Tuesday, December 19, 2006

To Buy or Not To Buy That is The Question

The housing market has changed dramatically in the bubble markets over past year and a half. Back in the summer of 2005 bidding wars were common and inventory was very low in the bubble markets across the USA. Those days are a sweet memory to the legions of stuck flippers.

Today, a new reality faces both buyers and sellers. Its the Inventory Stupid! Inventory has increased dramatically in most bubble markets in the last year and a half. In Phoenix, inventory rose from 10,748 on 7/20/05 to 51,998 on 12/10/06 according ZipRealty and Bubble Markets Tracking Inventory. The inventory of houses for sale in Massachusetts has "now risen for 18 consecutive months" (Warren Group).

At the same time the number of housing units sold has fallen dramatically in the bubble markets compare with a year ago. The number of housing units sold in Northern Virginia (Washington, DC suburbs) has fallen - 23.6% compared to November 2005.

Some real estate agents are claiming that is now a 'buyer's market' due to the increased inventory, lack of bidding wars and the small reductions in prices. Blanche Evans , Editor of Realty Times thinks it is a good time to buy. “You can get a better price on a better home that will pay off when the slump ends.”

On the front page of the National Association of Home Builders (NAHB) website they write 'It's a great time to buy.' and 'making today's economic environment the perfect one in which to buy a home.'

So is it a good time to buy in the bubble markets?

In many bubble markets, the peak price was reached late summer 2005. Real prices will continue to decline in the bubble markets for many more years. Prices declines in the bubble markets are very likely to vary between 20% - 65 in real dollars (inflation adjusted) from peak to bottom (it may take up to 8 years). Most of the real dollar price decline will occur in the first 3 years of the housing bust. Indeed, the huge price appreciation that occurred in the bubble markets over the past 5 years or so was a speculative episode.

Just as importantly, monthly rents are generally cheap compared to buying in the bubble markets. Buying in the bubble markets generally costs 1.25 to 2.5 times the cost of renting ( for a similar property; assuming 30yr fixed, solid credit, property taxes, and typical interest rate tax deduction). Each month hundreds if not thousands of dollars can be saved and invested if one chooses to rent as opposed to owning.

Buying now in a bubble market does not make financial sense. As the housing inventory continues to rise and prices decline there will be lots of buying opportunities in the future. Additionally, an economic recession in very likely to occur in the US within the next 7 months. If you earn a reasonable income it is an absolute fallacy that you need to "Buy now or be priced out forever." This is not a small temporary 3 months dip like Mr. Lereah suggested. In the bubble markets, this is a multiyear housing market bust. In the Bubble Markets, renting and waiting is fiscally prudent. Don't be fooled.

60 comments:

  1. Can I just say that your most powerful argument is the Rent vs. Buy argument. The crystal ball is hazy, to be sure: who knows when, or by how much, costs will fall.

    But we can know right now the difference between buying and renting. And we can know it for the terms of the lease: going forward usually about 12 months, or 6 months, or whatever you choose.

    Any honest person with a calculator will tell you that you can rent, save, invest, and earn a higher rate of return than you can with the buy, pay bank, and pray method.

    Fools rush in.

    ReplyDelete
  2. Inventory has been steadily declining for months in the DC area, presently at an 8-month low and down 21.7% from 6 months ago:

    http://www.housingtracker.net/old_housingtracker/location/DC/Washington/

    Bold type does not change that fact.

    ReplyDelete
  3. David,

    Interesting topic.

    Well, is it time to buy? Have homes become affordable? Is there a reason to think demand will rise? (Jobs? Income? Interest rates?) Heck no. In fact, with credit tightening, its time to wait.

    Nope. Only a fool will buy in 2007. I'll rent and save... over $70k into the bank/investments next year according to my plan (and I've yet to miss meeting one of my savings plans). If I bought? My savings would be near zero.

    We had a multiple company meeting earlier in the week and the topic went to hiring and salaries. For the most part, companies are giving up on hiring in bubble areas; salaries need to be too high to make any profit except off the most exceptional candidates.

    Of course, its almost Christmas now. The normal selling rate between now and the super bowl is almost nothing. Neither buyers nor sellers should worry about the market until March.

    Real estate dips tend to last 30 months or more. So we have time. No one has to buy... and non-apartment rents are dropping.

    I'll buy when a majority of the ratios make sense:
    price/income
    price/rent
    Home inventory/monthly sales
    Mortgage payment as fraction of income

    Until then? I'm patient.
    Neil

    ReplyDelete
  4. Hi, I have been reading this site for months now and am finally commenting. I have a question for all of you out there...should we buy?

    We currently rent in DC (Dupont) and pay a reasonable amount ($1500 for a one bedroom, all utilities included). Even though prices to buy are steady, if not dropping, I still feel like they are out of my reach. A one bedroom is still about $300 - 350K in my neighborhood - that is ridiculous. Our household income is about $120K.

    Technically, I know we can afford a $350K condo according to the mortage calculators, but I don't want to spend all of my money on a mortgage and I don't want an ARM.

