean a healthier macro economy, a stronger equities market and higher-cost mortgage debt—probably not a good-news scenario for real estate prices."
    (from http://www.bus.wisc.edu/update/june05/realestate.asp)

    And

    "Furthermore, low correlations between real estate
    market returns and inflation or unexpected inflation may indicate that real estate investment
    provides a poor inflation hedge."

    from

    http://cisdm.som.umass.edu/research/pdffiles/benefitsofrealestate.pdf

    ReplyDelete
  131. "I don't exactly recall you saying where you live, but I seem to recall it being a recently gentrified neighborhood. That's an obvious demographic change, and probably also a physical one, with properties being upgraded and better-maintained. On the other hand, neighborhoods can also decline in overall value based on the same forces. Your neighborhood has probably gone through several such cycles, as most outside the extremes do."

    But to be fair to Lance, that's the nub of his argument. If you look at what's going on on various neighborhoods, you can buy in a neighborhood that's on the cusp of gentrification, and therefore beat the historical national average.

    The argument for real estate is that your circumstances of time and place, i.e., where you live and you seeing what's going on in your area, can give you informational advantages that you wouldn't have if you were investing in equities, where all the information you have access to is also available to everybody else. The "buy 5 blocks away from the margin of gentrification and wait for the tide to reach you" strategy can work.

    My argument against DC real estate at this particular time is that we've had a bubble over the last few years, which generated unsupportable prices and eliminated risk premiums, making DC real estate a poor decision right now, either for personal use or investment.

    If you're looking to invest in real estate, buy something in College Station, Texas. Investor, I'm helping you out here.

    ReplyDelete
  132. I don't know exactly how far prices will fall, and don't claim to. Nor do I have a prediction about exact timing.

    I do believe prices are way out of whack with the realities (incomes, quality of housing, crime, traffic, etc.) in the DC area. Personally, it would take a lot to get me to buy. And I should note that I like the area overall, unlike many buyers.

    I see big plastic houses with no yards going up on the edges of busy streets, and asking more than half a million bucks. Now I wouldn't pay $50,000 to live on the edge of a busy street. That's my taste. I am noticing more and more houses being built on these very busy streets, in places where no one would have put a house a few years ago.

    Other places, I see houses that were nice, solid, middle class homes 20-30 years ago. But now those homes are 50-60 years old. They probably need lots of work. And there is a lot of traffic around, and growing crime. They also go for around half a million bucks. For me, they are worth a lot less.

    I won't say that my preferences are where prices will end up. So those are two different arguments. But I do believe, my personal preferences aside, prices do have a long way to fall. Without the easy credit and the sudden culture of "I need a home now," real prices will fall a long way, IMHO.

    But we will see. So far, I believe the data are consistent with my beliefs. But we will see if that continues or not.

    A Redskins fan

    ReplyDelete
  133. Chriso asked:
    "What would that $1.3M house fetch on the rental market? That's a very good indicator of what it "should" sell for."

    Sorry, that would not be a good indicator because you are buying two very different things in the two instances. When you rent, you are buying the use of a place with many restrictions for a fixed short term period. You get no guarantee that you can stay any longer than the landlord permits you to stay once that rental period is over ... and sometime it can be even less as I found out years ago when the condo I was renting was foreclosed on. I came home one day to find a notice posted to the door telling me I had till the end of the month (appr 14 days) to get out of the place as HUD had repossessed it.

    ReplyDelete
  134. I just had a bubblicious thought ... I wonder how many bubbleheads are renting places that would get similarly repossessed (and they evicted) if the market crashed as they are hoping and cheering for?

    ReplyDelete
  135. lance-

    Isn't it true that real estate has always traditionally (i.e. for at least decades) been valued in terms of how much rent it can bring in?

    Why have things suddenly changed?

    A Redskins fan

    ReplyDelete
  136. lance said,

    "When you rent, you are buying the use of a place with many restrictions..."

    Ah, yes, but that's the $1.3m question isn't it? To wit: is it worth spending far more money to take out a mortgage, as opposed to renting, just so you can repaint when you want?

