Tuesday, February 27, 2007

As Housing Run Ends and Reverses, Property Assesments Fall

In Northern Virginia the runup in housing prices came to an end and prices are now declining. Acoordingly, property assessments are down.

A six-year run of double-digit percentage increases in Fairfax County home assessments came to an abrupt end yesterday, as notices mailed to taxpayers showed that their properties have lost value for the first time since 1998.

Fairfax's falling assessments are consistent with declines reported by other Northern Virginia localities in recent weeks. In Loudoun County, the average assessed value of a single-family home dropped 7.1 percent. Preliminary estimates show a 4 percent drop in Prince William County. Arlington County housing values are down eight - tenths of a percent, and Alexandria's average fell about 3 percent.

Under Virginia law, property assessment are valued to be at "100 percent of fair market value. The Virginia Supreme Court has provided the following definition of fair market value: The fair market value of a property is the price which it will bring when it is offered for sale by one who desires, but is not obliged, to sell it, and is bought by one who is under no necessity of having it."

The declining assesments are more evidence that this housing market is undergoing significant decline. Expect further declines in property assessments next year.

63 comments:

  1. David,

    While interesting... its but the tip of the iceburg. Yes, a 7.1 percent drop is noting to get excited about.

    Now, news articles from about 18 months ago noted that "the affluent" were margining stocks to buy homes. The question is...

    How will the two sectors behave in the coming months? I'll freely admit I didn't expect the stock market to catch on until June. Most likely, it will rebound and correct at a future date... or will it?

    I personally believe it will be a slow "grind" down... but if the stock market corrects more, that will significantly impact stock options and thus high end real estate... hmmm...

    Keep your powder dry...

    Got popcorn?
    Neil

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  2. Interesting news... followed by an interesting day in the stock market... will be curious to see what happens tomorrow...

    Still a ways to go before even looking to buy as there are still so many people hoping to make 100k on their 2 year "investment".

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  3. It's really interesting to see the ups and downs of the market in this day and age. It seems that even though we are all just a stone's throw away, the volatility is enormous! If we could all just band together a little more, we'd all be a little or alot better off!

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  4. I don't know about in Virginia, but I have heard complaints that the following may happen in Maryland (maybe just in some counties):

    Joe owns a house. In 2002, it had an assessment of $250,000. By 2006, it has an assessment of $500,000. But Joe is not getting taxed as if he had a $500,000 house, as there are property tax caps per year, so he pays taxes in 2006 as if he had a $400,000 house. (Slowly, his payments are working their way up to those appropriate for a $500,000 house).

    Problem is, lowering his assessment to $450,000 in 2007 then would not stop a tax increase for Joe in 2007.

    But I'm not a homeowner, so I don't know.

    Another issue: if property taxes ever did begin to fall- i.e., really fall in terms of money to the locality, that is not good for homeowners either. In Montgomery County where I live, I can see the county flood places like Silver Spring and Wheaton with cops & security when the county wants to have a big development project. But if money becomes tight, you can't do that as easily, and then neighborhoods begin to decay. The same effect can happen with roads, schools, etc.

    We had a good thing going in this country... solid neighborhoods built on stable ownership by people putting 20% down on ONE house. It worked for 50 years, and then we decided to change it. The potential negative effects may have only begun.

    A Redskins fan

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  5. Very interesting. This fall I went house hunting near Culpepper. The houses I looked at typically had tax assessments 1/2-1/3 of the asking price. I realize that assessments can lag markets - but it scared me away from buying.

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  6. Sort of a tangent: In a Business Week article, Greenspan was quoted a saying that we're headed for a recession. Not exactly sure how it follows, but seems that if this is so, the Fed might lower interest rates towards the end of 2007--assuming there isn't a significant increase in oil prices, or so I understand.

    But even if this happens, it seems an economy in recession, together with tightening credit standards and refusals to buy back risky loans by the appropriate govt agencies (Freddy Mac's announcement), and continuing increases in default and foreclosure rates...all of this means a not so rosy outlook for housing in the years to come. While I don't feel sorry for the so-called investors, I do feel somewhat bad for your average homeowner who bought late in the game and with risky loans, in great part because the REIC told them housing is a safe investment and they can always refinance.

    But I guess **everyone** who participated in inflating the bubble has made their beds, and now they get to lay on them.

    --SSH Anon.

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  7. http://www.youdovoodoo.com/80sbubble.htm


    This is a must read. Scroll down to 1981 and read on.

    See anything familiar?

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  8. From today's CNNMoney.com:

    New home sales plunge
    Annual pace, below 1 million, posts biggest monthly decline in 13 years; rising glut of homes for sale hits prices.

    New home sales saw their steepest plunge in 13 years in January, a government report said Wednesday, as a rising glut of new houses on the market pushed prices lower.

    The decline in sales hit every region of the country, from a 8.1 percent drop in the Midwest to a 37.4 percent dive in the West. The South, which accounts for more than half of the nation's new home sales, saw January's pace off nearly 10 percent compared to December.

    The percentage decline was biggest for a single month in 13 years, since the record 23.8 percent decline seen in January 1994. It is also the sixth largest one-month fall on record.

    "Let's cut to the chase - these numbers were ugly," wrote Mike Larson, real estate analyst at Weiss Research in Jupiter., Fla. "While the month-to-month changes in new home sales figures can be volatile, the magnitude of the decline is impressive.

