Interview with Young Potential DC Buyer

I interviewed a young 25 year old who currently rents in the Washington, DC metro area. He works in Information Technology.

I understand you currently rent. Have you considered buying?

I think about it every once in a while. But, I don't think I can afford to buy a house anywhere on one income without being married. A house ties you to one place, with the uncertainty of the housing market I don't know if its prudent to buy a house as a temporary place. The Baltimore market is undervalued. At the same time I am worried if I don't buy now in the Baltimore area, I will miss the train.


Have you considered a condo?

No prices for condos are outrageous and you still have to pay condo fees. [ If you buy ] you have to hope prices keep on appreciating. A condo is not something to live in the rest of your life. You are forced to sell when you need a bigger house. Condos are not a good investment in the DC area.


How often do you keep up with housing prices?

I hear people talk. I stopped looking for listings along time back because it was far out of my price range.

Do you feel pressure to buy from friends, family, and/or coworkers?

My grandmother, bless her soul, calls every week and asks me when I'll buy.


If prices were to decline significantly in the Washington, DC area would you buy? If so where?

Yes I would in a safe neighborhood along the Metro ( train system ).


Many homeowner have made a boatload of money during the housing boom as prices became unaffordable to young professionals. Are you a bitter renter?

As the rolling stones say "you can't always get what you want." There is nothing to be bitter about.

When do you think you will be buying a home?

Well looks like I'll be marrying an Occupational Therapist (OT). Based on that I'll have to wait till divorce then marry someone a little more like a doctor or lawyer. I don't understand where all this money comes from there are only so many lawyers. Who is buying a rowhouse for 4,000 a month in the ghetto.? The average professional couple takes home 3,000 per person per month ( after taxes ). They bring home 6K a month. Pay 4K a month in mortgage which only leaves 2,000 a month for everything else. It requires women to work for the rest of their lives. They can't afford to take a year or two off for children. Therefore if want the wife to stay home a little bit you cannot consider a home for 600K. If one loses a job it is very tight. That is why not even after marriage I would buy such a house. I am not buying in the city. I might buy in the far suburbs or in Baltimore. Hopefully, the Baltimore market will not go through the roof as it very well may

New Condo Next to Metro Station

On my way to work this morning I snapped the above image of a new condo development abutting the Takoma Metro Station.


In this condo development owners who bought are selling 2br 2.5 bath units for 459K. MLS #DC5468486 .

Will it sell at 459k?

Probably not. It is a convenient location. But 459K is huge amount to pay for a condo in an alright area.

John Murcell & the 50 or 60 Year Loan

The desperation of the Bubble Cheerleaders is growing. Some of them have drunken the Kool Aid, others bubble cheerleaders are professional liars ( David Lereah ) .

Many rich and powerful people have benefited tremendously from the housing bubble. Some of them want it to continue at unreasonable costs. As reported by Inman News, 01/04/05:

Just as folks are getting used to the idea of 40-year mortgages, securities issuers are upping the ante, talking about possible amortization schedules of 50 years, according to industry professionals.

"It's a good idea for consumers," said John Marcell, president of the California Association of Mortgage Brokers. "There's nothing wrong with a 50- or 60-year
mortgage."

Nothing wrong? Even if you are 25 years old and take out a 50 year loan you will finish paying off the loan at age 75. The other major problem is the monthly savings on 50 year or 60 year loan compared to a 40 year loan is negligible.

300,000 Mortgage Loan, 6.5% Interest, Fixed,

Monthly Payments
1756 = 40 year
1691 = 50 year
1658 = 60 year
(Source: Bankrate Mortgage Calculator)

So if one decides to takes out a 60 loan they would save less then $100 a month over a 40 year loan ( 6.5% fixed rate).

John Marcell is a bubble cheerleader and a professional liar. Clearly, there is something wrong with a 50 or 60 year loan. Challenge these 'experts.'

Major Metro Appreciation Graphs

Major Metros Appreciation Graphs

Thanks to the Housing Bubble Bust!!

Tulipmania vs. Housing Bubble

Tulipmania was much more bulbilicious then any housing bubble market in the US. Nevertheless, the bubble markets are in for significant price declines over the next few years.

Higher Credit Card Mnimum Payments in 2006

The new law requiring higher minimum credit card payments is now applicable. Here is an excerpt from Bankrate's Article:

If you're one of the 7 percent of Americans who make only the minimum payment on their credit card bills each month, things are about to get worse for you.

In the past, credit card companies required customers to pay an average of just 2 percent of their total credit card balance, which meant constant debt for many consumers. The 2 percent minimum payment only covered interest and other fees, so it could often take a lifetime to pay off the principal balance

Now, federal banking regulators are trying to save consumers from themselves by issuing guidelines to credit card companies and banks stating that monthly minimums should cover interest, any fees or extra charges and at least 1 percent of the principal amount.