    I never though we'd be making good salaries (good, not great) and still feel like we can't afford to buy.

    Will prices fall more...should I wait? Or, if we don't buy now, will prices go up soon and then we'll be left out yet again?

    Thoughts?

    ReplyDelete
  5. First, when a realtor is talking about buyers/sellers market, they aren't really talking about whether it is a good time to buy or sell in the long term. They're just talking about current supply versus demand. (mathematicly this is the first derivative of price) This gives you a snapshot of where prices are heading in the short term, but has little to do with whetehr we're near a bottom or a top.

    It is as difficult to call a bottom as it is to call a top. However, the best time to buy, when you have the best mix of choices and prices are before the market bottoms out. By the time the market has bottomed out, supply is shrinking and it has already switched over to a "seller's market."

    To give Lance his due, IF you believe that we've seen most of the decline that we're likely to see prices go flat and start rising again shortly, this would be a good time to buy. However, the rent/buy costs are still completely out of whack. This has been obscured somewhat by the change of stock from rental to purchase (condo conversions, etc) However, since rents are a market that generally responds more quickly to housing supply/demand pressures, most of us believe that the RE market has significant declines still on the way.

    My advice to current fence-sitters is to look at the total costs of what you want to buy and how much more that would run than continuing to rent. Bank that away every month in some account that you're not tempted to raid for current expenses. This will do two things. You will see what you can ACTUALLY afford, because many people have a poor time figuring out how much they can affort to pay for housing, and how much scrimping that they can do. It would also put away money for a downpayment, 'cause most of us here believe that when this whole thing collapses and hits bottom 20% downpayments will be the norm.

    --Jim A.

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  6. Anon 7:29,

    You know what the conditions are today, without a crystal ball, you can't possibly know what they will be tomorrow. Were I in your position, I wouldn't hesitate for one second to buy today. As a matter of fact, I did so myself under far harder conditions (eg., the bidding wars David mentioned in his post.) I'm sure the bubbleheads will tell you to wait. Waiting and hoping for lower prices is their strategy. They are gambling on an unknown futre. Don't let them convince you that they know where prices are headed over the short or medium term. No one does. The only thing you can be sure about is that in any 10 year period prices go up. So, if you are looking to buy to live in your place (and not to flip it or use it like an ATM), then you should definitely buy. And oh ... I almost forgot ... There actually is one other certainty about the future ... and that is over any 10 year period (or less) you will find that rents will have gone UP.

    ReplyDelete
  7. Anon: 7:29AM

    "Will prices fall more...should I wait? Or, if we don't buy now, will prices go up soon and then we'll be left out yet again?"

    It's your descision and don't let anyone lead you in one way or the other. If you truly believe that prices will go up, then low-ball the sellers big time, I mean 30 to 40 percent off the listing price.

    If you plan on waiting for prices to fall, watch the market. If you see one month of roaring sales, that may mean something. Remenber the herd effect.

    Either way, prices are way out of whack and many buyers are still priced out.

    ReplyDelete
  8. Anon 7:29,

    I cannot comment on prices on your street, but traditionally as credit tightens, prices drop. As long as you are able to save up a down payment, buying will be easier for you in a year or two. Its a really bad time to buy right now. The question is, how far out in DC are you willing to go?

    Have a look at all of those new condo towers in a year. They have so many surplus units its certain prices will drop.

    Neil

    ReplyDelete
  9. Anonymous said...
    “Inventory has been steadily declining for months in the DC area, presently at an 8-month low and down 21.7% from 6 months ago:
    http://www.housingtracker.net/old_housingtracker/location/DC/Washington/

    Bold type does not change that fact.”

    Nov 06-3166
    May 06-3278

    Bold type does not make that -21.7%

    http://www.mris.com/reports/stats

    ReplyDelete
  10. if prices seem ridiculous they are ridiculous. it is that simple.
    Do you really want to own a 1 bedroom crappy condo? For what?
    Pay the damn rent, save a larger down payment and wait for something better.

    ReplyDelete
  11. Yawn... Seems like a post just like this was made not too long ago. It's time to move on beyond the "should I buy or not" questions.

    David, you're slipping. Posts are less frequent now for some reason, and when there is a post, it's the same tired old posts with the same old tired posters **Lance cough** blathering on about it being a great time to buy.

    There are so many better things to talk about. Like the suit against the former Fannie Mae executives, or the fact that Hovnanian just posted a loss, or the slipping homebuilders confidence index, or the fact that the producer price index just went up the largest amount since Nov. 1974.

    I know you can't make this your full-time job like Ben has done, but please, come up with some more imaginative posts. That is, if you want intelligent conversation on your blog. Intelligent posts are key, that way trolls like Lance will be blown out of the water.

    ReplyDelete
  12. Inventory has been steadily declining for months in the DC area, presently at an 8-month low and down 21.7% from 6 months ago:

    http://www.housingtracker.net/old_housingtracker/location/DC/Washington/

    Bold type does not change that fact.


    It's called winter. Now use a little intelligence and calculate the months' supply of inventory compared with 8 months ago and come back and report to us what you find. Or better yet, a year ago. Or really knock yourself out and calculate both. Go now, we're waiting...