    ReplyDelete
  137. Anon posted:
    "
    "Based on recent experience, we can toss those two pieces of conventional wisdom out the window. Commercial real estate has done just fine, thank you very much, in a non-inflationary environment. This would suggest that real estate is more of a stagnation hedge than an inflation hedge. Furthermore, as we all know, the recent weakness in fundamentals has been driven by demand—not supply. Supply has been extremely well behaved in aggregate for the last decade, even as funds have flowed at high rates from old and new capital sources. Toss in capital market integration—a butterfly flaps its wings in Russia and U.S. real estate debt markets come to a screeching halt—and you have a recipe for bewilderment."

    Consequently, we cannot fall back on the conventional logic that inflation chokes off supply and is bad for “paper assets” like equities, thereby causing real estate price increases. This time around, moderate inflation could very well mean a healthier macro economy, a stronger equities market and higher-cost mortgage debt—probably not a good-news scenario for real estate prices."
    (from http://www.bus.wisc.edu/update/june05/realestate.asp)

    And

    "Furthermore, low correlations between real estate
    market returns and inflation or unexpected inflation may indicate that real estate investment
    provides a poor inflation hedge."



    Thanks for the research, however what I am looking for is more substantiation that specific real estate will only increase in value by 1% over inflation ... not more speculation (even if via well-written articles by your acadamia bubbleheads) ... Schillings is claiming to prove that this is the historical record ... I'm looking for more similar "proof".

    Also, another thing to note here ... as I have mentioned many times before "median" and "average"
    houses move and change over time. When I am buying a house, I want to know what the particular house I bought will be valued at overtime ... not what the price of the average or medium house out there is .. these aren't MY house. I'm sure that in real dollar terms, the average price of a "home" in Manhatten is probably less now that in something like 1850, however in 1850 the average house there may have consisted of 3 bedrooms and 3,000 sq ft of living space ... that averag "home" in Manhattan is probably a 350 sq foot studio apartment with no bedrooms. Would Shilling make his point here that average and median prices have dropped? Sure he would ... But, would he be right? ... No, he'd be arrogantly and stupidly wrong.

    ReplyDelete
  138. Keith,

    We are very much in agreement in our principal "beliefs" ... we only disagre with where DC stands currently. And that I can wholeheartedly accept as a reason for not buying now ... as I can if someone truly believes that prices will drop and interest rates will hold steady during the period they are "waiting it out."

    ReplyDelete
  139. Chriso asked:
    "What would that $1.3M house fetch on the rental market? That's a very good indicator of what it "should" sell for."

    Lance said...
    “Sorry, that would not be a good indicator because you are buying two very different things in the two instances.”

    Sorry Lance. You forgot to preface your post again:

    “…… that there is never a bad time to buy if it is a home you are buying….


    So Lance, what if that $1.3M house rents for $1K a month?

    Lance said...
    “I just had a bubblicious thought ... I wonder how many bubbleheads are renting places that would get similarly repossessed (and they evicted) if the market crashed as they are hoping and cheering for?”

    Maybe so, since some of these landlords are feeding the alligator. But no, we don’t need to worry about this do we Lance:

    Lance said...
    “No, landlords will just have to rent what "the market will bear" and assuming that the costs are more than the rent as you stated, then they will have to subsidize their investment for the 12 to 18 months it takes for (a) the market to go back to current price levels and/or (b) for rents to catch up to outlay.”

    ReplyDelete
  140. Redskins asked:
    "lance-

    Isn't it true that real estate has always traditionally (i.e. for at least decades) been valued in terms of how much rent it can bring in?"