    "This speaks volumes about the ongoing weakness in the housing sector. Inventories remain elevated. Housing affordability remains low, historically speaking," Larson continued. "And now, mortgage lending standards are tightening. All of this bodes ill for the 2007 spring selling season. I don't expect a true, lasting rebound in housing until at least 2008."

    You can read the rest of the article here.

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  9. Time for the contrarian moment on this blog:

    Inventories down again this week. They're 11% above inventories at the same time last eyar

    Last year change in inventories from 01/01/06 to 02/28/06 - +1388

    Change in inventories from 01/01/07 to 02/28/07 - (- 208)

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  10. Also from CNNMoney.com:

    Home improvement retailer Home Depot said early Wednesday that a recovery in the battered housing and homebuilding market is still as much as a year away, and warned that its sales and earnings will take a hit.

    Click here for the full article.

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  11. Interestingly enough, the WaPo reports today that recent assessments in DC for 08 have skyrocketed (9% on average citywide, and as high as 30 - 47% in some areas). At least the Office of Tax and Revenue is optimistic about DC property values going forward. Not that OTR is the one to provide an objective analysis on this matter.

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  12. Guadalupe-Hidalgo 1848February 28, 2007 11:39 PM

    I propose to eliminate the state of Maryland income tax, the revenue to be replaced by increased property taxes. Home-owners have had a free ride since 2000, now it is time for them to give up their ill gotten gains.

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  13. interesting news from Bloomberg

    http://www.bloomberg.com/apps/news?pid=20601087&sid=apRkhifEnNUY&refer=home

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  14. Anonymous said...
    "At least the Office of Tax and Revenue is optimistic about DC property values going forward."

    Assessments reflect PAST changes in value. I.e., the FY 2008 assessments are based on ACTUAL assessment area increases experienced in the last 12 months. While on an individual basis they are far from accurate because of the pecularities of how these logged assessment area increases are allocated across the individual properties within the assessment area, on the whole the aggregate changes tend to be pretty close. That is because the overall increases/decreases are based on the change in value of "same" houses/condos that were sold during the period being looked at. I.e., like the S&P index discussed earlier, value changes in "same" properties within a particular neighborhood/assessment area are captured via sales data and then applied across the whole of the properties. (Allocation to individual properties in an assessment area is where the "error" in respect to individual home valuations is introduced. Those doing the allocating between individual properties can't possibly know everything that distinguishes these individual properties lying in the assessment area.)

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  15. Okay, twice I've posted about wishing my assessment value had gone done like those in Nova and not up 18% like it did in the last assessment notice (for FY 08). And twice I'm not seeing it on here. What is going on? David, are you censoring posts?

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  16. An intersting article from today's WSJ. Wasn't it just last week that the mid-level market was fine?

    Mortgage Defaults Start to Spread
    New Data Show That Nontraditional Loans Are Beginning
    To Haunt Borrowers With Midlevel Credit; Prime Still Fine
    By RUTH SIMON and JAMES R. HAGERTY
    March 1, 2007; Page D1

    The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.

    At issue are mortgages made to people who fall in the gray area between "prime" (borrowers considered the best credit risks) and "subprime" (borrowers considered the greatest credit risks). A record $400 billion of these midlevel loans -- which are known in the industry as "Alt-A" mortgages -- were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%.

    The catch-all Alt-A category includes many of the innovative products that helped fuel the housing boom, such as mortgages that carry little, if any, documentation of income or assets, and so-called option adjustable-rate mortgages, which give borrowers multiple payment choices but can lead to a rising loan balance. Loans taken by investors buying homes they don't plan to occupy themselves can also fall into the Alt-A category.

    BORROWED TIME


    Default rates are increasing on so-called Alt-A mortgages, which include the following:
    • Loans to borrowers with midlevel credit scores that fall between "prime" and "subprime."

    • Many mortgages made to borrowers who provide little, if any, documentation of their income or assets.

    • Option adjustable-rate mortgages, which give borrowers multiple payment choices but can lead to a rising loan balance.

    Borrowers who take out Alt-A mortgages are considered less risky than subprime borrowers because of their higher credit scores. But as the housing market cooled and loan volume declined, some lenders lowered their standards for Alt-As. Now a rising number of borrowers who took out these loans are running into trouble.

    Data from UBS AG show that the default rate for Alt-A mortgages has doubled in the past 14 months. "The credit deterioration has been almost parallel to what's been happening in the subprime market," says UBS mortgage analyst David Liu. The UBS report contrasts with testimony Federal Reserve Board Chairman Ben Bernanke gave to Congress yesterday. "Our assessment is that there's not much indication that subprime issues have spread into the broader mortgage market," Mr. Bernanke said.

    To be sure, defaults have remained very low in the prime market -- and despite the uptick in bad loans, the problems in the Alt-A sector aren't as severe as those that have roiled the subprime market. Some 2.4% of Alt-A loans are at least 60 days past due, according to UBS, which looked at mortgages that were packaged into securities and sold to investors. That is well below the 10.5% delinquency rate for subprime mortgages. (During the housing boom, delinquencies were low for all types of loans because borrowers who wound up in trouble could refinance or sell.)