    ReplyDelete
  13. "They are gambling on an unknown futre."

    Um, so are you. Do you know for sure prices will go up and not down? Fine to have your opinion, but disguising hypocrisy as advice is silly.

    ReplyDelete
  14. Virginia MLS has inventory down ~ 30% since July 2006 to today. Inventory was 25,287 on 7/1/06 and today its at 17,601. While I agree prices are still going to be on the decline, inventory has consistently dropped for the past 6 months. The real sign will be if they significantly rebound next spring.
    http://virginiamls.com/charts/index.htm

    ReplyDelete
  15. I would not buy right now either anon 7:29, but you could easily afford to buy that condo if you really wanted to. Your income is well above the median for the area, and your current housing cost is only 15% which is very low. I say wait and buy something bigger for the 350K in 2 or 3 years though.

    ReplyDelete
  16. Annon 7:29, my advice would be not to listen to anyone about whether it is better for you to buy or rent right now and crunch the numbers yourself. Many people have biased opinions about renting vs. owning, but few have really sat down and took a hard look at which way makes financial sense. Perhaps they’re scared at what they might find or they’re just too lazy. Anyway, break out a calculator, or better yet, if you’re good with Excel, set up a spreadsheet. Figure you costs of renting. Assume your rent will increase in step with inflation and don’t forget to include your security deposit and renter's insurance. Then, figure your cost to own. This is somewhat more complex. Remember to included taxes, maintenance costs (assume 1%-2% cost of home per year), insurance, and HOA fees (if you have them). So, even though your mortgage will stay the same, everything else goes up. Now, determine your tax benefit from owning. A lot of people like to just give out thumb rules for this because they are too lazy to actually determine the amount. You need to work out the numbers given your income and the tax rates in your area. Remember that even if you rent, you’ll still receive the standard deductions on your state and federal tax forms. So, your benefit is only that amount that your mortgage interest costs and other deductibles exceed the standard deduction. Also remember that your tax benefit will decrease each year because if you have a standard mortgage, you’ll be paying less in interest every year. At this point, you’re well on your way, but there are a number of other things to be considered. You are going to have to pay to buy and sell your house, so a dollar amount will need to be determined for that. To do this, you’ll have to determine what your house will be worth in the future. An appreciation rate of 1.5-2% above inflation would be a good guess. Also, if you have 20% for a down payment, then you could be earning interest on that money if you rented instead. Finally, you could be saving the difference between renting vs. owning or visa versa every month and gaining interest on that. Now you’ll have your numbers. Make 2 columns, one with rent costs - interest gained on down payment money – the amount any month where it was cheaper to rent than to own. In the other column, take mortgage payments + taxes + maintenance + insurance + insurance + HOA + buying/selling costs – tax break – home appreciation – the amount any month where it was cheaper to own than to rent. Whichever column is less is the better choice financially. Granted, this is a long process and will take several hours. But even if it takes you 40 hours, if it saves you $40K then isn’t it worth it? Plus, you’ll know when the best time to buy for you will be because you’ll be able to determine the home price at which it is less costly for you to buy than to rent. Good luck.

    ReplyDelete
  17. Here is a link for inventory and sales for DC area and Montgomery Cty. I follow the market closely. Prices will drop in the next 12 months. Inventory has been going up since July 2005. Northern VA has had decent price declines, as have DC condos. Montgomery is holding its own so far but if you look at pasted cycles it is clear that prices will drop in 2007.

    http://www.gcaar.com/statistics/default.htm

    ReplyDelete
  18. "
    It's called winter. Now use a little intelligence and calculate the months' supply of inventory compared with 8 months ago and come back and report to us what you find. Or better yet, a year ago. Or really knock yourself out and calculate both. Go now, we're waiting... "

    I just told you what the inventory is, and I provided you with a link. You don't like the facts, bubblehead, but they are the facts. Have a nice landlord.

    ReplyDelete
  19. "Anonymous said...
    “Inventory has been steadily declining for months in the DC area, presently at an 8-month low and down 21.7% from 6 months ago:
    http://www.housingtracker.net/old_housingtracker/location/DC/Washington/

    Bold type does not change that fact.”

    Nov 06-3166
    May 06-3278

    Bold type does not make that -21.7%

    http://www.mris.com/reports/stats "


    Has renting gotten so bad that you're willing to lie about what numbers a link will generate if I actually take you upon it and follow it?

    ReplyDelete
  20. "David, you're slipping. Posts are less frequent now for some reason, and when there is a post, it's the same tired old posts with the same old tired posters **Lance cough** blathering on about it being a great time to buy."

    That's because the guy who attacked the board won. Traffic on this site blog is down some 50% from its peak.

