Friday, January 30, 2009

Updated graph: Washington, DC area housing prices

Here is an update of my Washington, DC metro area house price graph, showing almost 22 years of DC area house prices.

Again, the vast majority of houses in the DC area are in the suburbs. Housing prices in the suburbs have been falling faster than in DC, itself.

122 comments:

  1. So from the shape of the curve, it like we have another year or two of declines ahead of us before things bottom out...

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  2. The graph and NOZ

    Recall that NOZ said, "we live in a 1 bdrm apt and are itching to get out." and "We don't need to be stuck in our home because we can't afford a weekend get away."

    and Anon 8:06 below mentioned losing some equity from the peak.

    Here's the disconnect. Like Lance and Anon 8:06, I bought close in (probably w/in a half mile of Terminator-X). My PITI is under $2,000. I bought before 1999 and rolled equity from a TH into a SFH.

    Just because I can, I put an extra $1,000/month toward my house-debt. That leaves me enough for expenses, savings, etc.

    I do "get away" but, lazy that I am, I spend time napping, visiting neighbors, watching my 42 inch HD set, walking my treed, park-like neighborhood (NW of Del Ray). It's a 20 minute drive to my office, that's on a bad day.

    I don't want to live in a $1,000/month 1 bdrm apartment. I have a hobby shop in my basement an OK kitchen, a front and back yard and I park in my driveway (my garage is full of junk).

    I agree that out beyond the Beltway, things are bad. Anyone who bought in my area in 2006 probably lost some coin. I've been here for a while.

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  3. A real estate purchase is a long term investment. No one actually has lost money on a home, unless they were forced to sell it.

    With that said, YES there have been declines in values. The closer one buys to DC, the less value lost. Real estate is still a LOCATION game. When you buy in a blue chip area, your risk of loss is mitigated.

    A home is one of the few investments that is subsidized by the US when they allow interest to be deducted. After tax benefit of owning a home can sometimes be LESS then paying rent when all is said and done.

    Look at the long term horizon and buy while there is blood in the street. People that MUST sell in this horrible market are losing money....but...those able to buy in this market can STEAL a home....

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  4. PotomacSecretAgent: If you buy a house today, you get a deal only if you assume that 2005 prices are normal, and we will get back there after things recover, and many of us here wouldn't agree with this.

    But even if we grant you that point, I see prices continuing to decline for the next year, so a buyer could get an even better deal if they just wait a bit. What's the incentive for a buyer to buy today, in other words?

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  5. I just signed a year lease yesterday, moving in two weeks....cant wait! Both for my move and the discount Im gunna get on the house I buy next year!

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  6. "Jack Russel said...

    What's the incentive for a buyer to buy today, in other words?"

    The only one I can think of is greater selection of places to choose from. Im guessing that at the "bottom", inventory will be pretty well picked over.

    Lets put it this way - I think were getting pretty close. Im content to wait for now, but if THE right place comes along, im gone...

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  7. Another day, another idiot real estate pumper...


    "People that MUST sell in this horrible market are losing money....but...those able to buy in this market can STEAL a home...."

    Take a look at that graph, the market as a whole is still grossly overpriced.

    ...oh yeah, and people that bought high absolutely did lose money.

    We aren't talking about taxes here, overpaying by tens or hundreds of thousands of dollars is losing money, period.

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  8. dont know how I got here but this is interesting to see the peek years of this graph.

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  9. Carl Case out there calling bottom this year.

    http://www.bloomberg.com/apps/news?pid=20601206&sid=aPHG5j9o577o.

    When will idiot house pumpers like Case Shiller ever learn?.

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  10. nice graph James. Prices will continue to fall in 2009.

    David

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  11. Is there a separate graph likethis for Baltimore?

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  12. PotomacSecretAgent said...
    "A real estate purchase is a long term investment. No one actually has lost money on a home, unless they were forced to sell it."

    If you overpay, which is what happened en masse, you can easily lose.

    There is nothing particularly magical about a long-term vs. short term investment, it depends on how liquid the asset is. Condos are usually more liquid and more easily comparable. Other than that, there is always an opportunity cost to holding onto something longer than you need to (real estate, stock, whatever asset), something that too many loose sight of.

    The inflated economy boosted real estate to astronomical levels.

    "With that said, YES there have been declines in values. The closer one buys to DC, the less value lost. Real estate is still a LOCATION game. When you buy in a blue chip area, your risk of loss is mitigated."

    Generally because there should be deep demand for those attractive areas, yes. But don't lose track of the fundamental issue. Prices went up as astronomically in the desired areas as in the less so. It is illogical to imagine that some semblance of balance between prices in both areas will not be restored. Think about it.

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  13. Carl Case said...

    “It’s not going to be a terrible year for the housing market, believe it or not,” Case, a professor at Wellesley College in Wellesley, Massachusetts, said in an interview on Bloomberg Radio. “I think these stabilizing forces are there, and over the next year you’ll see the housing market come back into equilibrium.”

    Stupid reporters - that wasnt the whole quote. I heard him say this

    “I think these stabilizing forces are there, and over the next year you’ll see the housing market come back into equilibrium....except Arlington & particularly N. Arlington where housing will continue to decline in perpetuity...or massive drops down to 2001 levels in the next 3-6 months and then stabilize”...

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  14. Carl Case said...

    “It’s not going to be a terrible year for the housing market, believe it or not,” Case, a professor at Wellesley College in Wellesley, Massachusetts, said in an interview on Bloomberg Radio. “I think these stabilizing forces are there, and over the next year you’ll see the housing market come back into equilibrium.”

    Stupid reporters - that wasnt the whole quote. I heard him say this

    “I think these stabilizing forces are there, and over the next year you’ll see the housing market come back into equilibrium....except Arlington & particularly N. Arlington where housing will continue to decline in perpetuity...or massive drops down to 2001 levels in the next 3-6 months and then stabilize”...

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  15. "Prices went up as astronomically in the desired areas as in the less so. It is illogical to imagine that some semblance of balance between prices in both areas will not be restored. Think about it."

    I agree with you. Believe it or not. But ... the balance will occur by the "far out" firesale coming to an end ... and those nominal prices returning closer to what they were a few years ago. Why? Because all these billion dollar bailouts and the trillion dollar recovery act will result in the government "priniting more dollars" ... which can inevitably only lead to mega-inflation. Or perhaps I should say "astronomical" inflation. We're just not having the firesale here in the closer in areas.

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  16. "Generally because there should be deep demand for those attractive
    areas, yes."

    Agreed, in 1998, when our mayor was a conviced felon and crack addict - even back then everyone wanted to live there - deep deep demand. Nothing ever changes - its not different anywhere...

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  17. Anonymous said...
    "Is there a separate graph likethis for Baltimore?"

    Yes, but it's currently two quarters out of date. I've been lazy. It also uses a less reliable data source (OFHEO), which only counts houses with conforming mortgages.

    You can also look up Baltimore on Zillow.com. Where it says "Find", select "Local Info", and then type in "Baltimore, MD". That will give you info for just the city of Baltimore, not the entire Baltimore metro area.

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  18. James - since you did have a graph going for it - did you notice the same thing in Baltimore as we have here in DC - i.e. generally greater declines farther out, and lesser declines close to the city?

    Just curious...

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  19. Sondis said...
    "James - since you did have a graph going for it - did you notice the same thing in Baltimore as we have here in DC - i.e. generally greater declines farther out, and lesser declines close to the city?"

    Sorry, I haven't looked at suburban vs. urban data for Baltimore. I will say that DC's Maryland suburbs (many of which are surrounded by DC, Baltimore, and Annapolis) are falling slower than DC's Virginia suburbs (which are entirely dependent on their proximity to DC).

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  20. "I agree with you. Believe it or not. But ... the balance will occur by the "far out" firesale coming to an end ... and those nominal prices returning closer to what they were a few years ago. Why? Because all these billion dollar bailouts and the trillion dollar recovery act will result in the government "priniting more dollars" ... which can inevitably only lead to mega-inflation. Or perhaps I should say "astronomical" inflation. We're just not having the firesale here in the closer in areas."

    The term is "hyper-inflation" lance. You don't need to make up new words.

    You just don't have a clue do you? Did you even read what he was saying?

    He said that while some parts of the area more desirable and have always had higher prices than others, that gap has temporarily widened greatly.

    Eventually something similar to the original balance will be achieved. Expensive areas will remain more expensive, but if a certain area used to be ~50% more expensive in comparison to another, it isn't suddenly going to go to ~100% more expensive and stay there.

    Hyper inflation will not restore that balance, anything that raised nominal prices in hard hit areas that much would raise nominal prices in Arlington just as much.

    Also, you need to take care to remember that you don't know anything whatsoever about economics and more or less every single thing you have said on the subject proves it. So put away the crystal ball...



    "That's right that's right ... That tiny speck of the market that was only buying the cheapest of places to begin with is going to be soooo missed ... You bubbleheads will grasp at any straw, won't you. Your theory is over. It was debunked the minute the big investment firms revealed how very little the default of a few subprimes was going to affect them. The entire BH theory was predicated on the assumption that defaulting mortgages would cause a surge in supply and a corresponding plunge in prices. Well, the catalyst for that surge has been debunked and your theory exposes as fraudulent. Admit you were wrong. It's over. It's just a regular business cycle. And we've indisputably aready bottomed out. Where does that leave you with your far fetched theory?" -lance 22 March 2007


    How exactly do you fit hyperinflation into your "normal business cycle that has already bottomed out" theory?

    LOL

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  21. march of 2007 was the bottom? Did prices drop at all yet by that time??? I mean a $5K drop on a $600K price tag isnt really a drop.

    Im glad that here in 2009 things have finally STARTED to drop....and cant wait until the middle in 2010. Thats when Im going to buy!

    Lance, will you sell me your place for $230K in 2010?

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  22. Its all good now that James' new paradigm is in place: Zero Inflation & Permanently Low Fuel Prices!

    It will never change! Things really are different this time!

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  23. At City Auction, Homes Sell at Fever Pitch
    Many Bidders Leave Empty-Handed as Prices Exceed Their Budgets

    By Hamil R. Harris and Darryl Fears
    Washington Post Staff Writers
    Saturday, January 31, 2009; B02
    [http://www.washingtonpost.com/wp-dyn/content/article/2009/01/30/AR2009013003617.html]

    City officials put 29 houses on the auction block yesterday at the old D.C. Council chamber in Judiciary Square, and bargain hunters packed the room and formed a line out the door.

    They brought their hopes and fat certified checks -- $10,000 was required to bid.

    "Okay, ladies and gentlemen, let us go to 475 Florida Avenue," auctioneer Paul Cooper bellowed. "I got $90,000 on the front row. I got $130,000. How about 140? Is that 140 standing in the back? I got 250 seated in the back. I got $290,000. Once. Twice. Final call. Sold!"