    I've never heard of this relationship between rents and selling prices, but then again I have never been out looking at places for their rental value. Remember, I am the homeowner ... Va_Investor is the house/condo investor. Perhaps if we stopped using the "realtor-inspired" term "buying a home" and went back to "buying a house", people would stop mixing the two up to a degree that didn't occur before the successful realtor campaign of the '80s to get us attach the sentamentalities of "home" to the house/condo buying process. For those of you too young to know what I am talking about, suffice it to say that "home" prior to the 80s was always a "concept" and not a physical place. People lived in "houses", but when "home" to be with their family. "Home" was where you hung your hat for some people and "where the heart is" for others. Consequently, and possibly because of this merging of the two terms "house"/"home", many on this blog seem to confuse the two different objectives between people buying a house in which to create a home, and people buying a house to make money off of.

    ReplyDelete
  141. Nice rant Lance but:

    “Isn't it true that real estate has always traditionally (i.e. for at least decades) been valued in terms of how much rent it can bring in?"”

    ReplyDelete
  142. Robert asked:
    "So Lance, what if that $1.3M house rents for $1K a month?"

    Robert, what are you smoking? You think that 2,800 square foot house would rent out for $1K a month ... when I rent out my 400 sq foot basement (low-ceiling) apartment with a 10 yr old all-in-one cooking unit and no bedroom for more than that PLUS electric? Incidentally, where in the area do you live?

    ReplyDelete
  143. Lance,

    I find your dedication to continuously spouting off the most asinine arguments to be truly amazing.

    My $0.02.

    ReplyDelete
  144. Hi I am new to the blog. What do you all say about housing options in Ellicott City? Specifically condos? Looking to buy 3br, 2.5 ba. Newer building if possible. What do you suggest as reasonable price? Also what are rental prices for a 3 br there?

    Soon to be in Maryland

    ReplyDelete
  145. what's the matter mytwocents? are you getting edgy waiting for that all elusive bubble to burst? the constant personal attacks coming from you and most other bubbleheads just shows how edgy you are waiting for something that is never coming ...

    ReplyDelete
  146. when I rent out my 400 sq foot basement (low-ceiling) apartment with a 10 yr old all-in-one cooking unit and no bedroom for more than that PLUS electric?

    My my, a slumlord in our midst. :) Housing inspectors been by lately? As I'm sure you know, DC is a *very* tenant-friendly jurisdiction.

    ReplyDelete
  147. Lance said...
    “Robert, what are you smoking? You think that 2,800 square foot house would rent out for $1K a month ... when I rent out my 400 sq foot basement (low-ceiling) apartment with a 10 yr old all-in-one cooking unit and no bedroom for more than that PLUS electric? Incidentally, where in the area do you live?”

    Sorry Lance, let me recap:

    Chriso asked:
    "What would that $1.3M house fetch on the rental market? That's a very good indicator of what it "should" sell for."

    Lance said...
    “Sorry, that would not be a good indicator because you are buying two very different things in the two instances.”

    ReplyDelete
  148. Incidentally:

    Lance said...
    "... when I rent out my 400 sq foot basement (low-ceiling) apartment with a 10 yr old all-in-one cooking unit and no bedroom for more than that PLUS electric?”

    Looking for some help paying your mortgage?

    ReplyDelete
  149. Sorry, that would not be a good indicator because you are buying two very different things in the two instances. When you rent, you are buying the use of a place with many restrictions for a fixed short term period.

    Wrong-O. A residential lease/rental agreement typically conveys full right of tenancy for that period of time. In either case, you are paying for a roof over your head. I do not claim to be an expert, but I remember as recently as ten years ago that rents were typically *higher* than mortgages for the same property, in order to account for the rest of the PITI figure.

    Rental value represents *exactly* the present value of occupancy of a given property, nothing more or less. Does it provide the same "bundle of rights" as fee-simple ownership? No, but it doesn't take a rocket scientist to figure out that if ownership is substantially more expensive than renting, then renting is the more attractive alternative. Which is why rents typically haven't been much cheaper.

    On a high value property, you can't really be suggesting that if I can rent it for half of what I'd pay to own it over a given period of time, that I'd be financially better off buying than I would renting and investing the other half in securities, can you? There is simply no piece of evidence you can submit that residential RE is a better long-term investment than the stock market.

    If rental and ownership are comparably priced over the long-term, as they have been (and will be again in the near future), then obviously it makes more sense to buy if one intends to occupy a property long-term.

