How Much Have Prices Fallen from Peak Price? (in nominal $s)
1) For the average single family detached housing unit in the outer suburbs (ex. Woodbridge, Manassas, Sterling, Frederick, Waldorf) ?2) Condos in yuppie neighborhoods in DC (ex. Dupont Circle, Woodley Park, Capitol Hill) ?
3) Row houses in yuppie neighborhoods in DC (ex. Dupont Circle, Woodley Park, Capitol Hill, Lance's housing unit) ?
4) For the average single family detached housing unit in the inner suburbs (ex. Silver Spring, Bethesda, Arlington, Alexandria) ?
Posts
I live in SW DC. My property value has more than doubled in the 6 years I've owned my townhouse, and it's NOT one of the new ones on the 700 blok of G Street. The house on the corner just listed for $825k. Of course SW is smack in the middle of the three largest development projects in DC- the Waterfront, the Waterside Mall/4th Street renovation, and of course the Ball Park, so I think it's a special case.
ReplyDeleteI feel like the luckiest girl in the world. Blessed.
What do you think? Will it hold in my neighborhood, under the circumstances?
Sara, how much of that increase was over the past year?
ReplyDeleteExpect the most recent increases to roll back. Expect the older increases to stay, possibly.
Hey, Sara, stop counting your eggs before they hatch. Your neighbor might have listed for 825K but I really need you to tell us what it ends up selling for, okay? Then if it sells for that price in 2008, you can feel "blessed". And in your rigth mind, do you really believe that a doubling in price over 6 years sounds normal and sustainable to you? Do you really think you hit the lottery? Just a reminder that all the dot.com companies that busted, looked really rich on paper, and then, well, the rest is history.
ReplyDeleteWill it hold in my neighborhood, under the circumstances?
ReplyDeleteI would say that anyone who bought before 2004 and didn't take out any home equity loans is going to be fine.
It's the people who need to sell at 2005-6 prices who are going to be in trouble. Those aren't going to come back for quite a while.
Friends in Herndon say 20% from when they bought in early 2006.
ReplyDeleteI have read some analysts say that the bubble actually started in 1996 and that we could have prices roll back to those levels. I think that is very unlikely, but I wouldn't go spending that equity just yet!
ReplyDeleteBob
Hard to say because sales are down - but so is inventory. Anecdotally, 3 houses on my block (Alexandria) have sold within 1-2 months. One that was bought in 05 for $750K sold for $730, another was bought in early 06 for $800 sold for $818K. 3rd one sold for $2MM up from 600K in 2004, but it included the accounting firm that practiced there so whose to say what the property was worth.
ReplyDeleteBottom line from my perspective, prices are flat.
I am Sara's neighbor. I just accepted an offer for 500k. They say list high and sell low. Well, I just did it.
ReplyDeleteSorry Sara....
"I have read some analysts say that the bubble actually started in 1996 and that we could have prices roll back to those levels. I think that is very unlikely, but I wouldn't go spending that equity just yet!"
ReplyDeleteNot a chance in the world. Could you please link to that "analysis?" I would be interested to read it.
Prices may have begun to move up in 1996, but the housing market has always been cyclical to some extent. It was only 2003+ where a true bubble developed. (depending on where you are talking, etc etc)
Tax assessments in my neighborhood near Ballston are now available; looks like we took a 2 per cent hit last year (my zip, 22207, was allegedly the only one in the area that saw a gain last year); on my house that's about a $10K drop.
ReplyDeleteLove this blog by the way; been reading it for years. Thanks for all the hard work; you've aided many people.
In my target neighborhoods of Montgomery Co. (along the red line), I've seen a lot of foreclosures and major reductions. Zillow shows a number of single family homes sold in 2005 and 2006 in the mid 400's now going for mid 300's.
ReplyDeleteMy old Del Rey neighborhood and where we are now in Arlington, on the other hand, is at about the same level as when we sold for in 2005.
It's a moot point for me at present, since we'll be out of country for at least the next year. It will be interesting to watch what happens in Europe.
-- Sarah in DC
Prices are basically flat in our townhouse community as well (NW DC--Sutton Place). According to the Post (sometime in December), the median condo price in our area went up in the last year.
ReplyDeleteI went through this in Connecticut. Bought in 1987 at $150,000; Market nosed dived that same year, recession, and the property value bottomed over the course of several years to about $110,000 to $115,000. (I would not be surprised if it takes several years for this market to truly hit bottom this time around). I held on to the property for about 15 years and sold for over $200,000. That's not a great return but it was a return. The real downside of it was this: I moved to DC for job reasons before the price of my Connecticut house had risen above the mortgage owed. And I rented in DC because of the complications with my Connecticut house, and divorce, etc.