    As Cooper spoke in a rapid cadence, a few veteran buyers shook their heads -- $290,000 for that? -- saying too many properties were selling for way more than they were worth. But the spenders didn't mind.

    "I renovate properties throughout D.C., and this was a good opportunity to pick up properties," said Scott Zimmerman of Capital City Real Estate, who paid $380,000 for the first auctioned property.

    Professional developers helped drive up the bids.

    Leila F. Edmonds, director of the D.C. Department of Housing and Community Development, said the auction went well, with properties selling for the top dollar amount of $400,000 and as cheaply as $35,000. The auction satisfied two goals, she said: netting nearly $5 million that officials plan to invest in affordable housing programs and putting mostly dilapidated housing back on the market in 18 months.

    It was the first time in about a decade that the city held a home auction this large, a department spokeswoman said.

    Houses up for auction -- what Mayor Adrian M. Fenty had called "neighborhood eyesores" -- stood faded and boarded up in numerous communities, including Columbia Heights, LeDroit Park, Deanwood, Anacostia and 16th Street Heights.

    Many potential buyers left disappointed, having been priced out by the big players.

    Elder Myron Noble, head of Middle Atlantic Regional Gospel Ministries, came to bid on a property at 100 Bryant St. in LeDroit Park. The house has practical and sentimental value for Noble, having served for decades as a meeting house for a Pentecostal student group at Howard University. But Noble could only watch as the bidding soared above the $200,000 he was prepared to pay.

    "I wanted to return it to the faith-based community," he said.

    In the audience of about 150 was Noble's competition, Pastor Bruce Clark of Advance Church of Silver Spring. He had his own plans for the house on Bryant: to turn the building into a facility to minister to at-risk youths. But when he learned that the weather-beaten house needs $200,000 more in renovations, Clark walked away.

    In the end, neither minister got the property, which went for nearly $400,000.

    With the auctioneer crying out, and dozens of people shouting back at him, thrusting numbered white placards in the room's sweltering air, a bedlam seemed to wrack the old council chambers. Fire marshals pushed part of the overflow crowd out the double doors.

    Haile Bereket had his eyes on a prize: a property at 304 13th St. NW. He was willing to pay $120,000, but the winning bid more than doubled that, at $300,000.

    Eyeing the action, Ijaz Bhatti, 53, of Silver Spring seemed enthralled. "I have never seen an auction as big as this," he said. Bhatti came as a participant looking for "an investment property," he said. He left as an empty-handed bystander. Harold Johnson, a savvy and successful owner of Project Resources International, said the auction was a good event for the city. But the new homeowners were at the first step of a larger challenge. A big fix -- hammering, nailing and sawing with dust flying -- is in their futures.

    "I think it is great for the District to raise revenue and to get property off the books, but the proof is in the pudding and the renovation," Johnson said.

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  24. Only another 50% (30% inflation adjusted)or so to fall to get back to 1998 prices. That'll take 24 - 36 months unless things get a lot worse. Then in will be here sooner.

    The left side of the graph is interesting -- the S&L crisis was unfolding and the flat prices that followed were largely due to the actions of the Resolution Trust Company. Otherwise the decline would have been much deeper. And remember that the GSEs were lowering credit requirements all the way back in 1993-94, so that decline should have been deeper. The Bubble (that all the experts said didn't exist) grew from an already inflated baseline.

    The financial crisis at the root of the current downturn is much worse than the S&L crisis. It is global this time, and it is massively larger. I'm afraid the next leg down will be driven by spiking unemployment which we are only now beginning to see.

    For instance in the last 12 months Iceland's banks failed, currency failed, economy collapsed, and just last week government fell -- all because of CDOs and CDSs, easy easy credit -- sounds a lot like what caused our current pain. Iceland is the canary in the coal mine. The EU is already showing cracks and they are several months behind us in the unwinding.

    I'm an optimist, but what lies ahead looks really bad. 1998 prices might not be low enough.

    I sure wouldn't take on any debt until there is some real clarity. Pay cash and live in the house 20 years no matter what -- otherwise rent.

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  25. How to be a bubbler.

    Rule 1 - Learn the dogma: "No place is immune"
    "Revert to the mean", "No place is different", etc. They are immutable as the laws of space and time and apply to every area no matter how small. You learned them on the internet - they must be true.

    Rule 2. Learn the catchphrases, "homedebtor" "differnt" "special" "immune" "knifecatcher" etc. They are devastating counterattacks to any argument - no matter how logical.

    Rule 3 - Remember, nothing ever changes, especially not in your area. No place ever gets better or worse - it always stays the same.

    Rule 4 - Adopt only those theories you like. Phantom inventory is everywhere (especially heavy in your area) and a "TSUNAMI" of foreclosures is always just about to begin.

    Rule 5 - ignore any local data that suggests your area will not suffer a catastrophe. Assume always, its "moving in". Use California or national data to make your points. Since "No place is different" remember, it will look just like that in your area too.

    Rule 6 - never modify your timeline:

    2005: its only getting started
    2006: its only getting started
    2007: its only getting started
    2008: its only getting started
    2009: its only getting started

    Continue this for as many years as necessary. Note, you may use the (3rd inning) baseball analogy if you wish.

    Rule 7 - Accept & adopt sources like case shiller when they say its a bubble - deny & ignore them when they say the bottom is in sight. They are knifecatchers and are out to get you.

    Rule 8 - No matter how many years go by, dont ever question rules 1-7 - EVER. Arguments based on logic, data, or economics - while they may be true in theory, deny they could ever happen to your area. Just keep responding "no place is different", call them a homedebtor, and move on.

    Remember, you control the market - prices in your area will always get down to your predetermined level of affordability - and will bottom when you say so - not before.

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  26. "And we've indisputably aready bottomed out."


    "indisputably" ....


    and this guy wants to offer advice on the housing market?

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  27. This one is for the Gay Oil Guru.

    Definitely worth a look!

    http://www.youtube.com/watch?v=Edl0l3VaIks

    "That gas is in heaven now... fueling the cars of angels..."

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  28. hey anon,
    I like that -- works both ways for sure.

    I'd like to suggest that

    "It is what it is till it isn't what it was." Words to live by.

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  29. How to be a clueless housing pumper!

    "Rule 1 - Learn the dogma: "No place is immune"
    "Revert to the mean", "No place is different", etc. They are immutable as the laws of space and time and apply to every area no matter how small. You learned them on the internet - they must be true."

    It is different here!

    Where is here? Wherever the housing pumper lives of course!

    It is a coincidence that the pumper's neighborhood shot up at the same time as everywhere else, in the pumper's neighborhood it was for completely different and totally sustainable reasons. The sky is the limit!

    (For a really amusing time get housing pumpers from different bubble areas together, watch them ALL explain how their area is "different.")

    "Rule 2. Learn the catchphrases, "homedebtor" "differnt" "special" "immune" "knifecatcher" etc. They are devastating counterattacks to any argument - no matter how logical."

    Remember, smart capable people own homes, if you don't... well then you must be a renter...and quite possibly a pedophile. Waiting for an obvious correction to take place is "trying to profit from others' misfortune," and contemptible.


    "Rule 3 - Remember, nothing ever changes, especially not in your area. No place ever gets better or worse - it always stays the same."

    Remember, economics don't apply in areas where a housing pumper lives. These areas don't experience bubbles, they simply gentrify overnight, or were undervalued for the previous several decades, or have experienced an incredible run-up in incomes that is not reflected in any available statistics.

    "Rule 4 - Adopt only those theories you like. Phantom inventory is everywhere (especially heavy in your area) and a "TSUNAMI" of foreclosures is always just about to begin."

    Invent entirely new theories of economics. Describe a "new paradigm" that you WISH would come true where your particular block becomes the center of the universe driving prices to a level nobody of your meager means could hope to afford.

    Just because it is widely known that lenders are sitting on growing inventories of foreclosed homes doesn't mean it is true.

    Just because Fannie Mae and Freddie Mac both have publicly announced that they have stopped evictions from foreclosed properties and are thus obviously not putting them on the market doesn't mean they have actually done so. There is no phantom inventory. The bottom is indisputably already here.


    "Rule 5 - ignore any local data that suggests your area will not suffer a catastrophe. Assume always, its "moving in". Use California or national data to make your points. Since "No place is different" remember, it will look just like that in your area too."

    Keep redefining your argument to exclude all the areas you were wrong about. Limit yourself to discussing the ever shrinking islands in the region that have not yet shown large declines. Insist that the bottom has already passed, for years, as prices plummet.


    "Rule 6 - never modify your timeline:

    2005: its only getting started
    2006: its only getting started
    2007: its only getting started
    2008: its only getting started
    2009: its only getting started

    Continue this for as many years as necessary. Note, you may use the (3rd inning) baseball analogy if you wish."

    Ignore the fact that real estate corrections take 6-8 years to bottom, at a minimum. Insist the bottom has already passed starting 6 months into a correction and continually after that. If nearly 3 years into the correction, prices drops are still accelerating... well that just means the correction is over.


    "Rule 7 - Accept & adopt sources like case shiller when they say its a bubble - deny & ignore them when they say the bottom is in sight. They are knifecatchers and are out to get you."

    Ridicule well known economists for publicly talking about the bubble for years, until they say something you agree with... then change your story completely.


    "Rule 8 - No matter how many years go by, dont ever question rules 1-7 - EVER. Arguments based on logic, data, or economics - while they may be true in theory, deny they could ever happen to your area. Just keep responding "no place is different", call them a homedebtor, and move on."

    Make many references to "logic" and "economics" even when you are clearly utterly clueless about both. Ignore the fact that the "bubbleheads" were absolutely right about 90% of what they said:

    "Innovative" financial products did turn out to be incredibly risky.

    The bursting of a massive housing bubble has thrown the world economy into a nearly unprecedented tailspin.

    Even though we are early in the correction, the large majority of the region has already seen huge price declines.

    Even David Lereah finally admitted he was lying because that was part of his job.


    "Remember, you control the market - prices in your area will always get down to your predetermined level of affordability - and will bottom when you say so - not before."

    Remember, when all else fails you can resort to straw-man arguments.

    Accuse interested observers of believing they can "control the market," why not? It isn't like you have a good reputation to lose.

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  30. UH oh, me thinks someone hit a nerve!!!

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  31. Control the market, sure, and I can control the weather. And the Moon.
    I feel an eclipse coming on. . .

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  32. People, people, listen:

    There is no point in arguing. We've arrived at a new paradigm! James made it clear: Inflation is gone and fuel prices are cheap!

