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Bubble Meter is a national housing bubble blog dedicated to tracking the continuing decline of the housing bubble throughout the USA. It is a long and slow decline. Housing prices were simply unsustainable. National housing bubble coverage. Please join in the discussion.
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The best way to get the housing market thriving again is to drop prices to the point where supply equals demand. Home sellers might not like it, but it's good for buyers and it's great for Realtors.
For Realtors, the best way to make more money is to sell houses quickly, and the best way to sell houses quickly is to convince the seller to drop the price.
For Realtors, the best way to make more money is to sell houses quickly, and the best way to sell houses quickly is to convince the seller to drop the price.
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Bigger impact maybe? No one will be paying attention Labor Day weekend Friday, so they delay till Tuesday, because the report shows a moderate increase and they want to get the word out. OR, they're delaying so people will spend, spend, spend, over the weekend, because the report will show the value of everyone's house is DROPPING, and they'll realize their newfound wealth is VANISHING! Or...
ReplyDeletesome observations from Florida:
ReplyDeleteretirees are leaving this paradise state, many with over $100,000 profit from selling their house
many real Floridians are having trouble to pay their home insurance due to the inflated housing price and the political meddling of the insurance policy during the past storms.
the government is trying to have a massive bail out by paying home insurance for people who can not afford it in order to keep the bubble inflated.
very soon the realtor will be able tell the potential meaty buyers that the loan is free, the interests is low and the home insurance will be paid by the government.
bubble will be bubbling forever!
Everyone who doesn't believe we are in for a hard landing in the DC area should read this article from yesterday's Wall Street Journal.
ReplyDeletehttp://online.wsj.com/article_email/SB115630090176442994-lMyQjAxMDE2NTI2MzMyMDMwWj.html
Notice the shift in conversation is now from "hard" landing versus soft landing. There is no longer any arguing that a landing is occuring.
ReplyDeleteNOVA Fence Sitter
I'll be curious to see when, and if, the bubbleheads on this site jump in.
ReplyDeleteIf history repeats itself, it will be almost ten years to return to 2005 peak prices and 15 years until the next peak. Unfortunately, this is all I have to go on.
There will be plenty of good opportunities for those astute enough to recognize them and with the guts to act when 99% of the people can't or won't.
The recent Herndon auction is a good example. At that much of a dicount, there was little risk to buying that house.
VA Investor,
ReplyDeleteWould that auction then qualify as a comp? The woman simply wanted to move. And she accepted an offer made on the place. There was no foreclosure, no imminent threat of bankruptcy, just a woman that wanted to cash in and move out of the area.
My $0.02.
Well VA_I., it has been said many many times that the economic climate will be abysmal over then next five years. That means smart bubbleheads won't think of buying until 2011 or so.
ReplyDeletemytwocents,
ReplyDeleteI would not consider it a comp. There is a reason people resort to auctions, whether she is willing to articulate it or not.
VA Investor,
ReplyDeleteFair enough.
My $0.02.
david's mom blew lereah.
ReplyDeletedavid's mom blew lereah.
ReplyDeletedavid's mom blew lereah.
ReplyDeletedavid's mom blew lereah.
ReplyDeletedavid's mom blew lereah.
ReplyDeleteI agree h. The Herndon house provides a good example of the "deals" that are currently available to those who search.
ReplyDeleteThe price is low enough to limit downside risk. Rates are good. Buying a home to live in and paying off a mortgage under these circumstances are certainly preferable to renting, at least IMO.
dc_too,
ReplyDeleteMy experience leads me to disagree with you.
looked at condo comps yesterday in Dupont (where I sold last October before moving into a rental) and I can defintely say that prices are off 25% relative to what I sold my place for. I am talking about condos that are actually in Dupont not places in Logan, Adams Morgan, 15th st etc. stretching to call themselves Dupont.
ReplyDeleteMy guess is that YOY pricing statistics are masking this decline because a lot of people are buying 2-bedrooms for slighly more than they would have paid for a one bedroom last year. Same thing likely holds for SFH--folks who would have bought 2 bedroom condos last year in dupont for 800k can buy an SFH for 900k. It would be great to get YOY pricing on a property class, zip code and square footage basis so we could get better handle on price changes on an "apples to apples" basis.
But, I can definitely say based upon direct experience as a seller looking at comps in in the same neighborhood, Dupont condos are down by around 25% from the peak.
That WSJstory from Herndon was very interesting.
ReplyDeleteAfter I said on here that I think most properties are worth 50-70% less to me than what is being asked, my opinion has been repeated (often in incorrect context as a prediction) often here as an example of a completely ridiculous, extremist position.
Yet here this woman puts a house for sale at 1.1 million and it sells at auction for $530,000.
Without seeing the house or knowing anything about it, that kind of discount off ask certainly sounds like it is within my own preference range. If that sale becomes typical, we may see a real return to sanity.
A Redskins fan
Now I know we're gonna have a BIG BIG crash! The heavens are changing! ... We lost a planet this morning! Everything's gotta change if a planet can dispear into thin air! (ok, well it wasn't thin air or air at all ... but you get what I mean!)
ReplyDeleteH said...
ReplyDelete"I disagree w/ the 2011 assesment. First of all, one has to keep a close eye on interest rates to maintain a balance for affordability. Secondly, if a long term stay is planned (of course, something "could" happen, like a sudden desire to move after only 2 years, but you can only make decisions based on plans and reasonable contingencies), then buying when prices are affordable but *not* rock bottom can make a lot of sense, b/c presuming the upswing in the market finally occurs (god help us all if it doesn't), you'll make up some ground that way - and hopefully be paying on a 30yr fixed with a decent rate.
Of course, this all depends on getting to know neighborhoods you want to live in and buying thoughtfully, so that when prices do rise, you have a better shot in being in a neighborhood that does appreciate. Personally, I can see subdivisions of McMansions sitting rather stagnant for much longer than an older, more established neighborhood.
I think anyone who buys with an expectation to sell with 3 years should expect to lose money on the deal. Of course, that's how it was for a long time..."