    To me, this is all such basic common sense, that your attitude seems one of willful denial, since you certainly don't seem like a moron to me.

    ReplyDelete
  150. "here is simply no piece of evidence you can submit that residential RE is a better long-term investment than the stock market."

    Imo, it all depends on the property. I own a home in San Francisco. I put $75,000 down (1996) and currently receive $2560 a month in rent. It was predicted once the internet bubble popped rents would crash but they never did.

    For the AZ homes I receive slightly over 10% return on each.

    Sure I have expenses/taxes but everything is a write-off. When the SF property is paid off next year (I hope…) I can use the $25,000 profit toward paying off my AZ homes. Within 6-8 years everything will be paid off and I think I expect a yearly gross of around $72-75,000.

    Add to this a steady appreciation rate of say 2-4% and I don't see how stocks could offer a better return. (Unless my home prices crashed by say 50%. However if the summer of 2006 is any indication I don’t see that severe of a downturn. Thus far prices in San Francisco and the area of East Mesa I bought in have held surprisingly well given the over-all Phx metro inventory . Maybe a 5-8% drop from a high of last year.)

    Also if the country were to experience a major depression and stocks wiped out at least I could live in any of the five homes I own.

    ReplyDelete
  151. These stories of vast success in real estate investing remind me a lot of the similar stories in the stock market in the late 90s.

    In order to have had this great success, one needed to buy real estate in the mid/late 90s, at the trough, and then sell in 2005, at the peak of a historical run-up without precedent... repeating for emphasis, at the peak of a historical run-up without precedent.

    I am all for buying things at the trough. Anyone who bought a property in 1996 at low prices and sold last year or is making money from rents now... good for you. You seem to have a successful investment.

    However, it does not follow from that that something "real" has happened, i.e. that the price run-up from 2001-2005 was based on reality, or that buying in the last few years was a good idea.

    Also, it is important to remember the following: very few people actually bought in the late 90s. That was why price was low. It seems that on his board we are blessed with many who bought back then. These people are, I suspect, a minority. Many more people have bought in the last few years, and I am not sure they have made such a good investment.

    But we will see.

    A Redskins fan

    ReplyDelete
  152. BTW- maybe I should not have used the word "investment." I was using it loosely and sloppily. Not only can people who are buying as speculators or landlords can get burned by overpriced house. You can also get burned buying an overpriced house as someone who intends to live there. For example, you may need to sell after prices have fallen, or you may have bought with an ARM (as many did).

    A Redskins fan

    ReplyDelete
  153. anon 4:04,

    Good post. I am on the same "plan" as you. That 1% over inflation vs. the stock market analysis used by some bubbleheads fails to account for leverage, rent (or imputed rent) and/or mortgage paydown, and tax preferences.

    This is why stock brokers don't even attempt to convince savy real estate investors to dump their RE and invest in the stock market.

    The false perception being paraded around here of 1% over inflation assumes one pays cash for a house and lets it sit vacant (ie no rental income). There is either an additional return in the form of rent or imputed rent.

    Owning rental property is akin to a high dividend stock with the additional "kicker" of having your tenants pay off your mortgage (ie pay for the "stock"). It is a no-brainer.

    ReplyDelete
  154. Va_Investor said:
    "It is a no-brainer."

    Sorry, for once I must disagree with you. If it were a "no brainer", then the bubbleheads would understand that they are making mortgage payments for someone else when they rent rather than for themselves. But they don't! Sorry, not having a brain does not guarantee understanding simple time-proven facts observable to all with their heads not in the sand.

    ReplyDelete
  155. hey Lance, how goes it? I think several on this board who keep misrepresenting your mortgage are simply jealous of your "deal".

    It is not possible for a person of average intelligence to be unable to process the concept of FIXED RATE whether amortizing or not.

    ReplyDelete
  156. Va_investor,

    pls re-read my last post, and this time don't take it at face-value

    Sorry, not having a brain does not guarantee understanding simple time-proven facts ...