    It will remain this way FOREVER!

    See? It really IS different this time!

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  33. Prices will come down some more. But I think those of you who are waiting to get that one bedroom condo on U Street for $250,000 shouldn't hold your breath.

    When you talk about areas like Dupont, Logan, or U Street, you're not competing against your average homebuyer. There are tons of people in Washington, DC who could afford to pay a $400K or even $500K mortgage with relative comfort.

    For example, let's take a young couple that recently finished law school and passed the bar. One works for a prestigious downtown firm (salary $160K) and the other for a government agency ($55K). That's 215K of combined income. Let's say they buy a two bedroom condo for $479K. They put about 5%down, which brings their payment to about $3k/mth. That's perfectly affordable for them. In this city, there are a lot of people like that. True, a lot of people bought houses they couldn't afford, but in DC I think a lot of people can easily afford properties in Adams Morgan, Dupont, etc.

    Again, I think prices will come down, but you're not going to see rowhouses across the street from the Potomac Ave Metro, one of which my brother bought back was in high school in the late 90s, go for $150K again. That's what he bought his house for in 1999 and it was fully renovated. Those days are long gone.

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  34. LOL,

    You make yourself look more stupid everytime you post.

    No, it's not hyper-inflation. That's what Germany had pre-WWII and Argentina had in the 80s. We're not going to have 100% 200% inflation like they experienced. It'll be more akin to the double digit inflation we had in the late 70s/ early 80s ... but probably somewhat worse.

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  35. Btw, so far YES it's been a normal business cycle. This is no different from what we experienced in the late '70s/ early 80s, post Vietnam. Nothing changes ... other than the speed that information travels and people get themselves wound up ... especially those generations who haven't been through this cycle before. It might be a bit worse than then, but then again, it might not. So far it pales to what we saw then. ... Just another regular cycle.

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  36. Allen said...
    For example, let's take a young couple that recently finished law school and passed the bar. One works for a prestigious downtown firm (salary $160K) and the other for a government agency ($55K). That's 215K of combined income.


    Is that the average family income for the area? Where did you find the info?

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  37. Robert,

    What does it matter if that is the average income for the area. It is the typical income for the people who are buying in the area Allen mentioned. Like another poster illustrated earlier, it doesn't matter what the average income for an area is. There is only a limited number of housing units in any one neighborhood. Lots and lots of folks may want to live in the central city neighborhoods Allen mentioned, but the housing units there aren't of infinite quantity. Back when few people wanted to live there, supply wasn't in short demand. Now that everyone apparently wants to live there, it is. The free market will allocate the available housing units out to those capable and willing to pay the highest prices. Those not able to buy a typical place there will maybe buy a fixer-upper in that area, or a comperable already-fixed up place in an adjacent neighborhood that isn't as desireable. Average income for an area only matters on the aggregate. Additionally, average income counts those folks (like myself) who already have lots of equity in their homes as well as those living with their parents.

    There's no law out there saying that everyone and anyone is entitled to owning their own home. It's a nice goal, but it's not a given.

    But then you and I have discussed before ad infinitum and you refuse to understand it. Incidentally, how many years have you been renting now? I vaguely remember that the first time I spoke to you back in 2006 you were already well into your 40s ... ?

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  38. * It is the typical income for the people who are buying in the area Allen mentioned that matters. Who cares about the income of those who haven't bought there?

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  39. "But I think those of you who are waiting to get that one bedroom condo on U Street for $250,000 shouldn't hold your breath."

    Ha, I don't think anyone needs to hold their breath very much longer, because people already are buying U St condos at or near $250k:

    http://www.redfin.com/DC/Washington/2120-Vermont-Ave-NW-20001/unit-6/home/11746428

    http://www.redfin.com/DC/Washington/2001-12th-St-NW-20009/unit-420/home/10183257

    http://www.redfin.com/DC/Washington/2120-Vermont-Ave-NW-20001/unit-221/home/11746490

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  40. Lance said...
    Btw, so far YES it's been a normal business cycle. This is no different from what we experienced in the late '70s/ early 80s, post Vietnam. ... So far it pales to what we saw then. ... Just another regular cycle."

    I think this is the second time Lance and I are in agreement. So far, the economy is not worse than what the U.S. experienced during the late 1970's and early 1980's recession.

    The last time Lance and I agreed, it was regarding gas prices. Lance said, "This spike in prices is a temporary blip." By the way, Lance was right.

    I disagree with Lance's prediction of a "mega-inflation". Not because he is wrong about the government printing money. (He's right about that.) I disagree because unlike the 1970's, this time the Fed knows how to solve the problem. (You solve it by plunging the U.S. into another recession. Fun times!)

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  41. Just look at that slope downward!!! Sweet.

    I hope ANON (first post) is enjoying that.

    Oh and by the way, you can still have a hobby while not living in a house ANON...honest.

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  42. Lance said...
    But then you and I have discussed before ad infinitum and you refuse to understand it. Incidentally, how many years have you been renting now? I vaguely remember that the first time I spoke to you back in 2006 you were already well into your 40s ... ?



    What’s that…Oh, it’s Lance. Yes, Yes, Yes,…foreclosures, ARMs, liar loans, income levels, rising DOM, rising inventory, rising debt, billions in bailouts, bank failures, mean and I quote “absolutely nothing”. My age on the other hand (or your best guess estimate anyway)…..is the key to all things financial.

    Allen, I propose that area incomes have some sort of bearing on home prices. Two things will derail my theory. 1. Banks return to loose lending standards. 2. The average buyer pays with cash. If someone has a third, besides gut feelings and a BDPM (Bubble Dome of Protection Module), I’d like to hear it.

    If you think the average family income is $215K great; if you’ve got some sort of data that lead you to believe this, even better.

    ReplyDelete
  43. "No, it's not hyper-inflation. That's what Germany had pre-WWII and Argentina had in the 80s. We're not going to have 100% 200% inflation like they experienced. It'll be more akin to the double digit inflation we had in the late 70s/ early 80s ... but probably somewhat worse."

    LOL

    Oh really? Your sophisticated modeling has revealed this to you I suppose...

    Glad you are on top of things...

    "That's right that's right ... That tiny speck of the market that was only buying the cheapest of places to begin with is going to be soooo missed ... You bubbleheads will grasp at any straw, won't you. Your theory is over. It was debunked the minute the big investment firms revealed how very little the default of a few subprimes was going to affect them. The entire BH theory was predicated on the assumption that defaulting mortgages would cause a surge in supply and a corresponding plunge in prices. Well, the catalyst for that surge has been debunked and your theory exposes as fraudulent. Admit you were wrong. It's over. It's just a regular business cycle. And we've indisputably aready bottomed out. Where does that leave you with your far fetched theory?" -lance 22 March 2007

    You do realize, that all the stupid stuff you are saying today is just going to get thrown back in your face in another year or so don't you, just like the stupid predictions you made in 2006-2007.

    ReplyDelete
  44. "Btw, so far YES it's been a normal business cycle. This is no different from what we experienced in the late '70s/ early 80s, post Vietnam. Nothing changes ... other than the speed that information travels and people get themselves wound up ... especially those generations who haven't been through this cycle before. It might be a bit worse than then, but then again, it might not. So far it pales to what we saw then. ... Just another regular cycle."

    Lance, I think you have a really strong argument there. Go with that...


    lmao

    Virtually every major political leader or economist, globally, has described this as a nearly unprecedented economic shock.

    Thus far unemployment and productivity actually still remain relatively strong by major recession standards, but at the rate they are dropping that won't last long.

    The downside potential right now is huge.

    ReplyDelete
  45. "If you think the average family income is $215K great; if you’ve got some sort of data that lead you to believe this, even better."

    Of course not.

    It doesn't matter what is actually the case, all that matters is what lance wishes were true.

    For literally years he has posted a continual stream of stupidity on to this blog...

    For example...

    "quietann said:
    " ... because they will *not* take anything except a fixed-rate 30-year mortgage."

    And after jet travel became common, many people refused to give up the relatively safer oceanliners to cross the Atlantic. But as time went on they realized how'd they'd been left behind and the world had spun forward. Today, unless you are willing to pay oodles of dollars to take the QEII, your only other ship choice are freights that take on guests ... Not quiet the oceanliner experience of years ago. The moral here? Times change ... Change with them or be left behind. Learn to adapt. Creative mortgages didn't cause price inflation. They were developed to combat it. Your friends are just plain wrong to be limiting themselves as they are doing. (A) When one gets approved for an ARM one gets approved as being able to handle the ARM if it reset to the highest interest rate allowed per the contract (i.e., the "cap".) Which means that even in a worst case scenario --- an unlikely scenario --- they'd still be able to afford the house provided they were willing to make minor sacrifices to have that house; and (B) Just about anyone can and should expect to have a rise in income between the time the loan originates and the date it resets 5 or more years down the road. Your friends are putting up artificial and self-imposed roadblocks to their happiness and security. It's there life, so it's best not to say anything. But certainly don't encourage them in this irresponsible behavior!" -lance 25 Oct 2006



    "And just like I always said that prices had to stop climbing so fast, I also believe they won't go down much (if any) in the midterm(i.e., prices 3 - 5 years from now will be no lower than they were at their height) and in the longterm (i.e., 5+ years) they'll be rising again at normal rates of appreciation."-lance 30 Nov 2006



    "The article basically makes the same case I've been making about Washington. It's changing. The people here are making lots more money ... and the prices of everything --- including real estate --- are following suit. I'd have cut and paste but it isn't available on line. It's at your local CVS (and elsewhere). I picked one up last night. It's VERY interesting ... and definitely supports the case that anyone who thinks that real estate prices are gonna drop around here is simply bonkers ..." - Lance 7 Nov 2006



    "truthman keep telling yourself that the price of real estate in DC is going down ... in the meantime I'll just keep reminding myself that while you are waiting it out, houses in my zip went up 10% last year on year per MRIS ... you're confusing a temporary drop in median prices in certain far-flung exhurbs with the value of particular homes in Washington and close in suburbs. IF you had bought wisely in the last year or two, you would be sitting comfortably in your own home like I am and not continuing to troll for bargains to fall into your lap as you are doing. Good luck ... and keep yourself delusional ... you'll need it as you spend the years waiting ... and you find affordability pushing you out to areas even further from DC than Loudon. Why not discuss West Virginia (or Ohio) figures ... that'll help you keep your delusions going even longer!" - lance 10 Nov 2006