WOW! Was that really H writing? or me? Isn't this what I've been trying to get across all along? If one is looking to hold on to a place for the longterm, then there really is no bad time to buy ... It all comes out in the wash. And you can't live your life saying "but what if I lose my job next year? What if I decide I rather live on the west coast next year? etc etc
Finally, bubbleheads are starting to understand how those who have already bought their homes feel.
"Logan, Adams Morgan, 15th st etc. stretching to call themselves Dupont. "
ReplyDeleteDupont is nice and all, but, it is becoming more like Bethesda every day. (not a good thing) Logan is much more desirable for people who want to live in the city without being surrounded by suburban culture.
No, I do not live in Logan.
It looks like the markets are in nosedive mode now.
ReplyDelete$1.1 mil to $525k in a solid neighborhood has to put shivers down the backs of all those rah rah rah realtors.
"$1.1 mil to $525k in a solid neighborhood has to put shivers down the backs of all those rah rah rah realtors."
ReplyDeleteDesirable for whom? The walking dead? Or those who are entombed in their cars every day for several hours?
"Without seeing the house or knowing anything about it, that kind of discount off ask certainly sounds like it is within my own preference range. If that sale becomes typical, we may see a real return to sanity."
ReplyDeleteThis sale was reported in the WSJ because it was so atypical. That's why its newsworthy.
And I agree with Va Investor. This sale isn't an ordinary comp., as women most likely sold the house at auction because of financial hardship. Look at the last sentences of the article.
Long-term is hard to predict in life. So anyone thinks buying at these rah rah rah realtor cheerleading prices is okay,,,it isn't. Unexpected things happen in life so if you are underwater by 25-50% you are wiped out.
ReplyDelete"Long-term is hard to predict in life. "
ReplyDeleteYes, always bet against the US economy. Throughout the history of this country, its been a long term disaster. All the truly wealthy people in the world understand that to be successful in life, you must assume the US is going down the tubes.
Redskin fan:
ReplyDelete50%-70% drop is your dream. You have nothing to support your point.
History has proved that there was no such huge drop happened in the last 50 years in the US. If there is no big event, such as, massive lay-off, huge terror attack, or world war, to happen, 50%-70% drop is not going to happen.
I do agree that 15%-35% drop is possible. RE is not stock (only for investment). People need to live in the houses.
Once the rental prices catch up and household incomes catch up within next 3-5 years, the RE market will be stabilized. Once the rental cost can cover most (85%-95%)of mortgage plus property tax & insurance, people will start to buy, instead of renting.
Are you not going to buy a house at $350k (price drop from $500K)if the rental for this house cost is $2000/mo or more?
Lance,
ReplyDeleteI hardly agree that you and H are saying the same thing.
His premise is that once a market peak has been noted and the flat to downward trend can be expected for the next several years (based on past cycles) that one can more confidently choose to enter the market.
Your premise is that there is never a bad time to buy.
My $0.02.
Yes 70% drop is basically out of the question unless we have some deep recession that last for a few years. But 50% is not out of the question considering the huge runup in prices last 5 years.
ReplyDeletea house at 350k would put you way over 2000$ per month.
ReplyDeletePlus,
This is just completely false. It has happened in several places, several times. I will give you one example, see texas.
Those who do not know their history are doomed to repeat it.
What most people aren't understanding about the VA story is that the question of whether it is a comp or not doesn't matter. Can you imagine what it will do to the pyshcology of the homeowners in that area? You can't paint this anyway except that it is really bad for people in that neighborhood, and it is even worse for the area at large because it was in the news.
the real bob
Plus,
ReplyDeleteThis is just completely false. It has happened in several places, several times. I will give you one example, see texas
What I meant here is that 50% drops have happened many a time before.
the real bob
"I do agree that 15%-35% drop is possible. RE is not stock (only for investment). People need to live in the houses."
ReplyDeleteAgreed, BUT house prices have acted like stocks the last 5 years in terms of rapid tranasactions and pricing volatility. So parabolic price moves will be countered with collapsing response to the downside. A 25-40% price correction will wipe out many buyer in the last 3 years. Those of us that bought some years ago will be fine but with less equity.
It is true that a 50% drop is a rare occurrence. I don't know if it's a "never" occurrence, but I concede it is rare.
ReplyDeleteOn the other hand, doubling or tripling in 3-4 years from 2001/2-2005 is a "never before" occurrence. So expectations of a severe drop afterwards are not unprecedented, given the run-up beforehand.
I do expect a severe correction in real prices from the 2005 peak. How much of that will be inflation, I do not know and will not guess.
From 2005 asking prices in the DC area, I would like to see a 50-70 percent drop in REAL prices. According to the Housing Tracker website, we already have seen a 4% fall in nominal asking prices, so the real drop is probably more like 7-8%.
Time will tell if the Herndon story is an outlier or a harbinger.
A Redskins fan
Anon, August 24, 2006 8:13 AM
ReplyDeleteThe question about Dupont versus Logan has to do with pricing, not your veiw of desireability.
Dupont sells at a 20% premium over Logan. That is why sellers try to list their places as "Dupont" when they are closer to Logan/Adams Morgan etc.
I was trying to give an accurate portrayl of market conditions in a defined area, not make judgements about desireability of various neighborhoods.
It is very possible the RE price will keep droping 2%-5% yearly for a few years (I guess 3 years) and then keep flat or 1%-3% yearly gain for additional a few years (5?). The inflation adjusted RE price drop for this 8 years will be 20%-40%.
ReplyDeleteAgain, If there is no big event, such as, massive lay-off, huge terror attack, or world war, etc. to happen, 50%-70% drop is not going to happen.
NONE KNOW HOW MUCH IT WILL REALLY DROP AND ONLY TIME WILL TELL.
Most of you who own more than 2 houses believe the market will not drop at all and the worst case is remaining flat.
ReplyDeleteMost of you who do not own or can not afford to buy at current prices believe the market will drop more than 50%.