ReplyDeleteBeing a landlord, I discovered, is a major hurt. Tenants can be unreliable, even with credit checks. It's emotionally draining.
Do I regret owning? Yes, but only because I bought at the wrong time and had to move and rent. But I lived.
I've been renting in DC for the last 10 years and now have to move because the landlord is selling for sound reasons that have to do with his life. It's a great place, but too expensive for me as a purchase.
I'm considering a small condo at $230,000 in a great DC neighborhood, near west end. Most of the closing covered as well. It's a reduced price, great location, and in excellent condition. It's only several years from a total renovation. It's small but right for me. My number one concern in this market was to make sure I was buying something that could be easily rented if I am forced to move for any reason. I'm doing that. Am I worried about buying? You bet.
With mortgage, maintenance, etc., the total monthly out-of-pocket will be just over $1850, which is about $500 more (I am being very conservative) then what I can rent it at. But I can afford it without hurting my 401K investment, which I max out on.
But what's the most I can be hurt by spendng $230,000 on a condo in DC? I know I can be hurt. I'll say that right off. Let's say prices decline 20% in DC in the next year. And the value of this condo I'm considering declines to say $180,000 or $175,000. Or, worse, we return to the Great Depression housing prices of the 1990s, when Waterfront coops were selling for $30,000 and Foggy Bottom studios were $60,000. But is such a massive decline, a drop to year 2000 level prices, possible? For the sake of argument, I won't rule anything out.
That said, I still think DC has a little better economic profile then most places, especially Connecticut, so while the price can go down I don't think the job market will evaporate with it. And I don't think the neighborhood improvements will retreat. They didn't in my Connecticut neighborhood during the downturn. People were smart enough to keep properties and neighborhoods up and ride it out.
I could dump the idea of buying and pull out and just keep renting. That's safe. In DC, I know I can find a place at $1400 rent or less with utilities included that is a decent location. Less if I want to live in the burbs. No worries, no risk, etc.
But the one thing that bothers me about renting is this: If I loose my job is this economy, or have to downsize employment in such a way that affects my ability to hit the max in the 401K, I still have to pay to live somewhere. If that's the case, I'd rather pay a mortgage then pay a rent because at least I have some kind of financial investment going on.
But I will say this. What i think may be possibly true for me may not be good for everyone.
The bubble is over. That I know and now we're probably at the start of the damage phase and I know from experience that this can go on for many years. But I think my numbers work. There's a modest amount of risk with my move, but I think the key now is to have a monthly cost somewhat in-line with the cost of a rental, so the housing market doesn't totally squeeze my moving options if it comes to that.
The advice I get is this -- do with what you are comfortable with. But I ask myself, what am I comfortable with? What does comfort mean? Well who is comfortable with anything? With their job? With their investments? With the cost of medical? I'm not comfortable with buying. I am not going to kid myself.
But this new place is next to a little park so I can enjoy the trees and watch people play with their dogs. It's peaceful.
All this said, if you read this and disagree with my reasons, post a response. I'm interested in your arguments.
I'm considering a small condo at $230,000 in a great DC neighborhood, near west end.
ReplyDeleteWhat the heck can you get near the west end for 230k? Is this place bigger than 500 sq.ft?
Hard to say because sales are down - but so is inventory.
ReplyDeleteInventory is up YOY. Yes, its down from the seasonal peak. But greater DC inventory is up 30% compared to the same day in 2007. Using ziprealty, 59,397 today versus 45,724 one year ago. Peak was 68,318 just before the end of September.
Expect 18,000 to 24,000 more homes to be on the market by this year's peak. We already had declining prices in 2007. Slower sales and greater inventory does not imply stable prices.
I'll buy, but we're just hitting the start of a period when high down payments will be required. Jumbo mortgages were available with little to no down payment during the bubble. Those people have no incentive to ride it out. It will take a long time to flush things out.
Has the downward trend been really that significant yet? Not really. But we're going to have major inflation in energy and food, not wages. The job market is losening up. That means fewer funds towards housing. Cest la vie.
Sarah said:
It will be interesting to watch what happens in Europe.
Watch Spain and England. They're the Florida and California of Europe.
Will there be a time to buy? Sure. Its most years. But when you overshoot on the up side, there is always an overshoot down.
Got popcorn?
Neil
I'm between Fairfax and Chantilly. I've been following the market here since 2005 when we moved to the area and couldn't afford to buy after owning out of state. The REO properties are about 30% off of peak right now and private sellers are anywhere from 20% off peak to being clueless and still asking for peak prices. The only things that seem to be moving consistently are the REO properties and even some of those are not moving very quickly.
ReplyDelete"Could you please link to that "analysis?" I would be interested to read it. " It was a peter schiff article, although you are sarcastic about his "analysis" he is probably the smartest person in the room so I wouldn't just cast it aside as nonsense.