    "... hmm .. the equity I invested has already doubled to tripled based on what neighboring houses of similar size and shape have been selling for ... sorry, DC Too, but is is DC_YOU who has lost out on hundreds of thousands of dollars worth of equity by holding off ... The fact you think that equity appreciation occurs through paying down principal on a loan, shows how little you know. One doesn't "build equity" in that way ... That is merely paying down principal owed and thereby shifting earning producing assets into your home which is not an asset but an expense. Earned equity comes from when you sell your home and because of the passing of time you take out more than you put in ... in nominal dollars. But of course, like many bubbleheads, you are not looking to buy a home but rather an investment ... In the last 5 years you would have been a flipper ... except for one minor fact ... That you don't have enough wealth to both buy a home and make investments ... so, you choose to treat your home like an investment ... and will at some point end up homeless because of this irresponsible behavior. Oh wait, you already are, aren't you? Btw, did you read tonight's report in the Post about economists being VERY worried about inflation. Brace yourself for those big rent increases coming your way. You've made your bed (in someone else's house/building), now lie in it ... for as long as you can afford to hold on ..."- lance 6 Sept 2006



    "I agree. That's just about when a lot of bubbleheads will be coming to the realization that missed the bottom and will be fighting each other to buy at prices higher than current prices. Ouch!" - lance 13 Jan 2007



    "on an interest only loan, the payment would be $1083.33 . The poster was probably rounding up. For most people, an interest only loan is far beneficial to an amortizing one ... for the very reasons the renters have been putting forward. You have money left over to invest elsewhere rather than "de-leveraging" your house by putting even more money into it. It's a matter of opportunity cost. And, of course, the entire mortgage payment is tax deductible. Additionally, it makes homes more affordable for people who would otherwise have difficulty affording as much home. Since on average people stay in a particular house something like 8 years, a 10 year interest only loan (or even a balloon loan) is fine for most people."- lance 24 July 2006



    "I can say with confidence that the DC metro area in general, as well as places like the NYC and LA metro areas, will not experience a general drop in prices for longer than 12 - 18 months. The fundamentals of job growth and economic prosperity for those "players" in a global economy are just pulling in the wrong direction to realistically expect prices to go down rather than up in the "more than short term" period."- lance 18 Sept 2006



    "Nikki, did you even attempt to do the numbers before making this statement? I just did ... and you're wrong. An interest only loan at 6.50% would result in payments of $2,708 per month (or $32,500 per year)... and this is 43% of gross income add in property tax and you are at something like 45% ... That is still less than the 46% - 49% that most lenders use as the upper limit of acceptable. So, you're not comfortable with an interest only loan? Then don't buy that big of a house (or in that nice of a neighborhood) that you're going to need a $500,000 mortgage. Buy less ... but weigh the consequences of your actions. Personally, if I had to choose between the "comfort" of an amortizing loan and getting a lead-free house in which to raise my children, I'd pick the latter even if it meant doing an interest only loan." - lance 26 oct 2006


    It just goes on and on and on...

    ...and yet he is surprised that people don't seem to want to take his advice.

    ReplyDelete
  46. "I hope ANON (first post) is enjoying that.

    Oh and by the way, you can still have a hobby while not living in a house ANON...honest."


    Don't fixate on the graph, it includes Manassas, West Virginia, etc. I agree with those who say that the overall housing/economic/job picture is poor.

    I work with people who drive an hour or longer to get to our office. My commute is 12 miles against traffic.

    I do pay almost twice as much as your $1,000/month but I have a SFH. (PITI is under $2,000 but I send an extra $1,000; full disclosure, I sent only an extra $500 in December because I used my cash for other things.)

    ReplyDelete
  47. The average salary in DC is not $215K. But there are lot of "non-average" people living in some of the fancier areas of DC. In fact, many of the people who live in those fancy U Street condos are pretty similar to the hypothetical couple I described earlier. I don't think DC's like Philly, my hometown, where developers built tons of condos, but there were only about 1000 people in the whole city who earned over 6 figures. There are a lot of Harvard, Yale, Stanford grads, diplomats, trust fund babies, etc who have dough to splurge on a $500K condo in DC.

    I think property in DC got too high. However, I think the current economic climate is now having a downward bias on prices. I don't know by how much, but nobody wants to buy now because even some high income earners don't feel financially secure. The times are just too extraordinary.

    But again, I don't think you can expect to roll up to one of those P Street condos, throw out an offer of $300K for a two bedroom condo, and expect a seller to capitulate. Maybe you can...I don't know...there are obviously a lot of people who bought properties they can't afford. But in normal economic times, I think DC property is worth more than today's prices suggest. In normal economic times, Philly's prices will probably be LOWER than what today's prices suggest...lol.

    ReplyDelete
  48. "There are a lot of Harvard, Yale, Stanford grads, diplomats, trust fund babies, etc who have dough to splurge on a $500K condo in DC."

    These people were in DC before the bubble too...

    The question isn't whether there are some wealthy people in DC, the question is whether the number of wealthy people shot up astronomically in just a few years, coincidentally at the same time as the rest of the nation experienced a bubble.

    There are no stats I am aware of that show a massive increase in the number of extremely wealthy people in DC in the last 5 years or so. If you have some stats that show something along those lines, please share.


    The simple fact is that the large majority of the price increases are not sustainable and will eventually bleed away.

    ReplyDelete
  49. "Prices will come down some more. But I think those of you who are waiting to get that one bedroom condo on U Street for $250,000 shouldn't hold your breath."

    Who wants to live in DC? I don't want to live in an area just a few blocks from corner crack dealers, strip clubs and street walking hookers. I'm just waiting for Montgomery county to drop from $900K back to its $120K previous price.

    I couldnt be happier if the DC AREA drops 50% and DC itself stays at the current prices. You guys that live near cracktown can keep your 800 squarefoot row house. Its funny to hear you losers tell everyone what is the DC metro area....as if a potential home buyer like me gives a sh*t.

    I will be buying a single family home in potomac, bethesda or southern rockville come next year or the year after when the prices correct themselves a bit more. So keep talking about alphabet letter street names.....cause I dont care.

    ReplyDelete
  50. I will be the first to admit that appraisals are subject. However, today's underwriting standards are much, much tougher. Appraisers are under fire.

    Here is my data for my Capitol Hill Rowhouse.

    Oct. 2006 appraisal -- $805K.
    January 2009 appraisal -- $833K.

    Not to mention we have paid-down $15K+ in principal during that time.

    ReplyDelete
  51. James,

    There's a wide gulf between knowing the right thing to do and having the political capital to do it. Leaving aside the fact that what is right and what is wrong in this situation is very much debatable based on where you stand in the equation and what you value as the best outcome, the fact remains that politicians know it is the average family with 2.5 kids and a mortgage that is keeping them in office. As such they will always follow the route that protects these, their highest valued constituents. And accepting inflation as an inevitable consequence of stimulating the economy is on that route.

    The bailouts we've already seen combined with the massive government spending we are about to see, are counter to your argument that this time we know better. This time it's different. Please explain why you think it'll be different this time? Why you think the government (and business leaders) will step aside and let chaos and dislocation enter the equation vs. going the predictable route of letting inflation smooth things out ... even at the expense of an ultimate healtier economy for those left standing.

    ReplyDelete
  52. *even at the expense of an otherwise ultimate healtier economy that your way would provide for those left standing after the chaos and dislocation of a market "correction".

    ReplyDelete
  53. The other element playing on the city and not so much the other areas is the value gentrification played. A simple way to look at it is like this.

    Think of your current neighborhood - wherever you are sitting right now reading this. If you had drug addicts, and criminals move in, occasionally commiting crime on your streets - would values go down or stay the same?

    Think after 50 years, the drug addicts and criminals move out - would values go up or stay the same?

    Its really that simple. The issue then is how much of the increase was the bubble, and how much was the change of the area? We are in the process of figuring that out now - and estimates range from ALOT of it was the bubble, to ALITTLE of it was the bubble. But to claim that the whole thing was bubble is a bit absurd.

    ReplyDelete
  54. "Its really that simple. The issue then is how much of the increase was the bubble, and how much was the change of the area? We are in the process of figuring that out now - and estimates range from ALOT of it was the bubble, to ALITTLE of it was the bubble. But to claim that the whole thing was bubble is a bit absurd."

    I think few, if any, here are claiming it is 100% because of the bubble. Some of the new value is a result of the much talked about "gentrification" and some of it is due to new, renovated, or rebuilt homes, of which there were countless examples during the bubble years.

    How many homes did flippers put new kitchens into? How many new "luxury" condo towers went up? These improvements do have some real value and it won't disappear simply because the bubble is bursting.

    That said, most of the run-up in prices was due to the bubble, especially in places like North Arlington, which were already extremely expensive before the bubble and experienced no gentrification.

    So yes, certain marginal parts of DC, Arlington and Alexandria experienced a meaningful amount of "gentrification," not enough to justify a doubling in prices, but a significant amount.

    Now, the housing pumpers here will of course argue that gentrification is irreversible and will continue even after the bubble.

    Personally, I believe that most of the "gentrification" in marginal parts of DC was little different from people moving to the exhurbs to find affordable housing. Most of these people didn't really want to live in far-flung communities built in fields... or in crime ridden urban areas with some of the worst schools and and services outside of the deep south.

    Now that prices are correcting it will be interesting to see if the gentrification trend continues, stalls, or reverses. DC may be better managed than it was at its nadir, but it still has a shockingly inept and corrupt government. Once the budget crunch starts to bite all bets are off...

    ReplyDelete
  55. "That said, most of the run-up in prices was due to the bubble, especially in places like North Arlington, which were already extremely expensive before the bubble and experienced no gentrification."

    You haven't been here very long have you? As recently as 10 years ago North Arlington had great suburban neighborhoods off the main roads, but not very nice urban streets. Clarendon and Wilson were home to project-like red brick buildings which could be had for cheap because they were WWII government troop housing that was falling apart. In the last 10 years a good number of those buildings have been leveled and replaced with luxury condos or completely refurbished. The urban parts of North Arlington have experienced a transformation from night to day.

    ReplyDelete
  56. "There are no stats I am aware of that show a massive increase in the number of extremely wealthy people in DC in the last 5 years or so. If you have some stats that show something along those lines, please share."

    Here is the rub: High school graduates that joined the military, retired after 20 years of service, then joined the ranks of government contractors EASILY make more than $120,000 per year on their contractor salary alone. Factor in their military pension, and their spouse who likely has the same background, and you get big dual-income households. Its because of their clearance and well-documented background (which is what a military career gives you.)

    These are nice people, but they aren't well educated. They're basically mouth-breathers who don't grasp the basics of macro economics. There are tens of thousands of these households in the DC area.

    ReplyDelete
  57. "Once the budget crunch starts to bite all bets are off.."

    Yeah, DC's corporate and personal income tax base is falling apart. (not) LOL!

    ReplyDelete
  58. "....cause I dont care."