Most of you who own only your primary residence believe the market will drop only 10%-15%.
my2cents said:
ReplyDelete"and the flat to downward trend can be expected for the next several years"
... but you can't .... and that is the issue here ... over the last "whatever number of years you wish to choose", the overall trend has always been "up" ... so, over the longhaul you can reasonably assume that things will go up. However, there is no such backup for your expectation about it going down "for the next several years". There can't be because as the report of the new housing going down reported, we've never had a time when sales prices went down while the economy was going up. i.e., your "based on the last two cycles" is not something that one can fully base on. Just like Va_Investor said something earlier about 5 - 10 yrs based on past cycles. I disagree with him/her there because never before has information (and subsequent decision making abilities) flowed so quickly as now. I think the cycle will be much quicker ... Cycles are afterall nothing more than "corrections" ... and faster and greater information helps speed up corrections of all sorts in all circumstances in life. Why not in real estate too?
The CNN story is interesting because although the changes month to month are seasonal, it makes April, May, and June look like a dead cat bounce.
ReplyDeleteI expect to see a few more the-worst-is-over-now upticks until this market finally bottoms out. (Which could take years.)
The fact is - most people buy a home when the circumstances of their life dictate it. Bubbleheads have held off 1. because they saw the weakness in the market 2. because the circumstances of their lives meant they could
In any case, who cares about buying at rock bottom? As long as I buy in the trough, I will know I made the right choice.
Anonymous said...
ReplyDelete"It is very possible the RE price will keep droping 2%-5% yearly for a few years (I guess 3 years) and then keep flat or 1%-3% yearly gain for additional a few years (5?). The inflation adjusted RE price drop for this 8 years will be 20%-40%."
Very well thought out post. I agree with you completely. The only part you left out is that those of us who bought using mortgages will benefit from the inflation based lower real dollars owed on our locked in loans and locked in mortgage payments. A win win situation for those who bought their property as a home or longterm investment, a losing propostion for anyone who bought there property with the intention to resell their "asset" quickly. Again, there is never a bad time to buy if you are either a homeowner looking for a longterm place to call home or an investor looking for a longterm return on rents. Only those trying to time the market, flippers and bubbleheads, can get hurt by shortterm fluctuations in price.
To Lance:
ReplyDeleteNo. I do not agree with you regarding "there is never a bad time to buy if you are either a homeowner looking for a longterm place to call home or an investor looking for a longterm return on rents. Only those trying to time the market, flippers and bubbleheads, can get hurt by shortterm fluctuations in price."
I am not going to buy right now no matter I am a to-be home owner or investor. It is too obvious, the market will go down or remaining flat for a few years.
Especially, if you are an investor, even a flat market for 5 years, for a 500K rental house, you will lose at least $ 30K-50K in 5 years since the rental income can only cover about 70%-80% of mortgage & Tax & insurance.
Lance,
ReplyDeleteI agree that there is far more tranparancy (sp?) in the market today. I, personally, hope that this speeds up the cycle. A quick deep cut is alot more tolerable than a slow bleed.
"Most of you who do not own or can not afford to buy at current prices believe the market will drop more than 50%."
ReplyDeleteIt's not that we BELIEVE that prices will drop more than 50%, but the fact that we're essentially the only one's left to buy and we're not doing so until they in fact drop at least 50%.
As they now say, it's a buyer's market, I am a potential buyer and I am not doing so until I see historically reasonable levels, i.e., 50% drop.
"It's not that we BELIEVE that prices will drop more than 50%, but the fact that we're essentially the only one's left to buy and we're not doing so until they in fact drop at least 50%.
ReplyDeleteAs they now say, it's a buyer's market, I am a potential buyer and I am not doing so until I see historically reasonable levels, i.e., 50% drop."
When you calculate and find out you pay more for rental than to own a house(including tax deduction benefit), you will decide to buy.
The rental price will keep going up for a while. Once the home price drop 50%, rental cost will be MUCH MUCH more expensive than to own a home.
I've seen prices shoot up 300% in 5 years. Why can't the prices decline 70% in 5 years. Because home prices never decline. B.S!
ReplyDeleteSouthern California
I'd be interested to see the tax assessment and comps on that property. I had assumed that it was a fairly new house at that price (1 million).
ReplyDelete1975 is quite dated. I am familiar with Herndon and doubt anything built in that era is worth a million.
What was the lady's name?
"A cool 480k profit in 30 years ain't bad"
ReplyDeleteThat isn't really what has happened. According to the BLS' CPI calculator, 50,000 in 1975 is like 189,000 now. So, she made good real money, but not as much as you are saying.
On top of all that, she probably bought with a 30 year mortgage, so was making larger payments for 30 years, and may have paid out a lot more in real money than 50K in 2005 dollars. Even if she paid cash up front, that value has just sat there, and now - in real terms- she gets back her original value + the sales price less 189K.
Keepin' it real,
A Redskins fan
"What was the lady's name?"
ReplyDeleteStraight from the WSJ Online: "Joan Guth"
Google "Joan Guth Herndon" and you get:
ReplyDeleteJoan Guth - (703) 471-7187 - 630 Oak St, Herndon, VA 20170
If you know Herndon, you'd know this isn't a super-fantastic neighborhood:
ReplyDeleteLink
The house backs up to a multi-use trail (you can see it in the satellite photo) and it is in a mix-use zoning area: Light industrial such as auto body shops (you can seem them nearby) and low & mid-rise office complexes, complete with mamomth parking lots. (You can see them nearby too).
ReplyDeleteHype.
I know more than the neighborhood, I know the house. I've been in it. It was on the Historic Homes Tour 6 or 7 years ago. My Herndon (at that time) home was on the tour too.
ReplyDeleteThis is a turn-of -the-century Victorian. Wood with asbestos siding. Very grand interior. Someone got a terrific deal.
It takes a special buyer to want an old house. I don't know what shape it is in now. The upstairs bedrooms were kinda funky - had to walk thru one to get to another.
Anyway, beautiful grand stairway. I knew about the sale and had thought about going. An adjacent 1/2 acre building lot was also for sale. I had to be out of town or I might be packing right now.
Downtown Herndon is alot of fun. We lived there 8 years and miss it today. FWIW.
p.s. extremely hard to get "comps" on such a unique property. But that was a steal.
VA Investor,
ReplyDeleteIf you didn't get a chance to read the article, the woman that bought it had been eyeing it for a while and was pleasantly surprised to be able to get it. (Couldn't afford the $1.1 million price tag.)
My $0.02.