    Some borrowers who took out Alt-A loans in recent years are starting to feel the strain. Johnny and Shirley Johnson, retirees in Cleveland, took out an option ARM when they refinanced their $92,700 mortgage in July 2005. The loan carried a 3.5% introductory rate that began moving upward a few months later. The couple, who live on a fixed income, are currently making the minimum payment on their loan. But they are afraid they won't be able to keep up with their loan and other debts once their monthly mortgage payment adjusts upward later this year.

    "We don't want to lose our home," says Ms. Johnson. The couple is working with Acorn Housing Corp., a nonprofit group that provides housing counseling, in an effort to refinance into a 30-year fixed-rate mortgage. Though the monthly payment would be higher, the new loan would protect them against future increases.

    Housing counselors and bankruptcy attorneys say they are seeing an increase in troubled borrowers who previously had good credit. "We have clients with 720-plus credit scores, and they are in awful products," says Jennifer Harris, executive director of the Home Loan Counseling Center in Sacramento, Calif. Some of these borrowers took out option ARMs with low introductory rates and are likely to fall behind when their monthly payment resets at a higher level, she says.

    Thomas Gorman, a bankruptcy attorney in Alexandria, Va., says he is seeing more financially strapped borrowers who "probably bought more house than they could afford and then took on more credit-card debt" to furnish the house and pay for the move. When the housing market cooled, they were "caught in the middle," unable to sell their home or refinance and make their debt load more manageable.

    Lenders are also tightening their standards. At a meeting with investors last week, IndyMac Bancorp Inc., the nation's largest Alt-A lender, said it had raised the minimum credit score at which borrowers could finance 100% of a home's value and took a number of other steps to tighten lending guidelines.

    This week Lehman Brothers Holdings Inc.'s Aurora Loan Services unit raised the minimum credit score and reduced the maximum amount homeowners could borrower without documenting their income and assets.

    Impac Mortgage Holdings Inc., which specializes in Alt-A loans, said recently that it had tightened its lending standards 17 times last year. The company cut back on riskier loans and began relying more on analytical tools to verify a borrower's income and creditworthiness. Other lenders were quick to scoop up many of those loans, but now they are also pulling back, says Impac President Bill Ashmore.

    Lou Barnes, a mortgage banker in Boulder, Colo., says a client with a good credit score was turned down this week for a mortgage to buy an investment property with a small down payment and no documentation. That same borrower was approved for a "nearly identical" loan in August and November, he says. Still, Mr. Barnes calls the tightening "modest." Alt-A lenders are "nibbling at the edges," he says.

    The UBS study found that the problems are greatest for Alt-A borrowers who took out interest-only adjustable-rate mortgages, which allow borrowers to pay interest and no principal in the loan's early years, with 3.71% of interest-only ARMs originated in 2006 at least 60 days past due. As in the subprime sector, the riskiest loans are those made to home buyers who put little, if any, money down and don't document their income or assets.

    As delinquencies rise, some investors who bought lower-rated securities backed by these mortgages are likely to face losses, according to Mr. Liu of UBS. While defaults are expected to be lower than in the subprime sector, so are the reserves set aside to cushion bond investors against such losses.

    Defaults are much lower for option ARMs. But the problems with these loans could be "backloaded," says Mr. Liu, because borrowers with these loans are still making the minimum payment.

    Glenn Costello, a managing director at Fitch Ratings Inc. in New York, expects the foreclosure rate for Alt-A loans to ultimately be only 10% to 20% of the rate for subprime borrowers.

    Yet investor concerns about Alt-A loans are rising, according to Walter N. Schmidt, a mortgage investment strategist at FTN Financial Capital Markets in Chicago. A report from mortgage analysts at Barclays Capital in New York this week pointed to fraud as one reason for early defaults on Alt-A loans. The mortgage industry is battling a rash of cases in which borrowers, loan officers and appraisers collude in providing false information to induce lenders to advance more money than homes are worth.

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  17. "I propose to eliminate the state of Maryland income tax, the revenue to be replaced by increased property taxes. Home-owners have had a free ride since 2000, now it is time for them to give up their ill gotten gains. "

    Do you even know what "ill gotten gains" means? Because it really sounds like you don't.

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  18. "Weather that was warmer-than-average in December helped to boost sales that month and may have had the opposite effect on the figures in January as winter storms gripped parts of the country at month's end, economists said. "

    This is the key here. December wasn't as good as it looked, January wasn't as bad as it looked (particularly by comparison to December).

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  19. Guadalupe-Hidalgo 1848 said...
    "I propose to eliminate the state of Maryland income tax, the revenue to be replaced by increased property taxes. Home-owners have had a free ride since 2000, now it is time for them to give up their ill gotten gains."

    Ha! Actually, you are very correct that the state (including the feds) give tremendous tax breaks to homeowners. Whether justified or not, the rationale is that homeowners give a lot back to the community via "pride of ownership" and stability. A similar tax break is given to familes ... especially family with children. Whether any of this is really justified is of course arguable, but that which isn't arguable is that if you are a homeowner, you are getting subsidized by the state which means by those who aren't homeowners. ... Ergo, another reason why over the longrun the expenses of owning a home are far cheaper than the expenses of renting one. But of course, many of you on here don't look at it as an expense ... but instead an "investment" ... so, I guess this wouldn't matter to you ...