    OOOooo! She doesn't care! Well, I guess the world will stop revolving around its axis. Its over.

    ReplyDelete
  59. DC incomes have always been pretty high. At some point, the town started shedding it's "sleepy gov't town" image, and started spending a little more money.

    I think it started with Anthony Williams being the first pro-business mayor in DC (ever?), inviting business back downtown. Stores, restaurants, and housong followed. Douglass Jemal, Abdo, Donatelli, Faison, and small-time builders worked for 10+ years straight, much of it fueled by cheap money.

    DC was ripe for change, much of it gentrification. So when lenders were letting money flow like wine, it was a great opportunity to change a city that was ripe for change.

    Building more suburbs without access to jobs centers (resulting in choking traffic) was using cheap money stupidly. Thus, the burbs have dropped, while DC remains relatively stable.

    DC continues to grow, albeit, slowly. Builders need to build or renovate? What area is safer than DC right now? Forbes just named it the safest place to buy real estate.

    It there downward pressure on D C(and the close-in areas of MD/VA)? Yes. But there is also positive pressure as well (job centers, quality of life, etc.).

    Just for thought.

    ReplyDelete
  60. "Personally, I believe that most of the "gentrification" in marginal parts of DC was little different from people moving to the exhurbs to find affordable housing. Most of these people didn't really want to live in far-flung communities built in fields... or in crime ridden urban areas with some of the worst schools and and services outside of the deep south."

    True, but the fact of the matter is, I was priced out of georgetown long ago so I moved to a cheaper area in the city I could afford. The crime sucks, and I didnt enjoy being mugged in 2002, but even since 2002, the reversal in this neighborhood is staggering.

    And if I leave, where will I go? There is no chance I am ever leaving the city again - being so close to everything is literally a life changing perspective. No chance I would ever move out somwehre where it took you more than 10-15 minutes away.

    There is however, one thing that would drive me away - crime or fear of it. Im sure the recession can make it worse but the same element that was priced out of here, will now be commiting that crime in PG County. Its gonna take quite a bit of a reversal to get me & my neighbors outta here.

    ReplyDelete
  61. "Once the budget crunch starts to bite all bets are off..."

    Money allocated to DC from the bill passed this week is about 6X bigger than its the entire budget shortfall. It looks like DC balance sheets are about to be flush with cash.

    ReplyDelete
  62. "Here is the rub: High school graduates that joined the military, retired after 20 years of service, then joined the ranks of government contractors EASILY make more than $120,000 per year on their contractor salary alone. Factor in their military pension, and their spouse who likely has the same background, and you get big dual-income households. Its because of their clearance and well-documented background (which is what a military career gives you.)

    These are nice people, but they aren't well educated. They're basically mouth-breathers who don't grasp the basics of macro economics. There are tens of thousands of these households in the DC area."

    I don't know how to explain things more slowly for you.

    Do you have any statistics that show a massive increase in DC incomes relative to the pre-bubble years?

    Retired military types working government jobs with security clearances are not new. They were here in 2000. They didn't suddenly arrive in massive numbers in the last 5-8 years.

    Nobody is debating whether or not there are some people in DC making good money. The question is whether or not there has been a massive increase in incomes in DC. (and there hasn't been)

    ReplyDelete
  63. "Money allocated to DC from the bill passed this week is about 6X bigger than its the entire budget shortfall. It looks like DC balance sheets are about to be flush with cash."

    Wait and see how long that lasts.

    Never underestimate the power of the DC government to totally screw the pooch.

    During the bubble years they had access to a limitless supply of cheap money, DCs budget may not be on the verge of collapse this year, but the days of having a mountain of cash to throw at any problem are over.

    ReplyDelete
  64. "I don't know how to explain things more slowly for you."

    I'm a contractor. My personal annual salary is up over 35% in the last five years.

    My household income is up over 110% since I got married.

    I'm not ex-military. I went to college and grad school. I'm surrounded by mouth-breather idiots (like you) who *make more than I do* because they've been at the game longer than I have.

    Think about it.

    ReplyDelete
  65. "That's right that's right ... That tiny speck of the market that was only buying the cheapest of places to begin with is going to be soooo missed ... You bubbleheads will grasp at any straw, won't you. Your theory is over. It was debunked the minute the big investment firms revealed how very little the default of a few subprimes was going to affect them. The entire BH theory was predicated on the assumption that defaulting mortgages would cause a surge in supply and a corresponding plunge in prices. Well, the catalyst for that surge has been debunked and your theory exposes as fraudulent. Admit you were wrong. It's over. It's just a regular business cycle. And we've indisputably aready bottomed out. Where does that leave you with your far fetched theory?" -lance 22 March 2007

    ReplyDelete
  66. "I'm a contractor. My personal annual salary is up over 35% in the last five years.

    My household income is up over 110% since I got married.

    I'm not ex-military. I went to college and grad school. I'm surrounded by mouth-breather idiots (like you) who *make more than I do* because they've been at the game longer than I have.

    Think about it."



    Although I can see this is a waste of time...

    I will spell it out for you again.

    Do you have any STATISTICS, that show a massive increase in salaries in DC in the last few years?

    Nobody gives a crap what you personally make or how much it has changed in the last few years. You could make a million dollars a year and it just won't make a bit of difference in this discussion.


    We are talking about city wide incomes. Have they, or have they not, shot up dramatically over the last few years?


    Spare us your anecdotes. Go find some hard numbers.

    ReplyDelete
  67. "Do you have any statistics that show a massive increase in DC incomes relative to the pre-bubble years?"

    I guess the census bureau would have that kind of information. I'm not sure if you've noticed, but the faces on Capitol Hill used to look a little different ten years ago. It was a different place then. Now, other people have moved in, and it's become a very "nice," "cool," and "funky" area.

    ReplyDelete
  68. "'....cause I dont care.'

    OOOooo! She doesn't care! Well, I guess the world will stop revolving around its axis. Its over."

    1) Im male
    2) Im not the one talking about the price of real estate on a single road with an alphabet name.

    ReplyDelete
  69. "During the bubble years they had access to a limitless supply of cheap money, DCs budget may not be on the verge of collapse this year, but the days of having a mountain of cash to throw at any problem are over."

    What the hell are you talking about? DC had some of the highest borrowing costs of any area jurisdiction by a long shot (years of ineptitude will do this to your bond rating you know).

    Yet despite this handicap, DC has been able to emerge the closest to on budget as any area jurisdiciton. Vaunted fairfax county would be envious to be in this position.

    No offense but if you think DC is squandering this away, you are delusional. Nat Ghandi has been eying a AAA rating for quite some time now. Hes no fool, he recognizes how rare you get opportunities like this.

    ReplyDelete
  70. "I guess the census bureau would have that kind of information. I'm not sure if you've noticed, but the faces on Capitol Hill used to look a little different ten years ago. It was a different place then. Now, other people have moved in, and it's become a very "nice," "cool," and "funky" area."

    You guess huh?

    Capitol hill is now "cool" and "funky."

    (I am gonna go out on a limb and guess you are a baby boomer...)

    We have combed through all the statistics that seem to be available, there is absolutely no evidence of a jump in incomes that would justify bubble pricing, not even close.

    Spare us your anecdotes about seeing some white people in DC, if you want to argue incomes have shot up, go find some statistics that prove it.

    ReplyDelete
  71. "What the hell are you talking about? DC had some of the highest borrowing costs of any area jurisdiction by a long shot (years of ineptitude will do this to your bond rating you know)."

    ...and for good reason. DC had access to money it never would have in any other lending environment. That money is going away again, because DC is DC. A few years of booming real estate hasn't changed the fact that DC is one of the most dysfunctional cities in the country.


    "Yet despite this handicap, DC has been able to emerge the closest to on budget as any area jurisdiciton. Vaunted fairfax county would be envious to be in this position."

    Fairfax deserves the mess they have made for themselves. DC has done no better a job, but has been lucky the bust started around the edges of the city. DC's crisis is going to be a year or so behind Fairfax's.


    "No offense but if you think DC is squandering this away, you are delusional. Nat Ghandi has been eying a AAA rating for quite some time now. Hes no fool, he recognizes how rare you get opportunities like this."

    DC is doing well only by the pitiful standards it set for itself back in the 80s. People see a few years of modest improvement and start thinking DC has suddenly turned the corner and is climbing its way towards mediocrity.

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  72. "We have combed through all the statistics that seem to be available, there is absolutely no evidence of a jump in incomes that would justify bubble pricing, not even close."

    I agree anon - the income stats dont show us evidence of a jump. However, heres the thing. The bs loans that were used to fund the bubble runup are gone.

    Since then, some areas, (even some much wealthier areas) have crashed

    Other areas like DC have not crashed.

    Its not like the banks said, lets take away the punchbowl in this area but not that - it was a simultaenous globalwide withdrawal.

    And its not like they are just waiting it out in DC. People in the burbs had far more resources with which to hold out, yet they are still crashing.

    Can you think of any plausible reason why one wealthy area would crash, and another less wealthy would not? I am getting to the point where I have to conclude that (despite the stats which show little income growth), DC apparently is not as reliant on crap credit as are these other areas.

    Can you think of a plausible explanation?

    ReplyDelete
  73. Which statistics? District of Columbia GDP per capita? Income per capita by zip code?

    Income data is only so helpful in trying to figure out how much a certain property should be. According to Wikipedia (very reliable source, I know, but it's convenient), the median income in Manhattan is around 47K. In DC, the median salary is around 55K. Given that the median income in Manhattan is lower than that of the District, how do you explain the multitude of million dollar plus apartments on the Upper East Side? I mean, I should be able to just slap $150K on the closing table and live a stone's throw away from Tavern on the Green, right? I want to pe a part of it, New York New York!!!

    ReplyDelete
  74. Wikipedia also says that D.C. has a higher income per capita than all 50 states, btw.

    And I don't think that you would see a significant marginal increase in income per capita even if you bussed 10,000 more six-figure earners into D.C. today. You could take a patent lawyer, teacher, bus driver, a cashier at National Warehouse Liquidator's, and an employee at Checker's salaries and look at it this way:

    Patent lawyer - 200K
    Teacher - 55K
    Cashier - 25K
    Bus Driver - 50k
    Checker's guy (the one on Blandensburg) - 21K

    That would give us a median income of $50K and a mean income of $60K. So, does this mean that a condo right across the street from the U Street metro should cost about $150K or three times the median income?

    Keep in mind, I don't think that John Bonifant, III Esq. wants to live in the same buidling, or even the same neighborhood, as Terrell the Checker's guy. They tend to live in places where their neighbors are "similarly situated."

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  75. "Anon said...

    ...and for good reason. DC had access to money it never would have in any other lending environment."