This comes at a particularly bad time for Americans who are facing both higher interest rates and the new bankruptcy law that makes it harder for consumers to write off their unsecured debts.

The squezing is continuing. More pressure. Pressure pops bubbles.

Chicago Market Update & Forecast

Reporting Live from Chicago:

The Chicago market is quite fascinating. According to the OFHEO 3Q 2005 Report the 5 year price appreciation for homes in the Chicago area was 47% and the one year rate stood at 9%. Chicago's price appreciation rate is strong but not stratospheric like many metro areas in California or Florida. Like many other parts of the country job and wage growth over the past five years has been anemic (weak). The price appreciation rate is quite varied depending on the neighborhood and type of property.


Condos have sprouted like weeds in the metropolitan area. The above picture is of a new condo development in the Lakeview neighborhood.

In the past few months the Chicago residential market has declined in terms of sales. According to the Chicago Tribune:

And in Chicago, a North Side real estate agent confirmed the trend in his territory.

"Even adjusting for the weather, home sales have been slower than normal the last three months," said Mario Greco of Rubloff Residential Properties' Lincoln Park office.

"A lot of people have been fence-sitting. Some have been worried about the talk of a bubble, but it won't happen in Chicago," Greco said.

He noted that resale prices in North Side areas like Lincoln Park, Bucktown and Wrigleyville are rising at a lower rate than the national average of 13.2 percent in November.

In the Chicago area the median price of a single-family home rose 11.2 percent from November 2004, to $267,000, while median condo prices increased 7.8 percent, to $208,000, according to the Illinois Association of Realtors.

"But sales should bump up in the traditional spring market because of pent-up demand. After all, mortgage interest rates of 6 to 6.5 percent are not bad rates," Greco said.

Home sales dropped 0.9 percent statewide from November 2004. But despite the decline, sales were headed for a record for the fourth year in a row, according to the Illinois Realtors.

But while condo sales were up 7.4 percent in the Chicago area, sales of single-family homes fell 3.1 percent.

The slowdown in sales, however, may not apply to all areas around Chicago, particularly the southwest suburbs.

"The area that includes Plainfield, Joliet and Aurora is one of the 15 hottest markets in the nation. We're not seeing a slowing," said Judy Gardner, who owns a real estate firm in Joliet.

"Some prices have increased $30,000 to $50,000 in the last eight months. The average home sells in about 30 days, but others have gone in a day or two, even just after Christmas," Gardner said.

Based on the rate of business now, she predicts that 2006 "is going to be a banner year. Even if mortgage rates go higher, people will buy because of the creative financing that's available."

In Chicago, though, the picture is less rosy.

"In the resale market, people have inflated expectations about what their property is worth. They may have to bring prices down a bit. But there will be no big slippage in prices," he predicted.

So what will happen with prices in the next 3 years? Is Chicago a bubble market?

Overall I do not think the Chicago metro area is a bubble market. The typical house is unlikely to decline in price by 20% in real dollars from its peak price in the next 3 years. However, condos especially in the city itself are likely to fall by over 20% in real dollars within 3 years. Certain 'hot' neighborhoods that have experienced very strong price appreciation may fall more then 20% in real dollars. Chicago, is certainly not as bubblicious as San Diego, nevertheless declining real prices will be a reality for the Chicago metro area in the coming years.

Falling Sign, Falling Price

'New Price' = Reduced Price

Despite the sellers arrogance the house has not sold. The price has been reduced and is now priced at 699k. The house in located in Skokie, which is a nice inner suburb of Chicago. The house has 3br, 10 rooms total. MLS ID#: 05198734. Zipcode 60076

So will it sell at 699K?

No. Despite its price reduction it is significantly overpriced. They should reprice it to 625K and see if it will sell.

HouseHunt: 'Sharp Increase in Average Time Needed to Sell a Home'

On average, the length of time required from listing to contract has increased dramatically in the U.S. in the past six months, according to HouseHunt'’s latest national “Current Market Conditions” home sales activity survey.

Seventy-five percent of respondents said it'’s now taking more than 30 days. Of that figure, 30% said itÂ’s taking more than 60 days.

Three months ago, 52% of survey respondents said the average time on the market required for a home to sell was more than 30 days. Six months ago, only 35% said it was taking more than 30 days as buyer frenzy continued unabated.

HouseHunt, Inc. is a consumer-oriented Internet firm that provides free information to thousands of homeowners, home buyers and home sellers through its two primary Web sites, www.Househunt.com and www.moveUp.com.

Multiple offers down. Currently, only 50% of respondents report multiple offers. This is down from 70% in the second and third quarters of this year.

More confirmation of the declining residential real estate market. The bubble is popping in the bubble markets despite the reassuring rhetoric of housing cheerleaders who proclaim it is merely a 'slowdown'.

Happy New Year!

Wishing everyone a happy 2006. :-)