ReplyDeleteanonymous 6:59. Great post. This is the one thing the lance's of the world don't understand. No one here says you should never buy, only that the risk of buying right now is very high. Not as bad as buying in the fall of 2005, but still pretty high. No one knows where this is really going to go. Recession, depression, inlfation, deflation, etc... For some people its right to buy, for others we can wait it out and see what happens cause its in our best interest to do so. If anyone on here has their life set in stone and they are going to live in DC for the next 30 years and stay with their government job I say start lowballing the $hit out of people and get a place. If you are not a 100% certain, maybe be a bit more cautious. I work with a lot of guys that had that same conn. story. Odd, but true. Maybe you all made the mad rush for DC at the same time. I learned a lot from hearing their stories. One thing is for certain, there is always and will always be a downside to buying and real estate doesn't always go up! Those that don't know their history are doomed to repeat it.
Bob
Bought a townhouse 12 years ago in Gaithersburg. According the Zillow, it has just about tripled in price. Who knows what it's really worth. In any event, didn't buy with the thought of making money on it(kind of a quaint concept, I agree). By the way, seeing the prices jump this way always seemed kind of insane to me.
ReplyDelete"Inventory is up YOY"
ReplyDeleteNo. This is a neighborhood specific post and my answer was too. In Alexandria, there is less inventory than a year ago (Dec MRIS numbers). Now sales are down even further. Meaning the ratio has gone from 4.14 (Dec 06) to 5.41(Jan 07).
"Has the downward trend been really that significant yet? Not really."
I agree, since its not significant yet, that is why I believe prices have gone from slightly up to flat.
Spring will be interesting. Last year Arl & Alex had 7 or 8 consecutive months of lower inventory ratios YOY. Even Loudon got into the game for a while and strung together 4 down months of negative YOY ratios. Then September hit and like a light switch YOY ratios were up across the board in all counties. Clearly this is because of the borrowing restrictions. For the inner counties that meant 5-6-7 month inventory ratios. Still pretty good but not as good as the 4-5-6 month ratios of a year ago. How much higher they go remains to be seen.
anon from Connecticut,
ReplyDeleteI'm sorry, but while you might have made a positive "return" from 150 to 200 over 15 years, your real return, factoring in inflation was definitely negative. at 4% inflation after 7 years you should have sold at 200.
also said
"If I loose my job is this economy, or have to downsize employment in such a way that affects my ability to hit the max in the 401K, I still have to pay to live somewhere."
I can make a counterpoint to that. Renting affords you the ability to get out of dodge and move to where the jobs are with minimal loss. In a recession with fewer jobs, you want to be as mobile as possible. Oh sure you could rent the place out and move, but now you're a landlord and you have to hope you get someone (who is a good tenant) to pay enough rent to cover the mortgage, and you now have greater income (rent payments to you now count as income, and are subject to taxes). So do you want to bleed slowly or quickly?
People talk about 401ks, like a piggy bank, I don't know what type you've got, but the one I've got requires me to pay back with interest money I take out before 65. So you take money out now for a temporary boost in income, and forfeit a boost in income further down the road, plus loses on any gains you could have made in the 401k. Nope, if you're pulling money out of a 401k, you are in deep, deep crap. (this is different than scaling back on what you put IN to a 401k).
My car just got broken into again. I live in 20009. They hit 4 cars in a row. They usually get one of the cars (out of about 10) at least every other month. Getting sick of it. If they don't control this mess the city will turn back into a slum. As for me, I'm not of the city when my lease expires. I'll go where civilized people live.
ReplyDeleteLance, enjoy your place. Glad I'm not stuck in this dysfunctional city.
I would say that Woodbridge and Manassas (most all of Prince William County) has lost 30-40% of their peak value. If you look closely in each neighborhood, there are a few houses for sale at this % off, and even those are sitting on the shelf. See 12870 GENTLE SHADE DR, Bristow, VA 20136. Beautiful new house, excellent school districts, 4 miles to VRE and going for less than it's new March 2003 price (which they would have contracted for in Summer or 2002). Current list $339K, last sold $610K. Given the years of lost inflation, this is a 1999-2000 pre-bubble price.
ReplyDeleteLet’s start with LeDroit Park.
ReplyDelete2007
Total sold: 52
Sold prices from: $270,000-$1,300,000 (for a two lot property). Next highest price was $830,000.
Average days on market: 124
Median days on market: 86
Average price drop from original list to price at which a contract was received: 5%
Average net price (including any subsidies): $518,034.11
Median net price (including subsidies): $500,000.
2006
Total sold: 62
Sold prices from: $220,000-$1,500,000. Next highest price was $850,000.