    ;)

    ReplyDelete
  157. Lance got destroyed on the rents v. cost to buy argument.

    He is upset because for 10 whole years he will be making that onerous mortgage payment without one penny going toward principle. Homeowners have a lot riding on this whole bubble thing. Renters, even bubbleheads, not much. Worst case scenario they are back where they started - feeling priced out of the market. (which according to Lance, they aren't anyway, so...)

    BTW - 3000K to 1.3M over 110 years is about a 5.6% annual return - decent, but remember this is a best case scenario for real estate: example is a house at peak end of a bubble, recently gentrified neighborhood, etc.

    Meanwhile the same amount invested in the equities market at an 8% annual return (below historical returns) would be $19.3M

    Don't be fooled

    ReplyDelete
  158. P.S. I agree with you re: the jealousy issue. It's a shame that otherwise rational thoughts get so twisted and turned as they funnel through a prism of irrational jealousy.

    ReplyDelete
  159. anon said:
    "BTW - 3000K to 1.3M over 110 years is about a 5.6% annual return - decent, but remember this is a best case scenario for real estate: example is a house at peak end of a bubble, recently gentrified neighborhood, etc.

    Meanwhile the same amount invested in the equities market at an 8% annual return (below historical returns) would be $19.3M"

    there are two large faults to your calculations that I will gladly point out:
    1) as Va_Investor said, where are the calculations for (a) leverage and (b) rent or imputed rental value
    2) 8% is what the DJIA earned ... that stands for Dow Jones Industrial Average ... a basket of BLUE CHIP, HI PERFORMING stocks that get added and deleted from the basket as they rise (and fall) in their returns. I.e., If you want to use this as your "stock" baseline, then similarly use a free standing townhouse in mid town Manhattan as your house baseline.

    ReplyDelete
  160. anon 8:17,

    Assume one paid 3k cash for that rowhouse and invested the "rent savings" over the years.

    Or, assume, a tenant paid rent to the owner of that house all those years - then, what is the return?

    You are still ignoring rent/imputed rent, ROI, and a miriad of other financial/tax considerations.

    ReplyDelete
  161. Jealousy schmelousy. This conversation is comparing apples to oranges. Lance built up equity through homes prior to 2001 and was able to step up to a nice house with a rental. Va_Investor, presumably, bought the majority of properties prior to 2005. Anon 4:04 AM clearly stated that he/she bought in the 80s. Good for all of you. Smart moves, all 'round. You bought at reasonable prices, and rents currently cover your mortgate and how. No kidding - you're paying mortgages that are 1/2 (or more) than what you'd have to buy rigt now.

    So these claims are not in the reality that we are dealing with in 2006. Please show me how you would plan to buy with current prices in a high-price market and hope to even *break even* using a conventional 30 year. Or heck, even an IO.

    The question isn't whether or not real estate can be a good investment, or whether or not real estate was a good investment 10 years ago, or if it will continue to be a good investment if you bought 10 years ago. The question is whether or not it is smart to buy now. From scratch.

    H

    ReplyDelete
  162. H,

    Someone posed 2 very good questions on this site a while back for housing bulls.

    1. Would you buy your house today for it's given appraisal value?

    2. Could you afford to buy your house today for it's given appraisal value?

    If the majority can answer yes to both of these questions, then maybe we do not have a housing bubble.

    I do not think that the majority who purchased in the last 3 years could reasonably answer yes to these questions.

    My $0.02.

    ReplyDelete
  163. "Sorry, for once I must disagree with you. If it were a "no brainer", then the bubbleheads would understand that they are making mortgage payments for someone else when they rent rather than for themselves."

    Actually, the tax benefits of housing are split between renters and their landlords, since landlords compete for renters. The split of the tax benefits is determined by the elasticities of supply and demand for rental housing.