"Thursday morning update:
ReplyDeleteThis morning's data on new homes sales, inventories of new homes and prices of new homes fully confirm and reinforce my analysis yesterday that this will be the worst housing bust - calling it slump is too mild - in decades. And since median home prices may actually fall on a year-on-year basis in 2007 - something that has not happened since the Great Depression of the 1930s - this may end up being the biggest housing bust in the last 75 years, not just 40 years as the Toll Brothers argue or 53 years as Countrywide argues"
Source:Nouriel Roubini's Blog.
The sky will fall!!
Lance said...
ReplyDeleteNow I know we're gonna have a BIG BIG crash! The heavens are changing! ... We lost a planet this morning! Everything's gotta change if a planet can dispear into thin air! (ok, well it wasn't thin air or air at all ... but you get what I mean!)
That's a good one! When we start losing planets, you know there's trouble brewing!
It's the end of the world as we know it.
ReplyDelete"va_investor said...
ReplyDeleteIt's the end of the world as we know it."
Why don't you enter the forum of professionals and comment on Roubini's Blog, like Lance did?
Va_investor wrote:
ReplyDeleteIf history repeats itself, it will be almost ten years to return to 2005 peak prices and 15 years until the next peak. Unfortunately, this is all I have to go on.
There will be plenty of good opportunities for those astute enough to recognize them and with the guts to act when 99% of the people can't or won't.
The recent Herndon auction is a good example. At that much of a dicount, there was little risk to buying that house.
True.
Sometime in the next few years I'll buy. I even have plans with relatives to buy investment property in a desirable location.
But not now. Not yet. The time is not yet ripe.
Neil
Jerry-
ReplyDeleteAn excellent post that I see has not yet been addressed by the person arguing that an auction is not a "comp".
Tell me, Nikki, would you sell your house at auction?
ReplyDeleteJerry,
ReplyDeleteI have never paid fair market value for anything. That is not possible under your definition of "comps".
If properties (assuming exact models) are selling for 500K and one sells for 300K, does that make them all worth 300K? Regardless if it is a foreclosure, auction, fsbo, or regular MLS?
FMV assumes full knowledge and exposure to the market, a "willing" seller and a willing buyer. What if someone "jumps" on a property immediately because it is well under market, thereby beating out everyone else to the "deal"? Does that make the price FMV?
VA investor--
ReplyDeleteYour question is completely irrelevant and has nothing to do with the fact that your implication that an auction doesn't count because it does not involve the closed up process of the MLS is ridiculous. If your comment was intended as some sort of backhanded insult or jab, consider it ineffective.
"FMV assumes full knowledge and exposure to the market, a "willing" seller and a willing buyer."
So only the MLS and agent representation can expose the property to the "full market"? So by that definition, are FSBO's not comps either?
"What if someone "jumps" on a property immediately because it is well under market, thereby beating out everyone else to the "deal"? Does that make the price FMV?"
ReplyDeleteOf course it does, and it helps to set the value for the surrounding homes, that sell in the future, just as it did during the boom.
nikki,
ReplyDeleteI bought a lot (1/2 acre) in Stafford last year for 20K. There are comps at 150k to 200k. Is 20K the comp (FMV)? It was in the MLS for 2 days. Seller bought in the 70's and lives in Florida.
Va-Investor is becoming as tiring as Lance...
ReplyDeleteOh, very insightful anon 5:09. Why not offer an opinion on the issue?
ReplyDeleteWith nikki, jerry, and anon. determining the "comps" there is no such thing as a "deal".
ReplyDeleteNikki,
ReplyDeleteI think it's pretty clear you missed VA's point. "Would you sell a house at auction?" I think most would answer no. Why? Because you'd want to get top dollar through an agent marketing to prospective buyers. At auction you're at the mercy of bidders who are likely there with a lot of money and savvy about the market. They will be buying at a discount.
This is also why an auction sale doesn't represent the typical comp. Of course, this is because the sale structure itself would be considered a distressed sale.
My $0.02.
No, I did not miss the point. Whether or not I would sell my house, if I had one, at auction has nothing to do with whether or not the price it would garner is considered fair market--which, incidentally, is, as Jerry says above, a better measurement of what the "market" is actually willing to pay for a home. Why does advertising through an agent make a home a better measure of the market value? I'd argue the costs for this "marketing" falsely drives up the price of the home by unnecessarily adding to the cost to sell it.
ReplyDeleteYou both fail to address my question above: by that definition, it would seem that FSBO's are not comps either, is that your assertion? We all know that is just not true. The home in question here is not "distressed", it's overpriced, and the auction assessed what the market would bear to purchase that home.
VA investor-
You don't think your purchase drove down the values of the properties around you? If not, tell me why it's different where you live, please.
nikki,
ReplyDeleteI am not an appraiser, but my experience has been that appraiser's will "throw out" that "comp" as an abberation.
I bought my personal residence at a foreclosure auction at approx. 30% under market (per bank appraisal). The County tax records list it as "not fair market value - distress sale".
My neighbors bought their house 45 days later for 30% more and in-line with comps. My purchase had zero effect on that sale.
Sorry, That was Va_investor said - not nikki.
ReplyDeletedavid's mom gives head to Remax agents.
ReplyDeletedavid's mom gives head to Remax agents.
ReplyDeletedavid's mom gives head to Remax agents.
ReplyDeletedavid's mom gives head to Remax agents.
ReplyDeleteSo is it your argument that as this bust plays out and some of the underwater sellers are forced into short sales, foreclosures and auctions, these sale prices will all be discounted, leaving the reamining overpriced houses on the market that aren't selling as the properties setting the FMV?
ReplyDeleteAgain, are you claiming that FSBO's are not included as comps? That issue is the crux of this argument--if any property outside the MLS, or even those in the MLS that are just much cheaper than surrounding properties, don't count as comps, is it your assertion that the requirement for a comp is one that is 1. in the MLS only and 2. it cannot be much cheaper than the surrounding properties? Do you see how ridiculous that sounds? If the highest price in the neighborhood set the comps on the ride up, why are those rules suddenly suspended on the way down? Because you want them to be? The house that reached during the boom and listed for $50K more than their neighbors and got that price was not dismissed as an aberration or outlier, are you saying that's OK simply because it was in the MLS?