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  20. "But of course, many of you on here don't look at it as an expense ... but instead an "investment" ... "

    Those of us who are financially literate look at it as an investment. Rent is an expense, buying is an investment with a hoped-for return of lower future housing expenses. The return therefore depends on your forecast rate of rent growht in an area. Which part of this don't you get, Lance? I'm typing as slowly as I can for you.

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  21. The Alt-A story is relatively more important for the DC market than the subprime story. There was a fair amount of Alt-A type-stuff going on in DC, and not so much subprime.

    On the other hand, we've still seen falling inventories during the first two months of '07, as opposed to rising inventories during the first 2 months of '06.

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  22. Lance said
    "tremendous tax breaks to homeowners."

    Actually if you run the numbers your tax breaks are supposed to cover your property tax which means you actually net nothing. And, if you have a paid off home, you get zero tax breaks. NOW, if you really run the numbers.... Someone putting 20% down on a 30 years fixed will pay 3 times the value of their home. The TAX BREAKS in no way cover the recoup of that money. This is why any good finanical advisor will tell you that the average person should pay off their home as fast as possible, of course, while still saving in their 401k, etc. Lance, you never did answer my question. YOU SAID that 2009 would not see any price drop.. FACT. Yet, as someone has posted, it has.. to the tune of about 5%, I dont remeber the actual number. Maybe 3, maybe 10% drop. Are you ready to admit you were wrong on that one? OR should I say man enough?

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  23. Interesting tidbit:

    "Personal income increased by a full percentage point in January, the biggest increase in a year as executives collected what were described as "unusually large bonus payments," and federal workers enjoyed a pay raise. That put a billion extra dollars in consumers' pockets and fueled a healthy $51.9 billion jump in consumer spending -- good news, given that consumer spending accounts for about two-thirds of the country's economic activity."

    If I were looking to buy, I would accelerate the process. Pressures are going to come to bear to start driving prices higher again very very soon. And of course, if interest rates go anywhere, it will be up.

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  24. You've been accused by the blog David Lereah Watch of being too bullish. What's it like to have an online antagonist? At first I was kind of laughing. And now, it's enough already. This is a 26-year old that could not afford a townhouse and blamed it on the boom. And then he said, Who's talking about the boom and my name kept coming up. So I became Satan to him.

    The worst was that my mother read one of those things, and she almost started crying. And I had to say, Mom, you have to have thick skin. I'm going to be in the public and make statements about real estate, and if someone doesn't like what I'm saying, they have every right to say something opposing me.

    Now should they go so far as to call me Satan? I don't understand where that's coming from. That's just weird.

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  25. The Economist has a good article about how the growing problem with subprime loans could push housing prices lower.

    "Already Freddie Mac, the government sponsored lending giant, has said it will stop buying high-risk mortgage loans, as of September. The absence of buyers could drive house prices down further, reducing the value of other lenders' collateral. The market plunge on February 27th could be a sign that the subprime sell-off is turning into prime-time news."

    The article is here.

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  26. "Actually if you run the numbers your tax breaks are supposed to cover your property tax..." - really stupid post by Real Bob. Not because he is wrong (he is actually right), but because he mis-fired - Lance is totally clueless in tax issue. Waist of time. Sorry Bob if I offended you.

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  27. Lance said...
    “……Pressures are going to come to bear to start driving prices higher again very very soon. And of course, if interest rates go anywhere, it will be up.”

    If foreclosures, the number of lenders folding, or inventory go any where, it will be up.

    What other pressures are you referring to “Lance”?

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  28. "If I were looking to buy, I would accelerate the process. Pressures are going to come to bear to start driving prices higher again very very soon. And of course, if interest rates go anywhere, it will be up."

    Sometimes I wonder if you are serious or kidding, or more likely, David trolling his own blog. You're way off base with this one. Personal savings still negative, and bonuses come once a year - they're often spent before they're received. They will have NO significant effect on the economy, much less housing in the long term. Downward price pressure continues, accept it.

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  29. Here is a transcript, via WSJ, of Alan Greenspan's comments earlier this week, regarding the state of the housing market:

    Mr. Greenspan was asked about the impact of a collapsing housing bubble.

    Greenspan: It always gets down to the question of what the definition of a bubble is. I used the term when I was in office that there was clearly significant froth, meaning a lot of little bubbles but no big ones. Now we are now well into the contraction period and so far, we have not had any major significant spillover effects on the American economy from the contraction in housing. Single family housing starts for sale are down quite sharply and indeed, as best we can judge, at the levels they currently are is implicitly creating a reduction in the very high inventory of new homes, unsold new homes. The reduction is somewhere in the area of 15 to 20, possibly 25,000 a month. Now I sense that to get back to normal we have to reduce this aggregate level of unsold new homes by about 200,000, so I think as I said numerous times in recent months, I think the worst of the housing boom and contraction or whatever you want to call it, bubble … is behind us.

    That doesn't mean we may not get further declines in starts or we may not get spillover such that it brings the general price level not only to zero change, which is where it is approximately now, but actually go negative. I assume in fact that is more likely than not. But we do not have any seriously important evidence to suggest that, at least to now, the housing boom and the adjustment process has been a major factor underlying the growth rate of the economy. I'd like to say parenthetically that the fourth quarter gross domestic product which was released a short while ago will be revised down significantly, but that's largely in part because inventories are lower and in fact partly because of housing inventory liquidation as well. So I don't think that in anyway undermines the general rather benevolent view that I have about the intermediate period and the short run, provided nothing happens that is, as I said before, wholly unexpected.

