Sunday, September 10, 2006

Washington / Baltimore Area August 2006 Numbers

The new monthly numbers for August 2006 are out from the MRIS the multiple listing service for the area. YoY = Year over Year, that is the comparison between August 2006 and August 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: - 8.06%
  • Average Sales Price YoY: -3.44%
  • Total Units Sold YoY: - 34.8 %
  • Average Days on Market YoY: 219%
  • Active Listings YoY: 126%
Baltimore City Area (Anne Arundel, Baltimore City/County, Carroll, Harford, Howard (BALT AREA) )

  • Median Sales Price YoY: 4.96%
  • Average Sales Price YoY: 4.54%
  • Total Units Sold YoY: - 25.41%
  • Average Days on Market YoY: 65%
  • Active Listings YoY: 103%

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

  • Median Sales Price YoY: - 8.70%
  • Average Sales Price YoY: -5.20%
  • Total Units Sold YoY: - 34.39%
  • Average Days on Market YoY: 103%
  • Active Listings YoY: 139%

Prince George's County, MD

  • Median Sales Price YoY: 8.73 %
  • Average Sales Price YoY: 6.94%
  • Total Units Sold YoY: - 19.72%
  • Average Days on Market YoY: 86%
  • Active Listings YoY: 142%

Montgomery County, MD

  • Median Sales Price YoY: 2.51%
  • Average Sales Price YoY: 1.52%
  • Total Units Sold YoY: - 26.60 %
  • Average Days on Market YoY: 159%
  • Active Listings YoY: 121%

Loudoun County, VA

  • Median Sales Price YoY: - 3.87%
  • Average Sales Price YoY: - 14.22%
  • Total Units Sold YoY: - 47.36%
  • Average Days on Market YoY: 232%
  • Active Listings YoY: 95%
For more numbers on jurisdictions not mentioned here please go to MRIS Market Statistics. The housing market in the Washington, DC area is experiencing a 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 37 compared to August 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.

75 comments:

  1. Excellent post. The numbers are staggering, especially when you consider the housing bubble implosion is really just beginning.

    Remember, the average Joe is still completely oblivious to the posibility that prices could decline, never mind the fact that they already have. Don't believe me? Find someone whose real estate views you don't know and ask them what prices have done in the last year. Chances are they'll say "uh, up 5% or so?"

    Once word of the year over year price declines gets out to the masses, the market will worsen and price declines will too.

    You'd think the Washington Post might consider large year over year price declines newsworthy, but I'm not holding my breath.

    But at least those of us 'in the know' are aware of your blog, David. I'll be sure to spread the word. You are doing a great service to those who don't want to be financially ruined by this mess.

    My continuing prediction - prices will eventually fall 50% on average in nominal terms from peak prices. This will set us back to 2002/2003 price levels.

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  2. I like those levels John. I just wonder if interest rate increases will limit the increase in affordability.

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  3. this is the point I was trying to make to lance, I dont care about interest rates, somewhat. I would rather pay 300k and 15% then 600k and 7%, assuming payments are roughly equal, but you get my point. The reason being is that my down payment becomes substantially more important and my salary gives me the opportunity to pay it off faster.

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  4. the real bob,

    Affording the payment may not be an issue for you, but it is for the vast majority of first-time buyers.

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  5. the real bob said:
    "The reason being is that my down payment becomes substantially more important and my salary gives me the opportunity to pay it off faster."

    I can understand what you mean about the downpayment, but if your monthly payments are higher (because of higher interest rates), you aren't paying it off quicker ... Actually, just the opposite. Even more of your payment goes for interest in the early years under a higher rate scenario. This is because the interest always gets covered first ... And there's just a lot more of it when interest rates are higher.

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  6. lance, so assuming the payment is equal under both scenarios like real bob said, you get a bigger tax deduction with a lower price and higher rate. sounds like the smart choice to me!

    thanks for confirming that real bob was correct. you probably didn't even realize you were doing so. oopsey!!

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  7. John,

    Am still waiting for that reference or did you make that story up?