It seems as if this will be the next tactic to deny price declines--that all but MLS properties "don't count".
nikki,
ReplyDeleteFSBO's may or may not count. Why don't you consult a professional appraiser? He/she might be better able to explain FMV to you. I am weary of trying.
To the contray, you've explained nothing. Considering how sure you are of your position, I'd think you'd have a better answer than a condescending brushoff. How can you seriously not know whether FSBO's are comps if you're so sure auctions aren't? Why should an open, competitive bidding process be any less representative of FMV that a closed off, secretive, he-said-she-said agent-based transaction? If anything, it's more representative. I fully understand FMV, it's you that seems to think unless the price of a property is right around the others in the neighborhood, it's irrelevant to property values. No, they all count, whether you like it or not. Your arguments are specious and not based in fact.
ReplyDeleteJerry,
ReplyDeleteYou are correct that an auction will reflect the value of the house to the market of those attending the auction. What VA investor is trying explain is FMV can only be established when a property is exposed to a "fair market". An auction may or may not create a fair market. Typically auctions do not allow inspection, so buyers are not able to get enough information to make an accurate valuation and so they make offers at a discount to what FMV would be with full information. From a pure economic this may be a true FMV because the lack of information de-values the house. But, because the overwhelming majority of houses are not sold this way, auctions are not considered "comps" in the industry.
Data miner-
ReplyDeleteSo are FSBO's considered comps? And often auctions do allow inspections at a prior preset time before the auction--the few I've attended (as an interested observer only) have...so you're saying it's the inspection that does or does not make it a comp?
These property in question is not a degraded, distressed property, but one that sat in the MLS for months, open to inspection at any time up until the auction and likely was available for inspection before the auction. Plus, the final price was negotiated after the unsuccessful auction, and was surely contingent upon an inspection. In that way, that particular home would have to be considered a comp, and I still do not buy the fact that auctions of all properties are simply disregared as comparative properties.
nikki,
ReplyDeleteThis is very tiresome. Whether ANY sale (fsbo, auction, mls,or other) is a "comp" depends on whether it is FMV - willing buyer, willing seller, full knowlegde of the market, etc. Please consult a professional who can explain this to you OR whose answer you will accept as legitimate.
Anyone? Please help me out here. It is like talking to a wall.
If it's based on appraisals, how about all those homes sold during the boom that were not contingent upon inspection because buyers were afradi they'd lose the property? Are they considered comps, because the buyer didn't have "full knowledge" before signing the contract?
ReplyDeleteSo your contention is that an auction does not meet all of the requirements above? Why not? What is it missing that makes it irrelevant? You keep trying to brush me off and tell me this is "tiresome" but refuse to answer my questions.
Nikki,
ReplyDeleteThere are several ways to sell a home:
MLS with an Agent
FSBO
Foreclosure
Auction
All of them will impact the local market. The extent to which they define market value will vary.
If you're stuck on this Herndon house, FSBO and MLS amounted to a price of $1.1 million. That was too high.
The auction asked for $675K and even then only got a bid of $475K. Afterwards, the woman approached the owner again and settled upon $530K or something like that.
What Data Miner and VA Investor are trying to say is that a professional appraiser will consider these circumstances and use the price accordingly. They probably have a rule of thumb to make it easy that says if it sells at auction for X then a regular house is worth 1.2X.
So yes, all of these types of sales will impact comps. The extent to which they impact comps will vary.
My $0.02.
Nikki,
ReplyDeleteLook at it another way. If you could graph sales to show buyer knowledge, seller knowledge, buyer motivation, seller motivation and plot those points as bell curve (I know, too many variables) the comps would come from middle of the curve. That's why some sales would be comps and some would not, even if they are the same type of sales method. Most industry people would regard the Herndon sale as an outlier just because most sales don't get news coverage. And it doesn't matter that coverage wasn't until after the sale and couldn't affect it.
VA investor, Real Estate is a very complicated subject to explain to losers and renters. I gave up explaining long ago, and only come here to have fun and relish in how ignorance could have made me a victim as well, but I am much smarter than that. Plenty of deals to be had when others panic.
ReplyDeleteanon 2:45,
ReplyDeleteYou got that right. I can't imagine some of these people ever being able/willing to "risk" buying a house. It is a certainty that I won't see them at the courthouse.
va_investor said...
ReplyDeleteanon 2:45,
"You got that right. I can't imagine some of these people ever being able/willing to "risk" buying a house. It is a certainty that I won't see them at the courthouse."
Va-
Your law skills may come in handy, seeing that you very well may need the advice of an attorney, here soon. You wouldn't be on this blog, if you though things were so rosey!!!
Things are rosey for me. Don't know about the rest of you. I don't like to see my net worth eroding any more than the next person - but I've been expecting this since 2003.
ReplyDeleteIt may be a 10 or 15yr. cycle to the next peak, but I have no need to cash-out before then (hopefully, ever).
In the meantime, there will be some great opportunities out there to flip foreclosures. I don't know if I will want to or not; but I certainly have the cash, knowledge and experience to make some major dough.
At this stage of life, I may just kick back and relax. I'll buy some land, perhaps. Or maybe trade some places via 1031.
I don't know if prices willg et down to 1999 levels, but this was to good not to copy and post. Taken from the housing bubble blog:
ReplyDeleteI’ll post my answer in the form of a song, based on Prince’s “1999″:
I was laughin’ when I wrote this
Forgive me if it goes astray
But when I woke up this mornin’
Coulda sworn it was judgment day
The market was all crashin’
There were flippers runnin’ everywhere
Tryin’ to run from the destruction
You know I didn’t even care
‘Cuz they say two thousand zero six - party over
Oops, out of time
So today I’m gonna pay like it’s 1999
I was laughin’ when I wrote this
So sue me if I go too fast
But RE was in a bubble
And bubbles aren’t meant to last
Prices fallin’ all around us
Sellers bargaining for their life
But if I buy a house
I don’t wanna catch a fallin’ knife
Yeah, they say two thousand zero six - party over
Oops, out of time
So today I’m gonna pay like it’s 1999
If you didn’t come to sell
Don’t bother knockin’ on my door
I got cash in my pocket
And baby I’m ready to score
Every realtor owns twelve condos
They’re tryin’ to flog on MLS
They’re the greatest of fools
They’ll go bankrupt before taking less
They say two thousand zero six - party over
Oops, out of time
So today I’m gonna pay like it’s 1999
Yeah today I’m gonna pay like it’s 1999
March 25th, 2009 - Lance walks up to his townhome as a moving van pulls up to the house next to him...