    You can actually see this graphically: Draw a supply and demand graph. Where they cross is your equilibrium price and quantity. Favorable tax treatment, like accelerated depreciation, shifts the supply curve to the right, because it lowers the cost of providing rental housing. This generates a higher quantity and lower prices in the rental market. If the demand is completely inelastic (straight up and down), then the renter captures all of the tax benefit. If the demand is perfectly elastic (horizontal), then the landlord captures all of the tax benefits.

    So renters capture some amount of the tax benefits of housing, because landlords compete for renters.

    ReplyDelete
  164. H,

    The problem is, as with all aspects in life, decisions cannot be made based upon "a moment in time." This would require a crytal ball - which none of us have.

    I bought a number of properties at the last "peak" and survived. If someone wants an absolute guarantee, I guess T-Bills are the only answer. Jobs, health, marriage, etc. - there are no guarantees.

    This is what keeps many people on the sidelines. Those willing to take some risk are usually rewarded. I did not have any guarantee 25 yrs ago when we bought our first home and no guarantee's since.

    ReplyDelete
  165. Va, okay, let's say you put down 20%, and get that 1% over inflation return on the value of the house.

    That's still a 5% real (inflation-adjusted) return on investment, which is okay, but the S&P 500 historically has real 6-8% returns (i.e. returns above inflation.)

    Now, to the extent you make money on the rental income and the tax treatment, that's great. Although I believe you've said that you typically lose money on the rental income relative to your mortgage payment over the first few years, with future rental incomes more than making up for that.

    I think real estate can be a very good investment. But even with the leverage, the typical historical appreciation does not make real estate a good investment on appreciation alone.

    And over the last few years, the majority of real estate investing in bubbly areas has been based on appreciation. I do see that as a sign of a bubble, since income-based business plans have historically made more sense in real estate.

    ReplyDelete
  166. "Those willing to take some risk are usually rewarded."

    I agree. Riskier investments generally have a higher expected return. I just believe that the risk premium during the DC bubble has been driven to zero, making DC real estate a bad risk at this time.

    ReplyDelete
  167. Keith,

    Again, you are looking at a moment in time - not the 100yr returns ( which do not account for rent, etc. etc.)

    ReplyDelete
  168. "Again, you are looking at a moment in time - not the 100yr returns ( which do not account for rent, etc. etc.) "

    No, I'm looking over time. Your real return on appreciation, given leverage, is 5%.

    And yes, renters do capture some part of the appreciated depreciation tax benefit, since that drives up the supply of rental housing.

    ReplyDelete
  169. Yes, renters benefit...and I have some swampland in Florida.

    ReplyDelete
  170. anonymous 4:30 said,

    "Also if the country were to experience a major depression and stocks wiped out at least I could live in any of the five homes I own."

    You don't own your homes -- meaning you can lose them all (and all of the capital you have put into them) -- until you have paid their mortgages.

    ReplyDelete
  171. whitetower my friend,

    You are in the same boat. No rent payment equals eviction. And, I believe, anon 4:30 does own some properties free and clear.

    ReplyDelete
  172. VA_Investor,
    A little credit please. I never claimed that one needed: a crystal ball, a guarantee, or a safe bet.

    I asked a simple question: is now a good time to enter the real estate game in Washington DC (and by enter, we must presume that we're talking first-time buyer)?

    As to buying in previous peaks - I don't recall a rent-to-buy ratio being quite so out of wack before, and I don't recall an overuse of non-conventional financing. I defer to your greater experience in this area, and keep an open-mind to proof otherwise.

    Risk, as a concept, has a fairly healthy margin.

    H

    ReplyDelete
  173. va_investor said,

    "You are in the same boat. No rent payment equals eviction."

    If you admit this, then how do you answer the question -- why own???

    ReplyDelete
  174. "Yes, renters benefit...and I have some swampland in Florida."

    So favorable tax treatment does not increase the supply of something? Sorry, renters do benefit from accelerated depriciation, because accelerated depreciation increases the willingness of people to supply rental housing.

    ReplyDelete
  175. "Anonymous said...
    Hi I am new to the blog. What do you all say about housing options in Ellicott City? Specifically condos? Looking to buy 3br, 2.5 ba. Newer building if possible. What do you suggest as reasonable price? Also what are rental prices for a 3 br there?