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  8. John said:
    "you get a bigger tax deduction with a lower price and higher rate. sounds like the smart choice to me!"

    Isn't it amazing how you can be quick to do the numbers when you think it advances your cause. LOL So, is true Mickey D's is switching over to canola oil? Does that make it more difficult to time the fries in the fryer? LOL

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  9. It must suck taking an order from Robert over the speaker phone. By the time he gets to the window he's claiming he ordered something different than what you prepared and trying to give you less money than you asked for cause "money in your pocket earns interest"! LOL

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  10. And, of 'course, Robert will only pay you 50 cents for that big mac "cause that's all he thinks it's worth!" LOL

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  11. like i've said a million times to way too many people when they start talking interest rates.


    and this just might become the housing catch phrase.

    "it's the principle stupid"

    if i borrow 300K at 15% i have a way better deal than if i borrow 600K at 7%.


    p.s. not sure if you guys noticed but the Lance-mister is starting to feel the pressure.....you can hear it in his retorts.... Lance i sure hope you stay with this blog when the crash really picks up steam.


    p.p.s. and if interest rates get to 15% we'll all have much more to worry about than realestate.

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  12. I read Real Bob's 9/9/06 (8:03pm) comment and was curious about what the numbers might look like:

    $600,000 mortgage (assume zero down)
    Current 30-year fixed rate on E-Loan website: 6.0%
    Monthly payment: $3,597.30
    Principal for 1st month: $597.30
    Interest for 1st month: $3,000.00

    Rate increased to 7% and assume same monthly payment
    $540,702 mortgage
    Monthly payment: $3,597.30
    Principal: $491.81
    Interest: $3,105.49

    Rate increased to 8%
    $490,253 mortgage
    Monthly payment: $3,597.30
    Principal: $402.59
    Interest: $3,194.72

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  13. Rate increased to 15%
    $284,497 mortgage
    Monthly payment: $3,597.30


    The last time economic circumstances were like now (late 70s/early 80s), mortgage interest rates approached 20% ... actually hitting that magic number for a couple of quarters. Overall, interest rates for a longtime there didn't go below 15%. So, at 15% interest rates, the house price (assuming 100% financed) would need to drop by 52.6%.

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  14. Refinanced my home in Oct 1998 at 6.25%. Where are rates at today - 6.25%. That is 8 years of low rates. Not the 15% you state!

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  15. Lance -

    I noticed none of your posts acknowledged the dramatic drop in prices. You can ignore them - but they are still there!

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  16. At least VA noted them. I give here credit for that.

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  17. Bakersfield,

    An 8% drop is not dramatic in light of the fact that increases were 22% last year and something like 29% the year prior. Va and I have contented all along that prices will drop on average 15% ... and probably worse for condos and far flung houses or anywhere in transitional areas. I've also contented that this will turn around between 12 and 18 months and then normal appreciation (plus inflation) will return. The big danger for those who haven't bought yet is that inflation could be like we had back in the late 70s/early 80s when a similar war and similar economic circumstances as today pushed mortgage rates to 20%! House prices would have to drop to levels well below what is possible to counter-balance the increase in interest. And of course, in hyperinflationary times, nominal house prices, like all prices, will rise by more than normal rates. Existing mortgage holders will get a bonnaza out of it all ... paying mortgages in nominal dollars.

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  18. How much have interest rates increased from one year ago? Even though prices have dropped, am I any better off? In today's market how likely is it to have the seller pay the points to lower the interest rate?

    Same $600,000 house with 8% price decline: $552,000
    Same monthly payment: $3,597.30

    Interest rate: 6.796%

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  19. lance said" I have contented all along that prices will drop on average 15% ... "

    Um, lance, I have been and reading here for a while and this has not been your line all along. If I were to guess you have only said this in the last few months. I remember posts where you said it would follow back to nominal appreciation, maybe stay flat, etc. Just recently you have said 15% decrease is probable. the least you can do is attempt to be honest. I have always said 30% discount was probable. I actually believe that might be more seeing how fast things are falling. DC down 8% YOY, that is astounding. Personally you couldnt pay me enough to live in dc, I think it is a s$$T hole, but I do understand the appeal to the larger population. I am perplexed about the montgomery county area and how it is still holding on to 2.5% gains YOY. The only thing I can attribute that to is the large amount of hispanics buying propertys and craming there 3rd and 4th cousins all into the one place. Any insights on to why montgomery county isnt tanking and dc is?