    Oh really, is that how municipal finance works? Seriously, what the hell are you talking about? Give me one example of a G.O. Warrant or Bond it got before and couldnt get now? Just one. Do you understand how staid the world of municipal finance is?

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  76. "2) Im not the one talking about the price of real estate on a single road with an alphabet name."

    Neither am I, mouthbreather.

    But neither am I talking about Rural Route 91 with the septic system, the well water supply, and the guy named Cleatis whom I have to pay to haul away my trash.

    Oh, and the "roads" in DC with "alphabet names?" They're actually called "streets".

    God, I long for the good old days when the bridges connecting DC to VA were closed. It was only two weeks ago... those were the days.

    ReplyDelete
  77. "1) Im male"

    Listen to HER!

    The way you bitch and moan when things don't go your way, its no wonder that people conclude you are a woman.

    But you're "male identified". Many hermaphrodites are. Thats cool.

    ReplyDelete
  78. ANON SAID:

    And its not like they are just waiting it out in DC. People in the burbs had far more resources with which to hold out, yet they are still crashing.

    Can you think of any plausible reason why one wealthy area would crash, and another less wealthy would not? I am getting to the point where I have to conclude that (despite the stats which show little income growth), DC apparently is not as reliant on crap credit as are these other areas.

    Can you think of a plausible explanation?


    \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\

    Yes...the plausible explanation is that some people who live in DC....as in many many many other places in the US or around the world, didn't get themselves in a bind when they bought their properties. And there about a mere handful of ways in which they accomplished this:

    - buying something you can afford. That is to say, buy well below your means. Which really translates to not buying a half a million dollar home on a $50K salary. They also didn't borrow against their homes like most greedy idiots did in the US.

    - having a lot of money to begin with. I'm sure there are some very wealthy people in DC...much much more wealthy than what Lance would like to picture me as, for example. So wealthy that upturns and downturns mean nothing to them. They buy when and where they want to.

    - inheritance. Perhaps not a big percentage of properties in this category but I'd say some people inherited their homes in affluent or upcoming areas and are now riding the wave to the bank. A downturn for them means nothing so long as they haven't leveraged their new found homes to the hilt.

    - Hanging on by a thread types. Well...this is where I think most people are sitting in as far as position goes. I personally know quite a few people who went and bought homes that they can quite uncomfortably afford. It's a choice they made...for whatever reason. But they are the "keep up with the Jones's types" and they are where they are because of it. Why would they do that? Oh....I don't know...greed? Fear of losing out? Fear of falling behind? Feeling inadequate because they aren't in a home? Perhaps just wanting a home? A multitude of reasons.

    - people who bought early and while back. It's possible and very probable that many bought just before the bubble....so they have a VERY LARGE buffer in terms of value loss...perhaps it'll never even get back to the point where they started from. So that's why alot of homes sometimes don't see large drops in certain areas...people can afford to sit and wait. I mean...you buy a house in 2000 for $150K...it goes up to $700K...but then you decide to sell for $450K 9 years later...still nice chunk of change.

    Many reasons....all plausible...and very highly probable.

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  79. Lance said...
    "Please explain why you think it'll be different this time?"

    I don't think it's different this time. Quite the opposite, if the U.S. starts to experience high inflation, I think whoever is Fed Chairman will copy what Paul Volcker did in the early 1980's. Paul Volcker's actions are now a textbook example of how to stop high inflation. Politicians don't make the choices regarding monetary policy. Economists do.

    Right now, however, the fear is not inflation, but deflation. The Federal Reserve is afraid we will repeat the "lost decade" that Japan experienced after its housing bubble and stock market collapsed. The Federal Reserve is pouring money into the economy in an attempt to prevent a liquidity trap. Preventing a liquidity trap is also the reason behind Obama's $800 billion stimulus package.

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  80. Lance said...
    There's a wide gulf between knowing the right thing to do and having the political capital to do it. Leaving aside the fact that what is right and what is wrong in this situation is very much debatable based on where you stand in the equation and what you value as the best outcome, the fact remains that politicians know it is the average family with 2.5 kids and a mortgage that is keeping them in office.


    Lance the gulf between right and wrong is not debatable. If you recall, the American public spoke out against the first housing bailout. The measure was shot down as per the American people (you know, the average family with 2.5 kids). When, and only when, the bill was topped off with pork did it pass. Damn the average family.

    To be sure, the average American voting for the same two parties over and over, and over, and over again expecting change keeps these folks in office. But it is the constituency of money and means that these politicians work for and as such ,they will always follow the route that protects these, their highest valued constituents.

    ReplyDelete
  81. "'2) Im not the one talking about the price of real estate on a single road with an alphabet name.'

    Neither am I, mouthbreather."

    sure you were. Oh and I still don't care if U street goes up or down in value. I don't understand why that makes you so angry though.

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  82. "- people who bought early and while back. It's possible and very probable that many bought just before the bubble....so they have a VERY LARGE buffer"

    Arlington, Alexandria, and the District are old. Consequently, many people bought early.

    Manassas in comparison, has much, much newer housing stock.

    In a boom, given lots of credit, it's possible to build hundreds, thousands of new houses way out there. You can't do that close in because you can't get the raw land.

    Those boom-time houses were overbuilt, oversold, and are now depressing the market, way out there.

    Of course, if you are a BH, you think that prices are holding up in North Arlington because desperate sellers are conspiring to keep the inventory phantom.

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  83. I said...
    "Paul Volcker's actions are now a textbook example of how to stop high inflation."

    I need to correct myself. It has long been known how to lower inflation: increase interest rates and reduce the money supply. Paul Volcker demonstrated how to end stagflation: do the same thing. The difference is that with normal inflation, the economy is overheating so you just cool it down to a normal level. With stagflation, it requires making a weak economy even weaker, thus inducing a major recession.

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  84. Anonymous said...
    "Of course, if you are a BH, you think that prices are holding up in North Arlington because desperate sellers are conspiring to keep the inventory phantom."

    Nobody cares about Arlington. There are many better places to live in the world. There are many better places to live in the DC area. If Manassas were stagnant while the rest of the DC area was declining, you'd be basing all your arguments on Manassas. It's called moving the goalpost, and it's a fallacious form of argument.

    A bubblehead is someone who believes the U.S. experienced a housing bubble. Are you denying that there was a housing bubble, or are you a bubblehead yourself?

    One upon a time on this blog, the "housingheads" used to argue that there was no housing bubble. Now they seem to have moved the goalpost to argue that there is no bubble in a tiny fraction of the DC metro area.

    ReplyDelete
  85. "Now they seem to have moved the goalpost to argue that there is no bubble in a tiny fraction of the DC metro area."

    specifically U street. LOL

    Anyway, cant wait for montgomery county to drop 50% more like VA did.

    ReplyDelete
  86. "Nobody cares about Arlington." "your arguments on Manassas ... "

    I'm pointing out that at the extreme end cases, Manassas and N. Arlingtion, the scenario has played out differently.

    Comparing, say, Springfield and Vienna, or Rockville and Reston, is a mug's game. There are too many factors to correct for.

    Discussing Manassas and N. Arlington makes the discussion easier. If you want, you could compare S. Arlington on Ridge Road and Clarke County.

    "they seem to have moved the goalpost to argue that there is no bubble in a tiny fraction of the DC metro area."

    Not so. No one ever defended the McMansions of PWC. It was always the better, central areas, N. Arlington, Lance's street, etc. would hold value.

    Recall the mantra... not in my city, not inside the beltway, not in my neighborhood, not on my street, not my house. BH used it to mock those who thought that N. Arlington was different and would hold value dramatically better from areas 40 and 50 miles outside of the city.

    This is 2009. It turns out that the devastation stopped about at the DC Beltway or a little inside.

    Full disclosure - I'm one of those who thought, "not in my neighborhood" but I did allow the possibility that valuations MIGHT fall 10% - 15%, peak to trough. On my place that would be $60,000 to $90,000 very roughly.

    BH friends advised to me to sell and rent. My push-back was, WTF even if I knew my valuation would fall, selling, moving, time off from work, commissions, lost tax benefits, exertion to pack would cost me plenty.

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  87. "Of course, if you are a BH, you think that prices are holding up in North Arlington because desperate sellers are conspiring to keep the inventory phantom."

    The realitors in the area are in on it too and the town and home owners who do not values to drop. On a big scale its hard to control a conspirousy, on a small area it is much easier and can last for years.

    A town I moved to had only white people, the agents kept it that way and that was just a couple years ago.

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  88. "Having a lot of money to begin with. I'm sure there are some very wealthy people in DC...much much more wealthy than what Lance would like to picture me as, for example. So wealthy that upturns and downturns mean nothing to them. They buy when and where they want to."

    I live on (far) east Capitol Hill; on my street, a household income of $150-200k is completely unremarkable. On the next street over, a household income $20k is unremarkable.

    Those folks making $20k are either renting in a pre-renovated building, in public housing, or octogenarians years old and living in a dilapidated building they can no longer maintain.

    ReplyDelete
  89. "I will be buying a single family home in potomac, bethesda or southern rockville come next year or the year after when the prices correct themselves a bit more. So keep talking about alphabet letter street names.....cause I dont care."

    The interesting thing is that the most dysfuncational of the multigenerationally poor will be moving to MD or VA as rents rise, public housing continues to be shuttered, and as the current, elderly owners die off.

    In any case, the de facto renewal plan for DC is to export our social ills to the burbs. That's proceding apace; you already see it in places like PG county, Wheaton, etc...

    Having said that, my guess is that from all the DC-bashing you've heard from the 'burbanites over the last 30 years, I'm certain they're much more prepared to address all this regional dysfunction that'll now be plaguing their schools and neighborhoods. Best of luck with all that!

    Heh.

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  90. Noz - those are all good points about todays buyers. Who are they... Where are they coming from, and more importantly, without credit, where are they getting their money?

    Heres the kicker though, why are they showing up in the less wealthy immunozones, and not showing up in the wealthy, non-immune zones?

    ReplyDelete
  91. James,

    I understand your explanation as to why you don't think we'll have inflation. However, I think you are predicating that on the assumption that the powers that be will be able to immediately recognize when we are in danger of imploding and THEN immediately stop the increase in the money supply that in an economy that is not imploding causes inflation. I just don't think that (1) they'll know quickly enough when that moment is and (2) that the blunt instruments they use can be turned on and off as quickly as would need be. I mean, we're talking trillions of dollars that are in the process of being printed. Yes, if unsuccessful, those dollars will just sit in banks and do nothing for any of us, but if successful, they're going to be out there to trigger high inflation in an otherwise functioning economy.