    ReplyDelete
  21. I returned to the DC area this summer from living abroad for a couple years. When we left we rented out our place in Georgetown for $4,050 for a nice monthly profit of a little under $1,000/month. We rented it for three years, thinking that we would buy another place when we returned in two years. Well, we're back, and renting a place for $6,500 a month rather than buy right now. Sure, we live in a nice Georgetown condo with absolutely everything, but the point is that I am prepared to put up with the hassle of moving again, the hassle of living someplace that's not my own, and the hassle of watching the market all the time while trying to decide when is the time to buy. Once I commit I don't have to worry about it, and I'd like to be there. But, I'm waiting patiently to see what happens, and I think I'll probably move back into my old place rather than buy this summer. I don't know an agent in Georgetown in DC that doesn't think values will fall another 10%. They know me, they know I own property here already, and they know I will be buying again, so they can't risk snowing me. They give me their best judgment knowing that I will base my decision about who will be my agent partly on this. If I am still waiting, it means lots of others will be waiting as well, and I think we could see values fall further. I wouldn't have believed a year ago, or even six months ago, and have been called an HH on some blogs. But here I am, still wanting to see more evidence of a bottom plateau, and we aren't there yet in DC in my judgment. One buyer's opinion for what it's worth.

    ReplyDelete
  22. Ummm... inventory is UP year over year (caps is used to emphasize that fact).

    Inventory is always lower in November than in May. That means nothing.

    Sales are lower (source- Wash Times Home Guide I picked up for free at grocery store this evening). Inventory is higher. These facts come from the correct comparison- year over year, NOT six months ago.

    As for the main question, I think the ARM users have to get flushed out of the DC market before it will seriously adjust. If, by 2009, nominal prices are down by 25% from their 2005 peak, then the inflation adjusted real price will be more like a 40-50% cut from 2005, which is what I asked for last year. At that point, I would consider looking at buying.

    A Redskins fan

    ReplyDelete
  23. Anonymous 9:16 said...
    ""They are gambling on an unknown futre."

    Um, so are you. Do you know for sure prices will go up and not down?"

    Uh, no. Once I'm in, I'm in. I know longer have to worry about what it'll cost me to live there. You still don't get it, do you? When one buys a home to buy a home, they don't sit around wondering what they can sell it for down the road. I'm not a hypocrite, I've just figured out what buying a home is about ... You're still thinking it's a share of stock or an ATM machine.

    ReplyDelete
  24. Anonymous said...
    "I would not buy right now either anon 7:29, but you could easily afford to buy that condo if you really wanted to. Your income is well above the median for the area, and your current housing cost is only 15% which is very low."

    The real concern here is that at the stage of their lives where they are making phenominal money (for their ages), they can only spare 15% for housing. Who for one minute believes they are living sparingly and putting a lot away?

    ReplyDelete
  25. "I just told you what the inventory is, and I provided you with a link. You don't like the facts, bubblehead, but they are the facts. Have a nice landlord. "

    And I told you to calculate the month's supply. You don't listen very well, do you? Also, use real stats for your numbers, not that virginia MLS BS. Try www.mris.com. Moron. Must be an idiot realtor.

    ReplyDelete
  26. anon 236,

    good advice overall, but note that this statement is incorrect:
    "Remember that even if you rent, you’ll still receive the standard deductions on your state and federal tax forms. So, your benefit is only that amount that your mortgage interest costs and other deductibles exceed the standard deduction."

    We've gone through this many times before on this blog, so I will not repeat other than to explain that the standard deduction is a government approximation of all itemizationable expenses EXCEPT mortgage interest, real estate taxes, charitable contributions, medical expenses, and theft losses. So, if you have ANY of those you should itemize since the standard deduction only itemizes states taxes and other expenses that just about everyone has. In sum, when calculating the benefit of buying, every penny of interest and real estate taxes paid counts in increasing your deductions ... NOT "the difference". (BTW, most people make the same assumption as you ... Probably because the way the tax form is written up. It is misleading.)

    ReplyDelete
  27. Anon 2:36,

    Good analysis ... But to be really acurate, you need to measure figure "lost opportunity" costs in regards to the possiblity of passing up historically ultra low interest rates and the sure probability that house prices always go trend wise. A weighted cost based on probability would be the most accurate. Of course, then judgement in regards to probability (and crystal balls) comes into play ... and the calculation becomes all the less sure. Much less sure than just "locking in when you can." And the risk? NEVER being able to lock in if you end up getting priced out as so many bubbleheads on here can attest to as they say prices have gone beyond their means in the past 5 years ... i.e., while they were waiting for lower prices, prices just continued to rise. And THAT is a real risk.

    ReplyDelete
  28. anon 5:58 said:
    "I don't know an agent in Georgetown in DC that doesn't think values will fall another 10%."

    I hate to break it to you, but you are still a HH. I don't think there is one HH on here who doesn't believe that certain areas (or even the country as a whole) could see prices fall by another 10% before they start correcting in the (?) Spring. BHs think we're going to see 30%+ drops (if they are still reasonable like David) or even 70% (if they are Robert.) The point of most HHs (or at least me) is that you can EASILY get a 10% discount NOW just by doing your homework and a lot of footwork. And doing it now while there are a lot of houses to choose from is a lot smarter than waiting for the "chance" that the market will give you that 10% discoun t AND that you'll have find the house you really want when ever other BH is out there competing against you in this supposedly "better" market. Even I would admit that if we could really expect 30% declines, then it would be smarter to just wait than to work at trying to get a 30% "discount" on your own. But most reasonable people ... yourself included ... know that that 30% is just pure fantasy. And if we're just talking about getting a 10% discount, then even a two-headed monkey should be smart enough to know how to do that. Not Robert, mind you ... But a two-headed monkey could ...