Average days on market: 96
Median days on market: 86
Average price drop from original list to price at which a contract was received: 5%
Average net price (including any subsidies): $506,952.
Median net price (including subsidies): $480,200.
And for the triangle of NW Eckington:
2007
Total sold: 47
Sold prices from: $259,900-$749,000.
Average days on market: 88
Median days on market: 77
Average price drop from original list to price at which a contract was received: 3%
Average net price (including any subsidies): $413,608.
Median net price (including subsidies): $407,000.
2006
Total sold: 40
Sold prices from: $216,000-$699,000.
Average days on market: 92
Median days on market: 71
Average price drop from original list to price at which a contract was received: 5%
Average net price (including any subsidies): $434,002.
Median net price (including subsidies): $433,650.
Arlington says residential is down about 1%, but commercial is up. My house's assessment dropped about 0.3%; when I look at the Arlington RE assessment website, it looks as though most of the little houses in my neighborhood went down by that amount, while the bigger ones stayed exactly the same.
ReplyDeleteIt's hard to know what's really happening, though, because not that many houses were sold here over the year that formed the base of the assessments, and because many sellers still have houses on the market at asking prices *above* the peak of the market.
"I'm sorry, but while you might have made a positive "return" from 150 to 200 over 15 years, your real return, factoring in inflation was definitely negative. at 4% inflation after 7 years you should have sold at 200"
ReplyDeleteUh, no. Unless he paid for the house in cash, your analysis is completely wrong. If he put 5, 10, 20% down, his return is much higher than you're figuring.
Shane, anon from Connecticut here. Right, would I had been better off had a rented for 15 years in Connecticut instead? Your math is too simple. You are assuming that the money spent on the mortgage was free to go elsewhere. Calculate in income, monthly overhead, pension plan, funds available for investment, such as quality of life, etc., and the math will be different for each and all as will the answer. Moreover, the intangibles do count for something. Most landlords don't want you tearing up a backyard for a garden. For me, selling my Connecticut house did give me a check at the end. Most landlords won't give your deposit back without a fight.
ReplyDeleteYou wasted a rant on the 401K issue. I am contributing. I have no plans to withdraw or take a loan.
But I do agree that renting affords mobility. No argument. I learned that when I moved from Connecticut to DC, so it's more than an academic issue with me. But, honestly, mobility from DC to where? The job market is dead in Connecticut. I have no interest in the West Coast and the only other market for my skills is NYC and possibly Boston. If I were to bet on a labor market, DC historically remains a much better job market than most in downturn. But mobility would be trump in a home buying decision if I lived in Cleveland, Buffalo and even Atlanta. But, frankly, I'm now tired of mobility. When you hit your 50s, sometimes staying close to the people you care about is better than mobility.
Anyway, I'm buying at a discount that may reflect current decline. Things may drop more. I'll do my share to help prop up the economy. I'll just suck it up and make the best of it. And frankly if real estate is the worse decision I ever make in life, I'll count myself lucky.
Don't forget to factor in quality of life. I've lived in both Arlington (Clarendon) and Old Town over the past 6 years & I can't help but notice how much worse traffic continues to get in this area.
ReplyDeleteIts as if every college within a 500 mile radius has half their graduating class dart to DC.
With the increasing population densities (look at all the residential high rises popping up), you're going to continue to see a slow but substantial deterioration in quality of life that could factor into the values of homes just inside the beltway and even moreso outside that "eye of the storm."
Can anyone who has lived & worked in the same place over the last 5-10 years report on any changes in the time of your commute?
And lets not forget the first wave of babyboomer retirees who totally overbid properties in the area because money was immaterial when it came to preserving that dream home for the grandkids.
In Chantilly, I know one house in a nice neighborhood that started out listed at 810k in May and ended up selling for 710k in December. There is also a very nice new neighborhood built by WCI that started out listing for ~1.375m, sold only 1 over the last 3 months, and now has signs listing them from 900k.
ReplyDeleteA few Montgomery County observations:
ReplyDelete* Bethesda:
- the older downtown Bethesda condos (e.g. Whitehall on Battery Lane) are seeing a roll back in prices a bit. There's a huge 2 bedroom there listed at $329K right now, which is what 1 bedrooms were going for earlier in 2007.
- Some of the "newer" condo buildings like The Fairmont have been hit hard. I'm noticing units are being listed in the low 300s there recently while they had been going for high 300s-low 400s in the past 12 months. Some short sale activity there also.
- Rentals: I'm noticing that some of the older apartment buildings in downtown Bethesda are having a harder time leasing units. Examples are 8200 Wisconin Ave and it's twin on Battery offering a month off and actually advertising! Those places used to go so quick, never any vacancies.