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  20. Lance said...
    “It must suck taking an order from Robert over the speaker phone. By the time he gets to the window he's claiming he ordered something different than what you prepared and trying to give you less money than you asked for cause "money in your pocket earns interest"! LOL”

    Lance still does not get the idea of am ATM card. Which is currently in my back pocket giving me 4.5% on my cash.

    Lance said...
    “And, of 'course, Robert will only pay you 50 cents for that big mac "cause that's all he thinks it's worth!" LOL”

    Absolutely. And I’m glad you brought it up. If Mickey D’s raised prices at the rate of the housing increase, pretty soon sales would plummet. Few would buy a big mac for $10.00. The seller (Mickey D’s) does not set the market. The buyer (in this case me) will only give the seller 50 cents for their product. As show in the current 8.7% decrease in median home prices in DC proper, the buyers refuse to buy the $10 hamburger.

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  21. Lance said...
    “I have contented all along that prices will drop on average 15%”

    Talk about changing your order. Now it’s 15%. Well, OK. Seven more points and then it’s back to the boom eh Lance? I’m curious, how many points has housing dropped in the past two months Lance?

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  22. Bob said:
    "If I were to guess you have only said this in the last few months."

    I have only been posting for somewhat less than a few months. I have said overall the average will be around 15%. I have also said that it will be greater in "very transistional" neighborhoods as well as far flung burbs like Frederick. And ... and this is what you are selectively only remembering, in value areas such as Dupont where I live and Bethesda and Vienna and etc. there will be normal appreciation. I was walking around my neighborhood today and the few houses for sale confirmed this. They are on the market for what I would expect given normal appreciation from a year ago. They are also not staying on the market long. No, they aren't sold in a day like a year ago, but the signs don't stay up more the 2 - 3 weeks on most of the places. And like before, those that are obviously over-priced stay on the market forever. Now, can you please be honest and admit that your memory is selective in regards to what housing "bulls" say because you really really want to believe that prices are going to tumble uncontrolably everywhere? You can check the archives to see that I have been consistent in what I have been predicting. And overall, it has been in line with what Va_Investor has been saying. I suspect the reason we are so in agreement with the expected outcome is that we've both lived it before. While neighborhoods and cities change, the real estate cycle itself really doesn't ... Other than perhaps becoming quicker along with the speeding up of information.

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  23. Bob asked:
    "Any insights on to why montgomery county isnt tanking and dc is?"

    You're making the false assumption that lower average and median prices mean that places are going down in value. DC has had an incredible amount of new condos built. Many of these were bought by flippers pre-construction and are now being sold as "existing housing" even if they are essentially brand new. The flood of new condos into the mix means that average and median prices will drop solely because the average of the mix now includes far more of relatively less expensive condos to the whole than previously. Montgomery County hasn't seen nearly as much condo construction. And, unlike DC, it really doesn't have any transitional/marginal area to lower the average (it used to have those areas in parts of Silver Spring, but even those areas are value areas now. I would be that if you subdivided DC in such a way to remove the marginal/transitional areas from the established areas, you would find that average values went up at least along normal appreciation percentage lines.

    The bottom line is that from now through to 12 to 18 months from now, it is easier for the less-educated buyer to purchase provided they are willing to look in less "established" or close-in neighborhoods and ciities. I.e., If it's been your dream to buy in some place like Gainsville or PG County (and that seems to be what you would be more comfortable with given your feelings about the more cosmopolitan District), then you will find it easier to buy something at a normal price and not have to worry about not having much in the way of real estate or negotiation skills.