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  30. Lance said...
    something correct!

    The government does indeed give tremendous tax breaks to homeowners. Most definitely, the heaviest tax burden in this country falls on single, non-homeowners with no children. And it is totally unjustified. Historically, it has generally been vastly cheaper in the long run to buy a home than to continue to rent. Homeowner tax breaks just make it even more profitable to buy a house. Even now, with houses so incredibly overpriced, buying a house is still in the long-run approximately a break-even investment as compared to continuing to rent. (Of course, it still makes more sense to me to hold off on buying while prices continue to drop.)

    But I disagree about the 1% personal income increase in January pressuring prices upward. It sounds like that increase was concentrated among relatively few people (with most of the increase going to executives). So people in general wouldn't have any more money to spend on houses. Besides, how many people can there be left who are REIC-brainwashed enough to believe, as home price decreases accelerate, that now actually is a good time to buy (and at the same time to sell, as I'm told)?

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  31. "Actually if you run the numbers your tax breaks are supposed to cover your property tax..." - really stupid post by Real Bob. Not because he is wrong (he is actually right), Real Bob is a fag, but because he mis-fired - Lance is totally clueless in tax issue. Waist of time. Sorry Bob if I offended you.

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  32. "If I were looking to buy, I would accelerate the process. Pressures are going to come to bear to start driving prices higher again very very soon. And of course, if interest rates go anywhere, it will be up."

    You could have posted this in the fall of 2000 for all we know. Many people made similar comments at that time.

    I would be very concerned about the contraction of credit that is taking place in the market right now. Low income folks already have low consumer confidence, which isn't a huge problem since they don't have much disposable income to begin with. But when big shot investors see what is happening to the market now, after such an extended period of low volatility (which has been mistaken too often as low risk), I would be deeply concerned because once the big shots take their money off the table, the game is over. This market is starting to spook people with significant assets. (Psychology is a bitch.)

    I see a ton of experts making a lot of general positive comments not too different than the one you made above. Their bullishness does not bring me comfort. If your "prices driving higher" comment was in reference to treasury bonds, then you would be correct.

    P.S.: Subprime market is starting to enter significant meltdown mode. New Century is being investigated and Fremont was issued a cease-and-desist order by the FDIC to close their subprime mortgage lending arm.

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  33. There's a bubble bursting! and it's the bubble of bubble blogs! With no updates to this blog in several days to view, I found myself randomly looking at two of the other bubble blogs listed on the right ... the Marin Real Estate Bubble blog and the Calgary Contrarian blog ... and they're both closing up shop! Hmmm ... David is rarely posting nowadays ... and then everywhere I look these blogs are shutting down. This reminds me sort of what happened when the year 2000 came and the world didn't implode as the fringe "doom and gloom" groups had predicted. Of course, none of them conceded they'd been wrong ... They just claimed their predictions were taking longer to play out then they'd thought ... Then they left ... never having to respond to their critics who in the end were right in simply saying "we've seen it all before ... the world didn't end then and it won't end now." Too bad though that the bubble blogs themselves are ending ...

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  34. With no updates to this blog in several days to view, I found myself randomly looking at two of the other bubble blogs listed on the right

    Umm.. Just go read/watch the mainstream media. The housing bubble is not a "fringe" idea anymore.

    reminds me sort of what happened when the year 2000 came and the world didn't implode

    Err... The Nasdaq today trades at less than half its peak in 2000. This is AFTER SEVEN YEARS. If you don't even know what happened, how do you even pretend to predict what's gonna happen.

    Hop along Lance. Go watch CNBC every morning and you might learn something. Go read about the lender bankruptcies, foreclosures, yoy median declines, recession forecasts IN THE MAINSTREAM MEDIA. Pity you will have no one to vent your silly "thoughts" to.

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  35. Lance,
    What are you talking about? The housing industry is dust and has for awhile.

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  36. Anonymous said...
    "Lance,
    What are you talking about? The housing industry is dust and has for awhile."

    Again, are you looking to make an investment or to buy a home? They are not one in the same. BHs seem to have an incomprehensible inability to understand the difference. What do you care if people with their money in housing-related stocks are doing well or not? As a prospective homeowner, you need to concern yourself with locking in the lowest longterm aggregate costs possible. The fact that the housing industry is not highly profitable for those in that industry only affects you in that you can probably get a good deal on new construction right now.

    And for the Anon who posted at 10:41 and thought I was talking about the stock market, I guess he has completely forgotten about all the gloom and doom loonies who thought the turn of the millenium meant the end of the world ... Yes, the BHs will probably just as easily be forgotten 7 years from now ...

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  37. and btw, in case you didn't hear ... the market is NOT at half of what it was before the Dot Com bust ... it is HIGHER than it was then ... even with last week's decline ... Not that this bears any relation to the price of real estate ...

    www.usatoday.com/money/markets/us/2006-10-04-wall-street-wednesday_x.htm

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  38. Lance said...
    “There's a bubble bursting! and it's the bubble of bubble blogs! With no updates to this blog in several days to view, I found myself randomly looking at two of the other bubble blogs listed on the right ...”