    ReplyDelete
  29. This is like watching paint dry, and trying to comment intelligently (look, a bubble!). Traffic 'should' drop on these blogs, unless you cover every aspect (Ben's blog), or cover the bigger picture (bigpicture), or have interesting topics (patrick's).

    I'm only buying in the next year if I can buy my almost-dream-house at an affordable price. Then, I could care less what the market does.
    Otherwise, I'm tracking nice props that are up to 200K above my strike price. If one of these properties falls close to my strike price, then I'd consider a low-ball offer.

    If you buy now, you need to be ok with the psychological ramifications of buying a depreciating asset.

    ReplyDelete
  30. So if you were not a person with $120k saved up, and you wanted to buy a $500k or so house to live in (big enough house commutable near big city and good schools), would you think now was a better time to buy, or later, after credit tightened?

    Before you answer, remember that as credit tightens, interest rates go up. Our first mortgage back in 1997 was at 8%.

    How long do you think it takes a young family to save $120k or so? If that family made 150k, well above the median, and saved a large 10% of the gross (very hard to do in areas with state/local income tax, like DC), it would still take 8 years to save that much.

    If you had a small family, a good-paying job, no family wealth, and only 20k or so of savings (besides retirement funds, which should not be touched until retirement) what would you do? This is a rhetorical question.

    I have never believed in the "must buy now", but I have been wrong every time I thought "must sell now".

    ReplyDelete
  31. Lance, thanks for your remarks on my earlier comments as anon 2:36. However, you may have misread my statement that “your benefit is only that amount that your mortgage interest costs and other deductibles exceed the standard deduction” when you said “the standard deduction is a government approximation of all itemizationable expenses EXCEPT mortgage interest, real estate taxes, charitable contributions, medical expenses, and theft losses. So, if you have ANY of those you should itemize since the standard deduction only itemizes states taxes and other expenses that just about everyone has.” To me real estate taxes, charitable contribution, etc. would count as the above stated “other deductibles”, but perhaps this was worded poorly. At any rate, they should all be added up and the standard deduction subtracted back out as directed unless the person, as a renter, can exceed the standard deduction by itemizing. But, acknowledging it would partially depend on the tax rates in your area, I don’t think most people have enough medical claims, charitable giving, or sales/state taxes yearly to do this. In addition, to your comment: “But to be really acurate, you need to measure figure "lost opportunity" costs in regards to the possiblity of passing up historically ultra low interest rates and the sure probability that house prices always go trend wise.” This was already factored in by using today’s “ultra low” mortgage rates in the equation and assuming a home appreciation of 1.5-2% above inflation. The chance that interest rates will go up is inconsequential because after completing the equation, if it is currently better financially for the person to be renting than owning a comparable house, then this will only become more true if interest rates go up. In which case, you’re not really losing any “opportunity”. I guess my aim was to provide the blogger with a non-biased method of determining when the most appropriate time for him to buy will be. If after working the numbers, it turns out that now would be that time, then by all means he should buy. However, the costs of renting are so attractive when compared to costs of owning in many parts of the country right now that he shouldn’t run out and buy just because people (perhaps such as yourself) are telling him to.

    ReplyDelete
  32. "As for the main question, I think the ARM users have to get flushed out of the DC market before it will seriously adjust. If, by 2009, nominal prices are down by 25% from their 2005 peak, then the inflation adjusted real price will be more like a 40-50% cut from 2005, which is what I asked for last year. At that point, I would consider looking at buying.

    A Redskins fan "

    Have a nice landlord serfdom then.

    ReplyDelete
  33. ""I just told you what the inventory is, and I provided you with a link. You don't like the facts, bubblehead, but they are the facts. Have a nice landlord. "

    And I told you to calculate the month's supply. You don't listen very well, do you? Also, use real stats for your numbers, not that virginia MLS BS. Try www.mris.com. Moron. Must be an idiot realtor. "

    So, basically you have no way to rebut the figures I posted. Thanks for highlighting that point.

    ReplyDelete
  34. "Ummm... inventory is UP year over year (caps is used to emphasize that fact).

    Inventory is always lower in November than in May. That means nothing.
    "

    Just point out that david made a false statement when he said that inventory is rising. Inventory is not rising, and has not been rising for many months now - it has been declining. Sorry if that ruins your plans to buy in 2009 at 1999 prices. You might want to consider, you know, getting a job and working for whatever it is you want to buy.

    ReplyDelete
  35. So, basically you have no way to rebut the figures I posted. Thanks for highlighting that point.

    Ummm... No. I told you to calculate months supply, but apparently you're too stupid to listen, much less perform simple arithmetic.