ReplyDeleteMovers unload furniture and boxes...and a lot of Redskins paraphanalia.....
Up walks Lance's new neighbor...wearing a Redskins parka....
Continued from above....
ReplyDelete"It must be a Redskins' coach or a player," Lance says to himself....."This is such an exclusive neighborhood...I paid so much..."
Lance doesn't realize he spoke to himself so loudly....
"No, says his new neighbor, I'm just a fan...a Redskins Fan. The price here just got so good, 70% off those crazy 2005 highs, that I had to buy. Yeah everybody told me I was crazy. ""Why catch a falling knife, everybody said."" I just felt it was too good too pass up. This neighborhood is very nice."
one can always dream. It is remarkable that the goal or aspiration is to live in Lance's neighborhood. Freudian slip?
ReplyDeletenikki said:
ReplyDelete"No, they all count, whether you like it or not. Your arguments are specious and not based in fact."
Apparently you've never learned that outlyers are ALWAYS thrown out when determining averages, means, medians, etc. whether one is talking real estate, cars, balloons, or whatever. And whether it is MLS or not has no bearing. You are just trying to sway the numbers to be what you want them to be. Va_Investor has already explained to you why that one sale can't count. Go see an appraiser if you don't understand why that one undervalue sale counts no more than if the woman had magically sold the property for more than twice what she was asking.
I think that nikki has "decamped" to friendlier (more naive) waters at Ben's Blog.
ReplyDeleteBeing unable, or stubbornly unwilling, to understand such basic concepts as FMV may tell us why nikki is a renter.
va_investor said...
ReplyDelete"one can always dream. It is remarkable that the goal or aspiration is to live in Lance's neighborhood. Freudian slip?"
good call!
you know though, I've been thinking lately how it's really kinda sad the situation these bubbleheads find themselves in. I mean, we could say it is of their making ... But is it really? For whatever reason, they are unable to take control of a situation --- any situation --- so they find themselves truely at the mercy of fate and chance. this "burting bubble" theory they've invented is their way of dealing with their desperation. Perhaps we should just let them keep up their dreaming and not punch holes in their hopes. We are where we're at because we could. They are where they are at because they couldn't. Of course, I'm not including in here those folks who sold their homes in anticipation of buying back like homes for less in the future. Those folks are just "flippers in disguise" ... They know the risks and are, I suppose, ready to accept the results if their bets don't pan out. I have feelings for their actions one way or the other. It is the others, those paralyzed with fear at the thought of making a bad committment, or those totally incapable of ferretting out a good deal in a hard market. Those folks really do deserve our sympathy. Even if in their delusions they like to lash out at those of us so much more capable than them. Jealousy is regrettably a human emotion.
It is amazing how your present situation is constantly misrepresented. I guess the bubbleheads can't comprehend the fact that you are in a great spot right now.
ReplyDeleteThey "harp" on the fact that you bought in 2005, presumably at the peak. What they fail, or refuse, to acknowledge is that you not only bought well under market, but you sold a condo at the peak! You are far better off in your rowhouse than in a condo.
Your financing is excellent. You had a huge chunk of equity from the condo. I see win-win.
You are right that many are unwilling to take any risk - treasuries or CD's are their only option as I see it.
Heh....I knew that Redskins fan scenario would get those housingeads into a big self-justifying lather. What losers.
ReplyDeleteOh, aren't you clever! Home writing out your rent check tonight? It's almost the first of the month.
ReplyDeleteAnyway, nothing wrong with renters. I like them.
Lance said: "Apparently you've never learned that outlyers are ALWAYS thrown out when determining averages, means, medians, etc. whether one is talking real estate, cars, balloons, or whatever."
ReplyDeleteActually, as a PhD economist, I can tell you, Lance, that, as usual, you are hopelessly wrong.
You only throw out outliers if they appear to be generated by something like a data entry error or some other random error.
However, if the outliers are accurate, they are then information, and no minimally competent analyst would throw out true data.
If one is worried about outliers driving the analysis, there are all sorts of regression techniques, such as median regression, for instance, that do not rely on minimizing the sum of squared errors, and therefore do not weight outliers as highly. But there is no way a cimpetent data analyst with half a brain would throw at an outlier that could be verified to be accurate.
Obviously, Lance, you are not even minimally competent at data analysis, but everybody here already knew that. Thank you confirming that in public, though.
anon PHD.,
ReplyDeletePlease talk to a licensed appraiser about comps. We don't need an econ lesson. There are industry standards that apply.
anon 5:23,
ReplyDeleteDo you have a reading comprehension problem. What don't you understand about selling at the peak and buying well under-market?
This is a winning strategy. I have done this at least 20 times. I sell high and 1031 (trade) into foreclosures.
va_investor, nobody knows when the peak and bottom in RE occur. Ecpecially Lance with his limited capabilities. Stop your BS.
ReplyDelete"Please talk to a licensed appraiser about comps. We don't need an econ lesson."
ReplyDeleteActually, it was an applied statistics lesson, since Lance so badly demonstrated his ignorance of applied statistics. So he did need one, badly. And Lance needs econ lessons, too, based on his past posts.
Investor, I know you like to keep eating Lance's s**t, but that won't save him, here. He screwed up and showed that he didn't now what he was talking about, and now he's learning the lesson.
He screwed up and showed that he didn't now->know what he was talking about. Damn typo.
ReplyDeleteThere's a good article in the Post validating what I've been trying to get across about the widening gap between the haves and the have-nots being the cause for housing becoming unaffordable for some. It goes back to what I said a long time ago on this blog. Hoping for a crash or blaming those who can afford to own isn't going to help very much. The change has to be a political one. We need more federal incentives to make the building of more Levittowns possible and not a crash as the bubbleheads dream of which will instead stop construction of all kinds making their dream of homeownership even farther away then now.