    As for 'housing heads' moving the goal posts on the 'bubble issue' ... I really think it's the BHs that have done so. The last time we spoke of a bubble it was in connection with the dot.com bust. In that bubble we learned that some investments were pure shadows and mirrors ... i.e., there was absolutely no substance to them. It was a con game with people selling things that didn't exist. As a consequence, when their games got revealed we had stocks going to $0 in value. I.e., like a bubble bursting, it was all an illusion and there was really nothing there. As I have argued all along, that can never be the case with homes ... with the major exceptions of a Love Canal or isappearing "Atlantis", the land alone will always provide some value. And even in the most undesirable markets, the shelter these homes provided has some value. I.e., there's no way you can have a completely bursting bubble in the housing market. There's no way you can reach a value of $0 ... The BHs have succeeded in moving the goal posts here by changing the definition of a bubble to mean simple "went down in value" instead of "there never was any value to it". And "went down" in value is just another businss cycle ... it's got nothing to do with the sham of selling somehting that doesn't exist in the first place ... which is what "bubble meant" previously.

    ReplyDelete
  92. "IBC said...

    In any case, the de facto renewal plan for DC is to export our social ills to the burbs. That's proceding apace; you already see it in places like PG county, Wheaton, etc..."

    Brookings institution ran a piece on this & how its already happening. In terms of raw numbers, there are more of the poor/uneducated in the burbs than in the city. In percentage terms, the city still has far more, but that is changing and has been changing for a long time.

    Good thing for the suburbs is that the tend to disperse the poor -- some here, some there...hopefully much better for society long term in that it reduces the concentration of poverty.

    ReplyDelete
  93. The implications from a housing perspective of course is that the burbs will have to review their zoning policies and regs. It was one thing to mandate single family housing and housing wholly dependent on car ownership when everyone moving out there was non-poor. More transit will need to be built ... And some of the zoning for some areas of McMansions may need to be changed to allow subdividing them into apartment houses ... as occurred in Dupont when it had it's period of changing demographics from the 1920s through to the 1970s. Places adapt. In the end they have to. The question is though, how long will it take for the legal changes to happen to change the zoning ...

    ReplyDelete
  94. And incidentally, this may be an example of "why would you want to wait to buy the kind of property that has already shown it is falling in value?" I mean, there may be some BHs on here who really really want that 10 room house with a 4 car garage AND a 2 hour commute away from their workplace in the District ... for just the two of them they and their spouse. They may want it to be able to "keep up with the Joneses" despite the fact that for the same price they are willing to pay for this far out McMansion they could instead get a small 2 bedroom house in Arlington which would be much more practical to their needs. Well, what happens when that McMansion finally can get bought for "pennies on the dollar" ... and a year after they move in, the neighbor's homes become group houses, or a halfway house, or a shelter ... ?

    If you're looking for quality, you may not get a "firesale" price, but you also shouldn't get the surprises you might get with the deeply discounted stuff.

    ReplyDelete
  95. The question is though, how long will it take for the legal changes to happen to change the zoning ...

    Good point. In the meantime, until the suburban municipalities get a handle on their newfound responsibilities, suburban quality of life will continue to suffer--and housing prices in the District and close-in areas will continue to remain steady.

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  96. "Lance said...

    As I have argued all along, that can never be the case with homes ... with the major exceptions of a Love Canal or isappearing "Atlantis", the land alone will always provide some value. And even in the most undesirable markets, the shelter these homes provided has some value. I.e., there's no way you can have a completely bursting bubble in the housing market. There's no way you can reach a value of $0 ... The BHs have succeeded in moving the goal posts here by changing the definition of a bubble to mean simple "went down in value" instead of "there never was any value to it". And "went down" in value is just another businss cycle ... it's got nothing to do with the sham of selling somehting that doesn't exist in the first place ... which is what "bubble meant" previously."

    Lancey - im on your side on this thing, but here you are just being too extreme because your saying if it doesnt go to zero, then it isnt a bubble - normal business cycle.

    Suppose you had land you purchased for $400,000 in 2005. It drops to $100,000, and recovers at a rate of 3% a year. Under this scenario, it will take 40+ years to get back to even keel.

    Can you really describe 40+ years to recover as being the "regular business cycle"?

    ReplyDelete
  97. Anon,

    The differentiation at its most basic is that in the classic definition of a bubble you've been sold something that had no value to begin with for the purpose it was sold to you. For example, swamp land to build houses on or Bennie Babies to use as an investment.

    Don't you remember the "blood in the streets" and "selling for pennies on the dollars" we all heard from BHs?

    While some of these homes have gone down some for now (1) they haven't been exposed as a "fraud" and gone down to $0 values and (2) most importantly, they WILL go back up in value at some point ... Something that could never happen in a bubble. For example, stocks from the dot.com time that burst are gone for good ... They'll never again have value. The same can't be said about even the most hard hit McMansion subdivision "out there". They're changing value is all part of the regular real estate cycle which spans decades and not the months (or days) that BHs like to think in.

    ReplyDelete
  98. Fair enough lancey, but lets be honest here. Goalpoasts were moved on both sides.

    HH - there is no bubble.
    HH - Blood only in PWC
    HH - Blood only in the Exurbs
    HH - Blood only in the exurbs & burbs.
    HH - Blood only in exurbs, burbs & S. Arlington

    Is this moving the goalpoasts? Yes!!! But so is this.

    BH - No place is Immune - blood in the streets (BITS) everywhere.
    BH - OK, BITS but a few streets
    BH - BITS, except for some blocks
    BH - BITS, except for N. Arlington
    BH - BITS, except for N. Arlington, & gentrified DC
    BH - BITS, except for N. Arlington, gentrified DC, Old Town & Del Ray alexandria. Parts of farifax near the metro...

    You see what happened here. Goalpoasts were moved all over the place, but it was by both sides. Lets call a spade a spade here...

    ReplyDelete
  99. 'cept I have yet to see any blood anywhere. Yeah, a relatively few people who were unqualified to buy in the first place may now find themselves again among the ranks of the renters. And some folks who made a bad investment decision may not make the money they'd hoped to have made. But by and large, those who bought to be homeowners (and not homeflippers) can still continue being homeowners ... and can do so by refinancing into fully amortizing 30 year fixed rates that are lower than the adjustable rate mortgages they might have used to buy. No, I don't see blood in the streets. I don't see anyone worse off than what they were before the building boom. On the contrary, most people are better off ... with all the housing stock available. Only those with a flipper mentality have anything to worry about. Real estate is long term, a fact most reticent homebuyers (aka BHs) are unable to appreciate.

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  100. "Only those with a flipper mentality have anything to worry about. Real estate is long term, a fact most reticent homebuyers (aka BHs) are unable to appreciate."

    Lancey - I went to a superbowl party yesterday out in the sticks. 7 couples total. Me & another couple from the immunozone had nothing to say - were way above water. Of the other 5, 4 were underwater. One down 12%, another about 15% the last two (from PWC) down about 35%.

    None were flippers. All wanted to stay a few years til their kids were a bit older, then move - the american dream.

    For the 2 guys down 35%, assuming price drops stop today, (dubious at best), it will be a total of 19 years til he is back at even keel.

    Look I agree with you - you cant time the markets. We are in sniffing range of the bottom, and those who still wont buy, (assuming any rise is a dead cat bounce) are idiots. If I was on the sidelines since 2005, hell yeah I would be out there now. Inventory stock is still kinda high (but going way down), fear is high, strike now I say.

    However, if you were to tell the couples at the party that "only those with the flipper mentality have anything to worry about", you would be lucky to get outta that room alive.

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  101. Housing Market Statistics!

    Maybe the downturn isn't that bad...

    Does anyone know how credible the link below is? It shows housing values broken down by county for MD and VA.


    http://marylandsuburbs.com/HousingStatistics/HousingStatistics.asp

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  102. "For the 2 guys down 35%, assuming price drops stop today, (dubious at best), it will be a total of 19 years till he is back at even keel."

    It could take that long, but that's really doubtful ... especially considering the inflation that hit once the economy turns around. Now if the economy doesn't turn around, they may be down even farther ... but so would all of us ... Which was the original premise of the Bubble Belief ... "Great Depression" ... everyone out of work, blood in the streets, all properties available for pennies on the dollar ... And the BHs miraculously coming out of it all unscathed with the downpayment investment still intact and their jobs still giving them a salary ... and then they'd buy that house for what they were willing to 'sacrifice' to be a homeowner!

    Yeah, it could still happen. But we're still not where the BH hope we'll be. Maybe the stimulus package won't work, and we will be there. 'Course there's still the part about the BHs coming out of it all unscathed that I still can't buy into ...

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  103. And I just want to be clear, that "Great Depression" wasn't David's premise ... he always clearly said "deep recession". But what David (the original blog owner) may have believed wasn't usually what was expressed by the die hard types who were screaming "blood in the streets" and held unreasonable expectations. They're the ones still hanging around waiting for prices to fall through the floor. I suspect David is a homeowner by now. Would he tells us if he were?

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  104. Lance said...
    But what David (the original blog owner).... I suspect David is a homeowner by now. Would he tells us if he were?

    David is still the blog owner. He just doesn't blog much anymore. I don't think he's bought a home yet. If I'm still blogging when I buy a home, I'll tell you about it. I suspect I'll buy a house in 2-3 years.

    I'm not sure where I'd buy one though. Western Fairfax County, where I currently live, is accessable to many employers. However, if I could find a job within driving distance I'd much rather live near the Chesapeake. Northeast Florida also looks tempting, especially as prices continue to rapidly decline there. I don't know what the job market is like there, though. I'm not committed to the DC area.

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  105. Good luck James - whatever you decide. I may not always agree with you, but I have always respected your analysis.

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  106. I second that good luck and the comments about your analysis. It's thorough and sound (even if I too sometimes disagree with you.) But I do want to offer a bit of unsolicited advice ... coming from my own experience as well as those of family members. As appealing as the idea of being able to purchase your ideal house is, that shouldn't be the driving force in determining where you buy. You should first concentrate on where you want to live, and that should be driven by either which area offers the lifestyle you want to enjoy and/or which area offers you the best opportunities for the type of job you want to do. (And usually it'll be a combination of the two.) Once you've made that determination, I think you'll find that wherever you end up living, you will (with time) be able to afford whatever is the typical lifestyle there. Why? 'Cause if you're happy with what you're doing for work and where you're doing it, then monetary success will flow your way ... And monetary success for any area is by the laws of supply and demand defined as sufficient to live the typical lifestyle there. (And with your superior analysis skills, I suspect you'd be very successful and be compensated accordingly.) Just be sure you're doing something that you can't wait to wake up to do, and you're doing it in a place that you like, and the house/condo you want will take care of itself.

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  107. Lance said...
    Don't you remember the "blood in the streets" and "selling for pennies on the dollars" we all heard from BHs?