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  24. Lance said...
    “You're making the false assumption that lower average and median prices mean that places are going down in value”

    Now we understand. A decrease of 8.7% is actually an increase! So tell us Lance, how much of an increase is this?

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  25. Lance said...
    “You're making the false assumption that lower average and median prices mean that places are going down in value”


    _____________________________

    Do you work for a DC Spin consulting group? WOW. I thought De-Nile was a river in Egypt.

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  26. Lance,

    I'm afraid you need to "dumb-down" your comments for some of our more challenged readers.

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  27. Robert/Bakersfield,

    Why not admit that neither of you is very savvy when it comes to understanding statistics ... rather than to try to push aside rational interpretations? Is the market tanking really your only hope of getting into a property of your own? Can't you do it without Armageddon occuring? Have a little more confidence in yourselves ... and get advice from professionals since if you can't understand that statistics need to be interpreted to mean anything, then you probably don't stand much chance getting your own reasonably priced home without substantial help from people who know better. Re-read some of my and Va_Investor's posts. That will help you somewhat. Just get over your pride that you have anything to learn. When it comes to real estate, you have a lot to learn!

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  28. va_investor,
    ha! i suspect it is impossible to dumb the questions down enough for these guys ...

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  29. Excellent eyewitness account of a very similar situation in Japan. The author was there during the stock/housing bubble in 1990 - 1994. Housing prices fell by over 50%. It happened there; it can happen here.

    http://www.bullnotbull.com/archive/japan-tale.html

    A great article from a great website.

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  30. Lance, I think John F. has abandoned poor robert. Either that or he is busy inventing more "deer in the headlights" stories.

    I wish he would come back and "educate" me some more.

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  31. manystrom,

    I LOVE those urban legends! Thanks for the entertainment. Sometimes it's fun to escape reality and think "what if everything we knew suddenly just wasn't anymore? what if some schlepp really had had that one in a million chance happening happen to him? and that everything he had was owed to chance and not his own smart efforts?" ah ... the fun of make believe! too bad they didn't through a kamakazee pilot into the story ... it would have been even more entertaining ... and maybe a Sumai wrestler too!

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  32. Va,

    Can we blame him for having abandoned poor Robert? Other than the distraction he was attempting, what else could he do to help poor Robert when poor Robert was himself putting his head into the lion's mouth ... Oh poor Robert ...

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  33. Lance said...
    Robert/Bakersfield,

    “Why not admit that neither of you is very savvy when it comes to understanding statistics ...”

    I think we totally understand. Real estate only goes up! As seen by the 8.7% decline in DC proper!

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  34. Lance said...."Why not admit that neither of you is very savvy when it comes to understanding statistics"

    :lol:

    Trend 09/07/2006 1 month 3 month 6 month 12 month
    Median Price $460,000 -2.0% -5.1% -1.9% -7.8%
    Inventory 11,150 -6.5% -5.7% +47.4% +140.5%


    okay Lance, please tell us what the above "statistics" tell you??

    i sure know what they tell me

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  35. Lance-

    I am a graduate of a CA University with a solid GPA. I have taken and passed with A's more than my share of math classes. I am one of small percentage of people that was able to pass all parts of the CPA exam on the first attempt. I have 16 years experience as a CPA.

    That said - Let me summarize what you are saying. When the median is up prices go up AND when the median goes down prices go up. You believe what you want and I will believe what I want.

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  36. threadkilla asked:
    "okay Lance, please tell us what the above "statistics" tell you??"

    They tell me that everything is as it should be in the normal downside of the real estate business cycle. You see, history is on my side ... This isn't anything new. Just because this is your first time through it doesn't make it any different than it's been in the past. This is to be expected ... and when averaging in factors such as DC's true value added during the last 5 - 10 years, this is going to be a shallower downturn for us then before ... And because of the increased speed of information, may even be a lot shorter than in the past. I wouldn't hold my breath waiting for a "bust". It ain't gonna happen. Accept it and get on with your life.