    Perhaps you need a little help. I will perform an example for you. These stats come from www.mris.com, and are for Fairfax and Arlington counties combined. Since you're obviously an amateur, I will explain. MRIS stands for "Metropolitan Regional Information Systems". MRIS is the premiere online real estate information service for over 60,000 real estate professionals in Maryland, Washington DC, Northern Virginia, and parts of West Virginia and Pennsylvania. MRIS is the best source for RE statistics in the DC metro area.

    November 2006
    Active Listings: 8862
    Total Sales: 1475
    Months Supply: 6.01

    April 2006
    Active Listings: 10038
    Total Sales: 1858
    Months Supply: 5.40

    November 2005
    Active Listings: 6744
    Total Sales: 1933
    Months Supply: 3.49

    So, even though inventory is seasonally down, sales are down at an even faster pace. Which leads to an increase in months supply of homes. Months supply has been trending upward all year, and it continues to do so.

    You can calculate months supply of inventory yourself by first going to mris.com, select your favorite county, divide the active listings number by the total sales number and bingo! you have months supply.

    Now, your homework assignment: calculate months supply for all counties in the DC metro area. If you do this and report back your findings, you will get a special prize. Go now.

    ReplyDelete
  36. Anonymous said...
    “Has renting gotten so bad that you're willing to lie about what numbers a link will generate if I actually take you upon it and follow it?”

    Renting continues to be more affordable than buying so, no, it isn’t bad at all. Moreover, those numbers are generated by MRIS, not by someone on this blog.

    Has your ARM re-set so many times that your afraid to follow inventory trends?

    I’ll give you one more thing to watch. How about the trend in foreclosures?:

    Report Reveals 2.2 Million Borrowers Face Foreclosure on Subprime Home Loans


    http://biz.yahoo.com/prnews/061219/dctu021.html?.v=78

    ReplyDelete
  37. And yet inventory continues to fall. Looks like you messed up in your calculations or something. Your way, inventory goes up. My way (reality) it doesn't.

    Hope your landlord doesn't barge in while you're on the shitter.

    ReplyDelete
  38. "
    Renting continues to be more affordable than buying so, no, it isn’t bad at all. "

    Only if you feel like moving every couple of years. Have fun with that. I pass.

    ReplyDelete
  39. Renting continues to be more affordable than buying so, no, it isn’t bad at all. Moreover, those numbers are generated by MRIS, not by someone on this blog.

    Has your ARM re-set so many times that your afraid to follow inventory trends?

    I’ll give you one more thing to watch. How about the trend in foreclosures?:

    Report Reveals 2.2 Million Borrowers Face Foreclosure on Subprime Home Loans


    Good post, Robert. Housing bulls have no argument to make. Every statistic is trending toward the bear argument. The last stat the bulls had to stand on, YOY appreciation, turned negative months ago.

    Folks, it's over for RE. Now the question is this: What will the RE bust impact be on the broader economy? Will we see another Great Depression, or will the general economy somehow manage a soft landing? Discuss.

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  40. Anonymous said...
    “Hope your landlord doesn't barge in while you're on the shitter."

    You know, that reminds me, he was here just a few days ago fixing a few things around the house whilst I lounged about in flannel PJs enjoying a mug of hot cocoa.

    “Only if you feel like moving every couple of years. Have fun with that. I pass. “

    As a matter of fact, I have been thinking about moving. With rental inventory climbing, I do have quite a few options to choose from. Oh well, regardless, move or no move, when this lease is up, it’ll be time to negotiate rent and the increase in rental inventory can only help lower my cost.

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  41. Yeah, I'm sure all the news stories about the hyperinflationary rental market are lying. Tally ho! And enjoy the landlord in your place while you're in your pajamas!

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  42. Well, renting does suck especially if you have kids in school (I do). But I think the flip-side is worse.

    One comment about high interest rates: they can be a pensive buyers good friend. Consider locking in a $500K house at 5.5%, and suppose in 5 years rates are at 9%. BEAR with me here... There's no way you're going to re-sell that house for $500K, unless we have real strong wage inflation. The equivalent mortgage (P&I) at 9% is $350K.

    All factors being equal, I'd rather pay $240K at 14% , since I can always refinance later and deduct the interest now (I know someone who did this exact think - it worked out rather well).

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  43. "Just point out that david made a false statement when he said that inventory is rising. Inventory is not rising, and has not been rising for many months now - it has been declining. Sorry if that ruins your plans to buy in 2009 at 1999 prices. You might want to consider, you know, getting a job and working for whatever it is you want to buy."

    David can defend his own statements, and I don't know what he said. Having said that, I think you are being purposefully obtuse. Inventory ALWAYS falls between spring and winter-- housing is a seasonal product. Saying that inventory is down from April or June is stupid, and I think you know that. Inventory is UP from the same time last year, which is the only valid comparison.

    I don't have "plans" to buy in 2009. That was a mild prediction. Other than going to a few housing bubble blogs, where I enjoy reading about the madness (just as I did with internet stocks seven years ago), I am not watching housing. Either it goes down a lot, and then I will think about buying, or it doesn't, in which case I will continue renting. I'm happy either way. However, I do see no way that real prices can stay this high.

