Note: This is just for Washington, DC proper (no suburbs). Includes condos and single family residences from the MRIS. According to the knowledgeable Calculated Risk "Usually 6 to 8 months of inventory starts causing pricing problems, and over 8 months a significant problem." By 'pricing problems' , Calculated Risk means declining prices. Washington, DC is at a 9.5 months of supply. Expect declining prices in Washington, DC this year.But, at least DC is not Prince William County (outer suburb of DC) where the months supply is at 17.1. Expect large price declines in Prince William County this year and other outer suburbs of Washington, DC
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Another thing to consider is the length of the spike in months of inventory. If you had only 1 or 2 months of 9-10 months of inventory, and then went back to 4-5 months of inventory, its not nearly as bad as a long, protracted bout of high inventory. (Not saying that DC's bout will be short mind you).
ReplyDeleteBy way of example, since the bubble burst (mid 2005) January 2007 is the first month DC and the inner suburbs are at the 9-10 months of inventory. By contrast, PWC has experienced double digit months of inventory nearly every month since October 2006.
hmmm ... there was a 1 1/2 months supply in 2005? wasn't that when properties came on the market on a Thursday and bids were due on them by the following Tuesday?
ReplyDeleteWait, I thought the fact that many condo developments were turning into rentals was a sign of the Apocalypse?
ReplyDeleteIf that is the case, then condos don't belong in this analysis. If it is not the case, then keep them in this analysis, but understand that they account for the vast majority of inventory. No one would argue that.
It depends whether the neighborhood was a get shot in full daylight out front of your house slum or just an ordinary DC slum.
ReplyDeletehmmm ... there was a 1 1/2 months supply in 2005? wasn't that when properties came on the market on a Thursday and bids were due on them by the following Tuesday?
ReplyDeleteYes Lance. Now accept 2005 is gone. The studies note that above 8.7 months is pretty bad.
We're in a buyers market. Yes anon, the longer the high inventory persists, the worse the price rout. But until inventory drops enough to pull us into a neutral market, sales will only be stimulated with price cuts.
Home prices dropping at fastest pace on record!
Got Popcorn?
Neil
The party is really about to begin. Interest rates are about to spike due to inflation and those ridiculous prices are about to really tumble back to reality.
ReplyDeleteIt still won't be a bargain since the cost of owning may not change very much, but it is still better to pay a lower price because there may be an opportunity to refinance at a lower interest rate in the future (with this bust I doubt it though).
See this story on interest rates becoming unhitched from rate cuts.
http://money.cnn.com/2008/02/25/news/economy/conundrum/index.htm
The writer must not understand basic economics. With the ridiculous amount of liquidity that existed, interest rates remained low despite of Fed tightening because, risk was ignored. Now that risk is back to being priced -- as a result of the credit crisis, sub-prime and other -- interest rates are rising due to the risk premium and due to the inflationary factors.
Can I borrow you line, Neil. Got popcorn?
"It still won't be a bargain since the cost of owning may not change very much, but it is still better to pay a lower price because there may be an opportunity to refinance at a lower interest rate in the future (with this bust I doubt it though)."
ReplyDeleteIt is very important not to fall for the "buy the payment not the price" argument. In the vast majority of cases it is far better to buy a cheaper house at a higher interest rate than a more expensive house at a lower interest rate. (assuming the payments were the same)
Even with low interest rates there is no way around the fact that when you have borrowed a huge amount of money you have to pay that amount of money back. (with interest)
With a smaller initial loan balance you can more easily pay your home off early if your earning power grows or if more funds become available.
David,
ReplyDeleteI assume by now you've noted that Case-Shiller is out. We're down 5% of your predicted 6% to 13% at the half way point. So we're trending towards the upper end of your prediction.
Losses continue to accelerate. "Greater Washington" is now 13.3% below the peak. Washinton's loss rate is worse than the Composite 10 and 20 and is the 6th worst of the index. Only the most infamous of the bubble markets are doing worse... oh wait, DC is now getting the reputation as being among the most overbuilt.
Got Popcorn?
Neil
Prices dropped 1.7% in November and another 2.5% in December - both record decreases in the last 21 years.
ReplyDeleteThe fact that prices are ACCELERATING downwards still is a very bad sign considering we're already 13% off the July 2006 highs.
anon said:
ReplyDelete"Even with low interest rates there is no way around the fact that when you have borrowed a huge amount of money you have to pay that amount of money back. (with interest)
With a smaller initial loan balance you can more easily pay your home off early if your earning power grows or if more funds become available."
Don't you think everyone would rather have to borrow less principal AND be able to refinance later at a lower rate?
The problem is that it rarely works that way. In periods such as these (i.e., where inflation is knocking on the door) what has occured in the past is the interest rates rose quite significantly AND for a long long time before coming down again. Concurrently, the same inflation which raised interest rates ALSO raised nominal house prices. I.e., the worst of both worlds. You end up both having to borrow more AND pay higher interest rates on what you've borrowed.
"Concurrently, the same inflation which raised interest rates ALSO raised nominal house prices. I.e., the worst of both worlds. You end up both having to borrow more AND pay higher interest rates on what you've borrowed."
ReplyDeleteJeebus, lance, please cease expounding on your dearth of basic economics. It is really painful.
anon 7:39 said:
ReplyDelete"Jeebus, lance, please cease expounding on your dearth of basic economics. It is really painful."
I'm constantly amazed at how little BHs know about recent and past economic cycles.
"The global stagflation of the 1970s is often blamed on both causes: it was largely started by a huge rise in oil prices, but then continued as central banks used excessively stimulative monetary policy to try to avoid the resulting recession (stagnation), causing a runaway wage-price spiral.[6"
... and in case you don't know the result of stagflation, it was rapidly rising prices for everything (including homes) and double-digit mortgage rates reaching as high as 20%.
http://en.wikipedia.org/wiki/Stagflation
ReplyDelete"... and in case you don't know the result of stagflation, it was rapidly rising prices for everything (including homes) and double-digit mortgage rates reaching as high as 20%."
ReplyDeleteGeez.
Housing prices rose in the 1970's because the baby boomers were graduating from college and starting to raise families. It was a supply-demand issue (in this case, high demand in the presence of a limited supply), combined with rising incomes.
To imply that stagflation will result in rising home prices in today's economy is yet another case on your part, Lance, of cherry-picking irrelevant variables to come to the conclusion you are looking for. Stop it!