I think this change is do to the Bethesda condos converting back to rentals (e.g. Chase, 10101, etc.)and some nicer new, affordable (well, for bethesda anyway) buildings coming on line recently in suburban Bethesda (e.g. Park Bethesda).
- Rockville- alot of nice sub $400K single family homes on the market in Twinbrook! Twinbrook Forest in particular has some nice larger brick homes in that range.
I'm noticing the downward pressure on the lesser ramblers in Rockville pushing them to low 300K, high 200K.
- Gaithersburg/Germantown/Aspen Hill: ALOT of selection in SFHs under $400K right now. alot of them are foreclosure/short sales but if you're interested in these areas, take a look! If I liked Germantown, I see nice brick split levels.
-Bethesda SFHs are still strong as usual..nothing under $500K.
Interesting, LeDroit Park and NW Eckington are listed in area code 20001. Let's see what MRIS has to say about that zip code for Dec 2007 vs Dec 2006 :
ReplyDelete2007 2006 % Change
Total Sold Dollar Volume: $ 20,082,887 $ 23,188,100 - 13.39 %
Average Sold Price: $ 478,164 $ 483,085 - 1.02 %
Median Sold Price: $ 429,950 $ 437,000 - 1.61 %
Total Units Sold: 42 48 - 12.50 %
Average Days on Market: 87 91 - 4.40 %
Average List Price for Solds: $ 577,725 $ 510,149 13.25 %
Avg Sale Price as a
percentage of Avg List Price: 82.77 % 94.69 %
Of course, maybe those EXACT neighborhoods are doing well. Curious to see how they continue to do as the year unfolds.
I been watching the Northrn VA for past 4 years and prices are down drastically in Loudon county and fairfax county. I saw article in CNB Cramer saying 250 billion bailout fund for subprime securities(instead of 145billion economy stimulus paackage) to save economy. I wonder how could that prop up the economy until unless every home owner is given $200K-300K equity they are going to lose as a result of economy correcting to fundamentals when 2/3 of US econmoy is dependen on consumer spending.
ReplyDeleteanon from Conn. I'm not trying to advocate that you should have rented instead of buying. I'm trying to point out that even though you sold for more than you bought it, a high probability exists that you really LOST money on mortgage costs of the house. Now you can argue that you would have lost more money renting over the entire period . . . that's a completely valid argument. My point is in the fallacy of thinking "wow I sold my house for x amount more than I paid for it . . . I made money".
ReplyDeleteLet's say you put 20% down on 150k, so your total loan amount is 120k. Back in the 80s loans were around 8%. So set the interest rate at 8%. We'll say that you're in the 28% tax bracket so you get 28% of your 8% back. Over 15 years you would have spent adjusted each year from 1987 to 2002 for inflation you would have spent ~171,500 on interest and ~36,500 on principle. Since we are assuming you get 28% of your interest back on taxes, the total interest would be ~123,500. Your total cost over 15 years adjusted in 2002 dollars for the mortgage alone was ~160,000. However after 15 years, assuming you made no extra payments you still have a loan balance of ~88,000. In other words your total cost in order to pay off the loan in 2002 would be ~248,000. We also need to factor in the 20% down payment, which in 2002 dollars would be 47,500. You sold the place for 200,000. So not including maintenance, HOAs, etc, to live in the place for 15 years cost you ~95,5000, in 2002 dollars.
In order to break on the mortgage costs after 15 years, you would have had to sold for $295,500 2002 dollars.
Now if you could have rented over 15 years for less than 95k 2002 dollars, financially it would have been better to rent. I am not arguing that you could have done better renting, or that you would have wanted to.
Now many other factors come into play, what was the true interest rate your loan was at, did you refinance, did you make additional payments, etc, etc.
My only point is that using a basic calculation, and basic assumptions, you did not "make" money on your transaction and you did not break even on your house.
"Don't forget to factor in quality of life. I've lived in both Arlington (Clarendon) and Old Town over the past 6 years & I can't help but notice how much worse traffic continues to get in this area."
ReplyDeleteLiving where you do, dont you walk or take the metro to most places? For alot of us, most of what we want is maybe 2 miles away in which case the traffic changes a 5 minute drive into a 7 minute drive.
Contrast that with the people who live out in suburbia where not much is within walking distance. Have you been out on say Rte 50 at 4pm on a saturday. Honestly I dont know how those people do it.
" I can't help but notice how much worse traffic continues to get in this area."
ReplyDeleteI've lived in DC for a total of 11 years. Congestion and traffic are two reasons why I live in DC. Not like "Sarah in DC" who lives in Virginia and plans to move to Maryland. I live in DC, and I'm close to everything at best, and I have a reverse commute, at worst.
In reference to Shane's comments....