    Soon to be in Maryland"

    ...

    If you're still around, you can check http://www.homesdatabase.com/propertysearch.shtml which pulls from the local MLS. Select "Maryland" then "Howard" and choose the "Ellicott City" areas to see what's available.

    ReplyDelete
  176. whitetower,

    I own for many reasons (all financial). I have absolutely zero fear of being unable to make my monthly payments and being foreclosed upon.

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  177. I'm really enjoying the rental savings from that accelerated depreciation tax credit, which increases the supply of rental housing, thus lowering my rent. It's really sweet. The best part is that the landlord is the one who has to do all the paperwork, and I just get the implicit savings in my rent! Yay for capitalism, which has landlords serve renters in the pursuit of profits! Ain't markets grand?

    I don't look down on landlords, of course, since their hard work also benefits them. We're all equals benefiting from free market exchanges.

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  178. anon 11:41

    Thanks for the tip. Do you or anyone else have an opinion about current market conditions in terms of selling price. Should I low-ball or is 5-10% lower than asking fair? I have no idea since I just started looking in this area last week.

    Soon to be in Maryland

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  179. "So favorable tax treatment does not increase the supply of something? "

    Aren't you the guy that said he'd buy a tool shed in DC if federal taxes were ever repealled for district residents? If that were to happen, what would such a favorable tax treatment do to the "supply of something"? (domiciles in DC) The supply wouldn't change a bit, but you can bet demand would increase exponentially.

    (unlikely for fed taxes to be repealled in DC, but DC residents can rightfully say that they are taxed without representation)

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  180. Poor Martha

    "Martha Stewart Home Still on the Market"

    http://my.earthlink.net/article/top?guid=20060812/44dd5240_3ca6_1552620060812546476869

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  181. Soon to be in MD--
    I'd rent. You do realize we are still at all-time high prices and Ho Co is at the cusp of price declines w/ YoY appreciation at about 2%? Carroll County, another DC commuter neighborhood, just saw a 5% YoY decline--Ho Co is next. As DC goes, so does MD, there's just a lag. Rent for a bit, get to know the area, and buy when you've got the lay of the land and the market has settled.

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  182. "Aren't you the guy that said he'd buy a tool shed in DC if federal taxes were ever repealled for district residents?"

    No. Plus, you clearly confuse different taxes. The tax you are discussing is income tax for people in a specific area, which would certainly increase demand to live in that area, to the point where the price of housing in the area would be so high as to offset the tax benefits of living there. That's a different issue than providing tax benefits for the provision of a particular good or service. In this case, accelerated depreciation on real estate is a tax benefit from providing rental housing.

    If you give people an accelerated depreciation tax credit when they provide rental homes, then more people will want to provide more rental homes than if they didn't. To the extent the greater supply lowers price, and it certainly does to some extent, then renters capture the benefit.

    The point is that renters are also capturing tax benefits from renting, just indirect tax benefits that affect the price of rentals.

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  183. "then more people will want to provide more rental homes than if they didn't."

    I wrote this poorly. It should read "then more people will want to provide rental homes than if they didn't receive the accelerated depreciation."

    And accelerated depreciation isn't a credit.

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  184. nikki-

    Thank-you..this was exactly the kind of feedback I was looking for, since I am just starting to do my homework on Howard County. I did not realize things had slowed down that much. A friend of my moms had told us that things were appreciating at 15% yoy but then again that was 2 years ago when she purchased. Thanks again...

    Soon to be in Maryland

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  185. keith,

    Keep telling yourself that you, as a renter, receive benefits of ownership.

    Renters are paying off my mortgages. The tax system benefits me as a landlord. Particularly since I qualify as a Real Estate Professional under IRS guidelines.

    You pay rent. I get free houses.

    btw - ever haer of 1031 exchanges? Allowed me to trade a long-term rental for a beachfront retirement home TAXFREE.