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  37. We could spend hours debating what the median price changes up or down mean. The median in this case is only reprsentative of the homes which have actually sold. Are the current buyers getting for bang for their buck(lower price per square foot)?

    I would also say that the median increases in 2003-2005 were actually much higher as the number of homes sold was not indicative of the true demand (although it was driven by mass speculation and fueled by cheap and easy credit AND not any fundementals).

    All we have to go by is the median price to judge the movements in price appreciation or depreciation. We can't use one set of stats on the way up and then ignore these same stats on the way down. As long as the data collection was the same in both directions - these numbers will be what I rely on to determine the direction of homes prices!

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  38. I would venture that the amount of speculation this time around is much worse than the last time around. I would also add that the credit spigot was opened much wider than the last time around. These two factors will make this bust much worse.

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  39. If you dont think their will be a bust why do you spend time here? Do you just enjoy arguing with us? What made you seek out "bubble" blogs if there is no way bust will ever occur? I want to understand your motivation for being here.

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  40. This is typical bubble-bait from bakersfield aka Crispy. Quit trolling crispy!

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  41. Bakerfield:
    "That said - Let me summarize what you are saying. When the median is up prices go up AND when the median goes down prices go up. You believe what you want and I will believe what I want."

    No, that is not what I am saying. I am in agreement with your second post which essentially says "the numbers can be read how one wants them to be read". I.e., I wouldn't be counting on these stats to say everyone is going to be able to buy anything they want. I look around me in DC and see so so many things related to value added and very real growth that I know that it can only mean that values are trending upwards. It sounds like you are in Calif. and may have a very different situation. What I am talking about here is Washington doing what it has always done during wartime ... grow ... PLUS it has finally gotten over the white flight problem stemming from the Martin Luther King race riots of '68. The city itself had dropped from almost 900K people to 500K until the turnaround some 5 - 10 yrs ago ... It is coming back. And the area around it is growing because it is the nerve center for the government's "automation" of everything that makes governing policible ... here and throughout a global world. We are experiencing a new paradigm ... Greater in magnitude than the one California experience immediately following WWII. It follows that values will rise here as we grow to become another NYC or London.

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  42. No, I really want to know what his motivation is. Why waste his time trying to convince people like me who are hard headed bears on real estate? I was very bullish in the 90's, I owned two homes (sold the rental in 2004), now I am very bearish on residental real estate.

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  43. We are experiencing a new paradigm ...


    _____________________________

    Please dont say that. LOL.

    I am in the camp that believes asset prices can get away from their fundmentals. Stocks can get away from the projected future cash flows as they did in the .com era, as the "new paradigm" was beginning. Same thing with Japanse real estate - we live on an island they are not making anymore land. And on and on.

    Residential real estate is out of line with the potential for generating any positive cash flows going forward. Why not take your profits and run. Dont give me the "I dont want to pay the taxes" argument either. I knew several clients who wouldnt sell CSCO or DEll or some other overpriced stock beacuse of the taxes. My second home went up in value by 80% in a few years. Why get greedy? I took my profits and went elsewhere. When the asset prices get back to reality - I will join the bull party again. Until then I will wait for the significant drop which is coming. I am willing and expect to wait several years. Maybe DC is "different" but I doubt it.

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  44. Bakersfield, i am on your side! suggested reading "empire of debt" by bill bonner and addison wiggin. i admit that this "bubble" has made some people incredibly wealthy. but most people came to this party late and they will be slaughtered. in 2007 a goodly number of exotic loan products will be resetting their monthly payments and then the "slaughter" will begin in earnest.

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  45. crispy,

    It appears that you treated your 2nd home as an investment. Is that the "rental" you referred to that you sold in 2004?

    A true 2nd home can be "priceless". It depends on your purpose. Having had a "true" 2nd home for over 15 years, I can honestly say it was the best purchase we have ever made. Not in terms of dollars, but in terms of enjoyment.

    Sure, I could sell it for a huge profit. But why would I do that? We plan to keep it forever. Money can't buy some things.