    A Redskins fan

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  44. Anonymous said...
    “Yeah, I'm sure all the news stories about the hyperinflationary rental market are lying.”

    And I’m sure that locally there has been an increase in rental inventory. What does your rental inventory look like locally?

    Or, do you just want to continue with the pulling pigtails, shooting spitballs and paints on fire mentality?

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  45. Yeah, I know RSF - you have no money so obviously nobody can afford anything. You don't need to post anymore - your repetitive message has been heard.

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  46. "Anonymous said...
    “Yeah, I'm sure all the news stories about the hyperinflationary rental market are lying.”

    And I’m sure that locally there has been an increase in rental inventory. What does your rental inventory look like locally?

    Or, do you just want to continue with the pulling pigtails, shooting spitballs and paints on fire mentality? "

    What are you talking about? The fact of the matter is that rents have been skyrocketing in DC. Inventory may be on the rise (though I haven't seen anything that shows a significant rise in rental inventory at all), but not nearly enough to cool of the rental market. Where do you think all of those people who are not buying are choosing to live now? Their cars?

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  47. People who don't buy now will simply get roommates, move to less expensive locations, or live with mom and dad. I realize this is not a sexy situation for most people, but it's a reality for many young people who can not afford or choose not to buy a home. But then several people on this blog have said those who can't afford shouldn't have an opinion anyway..so I apologize for the off topic posting.

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  48. anon 2:31. You are full of it. Rents in the dc area are dropping like a rock. My rent dropped 3%. renewed my lease on november 1st. The property I live on has at least a 10% vacancy rate and they are offering rewards for tenant referrals. My old apartment complex from 2 yrs ago called me and offered me 2 months free rent and the same per month rent I paid in 2004 to come back. Much of my coworkers are saying the same thing. Rents are without a doubt coming way down.

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  49. Anonymous said...
    “What are you talking about? The fact of the matter is that rents have been skyrocketing in DC. Inventory may be on the rise (though I haven't seen anything that shows a significant rise in rental inventory at all), but not nearly enough to cool of the rental market. Where do you think all of those people who are not buying are choosing to live now? Their cars?”


    What do you use to follow rental inventory?

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  50. anon 7:48, good post again and yes I agree with your method of calculating tax advantage ... However, most people won't want to get that complicated, and in all fairness just calculating potention tax savings based on the real-estate related deductible expenses (i.e., mortgage interest, property tax, etc.) will give you a better-than-ball-park figure to use in your calculations. Yes, it might be off by 10% or 20% ... but so will other estimates in your calculations. It all comes out in the wash in the end. There were however earlier posters on here who really believed it was a one or the other (std or itemized) decision ... (which of course it is until you understand that std is made up of all non-real estate related expenses as estimated by the IRS.)

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  51. Location, location, location ... buy in a place where you're close to thing. Employment, conveniences, nightlife, transportation. Buying in Warrenton, Leesburg, or these fringe suburbs is foolish because it's just part of the horrible sprawl. Jobs will always be here in DC. This is the seat of the government and it's not going anywhere. If we have to worry about serious government problems, then we have bigger things to care about than the market value of our homes.

    DC is still a good long term investment even if you lose 10-15% in 2-3 years. There's no way you're going to see a 60% price deduction in DC itself. Possibly in the outer suburbs, but you have to be foolish to buy there in my opinion (unless that's where you work).

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  52. "Yeah, I know RSF - you have no money so obviously nobody can afford anything. You don't need to post anymore - your repetitive message has been heard. "

    No, RSF is rich. All rich people rent apartments in Silver Spring. Silver Spring is the new . . . ah, forget it, I can't keep a straight face.

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  53. anon 5:47 said:
    "No, RSF is rich. All rich people rent apartments in Silver Spring. Silver Spring is the new . . . ah, forget it, I can't keep a straight face."

    yep, that's right ... I heard they built those new retail spaces for Cartier et al. out in Friendship Heights because Silver Spring had become unaffordable ... (okay ... I'm losing my straight face now too!)

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  54. "anon 2:31. You are full of it. Rents in the dc area are dropping like a rock. My rent dropped 3%. renewed my lease on november 1st. The property I live on has at least a 10% vacancy rate and they are offering rewards for tenant referrals. My old apartment complex from 2 yrs ago called me and offered me 2 months free rent and the same per month rent I paid in 2004 to come back. Much of my coworkers are saying the same thing. Rents are without a doubt coming way down.

    "

    Why would anybody believe you and not the million news accounts there have been on this story? The bubbleserfs have really hit a new low.

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  55. The best time to buy a house is, and always will be, when you're ready.

    There has been too much focus recently on the bubble-mania and not enough on what really matters, quality of life.

    In making the decision to buy or not, equal weight/focus should be given to all factors - family, readiness, price, affordability, just to name a few. Getting caught up in only one or two factors, like timing and price, can leave you second guessing.