ReplyDeleteI'm as big of a bubble believer as anyone but I get a little tired of hearing the talk about houses losing value in real terms. That is pretty irrelevant in many cases. If you want to do that analysis, you better add in the timed value cost to rent as well.
We talk about a normal market being one where the monthly cost to rent is approx equivalent to the cost to own. Well, if that's the case, **any** appreciation (even if it is below the inflation rate) is a net positive.
I recognize that the monthly costs are nowhere close now and that changes the equation significantly. The owner needs a higher appreciation to make up this difference. However, I suspect our Connecticut poster was not paying significantly more to own than to rent - especially after owning for a long time.
I, for one, hope nominal prices continue to decline as I don't want to wait 15 years for the market to return to norm. I am not happy at all with "real" declines.
"anon from Conn. I'm not trying to advocate that you should have rented instead of buying. I'm trying to point out that even though you sold for more than you bought it, a high probability exists that you really LOST money on mortgage costs of the house. Now you can argue that you would have lost more money renting over the entire period . . . that's a completely valid argument. My point is in the fallacy of thinking "wow I sold my house for x amount more than I paid for it . . . I made money".
ReplyDeleteLet's say you put 20% down on 150k, so your total loan amount is 120k. Back in the 80s loans were around 8%. So set the interest rate at 8%. We'll say that you're in the 28% tax bracket so you get 28% of your 8% back. Over 15 years you would have spent adjusted each year from 1987 to 2002 for inflation you would have spent ~171,500 on interest and ~36,500 on principle. Since we are assuming you get 28% of your interest back on taxes, the total interest would be ~123,500. Your total cost over 15 years adjusted in 2002 dollars for the mortgage alone was ~160,000. However after 15 years, assuming you made no extra payments you still have a loan balance of ~88,000. In other words your total cost in order to pay off the loan in 2002 would be ~248,000. We also need to factor in the 20% down payment, which in 2002 dollars would be 47,500. You sold the place for 200,000. So not including maintenance, HOAs, etc, to live in the place for 15 years cost you ~95,5000, in 2002 dollars.
In order to break on the mortgage costs after 15 years, you would have had to sold for $295,500 2002 dollars.
Now if you could have rented over 15 years for less than 95k 2002 dollars, financially it would have been better to rent. I am not arguing that you could have done better renting, or that you would have wanted to.
Now many other factors come into play, what was the true interest rate your loan was at, did you refinance, did you make additional payments, etc, etc.
My only point is that using a basic calculation, and basic assumptions, you did not "make" money on your transaction and you did not break even on your house."
I know you're a genius and all, but you need to add the fair market rental value of his home into the credit column. Your calculation is worthless as is.
"I've lived in DC for a total of 11 years. Congestion and traffic are two reasons why I live in DC. Not like "Sarah in DC" who lives in Virginia and plans to move to Maryland. I live in DC, and I'm close to everything at best, and I have a reverse commute, at worst."
ReplyDeleteNot to mention that anybody who would asset that QOL has gone down the last 10 years in DC is, of course, an imbecile.
"but you need to add the fair market rental value of his home into the credit column. Your calculation is worthless as is."
ReplyDeleteIf you are comparing x versus y (i.e. costs of renting vs. costs of buying) you absolutely MUST add in to my calculations the costs of renting a comparable house.
I AM NOT COMPARING x vs. y. I am comparing x at time t vs. x at time t+delta.
Look geniuses, if you factor in a "fair market" rent value, you also have to factor in a whole host of other terms . . . such as maintenance, such as HOA, CONDO fees, and taxes on the housing side of the equation. This all goes into a Rent vs. Buy calculation. My point in doing the calculation was NOT to do a BUY vs. RENT calculation. How many times can I say that.
My point is: a house is an expense. Very rarely will you MAKE money. Whether the loss is only in real value, you still LOST money. If the stock market went up 10%, but inflation was 15%, who gives a rat's butt that you sold for a gain . . . you still LOST money. It's called the ILLUSION of WEALTH. You are poorer today than you were yesterday.
Was the expense of owning vs. the expense of renting less, probably. That wasn't my point. My point is they are both expenses. Selling for a nominal gain is completely psychological. It makes us feel good to see a green sign instead of a red sign.
By not taking into account real losses, everyone just kids themselves, and everyone thinks they are more wealthy than they really are.
I was only pointing out that you would need to sell for x amount in order to get back to where you started from.
shane,
ReplyDeleteyou're half way there to understanding anony when you say that maintenance costs etc could be taken into account. add in rental value and net out those extra costs that a renter wouldn't pay and that is the "income" value of owning the house. take that rental value and inflate it to account for the fact that that income could/would be re-invested longterm during the period you owned the house. then add THAT to you net gain and you'll be closer to estimating true "return" on your investment ... and that should make it clear that the owner is far far ahead of the renter ... And that wouldn't even account for the intangible qualities of life that come from living in one's own home.