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  46. Va_Investor,

    From the sounds of it, he is treating his primary residence as an investment as well. I am convinced that some bubbleheads are wannabe flippers. They'd flip playing real estate, or stocks, or whatever, except they can't both afford to have a place to live and a place to "day trade" with ... So their primary residence loses its true role as a primary residence and just becomes another asset ... which of course means they are exposing to great risk the one thing that should never be exposed ... one's home!

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  47. Home sold in 2004 was previous residence which I purchased in 1994. I was actaully under water on this house until about 1997. I even had the home reassesed to lower my property tax bill as the market in most of Ca was down. When I moved to my current home I kept this 2nd home (not vacation home 2nd) as a rental. I then sold in 2004 as I had recoverd all most lost ground plus a nice profit.

    Where do you get - "he is treating his primary residence as an investment as well"? I have a 1st loan on this home with a LTV of 40% and a 30 year fixed mortgage. My home is a place to live - that it. I dont have a HELOC or any other secured loans against the place. It is simple a place for me to raise my family.

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  48. Now quit arguing with me Va, I am trying to watch some football games and swim in my pool with my girls! I keep coming back here to check what you guys are saying and it is messing up my Sunday!

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  49. crispy,

    When you referred to it as a "2nd" home I took it literally.

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  50. I took " I owned two homes (sold the rental in 2004)," to mean you no longer owned either,selling the rental in 2004. Sorry for the misunderstanding. Most bubbleheads on here don't own any homes ... with quite a few having sold their primary residence as prices went up ... with the expectation of buying when they go down. I thought you were part of this group.

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  51. "We are experiencing a new paradigm." Yes: soon, a new superrace known as 'GS-16's' will walk the earth, and Arnold and Porter first year associates will earn $900,000/year. It will be so.

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  52. Lance,

    This is the problem with trying to discuss real estate with non-real estate educated people. Anyone in the "business" knows what a 2nd home is. Knowledgeable people don't refer to "rentals" as "2nd homes".

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  53. va_investor said...
    “This is the problem with trying to discuss real estate with non-real estate educated people. Anyone in the "business" knows what a 2nd home is. Knowledgeable people don't refer to "rentals" as "2nd homes".”

    Oh, forgive us investor, how great thine wisdom pours from thine loin. Verily you say unto us, real estate shant go down, acquisition thine home before one is priced out, and even with thine great power, ye shall not make more land. Nay shall ye worry of the -8.7% decline in DC proper, for my prophet Lance has said to unto the to lay it no concern.

    Thus end the lesson.

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  54. Lance said

    "You see, history is on my side ... This isn't anything new. Just because this is your first time through it doesn't make it any different than it's been in the past."

    Please look at this (created by Shiller)and tell me how history is on your side. A "shallower" decline because of the "true value" added to DC recently? Huh?

    http://photos1.blogger.com/blogger/3067/149/1600/housing.jpg

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  55. warmredblanket,

    Thanks for the link. It's pretty clear from the link that we are experiencing a paradigm shift now ... just like we did following the Second World War. It actually makes a lot of sense the more I think about it now that you have pointed this out. After WWII the world economic order got re-arranged with the US coming out on top of what was still a national-based economic system ("American" cars, "Japanese" cars) with production being sold throughout the world ... Since the late 90s the paradigm shift has been through globalization with various inputs to production being allocated around the globe (for example, custmer service and coding is done in India, production of comuter hardward in China, cars are put together were they will be sold but from components coming from thoughout the globe.) The US is benefiting from this new economic order in the same sense it benefited from the one that came out of WWII. Again, thanks for the graph!

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  56. Va-

    Get out of your wheelchair and get closer to the screen. That is not what I said. You must constantly insult. Oh well - enjoy your bitter old life. Now I know why no one can stand you.

    I run a large investment portfolio which includes real estate. So I am in the "business". I notice you must parse every word to find a kernel of evidence to make your bullish case.

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  57. if people didn't view their home as investments than they wouldn't be willing to spend over 40% of their take home pay to live there.


    all this talk of a home NOT being for investment purposes or what ever you wanna call a second home is the desperate sound of a RE cheerleader in a decling realestate environment,

    it's B.S. plain and simple and you guys KNOW it.