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  56. Now is a good time to buy...prices are down 15%++ and interest rates are still very low. If you wait another year to buy will interest rates still be at 6% ??? Right now everyone seems to think it's the end of the world in the real estate market. This is the type of thinking that always prevails at market bottoms.

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  57. "The best time to buy a house is, and always will be, when you're ready.

    There has been too much focus recently on the bubble-mania and not enough on what really matters, quality of life.

    In making the decision to buy or not, equal weight/focus should be given to all factors - family, readiness, price, affordability, just to name a few. Getting caught up in only one or two factors, like timing and price, can leave you second guessing."

    December 22, 2006 9:01 PM
    -------------------------

    HORSESHIT! Whatever helps you sleep at night anonypuss!!!

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  58. "Rents Rise as Apartment Market Is Squeezed"

    http://www.washingtonpost.com/wp-dyn/content/article/2006/07/04/AR2006070400969.html?nav=rss_rentals

    "Rents are already rising rapidly, and the completion of luxury towers and new shopping centers will put pressure on landowners to hike rents further or convert buildings to condos."

    http://www.connectionnewspapers.com/article.asp?article=74557&paper=60&cat=104

    "In trendy Adams Morgan, in the midst of a protracted eviction battle this fall, came the broken windows, cut electrical lines, a death threat from strangers pounding on doors and a brazen arson that caused a fleeing tenant to fall from the second story and break her leg."

    "Tenants have accused management of orchestrating a campaign of fear and violence to get them to give up their rent-controlled apartments to make way for extensive renovations that ultimately would generate higher rents from new tenants."


    http://www.washingtonpost.com/wp-dyn/content/article/2006/12/09/AR2006120900838.html

    "Inflation fell or rose at a slower rate for most categories of goods and services. Housing was the exception, with prices up 0.4% on hefty gains in hotel fares, rents, and owners' equivalent rent. The CPI excluding shelter fell 0.2%."

    http://www.smartmoney.com/bn/ON/index.cfm?story=ON-20061215-001008-1209


    Denial ain't just a river in Egypt, Bob.

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  59. Good article!,

    I want to give my two cents here. It seems to me that most of the comments here refer to as 'buying' an liability (in this case a real estate property). Also, assuming the morgage payment to be a expense rather than an income. Therefore i assume you guys are talking about a commodity rather than an investment.

    In my book, buying a house, condo, etc. where you plan to leave in it is consider a liability and not an investment. I do not care if you 'bought' it at the right time or not. Of course, buying at the right time/price is the 'key', most important is what you are buying, and it is your choice (liability or investment). An investment its when you purchase an asset and makes money for you enough to cover you expenses. If there is money left, its consider a plus, since it is increasing you cash flow that in anyway if far better than renting or owing a single family, condo. So you are renting and paying lets say $850 a month. You share that with someone else and now you are paying $425. And you can always move in 100 more in (if the landlord allows it) and still you are going to have to pay your share to the landlord.

    We all know that no matter how much real estate market goes down, it is always going to shoot up with time. there is lots of factors including inflations and real estate market performace. I do agree the time to buy it is noway near yet, but no matter how much goes down, at some point;10, 15, 20 years from now it is going to shot back up with double digits profits.

    Now the trick here is stay in the sidelines until you find a deal. forget about the market; some say it will go up, others it will go down and the real truth is "noone knows". But i know one thing, history teaches us that the real estate market its a cycle and every cycle is pretty much the same or equal. The last real estate bubble burst early 90s, and just happen again in the 2006, and i am pretty sure it will happen again somewhere in the next cycle, wherether you buy high or low, you still going to make some profits.

    Bottom line, focus on that great property that can pay for itself. Whatever is your preference. If someone is losing there house because they can't effort to pay the morgage, this might be a great deal for you; make an offer. Rent the property and make sure if pays all the bills while rented, no $$ out of your pocket its far better than $850 a month for rent, or better yet, over a $1,000 for morgage payment of from a house you live in. If it pays for itself, its free money, and you don't have to worry about the market situation.

    I myself own a house which i bought in 2003. I currently rent the second floor which pretty much pays for the morgage. I thought of selling the home early 2006 for an easy 140,000 profit, but i decided that if i sold my property i might have to rent or buy another one. Buying another house was out of the question for obvious reasons, and the rent was around $1,000 with no utilities included. So to take a 140,000 profit and have a 1,000 out of my pocket every month, or forget about the profit, let the house pay for itself regardless of the house value, and save that $1,000 which you can invest in something else.

    This is a great blog with great information, and thank you for giving me the opportunity to express my own opinion.

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  60. I agree renting is much cheaper than buying, I pay only $600 per month for a one bedroom in phoenix. they coverted many of these style apartments to condos and it would cost me over $150k to buy one at current prices. they are everywhere for sale. I'm waiting to get a steal in my rent when they can't sell them all off and are forced to rent them. If i had that 150k in cash i would earn enough interest to pay my rent..assuming 5%. to buy would probably double my rent closer to 1200. plus insurance, trash, water. plus the noisy neighbors that i can never get rid of..atleast if i get a bad neighbor..i can move! don't be a fool and buy in this still hugely overpriced market in phoenix!

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