    Yea “Lance”, in case you haven’t turned on the news lately, things are a changing. I spent the weekend looking at 50+ homes on the market that after 100, 200, 300+ DOM, are suddenly in my price range. Many homes less than a block apart, if not right next door to each other, all for sale.

    Ah, but no rush. I’m still giving these sellers time to slash each others prices. It’s great to walk into a house, then watch the seller see you walk across the street into another house, then back across the street one home down, all the while watching each other out the blinds. “Humm, the guy across the street has granite counter tops and a slightly bugger yard, priced $30K less, what Mr. Homeowner, can you offer me?”

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  39. A good read,

    http://www.slate.com/id/2160973/

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  40. Lance this fits you well, read on!

    We could say that there is another motivation in this forum of sorts that some people just want to ... like an intellectual might say, "oh, I don't want to feel better; I'm in love with ideas." But when you scratch below the surface of a really intellectualized person, they're attracted to the ideas that make them feel better, right? Because most intellectuals wind up being wrong (laughter). They're no different from anybody else, don't get me wrong. There are a lot of bright people in the world, far brighter than most of us, (I'm sure there are some bright people in this blogging arena but ... ) extraordinarily bright people, most of whom all disagree with each other, right? So even when we're stuck in the conceptual, intellectual, abstract level, actually we're still being driven by a very emotional drive which is to feel better. We might be simply feeling better through means of ideas.

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  41. I just posted a new article that I researched "The Latest Overpriced Condos in Arlington: Clarendon & Ballston"
    Feel free to read and comment:
    http://www.justnewlistings.com/arlington-virginia-blog/

    jay

    p.s. I wrote 3 contracts for a buyer a few weeks ago in DC and in all 3 cases we were competing against other offers and in 2 cases (not the contract we ratified) the rowhouse in Columbia Heights escalated significantly. It was very interesting and could be that rowhouses bottomed out (at least in Columbia Heights) and are now stable. Time will tell....

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  42. Robert said:
    "you walk across the street into another house, then back across the street one home down, all the while watching each other out the blinds. “Humm, the guy across the street has granite counter tops and a slightly bugger yard, priced $30K less, what Mr. Homeowner, can you offer me?”"

    First off, it's good to hear you are looking ... just as I'd predicted in the Fall. While the BHs will talk about waiting for 50% declines in price, the truth is that they will buy for far less a "discount". And that is precisely what will keep prices in the same ballfield that they had risen to. With the exception of some of the overbuilt condos or way out in the exhurbs, expecting anything over a 15%-20% "discount" over last year's prices is just wishful thinking. And waiting more than a few months will just get you back to last year's prices as the BHs coming into the market compete with each other to push up the prices once again. Secondly, there's a lot that can be read into your post. Do I detect a "I'll show you who's in charge now" attitude? I think it does. And for you that is not a good thing. One doesn't make good business decisions when one is letting their feelings get in the way of good business sense. Taken to the extreme, you could end up enjoying your illusion of "being in control" just long enough to miss the temporary "break" in prices that are out there.

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  43. Anonymous said...
    "A good read,

    http://www.slate.com/id/2160973/"

    Ah, another BHer who doesn't understand that the correlation between what happened to the stock market and what is happening to the real estate "market" is one between the value of investments in shares of equity over a broad range of dot com investments and shares of equity in an industry to builds and sells homes. It is not a correlation involving the purchasing of a home. And actually, the worse the REIC does, the more bargains there are out there for a prospective homeowner to pick up. I.e., in at least this instance, the correlation, if any, is negative. Stop looking at buying a home as "an investment" and you'll be on much better footing for buying a home that in the longrun is affordable and predictable from the standpoint of total expenses.

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  44. Lance check it out,

    http://ml-implode.com/

    ReplyDelete
  45. "With the exception of some of the overbuilt condos or way out in the exhurbs, expecting anything over a 15%-20% "discount" over last year's prices is just wishful thinking."

    So you're telling us that you expect a greater than 20% price drop in condos and the exurbs, and you're saying it's not wishful thinking to expect a 15-20% drop over last year's prices in single family homes and townhomes in inner zip codes.

    Well, all I can say is that I wholeheartedly agree with that assessment.

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  46. and btw, in case you didn't hear ... the market is NOT at half of what it was before the Dot Com bust

    Reading comprehension first Lance. Before you ramble on about how BHs don't understand that housing is an expense with it being a good time to buy anytime and then make contradictory statements that the worse REIC does, the more bargains there are, LEARN TO READ.

    The Nasdaq does trade less than half of its peak in 2000, just like houses in many areas will trade for half their peak in June 2006 in a few years. Get ready to be f***ed.

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  47. Dumbest Lance Moments

    Do you think the first European immigrants to the Americas came because they were attracted by the wilderness and the natives already here? No, they left because they'd been effectively "priced out" of their European homelands.

    Subprime loans make up less than 1% of all loans

    I never said is a good time to buy anytime. I said it is never a bad time to buy

    and btw, in case you didn't hear ... the market is NOT at half of what it was before the Dot Com bust

    and the best of all

    housing is not an investment but an expense

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  48. Actually, I'm going to defend Lance on one point.