    RE is the BIGGEST MOST LEVERAGED INVESTMENT THE AVERAGE AMERICAN WILL EVER MAKE.

    end of story on that issue.

    so Lance and VA_investor lets move on....or at least find another angle other than "a home is not an invesment but a place to live"....K??

    TIA

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  58. threadkiller,

    when you are discussing where you make your home, the property you are living in is NOT a investment (long or short term) but a long term expense. Only when one views it that way and aims to minimize the longterm expense related to living in a home are the correct priorites given. bottom line is that without viewing it that way, you end up with situations where you are buying a home for its financial return to you and not for whether it fits your living needs and you can afford it. this leads to dangerous situations such as people selling their homes at the height of the market and renting while they wait to see if they can buy them back later. everything is out of focus when people forget what buying the home you live in is really for. and you can blame the real estate industry here for putting the spin on "the biggest investment you'll ever make" ... No, it is the biggest expense you'll ever have ... And you want to minimize it over time.

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  59. Lance, wow, what a spin you got this time.


    okay so now it's a huge expense.

    so what's the point of buying with all the negatives you keep re-enforcing??


    i wonder why my dad lied to me and told me to "invest" in a house.....i'll have to ask him why he would misslead me in that way...hum..???

    thank you Lance for opening my eyes...okay i better repeat this so i don't forget

    a house is NOT an investment a house is NOt an investment..okay i think i got it now.



    BTW it's KILLA!!!!

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  60. A house is not an investment, but while sitting at happy hour with an entire team of real estate agents (some newbies and others who have been in the business for over 20 years) every single one of them said "Hey I know you're in the market to buy your first home..but remember buying a house in an investment."

    Just because you live in your home doesn't mean it's not an investment.

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

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  62. TK said:
    "so what's the point of buying with all the negatives you keep re-enforcing??"

    because if done right, it is a lot lot cheaper than renting your whole life. you're so focused on the "it's an investment" thing, that you completely missed what I said about the objective being to minimize your HOUSING costs over time ...

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  63. Lance, I find it interesting that on the one hand, you indicate (or at least imply) your belief that interest rates are going to rise sharply in the near future, and you go on to accurately point out the drastic effect this has on housing affordability. But on the other hand you then predict nothing more than a 15% decrease in housing value, after a half-decade long runup that saw housing prices increase by well over 100% in a short period.

    How do you reconcile those two positions? If interest rates rise dramatically to coincide with the deflation of the bubble, what would normally be a correction could turn into a disaster, don't you think. You can only sell property for what someone out there is willing AND able to pay.

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  64. I agree that the place where you live should not be seen as an investment, rather a long term expense. Books like The Millionaire Next Door and The Truth About Money (Ric Edelman)suscribe to the same truth. (And, I certainly hope that my house is not the biggest investment I ever make - there are so many better investment vehicles out there!)

    SO, as a person who is looking to keep their housing cost down, why would I buy now when owning is twice the cost of renting? Especially when it is abundantly clear that prices are going down?

    As a young person whose first opportunity to buy came during the final years of the peak, locking myself into an outragrous mortgage did not seem like a good way to keep my long term housing expense low. But now housing prices are going down and they are pulling the economy along. Interest rates are still historically very low and will remain so as the economy slows. My long term housing expense will go down by renting now, saving, buying later at a lower price.

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  65. Warmred said:
    "Interest rates are still historically very low and will remain so as the economy slows."

    Why do you see the economy slowing? Aren't all indications to the contrary?

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  66. Lance,

    I am surprised at your question.

    Use the news feature on Google and Google 'slowing economy' or 'US economy' and skim the headlines. There is little debate that the US economy is slowing down...

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  67. some points

    1. your home is not an investment. this is "newspeak". your home is a comsumption item.

    2. the economy is slowing (ask the 40,000 workers at Ford who are being dismissed).