ReplyDeleteI think they are right on target too about the zoning issue. Imagine the housing crisis NYC would have experienced in the 19th century if zoning rules mandated that its outer boroughs (e.g., Queens, Brooklynn) remain at one acre (or even a quarter acre) for each house! These are the zoning rules we are seeing in most of the area immediately surrounding DC. Is it no wonder there isn't enough affordable housing out there?
"The Housing Crisis Goes Suburban
By Michael Grunwald
Sunday, August 27, 2006; Page B01"
http://www.washingtonpost.com/wp-dyn/content/article/2006/08/25/AR2006082501197.html
lance, you are wrong again about everything, as usual. Zoning has nothing to do with the bubble here. There was plenty of development land. Predators, sinced a weakness in the the local housing economy and bought up every open property. Now that supply has caught up and the real investors are out. Only the chump investors are left and there is a massive supply of housing. So why do we need to rezone to get more housing? Answer, we dont. We just need to let prices come rolling down, like they are.
ReplyDeleteBy the way, I went out for a country drive this weekend and the findings were scary. Many of the houses that I was keying on have become for sale by owner instead of being with the major reality companies. Additionally, I am seeing a huge disparity between comparable properties, and between property types. A house on a 1 acre lot has the same asking price as a crappy townhome. The clarksburg develpment prices are dropping like rocks. Townhomes there are down to 380, asking price. This bubble collapse, fueling by the idiot IO loan people(aka lance), is happening faster then I could have ever imagined. Maybe I will be dropping my 200k downpayment sooner then imagined!
the real bob
where the heck is Clarksburg?
ReplyDeleteBob,
ReplyDeleteSorry to burst your bubble but with the complete lack of knowledge you display you will be far better off staying in your parents' basement. Owning a house just isn't for you. You'll be in such trouble if you ever attempt to purchase. You're what people call "prey" ... I.e., the uneducated kind of buyer that buys swamp land in Florida. Just the fact that you previously couldn't even afford far-flung Clarksbug shows how pittibly bad off your past financial decisions have left you. (Va_Investor, it's north of Gaithersburg in Montgomery County ... with only 2 lane I-270 access to the rest of the metro area. It may as well be in Penn. or WV as far as access to DC goes.)
"Maybe I will be dropping my 200k downpayment sooner then imagined!
ReplyDeletethe real bob"
Va_Investor, It's just like we predicted... the moment there is ANY downward movement in prices, the bubbleheads will be falling over each other trying to buy whatever bargains are out there ... and bringing the prices back up. Now the fun part starts ... watching them fight over who gets to buy the few true way-below-market bargains out there that they themselves have brought about by scaring people. They've caused the situation and are ready to prey on the people they've frightened into believing them ... David has been very quiet the last week. Could he be out house shopping?
lance said
ReplyDelete"Sorry to burst your bubble but with the complete lack of knowledge you display you will be far better off staying in your parents' basement. Owning a house just isn't for you. You'll be in such trouble if you ever attempt to purchase. You're what people call "prey" ... I.e., the uneducated kind of buyer that buys swamp land in Florida. Just the fact that you previously couldn't even afford far-flung Clarksbug shows how pittibly bad off your past financial decisions have left you. "
that is cool. Now everyone can finally see what kind of person you are.
Typical post.
lance "your poor, you will live in your basement" blah blah..
Oh by the way, clarksburg, is about 20 mins from downtown rockville.
Lance I dont know why you are getting so upset. Like you said, you are good you bought for the long term... BS, now everyone can see that. You bought to try and make a quick buck and you are now stuck in your house for the next 20 years waiting for inflation to catch up to what you paid. Well, until your IO resets, then you are out on your ass. But, I am glad you would take such a financial risk with your families well being at stake. I guess you are the one with complete lack of knowledge!
first you said.
ReplyDelete"Owning a house just isn't for you. "
then you said
"the bubbleheads will be falling over each other trying to buy whatever bargains are out there "
which is it, I wont own a house, or I will. You contradict yourself with every word.
Bubbleheads will not be tripping over themselves for bargains. That is what you did in the boom. Bubbleheads will be waiting for a value home that they like, that they can get an inspection done on without a bidding war! Dont have sour grapes lance, its kind of pathetic.
But, wow has your tone changed in a month, its as amazing as how fast the housing collapse has happened!
the real bob
Like I said, owning a house isn't for you. It will only bring you further into economic doom. That doesn't mean you won't be out there buying ... you will. You just shouldn't. It takes a minimum level of intelligence and capabilities to own responsibly. You have neither.
ReplyDeleteBob, there is no "housing collapse". Only a few isolated cases of people you and the other bubbleheads (with the help of the MSM) have managed into frigthening. You and the other bubbleheads (or at least the smarter ones among you) will now be fighting over these few true bargains. Yeah, you're right, you probably won't be out there fighting for the bargain. You aren't one of the smarter ones.
ReplyDeleteLance is so fulfilled and happy with his life that he spends all his time on a housing bubble blog telling everybody how fulfilled and happy he is.
ReplyDeleteOnce again, desperation sets in and now everyone can see that you must be in trouble!
ReplyDelete"You just shouldn't. It takes a minimum level of intelligence and capabilities to own responsibly. You have neither. "
Sorry buddy, but I promise I wont be buying your house when it goes into foreclosure!
You buying at bubble, me my buying at at least a 30% discount.
I think that would give me a more finanical intelligence and capability then you. Plus, I wont be buying with an IO, it will be a fixed loan with 20-30% down. Everyone on this blog can see that you dont have the minimum capabilities IO boy!
the real bob
lance, you are dillusional if you think it is one or two isolated incidents of lower prices. Maybe you should start checking the real estate section or at least watching the news! I may not be one of the smarter ones buy I am surely smarter then you!
ReplyDeletethe real bob
I don't think that the buubleheads will be fighting over the "bargains". According to nikki, econ PHD, et al, there are NO bargains - everything is FMV.
ReplyDeleteAnd besides, they will be too afraid to go after the "true bargains" - foreclosures at the courthouse allow no inspection. You have to buy the house after only looking from the street. You can't even look inside, let alone have an inspector go through it.