    While he's done a poor job of articulating it, I think what he means by his "housing is an expense" argument is that buying a house locks in your housing payment for the rest of your life, so you're reducing the variance of your future housing payments. Thus, you're more willing to risk overpaying for a house, because you're willing to pay some premium to eliminate any future unexpected housing costs.

    Thus, for a person who knows they will be a longtime resident, buying acts as a form of insurance against future housing price increases.

    I would just say that, in my opinion, this implicit insurance benefit stopped being priced in an actuarially fair manner possibly sometime in 2004 and definitely in 2005, and has a ways to fall before it gets back to being actuarially fairly priced.

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  49. Keith asked:
    "So you're telling us that you expect a greater than 20% price drop in condos and the exurbs, and you're saying it's not wishful thinking to expect a 15-20% drop over last year's prices in single family homes and townhomes in inner zip codes?"

    I am saying ... like I have always said, that with average research and average negotiating skills, you should be able to buy something today at a 20% or greater discount if it is out in the exhurbs or one of the cookie-cutter over built condos. Likewise, using avearge negotiating skills and research, you might be able to pick up a single family home or townhome in the inner zip codes for up to a 15% or 20% discount (depends on the home and the neighborhood ... forget about ANY discount in neighborhoods that have improved a lot in the past year). Like the Realtors are saying "this is a great time to buy." There is more opportunity out there for the average buyer. Now, you could have gotten these same discounts back in 2005, 2004, 2003, etc. It's just that it would just have been more difficult to get them. And it would have required better than average negotiating skills and research abilities. And that is the message I have been trying to get understood. You don't need to depend on "good market timing." Also note that the window of opportunity for "easier-obtained" discounts won't stay open for long. As the markets go back into equilibrium, we'll be back to where we were prior to 2000 ... i.e., it'll be neither a sellers market or a buyers market. Like I said, if I were looking to buy, I'd make sure I finalized a deal before the Spring thaw. It'll get harder to find "deals" then. If these percentages are what you thought of as a "bubble" (which to me they are not), then this "bubble" is just about over.

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  50. Regarding recent news, today, Dean Baker, economist and co-director of the Center for Economic and Policy Research noted:

    "This is what happens when sound policy is subjugated to political ideology. For many people, in many circumstances, homeownership is a good idea. But it is not everywhere and always better for people to own than rent. With the unwinding of the housing bubble, and the millions of tales of families in distress that will be part of this picture, it will be important for the media to examine the policies that got us here. This means that reporters should go after the ownership at all costs crowd. These people have a lot to answer for."

    The ownership at all costs crowd...sounds familiar.

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  51. Anon 9:24

    The Dow Jones Industrials Average is the standard measure of general economic performance. The NASDAQ is much easier to list on and consequentially is heavily weighted toward newer and riskier stocks. The fact that its value followed the value of dot com stocks first way up and then way down is not surprising ... But again, it is not reflective of the general economy ... The DJIA is ... and that is higher than ever.

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  52. Anonymous said...
    "Dumbest Lance Moments ..."

    David, How does this contribute to the discussion? I know you get busy and sometimes approve posts through without fully reading them ... But even a cursory read of this one shows how inappropriate it is.

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  53. If you guys want to see one of the funnier examples of lance trying to argue about things he doesn't have a clue about check out the condoflip.com thread from a few days ago. He is trying to argue that Ireland had a hot economy during the potato famine and that the Irish came to America to escape their high housing prices.

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  54. Here is a Slate.com article about the parallel between the dotcom bust and the housing bust (which it claims is just starting) -

    http://www.slate.com/id/2160973?nav=tap3

    ReplyDelete
  55. "Definition of Investment"
    From Econterms

    Definition: Investment is defined as any use of resources intended to increase future production output or income. (Econterms)

    http://economics.about.com/cs/economicsglossary/g/investment.htm

    VS.

    ex·pense (k-spns)
    n.
    1.
    a. Something spent to attain a goal or accomplish a purpose: an expense of time and energy on the project.
    b. A loss for the sake of something gained; a sacrifice: achieved speed at the expense of accuracy.
    2. An expenditure of money; a cost: an improvement that was well worth the expense; a trip with all expenses paid.
    3. expenses
    a. Charges incurred by an employee in the performance of work: was reimbursed for her travel expenses.
    b. Informal Money allotted for payment of such charges.
    4. Something requiring the expenditure of money: Redecorating the house will be a considerable expense.
    5. Archaic The act of expending.

    http://www.thefreedictionary.com/expense


    I.e., Buying a house to live in is not an investment. It is an expense. Buying a house you're intending to flip is an investment. BHs who whine that they can't afford a home to live in that fits their needs AND then speak as if it were an investment are bound to fail at both since they can't differentiate between these two separate goals.

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  56. Actually, I'm going to defend Lance on one point.

    While he's done a poor job of articulating it, I think what he means by his "housing is an expense" argument is that buying a house locks in your housing payment for the rest of your life,


    Sorry there is nothing to defend here. He is wrong as usual.

    When you say something is an expense, you say you have no _choice_ but to obtain it at any cost. It is something that you absolutely must have to live (like food) or it is so compelling to have that without it your standard of living would be severely affected.