"Look geniuses, if you factor in a "fair market" rent value, you also have to factor in a whole host of other terms . . . such as maintenance, such as HOA, CONDO fees, and taxes on the housing side of the equation. This all goes into a Rent vs. Buy calculation. My point in doing the calculation was NOT to do a BUY vs. RENT calculation. How many times can I say that."
ReplyDeleteWrong. He lived in the house, he gets to add the FMV of that privilege to the credit column. Period. You're trying to make a point. You failed.
"And that wouldn't even account for the intangible qualities of life that come from living in one's own home..."
ReplyDeleteAnother load of NAR bull.
No wonder this country is in such a mess, and no wonder we have such a big housing bust. People can't do simple math, and can't do simple finances about what is an EXPENSE.
ReplyDeleteWe could say before he lived in a box or with someone else. I am not talking about opportunity costs--(i.e. the cost of renting vs. the cost of buying vs. the cost investing the money) that's a different beast.
I am explaining how much the MORTGAGE costs in real terms.
"Wrong. He lived in the house, he gets to add the FMV of that privilege to the credit column."
NO, sorry you are WRONG!! The guy could have lived in a BOX!!!, with his mother, he could have been homeless!! Again, I'm not talking about OPPORTUNITY COSTS. I'm talking about the TOTAL EXPENSE OF THE MORTGAGE-how hard is that to get it through you thick skulls.
The total cost of the mortgage was ~280k, he sold for 200k, i.e. the mortgage cost him 80k. Again, I'm not comparing rent vs. buy, vs. invest.
Over 15 years he spent 80k+ on the mortgage. Using your logic, if he had spent 120k+ on rent over 15 years, he's made 40k+ dollars in 15 years. No he didn't "make" 40k, he "spent" 40k LESS than he would have, but that doesn't negate the fact that he still spent 80k over 15 years.
Using this screwy logic that he made money, is how the government fudges deficits all the time. "Well we didn't spend as much as we would have . . . so we're really up 50 million this year" . .. when they are still in the red, just not as much as the previous year.
Let me reiterate one more time for you people with insanely thick skulls. I am not comparing opportunity costs.
Let me give you an example of opportunity costs. If the guy lived with his mother and put the money that would have gone to mortgage payments and invested it at 8% plus the down payment at the end of 15 years he would have had ~375k, in the bank. He could have lived with his mother for 15 years, and then bought the house at 200k outright with money left over. Let's say rent was 10k a year, he would have spent 150k in rent over 15 years. Let's say the guy doesn't want to live with his mother so investing and earning 375k doesn't work. I've already shown that the mortgage costs is ~88k, and renting costs are 150k. So he decides to buy a house . . . smart choice based on the opportunity costs, but it DOES NOT NEGATE THE FACT THAT THE MORTGAGE was an EXPENSE over 15 years of 88k.
shane is right...based on the limited information we know, the person from conn did not likely break-even on the sale. there are factors that would change the break-even analysis, but it's likely this person did not break-even. that being said, what's happened in the past is over, so there's no need to dwell over it. i would caution this person to not purchase real estate for the sole purpose of making money. depending on the length of time to retirement, 'investment' money would likely be better off in stocks over the long-term. the greatest threat to our money, savings and investments is inflation.
ReplyDeleteIt doesn't matter if you use caps, you still know absolutely nothing about accounting.
ReplyDelete"And that wouldn't even account for the intangible qualities of life that come from living in one's own home..."
ReplyDeleteAnother load of NAR bull."
Clearly you are right, the value of staying in a house you love indefinately - $0
The value of painting a wall a different color or doing whatever the hell else you want - $0
The value of not having to deal with some Jackass landlord - $0.
The value of not having your wife, question why you havent bought, despite the number of times you have run the financial implications of "buying versus renting" by her - $0
Look, no one is saying that there arent A TON of negatives that go along with ownership - what many of us are saying is that when ALL the negatives and ALL the positives are put together, for MOST people, the value of the intangibles is something greater than $0.
The bubble heads here seem to equate everything down to dollars and cents that come directly out of your pocket - things that make SOME people (i.e. homeowners) happy - clearly have no value and its nothing more than us all being duped by the NAR propaganda regime. Look, if it really was just down to dollars and cents out of pocket, why dont we all just live in a Van down by the River?
I understand Lance said it therefore, it must be attacked instantly and with much vengeance, but for god sakes, please cut down on this "renter/ hero" crap. In return, I promise to not ever denigrate someone who never wants to buy.
The Idiot Anonymous.
Shane,
ReplyDeleteYes, you are right. If the choice is between "living in a box" and living in one's own home, then yes it is going to be more expensive to live. Period.