    3. ultimately interest rates will blow through the roof. the fed cannot control the 10 year and 30 year bond market and this is where home loan rates come from.

    4. with TWO TRILLION dollars worth of ARMS set to adjust in in the next 18 months it out to be quite a show.

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  68. chriso:
    "15% decrease in housing value"

    I mean a 15% NOMINAL decrease in value. In the real terms (i.e., when combined with the effects of inflation) that means the value of that "investment" over the shortterm may indeed fall by the percentages that David and others are saying. And if you are buying for shortterm investment purposes (such as flippers do) than this is not a good "investment" under any scenario. However, if you are buying this for the longterm and need to finance the purchase, then you need to weigh your inflation induced increased mortgage costs against the fact that once you've locked in, you've locked in. I put up an example just the other day that if interest rates go to to 15% (which is less than the 20% they hit in the early 80s) than your $500,000 house would have to sell for about $225,000 in nominal dollars for your payment to be equal to what it would be today on the $500K house at today's interest rates. Prices go up during inflationary times ... Even house prices. So, while in real terms the value of the house may be going down, that is being counterbalanced by the fact that the value of currency is also going down and the resulting inflation will be bringing back up the nominal dollar value of the house. So, under those circumstances you might not even see the 15% drop in nominal terms. You might only get that house by buying it for $500K with a 20% mortgage rate ....

    Now, you are prophetic about the circumstances this could cause. People could just stop buying. And what happens then? The builders stop building. The population isn't going down anytime soon ... And there are some folks getting mighty wealthy out there do to the tax cuts for the upper classes and the results of globalization ... Don't doubt for an instance that there won't be enough money out there to buy existing stock of houses for the $500K at 20% interest ... It'll sell. The problem though is that the new stuff for folks who can't afford that won't be getting built ... and they will be getting squeezed. As has happened in the past such as the 80s, people will move into their parents' basements, get more roommates, whatever. They'll find a place to live, it just won't be what they could afford today ... In a housing crunch it's not the better off that get hurt. So I think you and I are in agreement up to a certain point ... We just diverge as to what the bottom line is. And because my bottom line is so much more pessimistic than yours, it leads me to believe that even at the high price things are now, it is better to lock in your housing cost payment now than to chance what inflation will do to all housing costs payments in the future ... be they rents or new mortgages.

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  69. Lance said...
    “Don't doubt for an instance that there won't be enough money out there to buy existing stock of houses for the $500K at 20% interest ... It'll sell.”

    Meanwhile current inventory is not selling at ~6% interest.

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  70. robert said:
    "Meanwhile current inventory is not selling at ~6% interest."

    when new construction gets "shut off" it takes a while for the effects to get felt ... we still have new houses and condos coming on line ... once those are complete and no new ones are coming on line, then inventory will begin to fall. it's also important to remember that inventory levels are only "high" comparted to when there was a shortage last year. they aren't "high" from a historical perspective.

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  71. Do most bubble heads believe that housing prices will drop to the 2004 level in NoVa/DC area (which would constitute a 100% or more drop in many cases) ? If the price doesn't drop that low it just means a new platue is reached, which many people are priced out.

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  72. Talk of a new higher plateau reming me of Irving Fishers famous comments:

    Irving Fisher (October 15, 1929):
    "Stock prices have reached what looks like a permanently high plateau. I do not feel that there will soon, if ever, be a fifty or sixty point break below present levels, such as Mr. Babson has predicted. I expect to see the stock market a good deal higher than it is today within a few months"

    Don't you guys read history? How can you deny this is a bubble?

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  73. anon asked:
    "Do most bubble heads believe that housing prices will drop to the 2004 level in NoVa/DC area (which would constitute a 100% or more drop in many cases)"

    I don't think anywhere in any city did prices increase 100% from 2004 to 2006 ...

    Why does your question look so much like it was posted only as a means to allow Creativemind to recite his favorite quotation?

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  74. how did someone post anonymously?

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  75. lol..lance i could not help myself. the opening was so large you could drive a truck through it. but there was no conspiracy! lol...

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