But, again, nikki says this is FMV. So if others have the guts to risk such a purchase for 30% under-market, I guess all the bubbleheads that do manage to "pull the trigger" will be overpaying by 30%
You see, you guys can't win.
Lance is so done. He turned out to be wrong, so now he blames the bubbleheads for creating a "panic,"
ReplyDeleterather than being a grownup and learning from his mistakes.
Lance is such a freak. He keeps saying how David is young and stupid and blah blah and then suddenly assigns David this mysterious power to move real estate markets.
Lance is like one of those poor suckers in a militia or the KKK who blames some big evil racial conspiracy for their troubles, even though this vast conspiracy is somehow run by "inferior" people.
And Investor keeps trying to change the subject and talk about foreclosures when the sale at issue in Herndon was a non-foreclosure sale.
ReplyDeleteThe willingness of sellers to go to auction in a non-foreclosure situation also speaks to another phenomenon. Life changes and people move. As soon as houses drop a bit in value, people who bought way long ago and want to go elsewhere (say, for retirement) want to cash out before prices go lower, and no, they usually don't want the hassle of being landlords. They may have been sitting out and delaying their move a bit before prices started falling because they wanted to see how much they could get. They waited a bit too long, but now they're going to want to make their sale before prices drop even further.
Lance once erroneously (as usual) said that the new high prices that people paid established a new price floor. Even if that were true in the case of those buyers (it isn't), Lance forgot about the much lower price floor that past buyers have...now he's finding out, and he can't handle it.
anon 8:17,
ReplyDeleteYour fixation with Lance will not change the fact that most bubbleheads will pay FMV when, and if, they buy. They don't have what it takes to get a deal.
And yes, that Herndon house was a deal. This is fact; despite the "nikki's" of the world and their vast experience (renting rooms).
So, even when prices cycle down - which,btw, I have always said they would- you guys will not be getting any "deals". Just FMV.
For God's sake, you won't even acknowledge a "deal" (Herndon) when it slaps you in the face.
VA_Investor, you are loosing your charm fast. It's sad, I used to like to exchange with you before...
ReplyDelete"Your fixation with Lance"
ReplyDeleteTranslation: You got Lance, he was wrong, but I can't admit it, because I totally attached myself to Lance, and the little primitive tribal monkey inside of me won't let me ever admit that Lance can ever be wrong.
I acknowledge fact. Failure to do so wipes out any credility you may have had. That ridiculous "comps" thing is just an example.
ReplyDeleteI don't think it is "charming" to stand by and let people like nikki be your voice.
"They don't have what it takes to get a deal."
ReplyDeleteNice stereotype. You channeling David Duke, now?
I don't feel the need to attach myself to anyone. Based on what I have read, Lance did well on his sale and purchase AND financing. Simple as that.
ReplyDeleteDo I blame bubble blogs and MSM for a market decline? No, not anymore than I blame MSM for the frenzy. Do I personally expect to be fine or even prosper during the downturn? Yes.
If people panic-sell, I expect to profit. But at much deeper discounts than Joe Average who will still be paying FMV according to your own rhetoric.
"Do I blame bubble blogs and MSM for a market decline? No, not anymore than I blame MSM for the frenzy."
ReplyDeleteOkay, so you believe Lance was wrong on that point.
"Do I personally expect to be fine or even prosper during the downturn? Yes."
I don't disagree.
"If people panic-sell, I expect to profit."
I think people who have the cash reserves and who are therefore in a good position to take a risk can profit more than those who don't, so I agree.
"But at much deeper discounts than Joe Average who will still be paying FMV according to your own rhetoric."
I think people who will pay FMV in a few years will be paying less (even in amortizing monthly payment) than people who bought in the last few years, and will benefit from the general mean-reverting price patterns in real estate. As much as the investors putting 30% down to buy foreclosures? No. But their patience will be rewarded, and they are showing the cool-headedness and patience that you should admire.
I think that showing some patience and not buying into the hype has served many of the bubbleheads well, and they are far more admirable than many of the 04-06 DC buyers. In addition, they will be better off than many of these buyers.
It's not a matter of "timing the market," it's a matter of educating yourself and seeing when prices have clearly lost their relationship with fundamentals. Very few will buy at the absolute bottom and sell at the absolute top, but if you simply display some common sense and do some basic calculations, you will beat the market on average by mainly buying when things are underpriced and selling (or just riding it out if you're in it for the long term) when things are overpriced.
Well put. I just question some of your assumptions about the average bubblehead being able to successfully navigate the waters ahead. Too much credit is being given to people who missed excellent opportunities in the past - due, imo, to fear.
ReplyDeleteI don't know what can occur to eliminate the self-induced "failure to launch". There was only a short window where, in hindsight, one might have overpaid.
There were still "deals" to be found in that frenzied market. I benefitted nicely from some purchases in 2004 and 2005. So, it was not impossible or entirely foolish to buy in 2004 and 2005.
It takes alot of time and effort, and, yes, risk to get a bargain. As far as I can see, most bubbleheads on this site want a guarantee.
With that type of thinking, and without putting in the time and effort, I see alot of you missing the boat in the coming years.
You have a point. There are some posters here that may make some excuses for past mistakes, but I think you lump way too many bubbleheads together, and seem to paint all of the bubbleheads with the brush of the craziest ones.
ReplyDeleteSince we're getting along so great, I have a real question for you, to pick your brain.
Do you feel comfortable naming some property management companies that you think are really good? There are some areas (not DC) I'm thinking of investing in, but I'm nervous about being an absentee landlord. I'd feel better if I had some idea of really reliable property management companies that do a good job of screening tenants (maybe I'd have some ways of doing that myself) and make repairs at good prices. Thanks
anon 10:01,
ReplyDeleteIf you are a novice, I wouldn't buy "out of area". I don't like or trust any property management firms. I am sure that there are good ones out there, but I haven't come across them - not that I have looked too hard.
A few bad experiences early-on turned me off of these outfits. Most are affiliated with the major Brokerage firms.
I would buy within a 30 minute drive of your home and read a few books on Landlording. I have developed my own methods over the years.
The most curious item in this entire thread is how somehow VA-Investor posted as Nikki, and then corrected herself in the subsequent comment. How odd.
ReplyDelete