    Sometime ago I think Lance, incorrectly as usual, used an example of a car. A car is not a necessity, but I can be convinced that in the United States, a car is a necessary expense. Public transportation in most parts of the country is bad enough to make this so.

    However a car is a _depreciating_ asset. The value of a car in 2 years is _guaranteed_ to go down. However it is so useful that is a strong enough reason to buy inspite of this.

    A house however is, over the long run, an appreciating asset. I say this inspite of today's prices. Take away the fact that the value of the house will appreciate and a vast majority of the people will stop buying. Therefore most people do consider a house an _investment_. An investment by definition is an asset that is assumed to appreciate in value.

    By calling a house an expense, you are saying that no matter what happens to the value of my house 30 years down the road, it is so important to own that I must do so now. Almost no one buys a home thinking it will depreciate in value. Perhaps only Lance does and he calls it an expense. Hence I agree that it is the stupidest quote by him to date. Even more stupid than the immigration quote.

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  57. From Today's WSJ:

    Service Sector Likely
    Feels Housing's Pinch
    Decline in Pace of Growth
    Is Steeper Than Expected;
    Prices Fall on Easing Costs
    By CONOR DOUGHERTY
    March 5, 2007 10:25 p.m.

    Business activity among service companies -- from freight haulers to mortgage bankers -- grew at a slower-than-expected pace in February, suggesting that weakness in housing and manufacturing is filtering into the broader economy.


    Wasn't it just a week ago that Alan Greenspan said this wasn't happening yet? Seems things are moving much faster than I thought.

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  58. The Dow Jones Industrials Average is the standard measure of general economic performance.

    That is incorrect as usual. Perhaps this should be added to your list of "dumbest quotes". The GDP is generally used to measure economic performance and *not* the stock market.

    The NASDAQ is much easier to list on and consequentially is heavily weighted toward newer and riskier stocks.

    Partially correct, but incorrect in the conclusion. It is not that that risky stocks are listed on NASDAQ, it is that for some reason most newer technology companies list there. Since the NASDAQ is heavily weighted with technology and hence *one* set of companies, it makes it risky as in hindsight can be seen by the 2000 crash. However this does not mean the individual stocks themselves are risky.

    The fact that its value followed the value of dot com stocks first way up and then way down is not surprising

    correct.

    ... But again, it is not reflective of the general economy ... The DJIA is ... and that is higher than ever.

    Like I said, reading comprehension first. Please go reread the post to which you responded. The 2000 bust was the bust of the tech companies. Nobody is arguing that. Did anyone mention the general economy? The fact that the economy did eventually have a brief recession is a consequence of the tech bubble, but that was not the argument.

    Similarly the current bust will be the bust of home prices. That is the argument and not DJIA or NASDAQ or the general economy or anything else. The fact that the economy may fall into a recession may be a consequence of this just like 2000.

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  59. Lance said...
    “First off, it's good to hear you are looking ... just as I'd predicted in the Fall. While the BHs will talk about waiting for 50% declines in price, the truth is that they will buy for far less a "discount".”

    Great prediction “Lance”, since that in the past, I’ve said that I’m always looking. Before I sold in ‘05, I was looking. Looking does not equal buying.

    “And waiting more than a few months will just get you back to last year's prices as the BHs coming into the market compete with each other to push up the prices once again.”

    Hummmm, this sounds real close to yet another prediction of bidding wars on your part “Lance”. Allow me a prediction. I predict inventory will increase.

    “Secondly, there's a lot that can be read into your post. Do I detect a "I'll show you who's in charge now" attitude? I think it does. And for you that is not a good thing. One doesn't make good business decisions when one is letting their feelings get in the way of good business sense.”

    I would rather not enter into a contract, worth thousands of dollars, in which I was not “in charge”. If anything, past post will indicate lack of “feelings”, and a simple look at numbers and facts.

    “Taken to the extreme, you could end up enjoying your illusion of "being in control" just long enough to miss the temporary "break" in prices that are out there.”

    Taken to the extreme…..”Lance”?
    Foreclosures rising, DOM rising, Lenders folding, Inventory at record levels, Sales down, Prices down. Are these extreme? Are these illusions?

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  60. "The Dow Jones Industrials Average is the standard measure of general economic performance. "

    More evidence that lance has probably never met an economist in his entire life.

    Tell us lance, when you are working your day job as a computer technician... do you ever wonder what it would have been like to go to college?

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  61. "I.e., Buying a house to live in is not an investment. It is an expense."

    Again, under your definition of expense, renting is also an expense.

    Therefore, there are three reasons to buy a house:

    a) pay something extra for the "warm fuzzy" of being a homeowner (extra expense)

    b) you are investing in future rent savings because you expect rents to rise in your area (investment)

    c) you are locking in your housing costs, thus insuring yourself against housing price increases (implicit insurance).

    None of these three explanations (and not even all three together) do a very good job in explaining the entire housing price runup.

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  62. Falls Church City assessments just came out. Apparently the city assessors think that the value of reals estate went up a whopping 25% in 2006 for building assessment. They were nice enough to leave the land assessment flat.

    What are they thinking? Maybe listening too much to the realtor's economists.

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  63. Falls Church city assessments just came out. The assor thinks that the value of buildings in the city went up by a whopping 25% in 2006 while land values stayed flat.

    What are they thinking?

    ReplyDelete