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  186. Investor,

    As a renter, I do benefit from the accelerated depreciation. If landlords didn't have accelerated depreciation, there would be fewer landlords offering fewer houses for rent, and prices would be higher.

    The accelerated depreciation lowers my rent. Deal with it. Why are you so unable to deal with the fact that renters also benefit from the tax advantages offered to landlords? If you didn't receive those benefits, it would harm both you and your tenants.

    It's so strange. You claim to financially do well from your business. Why can't you face the fact that your customers also benefit from the tax benefits you receive? It seems like you can't deal with the idea that you're making money by offering a valuable service (shelter) to people who benefit from buying it.

    On behalf of renters everywhere: Thanks for the repairs, thanks for the reasonably priced shelter, thank you for being such a good employee. You deserve all your success.

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  187. Keith,

    Yes. You are right. We landlords are only in the business for humanitarian reasons. We are willing to forego better business opportunities and returns to provide a "service" to the disenfranchised. Keep drinking the koolaide and make sure that check is received by the 5th. Thanks! And my children thank you too!

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  188. VA-Investor said: "I own for many reasons (all financial). I have absolutely zero fear of being unable to make my monthly payments and being foreclosed upon." Good for you! But, if you don't have any fear, why are you spending day and night on this forum? I don't know any successful RE investor who pay any attention to bubble forums. Have a good sleep...

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  189. anon 6:43,

    I like to talk. Why are you here?

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  190. Investor, do you always answer by asking questions? :-)

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  191. I gave you an answer; why don't you answer. What brings you here?

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  192. I like to read. Are you satisfied?

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  193. yes. But why not use a name to distingiush yourself from all the anons on here?

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  194. Good point. If I decide to visit this forum more often I'll probably pick an alias.

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  195. "We landlords are only in the business for humanitarian reasons."

    Nope, you make money by serving renters, who pay you for your services.

    "We are willing to forego better business opportunities and returns to provide a "service" to the disenfranchised."

    Nope, you pursue your own self-interest, which leads you to make money by serving renters. Ever hear of Adam Smith?

    And a large part of your favorable tax treatment gets passed to renters because you compete with other landlords with the same favorable tax treatment for their business.

    "Keep drinking the koolaide"

    You're the one who ignores economics in order to hang on the the irrational belief that an increase in supply doesn't lower prices, or that favorable tax treatment doesn't increase supply. But I am enjoying my lower rent thanks to that accelerated depreciation, whether you can face the truth or not.

    "make sure that check is received by the 5th. Thanks! And my children thank you too!"

    And keep up with those repairs, and hurry up with that new fridge, and great job getting in gear with the plumber.

    You must have been beat up by some renters in high school or something. Why is it so hard for you to accept that you've made money by providing a valuable service? Both you and your tenants benefit from your economic relationship. Why can't you accept that?

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  196. "I like to talk."

    But you learn by listening.

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  197. Frankly, I don't think my tenants benefit long-term. I have helped more than one buy a house. I helped my housekeeper buy a place 4 yrs ago. I've helped family members buy homes. I truly believe ownership is the smart way to go.

    So, if you want to believe that gov't incentives benefit you than go ahead. In the long run, the landlords are the true beneficiaries.

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  198. Anon 6:43 to VA_Investor:
    Here is my observation regarding RE investors I know: they all buy in the depressed areas which people with average income try to avoid when they consider buying their residences. All of them, with the exception of one, rely on the cash flow numbers (I grossly simplified here). None of them deal with their properties directly. All of them thought that buying in 2005 in high fly areas would be insane. What says you?

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  199. anon 6:43,

    I never buy anything that I would not live in myself. It doesn't have to be "grand", but it must be pretty decent.

    I look at the numbers and have not bought (with a few extraordinary exceptions) since 2002. I deal directly with my properties, although I haven't been inside some of them in years.

    I always buy undermarket. Make my money going in.

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  200. "point where the price of housing in the area would be so high as to offset the tax benefits of living there. "

    How about people who have been in their homes for years? If fed taxes are justifiably relaxed or repealled in DC, what would that do for people who have owned property there for some time?

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