Most people though aren't faced with the choice of "living in a box" or living in one's own home. They are faced with the choice of living in someone else's investment or in their own home. Given this, they must factor in the rental value if they buy since they would be paying rent if they did not buy.
:Clearly you are right, the value of staying in a house you love indefinately - $0
ReplyDeleteThe value of painting a wall a different color or doing whatever the hell else you want - $0
The value of not having to deal with some Jackass landlord - $0.
The value of not having your wife, question why you havent bought, despite the number of times you have run the financial implications of "buying versus renting" by her - $0"
Add to that - The intangible enjoyment of watching homes next door to you sell for 100s of thousands of dollars less and those new owners making a fraction of the mortgage payment you are...yep, that's just gotta be so mentally soothing.
"It doesn't matter if you use caps, you still know absolutely nothing about accounting."
ReplyDeleteHey, if it's my accounting vs. Enron/Countrywide/etc. I'll take my accounting any day. You're accounting leads to turning an expense into income. Mine calls it what it is an expense.
Lance,
last word I'm going to say on this.
Take heating a home. Generally, you have the choice of electric, gas, or do without. Electric right now is prob. cheaper than gas. So you choose electric. The fact that you are spending less on electric, doesn't mean you are making money at it.
Same with a house, you have buy, rent, live in a box. Just because buying may be cheaper at a particular point in time compared to renting does not negate the fact that it is almost always going to be an expense.
"Add to that - The intangible enjoyment of watching homes next door to you sell for 100s of thousands of dollars less and those new owners making a fraction of the mortgage payment you are...yep, that's just gotta be so mentally soothing."
ReplyDeleteHeres one you forgot, the intangible fear that a dirty bomb goes off and my place is really worth $0. Thats why I said ALL the negatives and ALL the positives.
Dont think your point didnt cross my mind when I bought back in Oct 99 and thought I was paying waaay too much - turns out thankfully I was wrong. Like I said, these ALL go into the equation. But this phantom appreciation aside, the positives still outweigh the negatives.
The Idiot Anonymous.
Okay, now everyone agrees but are still arguing.
ReplyDeleteShane is saying owning a house is an expense if appreciation is less than inflation. I'd argue to use the interest paid on the loan instead but that doesn't really matter.
Others are saying that renting is also an expense so you have to consider that. Shane agrees but that wasn't his point.
That being said, I do disagree with Shane about the Enron accounting comment. Nobody is fudging anything. We all have other sources and most will come out ahead if we pick the expense that is minimal - renting or owning. If owning expense is minimal (unlikely now) then I darn well will be in good shape...
And that does not mean that the shelter you get from owning the thing is valueless. This is not enron. This is common sense. You seem to have none.
ReplyDeleteif you look at average home prices in Northern Virginia since 1975, it is clear that we are back to historic growth rates if we simply have zero appreciation through 2009. Not really that big of a deal after the recent run-up. If you have to sell and you bought in 2005 or 2006 then you are likely hosed. Tough. ....
ReplyDeleteCountry is going to add 25 million people in short order. Where are they all going to live?
Rent vs. own calculations?
ReplyDeleteNeighborhood by neighborhood YOY inventory assessments?
Painting the wall in the kids room?
All this is SOOOOOOO January 2007.
If you don't think a house/townhome/condo that was debted to - I mean purchased by - someone PRIOR to 2005 is going to lose at least 30% of its value MOST areas in the Greater Washington DC area, you are in for a shitty 2008.
Breaking news to all you sleepy folks in DC: all those 20 something year-old ex-interns, middle-income government workers and transit employees and immigrants from suburban Maryland, CAN NOT AFFORD the payments on these depreciating assets stuck in the middle of gang-banged, car-thieved, vandalized, gogo club shot out, so-called "gentrified" areas of DC. A Target in Columbia Heights doesn't change the fact that residents there can hardly afford the metro rail increase, let alone to purchase one of the hundreds of half a million dollar condos coming online in the next year.
"those 20 something year-old ex-interns, middle-income government workers and transit employees and immigrants from suburban Maryland, CAN NOT AFFORD the payments on these depreciating assets stuck in the middle of gang-banged, car-thieved, vandalized, gogo club shot out, so-called "gentrified" areas of DC."
ReplyDeleteThats why they (at least the immigrants) are all moving out to my hood in Manassas & beyond. The way things are going, it will be like the 1950s in reverse. White flight into the city, and all the inner city poverty will be priced out to the fringe. Huge PWC McMansions are already being inhabited by 3-5 families of MS-13 members - its not much of a step to solve the affordability problem by turning them into subdivided group homes like you see in the old Mansions in DC. or subsidized govt housing. God I cant wait to get out of PWC!!!