According to news reports, Lawrence Yun—chief economist for the National Association of Realtors—lives in Arlington, Virginia. However, I just learned that he also owns this lovely 3 bed/2.5 bath rental home right here in Centreville, Virginia.
Here, the green line represents the value of Lawrence Yun's house. The yellow line represents the median value of all Centreville houses.
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Please tell me he bought during that spike in early 06. Id love to know he is taking a bath on this thing!
ReplyDeleteThe dollar sign indicates the last sale. Looks like he bought in 2000.
ReplyDeleteOver 300k for a paper and glue rowhouse in seedy centreville!
ReplyDeleteHe deserves to eat much crow on that.
Lovely residence! He has good taste!!!
ReplyDeleteIf the dollar sign is when he purchased, it looks like he paid less than $250k for it.
ReplyDeleteYou think it will drop below that?
"If the dollar sign is when he purchased, it looks like he paid less than $250k for it.
ReplyDeleteYou think it will drop below that?"
Trend line is falling but it still doesnt look like it will go far enough. Inflation adjusted, yeah maybe - but in nominal dollars - I doubt it.
exactly, paper glue house for over a quarter mil in Centreville it one thing if salaries kept pace
ReplyDeleteAnonymous said...
ReplyDeleteIf the dollar sign is when he purchased, it looks like he paid less than $250k for it.
You think it will drop below that?
Nope, but I'd bet he's losing money on the property now. If he were a good economist, he'd know he should sell now before the price falls further. The bubble is still deflating, which means prices will continue falling.
He's renting the house for $2000 per month. That's $24,000 of revenue (not profit) per year. So, over the past 3 years he may have had $74,000 of revenue (not profit), while the property has fallen in value by about $100,000.
According to John T. Reed, landlords who own their property free and clear typically have a free cash flow of 55% of revenues. So, if Yun has no mortgage, he is probably netting $13,200 per year. If he has a mortgage, his free cash flow will be lower.
So, over the past three years, Yun may have had up to $40,000 of free cash flow while the value of the house has declined by $100,000. That's an average loss of about $20,000 per year on the property he's experiencing right now. That loss will probably continue for a few more years, too.
Now, he does get to save money on taxes due to depreciation costs. But if he has a mortgage, which he probably does, he's probably spending more on interest than he gets back in tax savings. So, a $20,000 annual loss (+/- $5000) is probably a good rough approximation.
"while the value of the house has declined by $100,000. That's an average loss of about $20,000 per year on the property"
ReplyDeleteJamers, this may be a stupid question, and notwithstanding your other anlaysis of taxes and other expenditures that go with owning, but keeping it simple, isn't it only a potential "loss" because he didn't sell at peak - money he could have had, but didn't get?
Is it really an actual "loss" of money expended if the value never goes below what he paid for it?
James, how did you find that info?? How do you know he's renting the house for $2000/month??
ReplyDeleteAlso, if you could reply to anon 6:33AM's comment, that's be appreciated. As a non-economist I'm always curious as to how such loses are calculated.
Anonymous said...
ReplyDeleteIs it really an actual "loss" of money expended if the value never goes below what he paid for it?
I guess it depends on whether you believe in mark-to-market accounting. ;-)
Anonymous said...
ReplyDelete"James, how did you find that info?? How do you know he's renting the house for $2000/month??"
I know that $2000 is the asking rent. Whether the tenant(s) haggled to lower the rent, I don't know. Unfortunately, disclosing the source requires disclosing the address of Dr. Yun's house, which I feel would be an infringement on his personal privacy (and the privacy of his tenant).
anonymous said...
ReplyDeleteJamers, this may be a stupid question, and notwithstanding your other anlaysis of taxes and other expenditures that go with owning, but keeping it simple, isn't it only a potential "loss" because he didn't sell at peak - money he could have had, but didn't get?
As a more serious response to your question, I am not saying Dr. Yun lost money on the property since purchase. I am saying he is currently losing money on the property at a rate of roughly $20,000 per year, and has been doing so for the past three years.
The problem is that we have multiple definitions of gain and loss. Let's use the stock market as an analogy.
Let's say that five years ago, you bought $10,000 of stock in Acme, Inc. It is the only stock you own. As of yesterday it was worth $20,000, but it fell $500 today.
I believe the typical person would say "I made $9,500 by investing in Acme, Inc." That accurate statement reflects their gain since purchase.
However, many people would also say, "I lost $500 in the stock market today." (Or, if their stock had gone up by $500, they would say "I made $500 in the stock market today".) If it's valid to say "I made money in the stock market today" or "I lost money in the stock market today", then it's certainly valid to say that Lawrence Yun lost money on his house over the past three years. The statements reflect the change in the market value of someone's property between one point in time and another.
Lawrence Yun, NAR senior economist, said the decline is understandable."Mortgage problems were peaking back in August when many of the September closings were being negotiated, and that slowed sales notably in higher priced areas that rely more on jumbo loans," he said."The good news is that mortgage availability has markedly improved in recent weeks with interest rates on jumbo loans falling, and more people are applying for safer and conforming FHA mortgage products. Some of the cancelled transactions will move forward as buyers apply for other loans."
ReplyDelete----------------------------
joycelorenza
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