Sunday, March 23, 2008

WashingtonPost: N.Virginia, Foreclosures Form 'Ring of Fire'

Foreclosures are increasing rapidly in the Washington area. The WashingtonPost reports that:
When foreclosure specialist John Thompson looks at a map of Northern Virginia, he sees a flaming archipelago that stretches from Dumfries to Sterling. Parts of Dale City, Woodbridge and Herndon are engulfed; Manassas and Manassas Park are "a volcano."

Thompson calls this the "ring of fire," Northern Virginia's foreclosure belt. And although hardly a scientific model, it illustrates the geographic pattern of the region's housing distress.

But drive with Thompson through the hardest-hit areas of Prince William County -- the epicenter of the region's foreclosure trouble -- and the loss of value has been precipitous.

"That one's listed at $125,000," Thompson said one recent afternoon, sizing up a dowdy green rambler in Manassas Park that had been foreclosed on. It wasn't the fanciest house on the block, but it wasn't a shack. Two years ago, homes in the neighborhood were selling for $300,000 to $400,000, Thompson said.

The rising number of foreclosures are contributing significantly to declining prices in the outer suburbs.


  1. It is telling that you don't mention close-in double-digit price appreciation mentioned in the same Post article:

    "It's really limited to the ring of fire," said Thompson, an agent with Samson Realty who specializes in REO, or "real estate owned," properties. "There is no foreclosure crisis in McLean, Great Falls, Vienna, Oakton, Fairfax Station and most postal areas of Northern Virginia," he said.

    In those areas, prices have dipped slightly, remained stable or, in some cases, increased. Average sale prices in some Arlington County neighborhoods have risen 7 percent in the past year, and one McLean neighborhood's average price has increased 13 percent.

  2. In my zipcode in Alexandria, the lower priced places, that is, under a half mill, have fallen from their peak prices.

    I'm looking at actual sales of commodity THs as well as garden apartments. The fall is about 10% and is in the data in the city's assessment and tax databases.

    Above a half mill, which does not get you very much in my neighborhood, Northridge or Beverly Hills, it is harder to find comparables.

    There are two problems. Very few houses change hands so it's hard to find comps. The places that come on the market have an eager market.

    There is no open land for new homes. The one new home in my area is $2.2M and was built on a knock-down. The house that was knocked down was an ugly green but it was built of cut stone block!!!

    Above a half mill, prices seem firm to rising.

    There is no guarantee that this price rise will continue. Given that the Fed is driving down interest rates and making money available to commercial banks, I expect that these prices will continue rise in my area.

    Gas prices are high and Northridge, Beverly Hills is about 2 miles to the Pentagon, Crystal City, and two metro stations.

  3. KH,

    Something that I infer from your post is that those with around half a million dollars or less to spend on a home will practice "substitution"; or look outside your neighborhood for their home.

    Yet "Gas prices are high", heating/cooling costs are rising, the cost of food and other necessities is rising. These things put pressure on homebuyers when they consider their day-to-day lives in the future.

    Access to Metro stations, walkable neighborhoods, and living near the workplace are all increasingly desirable attributes for homebuyers.

    So, if they can't afford your neighborhood, but they still want these things, what will they do? Substitute a cheap McMansion in Manassas? Probably not. Substitute a townhouse in DC or other "close-in" areas? Probably. It depends upon the individual, but if you do a little research into the gentrification issue in DC, you'll see that people are practiciing substitution there at a steady pace. One of many web resources on the topic:

  4. Another website devoted to the rapid pace of housing "substitution" in DC.

  5. This just shows that once again, there has not as of YET been a drop in the majority of inner beltway neighborhoods. I dont know why so many BH have a hard time with this.

    Again, I think the drops are coming but they havent gotten here yet, and if I use the past 3 years as a guide, I think the drop will be far far less than those experienced by people living in far out McMansions.

  6. Trombly said...
    "So, if they can't afford your neighborhood, but they still want these things, what will they do? Substitute a cheap McMansion in Manassas? Probably not. Substitute a townhouse in DC or other "close-in" areas? Probably."

    This is the thing about the substitution effect most people in the burbs & elsewhere dont understand. Many of us live where we live because it is unique - the architecture, the restaurants, the destinations, etc. Living in a 200 year old row house - shopping at shoe fly - eating at Kinkeads and going to eastern market are all unique and wonderful parts of daily life when you live close in. For us, farther out housing that would deny us access to the things we want are inferior goods - thus no (or very little substitution).

    By contrast, say you live in Chantilly - your McMansion was built by Lennar, you shop at the Gap and your favorite restaurant is Carabbas. Lennar, the Gap and Carrabbas are all fungible items - they are the same in Chantilly, and Culpepper and even DesMoines Iowa for that matter.

    Thus when you live in the land of McCulture, why pay 500K for this McMansion when there is another one 10 miles out that is EXACTLY the same (cause ya know "thats the logic of Lennar") for 50K less. It still has the same Gap and Carabbas - sure you have to drive further but 50K is worth it!

    Well for all the mindless lemmings who live out beyond the beltway keep going with how the "substitution effect" is gonna bring us down. Well until we are ready to sell our souls to live in "Madeup Name Lane" shop at "Same Stuff International" and eat at "OliveCheescakeBonefishOutbackSteakhouse" dont bet on it!!!

  7. And somewhere a Carabbas product manager is thinking, "Hmmm.. Olive Cheesecake. There's an idea!"

  8. For Virginia Foreclosures, I recommend