    I never said that and I don't believe David ever did, but you are correct that numerous bubbleheads used such obviously exaggerated language. One thing that makes an intellectually honest debate difficult is that each side has extremists who unwittingly set up convenient straw men for the other side to knock down.

    Anonymous said...
    Is this moving the goalpoasts? Yes!!! But so is this.

    BH - No place is Immune - blood in the streets (BITS) everywhere.
    ...
    BH - BITS, except for N. Arlington, gentrified DC, Old Town & Del Ray alexandria. Parts of farifax near the metro...


    I have never used the "blood in the streets" argument, but let me keep my goalposts firmly in place. Yes, there is a housing bubble in N. Arlington, "gentrified" DC, Old Town & Del Ray Alexandria (Where is Del Ray?), parts of Fairfax near the metro, etc. Some places are simply falling faster than others. For example, even though Northern Virginia's home prices have been falling for two or three years, suburban Maryland began falling only a year ago. As the price discrepancy within the DC metro area widens, buyers will have a hard time justifying paying substantially more for DC/Arlington homes when they can get something MUCH cheaper just a few miles away. Eventually, nominal prices in DC/Arlington will either have to decline for several years or stagnate for decades. (Long-term stagnation is a possibility because of price stickiness. Inflation-adjusted prices will decline even if nominal prices stagnate.)

    However, I call out the housingheads for moving the goalposts because they are using the Alex Tabarrok argument: Prices haven't fallen YET, therefore there is no bubble. Over time they will use the Alex Tabarrok argument on smaller and smaller pieces of land.

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  108. "James said...

    Some places are simply falling faster than others. For example, even though Northern Virginia's home prices have been falling for two or three years, suburban Maryland began falling only a year ago."

    James - no offense, you are missing big issues here. You are making the "correction moving in theory" which is highly highly unlikely to pan out. Look at inventory for each area of NOVA:

    http://www.recharts.com/nova/nova.html

    Compare the trends in immune areas like Alexandria, and non-immune areas like Loudoun. If Alexandria was falling later, wouldnt you expect the inventory to fall later too? Yet they dont - they move in tandem as they have since 2005 -- one took huge price declines to get there, one took slight price declines to get there.

    Now, if you look at Maryland, you will indeed see a delay - MD fell apart when the credit markets busted in Sept 2007. MD is indeed a year behind VA, maybe more...Unlike all of VA (where inventory peaked, summer 2006), the inventory peak in MD was in late 2007-2008. Expect MD to post its biggest declines in 2009 by far...

    Again however, MD is behind both the immune areas like Alexandria and the Non immune areas like Loudoun...unless the correction decides to swing back across the river and re-smack just the immunozones (leaving Loudoun unscathed), it looks like the rate of decline is pretty set.

    Going forward, they MAY all return to their long time trends. I think though the hard hit areas may go up 3% a year, whereas the close in areas go up 2% or 1% a year. Maybe...

    Still though there is this issue of the gentrification & demographics argument. Areas close in that went for 30K in 1998 (on the assumption they would one day be habitable) now are going for 150K (because they now are habitable). Still cheap as hell, still dangerous, but now, habitable.

    You live out in the burbs I get how this is nonsensical to you, but the fact of the matter is the cities are changing. Guys like Chris Lienberger and Robert Shiller (of case shiller fame) get this - they think these inner areas will continue to command a premium over the rest for a while.

    Feel free to disagree with them if you wish, but at least become cogent on the argument, (as well as its strengths and weaknesses) beforehand...

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  109. Anonymous said...
    Good luck James - whatever you decide. I may not always agree with you, but I have always respected your analysis.

    Thanks Anonymous and Lance.

    ReplyDelete
  110. "James said...

    Where is Del Ray"

    Another reason why you are out of your league. Del Ray is a place where a guy I know, former gang banger with MS-13 (no joke), would not go as late as 1998 for fear he would "get his head cut off".

    Now, its the place where the epicurean crowd from DC cites as the culinary capital of Northern VA.

    http://www.dcfoodies.com/del_ray/index.html

    NY times wrote an article about it too recently. I will see if I can find it.

    Im sure you are looking at this and thinking - good - let them hipster idiots overpay for their stupid gourmet cheeses & meats in their gentrified neighborhoods. Keeps the overpayers out of your hood right?

    Therein, however is the issue. If all areas do indeed "revert to the mean", I think we have to assume this all goes away. I think the formerly abandoned and now rehabbed bungalows will have to agian be abandoned.

    I think the cheesemongers & high end restaurants go away, and it again becomes an area where MS-13 gangbangers fear getting their heads chopped off.

    If these things happen, revert to the mean will come true.

    If they dont, the area prices will remain permanently elevated over their 1998 trends (plus an allowance for inflation), meaning they DO NOT - revert to the mean.

    Thoughts???

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  111. "Del Ray"

    It's not there yet and the transformation began about 20 years ago.

    It definitely is different and continues to evolve.

    Amazingly, the upgrades are spilling over to areas beyond Del Ray.

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  112. Lance said...
    there's no way you can have a completely bursting bubble in the housing market. There's no way you can reach a value of $0 ... The BHs have succeeded in moving the goal posts here by changing the definition of a bubble to mean simple "went down in value" instead of "there never was any value to it". ... it's got nothing to do with the sham of selling something that doesn't exist in the first place ... which is what "bubble meant" previously.

    Sorry Lance, no goalpost was moved here. Your claim of what "bubble" previously meant is completely wrong. I'm pretty sure I've corrected you on this in the past.

    Here's the definition from Investopedia:
    A spike in asset values within a particular industry, commodity, or asset class. A speculative bubble is usually caused by exaggerated expectations of future growth, price appreciation, or other events that could cause an increase in asset values. This drives trading volumes higher, and as more investors rally around the heightened expectation, buyers outnumber sellers, pushing prices beyond what an objective analysis of intrinsic value would suggest.

    And here's the definition from Wikipedia:
    An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, or a speculative mania) is “trade in high volumes at prices that are considerably at variance with intrinsic values”.

    Notice that neither definition requires that the asset experiencing a bubble be valueless.

    Both definitions point out two characteristics of bubbles: higher volumes and prices considerably above intrinsic value. I would argue that although higher volumes usually occur with bubbles (think house flipping), they are not a defining characteristic of them. The other characteristic, prices considerably above intrinsic value, is the defining one.

    When someone buys an asset at a price that is higher than the cash flows it could possibly produce over its lifetime, then the price is above the intrinsic value. For stocks, that cash flow is the dividends paid out to shareholders. For real estate, that cash flow is the rent (minus expenses) that it pays out. When people push up real estate prices to the point that it is cheaper to rent than to buy—even over many years—then there is a bubble.

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  113. "For stocks, that cash flow is the dividends paid out to shareholders. For real estate, that cash flow is the rent (minus expenses) that it pays out. When people push up real estate prices to the point that it is cheaper to rent than to buy—even over many years—then there is a bubble."

    Not exactly a common sense definition.

    For both stock and real estate, there is a underlying idea of the liquidation value as well as the notion that over time, the valuation can increase. For real estate, improved access to goods and services, roads, schools, etc CAN increase the value.

    Sticking to a simplistic model based on the ratio of rents and price (or dividends and price in the case of stock) is a mug's game. In stock, you end up in bank stock, utilities, and widows and orphans companies like Xerox, ATT, and GM. Even worse, it leads you investing with the Madoff's of the world.

    In real estate, you end up wondering why Lance's place (and Terminator-X's) are defying your best reasoning.

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  114. "In real estate, you end up wondering why Lance's place (and Terminator-X's) are defying your best reasoning."

    Simple murphy's law. Their place is holding up until the last moment to allow them to keep runing their mouth.

    As soon as things really hit this area like most other bubble areas, they will go away and nobody here will get the satisfaction to talk smack back at them.

    I dont know why anyone even replies to their remark. They are lucky, not experts.

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  115. "I would argue that although higher volumes usually occur with bubbles (think house flipping), they are not a defining characteristic of them. The other characteristic, prices considerably above intrinsic value, is the defining one.

    James, so by your very own interpretation, a bubble can't be determined until 'after the fact'. Until something actually starts selling for considerably less than what it was selling for previously, you're going to have a hard time arguing that it's intrinsic value is lower than 'going market prices'. There a way too many variables in the equation to put much trust in trend ... since trend can't acurately take into account real increase/decreases in value occuring such in DC and Delray as regards redevelopment and such as occuring in the metro area in general as regards the quickly growing importance of DC on the world stage (e.g. Wall Street effectively moving to K Street with the bailouts.) Unless of course, you can determine that fraud or a "sham" is occurring during what you would interpret as the bubble period. Do you see any evidence of fraud or sham?

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  116. That Cheesetique in Del Ray is awesome. When it first opened, it was the only place that you could find Pata Negra on the eastern seaboard (now there are many).

    I know nothing of its history as I am a recent (2005) transplant to this area. However, you can still see some scars that suggest a pretty turbulent past.

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  117. "However, I call out the housingheads for moving the goalposts because they are using the Alex Tabarrok argument: Prices haven't fallen YET, therefore there is no bubble."

    Agreed. The problem is we are running out of time. Say we bottom in 2010 (prices go neither up nor down). If thats the case, we would assume 2009 will bring a lessening of the downward slop in the curve.

    If so, I just dont see how (or why) the immune zones would suddenly change their stripes, go into a precipitous rate of decline, and/or continue to fall after the rest of the area bottomed.

    I think its more likely that we are all at the same point of time in this downward slope, it just hits some areas harder than others. Why it turned out like this? I have no idea...

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  118. "I think its more likely that we are all at the same point of time in this downward slope, it just hits some areas harder than others."

    I totally agree with this! However, I dont really want to move to U street anyway. Im waiting for potomac, south rockville or bethesda to become realistic.

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  119. " Im waiting for potomac, south rockville or bethesda to become realistic."

    Its realistic now for many people. They just happen to make a lot more money than you do. If you respond by saying there are several thousand people in the DC area who can afford to pay $2+ million for a home in Potomac NOW, then we'll all know that you're delusional.

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  120. ...If you respond by saying there are NOT several thousand people in the ...

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  121. Anonymous said...
    "For real estate, improved access to goods and services, roads, schools, etc CAN increase the value."

    Yes, but unless there is a bubble, they will increase RENTS as roughly the same rate.

    Expectations of FUTURE improvements can cause the price-to-rent ratio to expand, but if those expectations don't pan out, prices will eventually fall back down.

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  122. "Its realistic now for many people."

    Yeah but those people want to live on U street. Not out in the "way far far far far out reaches of the burbs"

    At least the people who think its realistic.cause the prices keep dropping every month.

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